Saturday, August 8, 2009

Caretaker Holding POA Charged With Ripping Off ALS Victim; Failure To Make House Payments Leaves Home Facing Foreclosure, Say Cops

In New Orleans, Louisiana, The Times Picayune reports:

  • A Kenner woman has been booked with theft for allegedly stealing money from a woman with Lou Gehrig's Disease that she helped take care of, Kenner police said. Cherri A. Desporte, 43, lived in the victim's house [...] in Kenner between July 2007 and May 2009, according to a police report. The victim, a 49-year-old woman, has Amyotrophic Lateral Sclerosis, or ALS, also known as Lou Gehrig's Disease, the report said.

  • The victim entrusted Desporte with a power of attorney to pay her home mortgage and medical expenses with medical disability benefits that were directly deposited into an account she shared with Desporte, according to police. The disability benefits were more than enough to cover her expenses, said Lt. Wayne McInnis, Kenner Police Department spokesman.

  • The victim learned about the alleged theft when her mortgage was in foreclosure because of 23 failed payments, the police report said. An investigation revealed $9,093.63 in unpaid bills and a negative balance in the shared account, the report said.

For more, see Kenner woman with Lou Gehrig's disease robbed by caretaker, police say. FinancialAbuseOfElderlyAlpha

West Virginia Woman Accuses Ex-Fiance Of Swiping Her Interest In Real Property Through Forgery, Then Pledging It As Collateral For Mortgage Loan

In Ripley, West Virginia, The West Virginia Record reports:

  • The ex-fiancee of a Charleston businessman says she never really was his fiancee, and before he claims any interest on property they own in Jackson County, he needs to account for an alleged slight-of-hand he pulled on another piece of property they own in Kanawha County.


  • In addition to answering [her ex-boyfriend's Donald L. Tate's] complaint, [Annetta S.] Fields filed a counter-claim against Tate. In it, she alleges he fraudulently gained sole possession of a piece of real estate they jointly owned in Charleston. Her counter-claim alleges she and Tate bought property [...] in Charleston [...] on Aug. 14, 2007. Records show they paid $40,000 for it.


  • About a year after they bought the property, records show it was sold again on Sept. 22. However, this time Fields alleges it was done without her knowledge or consent. According to her counter-claim, Fields alleges she was "divested of her ownership in the property by a conveyance to [Tate] of all her right, title and interest…for less then One Hundred Dollars ($100) consideration." The new deed, which also is included as an exhibit, showing her transferring sole ownership to Tate, is "a forgery and a fraud," Fields alleges, since she "never authorized any individual to sign her name to the deed." Fields avers that "her name is misspelled" and she "only became aware of the deed recently after it was discovered by a third party." According to Fields, the new deed "was signed after the parties were no longer purportedly engaged."

  • Furthermore, Fields alleges she was informed that Tate used the [...] property as collateral for a loan to acquire [a car] dealership in Ripley. [...] In addition to never consenting to the conveyance, Fields maintains she "never consented to the pledge of this property as security of a loan of such purpose at any time." Tate's "fraudulent conduct," Fields alleges, has "unjustly and unlawfully deprived of her valuable property."

For the story, see Ex-fiancee files counter-claim against Tate. DeedContraTheft

Soon-To-Be Ex-Real Estate Agent Cops Plea To Forging Name Of Unwitting Victim On Loan Documents To Acquire & Finance Home Purchase

In San Bernardino, California, the Contra Costa Times reports:

  • Chino Hills real estate agent who forged more than $900,000 in loan documents to purchase a home pleaded guilty to two felonies Friday in San Bernardino Superior Court. As part of a plea bargain reached with prosecutors, Anita Andres Mendoza, 44, will be sentenced to 90 days in jail and be placed on probation for three years, Deputy District Attorney Vance Welch said. She will be required to pay back $180,000 lost by a mortgage company victimized in her scheme, Welch said.


  • The forgery was discovered when a lending institution contacted the woman whose signature Mendoza allegedly forged. Welch said that prosecutors offered Mendoza a relatively lenient plea bargain because she confessed completely when contacted by investigators. [...] Welch said that because of her convictions, Mendoza will likely lose her real estate license.

For the story, see Chino Hills woman pleads guilty to forging home loans.

Friday, August 7, 2009

SW Florida Man Accused Of Pocketing Cash At Real Estate Closings In Exchange For Seller-Held Promissory Notes, Then Stiffing Sellers With Hot Checks

In Collier County, Florida, the Naples Daily News reports:

  • After he was charged with felonies relating to alleged shady real estate practices twice in a week’s time, it appears that things may still get worse for Douglas Lee Carter. [...] Carter, 63, 1100 Dana Court, Marco Island, who was charged [...] on July 16, with three counts of obtaining goods and services with worthless checks totaling more than $10,000, was charged [July 22] with another felony, obtaining property by fraud in excess of $50,000.


  • Detectives with the Sheriff’s Office allege the following, according to the release: “Carter purchased six homes in Collier from the three victims. Using the down real estate market as leverage, detectives say Carter asked the victims to provide him cash as closing to finance other deals. In exchange for their money, he issued them second and third mortgages.” The release goes on to say that Carter told the victims that he needed the money to purchase other properties and promised them interest, adding that his only attempts to pay were in the form of worthless checks, totaling $680,000.


  • In 2007, he was involved in a number of real estate deals on Marco Island that led to a 31-person indictment.(1)

For the story, see More charges of real estate fraud added to Marco man's rap sheet.

