Saturday, February 6, 2010

Cracked Slab, Leaky Air Duct Create Havoc, Health Problems For Family In New Condo; Floor Damage, Mold Problems Lead To $184K Award Against Builder

In Clinton, Massachusetts, the Worcester Telegram & Gazette reports:

  • The crack running through the slab foundation of a Woodlands condominium owned by Michael T. and Nancy J. Vanasse stretches from the bedroom of their two young sons through two bathrooms — where it results in cracked floor tiles — and probably continues under a hardwood floor beyond that. They aren’t sure, and the couple are done with ripping up the Ledgewood Way unit they spent $375,000 on in 2006.

  • They already have been told they need to spend $90,000 or so to replace the duct and heating system, thought to be responsible for the excessive water vapor that forms in the condo, resulting in home damage and respiratory problems to Mr. Vanasse and the boys, ages 3 and 23 months.

  • In April, the Vanasses were awarded $184,056 in a Worcester Superior Court civil case against Albro Clinton Inc. and Tall Pines Realty Corp., both owned by Woodlands developer Alfred C. Bafaro of Clinton. But they have yet to see a nickel from the award, which was determined by two arbitrators from the court. “The claimants’ condominium has elevated humidity, abnormal condensation, and outbreaks of mold,” the April 20 decision states. “There were clear deviations from the building code and plans regarding the construction of the concrete slab and grading.”(1)

For more, see Woodlands condo owner still owed damages from suit.

(1) Reportedly, the arbitrators said their decision was based on test results from engineers and a mycologist that found that the leaking duct introduces excessive humidity into the condo, and it should be sealed, abandoned, or re-routed. The ducts, visible through a vent in the floor of the children’s bedroom, are built right into the concrete slab under the unit, and it would be an enormous job to rip them out. The arbitrators also determined that Albro breached its warranty, although it allowed that some attempts were made to correct the problem, and failed to follow through on its promise to install a dehumidifying system, the story states. The couple were told that one solution would be to keep windows open at all times, something they found ridiculous — especially in the winter with an infant and a toddler at home.

The dispute is reportedly the latest in ongoing problems at the 493-unit partially developed complex. Last month, a local building inspector issued a stop work order at Woodlands until questions about ownership and possible zoning violations are resolved, according to the story. Meanwhile, officials from various boards plan to meet with residents, Mr. Bafaro and representatives of Clinton Savings Bank, which took back a large chunk of undeveloped Woodlands property at a foreclosure auction in July.

Mold Infestation Leaves Vacant Condo Units In Foreclosure Uninhabitable; Create Health Concerns For Residents In Surrounding Apartments

In Land O' Lakes, Florida, WTVT-TV Channel 13 reports:

  • When two condo units at Glendale Villas in Land O' Lakes went into foreclosure, neighbors were understandably concerned about their own property values. That was last spring. Now, people who live close to units 3 and 4C say property values are the least of their concerns. "This is people's health. These are people's lives, how do you put a price on that," said Andrew Holsinger. The problem is that both units are covered, floor to ceiling, in mold.

  • "These particular units in this association are the worst I've ever seen," said Kathy Bramhall, who manages the complex for a company called Condominium Associates. "The units are uninhabitable and would cause respiratory problems for anyone living in a surrounding unit."

  • Not long after the units went into foreclosure, there was a sewage leak. That in turn caused the mold to start growing out of control. After numerous complaints, the Pasco County Health Department sent an inspector, and the county ordered that the sewage be cleaned up. [...] Code enforcement officers are legally prohibited from entering private property, and as a result, they are powerless to do anything to force the former property owner or the bank that will soon own the units to clean up the mold.

For the story, see With foreclosure, concern over mold.

Newlyweds Say Mold, Bacteria Drove Them From Recently-Purchased New Home; Pending Foreclosure Could Jeopardize Hubby's Job

In Gloucester County, New Jersey, The Phialdelphia Inquirer reports:

  • After a honeymoon in Mexico, Danielle and David Beety returned to their dream home, a $407,000 yellow stucco on a cul-de-sac in Gloucester County. Their future seemed golden. "We were on cloud nine," said Danielle Beety, a first-grade teacher who also coached high school field hockey. "Everything was going completely great," added David Beety, a mortgage loan originator. That lasted two weeks.

  • Suddenly, Danielle Beety was stricken with severe throat pain and developed flulike symptoms. Her baffled doctors ordered myriad tests. Three times they admitted her to Thomas Jefferson University Hospital in Philadelphia. She required two operations to remove a 5-centimeter abscess inside her neck. "It was like living a live episode of House," David Beety said, referring to the Fox TV show in which the eccentric Dr. House diagnoses mystery illnesses. Each time Danielle Beety returned to their home [...], her fever returned. Her neck would stiffen with such pain she would cry out when she moved.

  • Their house emerged as a suspect when they received an urgent phone call from an environmental engineer who did air and wipe testing in their leaky basement. Michael Stocknoff, owner of A&M Engineering Services in Cherry Hill, reported that he had found elevated levels of mold and gram-negative bacteria - a resistant group of superbugs that can cause respiratory and other ailments. He said they should grab their dog and move out immediately. Doctors seconded the advice.

  • That was nearly a year ago. The couple moved in with Danielle Beety's parents, leaving all their belongings behind. Her health quickly improved, but now the couple struggle to pay mounting bills and to replace their possessions.(1)

For the rest of the story, see Newlyweds chased from their home by mold, bacteria.

(1) Reportedly, the Beetys received notice last week from PHH Mortgage/Charles Schwab that foreclosure on their vacant house would begin next month. David Beety said that could jeopardize his license and job, under new regulations on lenders, plunging them into deeper debt.

Friday, February 5, 2010

New Jersey Sale Leaseback Of Home In Foreclosure Recharacterized As An Equitable Mortgage

In a recent court ruling in favor of a homeowner/couple who were awarded at least $690,000 after being screwed over by a foreclosure rescue operator in a sale leaseback, equity stripping scam, a New Jersey bankruptcy court found that the transaction violated Federal and state consumer protection statutes (among others) regulating the origination of home loans.(1) In this regard, the court made the following observations in applying the law in this case:

  • In order for TILA, HOEPA or HOSA to apply, the Plaintiffs must first establish that the sale and lease-back transaction constitutes consumer credit. They attempt to do so by categorizing the transaction as an equitable mortgage. New Jersey courts of equity have long recognized the doctrine of equitable mortgage:

  • The whole doctrine of equitable liens or mortgages is founded upon that cardinal maxim of equity which regards as done that which has been agreed to be, and ought to have been, done. To dedicate property, or to agree to do so, to a particular purpose or debt, is regarded in equity as creating an equitable lien thereon in favor of him for whom such dedication is made. This wholesome equitable principle is one of wide, if not universal, recognition and application. The form which an agreement shall take in order to create an equitable lien or mortgage is quite immaterial, for equity looks at the final intent and purpose rather than at the form. If an intent to give, charge, or pledge property, real or personal, as security for an obligation, appears, and the property or thing intended to be given, charged, or pledged is sufficiently described or identified, then the equitable lien or mortgage will follow as of course. Rutherford Nat. Bank v. H.R. Bogle & Co., 169 A. 180, 182 (N.J. Ch. 1933) (citations omitted); see also Humble Oil & Refining Co. v. Doerr, 303 A.2d 898, 909 (N.J. Super. Ct. Ch. Div. 1973) ("It is clear that equity looks to substance rather than form, and that a guarantor or surety who takes property or an interest therein as security for his guaranty is a mortgagee thereof in equity."); James Talcott, Inc. v. Roto Am. Corp., 302 A.2d 147, 157 (N.J. Super. Ct. Ch. Div. 1973) ("If a transaction resolves itself into a security, whatever may be its form and whatever name the parties choose to give it, it is, in equity, a mortgage.").

