Condo Converter Accused Of Unloading Sub-Par Structure On Unwitting Apartment Buyers As Rampant Unit Foreclosures Now Threaten To Sink 96-Unit Complex

In Largo, Florida, The St. Petersburg Times reports:

• To most people, Brittany's Place in Largo looked no different than the hundreds of other blandly attractive apartment complexes built in Florida in the 1970s and '80s. To four Miami men, it looked like gold.

• As the condominium boom neared a frenzied peak in 2005, they hit on a plan: buy the 96-unit complex, spend a few thousand dollars per apartment on showy upgrades, then sell the units as condos at a tidy profit. It seemed like a fine idea, one that had enraptured developers all over the state.

• Now, five years later, buyers like Peggy Bodine have discovered just how wrong a condo conversion can go. So many units are in foreclosure that Bodine is one of the few owners still paying maintenance fees. There is no money in the budget to repaint the outside walls, to repair the cracked pool deck, to pay the insurance premium due this month. The clubhouse has been stripped of most of its furnishings.

• Worst of all, Bodine says, "they dumped the association on us.'' On April 30, the developers washed their hands of Brittany's Place. They transferred control to a condo association board made up of owners like Bodine, a math teacher who acknowledges she knows little about condo law or the duties of a condo board.

For more, see Rampant foreclosures leave condo owners stuck with fees.

City Council To Enforce Ban On "Mother-In-Law" Vacation Rentals, Cutting Source Of Income For Some Homeowners During Area's Busiest Time Of Year

In Port Townsend, Washington, the Olympic Peninsula Daily News reports:

• The City Council directed its staff to enforce a ban on the use of so-called mother-in-law units as short-term vacation rentals, even though it will cause many of these operations to cancel reservations during the busiest time of the year. "I understand this action is causing some inconvenience," said council member Mark Welch. "But it shouldn't be a surprise that we are enforcing a law that has been on the books for some time." On May 4, the city sent out 21 notices to what it calls accessory dwelling unit, or ADU, rentals which were in violation of the ban. City Hall discovered the ADUs via their online advertising as short-term rentals.

***

• A dozen people weighed in about the issue during the public comment of Monday night's City Council meeting. Most of them favored a re-evaluation or repeal of the ban, which would cause them to lose projected income or issue refunds. "If I am forced to comply with this, my house will go into foreclosure," said Barbara Morey, who rents a portion of her property at vacation rates. [...] Several of those testifying said that canceling reservations made for the August to October time frame would cause an inconvenience for her guests that will give them a bad taste about the town.

***

• Not all of the public testimony opposed the ban, as two bed-and-breakfast owners spoke in its favor. Mary Ann DeLong said licensed bed and breakfast operations pay more taxes and have to comply with a number of stringent insurance regulations. And Janet Allen said it was difficult to compete with the "bootleg properties" that have fewer restrictions and can charge less money."I think this should be enforced," DeLong said of the ban. "To do otherwise is unfair to those of us who have complied with all aspects of the law for many years."

For the story, see Council not budging, but operators of mother-in-law units want Port Townsend to re-evaluate code.

Woman Gets 4 Years For Forging Checks That Left Unwitting Elderly Landlord Facing Foreclosure

In Vista, California, KGTV-TV Channel 10 reports:

• A woman who wrote checks to herself from her landlord's account, temporarily forcing the victim's two homes into foreclosure, was sentenced Monday to four years in state prison. Jacqueline Mastrodimos, 39, pleaded guilty last October to four counts of passing forged checks.

***

• Authorities said Mastrodimos rented a room in 2005 in Johansen's Carlsbad home and soon became involved in the 60-something victim's finances. The mortgage on the Dehesa Court home went unpaid from January to August 2008, and Johansen didn't realize there was a problem until she saw a notice on her front gate that the property would be sold at auction in three weeks, prosecutors said. A Carmel Valley condominium was in foreclosure for the same reason. Johansen was able to keep the properties but had to pay substantial penalties.

• Investigators said Mastrodimos took the victim's bills to a post office and picked up her mail each day. During that time, she wrote checks to herself from the victim's account, took out credit cards in Johansen's name and used her automated-teller machine card at casinos.

Source: Woman Sentenced For Forging Checks (Jacqueline Mastrodimos To Spend 4 Years In Prison).

(1) Reportedly, Vista Superior Court Judge Daniel Goldstein ordered the defendant to pay $105,000 in restitution to Julie Johansen and $19,000 to American Express for opening up a credit card in the victim's name.

Bronx DA Charges Pair With Pocketing $30K In Rent From Building In City Program Enabling Tenants To Buy Their Units In Co-Op Conversion

In The Bronx, New York, The Village Voice reports:

• Two tenant leaders of a city-owned Bronx building were charged by the Bronx DA [] with stealing thousands of dollars from the building's bank account. Arlether Middleton and Twana Rose served as the president and secretary of a tenants' association in a building that was part of a city program that enables low-income tenants to buy their apartments and eventually convert the building into a co-op.

• The tenants' association is supposed to manage the building during the conversion process. Instead of doing that, the two tenant leaders -- a father-daughter team -- stole more than $30,000 in rent that was intended for the upkeep of the building, 783 East 168th Street. They then tried to defraud the city by submitting false bank statements and financial reports to city officials, says the city's Department of Investigation.

• This wasn't the first time Rose had attempted to defraud the city and her fellow tenants. In 2001, Rose pleaded guilty to charges that she illegally cashed the tenants' association's checks and kept the money for herself. She stole $7,000 and was sentenced to five years' probation.

Source: Tenant Leaders Accused of Stealing From Association Account.

Lenders Now Liable For Refunding Chicago Renters' Security Deposits On Tenant-Occupied Foreclosures

In Chicago, Illinois, Chicago Breaking News Center reports:

• Thousands of apartment dwellers who stand to lose security deposits because of building foreclosures would get their money back under an ordinance the City Council approved [earlier this month].

• Aldermen voted 47-0 to approve Mayor Richard Daley's proposal to require all lien holders -- typically banks -- in foreclosure cases to pay back security deposits to tenants who are pushed out of their homes. Under current city law, the landlord and not the lien holder is responsible for paying back the security deposit. That often doesn't happen, city officials have said.

• Last year, more than 8,500 rental units were affected by foreclosures, according to city statistics. With an average security deposit of $860, up to $7.3 million was lost, the city has said.

Source: Renters will get security deposits back in foreclosures.

Hefty Tax Bills Ready To Bite R/E Investors Using So-Called "Tax-Free" 1031 Exchange Deals; Many Close To F'closure w/ Little Cash, Equity To Pay IRS

Crain's New York Business reports:

• During the real estate boom, hundreds of landowners reaped enormous gains on the sales of property and, under Rule 1031 of the U.S. Tax Code, deferred paying taxes on those profits by buying new properties of equal or greater value within 180 days.