(1) According to a July, 17, 2009 story (see Marco Island man jailed amid charges of bad deals, broken promises), Carter was allegedly the man behind the real estate deals on that prompted a 2007 indictment involving 31 people — homeowners, mortgage companies, appraisers, real estate agents, bankers and “straw buyers” — who would artificially inflate home prices and then pocket the difference. Many of the homes went into foreclosure. The indictment reportedly contended they’d identify homeowners willing to overstate their home’s values and set them up with “straw buyers” who would allow their identities and credit to be used in exchange for a fee. The case resulted in numerous plea deals and sentences ranging from a low of two months in federal prison up to seven years, in addition to probation after release. Restitution for those bogus loans totaled $6.6 million.

Reportedly, these charges aren't Carter's only scrapes with the law. The Naples Daily News reports that he is currently on probation out of Georgia — seven years for interstate forgery, according to authorities. Since 1984, Carter has been involved in a laundry list of land deals, including mortgage foreclosures and judgments in excess of $30 million. He has been sued on numerous occasions, and was jailed in 1992 on federal marijuana dealing charges. He was released in 1996.

Taxable Income From Debt Cancellation Not An Issue For Many "Underwater" Homeowners Where Lender Refuses To Cancel Unpaid Loan Balance On Short Sales

Many people owing more on their mortgages than what their homes are worth are often concerned about the income tax they may have to pay in a short sale if their mortgage lender agrees to accept less than what is owed in order to agree to such a sale.

However, before a homeowner starts wondering how much income tax may have to be paid on such a transaction, he/she must first find out if the lender will actually agree to cancel the unpaid balance in the first place (ie. no debt cancellation = no income tax). Regrettably, many short sellers are entering this type of deal simply assuming that the bank, in accepting less than what's owed, is letting them off the hook for the unpaid balance of the loan.

For the story of one unpleasant "eleventh hour" surprise for a short-seller (ie. it wasn't until after a prospective buyer was found that a real estate agent for a homeowner learned that his client was to be left on the hook for about $170K ), see San Francisco Business Times: Sellers owe balances after short sales.

See also:


For those "lucky" underwater/upside down short-sellers able to squeeze a "debt cancellation concession" from their lenders and be let off the hook for the unpaid balance, the following information from the Internal Revenue Service may come in handy in determining how much income tax may be owed to the Feds, and more importantly, whether a homeowner can qualify for one of the law's exceptions from taxation (ie. exception for taxpayers for acquisition or home improvement debt forgiven on their principal residence if the balance of their loan was $2 million or less, insolvency exception, & bankruptcy exception are the three most common) that will allow him/her to dodge the tax either entirely, or at least partially:

Schumer To Private-Equity Landlord That Abandoned 19 Bronx Buildings: "You Are The Lowest Of The Low!" - Also Slams Fannie For Facillitating Bad Deals

In The Bronx, New York, the New York Daily News reports:

  • The vultures are coming home to roost. Affordable housing advocates sounded the alarm during the real estate boom, as private equity firms bought up dozens of rent-controlled buildings across the Bronx. The advocates warned the investment firms would seek to maximize their returns by pushing existing tenants out and jacking up rents. After the boom went bust, an even worse effect of "predatory equity" came to light: Overleveraged landlords are simply abandoning their buildings altogether.

  • Last week, Sen. Chuck Schumer, joined by Rep. Jose Serrano and Borough President Ruben Diaz Jr., came to 1804 Weeks Ave. to support its tenants, who were abandoned by their landlord, Ocelot Capital Group.

  • "You are the lowest of the low. You are vultures preying on these tenants," Schumer said of Ocelot, which has abandoned 19 Bronx apartment buildings to disrepair and foreclosure. Schumer also slammed Fannie Mae, the government-backed mortgage broker, for facilitating Ocelot's original overleveraged loan and then planning to sell the foreclosed buildings in an online auction, which Schumer called an invitation to more speculators. [...] Schumer pointed out the original Ocelot mortgages did not even meet Fannie Mae's own criteria.


  • According to tenant advocates, Ocelot's 19 buildings have a total of 2,000 C violations - the most life-threatening kind - including broken locks, broken windows and ceiling holes.

For the story, see Tenants stuck in dilapidated buildings as landlords flee.

Click here to see a slideshow of conditions at one building.

In related stories, see:

Thursday, August 6, 2009

Court Stalls Eviction Of Elderly Chicago Woman Victimized In Sale Leaseback, Foreclosure Rescue Ripoff While She Fights To Recover Home

In Chicago, Illinois, WLS-TV Channel 7 reports:

  • A 75-year-old Chicago woman will be allowed to stay in her South Side home - at least for now. Lessie Town's bungalow is threatened by foreclosure. Towns and others say she is the innocent victim of mortgage rescue fraud. Lessie Towns will be able to stay - for now - in her South Side home of 40 years.

  • Four years ago, Ms Towns, who is 75, was facing foreclosure, and she signed what she thought was a refinancing agreement to keep her home. In reality, the papers she signed authorized the sale of her home.(1) [...] Towns continued to live in what she thought was her home even though it had been sold, not once, but twice. "Ms. Towns home was sold for a fraction of its value and the cost was jacked up and sold to another person and the person in the middle collected all that windfall. This was a classic mortgage rescue scheme," said Brent Adams, Illinois Department of Financial and Professional Regulations.

  • Facing possible eviction, Lessie Towns won a small victory in court on Tuesday. The foreclosure action against her will continue, but she'll be allowed to stay in her home while she attempts to prove she did not know she was selling her home when she signed her name four years ago. [...] Ms. Towns still faces what her attorney concedes is a serious challenge. For Ms. Towns bears the burden of proving to the court that she didn't know she was selling her home.(2)

  • No criminal charges have been filed in this case though the department of finance and professional regulation and the attorney general's office are investigating over a dozen similar cases involving the same lender.

