Saturday, April 24, 2010

Ex-NFLer Swiped Former Teammate's Grandma's ID For Use In Mortgage Scam, Say Cops

In Miami, Florida, USA Today reports:

  • Could a 6-6, 335-pound former NFL player get away with using the identity of a 74-year-old grandmother? That's a question to ask in the wake of Jamie Nails being charged with mortgage fraud. Miami police say the former Miami Dolphin and Buffalo Bill stole the identity of the grandmother of a former Bills teammate, Daryl Porter. Nails is accused of using the identity of Delores Porter to obtain a $510,000 mortgage for a condominium, according to the South Florida Sun-Sentinel. A warrant has been issued for the arrest of Nails, who played in the NFL from 1997-2002, making 51 starts.

Source: Ex-NFLer charged with stealing a granny's ID.

Queens Neighborhood Ranks #1 Nationally In Bogus Home Loan Concentration: Study

In Jamaica, Queens, the New York Daily News reports:

  • Forget Las Vegas. Forget Miami. The No. 1 neighborhood in the U.S. for mortgage fraud is in the heart of Queens. A new study says a section of South Jamaica has the highest concentration of bogus loans in the nation, with zip code 11436 the absolute worst.

  • First American CoreLogic, a mortgage and real estate data company, analyzed 80 million loans from Maine to Malibu from 2004 through last year. The firm says the fraudulent loan rate in the 9 square miles of blue-collar Jamaica is four times the national level and tops other hotbeds of lousy loans like Orlando, Atlanta and Detroit.

  • The zip code the bank singled out includes the four-block area highlighted by the Daily News in 2008 as "Ground Zero" for foreclosures in New York. The fraud included lying about nonexistent income, inflating the value of homes by selling and reselling to co-conspirators, bribing appraisers and stealing deeds and identities. "In Jamaica, we didn't see [only] one type of fraud," said Tim Grace, First American's senior vice president. "It ran the gamut."


  • The borough's elderly - many of whom have owned homes in Jamaica for years - are especially vulnerable, experts say. "They tend to be equity-rich and cash-poor, which is a prime target for any villain," said Assistant Queens District Attorney Greg Pavlides, whose office got 228 mortgage fraud complaints last year - twice the rate in 2005.

For more, see Jamaica, Queens leads the nation in fraudulent home loans.

Bullying Of Tenants In Foreclosure Evictions Continues As Owners, Lenders, Real Estate Agents Blatantly Disregard Federal Law

In Miami, Florida, The Miami Herald reports:

  • All she had was 48 hours to clear out her belongings and vacate the house where she had lived for three years. One day last September, Gladys Flores received an unexpected visit from the owner of the property she rented in Little Havana. She had not seen him for months. Flores had religiously deposited the $600 monthly rent. The landlord came to inform her that the house had been repossessed by the bank.

  • "He told us, `Either I call the police and you take everything out or I put a lock on the door so you cannot get in,' '' recalled Flores, a 53-year-old Peruvian immigrant who lives with her husband and makes a living as a housekeeper. The Flores had no money to rent a moving truck, so they took all their possessions -- in a shopping cart -- and left in fear, without filing a complaint with authorities.

  • Since the onset of the foreclosure crisis, tens of thousands of renters in South Florida have suffered the fate of the Floreses. They have been tossed out by banks and landlords essentially overnight with no mercy, and without any protection from the state of Florida.


  • Not surprisingly, Miami and other municipalities in South Florida are among the cities where the most violations of the Protecting Tenants at Foreclosure Act, signed into law by President Barack Obama last year, are happening. The provisions phase out at the end of 2012. "The law in general is being deliberately ignored,'' said Purvi Shah, a Florida Legal Services attorney who heads the Community Justice Project.(1) "The judicial sector must do its part to ensure compliance with these federal laws.''

  • Under the act, tenants who have an oral or written lease arrangement are entitled to remain in the repossessed home until the end of their lease, unless the purchaser at foreclosure plans to make the property his or her primary residence. Even in this situation or if the tenants have no lease, the purchaser must deliver a 90-day notice to vacate.

  • But the majority of banks, mortgage companies, real estate agents and foreclosure attorneys in South Florida continue to evict tenants within a matter of days, leaving them, literally, on the street, grass-roots organizations have told me. And the courts have done little to stop them.

  • One of the main obstacles is that most of the tenants -- who in general are immigrants and low-income individuals -- are unaware of these new laws and believe they must leave the moment the landlord or a bank agent knocks on the door with news of the foreclosure. Many of these agents are adept at intimidating tenants. They manipulate them with offers of small amounts of cash for the keys, but later never refund the security deposit.

For the story, see Renters bullied by owners facing foreclosure.

(1) According to their website, Florida Legal Services is a nonprofit organization founded in 1973 provide civil legal assistance to indigent persons who would not otherwise have the means to obtain a lawyer.

Tenants Driven Out Of 112-Unit Complex Loaded With Code Violations; Foreclosing Lender Left Holding The Bag On Apartments Too Unsafe To Inhabit

In Beloit, Wisconsin, WISC-TV reports:

  • A Beloit apartment complex is going into foreclosure just months after dozens of tenants were evicted due to building code violations. Countryside Village Apartments on Beloit's East Side is now mostly abandoned. The city said only about 10 of its 112 units are occupied. City officials said that with no communication from the property owner, there was no choice but for the bank to foreclose. "We've never had to deal with anything like this before," said Tom Clippert, Beloit's director of housing services.


  • The majority of units at the apartment complex have been declared unsafe to inhabit. Residents were evicted due to unlivable conditions, including no heat, severe mold contamination and seepage problems, WISC-TV reported.

For the story, see Beloit Apartment Complex Going Into Foreclosure (Building Cited For Many Code Violations).

For a similar story in a 186-unit residential complex in foreclosure in Columbus, Ohio where, according to one resident, code enforcement officials received complaints about mold, exposed wiring, roaches and a lack of hot water, see The Columbus Dispatch: Renter has roaches aplenty, but no hot water (Living conditions deteriorate at complex after owner defaults).

Friday, April 23, 2010

Jury Convicts Real Estate Agent In Mortgage Payment Skimming Scam Involving Naive Homebuyers, Unwitting Straw Purchaser

In Kitchener, Ontario, The Record reports:

  • A former Cambridge real estate agent was found guilty [] of defrauding clients in three shady house deals. Steven Stojadinovich, 49, was also convicted by a jury in Superior Court in Kitchener of six counts of forgery while scamming naïve buyers in 2005 and 2006.


  • David Embro and his former wife, Natasha, thought they had bought their first house through Stojadinovich by assuming an existing mortgage. After making payments directly to Stojadinovich for about six months, they were suddenly evicted with their four young children. The family had to move so quickly, loading what they could into a single truck, that many of their belongings were left behind and ended up in the garbage.

  • It turned out the Embros had never actually owned the [] property despite giving Stojadinovich $11,000 as a down payment and making “mortgage” payments, often in cash, when he came to the house.


  • Central to the deals [...] was Ryan Dewulf, a young man with a good job and good credit whom Stojadinovich had befriended. Dewulf was sued and had to declare bankruptcy after Stojadinovich repeatedly used him to buy properties he could then resell with assumable mortgages.

For more, see Cambridge realtor convicted of scamming naïve buyers.

NYC Man Cops Plea To Attempted Sale Of Commercial Building He Didn't Own

From the Office of the Manhattan District Attorney:

  • Manhattan District Attorney Cyrus R. Vance, Jr., [] announced the guilty plea of HENRY VARGAS, 36, who attempted to sell a commercial building he did not own to the New York Road Runners, a Manhattan not-for-profit running organization that offers year-round races, including the ING New York City Marathon. VARGAS pled guilty to Attempted Grand Larceny in the First Degree and Forgery in the Second Degree. VARGAS is expected to receive a sentence of 5 to 10 years in state prison pursuant to [the] plea.