• With the value of many of those purchases down 30% to 60% and with some targeted for foreclosure, the owners find themselves in a bind. If they are forced into a foreclosure, they would not only lose out on that transaction, but would have to pony up huge capital-gains taxes on their earlier sales. As a result, many owners who conducted 1031 exchanges during better economic times are feeling trapped in their money-losing investments.

• “Ordinarily, they would be tempted to just give the property back to the bank and take the loss,” says Lou Weller, a principal at Deloitte Tax. “But if they do that, they have to consider the taxes involved.”

***

• Foreclosures aren't the only threat looming on the horizon for 1031 owners. During the market boom, debt was cheap and plentiful, and many buyers relied heavily on borrowings to fund their deals. With property values down, often below the value of the mortgages, these owners find themselves with little or no equity to cover the taxes that are due on their earlier transactions, according to Mr. Weller.

For more, see Tax deals return to bite owners (Big gains made under IRS rule now being erased by falling prices) (may require paid subscription; if no subscription, TRY HERE, then click link for the story).

Minn. Feds Suspect Attorney Of Leaving 88-Year Old Mom Holding The Bag As Straw Buyer In Scam To Generate Cash To Redeem His Law Office From F'closure

In St. Paul, Minnesota, the Star Tribune reports:

• At least the feds waited until after Mother's Day. The U.S. attorney's office filed documents in federal court [] revealing an IRS criminal investigation of White Bear Township's board chairman -- a St. Paul attorney -- on allegations of mortgage fraud and money laundering in a deal that centers on his 88-year-old mother.

• In essence, the IRS suspects that Richard A. Sand was involved in "flipping" an Orono home that an associate bought and resold the same day to Sand's mother at a $1 million markup. According to the IRS, the deal was funded with $2 million in mortgages from Bank of America, which relied on grossly exaggerated income and other phony financial data for the buyer, Antoinette Sand. The bank got just one payment before foreclosing and ultimately sold the house at a loss for $700,000.

• Some of the Bank of America mortgage money allegedly was used to redeem Sand's law office on Nina Street in St. Paul from foreclosure, and the government now wants to seize it because its ownership is traceable to the proceeds from the alleged fraud.

For more, see White Bear Township official Richard Sand accused of mortgage fraud (The IRS is investigating White Bear Township's board chairman over a real estate deal involving his 88-year-old mother).

Ohio AG Hammers Home Improvement Contractors For Pocketing Customer Cash, Failing To Provide Services Paid For

From the Office of the Ohio Attorney General:

• As Ohio consumers begin to make springtime repairs to their homes, Attorney General Richard Cordray [] sent a stern message to home improvement contractors who defraud Ohioans. Concluding a statewide law enforcement sweep, Cordray announced charges, and in some cases judgments, against eight Ohio companies accused of swindling consumers.

The lawsuits and default judgments against contractors alleging violations of Ohio’s Consumer Sales Practices Act have accused the companies of pocketing money from Ohio consumers to do home improvement work, and then failing to provide the services for which consumers paid. Among the various accusations include failing to deliver, shoddy workmanship, soliciting consumers without providing a written agreement, failing to cough up refunds, among other things.(1)

For the press release, see Cordray Cracks Down on Home Improvement Fraud.

(1) The following companies have been targeted by the Ohio AG:

• Anthony Otworth d.b.a. Custom Touch Remodel, based in Galloway; To view the complaint in full, click here.
• Backyard Oasis/Royal Spa, located in Lewis Center; To view the complaint in full, click here.
• Bob Brown d.b.a. Brown & Brown Roofing and Bob Brown Roofing, based in Dayton; To view the default judgment in full, click here.
• Hometown Improvement, Inc., based in Columbus; To view the complaint in full, click here.
• Kyle Wiehoff d.b.a C&W Concrete, located in Columbus; To view the complaint in full, click here.
• Premier Design Consultants Inc., located in Columbus; To view the default judgment in full, click here.
• Scott Goodin Heating and Cooling, located in Cincinnati; To view the complaint in full, click here.
• Shawn Fleming Snowplowing and Shawn Fleming Roofing, based in Mentor; To view the complaint in full, click here.

Deceased Iraq Vet's Widow Gets Loan Modification Jerk-Around; Says Select Portfolio Yanked Approved Loan Mod, Claiming An Error In Processing

In Amboy, Washington, KATU-TV Channel 2 reports:

• No one seems to have a definitive answer for her. She has heard a variety of excuses, and dealt with months of what she says are stall tactics. But the bottom line is, the wife of a slain local soldier is about to lose her home. And she's losing it to a company that took hundreds of millions of taxpayer dollars to help people just like her.

***

• Casey [Werner] knew she wouldn't be able to make mortgage payments. She now knows she'll have "to fight for my house." It's a fight Casey did not expect when she heard how the federal government and banks were working together to save homes through "loan modification" programs. [...] Casey was especially encouraged after she received a letter from "Select Portfolio Servicing" telling her she was approved for a modification. Her monthly payment of $1,736.29 would be reduced to $517.39. [...] However, after Casey made one payment, Select Portfolio said it made a mistake. Casey needed to provide pay stubs, tax returns and other documents: paperwork she had already given the company. "It's just like a continuous cycle of, you know, ridiculousness," she said.

• Then she got a letter from Select Portfolio stating: "We regret that we are unable to qualify you for the Obama administration's home affordable modification program ... You did not pass the U.S. Treasury's net present value test." Basically, the money Select Portfolio would get from selling Casey's home – after foreclosure – was more than it would get by modifying her loan. It's the same type of excuses one Portland-area real estate attorney says he hears all the time. "It's not for real," said attorney Rich Vial. "Banks just aren't getting it done."

For more, see A fight for the hero's home: One loan-modification saga.

Bookkeeping Error Leads To Loss Of Home To Foreclosure Despite No Missed Payments; Ocwen Then Backpedals, Rescinds Sale After Local Media Intervenes

In Houston, Texas, KTRK Channel 13 reports:

• [O]ne couple found themselves facing eviction, through no fault of their own, until Action 13 Consumer reporter Jeff Ehling got involved. The family made their payments but mistakes were made by the mortgage company that lead to foreclosure and could of had a family out in the streets had we not gotten involved. Bill and Pam Marquis faced a nightmare no homeowner wants to go through. "They foreclosed on us," said Bill.

• The Marquises say the trouble started when, without their knowledge, their mortgage was sold from one company to another then a third. It was a fact the couple only discovered after calling their original loan company. "That's when we got word that they sold the note to Cinlar, and we called Cinlar, and they said they sold the note to Ocwen," Bill said.

• After calling Ocwen Financial, the family got another surprise. "They said we do have your note, everything is on file, but you are very delinquent," said Bill. The Marquises then learned the company had the wrong address for their home, and because of that, the mortgage company's delinquency letters never made it to them. The couple says even though they were making payments every month, Ocwen Financial saw the couple as being delinquent by several thousand dollars due to an apparent mix-up involving an escrow account.