For the story, see Woman allegedly swindled out of home allowed to stay.

For an earlier story on this case, see Chicago owner loses home in mortgage scam.

(1) Of the foreclosure rescue operator that ripped off her client, Sabrina Herrell, Towns' attorney, said "I think they understood that she doesn't understand certain terminology and they used that to their advantage to get what they wanted."

(2) Any attempt to successfully void both her unwitting title transfer to the straw buyer and any subsequent title transfers (and any mortgage liens created incident thereto) to subsequent purchasers and encumbrancers could turn on whether the subsequent purchasers and encumbrancers can be charged with inquiry notice of the alleged fraud and/or any other unrecorded rights (ie. equitable mortgage) the scammed homeowners can establish that they had at the time of the relevant conveyances.

Under Illinois law, the continued open and visible possession of the home by the scammed homeowners after being duped by the foreclosure rescue operator may be sufficient to charge those subsequently acquiring title and security interests in the home with notice of the fraud, and thereby disqualifying them from bona fide purchaser status. An Illinois appeals court ruling in Life Savings & Loan Association v. Bryant, 125 Ill. App. 3d 1012, 81 Ill. Dec. 577, 467 N.E.2d 277 (1st Dist. 1984) addresses this point:

  • Illinois courts have uniformly held that the actual occupation of land is equivalent to the recording of the instrument under which the occupant claims interest in the property. (Bullard v. Turner (1934), 357 Ill. 279, 192 N.E. 223; Beals v. Cryer (1981), 99 Ill. App. 3d 842, 426 N.E.2d 253). The open and visible possession of land by the equitable owner is sufficient to charge a mortgagee with notice of the rights of such owner, and the mortgagee will take subject to the rights of the person in possession. Williams v. Spitzer (1903), 203 Ill. 505, 68 N.E. 49.

Likewise, citing heavily to the Illinois state case law, a Federal bankruptcy court in In re Cutty's-Gurnee, Inc., 133 B.R. 934 (Bankr. N.D. Ill. 1991) made this observation on the effect of continued possession on subsequent purchasers and encumbrancers:

  • It is clear that where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection. Miller [v. Bullington], 381 Ill. [238] at 244, 44 N.E.2d [850] at 853; Burnex Oil Co. v. Floyd, 106 Ill. App. 2d 16, 23, 245 N.E.2d 539, 544 (1st Dist. 1969); In re Ehrlich, 59 Bankr. 646, 650 (Bankr. N.D. Ill. 1986).

Go here for more on the effect of continued possesion on bona fide purchaser/encumbrancer in Illinois.

For cases that support the proposition that possession of real estate by one other than the seller is enough to trigger this imposition of the duty to inquire as to possible unrecorded rights of the possessor, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

Foreclosure Rescue Bailout Schemers Are "Opportunistic Thieves" Says NJ FBI Agent As Charges Are Filed Against Equity Stripping, Straw Buyer Operation

From the Office of the Federal Bureau of Investigation: (Newark, New Jersey):

  • FBI Special Agent In Charge Weysan Dun announced [Monday] the arrest of Daniel Verdia, Don Apolito, Jaye Miller, and Chrystal Paling (all on Tuesday, July 21), as well as the surrender of Robert Gorman and Philip Blanch (on Friday, July 24)—all in connection with a mortgage fraud scam(1) operated out of an office in Hasbrouck Heights, New Jersey. All of the arrests occurred without incident. The six defendants are each charged with one count of wire fraud, in a joint investigation between the FBI and IRS titled “Operation Follow The Money.(2)


  • The following outline is based on allegations made in the criminal complaint. In the simplest terms, a victim home owner [...] was convinced by one of the defendants named above to either sell or refinance his or her home through Monarch Mortgage Services, LLC as part of a foreclosure bailout scheme. The defendants then recruited a straw buyer who was promised a sum of $5,000 for his or her participation. The defendants explained to the straw buyer that the original owner would repurchase the home after a short period of time when the owner had recovered from financial difficulties. The defendants also told the straw buyers that the mortgage payments for the newly purchased properties would be paid by Monarch. The defendants then falsified the financial information in the paperwork associated with the transaction.


  • Once the loans were approved, the mortgage lenders wired funds to Blanch’s attorney trust account. At Blanch’s direction, Palings, would then wire all or most of the proceeds to CIS as a fee or payment. In the end, three of the victim homeowners received no compensation whatsoever for the sale of their homes. Furthermore, one of those three victims suffering financial hardship was lead to believe he was refinancing his home when in reality, he sold it for a 100% loss. The other two victims received a fraction of the money they were legitimately owed. The defendants, however, all received financial compensation for each of the five transactions. None of the resulting mortgages from these five transactions were ever paid and all of them went into default. The total fraud in these five transactions is estimated at $1 million.

For the entire FBI press release, see Six Mortgage Industry Insiders Charged by FBI and IRS.

(1) According to the press release, the alleged scam was perpetrated in two phases. The first phase involved misrepresenting to the buyers and sellers the terms of the mortgage financing the purchase, the disbursements of the mortgage proceeds, and the source of the proceeds to pay off the mortgages, among other details. The second phase of the fraud involved falsifying information on the mortgage loan applications—namely the income and assets of the purchasers on the loans, the source of the down payments on new purchases, and the disbursements of cash related to the mortgage proceeds. The defendants allegedly accomplished their misdeeds through numerous interstate wire transfers.