  • VARGAS admitted in court [] that he fraudulently passed himself off as the majority owner of the building, located at 21-41 Lenox Avenue, just north of Central Park, using false statements and forged documents to trick investors into believing that he was the majority owner of the LLC that actually owns the building. In the fall of 2008, VARGAS entered into a contract to sell the building to the New York Road Runners for $8.5 million. Pursuant to that agreement, the New York Road Runners made a $1 million down payment into an escrow account.

For the Manhattan DA press release, see District Attorney Vance Announces The Guilty Plea Of Henry Vargas.

Oregon Regulators Open Probe Into Portland-Based Firm's Finance Activities In Connection With Homeowners Facing Foreclosure

In Portland, Oregon, The Oregonian reports:

  • State regulators have opened a formal civil investigation into a mortgage lender affiliated with the Aspen Capital investment firm. Some of Aspen Capital's executives created the lender,Gregory Funding, in 2004 to offer high-interest rate loans to borrowers on the verge of foreclosure.

  • The firm's executives said their goal was to help people in a financial pinch while turning profits for investors. But about 49 percent of the firm's mortgages issued in the Portland area over five years fell into foreclosure, according to The Oregonian's analysis of property records. That failure rate is within the range of poorly performing subprime loans that ignited the recession.

  • Another Aspen affiliate, FC Help, helped halt foreclosures by buying homes from struggling borrowers at less than market value, then paying off their delinquent loan. The firm offered to rent the home back to the resident or sell it back for a profit. In response to questions from The Oregonian, state regulators said earlier this year that they would review Aspen's lending and foreclosure-rescue affiliates to see if they violated consumer protection laws.

For more, see State regulators open civil investigation into Aspen Capital's mortgage affiliate.

See also, The Oregonian: Foreclosure rescues by Aspen Capital affiliate -- a lender of last resort -- failed nearly half the time.

Atlanta Feds Indict Three In Alleged Reverse Mortgage Fraud Conspiracy

From the Office of the U.S. Attorney (Atlanta, Georgia):

  • JONATHAN ALFRED KIMPSON, 27, of Lithonia, Georgia, and GIA HARRIS, 26, of Atlanta, Georgia, have been indicted by a federal grand jury on charges of conspiracy to commit financial institution fraud involving so-called "reverse" mortgages. KIMPSON was also charged with aggravated identity theft and wire fraud. KELSEY TORREY HULL, 38, of Lithonia, Georgia, was charged on February 25, 2010, in a Criminal Information related to the same scheme, on a charge of financial institution fraud and conspiracy.

  • Acting United States Attorney Sally Quillian Yates said, “These defendants are charged with profiting from the corruption of an FHA-insured program designed to assist seniors with either cash for equity in their home or with funds toward the purchase of a home. These defendants allegedly altered real estate records, used fake documents, and posed as realtors. This abuse of the system took money away from qualified senior citizens who need these funds. With these charges, we have taken the first steps to stop this crime and to reverse the damage these crimes have caused.”

For the entire U.S. Attorney press release, see Three Members Of A "Reverse" Mortgage Fraud Ring Charged (Fraudsters Profited from FHA-Insured Reverse Loans Intended to Benefit Seniors).

Thursday, April 22, 2010

California Lawmaker Moves To Elevate Crime Of Landlord Impersonation To Felony Grand Theft

The San Francisco Chronicle reports:

  • The glut of vacant foreclosed homes has inspired con artists to concoct a new scam: posing as landlords to swindle prospective tenants out of rent and deposit money. Cases of landlord impersonation have jumped throughout California in the past couple of years, according to sheriffs and legal aid clinics.

  • "With a lot of foreclosures, the property sits empty for a long period of time," said Assemblywoman Fiona Ma, D-San Francisco. "What we're finding is that scam artists will come in, change the locks and advertise on Craigslist at a very enticing price. They tell people, if you want to get this deal you need to come back soon with cash for the deposit. People give them the money, sign a lease, get keys and a couple of days later the legitimate owner (an agent for the bank) comes and says, 'What are you doing here?' Then they're out whatever cash they've laid out."

  • Ma is co-sponsoring a bill, AB1800, that would elevate the crime of landlord impersonation to felony grand theft, instead of its current classification as a misdemeanor.

For more, see More scam artists posing as landlords.

Florida Appeals Court Says Mortgage Lender Need Not Pay Condo Maintenance Fees While Dragging Its Feet In Proceeding To Foreclosure Sale

A Florida appellate court recently issued the following decision reversing a lower court ruling that forced a foot-dragging, foreclosing mortgage lender to either proceed with a foreclosure sale or begin paying the monthly maintenance fee on the condominium unit securing its loan. In ruling in favor of the lender, it agreed with a 2009 decision of a sister appellate court that reached the same conclusion in a another case with the same fact pattern:

  • On May 12, 2008, Deutsche Bank National Trust Company filed a mortgage foreclosure complaint, naming the unit owner, Dario Luna, as well as the Coral Key Condominium Association (at Carolina), Inc., as defendants. After seven months of no record activity, the Association filed a motion to compel Deutsche to proceed with the foreclosure sale or pay monthly assessments due to the Association. The trial court granted the motion, explaining that it was fair and equitable for the mortgage holder to pay monthly assessments due to the Association if there is an extended period of delay in the foreclosure proceeding for no good reason. We reverse.

  • After the trial court entered the order appealed, the Third District issued U.S. Bank National Ass'n v. Tadmore, 23 So. 3d 822 (Fla. 3d DCA 2009), which addressed this precise issue. In Tadmore, the court rejected the notion that equity and fairness support an order requiring a bank to pay condominium assessments while foreclosure proceedings are pending since section 718.116(1)(b), Florida Statutes (2009), makes it clear that the first mortgagee is required to pay assessments only after acquiring title, and equity follows the law. Id. at 823-24. We agree with Tadmore and reverse.

For the ruling, see Deutsche Bank National Trust Company as Trustee v. Coral Key Condominium Association (at Carolina), Inc., 4D09-3392 (Fla. 4th DCA April 14, 2010).

Foreclosed Homeowners Getting Caught Flat Footed By Subsequent Legal Actions By Lenders For Collection Of Unpaid 2nd Mortgage Loans

The Wall Street Journal reports:

  • After losing her condo in San Diego to foreclosure last year, Charissa Kolich thought that at least she was free of mortgage bills. But Wells Fargo & Co., which holds a home-equity loan made five years ago to Ms. Kolich, last month filed a lawsuit against her in the Superior Court of California, San Diego County, seeking to collect the nearly $72,000 it said she still owed on that second mortgage. "This was all kind of a shock," says Ms. Kolich, a food-service administrator recently diagnosed with inoperable brain cancer.

For more, see Second Mortgages Vex Borrowers.

Alabama Family Faces Foreclosure On Recent Home Purchase; Escrow Agent Failed To Pay Off Former Owner's Existing Mortgage Out Of Closing Proceeds

In Dothan, Alabama, the Dothan Eagle reports:

  • A Dothan family is scrambling to save their new home after it appears the money that was supposed to pay off the existing mortgage on the home has disappeared. Foreclosure on the home is scheduled for April 27, just 20 days after Chester and Judy Nolin moved into their new home in Dothan.

  • The Nolins recently bought a house in Dothan after selling their home in Ozark. They got a realtor and applied the money gained from the sale of the Ozark home to the Dothan home. The amount did not completely satisfy the mortgage amount, so they borrowed additional money. The realtors suggested using local company Title Pro Closings to handle the closing, which appeared to go smoothly in late January.

  • According to the Nolins and their attorney, David Hogg, Title Pro Closings was supposed to pay the existing mortgage holder to satisfy the mortgage. However, as the Nolins were beginning to decorate their new home this week, they learned their Whitfield Estates home was on the list for foreclosure. “They’re out of their house in Ozark, about to be put out in Dothan,” Hogg said. “They have learned the money from the equity in their house in Ozark was never applied to pay off the existing mortgage on their new home in Dothan.”