  • Both parties cite to Brown v. Grant Holding LLC, 394 F.Supp. 2d 1090 (D. Minn. 2005). In Brown, the court applied a six-factor balancing test to determine whether a transaction similar to the Cleveland/O'Brien transaction was an equitable mortgage or a sale and leaseback agreement in light of a state law presumption that a deed is a conveyance. 394 F.Supp. 2d at 1097-99. Similar to the law in New Jersey, Minnesota law is that, "[t]o create an equitable mortgage, all circumstances must indicate that both parties intended the transaction to be a loan advanced on security of realty." Id. at 1097. In order to determine intent, the courts looked at: (1) the transaction documents and whether they used terms such as "debt," "security," or "mortgage;" (2) the value of the property versus the loan amount; (3) the "nature of the solicitation that gave rise to the transaction in question;" (4) whether the owner attempted to sell the property on the open market; (5) whether the sale price was negotiated by the parties; and (6) whether the foreclosee continued occupancy of the home after the transaction. Id. at 1097-99. While the court in Brown determined, after weighing these factors, that the transaction in question was not an equitable mortgage, this court finds that the intent of the parties in the present case was to effectuate a loan, secured by the O'Briens' home.

  • Similar facts existed in Essex Property Services, Inc. v. Wood, 587 A.2d 1337 (N.J. Super. Ct. Law Div. 1991), where the court deemed it "inescapable that originally the parties contemplated that their transaction was a method of temporary refinancing and that both parties contemplated that defendants would `re-purchase' the property" and found that the "relationship of landlord and tenant was incidental to that mutual and dominant contemplation." 587 A.2d at 1339. In Essex Property, the home-owners were facing foreclosure when approached by the rescuer who offered to buy the property and lease it back to them with an option to buy it back in one year. Id. at 1338. The court recognized that this determination is fact sensitive, but relied primarily on the "common intention expressed by the parties" to determine that the transaction represented an equitable mortgage and not a lease. Id. at 1338-39. Here, as in Essex Property, the admitted intent of the parties was to rescue the Plaintiffs from mortgage foreclosure, not that the Plaintiffs become tenants and be dispossessed of ownership of their home. The court in Essex Property noted that the "transaction [was] far more complicated than a lease" and that "[a]lthough a lease was one of the documents, it was subordinate to the intention of the parties, rather than the motivation or dominant factor in the transaction." Id. at 1339. The same is true here.(2)

The finding by the court that the transaction constituted an equitable mortgage resulted in a monetary award to the homeowners for violations of TILA, HOEPA and HOSA that totaled at least $293,836.17.

For the ruling, see In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010).

(1) The statutes involved here were the federal Truth In Lending Act ("TILA") as amended by the Home Ownership and Equity Protection Act ("HOEPA") as well as the New Jersey Home Ownership Security Act of 2002 ("HOSA").

Closing Agent Cops Plea, Gets Five Years For Using Escrow Funds In Straw Buyer Scheme; Purchased Home That Subsequently Went Into Foreclosure

From the Office of the San Bernardino County, California District Attorney:

  • On Wednesday, January 27, 2010, Mojgan Cox, 50, of Alta Loma, pleaded guilty to several felony charges including conspiracy, money laundering, grand theft, and forgery. Cox, also known as "Mona," is a former real estate broker for ReMax Allegiance and owner of Exclusive Escrow Services. She is one of six co-defendants originally charged and arrested by District Attorney Investigators from the San Bernardino County District Attorney's Real Estate Fraud Unit. Mojgan Cox is the third defendant to plead guilty in this matter.

  • The case involved laundering money from an escrow trust account into a corporation opened up by her son, Jesse Cox, who is one of the remaining defendants in this case. The money was used to purchase a home in Yucaipa using a "straw buyer," which subsequently went into foreclosure. The defendants had the proceeds from the purchase of that Yucaipa residence transferred back into Exclusive Escrow Services' general account and used for such things as paying the office lease and personal bills. Mojgan Cox pleaded guilty and was sentenced to five years in the California State prison system.

For the San Bernardino County DA press release, see Former Rancho Cucamonga Real Estate Broker Sentenced to Prison.

BofA At Center Of Another Screw-Up; Central Florida Couple Faces Foreclosure Despite Having Proof That All Mortgage Payments Were Made

In Central Florida, WSOC-TV Channel 9 reports:

  • Roger Wilsford and Teresa Stamey are about to lose their mobile home to foreclosure. Wilsford said he'd been paying his monthly payments of $762 to mortgage company Taylor, Bean and Whitaker, but last August it went into bankruptcy and he didn't know it. "Still, you know, I'd get a bill from Taylor, Bean and Whitaker ["TBW"], so I'd still send my payments,” Wilsford said. For three months, he said, he sent them payments until his daughter, Megan, saw online that TBW was bankrupt.

  • Then Wilsford got a notice from Bank of America Home Loans saying it had taken over his loan. He started sending payments to them, but later Bank of America told him he was nearly $2,300 behind on his mortgage. Megan, who handles Wilsford's financial affairs, said she can't get Bank of America to accept the TBW cancelled checks as proof he made the three payments. "The only thing he could tell me is he wasn't the only one that this has happened to, there was several other people," she said. Action 9 asked Bank of America about Wilsford's claim. A spokeswoman said she'd check into it.

  • Meanwhile, Better Business Bureau president Tom Bartholomy said as the economy causes more mortgage companies to go bankrupt, homeowners could have trouble getting credit for all their payments. "We've had people had to petition bankruptcy courts to get it done," Bartholomy said. Wilsford said he may have to do that or lose his home to foreclosure.

Source: Action 9: Mortgage Company’s Bankruptcy Causes Problem For Homeowner.

National Major Media Outlet Shines Light On Allegations Of BofA's Seizures Of Wrong Homes

In New Bedford, Massachusetts, ABC News reports:

  • Some 2.8 million homeowners faced the threat of foreclosure last year, but it wasn't supposed to happen to Charlie and Maria Cordoso. In 2005, the New Bedford, Mass. couple paid in full -- in cash -- for a house in Springville, Fla., and rented it out with plans eventually to use the home as a retirement getaway. They said they were shocked to learn earlier this month that Bank of America had locked them out and removed their clothing and furniture from the property.


  • The Cordosos, Portuguese immigrants who are in their 50s, are now suing Bank of America for allegedly seizing the wrong home, and they're not alone: Two other homeowners, one earlier this month in Texas and another last October in Kentucky, also have filed lawsuits alleging that Bank of America attempted to foreclose on their homes even though the bank did not own or service mortgages for the properties.(1)

  • Bank of America has yet to file a response to the Cordosos' claim and to the Texas claim, in which the homeowner alleges that the bank cut power to his property during the faulty foreclosure, leaving it reeking of fish, which were stored in his refrigerator and freezer. (The homeowner had left 75 pounds of fish at the home after a successful fishing trip to Alaska, according to the lawsuit.) [...] The bank believes that the Texas and Kentucky cases, however, "have no merit," [a BofA spokesperson] said, and the bank blames others for the errors.