(2)Those who are engaged in foreclosure bailout schemes are opportunistic thieves,” said FBI Special Agent In Charge Weysan Dun. “The defendants in this matter are charged with preying on the financially weak and desperate, our lending industry, and ultimately the taxpayers. To swindle people out of the roofs over their heads is just deplorable. But we will continue working with our partners in uncovering these schemes, bringing the fraudsters to justice, and educating the public.”

Lenders, Mortgage Servicers Continue To Force Borrowers To Waive Legal Rights As Part Of Loan Modification Process

The Washington Independent reports:

  • Even as the Obama administration presses the lending industry to get more mortgage loans modified, the practice of forcing borrowers to sign away their legal rights in order to get their loans reworked is a tactic that some servicers just won’t give up on. Waivers requiring borrowers to give up any legal claims related to their mortgages, even in cases where borrowers may be victims of predatory lending, are showing up sporadically in loan modification agreements under the Obama administration’s Making Home Affordable plan, consumer attorneys say. They were stunned to find the legal waivers still being used, despite more than a year of efforts – including calls from lawmakers – to get rid of them.

  • It was shocking to see that people are still being asked to waive their legal rights,” said Bruce Dorpalen, national director of housing counseling for ACORN Housing Corp. “I mean, this should be abolished. It’s incredible that it’s still in there.” [...] The Treasury Department’s published guidelines for the $75 billion taxpayer funded program specifically prohibit the waivers. Mortgage giants Fannie Mae and Freddie Mac removed the waivers from their standard loan modification agreements earlier this year. But Diane Thompson, an attorney with the National Consumer Law Center, said she has seen legal waivers resurface in loan modification agreements by Aurora Loan Services, Ocwen Financial Corp., and other firms. She also is getting complaints about waivers in Bank of America agreements. “The waivers continue to be an issue,” Thompson said.(1)

For more, see Loan Servicers Work the Fine Print in Obama Foreclosure Plan (A Year After Calls for Reform, Borrowers Still Forced to Waive Legal Rights for Loan Modifications).

(1) It may be time for the Obama administration to stop throwing money at the lenders and servicers for loan modification programs and redirect the cash towards establishing and supporting foreclosure defense programs for financially strapped homeowners the way Florida Attorney General Bill McCollum recently did. See Attorney General Launches Multi-Million Dollar Grant Program for Foreclosure Defense Assistance (The Florida Bar Foundation will help administer $4 million in grants to legal services applicants).

The thought of having to deal with "producing the notes," and otherwise establishing proper legal standing to initiate foreclosures, as well as addressing allegations of fraud and violations of the applicable consumer protection laws is sure to get the attention of the mortgage industry, in my view. After all, why else are the loan servicers so intent on getting homeowners to waive their legal rights?

Wednesday, August 5, 2009

California AG Continues Assault On Loan Mod Rackets; Exposes Outfit Said To Be A "Well-Appointed Boiler Room" Operation Holding Itself Out As Law Firm

In Los Angeles, California, Legal Newsline reports on H.E. Servicing Inc., a loan modification company that was sued last week jointly by the Federal Trade Commission and the Attorneys General for the states of California and Missouri . The outfit is accused of using aggressive telemarketing tactics to swindle homeowners out of thousands of dollars, and is briefly described below in the following excerpt from a report prepared by a court-appointed receiver:

  • A court appointed receiver said the following: "Even if most of the deceptive sales practices could be cured, this is not a lawful advance fee loan modification business. It is not operated and managed by a lawyer or a properly licensed DRE broker. It is a phone sales operation selling unlicensed loan modification services with more than 80 percent of its clients residing outside of California. I see this business as a high-pressure, cash-up-front telephone sales business targeting distressed homeowners. The Sales Department is essentially a well-appointed telephone boiler room with phone cubicles for 44 sales people- 'counselors'- and separate offices or stations for 3 on-site managers."

  • The company had about 60 employees who screened 500 calls per day, in a twelve hour shift. Commission for a fully paid sale was approximately $450 with an extra $25 when consumer paid by debit or wire transfer. Sales people told homeowners that the company successfully helped 10,000 homeowners, when in reality of the 2,960 loan modifications filed only 311 were completed.


  • Homeowners are said to have believed they were hiring a law firm but in reality they were hiring a money-making machine, the attorney general's office said. In the first 6 months of 2009 they had a net income of $4.5 million.

For the story, see Brown sues loan modification firm.

For more from the California AG on this company, see:

Frank Threatens To "Cramdown" Lenders, Mortgage Servicers For Foot-Dragging On Loan Modifications

The Associated Press reports:

  • A senior House Democrat threatened banks Wednesday that if they don't volunteer to save more homeowners from foreclosure, Congress will make them. In a sternly worded statement, Rep. Barney Frank said Congress will revive legislation that would let bankruptcy judges write down a person's monthly mortgage payment if the number of loan modifications remain low. Frank, chairman of the House Financial Services Committee, also said his committee won't consider legislation to help banks lend unless there is a "significant increase" in mortgage modifications. Frank's statement was aimed at adding momentum to a deal struck Tuesday between Treasury Secretary Timothy Geithner and more than two dozen mortgage companies. The two sides agreed to set the goal of adjusting 500,000 loans by Nov. 1.


  • "People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different," Frank said.

For more, see Frank threatens banks to stop foreclosures.

Contempt Charges, Loss Of Lien Status Among Proposed Penalties For Foreclosing Lenders Leaving Ohio Homes In Legal Limbo

In Cleveland, Ohio, an editorial in The Cleveland Plain Dealer comments on the practice known as the "bank walkaway," wherein a lender, after getting a foreclosure decree in court, decides against actually having a foreclosure sale and avoids taking title to the home, leaving it in legal limbo (and technically, still in the financially strapped homeowner's name):(1)

  • No one knows precisely how many properties "bank walkaway" lenders have left hanging, but worrisome signs suggest that a problem that has festered too long may be growing. Fortunately, the skullduggery has caught the attention of a[n] [Ohio] state legislator and a local judge.