  • Hogg said he has had no success reaching anyone at Title Pro Closings. He fears other homebuyers (and sellers) may have been affected. The matter is under investigation by the Houston County Sheriff’s Department. No arrests have been made at this point. “We’re doing everything we can to protect the Nolins,” Hogg said.

Source: Family in shock after foreclosure notice on home supposed to be paid for.

Proposal To Make Florida Non-Judicial Foreclosure State Dies In Committee

In Tallahassee, Florida, The Palm Beach Post reports:

  • Proposed legislation that would allow banks to foreclose on Florida homes without going to court died in a House committee Monday, giving supporters scant hope for success this year. "We knew this was a big change in Florida law and we were asking a lot for it to happen in one session," said Anthony DiMarco, executive vice president for government affairs for the Florida Bankers Association. "When you have this kind of policy change, it can take more than one year."

For more, see Nonjudicial foreclosure bill dies in House committee.

Wednesday, April 21, 2010

Three Charged For Allegedly Pocketing $10K Per Victim In Bogus "Principal Reduction" Loan Mod Racket; Part Of Larger Scam That Clipped 400 Homeowners

In Santa Clara County, California, the Contra Costa Times reports:

  • A Santa Clara County criminal grand jury has indicted three people on 83 counts of defrauding 45 homeowners in Northern California in a wide-ranging loan modification scam. The Santa Clara County District Attorney's Office alleges Rene Alvarez, 39, and Mariano Ortega, 34, both of San Jose, and Cydney Sanchez, 60, of Los Angeles, stole more than $2 million from more than 400 homeowners — most of them Latino — in seven states, most of them from California.

  • The grand jury found that in 2008 and 2009, Alvarez and Ortega owned and operated M & R Contemporary Solutions, a Campbell foreclosure consulting firm, according to prosecutors, and Sanchez owned and operated West Coast Mortgage and Horizon Property Holdings of Beverly Hills.

  • Prosecutors contend M & R lured homeowners who were in various stages of the foreclosure process by pitching a "principal reduction" program. Homeowners were told M & R would save their homes by facilitating the purchase of their existing lender's loan by a third party at a discounted price. Sanchez was then supposed to provide the investors to purchase the loans. The homeowners were to be offered a new reduced-principal loan that would have significantly lower monthly payments.

  • According to the homeowners and several ex-employees of M & R who testified before the grand jury, no homeowners were ever helped in this manner. In many cases, prosecutors say, homeowners paid $10,000 for the loan-buying scheme even though they had already lost title to their homes through trustee sales. M & R collected thousands of dollars in upfront fees from each homeowner in foreclosure, which is a felony, prosecutors said.

Source: 3 charged with defrauding 45 homeowners in mortgage scam.

NY Court Slams Loan Modification Racket For Ripping Off Homeowners In Financial Distress; Holds Owner Personally Liable For Damages, Penalties

From the Office of the New York Attorney General:

  • Attorney General Andrew M. Cuomo [] announced a favorable decision in a lawsuit filed by the Attorney General against American Modification Agency, Inc. (“Amerimod”), formerly one of the largest foreclosure rescue companies in the country, and its owner and president Salvatore Pane, Jr. New York Supreme Court Justice Emily Jane Goodman found that Amerimod and Pane engaged in fraudulent, deceptive, and illegal business practices that violated New York’s consumer protection and real property laws.


  • The Court [] ruled [among other things] that Amerimod violated New York’s distressed property consulting statute, Real Property Law § 265-b, by charging illegal, upfront fees for its loan modification services, failing to provide contracts in the language of its customers, especially Spanish, and failing to provide homeowners with the legally required notice of their right to cancel within five business days.

  • The decision and order holds Pane personally liable for engaging in fraudulent and illegal acts, noting that Pane appeared in numerous commercials touting Amerimod’s services, approved expenditures and the content of marketing, and made multiple misleading statements to the press.(1)

For the entire New York AG press release, see Cuomo Announces Favorable Decision In Lawsuit Against New York-Based "Amerimod" Loan Modification Company (Court Rules That Company Fraudulently Charged Homeowners Illegal Fees for Loan Modifications It Never Delivered; Thousands of Homeowners Victimized Nationwide).

In a related story on the Amerimod loan modification racket and its owner and president Salvatore Pane, Jr., see The New York Times: One Last Place to Get Fleeced on a Mortgage.

For the relevant court documents in this litigation, see:

(1) In footnote 3 of her ruling (see permanent injunction, pg. 12), Justice Goodman indicates that the Court will forward the Decision and Order, and the Judgment in this case to the office of the District Attorney, presumably for a consideration of possible criminal charges.

Florida Bar Boots 13, Suspends 11 Others Among 27 Attorneys Disciplined For Conduct Unbecoming An Officer Of The Court

The latest issue of The Florida Bar's quarterly gossip sheet is out, listing attorneys licensed in the state who have been recently disciplined for ripping off client cash, playing fast and loose with escrow/trust funds, and otherwise engaging in conduct unbecoming an officer of the court. Some examples:

  • During the course of representing a client in a foreclosure matter, one attorney created fraudulent letters and lied under oath;

  • Another attorney represented a company in a foreclosure sale and received $308,000 to be held in trust for use at the sale. When the funds were not needed for the foreclosure, he pocketed the cash for his own purposes, without the permission of the client. He subsequently failed and refused to return the funds to the client;

  • A third attorney formed a real estate law group and entered into an agreement with a non-lawyer. Under the terms of the agreement, she became responsible for approximately 600 client files (believed to be primarily foreclosure rescue, loan modification, or similar cases). When the business relationship was severed, she abandoned all legal representation and she failed to notify the clients and the courts of her termination of services. She also failed to refund clients fees;

  • A fourth attorney received $80,000 from clients to be used for a loan transaction. The intended borrower subsequently died and the attorney simply kept the cash for his own benefit without the clients' permission.

No word yet on any run on The Florida Bar's Clients' Security Fund.(1)

For the rest of this quarter's reported escapades, and the form of discipline meted out to these scheming solicitors, see Florida Supreme Court Disciplines 27 Attorneys.

(1) The Florida Bar's Clients' Security Fund compensates people who have been victims of of misappropriation or embezzlement of cash or property by a Florida-licensed attorney. For those ripped off by dishonest attorneys in other states and Canada, see:

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

Ohio Attorney Gets Off With Hand Slap For Engaging In Lawyer-Renting Racket With Alleged Upfront Fee Foreclosure Rescue Operator

In a recent ruling by the Ohio Supreme Court, attorney Christopher C. Harwood dodged a bullet and got off with a hand slap for his association with an alleged Ohio forclosure rescue racket in which he, in essence, allowed himself to be "subleased" out by the alleged racket to homeowners facing foreclosure.

The foreclosure companies, American Foreclosure Professionals, Inc. and Foreclosure Assistance USA, Inc., charged between $900 and $1,200 for the services they provided and informed customers that the fee included legal representation arranged and paid for, in part, by the companies. The foreclosure companies asked their customers to execute a request for legal services and then forwarded the executed request and the client's contact information and goals, e.g., keeping or selling the property, to attorney Harwood. He received $100 to file an answer in each case referred to him.(1)

The court agreed with a recommended six-month license suspension, with the entire period stayed upon the condition that Harwood commit no further misconduct.(2) Apparently, Harwood is not currently in private practice as the ruling noted that he now works as a staff attorney for a Kentucky court of appeals judge.

For the ruling, see Cincinnati Bar Assn. v. Harwood (Slip Opinion), 2010-Ohio-1466 (4/7/2010).

(1) In the same month that Harwood voluntarily terminated his relationship with the foreclosure companies and stopped accepting their referrals, the Ohio Attorney General filed a complaint against American Foreclosure Professionals, Inc. and Foreclosure Assistance USA, Inc. in the Hamilton County Court of Common Pleas alleging violations of, inter alia, the Ohio Consumer Sales Practices Act, R.C. 1345.01 et seq. The attorney general alleged that the foreclosure companies (1) failed to deliver services within the prescribed period of time, (2) knowingly sold services to consumers that carried no substantial benefit and resulted in detrimental reliance by the consumer, and (3) made false or misleading representations to consumers.