• "They thought that we did not have our own insurance, that they were covering our insurance, but they were not, we have our own outside insurance. And we had already paid our taxes and they said, 'No, we paid your taxes and you owe us escrow on the taxes,'" said Pam. Despite months of trying to get a solution, the family says just this week they were given an eviction notice. The family was told they had 15 days to leave the property, which includes the burial site for the ashes of Pam's mom and sister.

• "When they told us we were going to lose the house, it was just devastating, It just tore me up," Pam said. After we talked to the family, we decided to contact Ocwen Financial and spoke with an executive vice president who told us they would look into the Marquis family eviction. One week later that VP told us, "The erroneous data point from the prior loan company seems to have caused much of the confusion. We did notify the borrower today that the foreclosure has been rescinded." Now the company says the family can stay in their home.

• "I really believe you saved our house," Bill told us. The couple says they tried for months to get their mortgage problems fixed, but it took our involvement to get that foreclosure notice rescinded.

Source: Mortgage mix-up nearly costs family their home.

BofA Pocketed Insurance Proceeds From Gas Explosion, Then Attempts Foreclosure On Home Anyway, Says Now-Deceased Homeowner's Son In Lawsuit

In Houston, Texas, My Fox Channel 26 reports:

• Last October a natural gas leak explosion rocked the house in the 56 hundred block of Nightingale. "There was a natural gas leak at the house next door to Miss Miles home" the family's attorney Daniel Horowitz said. And it would forever change Courtney [Miles'] life. "I didn't want to come back I just couldn't do it," Courtney said during his first trip back to the home since last fall's explosion.

• His pain is visible when remembering how his mother Dell Miles was still alive when neighbors came running to help. "She had third and fourth degree burns over 60 percent of her body," Courtney said. According to the arson report, when neighbors tried to pull Dell Miles outside her skin was coming off and she kept screaming, "my baby, my baby." Those screams were for Courtney's sister Angela Landry who has multiple sclerosis and is confined to a wheelchair. "They had to actually pull her out of the window," Courtney said.

• "We got in contact with Bank of America within a month of the explosion," Horowitz said. A Houston law firm sent Bank of America a letter in November of last year. It details the explosion and asks the bank to suspend Mile's mortgage payments pending her insurance claim. "We got no response," Horowitz said.

• So Courtney's attorneys sent another letter in December. This one marked second request urgent. Again the attorneys said Bank of America ignored it. "We've been able to get nowhere," Horowitz said. In January Dell Miles died after spending many weeks in a coma. Her daughter Angela was still in serious condition and couldn't even attend her own mother’s funeral.

• "She feels this emptiness like she never got a chance to say goodbye," Courtney said. While the family grieved Bank of America threatened them with foreclosure. "I couldn't believe it, I could not believe it," Courtney said.

• In January Courtney's attorneys sent another letter to Bank of America. It explains Dell Mile's death, assures the bank the loan will soon be paid off and it requests the bank to stop threatening the family with foreclosure. "It's like a kick in the gut," Courtney said.

• Horowitz said he soon realized Bank Of America didn't spend any of the millions it got in taxpayer bail out money to train employees in customer service. "No one can help you, no one knows what their doing, no one has the authority to do anything, then they transfer you back to the main switchboard," Horowitz said. "I've spent no less than 45 minutes on hold with Bank of America."

• Meanwhile arson investigators ruled the fire that killed Dell Miles was caused by a nearby natural gas leak. Her insurance company wrote a check to Bank of America for over 72 thousand dollars. "Which was enough to pay off the entire balance of the mortgage," Horowitz said.

• So then what did Bank of America do? "Turned their back on her after they were paid off," Horowitz said. Bank of America not only proceeded with the foreclosure, Dell's home was posted for sale on the county's auction block. "Our family had notices of the sale, not the foreclosure proceedings but the sale," Miles family attorney Benny Agosto Jr. said.

• The Miles family filed a lawsuit accusing Bank of America of wrongful foreclosure, negligence, and fraud. In court filings Bank of America denies all the allegations in the suit. Courtney's attorneys also had to file a temporary restraining order to stop the bank from selling the property. A court hearing was held last month, but Bank of America was a no-show. "We expected them here however I'm not surprised they didn't show up," Agosto said.

• Bank of America sent Fox 26 Investigates this prepared statement, "We have stopped the foreclosure. We requested the authorization from the representative of the estate for application of the funds to avoid any conflict or dispute by other potential claimant or heirs. Plaintiffs have not provided that authorization. We are working with plaintiffs to identify an alternate solution for application of the funds."

• Even with a law firm writing and calling, Courtney says he got nothing but ignored by the huge financial institution. It makes some wonder if other homeowners have also been victims of wrongful foreclosures. "There's no telling how many other people out there come home from work one day and get a foreclosure notice," Horowitz said.

For the story, see Bank Forecloses on Home After it's Paid Off.

Another Homeowner Faces Foreclosure Despite Having Made All Payments; Allegedly Delinquent Mortgage Is Owed By Previous Property Owner

Buried in a recent story in First Coast News is the following excerpt on a Northern Florida resident who faces foreclosure on a home he bought two years ago, despite the fact that he's made all his payments:

• Tom Bloomer is a Camden County businessman on the wrong end of inaccurate foreclosure documents. "First I said they goofed up here, and then they said no we're taking the house. It started to get scary," he said. [...] "I have made my payments. I've made every single payment," said Bloomer.

• He purchased his home two years ago from a Wells Fargo bank customer and is current on his mortgage. So he's left wondering why his home is in foreclosure. "They will not listen to me at all. I have actually filed a complaint with the Comptroller of Currency," said Bloomer.

• Now Wells Fargo, unable to reach the seller about a debt, is foreclosing on Bloomer even though he doesn't owe Wells Fargo anything. In fact, his mortgage from the day he purchased his home has been with Bank of America. Bloomer said he is the victim of a wrongful foreclosure. "It is a scary ordeal."

• The Atlanta law firm McCalla Raymer filed Bloomer's foreclosure lawsuit. The firm would discuss neither the number of cases it files nor Bloomer's case. [Jacksonville Area Legal Aid attorney Lynn] Drysdale said this type of filing is characteristic of foreclosure mills. [...] Bloomer has hired an attorney to put an end to his wrongful foreclosure nightmare so he can live the American dream of owning a home.(1)

For the story, see 'Foreclosure Mills' Using Wrong Documents may Lead to Wrongful Foreclosure.

(1) Homeowners in this situation would be well advised to dig out and read the title insurance policy they (presumably) obtained when they bought their home (hopefully, it hasn't been thrown away or gotten moldy sitting in a damp attic, basement, etc.), and file an insurance claim with the issuing underwriter. In addition to indemnifying a homeowner for losses due to title defects existing on the day the policy was obtained, the title insurer is required to:

• defend the title in court against any attacks by those claiming an interest in the property that pre-dates the date of the insurance policy, and
• foot the bill for the legal fees incurred in connection therewith,

provided the homeowner properly files a claim with the insurance company.