  • Rep. Dennis Murray, a Sandusky Democrat, is working on legislation that would require banks to take foreclosed properties to sheriff's sale quickly or lose their mortgage liens. Closer to home, Cuyahoga County Common Pleas Judge Nancy Margaret Russo is requiring that banks granted foreclosure decrees in her courtroom file the paperwork for sheriff's sale in about 30 days or face a contempt charge.

For the editorial, see Shorten the leash that ties lenders to foreclosed properties.

(1) "Bank walkaways" typically occur when the fixed-up value of a foreclosed (usually vacant and abandoned) property is less than what it would cost to fix up; or, in the case of a home that has to be demolished, the cost of demolition exceeds the current value of the property.

Tuesday, August 4, 2009

Florida AG To Make $4M Available To In-State Non-Profit Legal Services Firms For New Foreclosure Defense Assistance Program

From the Office of the Florida Attorney General:

  • Attorney General Bill McCollum and The Florida Bar Foundation [Tuesday] announced a new foreclosure defense assistance program, funded by money obtained by the Attorney General through a settlement with Countrywide Financial. A total of $4 million will be available over two years to fund additional lawyer and paralegal positions devoted to providing free assistance to homeowners facing foreclosures who cannot afford legal defense. [...] The funds are being distributed through The Florida Bar Foundation in the form of annual grants awarded to non-profit organizations that have their applications approved. The grants will vary in size depending on the number of foreclosures experienced in a particular area. A total of $2 million is available for distribution this year, and another $2 million will be available next year.

For more, see Attorney General Launches Multi-Million Dollar Grant Program for Foreclosure Defense Assistance (The Florida Bar Foundation will help administer $4 million in grants to legal services applicants).

Change In Arizona Foreclosure "Anti-Deficiency" Law Has Homeowner Advocates Howling

In Phoenix, Arizona, The Arizona Republic reports:

  • A new law passed by the Arizona Legislature that makes homeowners liable for tens of thousands of dollars on homes lost to foreclosure is now the focus of an intense repeal battle. An amendment to the state's foreclosure laws, passed in the recent legislative session, was designed to protect small community banks from people buying speculative new homes they can't sell for a profit.


  • Real-estate lobbyists and attorneys for homeowners are working to have the law repealed before the Legislature adjourns after completing its work on the budget. Banks are pushing hard to keep the amendment in place. If the new rules stand, they go into effect Sept. 30.


  • The amendment was made to the state's anti-deficiency law, passed in the mid-1980s, which kept lenders from recovering anything more than the home on a typical residential foreclosure.(1) About two dozen states have anti-deficiency laws. Some small speculators have been using the anti-deficiency law to protect their other assets. Under the new law, a homeowner must live in a house for six consecutive months to establish residency and to be covered by the anti-deficiency law. Homeowners who lose a home to foreclosure, and who fail to meet the six-month residency requirement, will be liable for the difference between the foreclosure sale price and the original loan. For example, if a lender forecloses on a home with a $400,000 mortgage balance and can only resell the home for $200,000, then the borrower still will owe the lender $200,000.

For the story, see New law triggers fear for housing (It holds some owners liable for debt, even in foreclosure).

In a related story, see Realtors target foreclosure law.

(1) Arizona law, A.R.S. § 33-729(A), generally prohibits a lender from obtaining a deficiency judgment against an Arizona homeowner if the mortgage secured by the home was obtained to purchase the home (as opposed to a mortgage refinancing).

Questionable Short Sale Services Alleged By California AG In Recent Suit Against Group Accused Of Squeezing Homeowners For Upfront Fees For Loan Mods

A recent lawsuit brought by the Office of the California Attorney General against a loan modification group lays out how the operation (herein referred to as "Defendants") allegedly screws financially distressed homeowners by entering into agreements with them to modify their loans with their lender in exchange for upfront fees, and then turns around and allegedly sells its "short sale services" to the homeowners' lenders to market the homes, thereby straddling both sides of the deal (see Lawsuit, paragraphs 58-59):

  • Consumers retain Defendants to be their negotiator and advisor during the loan modification process. Defendants then use information provided by their customers to market their real estate services to lenders. Defendants advertised to their own customers’ lenders that, on average, it would take eight months before lenders could sell their clients’ homes. This pitch is not meant to advantage the customer; rather, Defendants mean to highlight their "retail auction" services to lenders, whereby Defendants act as the lenders’ agent in a short sale of their customers’ homes. Defendants assure the lenders that Defendants could short sell their customers’ homes in 45 days or less. By exploiting their trusted position with their customers and their inside information about their customers’ financial circumstances, Defendants attempt to use this information for the benefit of themselves and the lenders, and to the extreme detriment of their customers. [...] By offering to be the lenders’ agent to short sale their customers’ homes while purporting to act as their customers’ agent in loan modification, Defendants violated their fiduciary duties to their customers.(1)

For the entire lawsuit, see People v. Home Relief Services LLC, et al.(2)

(1) The California AG's lawsuit does not contain any allegations of the practice, believed to be questionable by some observers, of "short sale flipping," in which a real estate operator (and his/her confederates) conceals the full price of a sale to the ultimate homebuyer/end user from the lender so that he/she can pocket the difference, typically accomplished by using option contracts and back-to-back closings.

(2) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler. AG Brown seeks $10 million in civil penalties, full restitution for victims, and a permanent injunction).