For more, see No Mortgage, Still Foreclosed? Bank of America Sued for Seizing Wrong Homes (In the Last Four Months, Three Homeowners Have Sued Bank of America for Mistakenly Foreclosing on Their Homes).

(1) For the Texas story, see The Galveston Daily News: Lawsuit accuses bank of seizing wrong house; for the Kentucky story, see Floyd County Times: Man sues after bank takes wrong house.

Thursday, February 4, 2010

Connecticut Hubby Faces Charges In Connection With Alleged Forgery Of Wife's Signature On Home Equity Loan

In Litchfield, Connecticut, the Republican American reports:

  • A Superior Court judge wants attorneys to resolve the mortgage mess that's at the root of charges that a husband forged his wife's name on a home equity loan. George A. Matos, 42, of [...] Thomaston, appeared [...] in Litchfield Superior Court for a pretrial hearing on charges of conspiracy to commit first-degree forgery and conspiracy to commit criminal impersonation. Judge James P. Ginocchio suggested that solving the financial mess first will push the criminal case forward so it doesn't further harm the victim. "It's important we try to explore many options" to lift the financial burden from Matos' wife, Ginocchio said. "He's going to have to come up with something more creative."

Source: Judge rules in forgery case against husband.

Prominent Attorney Feels Financial Squeeze After Being Hit With F'closure, IRS Tax Liens; Faces Suspension For "Inappropriately Borrowing" Client Cash

In Louisville, Kentucky, the Courier Journal reports:

  • David Friedman, who won major court victories for the American Civil Liberties Union of Kentucky as its volunteer general counsel for 25 years, including a Ten Commandments case before the U.S. Supreme Court, has left the organization and been ousted from his law firm after being accused of keeping money owed to two clients. The Kentucky Bar Association filed a motion Dec. 7 to temporarily suspend Friedman, 57, from practicing law.


  • According to court records and interviews, Friedman withheld, for eight months last year, portions of about $116,000 he owed clients who had won a whistleblower case against the Metropolitan Sewer District. He paid them in full only after they threatened to prosecute and alerted other partners at Friedman's law firm, according to one of the clients, Ray Barber, a former MSD inspector.

  • In an interview, Friedman's lawyer, Peter Ostermiller, did not dispute that account. Responding to a request for an interview, Friedman issued a statement this week apologizing to his clients, his former law partners and family and friends, saying he has “sought to make amends for what occurred.”

  • On Nov. 6, Friedman was “disassociated” from the Louisville firm — then known as Fernandez Friedman Haynes & Kohn — based on “allegations that would bring the firm into disrepute,” said Allan Cobb, its outside counsel. No criminal charges have been filed.

  • Court records showed that Friedman and his wife were sued for foreclosure on their Crescent Hill home in 2007 and again in May 2009 for failing to repay loans. Both cases were later resolved. The IRS also placed liens on the home in 2007 and 2008 totaling $180,021 that are still pending. Barber said in an interview that Friedman eventually told him that he faced foreclosure. “I told him if he needed the money, I would have lent it to him,” said Barber, who now is a farmer in Michigan. “I thought the world of David.”(1)

  • In his statement, Friedman said he regretted “any pain or problems” he caused Barber and fellow plaintiff Sarah Lynn Cunningham, a former MSD engineer. Ostermiller noted the clients have been reimbursed in full and no other complaints against Friedman have emerged. He also said the incident should be weighed against Friedman's contributions as a lawyer, including his “defense of people who nobody else would defend.”(2)

For more, see Civil liberties lawyer David Friedman accused of keeping cash owed to clients.

(1) According to the story, ACLU supporters — and Friedman's legal adversaries — said they were stunned by the allegations. Suzy Post, a past director of the organization, said she was saddened. “He is such a sterling guy.” Bill Stone, a longtime ACLU member and former city law director, said he was “surprised and disappointed. It will be a serious setback if he's not fighting religious liberty cases.” Francis Manion, senior counsel for the conservative American Center for Law and Justice, which frequently battles the ACLU, said, “I have never known David to be anything but an honorable, highly professional and skilled attorney.” State Rep. Tom Riner of Louisville, a Baptist minister, once said of him: “I just wish we had a couple of Christian lawyers like David Friedman,” and U.S. District Judge John G. Heyburn II called him “an exceptional advocate for his causes and clients.”

Friedman, who reportedly has argued more than 40 cases before the 6th U.S. Circuit Court of Appeals, won his biggest triumph in 2005 when he persuaded the U.S. Supreme Court that Ten Commandments displays in two Kentucky courthouses illegally crossed the line separating church and state, according to the story.

(2) A recent California story in The Fresno Bee [see Valley lawyers turn to crime in tough times] noted that the the bad economy may be driving some attorneys to "temporarily borrow" client escrow money, only to later find that the can't pay it all back:

  • Attorneys who steal from clients often start off by "borrowing" money from their clients' trust accounts. They put a little bit of the money back, but not all. After a while, they end up being unable to repay, said Andrew Kaufman, a professor of legal ethics at Harvard Law School. [Carol] Langford[, a San Francisco lawyer who defends lawyers before the California State Bar Court in disbarment cases,] said lawyers often are in denial. They believe they can pay the money back. "Probably 65% to 75% of the time, they're wrong," she said.

Michigan Man Found Guilty Of Using Rubber Checks To Make Court-Mandated Payments In Connection With Earlier Deed Theft Conviction

In Detroit, Michigan, the Detroit Free Press reports:

  • A Grosse Pointe Woods man who used bad checks to pay $26,000 in property taxes as part of a sentencing agreement in a real estate fraud case was found guilty Tuesday in Wayne County Circuit Court of check fraud. A jury found John Matouk guilty of four counts of writing checks with nonsufficient funds over $500, a 2-year felony, and three counts of check, no account, a 2-year felony. A count of tampering with evidence was dismissed at preliminary examination.

  • Matouk pleaded guilty in October to defrauding an elderly couple in a real estate scheme [see Michigan Man Cops Plea In Alleged Home Theft From Elderly Couple]. Before his sentencing, he was required to pay $26,000 in real estate taxes and the outstanding balance on a $650,000 loan. At his sentencing in November, he told Wayne County Circuit Judge Gregory Bill that he paid the taxes. It was discovered later after the checks bounced that he had used bad checks.

For the story, see Man guilty of check fraud in $26,000 debt.

Texas Woman Sold Home Out From Under Grandmother, Pocketing Bulk Of Sale Proceeds, Says Suit; Constructive Trust Sought For Value Of Home

In Jefferson County, Texas, The Southeast Texas Record reports:

  • A Groves woman claims her granddaughter sold her home without her knowledge and only gave her $6,000 from the $148,000 transaction. Lenora Fawcett filed a lawsuit in Jefferson County District Court against Stephen and Kimberly Young.

  • Fawcett claims she built a house on property belonging to her daughter and son-in-law, Deborah and Donald Avery, in 1999. According to the complaint, Fawcett paid for the house with cash proceeds from a stock sale and moved into the new home on Memorial Day 2000. A year later, Donald Avery died and left his entire estate to his wife, the suit states.

  • In turn, Deborah Avery deeded the property to Fawcett's granddaughter, Kimberly Young, and her husband, Stephen Young. Although Avery deeded the property to the Youngs, Fawcett says she continued to live in the home with no problems until April 2009 when she fell and became hospitalized. After she was discharged, Fawcett spent four weeks in rehabilitation in a nursing home. According to the complaint, Fawcett then decided to temporarily live with her daughter, Deborah Avery, in Port Arthur. "While recovering, her belongings were removed from her house without her knowledge or consent and placed in a storage POD," the suit states.