In this story, it's possible that the homeowner is suffering the consequences of a sloppy lender. A case like this could also be the result of the lender never having gotten paid off at closing, and that the escrow agent who handled the settlement improperly pocketed the proceeds intended to pay off the existing loan and headed for parts unknown.

Mother/Daughter Duo Face Charges In Alleged Rent Skimming Racket Screwing 30+ Now-F'closed Homeowners & Would-Be Buyers Under Bogus Rent-To-Own Deals

In Bakersfield, California, The Bakersfield Californian reports:

• A mother and daughter charged with a major scam that bilked at least 32 people out of 18 homes valued at more than $2.3 million are in jail in lieu of posting $1 million bail each, according to records in Kern County Superior Court.

• The daughter, Dawn Marie Kantin, 37, came into court Monday afternoon where she grinned at a friend in the audience. She pleaded not guilty to 44 counts of conspiracy, embezzlement, theft, notary fraud and forgery. Her mother, 69-year-old Alice Kantin, the reported owner of Desert Air Real Estate Investments, Inc. in Bakersfield, will be arraigned on the same charges Tuesday, court and jail records say.

***

• Victims of the reported scam, which operated in Bakersfield between August 2007 and June 2009, were financially devastated after entrusting their homes to the Kantins, according to a sworn declaration filed by Gordon Isen of the Kern County District Attorney's Real Estate Fraud Unit.

• One listed victim, Priscilla Acosta of Bakersfield, said Monday, "I'm relieved" to hear about the arrests. "The ordeal we've been through because of her (Alice Kantin) still makes me cry. We lost our home to foreclosure which we didn't find out about until it was too late." And that's what Isen's declaration said happened to distressed homeowners of 18 houses who contracted with Kantin to take over their payments but lost their home due to foreclosure. In addition, rents paid by 14 tenants with rent-to-buy agreements evaporated when they suddenly learned the homes were in foreclosure, the declaration says.(1)

For more, see Mother, daughter face charges in alleged real estate scam.

In a related story, see KGET-TV Channel 17: Real estate fraud victim says she lost $18,000:

• A victim of the mother-daughter real estate scam run by Alice Kantin and her daughter Dawn Kantin contacted 17 News saying she was scammed out of $18,000. Janice Rios says the Kantins pocketed monthly payments and down payments for more than a year that were meant to go toward her mortgage payments.

(1) Reportedly, some tenants made downpayments toward purchase of the home, according to court reports. In one case reported by KBAK-TV, Channel 29, Jennifer Hollet and Anthony King paid $30,000 toward the purchase of a home. Hollet told Channel 29 last summer that a month after they moved in, default notices began to arrive and she and King were evicted and lost their downpayment. Assistant DA Isen asked for and received $1 million bail on each defendant, and obtained an order that prevents fraudulently obtained money from being used to post bail, the story states.

Alleged "Ghetto Loans" Peddler's SEC Filing Acknowledges Government Probe Into Possible Reverse Redlining Home Lending Practices

In Memphis, Tennessee, The Memphis Daily News reports:

• The San Francisco bank Memphis and Shelby County governments sued in December over its lending practices has acknowledged it’s the subject of a probe by “certain government entities” over the same thing.(1)

• In a quarterly report filed Friday with the U.S. Securities and Exchange Commission, Wells Fargo & Co. gave a two-sentence disclosure about the investigations near the end of the report. “Certain government entities are conducting investigations into the mortgage lending practices of various Wells Fargo-affiliated entities, including whether borrowers were steered to more costly mortgage products,” the bank noted. “Wells Fargo intends to cooperate fully with these investigations.”

• A Wells Fargo spokesman said the company would not comment beyond those details. Left unsaid is what entities – state, federal or both – are looking into Wells’ mortgage lending.

For more, see Wells Fargo Acknowledges Gov't Investigation.

Go here for earlier posts on the "ghetto loans" allegations made against Wells Fargo.

(1) According to the story, the City of Memphis and Shelby County filed a federal lawsuit against the bank over the way Wells’ mortgage lending practices allegedly worsened the local foreclosure problem. The lender was accused of zeroing in on black homeowners in the city and county and prodding them into expensive, predatory mortgages. Last month, both governments amended their case to add testimony from four ex-employees of local Wells offices, all of whom claim the bank targeted black borrowers for less-than-desirable home loans, the story states.

More Light Shines On Baltimore City Tax Sale Auctions & Bid-Rigging Allegations

In Baltimore, Maryland, The Huffington Post Investigative Fund reports (story appears in The Baltimore Sun):

• Baltimore City officials on Monday auctioned liens on 12,689 homes and properties whose owners failed to pay local taxes and municipal bills — a probable record and twice as many as in 2006 in the midst of Baltimore's housing bubble.

***

• The city's record tax sale comes as the Justice Department continues a criminal investigation into bid-rigging by some investors. Federal prosecutors allege that the activity compromised as many as two dozen of the tax sales in Baltimore and several Maryland counties. Prosecutors say investors agreed in advance which properties to bid on, improperly reducing the money earned by municipalities. Three investors have pleaded guilty in the case.

***

• Vicki Valentine lost her West Baltimore home that way one raw day in early February. Real estate investors snatched her property over what began with an unpaid city water bill of $362. [...] Valentine was incredulous when the price to keep her property shot past $3,600. Jobless and lacking the savings to pay, she said she could do little to stave off the day of reckoning. [...] Though Valentine had no way to know about it, some investors rigged the 2006 Baltimore tax sale auction that led to her eviction, federal prosecutors alleged in court.

• The roots of that conspiracy run deep, prosecutors said. For years, a handful of Baltimore real estate lawyers and their investment partners quietly dominated Maryland tax sale auctions, with few questions asked about their bidding tactics or collection policies.

***

• Prosecutors went on to charge three men with conspiring to rig bids at 21 auctions in Baltimore and four other jurisdictions, including Montgomery and Prince George's counties between 2002 and 2007. All three have since pleaded guilty.(1) No other charges have been filed.

For the entire story, see City auctions liens on homes; investors can collect.

For another version of the same story, appearing in The Huffungton Post, see The Other Foreclosure Menace (Mortgage Paid Off, Woman Loses Home -- Over a Small Water Bill); and go here for accompanying VIDEO: Tapped Out: How an Unpaid Water Bill Cost a Baltimore Woman Her Home.

Go here for more on bid rigging at real estate-related auctions.

(1) In earlier stories related to this Maryland bid rigging prosecution, see:

• Bid-Rigging Attorney Gets 12 Months In 5-Year, $10 Million Conspiracy At Baltimore-Area Real Estate Tax Lien Auctions,
• Baltimore County lawyer pleads guilty to bid-rigging at tax auctions,
• Baltimore County lawyer to enter guilty plea in tax sale bid,
• Federal judge rules no joint-venture defense,
• Despite ruling, no deal ahead in bid-rigging case in Md.,
• Baltimore County businessman Jack W. Stollof to plead guilty to bid.