Monday, August 3, 2009

Florida AG Suit Targeting Loan Modification Group Includes Allegations Of Unauthorized Practice Of Law, "Running & Capping"

In a recent lawsuit (among others) brought by the Office of the Florida Attorney General against a South Florida group peddling loan modification services, allegations of unauthorized practice of law and "running and capping," (ie. the practice of non-attorneys hustling up business for an attorney) have been made in the complaint against the operators.

In State of Florida v. FHA All Inc., et al.,(1) the Florida Attorney General makes the following charges, which are alleged to be in violation of the Florida Deceptive and Unfair Trade Practices Act:

  • Defendants engaged or otherwise involved and/or compensated Florida licensed attorneys, to provide legal services to the homeowner clients of the Defendants,

  • Defendants' business in offering legal services to the public directly, or indirectly through Florida licensed attorneys which Defendants engage or otherwise involve and/or
    compensate, constitutes the unauthorized practice of law in accordance with the principles of the Florida Supreme Court pursuant to The Florida Bar v. Consolidated Business and Legal Forms, Inc., 386 So.2d 797 (1980),

  • Defendants solicited, advertised or otherwise offered legal services to Florida homeowners for mortgage foreclosure defense and/or foreclosure-related rescue services,

  • Defendants' business includes, but is not limited to, procuring agreements and payments from homeowners for attorneys to render legal services to homeowners for mortgage foreclosure defense and/or foreclosure-related rescue services,

See Florida AG Lawsuit, paragraphs 37 through 44.

(1) Other defendants: Jason Vitulano, Safety Financial Services, Inc., Housing Assistance Law Center, and Housing Assistance Now. UnauthPractOfLawTheta

35 Law Firms Named In Suit Seeking To Void 100,000+ Money Judgments; 20+ Add'l Firms Currently In NY AG's Crosshairs In Ongoing "Sewer Service" Probe

From the Office of the New York State Attorney General:

  • Attorney General Andrew M. Cuomo [Wednesday] announced his office has sued 35 law firms and two debt collectors(1) in New York State in order to throw out an estimated 100,000 default judgments improperly obtained against New York consumers. This is the latest action in Cuomo’s ongoing investigation into unlawful debt collection practices. According to the lawsuit [...], the companies relied on a Long Island company, American Legal Process (ALP), to notify New York consumers that they faced debt-related lawsuits. ALP, however, failed to properly serve consumers across the state with legal papers, causing thousands to unknowingly default and have costly judgments entered against them without the chance to respond or defend themselves.(2) In April of this year, Cuomo’s Office announced criminal and civil cases against ALP and its owner, William Singler, for this fraudulent business scheme.(3)(4)


  • Attorney General Cuomo also announced that as part of his ongoing investigation into fraudulent process servers and debt collectors, his Office is determining which other law firms statewide relied on ALP to serve legal process on New Yorkers facing lawsuits. More than 20 such firms have been identified to date and his Office is notifying those firms of its intent to seek to vacate any default judgments those firms have obtained based on ALP affidavits of service.

For the NY AG's press release, see Attorney General Cuomo Sues To Throw Out Over 100,000 Faulty Judgments Entered Against New York Consumers In Next Stage Of Debt Collection Investigation (37 Law Firms and Collectors Named in Lawsuit for Failing to Properly Notify New Yorkers Being Sued for Owing Debt; Cuomo Seeks to Vacate Over 100,000 Faulty Judgments Statewide and Provide Restitution to Victims).

For more from the NY AG on this lawsuit, see:

Go here for other posts on "sewer service."

Thanks to Bill Collins of Crossroads Abstract, Rochester, NY for the heads-up on this story.

(1) The law firms and debt collectors named in the lawsuit are: Forster & Garbus; Sharinn and Lipshie; Kirschenbaum & Phillips, P.C.; Solomon and Solomon, P.C; Goldman & Warshaw, P.C.; Eltman Eltman and Cooper; Eric M. Berman, P.C.; Stephen Einstein & Associates, P.C.; Fabiano and Associates; Jones Jones Larkin O’Connell; Panteris & Panteris, LLP; Zwicker and Associates; Relin, Goldstein & Crane; Woods Oviatt Gilman; Leschack & Grodesnky; Hayt Hayt & Landau; Pressler & Pressler; Jaffe & Asher; Mullen & Iannarone; Arnold A. Arpino & Associates; Houslanger & Associates; Mann Bracken, LLC; Smith Carroad Levy & Finkel; McNamee, Lochner Titus & Williams; Thomas Law Office; Fleck, Fleck & Fleck; Eric Ostrager; Cohen & Slamowitz, LLP; Cullen and Dykman LLP; Winston & Winston, P.C.; Cooper Erving & Savage, LLP; Robert P. Rothman, P.C; Gerald D. DeSantis; Greater Niagara Holdings, LLC; Rodney A. Giove; Advanced Litigation Services, LLC; and Jason L. Cafarella.

(2) According to his press release, the NY AG alleges that, ALP, as a legal process server, was hired by high-volume debt collection law firms in New York to serve legal papers, usually a summons and complaint, notifying individuals that they are being sued and must answer the complaint. ALP, however, allegedly engaged in “sewer service,” where process servers take advantage of individuals facing lawsuits by failing to properly alert them and denying them the chance to respond. As a result, tens of thousands of judgments were obtained against unsuspecting New Yorkers, many of whom first learned they were being sued when they found their bank accounts frozen or their wages garnished. ALP covered up the fraud by falsifying sworn affidavits of service in courts across New York. The law firms and debt collectors sued then used these false affidavits to obtain default judgments against NY consumers. The Attorney General’s Office estimates that the average default judgment totaled approximately $5, 474 (based on this average amount, these default judgments apparently were not obtained in connection with foreclosure actions; one can only wonder how rampant sewer service is in foreclosures).