  • Fawcett wants the court to impose a constructive trust on the proceeds of the sale of property for the value of her home. She is also seeking actual and exemplary damages, interest, attorneys' fees, costs and other relief to which she may be entitled.

For the story, see Groves woman claims granddaughter withheld proceeds from home sale.

Wednesday, February 3, 2010

Florida To Become A Non-Judicial Foreclosure State? Yes, If The Shameless Banksters Get Their Way; The Push Has Begun!

The St. Petersburg Times reports:

  • If bank[st]ers get their way, Floridians facing foreclosure could be kicked out of their homes in as little as three months. The Florida Bankers Association, the 400-member-strong lenders' lobby, has presented state legislators with a bill to upend decades of Florida law and establish "non-judicial" foreclosures in Florida by July 1.

  • What's a non-judicial foreclosure? Banks would accelerate foreclosures against defaulting homeowners by bypassing the courts. Judges would no longer rule on foreclosure cases. Some states — 37 in fact — already grant that fast-track foreclosure authority, including California, Georgia, Alabama and Texas. But Florida, with its plethora of vacation and retiree homes, has always been big on homeowner rights.


For the rest of the story, see Florida bankers move to dramatically speed up the foreclosure process.

Thanks to both 4closureFraud and Foreclosure Hamlet for the combined heads-up on this story.

(1) For the banking industry to propose a new law and use the words "consumer protection" and "homeowner credit rehabilitation" in naming the bill shows that there really is no end to the shamelessness of these characters. Among the so-called "consumer protections" contained in the bill is the obliteration of the Florida Supreme Court's newly endorsed mandatory mediation for lenders and homeowners. The bill provides only for informal meetings between creditors and debtors.

Unlicensed Mortgage Originator Cops Plea To Helping Homeowner Refinance Home, Then Swiping $100K+ In Loan Proceeds Obtained From Closing Agent

From the Office of the Maryland Attorney General:

  • Attorney General Douglas F. Gansler announced [...] that David Young Park, 43, the former president of Capital City Financial Group in Ellicott City, entered a plea of guilty to one count of felony theft in Baltimore County Circuit Court.(1)


  • In June of 2007, Park assisted the victim with the refinance of her home.(2) The victim intended to use the more than $100,000 in equity to purchase a commercial condo for her business. Following settlement, Park obtained the victim’s proceeds from the title company without the victim’s knowledge, deposited them into his escrow account and spent the money on various personal and business expenses over the course of two weeks. When confronted by the victim, Park admitted to having spent all of her money.

For the Maryland AG press release, see Former Mortgage Broker Sentenced for Felony Theft.

(1) Judge John J. Nagel, III sentenced Park to five years in jail with all but 18 months suspended. Park was also ordered to complete five years of supervised probation and make restitution to the victim in the amount of $116,556.

(2) According to the Division of Financial Regulation at the Maryland Department of Labor, Licensing and Regulation, Mr. Park has never been licensed as a mortgage originator and Capital City Financial Group has never been licensed as a mortgage lender.

Some Foreclosed & Short Selling Homeowners Find Themselves Still "On The Hook" For Deficiencies

In Miami, Florida, Bloomberg reports:

  • When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

  • King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.(1)


  • It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to [Ben] Hillard, [an] attorney in Largo. [...] “Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they areoff the hook.”

  • That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short sale agreement. “We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

For the story, see Lenders Pursue Mortgage Payoffs Long After Homeowners Default.

(1) According to the story, in Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years. About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

The story states that the Federal Deposit Insurance Corp., which tracks the amount banks collect after defaulted loans were written off, has reported that these mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows. Reportedly, these figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Such judgments usually tack on court fees, fines and interest.

County Backs Down On Imposing Deed Recording Taxes On Debt Forgiveness In Short Sale Transactions After State AG Weighs In

In Anne Arundel County, Maryland, The Baltimore Sun reports:

  • Anne Arundel County said it will no longer tax short sales on more than a home's purchase price, reacting to an opinion from the Maryland attorney general's office Wednesday that the practice isn't supported by state law. Richard Drain, the county comptroller, said Anne Arundel will collect recordation tax on the sales price, rather than the sales price plus any debt forgiven by the lender. Drain said five homes were taxed at the higher amount, and the money - less than $4,000 total - would be refunded.


  • The American Land Title Association wasn't aware of any other community in the country taxing short sales on forgiven debt. But the attorney general's opinion noted that Washington state had begun doing so and then reversed course a year ago. Closer to home, Montgomery County said this month that it had intended to start but decided to hold off to seek legal guidance.(1)

For the story, see Anne Arundel backs down on taxing short sales (State attorney general's office opinion leads to reversal).

(1) According to the story, Bonnie A. Kirkland, the assistant attorney general who wrote the newly issued opinion, said that debt forgiveness is a separate transaction from the sale. Recordation tax is charged on the balance owed on a mortgage when lenders accept the deed to a property in lieu of foreclosing. But in a short sale, the buyer is a third party who has nothing to do with the debt, Kirkland said.

Tuesday, February 2, 2010

Upstate NY Judge Emphasizes Importance Scrutinizing Foreclosing Lenders For Proper Standing In Cases Involving Unrepresented Homeowners

In a recent court ruling in Allegany County, New York involving a foreclosure action that was dismissed without prejudice (ie. with a right to refile), and which involved "the usual suspects" (ie. sloppy lender, foreclosure mill law firm, homeowner unrepresented by legal counsel - there was no indication that the homeowner even appeared in the case), Justice Timothy J. Walker discussess the significance of standing and real party in interest in foreclosure litigation and analyzes the applicable law in New York in connection thereto.

He closes with the following excerpt which deserves noting, in which he emphasizes the importance of judges exhibiting the necessary initiative to scrutinize the status of the plaintiffs bringing these foreclosure actions in cases involving homeowners unrepresented by legal counsel:

  • Today, with multiple and (and often unrecorded) assignments of mortgage obligations and multiple securitizations often related to the same debt, the courts should carefully scrutinize the status of parties who claim the right to enforce these mortgage obligations.

  • For the unrepresented homeowner, the issues of standing and real party in interest status of the foreclosing party are never considered. Without such scrutiny, there is a risk that the courts will give the judicial "seal of approval" to foreclosures against unrepresented homeowners who have little, if any, understanding of these issues, much less the legal significance thereof. To quote my colleague in Kings County, "[a]llowing this case to proceed on behalf of a plaintiff without standing at the commencement of the action would [also] open the door to potential fraud and place in jeopardy the integrity of title to the property to be foreclosed." [my emhasis added; not in original] [Citigroup Global Markets Realty Corp. v. Bowling, 25 Misc 3d 1244; 2009 NY Slip OP 52567U (Kings County, December 18, 2009)].(1)(2)

For the court ruling, see Deutsche Bank Natl. Trust Co. v McRae, 2010 NY Slip Op 20020 [Allegany County, January 25, 2010].

Thanks to both "LL" and to mortgage servicing fraud watchdog Mike Dillon over at for the combined heads-up on this court ruling.