Providence Judge Issues Split Decision On City Foreclosure Ordinance

In Providence, Rhode Island, The Providence Journal reports:

• A Superior Court judge has ruled on a controversial city ordinance enacted last year in an effort to slow the tide of foreclosures in the city. Superior Court Judge Jeffrey A. Lanphear ruled on Monday that the city has the right to require banks to take part in homeowner mediation before foreclosing on a home and the right to impose a $2,000 fine for noncompliance with the law.

• But the city does not have the right to prevent banks that do not follow the law from filing necessary real estate documents to complete the foreclosure process, as the city ordinance mandated.

For more, see Judge upholds Providence foreclosure ordinance.

For the ruling, see Deutsche Bank National Trust Company v. City of Providence, et al.

Thanks to Donald Marritz of Regional Housing Legal Services, a nonprofit, Pennsylvania law firm headquartered in Glenside and with offices in Harrisburg, Gettysburg, and Pittsburgh, for the heads-up on the court ruling.

Legalized, Court-Sanctioned Scam Allows For Vulnerable Arizona Senior-Snatching In Kidnapping, Ripoff Racket???

In Phoenix, Arizona, KNXV-TV Channel 15 reports:

• Many people move to Arizona for the weather and recreation because it's considered a haven for retirees who want to live out their golden years. But something else is happening here - something haunting. For Clair's mom, Gloria Horrigan, it was a nightmare. Clair said her mother was taken to a nursing home against her will and not allowed visitors, not even family. “It's sickening...It really truly is sickening,” said Clair.

• It was a struggle for Robert Brown to bring his wife, Rosemary, home. She was also taken and within a matter of weeks, the family wasn't allowed to see her either. What happened in both cases started in a Maricopa County Courtroom - right in front of a judge.

***

• Both Rosemary and Gloria had health issues that made it hard on their families. Families can't force a loved one to get help, but a guardian can. That's why their cases ended up in probate court, which hears issues on care for vulnerable adults. The court approved a guardian in both cases. And both times, the guardian was Sun Valley Group of Tempe.(1)(2)

For more, see Guardianship in Arizona: Elder care or elder abuse?

(1) In total, Rosemary's family allegedly spent over a $100,000 for just four months of Sun Valley Group's care, the story states. It ended when the nursing home thought Rosemary was dying. They finally allowed the family to see her. As for Gloria, her daughter said the company seemed much more interested in her mom's money than her health. The final bill being just under $500,000 and included charges for an employee to open her mail at $75 an hour, the story states. The company also allegedly failed to make Gloria's house payments, allowing it to go into foreclosure, according to the story.

According to the story, the ABC15 Investigators have found more issues plaguing Sun Valley Group. Owner Peter Frenette's wife, Heather, is co-owner, but she is being investigated by the Arizona nursing board. The Maricopa County Sheriff's Organized Crime Unit is also reportedly investigating Sun Valley Group. By state law, both investigations are secret, the story states.

The ABC15 Investigators also reportedly discovered three multi-million dollar lawsuits filed this year against the company for fraud and racketeering. Grant Goodman is the attorney for three former Sun Valley Group clients:

• “It's more of a criminal enterprise,” said Goodman, “They need to be prosecuted.” He claimed to find a pattern with these cases. “They effectively medicate them to such an extent that they really are non-functional,” said Goodman, “And they do that while they're liquidating their assets.” The three lawsuits also blame probate court. “The mob isn't this efficient, nor does the mob have the luxury of having a court rubberstamp these proceedings,” said Goodman.

Reportedly, the Arizona Supreme Court last month issued an Administrative Order to investigate probate court. One of the issues is regulating fees.

(2) The fleecing of the estates of the vulnerable and the dead in probate / surrogate's court proceedings apparently is not all that unheard of. See, for example:

• NYC Controller Urges All Brooklyn Residents To "Make Out A Will ASAP!" To Avoid Risk Of Getting Fleeced By Public Administrator's Office,
• Retired NY Judge Reportedly Left Homeless & Broke By Guardianship Process.

For one New York Times story in this regard dating back over 20 years, see 3 in Surrogate's Office Charged With Thefts:

• Three investigators from the Brooklyn and Bronx Public Administrators' offices were arrested [] and charged with falsifying public records and stealing valuables from rooms they believed had been occupied by people who died without leaving a will.

"Bogus Assignee" & "Bad Bene" Used As Innocent Placeholders, Regrets Error, Says LPS CEO In Response To Media Report; Addresses Dubious Notarizations

Jeff Carbiener, president and CEO of Lender Processing Services in Jacksonville , Florida writes in The Florida Times Union:

• LPS is very involved in the Jacksonville community and highly values its role and reputation as a good corporate citizen. Therefore, I believe it is vitally important to provide clarification to the May 14 article in The Florida Times-Union, "Florida Investigating 'Bogus' Foreclosure Records."

• The article discusses LPS' subsidiary, Docx LLC, which provided a document preparation service to its customers and/or their attorneys from 2008 to 2009. [...] When preparing the documents, if specific pieces of information were not provided by the customer or attorney, Docx used the phrases "Bogus Assignee" and "Bad Bene" as highly visible placeholders that would then be replaced when the missing information was provided to Docx.

• Unfortunately, on a few occasions, documents containing the placeholder phrases were inadvertently recorded before the field was updated. While to our knowledge, none of these documents have been used in actual court proceedings, LPS deeply regrets this error.

For more, see Reply: Mortgage documents: Placeholder items were innocent.

Media Heat Continues For The Alleged Foreclosure Mill Rackets In Florida

On Florida's Treasure Coast, TC Palm weighs in with their story on the recent announcement by the office of Florida Attorney General Bill McCollum of their probe into one of the state’s largest assembly line, foreclosure mill law firms for allegedly cranking out fabricated legal papers on an "as needed" basis used to speed up foreclosures. A couple of local foreclosure defense attorneys chime in with their observations on the alleged shenanigans of the foreclosure mill operators.

For the story, see Attorneys: Forged signatures, sloppy paperwork on many foreclosure documents.

NYC To Bill Collectors, Zombie Debt Buyers: "Produce The Paperwork!" When Demanding Delinquent Debt Repayments

In New York City, the New York Post reports:

• Debt collectors here will have to provide documentary proof that the people they're pursuing owe the money they're demanding, under new consumer-protection rules announced [this week]. "Collectors are increasingly pursuing debt that New Yorkers don't owe. Let's say one name on their list is Michael Bloomberg," the mayor said. "They quickly find people with that name all across the tri-state area [and] are tempted to call each one, fishing for the Bloomberg they're after."

Source: Debt trolls told: Prove it.