(3) See NY AG Files Criminal Charges & Parallel Civil Suit Against Process Serving Firm & Its CEO Alleging Massive "Nail & Mail Sewer Service" Operation.

(4) Carolyn Coffey, an attorney with MFY Legal Services, a nonprofit provider of free legal services in New York, said: “Over and over again we see hundreds of the most vulnerable New Yorkers -- the elderly, disabled, and working poor -- blindsided by default judgments in lawsuits that they never even knew about until after the cases were over. Our justice system is built on the basic premise that everyone has a right to be heard in court before a judgment can be entered against them, and the debt collection law firms that engage in sewer service deny New Yorkers this fundamental right. MFY commends Attorney General Cuomo for taking these steps to remedy the devastating effects of sewer service, and for sending the message to debt collection law firms that they must comply with the most basic requirements of due process.”

MFY’s 2008 report, Justice Disserved, documented many victims of improper service who had judgments unknowingly entered against them, often to devastating effect. SewerServiceAlpha

Unauthorized Practice Of Law, "Running & Capping" & "Lawyer Renting" Among The Issues Raised In Recent Loan Mod Lawsuit By California AG

In a recent lawsuit brought by the Office of the California Attorney General against a group peddling loan modification services, allegations of unauthorized practice of law, "running and capping," (ie. the practice of non-attorneys hustling up business for an attorney) and "lawyer renting" (ie. a loan modification firm's use of an attorney or law firm as a "front" for its activities where the attorney does little or no work, and has little or no contact with the financially distressed client desiring a loan modification, typically used to avoid prohibitions against clipping homeowners for upfront fees) have found their way into the complaint filed in this matter.

In People v. Home Relief Services LLC, et al,(1) the California Attorney General makes the following general allegations:

  • As many other foreclosure rescue companies have done, in an attempt to avoid statutory prohibitions on collecting fees before any services have been rendered, Defendants have included one or more attorneys in their scheme. Noting the alarming trend in the number of complaints issued against attorneys involved with foreclosure rescue companies, the State Bar has issued an ETHICS ALERT cautioning attorneys from lending their names to loan modification companies when non-lawyers purportedly negotiate with the lenders on the customers’ behalf but actually provide little to no services; meanwhile, the non-lawyers also collect fees from the consumers and provide distressed homeowners with reckless and harmful advice on how to deal with their lenders (see Cal. AG lawsuit, paragraph 2),


  • Defendants also falsely tell consumers that attorneys affiliated with Defendants review customers’ financial paperwork and also negotiate with the lenders on their behalf. Indeed, as a result of Defendants’ solicitation, some of Defendants’ customers are pressed by Defendants’ representatives to sign or otherwise unwittingly sign contracts with Defendants Diener and Diener Law Firm, believe the contracts are with Defendant HRS or another entity. These contracts obligate consumers to pay Defendants Diener and Diener Law Firm a fee and authorize Defendants Diener and Diener Law Firm to hire the other Defendants, even though the consumer has never spoken with nor ever heard of Defendants Diener and Diener Law Firm. Customers are not given any opportunity to speak with or have any contact with any attorneys affiliated with Defendants about their loans, and neither Defendants Diener and Diener Law Firm nor any other attorneys affiliated with Defendants review customers’ financial documents or negotiate with lenders on their behalf. Moreover, Defendants’ customers are informed by their lenders that the lenders have not been contacted by Defendants Diener and Diener Law Firm, or any of their lawyers, on the customers’ behalf (see Cal. AG lawsuit, paragraph 41).

In connection with the foregoing general allegations, the following violations of law against the non-attorney defendants have been alleged (see Cal. AG lawsuit, paragraph 65(j) and (k)):

  • Violating Business and Professions Code sections 6151 and 6152, by engaging in "running and capping," the practice of non-attorneys obtaining business for an attorney,
  • Violating Business and Professions Code section 6155, by some Defendants in directly or indirectly referring potential clients to Defendants attorney Christopher Diener and Diener Law Firm without seeking registration as a lawyer referral service by the State Bar, and by Defendants Diener and Diener Law Firm in accepting referrals of such potential clients,

In connection with the foregoing general allegations, the attorney defendants have been alleged to have violated Business and Professions Code section 17200 (relating to prohibitions against unlawful, unfair or fraudulent business acts or practices) by: (a) Violating the fiduciary duty and duties of good faith and fair dealing owed to their clients/customers by failing to review financial documents or negotiate with lenders on their behalf; and (b) Violating California Rules of Professional Conduct (or, in the alternative, try here):

  • rule 1-320(A) by directly or indirectly sharing legal fees with a non-lawyer;
  • rule 1-320(B) by compensating persons or entities for the purpose of securing employment or as a reward for having made a recommendation resulting in the employment of Defendants Diener and Diener Law Firm by a client;
  • rule 1-300(A) by aiding persons or entities in the unauthorized practice of law;
  • rule 3-110(A) by intentionally, recklessly, or repeatedly failing to perform legal services with competence; and
  • rule 4-200(A) by entering into an agreement for, charge, or collect an illegal or unconscionable fee.

See Cal. AG lawsuit, paragraph 73(a) through(f).