(1) In Citigroup Global Markets Realty Corp. v. Bowling, Kings County (Brooklyn), NY Supreme Court Justice Carolyn E. Demarest dismissed a foreclosure action, without prejudice, where the foreclosing lender screw-ups involved both:

  • a failure to properly serve the homeowner (ie. "sewer service" - process server was found to have improperly utilized "nail & mail" method of service), and
  • a "standing-lacking" foreclosing entity that initiated the legal action.

(2) An example of "the integrity of title to the property to be foreclosed" being "place[d] in jeopardy" when the foreclosing entity lacks proper authority to foreclose is the mess currently going on in Massachusetts involving the apparently faulty titles to homes that have been foreclosed over the last several years throughout the entire state due to the screw-ups of the foreclosing lenders and their attorneys in the foreclosure process. See:

In addition, in the following excerpt from a June 24, 2009 story in the South Florida Daily Business Review (see Judge grapples with her discovery of 15,000 unserved foreclosure cases), Miami-Dade Judge Jennifer D. Bailey similarly alluded to possible future title problems to homes going through the foreclosure process when the screw-ups relate to the failure to properly serve the homeowners with the foreclosure lawsuit (ie. the summons and complaint) when the foreclosing entity initiates the legal action:

  • “It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said [my emphasis added; not in the original].

SoCal Loan Modification Operator Facing FTC Civil Charges Now Hit With 165 Criminal Felony Counts By Orange County DA

From the Office of the Orange County, California District Attorney:

  • The president of an Irvine loan modification company was arraigned [...] for defrauding and victimizing 165 distressed homeowners out of $177,000 by fraudulently promising to save their homes in exchange for an up-front fee. Kahram Zamani, 37, Laguna Hills, is charged with 165 felony counts of grand theft with sentencing enhancements for aggravated white collar crime for taking more than $100,000.(1)


  • Zamani is accused of soliciting clients through radio ads. He is accused instructing his employees to make promises to consumers, knowing the promises were false, that the company could obtain a home loan modification or loan forgiveness in exchange for an up-front fee of $995. The defendant is accused of also instructing his employees to make false promises that they could secure low-interest rates on a modified mortgage loan, offer full refunds if a loan could not be modified, and stating that Infinity had a 98 percent success rate in obtaining loan modifications.

For the Orange County DA press release, see Loan Modification Company President Arraigned On Charges Of Defrauding 165 Distressed Homeowners.

(1) Between February 2008 and December 2009, Zamani, a licensed real estate broker, is accused of owning and running Infinity Group Services (Infinity), a loan modification company that targeted distraught homeowners. The company was formerly known as Hope to Homeowners, named to mislead victims into believing it was part of the 2008 program launched by the Bush Administration, “Hope to Homeowners,” which aided struggling families with mortgage payments by refinancing their existing home loan, the DA's press release states.

This case has been a collaborative effort between the Orange County District Attorney’s Office (OCDA), California Department of Real Estate (CDRE), and Federal Trade Commission (FTC). In August 2009, the FTC filed a civil complaint in federal court seeking a temporary restraining order, the freezing of assets, and a preliminary injunction. In November 2009, CDRE filed a formal accusation charging the defendant with violations of real estate law, and has now filed an order against Zamani to desist and refrain from further fraudulent practices.

Extradited Loan Modification Scammer Cops Plea To Pocketing Upfront Fees & Giving Bogus Money-Back Guaranty, Then Failing To Provide Services, Refunds

In Las Vegas, Nevada, KVVU-TV Channel 5 reports:

  • A man has pleaded guilty to mortgage fraud for operating a foreclosure rescue scam in Las Vegas. Nevada Attorney General Catherine Cortez Masto announced [...] that Michael Sinclair pleaded guilty to one felony count of mortgage fraud for running the scam under the business name of Federal Housing Aid. Sinclair must pay $60,000 in restitution to the victims of the scam. He was recently extradited from the Philippines, where he fled after learning of the indictment against him, Masto said.


  • Masto said using a call center located in the Philippines, Sinclair and his business partner, William Vargas, operated a company that claimed to offer loan modification services to help victims avoid foreclosure on their homes. The operation had been in business since February 2007. The two defendants charged the victims between $899 and $1,500 in upfront fees and offered a 100 percent money back guaranty, claiming their company would refund the money if the foreclosure could not be stopped. After paying for services, the defendants failed to provide the services paid for and failed to provide refunds.

For the story, see Man Pleads Guilty In Loan Mod Scam (Las Vegas Company Federal Housing Aid Bilked Customers, AG Says).

For the Nevada AG press release, see Attorney General Announces Guilty Plea In Foreclosure Rescue Scam Operated From The Philippines.

Rhode Island State Cops Probe Allegations Of Lawyers w/ Sticky Fingers; Bag Two Suspected Of Swiping Client Cash, At Least Seven Others In Crosshairs

In Providence, Rhode Island, The Providence Journal reports:

  • Disbarred lawyer Robert D. Natal has been arrested by the police and charged with 11 felony counts for misappropriating $1,136,013 from real-estate transactions.(1) He is the second disbarred lawyer within a week to be charged with misappropriating clients’ money.

  • Todd M. Amaral, a correctional officer at the Adult Correctional Institutions who lost his license to practice law last October, was charged on Jan. 16 with two counts of unlawful appropriation and two counts of forgery. The total in his case was just over $50,000. According to the Supreme Court’s disciplinary counsel, David D. Curtin, Amaral eventually repaid the money owed to the clients, but not until Curtin’s office began investigating the alleged thefts.


  • Lt. John Lemont, head of the Financial Crimes Unit of the state police, said Monday that there are at least seven other attorneys under investigation for theft of client money, ranging in amounts of $60,000 to $300,000, but that the cases often take a long time to probe because of all the paperwork involved.(2)

For more, see State police: Ex-lawyer took clients’ money.

(1) According to the story, the criminal charges against Natal, who owned Security Title and Escrow Co. Inc., allege that he received funds from real estate closings and failed to remit them to the sellers or to pay off mortgages, taxes, sewer fees and title insurance premiums. They also allege that in one case involving a client he had worked with for nine years, he pocketed a $24,900 deposit for a piece of real estate the client wanted to buy. In another case, he allegedly bounced a $286,076 check to an estate. Reportedly, Natal was so strapped for cash that he hit up his mother-in-law for a $185,000 loan to him and his wife, the proceeds of which were obtained from a reverse mortgage on the mother-in-law's home.

(2) Could it be that the "giant sucking sound" I'm starting to hear is the money draining out of the Lawyers' Funds For Client Protection maintained by the state bar associations across the country? As I've noted on numerous occasions, these funds have been established to reimburse clients who have suffered a loss due to the dishonest conduct of an attorney. The sums of client money that a number of attorneys around the country are allegedly ripping off must have the officials at the state bar associations administering these funds "running around with their hair on fire." In one recent post, I noted a recent story in which the senior counsel for the State Bar of California's Client Security Fund commented that the glut of discipline cases involving loan modification ripoffs committed by California attorneys is "really sort of impacting the bar and the fund specifically." See Calif. State Bar Probers Have Hands Full With Loan Mod Ripoff Complaints; 1200 Probes Pending; Attorney Scams Begin To Drain Client Security Fund.