Bank Conduct, Witness Credibility The Focus Of Contempt Ruling Sanctioning Wells For Giving Ch.13 Couple The Jerk-Around After Finishing Payback Plan

In Houston, Texas, U.S. Bankruptcy Judge Jeff Bohm recently found Wells Fargo in civil contempt for its seemingly egregious conduct in failing to correct errors in its bookkeeping records with regard to the payment history on a home mortgage loan of a homeowner-couple. The couple, who had successfully completed their proposed 60-month repayment plan in connection with a Chapter 13 petition filed in order to save their home and reorganize its debts, nevertheless received a subsequent jerk-around by Wells Fargo which lead to the litigation in this matter.

According to Judge Bohm:

• This adversary proceeding involves a sad and frustrating tale of how two successfully reorganized debtors unsuccessfully attempted to deal directly with their home lender, Wells Fargo Bank, N.A. (Wells Fargo). Their communications concerned the proper amounts that they owe Wells Fargo pursuant to certain orders of this Court entered during their Chapter 13 case. Only when their efforts at direct dialogue failed did the debtors turn to their counsel for assistance. This assistance first came through the filing of the above referenced adversary proceeding. Second, it came through the filing of a motion for contempt (the Motion for Contempt) when Wells Fargo failed to correct the debtors' loan records pursuant to an agreed judgment that it signed in order to settle the adversary proceeding and avoid a trial.

Not surprisingly, Judge Bohm found that the credibility of the testimony of the Wells Fargo witness called to testify in the matter, a certain John Grissom, should be attributed little weight. Grissom identified himself as a senior counsel of Wells Fargo.(1)(2)

For Judge Bohm's entire ruling, see In re: De La Fuente, Case No. 03-43483-H4-13, Adversary No. 08-03291 (Bankr. S.D. Texas, Houston Div. May 18, 2010).

(1) Among other statements made throughout the opinion, Judge Bohm made this observation with respect to Grissom's testimony under oath (bold text is my emphasis, not contained in the original text):

• At the February 23 Hearing, counsel for Wells Fargo called one witness, Grissom, Senior Counsel for Wells Fargo, to testify on Wells Fargo's handling of the De La Fuente's mortgage loan and the corrections made to Wells Fargo's records in relation to this loan.

• The Court finds Grissom's credibility to be lacking in certain respects. First, he gave a Shermanesque statement that Wells Fargo was now in compliance with the Agreed Judgment, but then subsequently had to admit that Wells Fargo's records still contained errors in violation of the Agreed Judgment. Second, he could not explain why there are late charges appearing on Wells Fargo's records.

• Grissom's failure on these key points, combined with his nonchalance on the stand, reflects a troubling lack of perspective regarding how much is at stake for honest and diligent Chapter 13 debtors, such as the De La Fuentes, who are trying to hold on to their home, and how important it is for Wells Fargo to abide by this Court's orders when dealing with debtors. Grissom appears to be representative of the absence of any sense of urgency within Wells Fargo to maintain accurate records and comply with the law.

• Indeed, the following testimony from Grissom underscores this point:
  
  Question (from counsel for the De La Fuentes): "And is that a correct figure?"
  
  Answer (from Grissom): "Well, it is—I don't believe it is correct. However, it is correct because that's what we're presenting to the Court today."

• Apparently, it does not bother Wells Fargo, whose representative is a licensed attorney at law, to testify under oath in one breath that an escrow amount is both correct and incorrect. And, perhaps even worse, to say that this amount is correct because "that's what we're presenting to the Court today," even though he knows full well that it is incorrect.

(2) In concluding his ruling, Judge Bohm gave this observation:

• The passing of BAPCPA [Bankruptcy Abuse Prevention and Consumer Protection Act (2005)] was applauded by the financial industry. The American Financial Services Association (AFSA), a financial industry lobbying entity which Wells Fargo has been and continues to be involved in, lobbied vigorously for BAPCPA and applauded its passage. An AFSA press release sent out on the day BAPCPA went into effect, stated that: "[t]he bankruptcy law going into effect today . . . encourages personal accountability and responsibility, the law also will bring changes to an overburdened, antiquated system, allowing it to better serve those in need of bankruptcy relief." (emphasis added).

• This Court certainly agrees that personal accountability and responsibility are critical to maintaining the integrity of the bankruptcy system. However, in its zeal to see debtors be held personally accountable for their actions, Wells Fargo seems to have forgotten—at least in the case at bar—that the integrity of the bankruptcy system requires the good faith of both debtors and creditors.

***

• Grissom's testimony, and Wells Fargo's own records, indicate that in with respect to the De La Fuentes' loan, Wells Fargo has had difficulty accepting personal accountability and responsibility.

Court: "Promissory Estoppel" Could Make Lender’s Verbal Agreement To Halt F'closure Sale Enforceable, Even Absent Consideration For Promise To Stall

Lexology reports:

• The latest case following the mortgage meltdown underscores the need for lenders to be deliberate and clear in both their external and internal communications. In Garcia v. World Savings, FSB, 183 Cal. App. 4th 1031 (2010), the appellate court determined that the lender’s verbal agreement with the borrower to postpone a foreclosure sale could be enforceable, even absent consideration for the lender’s promise to postpone. The appellate court found that the loan officer’s telephonic assurance to the borrower that he could, and would, briefly extend the pending foreclosure sale under certain conditions was reasonably relied upon by the borrower.(1)

For more, see Wrongful foreclosure – verbal assurance that foreclosure sale will be postponed may be enforceable (requires paid subscription; if no subscription TRY HERE, or TRY HERE, then click link for the story).

(1) The homeowners brought suit against their lender for wrongful foreclosure, breach of contract, promissory estoppel, and unfair business practices. The trial court granted the lender's motion for summary judgment, concluding that the foreclosure was valid, that the breach of contract claim was unsupported by consideration, that the promise allegedly made was insufficiently specific to support promissory estoppel and that the unfair business practices claim had no basis. The California appellate court reversed the lower court ruling with respect to the claim for promissory estoppel, but otherwise affirmed the ruling.

With respect to the claim for promissory estoppel, the court stated (bold text is my emphasis, not in the original text; all case law links may require free registration at Findlaw.com):

• As a general rule, a gratuitous oral promise to postpone a foreclosure sale or to allow a borrower to delay monthly mortgage payments is unenforceable. (Raedeke, supra, 10 Cal.3d at p. 673; California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733; Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 547; Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; Karlsen v. American Sav. & Loan Assn. (1971) 15 Cal.App.3d 112, 121; Stafford v. Clinard (1948) 87 Cal.App.2d 480, 481.) fn. 9

***

• The absence of consideration or benefit to the promisor does not, however, defeat a claim based on promissory estoppel. fn. 10 The doctrine of promissory estoppel "make[s] a promise binding under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange." (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 249; accord, Raedeke, supra, 10 Cal.3d at p. 672.)

• "Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement." (Youngman v. Nevada Irrigation Dist., supra, "70 Cal.2d at p. 249.)