(1) Other defendants: The Diener Law Firm, Golden State Funding, Inc., Payment Relief Services, Inc., Christopher L. Diener, Kathleen Marrero-Davis,Terence Green Sr., Stefano Marrero, Maya Burrell Marrero, Ronald C. Specter, Kenneth Buhler, and Does 1-100). UnauthPractOfLawTheta

Washington AG Uses Courtesy Letter To Inform 138 Loan Mod Firms They're On The Radar Screen; Urges Compliance With State Law To Stay Out Of Hot Water

Washington Attorney General Rob McKenna recently announced that his office has joined the Federal Trade Commission and other states in a nationwide crackdown on foreclosure rescuers and loan modification rackets that charge hefty upfront fees and often provide no help. He further announced that his office has filed five new cases against these firms,(1) bringing the number of foreclosure-assistance actions filed by the Attorney General’s Office to nine since 2007, and has sent civil investigative demands, which are similar to subpoenas, to four additional businesses that provide mortgage-related services.

So as not to leave any other firms in the industry with the false impression that they have dodged the AG's "mortgage-related scam radar screen," AG McKenna has also announced that his office is sending a "gentle reminder" to 138 businesses that market foreclosure assistance, loan modification services or other mortgage-related services, listing various state laws they are expected to comply with, as well as listing many of the unfair, deceptive and otherwise illegal trade practices they better refrain from if they're planning on staying out of hot water.

Go here for the Washington AG's courtesy letter.

See State, federal sweep slams loan-mod scams (Firms operating in Washington state in government crosshairs for taking advantage of homeowners facing foreclosure) for the Wasington AG's press release announcing its participation in the "Operation Loan Lies" nationwide crackdown on foreclosure rescuers and loan modification businesses who screw financially desperate homeowners out of their money for bogus services.

(1) The five operations targeted by AG McKenna are:

Sunday, August 2, 2009

Advocacy Group Files Federal Suit Seeking To Halt Home Foreclosures In Minnesota; Says New Law Lacks Proper Notice & Appeal Provisions

In Minneapolis, Minnesota, The Associated Press reports:

  • A federal lawsuit seeks to block all home foreclosures in Minnesota. The lawsuit was filed in federal court in Minneapolis on Tuesday. It says a new federal program that's meant to help struggling homeowners refinance their mortgages fails to give them proper notice of why they've been rejected, or the right to appeal. [...] Mark Ireland, an attorney with the Foreclosure Law Relief Project, said the government has failed to establish the procedures needed to ensure the fair and uniform administration of the program.

For more, see Lawsuit Seeks to Block Home Foreclosures in Minn.

For more on this case from The Foreclosure Relief Project, a program of the Housing Preservation Project in St. Paul Minnesota:

Georgia Woman With 30-Year "Lease Purchase" Agreement Seeks To Invoke New Federal Law Protecting Homeowners From Foreclosure Eviction

In Dalton, Georgia, the Times Free Press reports:

  • When April Arrieta signed a 30-year lease-purchase agreement for a house in November 2008, she thought her family was finally home. "I told my kids we won't ever have to move again," she said. But at the beginning of June, the mother of five learned that First Georgia Banking Co. had foreclosed on her 4.5-acre property, owned by Paniagua Construction. In just a few days, the bank sent letters telling Mrs. Arrieta and her neighbor, Norma Morales, who had a similar lease-purchase arrangement with Paniagua, that they had to move soon.

  • Cynthia Gibson, managing attorney for Georgia Legal Services' Dalton office, said both families may be protected by a new federal law aimed at protecting renters during foreclosure.(1) She said the women should be able to stay in their homes until their leases expire. Mrs. Arrieta has a 30-year lease and Mrs. Morales' is for one year.

  • The federal law trumps Georgia law, which holds that a foreclosure ends a lease and tenants can be told to leave immediately, Ms. Gibson said. Bill Bell Jr., attorney for First Georgia Banking Co., said he doesn't think the U.S. Constitution gives federal law the power to govern contracts.


  • Ms. Gibson said she'd defend the women based on the new law. [...] There are probably more people in the same boat as Mrs. Arrieta and Mrs. Morales, Ms. Gibson said, but most renters don't yet know about the new law. "To tenants out there, if you get this letter, don't just get out," she said. "You have rights. Contact local legal aid or an attorney."

For the story, see Dalton cases test law protecting renters against foreclosure.

(1) The new Federal law, which applies to foreclosure eviction situations throughout the United States, is known as the Protecting Tenants At Foreclosure Act of 2009, which is found at Title VII of the Helping Families Save Their Homes Act of 2009. According to the new law:

  • It is effective on foreclosures after May 20, 2009,
  • It applies to bona fide leases entered into before notice of foreclosure,
  • Tenants can occupy premises until the end of the lease, unless the purchaser will use the property as a primary residence, in which case the lease can be terminated with 90-day notice,
  • Those without leases must be given a 90-day notice,
  • The law expires on Dec. 31, 2012.

Loan Modification Firms, Foreclosure Rescue Operators Show Little Interest In Complying With Licensing Requirements Under New Nevada Law

In Las Vegas, Nevada, the Las Vegas Review Journal reports:

  • Mortgage modification and foreclosure consultants are showing little interest in complying with a new Nevada law that requires them to obtain licenses. The law took effect on July 1, and Gov. Jim Gibbons issued emergency regulations for licensing on July 8. The Mortgage Lending Division gave consultants in the field until Aug. 9 to submit completed applications. The division expects to accept the applications on a temporary basis while it prepares permanent regulations.

  • So far, only four mortgage or foreclosure consulting services have applied, and all four applications were returned because they were incomplete, the division reported Wednesday. The attorney general's office can take civil or criminal action against modification and foreclosure consultants who operate without a license, spokeswoman Edie Cartwright said.

For the story, see New license law, little action (Just four mortgage modification and foreclosure services seek permit).