(2) The court made this, among other, observations on this case:

  • These associations present "the same ills as have respondent's alliances — insufficient attorney-client communication and case preparation, nonattorney promotion of the lawyer's legal services, the aiding of the unauthorized practice of law, and the sharing of legal fees. Together, these failings signal the surrender of an attorney's ability to exercise independent professional judgment on a client's behalf and manifest an overarching breach of the lawyer's duty of loyalty to the client." Patterson at ¶ 33, citing Willard.

Massachusetts AG: BofA Loan Officer Funneled Homeowners Seeking Loan Mods From Lender To His Own Private Company To Screw Them Over With Upfront Fees

In Boston, Massachusetts, The Boston Globe reports:

  • A former mortgage loan officer with Bank of America Corp. is being sued by the Massachusetts attorney general's office for allegedly demanding illegal fees from homeowners who sought help to avoid foreclosure.

  • Attorney General Martha Coakley said [] her office has sued Christian Hayes of Danvers in Suffolk Superior Court for allegedly "targeting and preying upon Massachusetts residents" who were seeking loan modifications from Bank of America. Instead, the state says, Hayes "deceptively funneled" homeowners' requests to his company, Foreclosure Alternatives, and demanded as much as $1,500 in up-front fees without offering legitimate help. It is illegal in Massachusetts to require up-front fees from homeowners seeking help to stave off foreclosure.

For more, see State alleges ex-loan officer 'preyed' on owners.

See also, The Salem News: Danvers man is sued by AG over alleged mortgage con (Hayes falsely held himself out to be a lawyer, according to the attorney general, and he allegedly told one homeowner that his connection with Bank of America gave him "exclusive access" to the bank's loan modification process for homeowners).

Tuesday, April 20, 2010

California Man Cops Plea For Role In Bid-Rigging At Foreclosure Sales

In Sacramento, California, The Stockton Record reports:

  • A 43-year-old Stockton man pleaded guilty Friday to rigging bids at public real estate auctions in San Joaquin County over a six-month period in 2009. Anthony B. Ghio, 43, admitted in U.S. District Court that he conspired with a group of real estate speculators who agreed not to bid against each other at selected foreclosure auctions as a way to suppress competition, thus keeping prices artificially low.(1)

  • According to court documents:

    (1) After the conspirators' designated bidder bought a property at a public auction, there would be a second, private auction.

    (2) Each participant would then submit higher bids at the private auction.

    (3) The conspirator who bid the highest amount in the second auction won the property. The difference between the noncompetitive price at the public auction and the winning bid in the second auction was the group's illicit profit - and that amount was divided among them.

For the story, see Stocktonian admits to bid-rigging land scheme (Man faces 10 years in prison, $1 million fine).

For the U.S. Attorney (Sacramento, California) press release, see California Real Estate Executive Pleads Guilty to Bid Rigging.

Go here for other posts on foreclosure sale bid-rigging.

(1) Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine.

C. Florida Judge Reverses Earlier Grant Of Summary Judgment In Favor Of Foreclosing Lender; Questions Veracity Of Court Filings By Foreclosure Mills

In St. Petersburg, Florida, foreclosure defense attorney Matthew Weidner writes:

  • Search this blog and you will see that for months now I’ve been arguing that the “evidence” submitted by Plaintiffs in foreclosure cases does not even come close to meeting the legal and evidentiary requirements for courts to grant summary judgment.

  • After performing extensive legal research to confirm this hunch, I have drafted and filed detailed memoranda, supported by all available case law, that stands for the proposition that the practices used by virtually every foreclosure mill in the state do not provide the evidentiary basis for a court to grant summary judgment.


  • I attach here the most fantastic transcript of a hearing I’ve heard in a long time.(1) This transcript shows a couple things:

    First, the judges in the Sixth Circuit of Florida really, really get it.

    , this particular judge goes far and above to do his job and deliver real, hard, honest legal work.

    , as I mentioned above…the current processes and procedures used by the foreclosure mills do not provide courts the evidentiary or legal basis required to grant summary judgment.

  • But now the big question that comes to mind….now that this judge gets it…and now that my memos and others like my friend and fellow Foreclosure Fighter Mike Wasylik are starting to leak out there… What happens to all the hundreds of thousands of homes that have been foreclose on by improper evidence?

Source: CASE LAW UPDATE - Judges Should Never Grant Summary Judgment in Florida.

(1) The matter involved a rehearing of a previously granted summary judgment in favor of a foreclosing lender. On rehearing, the judge reconsidered his earlier ruling, and after rexamining some of the documents in the case that caused him to question the veracity of the documents being filed in foreclosure cases, generally, reversed his earlier ruling. Representing the foreclosing lender in this case was the Law Offices of David J. Stern, P.A., a notorious assembly line, foreclosure mill law firm operating out of Broward County, Florida.

South Florida Lawyer Masquerading As Foreclosure Defense Attorney While Associated With Notorious Assembly Line Foreclosure Mill Law Firm?

In Palm Beach County, Florida, reports on a foreclosure action in which a homeowner facing foreclosure was allegedly duped into paying a $1,000 legal fee for the services of an attorney who claimed to be in private practice but, in actuality, is listed as being "Of Counsel" on the letterhead of a notorious South Florida assembly line foreclosure mill.

For the post, see Foreclosure Mill Attorney for Marshall Watson or Foreclosure Defense Attorney for Homeowners?

For the court filing on which the above is based, see Motion For Disqualification Of Counsel And For Disgorgement Of Attorney's Fees (filed by the law firm Ice Legal, P.A., West Palm Beach, Florida on behalf of the screwed over homeowner).

Pennsylvania Victim Of Nationwide "Operation Homewrecker" Sale Leaseback Foreclosure Rescue Scam About To Lose Home To Foreclosure

In Chester County, Pennsylvania, The Philadelphia Inquirer reports:

  • Nothing short of a miracle, it seems, will keep Melissa Miller in the house in Honey Brook, Chester County, that has been part of her family for more than a century. Despite her best efforts, it goes to sheriff's sale Thursday. The house is Miller's home, but she has not owned it since 2006, when she tried to save it with an "unconventional refinancing" and ended up being scammed out of the legal title to the property.

  • Miller, 40, is one of 350 victims of a complicated mortgage-fraud scheme federal prosecutors have dubbed "Operation Homewrecker."(1) [...] "I literally gave my house to these people without knowing," Miller said in an interview. "I never had any intention of losing my house, let alone selling it."

  • From 2004 to 2006, the mortgage-fraud scheme entangled homeowners who were in financial trouble. "These are not people who overextended themselves and bought McMansions," said U.S. Attorney Ellen V. Endrizzi, one of the government prosecutors handling the case. "These are people who fell on hard times. It's so heartbreaking because nothing can be done for them."

For more, see Mortgage scheme costing Chesco woman her home.

(1) According to the story, the alleged sale leaseback, foreclosure rescue equity stripping scam was led by Charles Head of Los Angeles, and there are currently 16 defendants remaining from two 2008 Federal indictments (for the original indictments, see U.S. v. Head, et al. - Head #1, and U.S. v. Head, et al. - Head #2). All defendants have opted for jury trials, according to documents filed March 5 in U.S. District Court for the Eastern District of California in Sacramento. Charges against them include mail fraud and conspiracy to commit mail fraud, money laundering, and related offenses, U.S. Attorney Ellen V. Endrizzi said. Though some defendants already have pleaded guilty, trials for the others probably will not start until May 2011, the story states.

Go here for more on the Sacramento, California Feds "Operation Homewrecker" nationwide investigation into the alleged scam that targeted homeowners in dire financial straits, fraudulently obtaining title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages, and here for other posts on this alleged foreclosure rescue scam.