• "'The vital principle is that he who by his language or conduct leads another to do what he would not otherwise have done shall not subject such person to loss or injury by disappointing the expectations upon which he acted.'" (Wilson v. Bailey (1937) 8 Cal.2d 416, 423, quoting Carpy v. Dowdell (1897) 115 Cal. 677, 687.)

• "'In such a case, although no consideration or benefit accrues to the person making the promise, he is the author or promoter of the very condition of affairs which stands in his way; and when this plainly appears, it is most equitable that the court should say that they shall so stand. [Citations.]'" (Wade v. Markwell & Co. (1953) 118 Cal.App.2d 410, 420.)

$150K Homestead Exemption From Forced Sale Remains Intact For California Homeowner Retaining Possession Of Premises Despite Title Transfer To Another

A California Court of Appeals addressing several legal issues relating to a judgment creditor's attempt to snatch away a judgment debtor's home through a forced sale decided, among other things, that the debtor is entitled to shelter $150,000 of equity from the creditor pursuant to the state's homestead exemption laws, despite the fact that she transferred the legal title to another. The court essentially ruled that, given the facts and circumstances of this case, despite a title transfer by Larnise Tarlesson of her home to her cousin Peola Lane (in a failed attempt to have Peola assist in refinancing the home), the continuous use thereof by Larnisse both before and after said transfer was enough to entitle her to the continued protection of the exemption.

For the ruling, see Tarlesson v. Broadway Foreclosure Investments, LLC, No. A125445 (Ct. of App., 1st Dist. Div. 3, May 17, 2010) (Certified for Publication).

(1) In affirming a lower court ruling, the appeals court stated (bold text is my emphasis, not in the original text):

• Several California cases recognize that judgment debtors who continuously reside in their dwellings retain a sufficient equitable interest in the property to claim a homestead exemption even when they have conveyed title to another. (Breeden v. Smith (1953) 120 Cal.App.2d 62, 66; Putnam Sand & Gravel Co., Inc. v. Albers (1971) 14 Cal.App.3d 722, 726; Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75, 81.) Such a result is consistent with the purpose of California's homestead exemption to protect one's dwelling against creditors. (Amin v. Khazindar, supra, 112 Cal.App.4th at p. 588; accord, Wells Fargo Financial Leasing, Inc. v. D & M Cabinets, supra, 177 Cal.App.4th at p. 67.)

• Broadway does not dispute that the property was Tarlesson's principal residence when it acquired its judgment lien. Nor does it dispute that she has continuously resided in the home since 1984, and there is no evidence that rebuts Tarlesson's claim that, "At all times I retained the beneficial interest in my home, which was acknowledged by Peola [Lane]."

• In the circumstances, Tarlesson's continuous occupancy of her home qualifies it as her "homestead" under section 704.710, subdivision (c). We will not also read a requirement into sections 703.020 or 704.710 that Tarlesson must have held continuous title to her home to claim the homestead exemption.

Court Hits Sale Leaseback Peddlers With $33K+ In Plaintiff's Legal Fees; Declines To Apply Contingent Risk Fee Enhancement, Opts Against Punitives

A U.S. Bankruptcy Court in Newark, New Jersey that recently found two men liable for violation of several consumer protection statutes in connection with a sale leaseback, equity stripping foreclosure rescue scam (see O'Brien v. Cleveland (In re O'Brien), 423 B.R. 477 (Bankr. D.N.J. 2010))(1) has made additional rulings in the case with respect to:

• the tab for the homeowner/victims' attorneys fees it will stick the pair with, and
• the imposition of punitive damages it will impose on the duo.

With respect to the attorney's fees, the court:

• Granted an award for the entire base amount (ie. lodestar calculation) requested Plaintiffs' attorneys in the net amount of $33,932.50 for 81.5 hours of work,
• Declined to enhance this amount by applying a contingent risk multiplier (ie. lodestar multiplier).(2)

With respect to punitive damages, the court declined to impose said damages, saying that:

• "[I]n large part because the Defendants' ability to pay such damages has not been adequately established by the Plaintiffs[]"(3) and
• "[T]he Defendants have been adequately punished for their wrongdoing, particularly in light of the treble damages awarded Plaintiffs under the New Jersey Consumer Fraud Act."(4)

For the most recent ruling in this case, see O'Brien v. Cleveland II (In re O'Brien), Case No. 03-17448 (RTL), Adversary Proceeding Case No. 08-1676 (RTL) (Bankr. D.N.J., May 18, 2010).

(1) See also, Foreclosure Rescue Operator, Closing Attorney Found Jointly Liable For $690K+ In Bogus Sale Leaseback, Equity Stripping Ripoff.

The court found that Defendants' actions were fraudulent and constituted an unconscionable commercial practice in violation of New Jersey's Consumer Fraud Act ("CFA"). Furthermore, the sale leaseback was found to be 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").

(2) In declining to enhance the base, or lodestar, fee by a contingent risk multiplier, the court said (bold text is my emphasis, not in the original text):

• The Plaintiffs urge the court to enhance their attorneys' fees to the tune of fifty percent. The basis for the enhancement is the novelty of the issues and the fact that Counsel took the case on "primarily" a contingent fee basis.

• Admittedly, there was a $10,000 retainer paid by the Plaintiffs and split equally between Mr. Halpern's firm and the Plaintiffs' former counsel. In Rendine v. Pantzer, 691 A.2d 1202 (N.J. 1995), the New Jersey Supreme Court "authorize[d] the award of contingency enhancements based on the risk of nonpayment." 661 A.2d at 1229. The court reasoned that a fee "awarded under a fee-shifting statue cannot be `reasonable' unless the lodestar, calculated as if the attorney's compensation were guaranteed irrespective of result, is adjusted to reflect the actual risk that the attorney will not receive payment if the suit does not succeed." 661 A.2d at 1228.

• This rule is limited by certain standards set forth by the court that "require a relationship between the amount of the enhancement awarded and the extent of the risk of nonpayment assumed by counsel for the prevailing party." Id. at 1228-29. Factors the court should consider when determining the amount of an enhancement include: mitigation of the risk of nonpayment, such as receiving part of their hourly fee regardless of the result; if there are substantial damages at stake; and the likelihood of success. Id. at 1229-30.

• Federal fee shifting statutes do not permit enhancement of the lodestar fee on the basis of contingency. See City of Burlington v. Dague, 505 U.S. 557, 567 (1992) (applying this holding to the Solid Waste Disposal Act and Clean Water Act); Rendine, 661 A.2d at 1223 (interpreting the holding of Dague to apply to all federal fee-shifting statutes).

• The Defendants argue that Mr. Halpern was not paid on a contingent basis but rather was paid a flat fee. In Mr. Halpern's declaration in support of counsel fees submitted on January 25, 2010, he declared he was entitled to fee enhancement based on "the complexity of the issues, the novelty of the issues presented and the results obtained for the Plaintiffs." Counsel did not state that he was paid on a contingent basis. In Mr. Halpern's memorandum docketed May 7, 2010, he adds, "counsel took this case on primarily a contingency because of the fee shifting."