Foreclosure Rescue Operator Admits To Unauthorized Practice Of Law; Agrees To Refund Pocketed Upfront Fees, Dodges Civil Penalties

The Ohio Supreme Court recently approved a consent decree in which upfront fee foreclosure rescue operator American Foreclosure Specialists, L.L.C. admitted "that it engaged in the unauthorized practice of law by drafting and preparing a court pleading and providing it to one of its customers with instructions to file the same with the court," agreed to refund the $995 fee it clipped from a homeowner/couple, and promised to never engage in the unauthorized practice law again in the State of Ohio.(1)

For the court's ruling, see Ohio State Bar Assn. v. Am. Foreclosure Specialists, L.L.C., Slip Opinion No. 2010-Ohio-148 (January 27, 2010).

(1) American Foreclosure Specialists, L.L.C. dodged the imposition of any civil penalties because, according to the court:

  • it fully and completely cooperated in the investigation of the complaint and admitted engaging in the unauthorized practice of law,
  • only one instance of the unauthorized practice of law was committed,
  • it had never previously been charged with the unauthorized practice of law, and
  • it agreed to fully refund the fee it pocketed.

Monday, February 1, 2010

Closing Lawyers Get Dragged Into NY Deceptive Practices Act Suit Brought By Waitress Stuck With Unaffordable $629K Loan; Judge Refuses To Dismiss Case

In Brooklyn, New York, the New York Law Journal reports:

  • A Brooklyn judge has allowed an action to go forward against two attorneys and others who are accused of facilitating a $629,000 mortgage for a waitress who earned less than $25,000 a year. Plaintiff Portia Joseph alleged Brooklyn attorney Adrian A. Ellis, who represented her in connection with the purchase of a house in Bedford-Stuyvesant in New York City, and Rockland County, N.Y., attorney Joseph Kunstlinger, who appeared on behalf of mortgagor Bank of America, encouraged and directed her to execute fraudulent loan documents.

  • Faced with a substantial lien and potential foreclosure, Joseph and her mother, Angil Jones, filed claims against Ellis and Kunstlinger, as well as Bank of America, real estate broker Ora Tvilli and Tvilli's company OTN Enterprise, among others. In a decision last week, Supreme Court Justice David I. Schmidt denied in part motions to dismiss by several of the defendants, including the bank's attorney, Kunstlinger.(1)


  • Reached for comment, Kunstlinger, the principal of the Joseph Kunstlinger Law Firm in Spring Valley, N.Y., said he and Bank of America were among the victims, not the perpetrators, of the alleged fraud. "Our position is that the fraud was pulled on us, not them. It seems pretty funny that we [could be] liable for the fraud they committed," Kunstlinger said, referring to his various co-defendants. "We have almost nothing to do with anything other than the fact that the documents get signed correctly. If there is a trial, we will be completely exonerated."

  • Ellis, who represented the plaintiffs at the closing, said his responsibility was to manage the legal issues, not the financial ones. "I never inquire into my client's income," said Ellis, who has not yet responded to a malpractice complaint against him. "If someone is buying a house for $700,000 there's an assumption they can afford the property." Ellis added, "Generally speaking, I don't know how many attorneys ask their clients how much they earn, then do a financial analysis of whether or not they can afford the property."

For more, see Suit Proceeds Against Attorneys Accused of Facilitating Mortgage 'Doomed to Failure'.

For the ruling, see Jones v. OTN Enterprise, 31990/08.

(1) According to Justice Schmidt, "Deception and misrepresentation in home buying, appraising and financing services adversely effect the public at large insofar as the acts inevitably lead to mortgage loans which are doomed to failure and which adversely effect the housing market. Practices such as those alleged by plaintiffs herein are particularly troubling as they are calculated to take advantage of lower income potential first time home buyers who are unfamiliar with the process and are more apt to rely on defendants' sophistication."

Foreclosure Rescue Operator, Closing Attorney Found Jointly Liable For $690K+ In Bogus Sale Leaseback, Equity Stripping Ripoff

A federal bankruptcy court in New Jersey recently ruled in favor of a homeowner/couple who were screwed over for over $100,000 in home equity by a foreclosure rescue operator in a bogus sale leaseback, equity stripping scam. In addition to holding the operator liable for damages to the tune of $116,791.49 for the amount of stripped equity (to be tripled to $350,374 pursuant to the New Jersey Consumer Fraud Act, N.J. STAT. ANN §56:8-1, et seq., plus other damages, costs and homeowner's attorney fees(1)), the court also made the attorney acting as the closing agent equally liable for those damages for his role in the fraud.

According to this story in the New Jersey Law Journal, the sale-leaseback agreement also contained excessive late fees barred by HOSA, resulting in statutory damages of $293,836, an amount that includes the $240,875 awarded under TILA and HOEPA, plus punitive damages. The judge added $46,000 for the operator's breach of his agreement to pay that sum for the homeowner in the Chapter 13 proceeding. When added to the $350,374 noted above, the damages total up to to $690,210.(2)

The following summary of the case is taken from the Introduction appearing at the beginning of the written decision:(3)

  • Plaintiffs accuse the Defendants of defrauding them through a mortgage foreclosure rescue scam. On the eve of a sheriff's foreclosure sale, Plaintiffs deeded their house worth over $800,000 to Defendant Cleveland with an option to buy it back at $650,000. Cleveland took out a new mortgage, paid off Plaintiffs' old mortgage and pocketed over $100,000. He subsequently defaulted on his mortgage and the new lender commenced a second foreclosure action.

  • This mortgage rescue scam is fraudulent and is an unconscionable commercial practice in violation of New Jersey's Consumer Fraud Act. Furthermore, the sale/leaseback is, in reality, a financing transaction subject to the Truth In Lending Act ("TILA") as amended by the Home Ownership and Equity Protection Act ("HOEPA") as well as the New Jersey Home Ownership Security Act of 2002 ("HOSA"). Since Defendant Cleveland failed to comply with each of these consumer protection statutes, he is liable for the remedies allowed thereunder.

  • Defendant Gahwyler, an attorney at law, violated certain ethical obligations and conspired with Cleveland in his wrongdoings. Gahwyler is jointly liable for all damages and statutory remedies.(4)(5)

Representing the homeowner/debtors in this case was attorney Gabriel H. Halpern, Esq., of the law firm PinilisHalpern LLP.

For the court's findings of fact, its discussion of the aforementioned legal issues raised in this case, and its conclusion, see In re O'Brien (aka O'Brien v. Cleveland), Case No. 03-17448, Adversary Proceeding Case No. 08-1676; (USBC, D. N.J., January 22, 2010).

See also, New Jersey Law Journal: Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam.


(1) According to the New Jersey Law Journal article, the homeowners' attorney Gabriel H. Halpern, of PinilisHalpern in Morristown, N.J., has already filed an application for $33,932 in legal fees and asked U.S. Bankruptcy Judge Raymond Lyons Jr. to multiply the amount by three, for an enhanced fee of $101,797. (Requesting that a "risk multiplier" be applied to a legal fee calculation as is being reported in this story is not uncommon in contingency fee cases brought under state law). This amount, if approved by the judge, will be added to the total damages to be borne by the foreclosure rescue operator and the closing attorney.

(2) The foreclosure operator and the closing attorney may also be slammed with punitive damages as well.

(3) In addition to the issues of law set forth in the Introduction to the case, the court also addressed the following issues:

  • Common law fraud under New Jersey law: "The New Jersey Supreme Court has defined fraud as follows: The five elements of common-law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages. Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367 (N.J. 1997) (citation omitted)."

  • Equitable Mortgage: "In order for TILA, HOEPA or HOSA to apply, the Plaintiffs must first establish that the sale and lease-back transaction constitutes consumer credit. They attempt to do so by categorizing the transaction as an equitable mortgage. New Jersey courts of equity have long recognized the doctrine of equitable mortgage [...]. Rutherford Nat. Bank v. H.R. Bogle & Co., 169 A. 180, 182 (N.J. Ch. 1933); [...]."