Monday, April 19, 2010

Central Florida Judge Blasts Foreclosure Mill Law Firm For Filing "Fraudulently Backdated" Document "In A Purposeful, Intentional Effort To Mislead"

In Central Florida, The Wall Street Journal reports:

  • A Florida state-court judge, in a rare ruling, said a major national bank perpetrated a "fraud" in a foreclosure lawsuit, raising questions about how banks are attempting to claim homes from borrowers in default. The ruling, made last month in Pasco County, Fla., comes amid increased scrutiny of foreclosures by the prosecutors and judges in regions hurt by the recession. Judges have said in hearings they are increasingly concerned that banks are attempting to seize properties they don't own.

  • The Florida case began in December 2007 when U.S. Bank N.A. sued a homeowner, Ernest E. Harpster, after he defaulted on a $190,000 loan he received in January of that year. The Law Offices of David J. Stern, which represented the bank, prepared a document called an "assignment of mortgage" showing that the bank received ownership of the mortgage in December 2007. The document was dated December 2007.

  • But after investigating the matter, Circuit Court Judge Lynn Tepper ruled that the document couldn't have been prepared until 2008. Thus, she ruled, the bank couldn't prove it owned the mortgage at the time the suit was filed. The document filed by the plaintiff, Judge Tepper wrote last month, "did not exist at the time of the filing of this action…was subsequently created and…fraudulently backdated, in a purposeful, intentional effort to mislead." She dismissed the case.

  • Forrest McSurdy, a lawyer at the David Stern firm that handled the U.S. Bank case, said the mistake was due to "carelessness." The mortgage document was initially prepared and signed in 2007 but wasn't notarized until months later, he said. After discovering similar problems in other foreclosure cases, he said, the firm voluntarily withdrew the suits and later re-filed them using appropriate documents.

  • "Judges get in a whirl about technicalities because the courts are overwhelmed," he said. "The merits of the cases are the same: people aren't paying their mortgages."(1)


  • At an unrelated hearing in a separate matter last week, Anthony Rondolino, a state-court judge in St. Petersburg, Fla., said that an affidavit submitted by the David Stern law firm on behalf of GMAC Mortgage LLC in a foreclosure case wasn't necessarily sufficient to establish that GMAC was the owner of the mortgage. "I don't have any confidence that any of the documents the Court's receiving on these mass foreclosures are valid," the judge said at the hearing.(2)

For the story, see Judge Bashes Bank in Foreclosure Case.

For Judge Tepper's dismissal and the "fraudulently backdated" (Judge Tepper's words, not mine) document in question, see U.S. Bank v. Harpster.

(1) What foreclosure mill attorney McSurdy conveniently seems to ignore (when reportedly making these ridiculous statements) is that when a plaintiff files a lawsuit, the merits of the case (whatever they may be) are irrelevant and remain irrelevant unless and until the plaintiff can first overcome the procedural hurdles of establishing that it has a right to file the case in the first place. For example, in a recent ruling [see Wells Fargo Bank, N.A. v Hunte, 2010 NY Slip Op 50637 (Sup. Ct. Kings County, April 14, 2010)], Brooklyn, NY Justice Arthur M. Schack reminds us of this basic tenet with this excerpt (bold text is my emphasis, not in the original text):

  • The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 812 [2003], cert denied 540 US 1017 [2003]) declared that "[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress."

(2) For the transcript of this hearing, see GMAC Mortgage LLC v. Visicaro.

Central Florida Foreclosure Rescue Operator Cops Plea In Racket That Targeted House-Rich, Cash-Poor Owners In Home Equity Ripoff

In Tampa, Florida, the Bradenton Herald reports:

  • The reputed ringleader of a foreclosure-rescue scam that operated in Manatee County and elsewhere in Florida now is facing more federal prison time. Peter James Porcelli II, also known as Peter James, pleaded guilty in a Tampa federal courtroom Thursday to one count of mail fraud in connection with the rescue scheme, U.S. Attorney A. Brian Albritton said Friday.


  • He initially was charged with fleecing 56 distressed homeowners, including three in Manatee and four from Sarasota County, out of more than $1.8 million, court records show. Porcelli recruited those homeowners through Safe Harbour Foundation of Florida Inc., a Clearwater outfit that misrepresented itself as a nonprofit corporation dedicated to helping homeowners avoid foreclosure, prosecutors said.

  • It combed public records to target homeowners facing foreclosure and send mailers that offered “immediate relief from financial pressures” and a “guaranteed solution to stay in your home,” among other promises. Homeowners who called the number on the flyer reached Porcelli or one of his associates, who asked questions to determine how much equity the homeowner had. If it was a significant amount, homeowners would be referred to Silverstone Lending LLC or Silverstone Financial LLC — both also controlled by Porcelli — to take out six-month loans to get the mortgage up to date, authorities said.

  • But those loans often charged the state maximum of 18 percent interest and numerous fees that often exceeded 60 percent of the loan amounts.(1) The loan terms also gave Silverstone the power to take the home if the borrower defaulted, authorities said.

For the story, see Foreclosure-rescue scammer facing 20 years in prison.

(1) See also, The Tampa Tribune: Pinellas telemarketer pleads guilty to mail fraud:, which reports that of the total money the homeowners purportedly orrowed, they received less than 38 percent of that loan money, and they ended up owing Porcelli or his companies the remainder in fees and costs.

Recession Leads Chicago-Area Legal Non-Profits, "Big Law" To Form Odd Couple In Utilizing Lawyer Oversupply

In Chicago, Illinois, the Chicago Tribune reports:

  • Cabrini Green Legal Aid ended its 2009 fiscal year with a deficit for the first time in years. Even though it provided legal aid to more poor people than ever before — 5,348 — the not-for-profit could not afford to hire another full-time attorney on its $2 million shoestring budget.(1)

  • Last year's recession also hit Chicago's big law firms that individually generate hundreds of millions of dollars in revenue from corporate clients. They were sitting with an oversupply of lawyers and were forced to lay off hundreds and postpone the starting dates of law school graduates they had hired to begin in the fall of 2009.

  • The opposite ends of Chicago's legal profession found a way to come together out of economic necessity to partially consume the supply of highly educated young lawyers looking for work. Despite several challenges, the unusual experiment has paid dividends. It also has sparked discussions of whether a more permanent model of apprenticeships can be developed that would train law-school graduates at a lower cost and benefit public-interest legal organizations that are suffering from funding constraints while attending to a greater need because of the recession.


  • About 60 first-year associates have gone to work for more than 20 public-interest and legal-aid organizations, estimates Kelly Tautges, director of pro bono services at the Chicago Bar Foundation, which has kept track of the placements.

For more, see With no space at the firm, rookie lawyers find a place in legal aid.

(1) According to their website, Cabrini Green Legal Aid provides free legal services to low-income Chicagoans in four areas of law: family, housing, criminal records, and criminal defense.

LPS Shuts Down Alleged Bogus Foreclosure Document "Manufacturing" Racket; Pumped Out Over A Million Mortgage Assignments In Last 2 Years

Fraud Digest reports:

  • On April 12, 2010, Lender Processing Services closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia. That office was responsible for pumping out over a million mortgage assignments in the last two years so that banks could foreclose on residential real estate. The law firms handling the foreclosures were retained and largely controlled by Lender Processing Services, according to a Sanctions Order entered by U.S. Bankruptcy Judge Diane Weiss Sigmund (In re Niles C. Taylor, EDPA, Case 07-15385-sr, Doc. 193).


  • Although the Alpharetta office has been closed, Lender Processing Services continues to mass produce "replacement" assignments from its Jacksonville, Florida, and Dakota County, Minnesota offices. Law firms retained by Lender Processing Services also often use their own employees, posing as officer of Mortgage Electronic Registration Systems, to produce the needed Assignments.

  • Since the vast majority of homeowners do not retain counsel in foreclosure proceedings, this flawed system has worked very effectively for the last few years, with courts all over the country rarely questioning why so many mortgage companies had officers in Alpharetta, Georgia, or why Trusts that closed in 2005 and 2006 were just obtaining Mortgage Assignments in 2009 and 2010. Most courts never even questioned why companies long-dissolved, such as Option One, could still be executing documents years after the dissolution.

  • While the closing of the Alpharetta office may be a sign that these fraudulent activities will finally be exposed and addressed, for the time being, it is just a matter of an unsatisfactory end of one small facet of an enormous and far-reaching problem.

Source: Fraud Digest - April 13, 2010 news item.

Thanks to "Deontos .is" for the heads-up on this story.

Another Couple In Foreclosure Successfully Stalls Legal Action Against Home; Lender Fails To Prove It Had Right To Foreclose

In Miami, Florida, the Daily Business Review reports:

  • Diana and John Cirigliano can’t wait to face off with Wells Fargo at a foreclosure trial. A Miami-Dade circuit court judge last month sided with them, when he ruled that the lender had failed to prove it had the right to foreclose on their Miami Beach condo.


  • The couple represents a small but growing group of home owners who are scoring victories in their fight against foreclosures. The Ciriglianos recently persuaded the court to deny their lender’s motion to sell their condo at a foreclosure auction because the lender couldn’t prove it was the true owner of the loan.(1)

  • In the on-going battle between lenders and homeowners facing foreclosure, some persistent owners are pushing to have a judge — not the lender — decide the future of their home. Their defense: Lenders are increasingly unable to show proper documents proving they have the right to seize their homes.


  • Defense lawyer Thomas Ice in West Palm Beach said he has two foreclosure suits set for trial later this month. In both cases, the home owners successfully questioned the lenders’ right to take their properties. “You should see more of them [go to trial] if they are well defended and you have a fair judge,” said Ice, with Ice Legal in West Palm Beach. "[Lenders] made enough mistakes and don’t have all the paperwork they need to properly get a summary judgment so they should be denied and go to trial.”

For more, see Mortgage Meltdown: Distressed homeowners take on lenders in court.

(1) According to the story, Wells Fargo couldn’t prove it owns the loan originally made in 2005 by now-defunct Greenpoint Mortgage Funding. Proving ownership can be difficult at a time when loans are bundled, securitized and sold multiple times to numerous investors. The loans are owned by a trust, which often hires a loan servicer to collect the mortgage payments from borrowers. When the notes were sold and resold, they were to be endorsed as part of the transfer to a new buyer, the story states. In this case, two things reportedly worked against Wells Fargo, according to the homeowners' Miami lawyer, Arturo Alfonso:

  • The loan had not yet been assigned to Wells Fargo when the lender filed suit against the couple in May 2008,
  • It failed to provide documents — called securitization agreements — that were filed with the Securities and Exchange Commission that showed who owned the note.

They couldn’t show any evidence of how the loan went from Greenpoint to Wells Fargo,” Alfonso reportedly said. “We asked for the agreements but they never gave them to us.”

Sunday, April 18, 2010

WaMu Lending Practices Were Laced With Fraud, Encouraged The Screwing Over Of Borrowers, Say Senate Investigators

In Washington, D.C., The Associated Press reports:

  • The mortgage lending operations of Washington Mutual Inc., the biggest U.S. bank ever to fail, were threaded through with fraud, Senate investigators have found. And the bank's own probes failed to stem the deceptive practices, the investigators said in a report on the 2008 failure of WaMu.

  • The panel said the bank's pay system rewarded loan officers for the volume and speed of the subprime mortgage loans they closed. Extra bonuses even went to loan officers who overcharged borrowers on their loans or levied stiff penalties for prepayment, according to the report being released Tuesday by the investigative panel of the Senate Homeland Security and Governmental Affairs Committee.

For more, see Investigation finds fraud in WaMu lending (Senate report: Failed bank’s own action couldn’t stop deceptive practices).

See also, The New York Times: Memos Show Risky Lending at WaMu.

Feds Charge Goldman Sachs With Fraud In Civil Suit In Connection With The Manufacturing & Peddling Of Subprime Mortgage Securities

In New York City, The Associated Press reports:

  • The government has accused Goldman Sachs & Co. of defrauding investors by failing to disclose conflicts of interest in mortgage investments it sold as the housing market was collapsing. The Securities and Exchange Commission said in a civil complaint Friday that Goldman failed to disclose that one of its clients helped create -- and then bet against -- subprime mortgage securities that Goldman sold to other investors.

  • The SEC said the fraud, a blow to the reputation of Wall Street's most powerful firm, was orchestrated in 2007 by a Goldman vice president then in his late 20's. The employee, Fabrice Tourre, has since been promoted to executive director of Goldman Sachs International in London.

  • Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unraveling in early 2007. In an email to the friend, he described himself as "the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

For more, see SEC Accuses Goldman Sachs Of Civil Fraud.

For the Securities and Exchange Commission press release, see SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages:

  • "The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

For the SEC lawsuit, filed in a Manhattan Federal District Court, see Securities And Exchange Commission v. Goldman Sachs & Co., et ano.

Sale Leaseback Deal A Constructively Fraudulent Transfer, Violated State Consumer Protection Act, Says Judge In Granting $244K+ Triple Damage Award

In a recent ruling from a U.S. Bankruptcy Court in Boston, Massachusetts, 3 individuals and one company were found liable for the return of over $81,000 in home equity that was pocketed from a couple facing foreclosure in a sale leaseback, foreclosure rescue arrangement which was found to constitute a constructively fraudulent transfer under sections 548 and 550 of the U.S. Bankruptcy Code.(1)

In addition, as a result of a default in the case by the company involved and one of the individuals who failed to show up to the trial to defend himself, the court found them liable for violating the Massachusetts Consumer Protection Act [Mass. Gen. Laws ch. 93A]. Accordingly, it assessed an award in favor of the Bankruptcy Trustee (who brought the lawsuit on behalf of the bankruptcy estate) in the amount of $244,513.11, which represents triple damages allowed under state law, and is based on the amount of the home equity ripoff ($81,504.37 x 3).

For the ruling, see Lassman v. Reilly (In re Feeley), Chapter 7, Case No. 06-13582-JNF, Adv. P. No. 07-1201 (Bankr. D. Mass., April 13, 2010).

(1) In this regard, the court observed:

  • Under section 548(a)(1)(B), the trustee must prove the following elements: "(1) a transfer of the debtor's property or interest therein; (2) made within one year of the filing of the bankruptcy petition; (3) for which the debtor received less than a reasonably equivalent value in exchange for the transfer; and (4) either (a) the debtor was insolvent when the transfer was made or was rendered insolvent thereby. . . ." In re Cahillane, 408 B.R. at 188-89 (citations omitted). Additionally, the trustee must prove each element by a preponderance of the evidence. Id. at 189 (citing, inter alia, Frierdich v. Mottaz, 294 F.3d at 867). See also Tomsic v. Pitocchelli (In re Tri-Star Techs. Co., Inc.), 260 B.R. 319 (Bankr. D. Mass. 2001).


  • Having found that the Trustee is entitled to avoid the transaction, section 550 permits the trustee to recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from "the initial transferee of such transfer [Reilly] or the entity for whose benefit such transfer was made [the remaining defendants]." 11 U.S.C. § 550(a)(1). In his Amended Complaint, the Trustee did not specify which alternative he sought, but in his Memorandum, the Trustee clarified that he is seeking the value of the property transferred, namely the Debtors' equity which equaled $81,504.37 on March 29, 2006.