  • Doctrine of Unclean Hands: The court refused to apply this doctrine against the screwed-over homeowner, who may have engaged in somewhat questionable conduct himself ("A successful unclean hands defense to an injunction proceeding requires a showing by defendant that plaintiff's conduct is inequitable and that it involves the subject matter of the plaintiff's claim." Ciba-Geigy Corp. v. Bolar Pharm. Co., 747 F.2d 844, 855 (1984)).

  • Attorney Malpractice: "Under certain circumstances, an attorney may be liable to a non-client. Petrillo v. Bachenberg, 655 A.2d 1354, 1357 (N.J. 1995) (typically courts limit a lawyer's duty to situations where the lawyer should have foreseen that the third party would rely on the lawyer's work). An attorney also has an ethical obligation to refrain from participating in an illegal or fraudulent transaction. In re Labendz, 471 A.2d 21, 21 (N.J. 1984)."

  • Conspiracy: "Under New Jersey law an attorney may be liable for damages if he assists a client in violating a law or committing a wrongful act. Banco Popular N. Am. v. Gandi, 876 A.2d 253, 263 (N.J. 2005)."

(4) According to the New Jersey Law Journal article, closing attorney Gahwyler faces possible discipline as a result of the case, and is currently facing another civil lawsuit involving a similar scam:

  • The judiciary Web site shows he is charged, in a bankruptcy/foreclosure case, with violating Rule of Professional Conduct 8.4(c), for conduct involving fraud or deceit. The grievance date is listed as June 8, 2008, 12 days after [U.S. Bankruptcy Judge Raymond Lyons] wrote to the U.S. Attorney's Office to report "what may involve violation of the criminal laws of the United States," copying the letter to the Office of Attorney Ethics and the Passaic County prosecutor, as well as to Gahwyler, Cleveland and the O'Briens.

  • Gahwyler, who apparently has closed his law office and could not be reached for comment, is also a defendant in a similar suit, Acerra v. Gahwyler, MON-L- 4579-08, referred to in Lyons' opinion. Edward Hanratty, who represents the plaintiffs in that case, filed the complaint in 2008, but says he only succeeded in serving the "very elusive" Gahwyler in early January. Hanratty plans to move for summary judgment based on Lyons' opinion and testimony from Cleveland's deposition, taken last fall.

(5) To the extent the victimized homeowners can't collect any money on its judgment from the attorney, they might consider filing a claim with the New Jersey Lawyers' Fund for Client Protection, which was established to reimburse clients who have suffered a loss due to dishonest conduct of a member of the New Jersey Bar. According to the Fund's website, for loss claims that are determined to be eligible for a reimbursement there currently is a limit of $400,000 per claimant for claims arising after January 1, 2007 and an aggregate maximum for claims against a single attorney of $1,500,000. Lower per claimant maximums apply to claims arising prior to January 1, 2007, its website states.

A similar recovery fund in Minnesota (Minnesota Department of Commerce's Real Estate Education, Research and Recovery Fund) established to reimburse clients who have suffered a loss due to dishonest conduct of a licensed real estate broker or salesperson, or a licensed closing agent, recently agreed to pay $116,972 to an 87-year-old woman who was cheated out of the equity in her home of 50 years in a similar scam. See State Recovery Fund To Cough Up $116K+ To Compensate Elderly Victim Of Bogus Sale Leaseback Equity Stripping Scam Involving Licensed Real Estate Agent.

For similar funds established to reimburse clients who have suffered a loss due to the dishonest conduct of attorneys in other states and Canada, see:

Maps available courtesy of The National Client Protection Organization, Inc.

Miami Judge Forces "Reverse Foreclosure" On Foot-Dragging Lender; Court Grants HOA's Request To "Strong-Arm" Bank Into Taking Title To Home

In Miami, Florida, the South Florida Business Journal reports:

  • Attorneys for the Keys Gate Homeowners Association in Homestead have won a legal victory in a case that could set a precedent for banks that drag their feet in taking title to homes facing foreclosure. The Association Law Group of Miami won the case on behalf of the Keys Gate HOA using what it calls a reverse foreclosure, designed to speed up the process of awarding a property to a bank, thus making the bank liable for fees and maintenance, even if the property is vacant.

  • Based on the reverse foreclosure procedure, Miami Dade Circuit Judge Jerald Bagley awarded title of a home in the Keys Gate development to HSBC Bank on Jan. 12. The home had fallen into foreclosure in 2007. Since then, the home remained in limbo, owned and maintained by the association, but with an HSBC foreclosure action pending for more than two-and-a-half years.

  • "ALG's reverse foreclosure procedure will finally help associations force banks to take title to financially upside down units much faster than ever before,” ALG attorney Ben Solomon said in a news release. As part of the reverse foreclosure, Keys Gate waived its rights to the property and, as the current unit owner, waived its right to public sale.

  • The motion was granted and the clerk of court issued a certificate of title the same day, transferring ownership of the property to the bank. The certificate of title then triggered HSBC Bank's requirement to pay its share of past due assessments, legal fees, court costs and all assessments going forward. “This new legal strategy saved Keys Gate a minimum of eight months or more of bad debt write-offs because the association did not have to wait for the bank to get a foreclosure judgment, schedule a foreclosure sale and sell the property at public auction,” the law firm said in the news release.

  • The practice of banks holding up foreclosure proceedings is not uncommon and has a huge financial impact on associations that must write off month after month of bad debt until the home is taken off its hands.

Source: Miami judge grants reverse foreclosure.

See also: Miami Beach Commissioner Jerry Libbin Applauds 'Reverse Foreclosure' Ruling, Renews Call for State Lawmakers to Enact Comprehensive Foreclosure Reforms:

  • Miami Beach City Commissioner Jerry Libbin ( today applauded the "reverse foreclosure" ruling by a Miami-Dade Circuit judge that forced a bank to take title from a homeowner association (HOA) of a property that had not been paying its assessments.

Lien Stripping Bankruptcy Court Trial Between Homeowner & 2nd Mortgage Lienholder A Battle Of "Dueling Appraisers"

A recent bankruptcy court case decided in Northern California provides an illustration of how a trial involving an attempt by a homeowner/debtor to free her home from the encumbrance of a 2nd mortgage lien boils down simply to whether her appraiser's valuation of the home is more persuasive than the one obtained by the 2nd mortgage holder.

In this case, the total debt owed by the homeowner/debtor on her 1st mortgage and unpaid real estate taxes was $550,000. In addition, her home was encumbered by a 2nd mortgage lien which, under current law, can be avoided if she can prove that the loan secured by it is completely underwater. In other words, if the home is worth less than $550,000 (the balance owed on the 1st mortgage and unpaid taxes - ie. the debt having priority over the 2nd mortgage), the 2nd mortgage would be completely underwater and thereby, subject to the bankruptcy law's lien stripping rules. (In that case, the lien would be voided from the home and the outstanding balance owed on the debt secured thereby would be treated as an unsecured debt, which could then be either entirely or partially wiped out, or discharged, by the judge in a Chapter 13 bankruptcy proceeding).

Conversely, if the home is worth anything more than $550,000, the 2nd mortgage would not be completely underwater. In that case, the homeowner would be unable to relieve her home from the lien of that mortgage (which means that any court-approved plan to pay creditors in a Chapter 13 proceeding would have to satisfy the 2nd mortgage in full).