(Note that the sale leaseback deal was consummated between the homeowners and the foreclosure rescue operators on March 29, 2006, which was at or near the height of the recent real estate boom/bubble. Between that time and now, the value of the home has presumably suffered a significant loss in value. Given that, when filing a lawsuit to unwind or undo this type of home equity scam, a decision must be made (typically by the screwed over homeowner, or in this case, the bankruptcy trustee) whether to seek to restore the property title in the name of the homeowner, or allow the foreclosure rescue operator (or whoever the current homeowner is) to keep the house and, instead, seek financial damages for the amount of the home equity ripoff, it may be in the homeowner's best interest to opt for the financial damages (assuming, of course, that the foreclosure rescue operators have deep enough pockets to cough up the cash to cover the court's damage award). This may be especially true if the homeowner is in a state/jurisdiction that has a consumer protection statute that provides for a recovery of triple damages. In this case, the amount of the $81,000+ in recoverable damages (increased to $244,000+ with respect to two of the defendants for violating the Massachusetts Consumer Protection Act) was calculated based on the home's value on March 29, 2006 (the day the ripoff was consummated). Had the Bankruptcy Trustee sought recovery of the home itself, the bankruptcy estate would be getting back the home at today's (presumably significantly lower) worth, encumbered by a mortgage debt that may exceed the home's now-lesser value.

It appears that, when seeking to unwind or undo one of these sale leaseback, foreclosure rescue scams that was consummated at or near the height of the recent real estate boom/bubble, the victim - and the victim's attorney - must "be careful what they ask for" and exercise great care with respect to the specific remedy they seek, the way (I suspect) the Bankruptcy Trustee did in this case (or maybe he just got real lucky).)

Sale Leaseback Foreclosure Rescue Scams & The Bona Fide Purchaser Doctrine In Pennsylvania

In a recent story in The Philadelphia Inquirer on Chester County homeowner Melissa Miller who was victimized out of an estimated $140,000 in equity in a sale leaseback foreclosure rescue scam (see Mortgage scheme costing Chesco woman her home), a reference was made to her apparent failed attempt to undo the ripoff through the filing of a civil lawsuit:

  • [Bruce] Baldwin, Miller's attorney, said the [straw buyers] did not respond to JPMorgan Chase's foreclosure action on [Miller's] house, or to a suit he filed in Chester County Court on Miller's behalf "against all the parties involved," including the [straw buyers] and Washington Mutual [the lender who, presumably unwittingly, financed the foreclosure rescue ripoff].

  • Based on the evidence, Baldwin said, County Judge Robert Shenkin, while agreeing that both Miller and Washington Mutual had been "innocent victims of fraud," determined in December that the burden of loss fell on Miller because she had agreed to the arrangement.

It is arguable whether any mortgage lender who, albeit unwittingly, finances a foreclosure rescue ripoff where the victimized homeowner remains in possession of the premises is an innocent victim of the fraud.

The general rule in Pennsylvania, based on its state case law, is clear that, prior to making a loan secured by real estate, a mortgage lender has an obligation to determine whether the premises is in the possession of one other than the actual borrower/mortgagor and, if so, to make the appropriate inquiries into the legal rights and equities of those in occupancy. Failure to do so may lead to the imputation of constructive notice on the mortgage lender of the fraud.(1)

It appears that, in this case (and in most cases), the lender financing the scam failed to satisfy its obligation. In such an event, the mortgage lender is arguably not entitled to status as a bona fide purchaser and, accordingly, arguably not entitled to the recording statutes, thereby leaving its interest in the premises subject to being voided by the victimized homeowner.(2)(3)


(1) In Woods v. Farmere, 7 Watts 382, 1838 Pa. LEXIS 94 (1838), the court stated:

  • The duty of inquiring into the foundation of a notorious possession is not a grievous one, [... .] [T]he doctrine of constructive notice is undoubtedly a sharp one; but it is not more so in regard to a notorious possession than it is in regard to a registry. Nor is it less reasonable; for it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register.

In Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933), the court observed:

  • Such possession is evidence of title, and, in a certain sense, is a substitute for recording the agreement of purchase, and is sufficient to put a subsequent purchaser or mortgagee on inquiry: Hottenstein v. Lerch, 104 Pa. 454; Lord's App., 105 Pa. 451; Rowe v. Ream, 105 Pa. 543; White v. Patterson, 139 Pa. 429.

  • A prospective purchaser is required to make inquiry of those in possession, and failing to do so, is affected with constructive notice of all that such inquiry would have disclosed: Stonecipher v. Keane, 268 Pa. 540; Lazarus v. Lehigh & W.-B. Coal Co., 246 Pa. 178; Ohio R. Junc. R.R. Co. v. Pa. Co., 222 Pa. 573; Jamison v. Dimock, 95 Pa. 52.

  • The notice of possession which the law imposes on a subsequent vendee or mortgagee without regard to whether he has actual knowledge or not, is of such character that it cannot be controverted. The means of knowledge which possession affords is regarded as the legal equivalent of actual notice: Rowe v. Ream, supra, at 546.

In Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77 (1942), the court stated the following:

  • It is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well "by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title": Salvation Army Inc. Tr. v. Lawson, 295 Pa. 459, 463. See also Kinch v. Fluke, 311 Pa. 405, 408; Driebe v. Fort Penn Realty Co., supra, 318; Koubek v. Tenos, 343 Pa. 409, 412.

In Malamed v. Sedelsky, 80 A.2d 853, 367 Pa. 353 (Pa. 1951), this statement was made by the court:

  • [I]t has long been settled that it is the duty of a purchaser of real property to make inquiry respecting the rights of the party in possession and failing to do so they are affected with constructive notice of such facts as would have come to his knowledge in the proper discharge of that duty: Lazarus v. Lehigh and Wilkes-Barre Coal Co., 246 Pa. 178, 184, 92 A. 121 (1914); Atlantic Refining Co. v. Wyoming Nat. Bank, 356 Pa. 226, 236, 51 A. 2d 719 (1947); Sidle v. Kaufman, 345 Pa. 549 557, 29 A. 2d 77 (1942); Kinch v. Fluke, 311 Pa. 405, 166 A. 905 (1933)

  • This has been the law as far back at least as Woods v. Farmere, 7 Watts 382, 387 (1838), where it was said by Chief Justice GIBSON, at p. 387, "... it certainly evinces as much carelessness to purchase without having viewed the premises, as it does to purchase without having searched the register."

In Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555; 735 A.2d 79 (1999), the Pennsylvania Supreme Court continued its recognition of the duty of purchasers and mortgagees to make the appropriate inquiries of those in possession of the premises in which they are acquiring an interest in by making this statement:

  • A party is on constructive notice of another's interest in real property where the party "could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect title, and also by what appeared in the appropriate indexes in the office of the recorder of deeds." Lund v. Heinrich, 410 Pa. 341, 346, 189 A.2d 581, 584 (1963).

(2) As recently as March 3, 2010, a U.S. Bankruptcy Court in Philadelphia (in applying Pennsylvania case law) ruled that a lender who (presumably unwittingly) financed a foreclosure rescue scam involving a sale leaseback arrangement was not a bona fide purchaser and not entitled to the protection of the Pennsylvania recording statute. Consequently, the court voided the lender's mortgage (although it did grant it an equitable lien to the extent of the approximate unpaid balance owed by the victimized homeowners on their existing mortgage loan immediately prior to the ripoff - no lien was granted for the amount by which the new loan that financed the scam exceeded the existing loan).

Among other things, the court, in In re Fowler, Chapter 13, Bky. No. 07-11692ELF, Adv. No. 07-00139ELF (Bankr. E.D. Pa. March 3, 2010), made this statement (among others) recognizing the following general rule in Pennsylvania on the bona fide purchaser doctrine:

  • [i]t is well settled that purchasers and mortgagees of real estate are affected not only by matters of which they had actual knowledge and by what appeared in the office of the recorder of deeds and in the various courts of record whose territorial jurisdiction embraced the land in dispute, but as well by what they could have learned by inquiry of the person in possession and of others who, they had reason to believe, knew of facts which might affect the title. Sidle v. Kaufman, 345 Pa. 549, 29 A.2d 77, 82 (Pa. 1942) (emphasis added) (internal quotations omitted).

For more on the bona fide purchaser doctrine in Pennsylvania, see:

For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

(3) A 2009 ruling by a Federal District Court in Chicago ruled, in applying Illinois law, that a mortgage lender who financed a foreclosure rescue scam (where the victimized homeowner remained in possession of his home throughout the relevant time period) was not entitled to status as a bona fide purchaser and, consequently, not entitled to protection of the state recording statutes. See Lender's Failure To Inquire Into Possession Disqualifies It For Bona Fide Purchaser Protection In Suit To Undo Foreclosure Rescue Sale Leaseback Scam.

Support for imputing constructive notice in the application of the bona fide purchaser doctrine on a mortgage lender in situations where a property owner remains in possession of premises conveyed to another, after which the grantee obtains a mortgage loan secured thereby, has been around for over 140 years - it is certainly not a new phenomenon - as evidenced by this excerpt from a ruling from the California Supreme Court in Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (1868):

  • An absolute deed divests the grantor not only of his legal title, but right of possession; and when such grantor is found in the exclusive possession of the granted premises long after the delivery of his deed, here is a fact antagonistic to the fact and legal effect of the deed; and we cannot appreciate the justice, sound reason, or policy of a rule which would authorize a subsequent purchaser, while such fact of possession continues, to give controlling prominence to the fact and legal effect of the deed, in utter disregard of the other notorious prominent antagonistic fact of exclusive possession in the original grantor. He cannot be regarded a purchaser in good faith who negligently or willfully closes his eyes to visible pertinent facts, indicating adverse interest in or incumbrances upon the estate he seeks to acquire, and indulges in possibilities or probabilities, and acts upon doubtful presumptions, when by the exercise of prudent, reasonable diligence he could fully inform himself of the real facts of the case.


  • The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.

Oregon Regulators Taking A Close Look Into Portland-Based Foreclosure Rescue Operator Peddling Sale Leaseback Programs

A recent story in The Oregonian [see State regulators open civil investigation into Aspen Capital's mortgage affiliate] reports that the Oregon Department of Consumer and Business Services has commenced a civil investigation into the lending and foreclosure rescue activities of an affiliate of Aspen Capital for possible violations of consumer protection laws. The type of transactions being looked into include sale leaseback programs, an example of which was described in the following excerpt taken from a February 27, 2010 Oregonian story [see Foreclosure rescues by Aspen Capital affiliate -- a lender of last resort -- failed nearly half the time]:

  • Tammy Campbell was distraught. She couldn't find a job and fell behind on her mortgage in 2004. The modest Portland home she bought for its archways and oak floors headed to foreclosure. That's when she got a flier in the mail from an Aspen affiliate. Campbell signed a contract to sell her home to another Aspen affiliate just days before the foreclosure sale.

  • The $109,750 price was below market value, but it was enough to pay off her delinquent loan. The good part: The sale halted the foreclosure and Campbell stayed in her home, renting from an Aspen affiliate. The bad part: She no longer owned her home and her rent cost her more than her old monthly mortgage payment.

  • According to the contract, Campbell paid $719 rent compared with $599 on her mortgage. Irving Potter, lawyer for Aspen Capital and its affiliates, said the company didn't consider whether Campbell could afford the rent. Instead, he said, the company set the rent to ensure an 8 percent annual return. Even though she no longer owned the home, Campbell was required by the contract to pay the maintenance and property taxes. Potter said the company ended up covering the taxes.

  • The Aspen affiliate gave Campbell the option to buy her home back. The price would rise 10 percent a year. Under the contract, the company could put the home on the market if Campbell couldn't buy it back after two years. By buying the home for less than it was worth, the company would profit by selling at market value.


Under Oregon case law, this type of transaction has been found by the courts to constitute an equitable mortgage(1), an arrangement where a loan transaction is disguised as a formal sale, combined with:

  • a contemporaneous leaseback of the premises by the financially strapped property owner, and
  • an option to repurchase granted to the property owner.

Disguising a loan transaction in this way is believed by some (erroneously, in many cases) to be a way to: (1) evade state usury statutes, (2) evade the property owner's right of redemption by obviating a foreclosure action - in a sale leaseback, the new owner need only evict the now-ex-homewoner to take possession of the premises, and (3) make off with a distressed property owner's equity by providing for contractual obligations so onerous that they are unconscionable and illusory, coupled with hair-trigger default provisions that result in the property's forefeiture to the operator.

Inasmuch as these types of transactions have been under attack by several other states(2) as being in violation of state consumer protection laws, it would be interesting to see where Oregon regulators come out on this issue.(3)


(1) The Oregon Supreme Court, in Umpqua Forest Ind. v. Neenah-Ore. Land Co., 188 Or 605, 217 P2d 219 (1950), pointed to the following factors as indicia that a mortgage, as opposed to a true sale, was intended:

  • the fact that negotiations originated from an application for a loan,
  • the dire financial straits of the grantor,
  • the grantor's continued possession of the property,
  • the intimate business or social relationship of the parties,
  • failure of the grantee to carefully investigate the title of the grantor,
  • failure of the grantee to ascertain the value of the property,
  • inadequacy of consideration, and
  • the lack of bargaining between the parties as to the value of the property with the controlling consideration being the profit inuring to the grantee.

Further indication of intent to create a mortgage is present is: when a deed absolute in form, is accompanied by an option to repurchase, the instruments must be considered together. The option does not of itself convert the transaction into a mortgage, but it is a circumstance to be considered in favor of the existence of a mortgage.

See also these Oregon Court of Appeals rulings which applied these guideposts in evaluating a real estate transaction and concluding that it was an equitable mortgage, and not true sale:

  • Long v. Storms, 50 Or App 39 (1981) (ruled that, as an equitable mortgage, the arrangement was subject to the Federal Truth In Lending Act),
  • Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77 (Or. Ct. of App. 2005).

This short narrative on the equitable mortgage doctrine in Oregon, appearing on the State of Oregon Division of Finance and Corporate Securities (DFCS) website, also addresses the equitable mortgage doctrine in Oregon.

(2) In Massachusetts, the state Attorney General's office sued and reached a settlement in a case involving 26 real estate transactions that allegedly: (1) involved unfair and deceptive acts and practices under the Massachusetts Consumer Protection Act, and (2) constituted violations of specific state and federal laws and regulations designed to protect consumers from deceptive and unconscionable lending practices. Among the AG's allegations was that the sale leaseback arrangements constituted usurious equitable mortgages. See:

In Arizona, Attorney General Terry Goddard successfully sued an alleged foreclosure rescue operation believed to have defrauded a couple of hundred Arizonans of their homes in violation of, among other statutes, the Arizona Consumer Fraud Act, and alleged that the sale leasebacks were equitable mortgages. See:

The Arizona Attorney General also scored a victory in an earlier case (see Arizona Foreclosure Rescue Operator Ordered To Pay $1.2M In Home Sale, Leaseback Program) in which a foreclosure rescue operator, in lending money to more than 60 homeowners facing foreclosure or in need of money, designed its loans, which it called reverse sales, to evade laws protecting mortgage borrowers by structuring them as an outright sale of the property by the borrower, who then rented back the home with an option to repurchase it. If homeowners were late on a rental payment or unable to repay the loan and funding fee within two years, they could lose their homes and any equity in them. For the Arizona AG press release, see Court Orders Realty Firm to Pay $1.2 Million for Violating Fraud, Banking Laws.

In Washington, the state Attorney General’s Office successfully sued a notorious foreclosure rescue operator, and obtained a court order directing the operator to pay more than $3.2 million to victims he wronged plus $179,000 in penalties for violating the state's Consumer Protection Act. See:

(3) For other reports on sale leaseback, foreclosure rescue programs that have been found to violate the state's consumer protection laws, see: State Consumer Fraud Act Yields Triple Damages Award For Homeowners In Bogus Sale Leaseback Equity Stripping Racket, footnote 1. Oregon equitable mortgage doctrine theta