In this case, not surprisingly, the homeowner obtained a $525,000 appraisal for the home while the 2nd mortgage lienholder had it valued for $590,000. Interestingly, the bankruptcy judge rejected the valuations reached by both appraisals; however, he considered the factors addressed in each one to reach his own determination as to what the home was worth.

For the judge's conclusion on the value of the home, and his ruling on whether the 2nd mortgage should be stripped from the debtor's home, see In re Alizotis (Memorandum Decision On Motion To Value And Avoid Lien), Case No. 09-33061DM, (USBC, N.D. Cal., January 20, 2010).

Foreclosing Lenders Failing To Comply With City Foreclosure Ordinance To Be Clipped $2K & Prohibited From Recording Foreclosure Deeds

In Providence, Rhode Island, The Providence Journal reports:

  • The City Council has approved a $2,000 fine for banks or lenders that fail to follow the city’s new foreclosure ordinance, which requires that lenders attempt to renegotiate mortgages with homeowners before filing a deed of foreclosure with the city. The fine was among a number of amendments that received final approval from the council Thursday.


  • The first local law of its kind in the state, it encourages lenders to try to modify a mortgage so that a homeowner can remain in his or her home. A similar one has since been adopted by the City of Cranston. [...] As it is written, the “foreclosure mediation ordinance” requires a meeting between lenders and homeowners prior to foreclosure. Any lender failing to comply with the requirements would not be able to have a deed of ownership recorded by the city Recorder of Deeds, a step necessary to complete the foreclosure process.

  • But the city has found that failure to comply with the ordinance can lead to breaking the chain of title, which affects the value of the property and creates problems for the purchaser.(1)

For the story, see Council OKs fine for disregarding foreclosure law.

(1) The main problem for the purchaser is that the title to foreclosed property will be muddled up, which will affect its value, and the ability to obtain financing and title insurance for future buyers. An example of muddling up the title to homes going through the foreclosure process is the mess currently going on in Massachusetts involving the apparently faulty titles to homes that have been foreclosed over the last several years throughout the entire state due to the screw-ups of the foreclosing lenders and their attorneys in the foreclosure process. See:

In addition, in the following excerpt from a June 24, 2009 story in the South Florida Daily Business Review (see Judge grapples with her discovery of 15,000 unserved foreclosure cases), Miami-Dade Judge Jennifer D. Bailey similarly alluded to possible future title problems to homes going through the foreclosure process when the screw-ups relate to the failure to properly serve the homeowners with the foreclosure lawsuit (ie. the summons and complaint) when the foreclosing entity initiates the legal action:

  • “It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said [my emphasis added; not in the original].

Sunday, January 31, 2010

Boulder Man Offered Chance To "Buy Down" Sentence After Copping Plea To Bilking 79-Year Old Employee Out Of $400K+; Victim Left w/ $195K Loan On Home

In Boulder, Colorado, the Boulder Daily Camera reports:

  • The former president of Boulder-based used-car business CarFind USA could spend up to nine years in prison after pleading guilty Wednesday to convincing a 79-year-old employee to loan him more than $300,000 for car payments, vacations and real estate purchases. Larry J. Abrams, 47, of Superior, was scheduled to go to trial next week on felony charges of theft of an at-risk adult, but he instead pleaded guilty in Boulder County District Court to felony theft and criminal attempt to commit theft.

  • He's scheduled to be sentenced April 30 to anywhere from probation to nine years in prison, and he must pay back as much as $403,700 to Dorothy Mannes. "We want to encourage Mr. Abrams to pay back as much as possible before the sentencing," Deputy District Attorney Michael Foote told the judge Wednesday. "Our sentencing recommendation will depend on how much he pays back."


  • Foote said prosecutors allowed Abrams to take a deal because it could help Mannes, who is on a fixed income, get more of her money back more quickly. "She is in a desperate situation -- she needs money, and she needs it as quickly as possible," Foote said.

  • Mannes reported Abrams to the Consumer Division of the Boulder County District Attorney's Office on Sept. 3 for not paying back numerous loans, including one for $195,804 in July 2005. In that case, Abrams asked Mannes to place a new mortgage on her home and sign the proceeds over to him, according to the [arrest warrant] affidavit.


  • On June 29, 2006, Abrams bought a home [...] in unincorporated Boulder County for $235,000. He then sold that property to Mannes a week later for $325,000 and had her sign a deed to turn the property back over to Abrams. "No appreciable improvements are believed to have been made to justify the higher price," according to the affidavit. [...] Mannes, who worked for Abrams at CarFind USA, has been drawing from her retirement to stave off foreclosure on the home she lives in, the affidavit said.

For the story, see Boulder businessman could go to prison for bilking elderly employee (Larry Abrams must pay back more than $400,000).

Elderly Couple's Caregiver Gets Three Years In $80K+ Swindle; Allegedly Boosted Victims' Reverse Mortgage Payments To Conceal Ripoff

In Fairfax, California, the Marin Independent Journal reports:

  • An in-home caregiver was sentenced to three years in state prison Thursday for embezzling more than $80,000 from the retired Fairfax couple who hired her.(1) Jane Macam McClellan [also known as Jane Macam Deleon], a 47-year-old mother of eight, was also ordered to pay $83,099 in restitution to the couple, who are in their 90s.


  • McClellan worked for the Fairfax couple, a 98-year-old woman and her 92-year-old husband, for about six months. She was fired in August when the couple's family discovered financial irregularities. McClellan allegedly used the couple's credit cards and also spent their money to hire her own family members for housekeeping work, Fairfax police said. In addition, McClellan allegedly increased the couple's reverse-mortgage payments to help disguise the effects of her spending.

For the story, see Fairfax couple's caregiver gets prison for embezzlement.

For an earlier story, see Caregiver sought in Fairfax theft case shows up for court, gets booked.

(1) McClellan accepted a plea deal in November, admitting to a charge of embezzlement. The district attorney's office dismissed charges of forgery, receiving stolen property, residential burglary and grand theft by false pretenses.

Man Gets 27 Months In Federal Prison For Using POA To Rip Off Elderly Mom Of $99K, Leaving Her With No Money To Pay Retirement Home Bill

In Peoria, Illinois, the Journal Star reports:

  • For taking nearly $100,000 from his elderly mother four years ago, a Bloomington man was sentenced to 27 months in federal prison Thursday. Douglas Shadewaldt, 59, [...] used the money to buy a motorcycle, a condo and a car, and not to pay for his mother's retirement home expenses. In addition to the prison term, which was at the bottom of his guideline range, Shadewaldt also must pay about $78,000 in restitution; $47,000 will go to his mother's retirement home and the rest to Medicaid.

  • According to his plea agreement, the State Farm worker had power of attorney for his mother beginning in 2005 and cashed out four certificates of deposit at the Heartland Bank branch in El Paso, telling the clerks he was transferring the money to another account with a higher interest rate. Instead, the plea agreement states, he took the money and put it into his own account. His mother was left with no money to pay her retirement home bill and was forced to auction off all her belongings and go on Medicaid.

  • He pleaded guilty in October to transporting stolen property across state lines. Four other transportation counts and five counts of wire fraud were dismissed as part of the plea agreement.

For the story, see Man gets 27 months for stealing from mom (Douglas Shadewaldt also ordered to pay $78,000 in restitution).