• In light of this discrepancy, and also considering that the attorneys' fees for the TILA and HOEPA claims, an extremely large and important part of this case, do not permit enhancement, the court finds that the net fees are sufficiently reasonable and therefore declines to enhance the award.

(3) On this point, the court said:

• The New Jersey Supreme Court has identified several relevant factors to consider when determining entitlement to punitive damages and the appropriate amount of such an award —
  
  In addition to bearing a reasonable relationship to actual injury, the amount of punitive damages should account for the profitability of the defendant's . . . misconduct, the plaintiff's litigation expenses, the punishment the defendant will probably receive from other sources, the defendant's financial condition, and the effect on its condition of a judgment for the plaintiff.
  
  Herman v. Sunshine Chemical Specialties, Inc., 627 A.2d 1081, 1086 (N.J. 1993) (citation omitted). In the instant case, while the Defendants advance various arguments in opposition to an award of punitive damages, the court is particularly concerned with the Defendants' financial condition. It is part of the Plaintiffs' burden of proof to establish the "ability of the wrongdoer to pay punitives." Id. The court should consider net worth but place more emphasis on income. Id. at 1089-90.

• The Plaintiffs deposed both Defendants in an attempt to ascertain their respective financial conditions. Unable to discover any significant assets or income, the Plaintiffs submit that Mr. Gahwyler is "secreting assets" and that Mr. Cleveland's testimony is simply not believable. In the absence of any evidence to back up these suspicions, the court is not convinced that the Plaintiffs have met their burden on this issue and declines to award any punitive damages to the Plaintiffs.

(4) On this point, the court said:

• Additionally, the court is satisfied that the Defendants have been adequately punished for their wrongdoing, particularly in light of the treble damages awarded Plaintiffs under the New Jersey Consumer Fraud Act. Treble damages awarded under the Consumer Fraud Act are punitive in nature. See Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 219 (3d Cir. 1992) ("Although treble damages are not solely punitive in character, they do serve a penal and deterrent function in addition to a remedial one, and as a consequence do overlap somewhat with punitive damages."); Lettenmaier v. Lube Connection, Inc., 741 A.2d 591, 593 (N.J. 1999) (finding that among the purposes of the CFA is to punish the wrongdoer through the award of treble damages); St. James v. Future Finance, 776 A.2d 849, 867-68 (N.J. Super. Ct. App. Div. 2001) (holding that a defendant cannot be subjected to treble damages under state RICO statute and punitive damages for breach of fiduciary duty claim because both claims arose from the same course of conduct). Furthermore, the treble damages in this case are sufficient to deter future wrongdoing by these defendants and others.

Facing The Boot, Homeowners' Claim That F'closure Sale Price Was So Low As To "Shock The Conscience" Was Enough To Thwart Subsequent Eviction Attempt

In a recent ruling by the Court of Civil Appeals of Alabama, two Alabama homeowners were successful in reversing an adverse lower court ruling and, consequently, able to temporarily stall getting kicked out of their home that had been sold at a foreclosure sale.

The homeowners, Stephanie Berry and her grandmother, Eva Berry, asserted, among other things, that Deutsche Bank was not entitled to a summary judgment in the ejectment action that followed the foreclosure sale of their home because of their claim that the foreclosure upon which Deutsche Bank based its ejectment claim was invalid due to its sale for significantly less than its fair market value. The property was purchased by Deutsche Bank at the foreclosure sale for $33,915 when the market value of the property, according to the local tax assessor, was $84,800.

The lower court granted summary judgment for Deutsche Bank, but on appeal,(1) the state appellate court reversed the ruling and kicked the case back for further proceedings, saying that the existence of a genuine issue of material fact regarding the validity of the foreclosure sale was enough to preclude granting summary judgment in the ejectment action in favor of the lender.(2)

For the ruling, see Berry v. Deutsche Bank National Trust Company, No. 2080840 (Ala. Civ. App., May 14, 2010).

(1) Fortunately for Stephanie and Eva, their motion requesting a stay of the judgment pending resolution of the appeal was granted by the trial court. Had the trial court denied their motion for a stay and allowed for the eviction to go forward, the appeal may have been dismissed as being moot.

(2) Among other points, the appellate court made this general statement of the Alabama law applied in this case (bold text is my emphasis, not in the original text):

• In Hawkins v. LaSalle Bank, N.A., 24 So. 3d 1143, 1151 (Ala. Civ. App. 2009), this court held that, when a plaintiff in an ejectment action claims title to the property by virtue of its having purchased the property at a foreclosure sale, the existence of a genuine issue of material fact regarding the validity of the foreclosure sale will preclude the entry of a summary judgment in favor of the plaintiff.

• Stephanie and Eva argue that they established the existence of a genuine issue of material fact regarding the validity of the foreclosure sale on which Deutsche Bank bases its claim to title because, they say, they showed that the price realized at the foreclosure sale, i.e., $33,915 was so low in relation to the market value of the property as to shock the conscience. "`"The general rule is that, `where the price realized at the [foreclosure] sale is so inadequate as to shock the conscience, it may itself raise a presumption of fraud, trickery, unfairness, or culpable mismanagement, and therefore be sufficient ground for setting the sale aside.'"'" Mt. Carmel Estates, Inc. v. Regions Bank, 853 So. 2d 160, 168 (Ala. 2002) (quoting Breen v. Baldwin County Fed. Sav. Bank, 567 So. 2d 1329, 1333 (Ala. 1990), in turn quoting Hayden v. Smith, 216 Ala. 428, 430-31, 113 So. 293, 295 (1927)).

Based on its subsequent analysis of the surrounding facts and circumstances in this case, as set forth in its ruling, the appeals court found that Stephanie and Eva had successfully established the existence of a genuine issue of material fact as to the validity of the foreclosure sale based on the adequacy of the sale price and, accordingly, reversed the ruling of the lower court granting summary judgment in favor of Deutsche Bank, and remanded the case back to the lower court for subsequent proceedings.

100+ Victims Of Sale Leaseback Foreclosure Rescue Operators Get Stiffed; Scammers Left Such A Convoluted Mess That Judge Unable To Order Restitution

In Southern California, The Orange County Register reports:

• The perpetrators of a mortgage fraud scheme involving an ex-Huntington Harbour resident left such a convoluted mess behind that a federal judge was unable to order restitution for the victims, who prosecutors say number more than 100.

• U.S. District Judge George H. King this week agreed with a recommendation from prosecutors and decided not to order restitution in the case because of the complexities surrounding title disputes, questions about equity and unresolved litigation spawned by the actions of the ring.

***

• Assistant U.S. Attorney Gregory Lesser said while there won't be a restitution order, the Justice Department's Asset Forfeiture section would be able to evaluate the claims of victims on an individual basis. He said about $1.3 million was seized once the government stopped the scheme.(1)

• "They created such a consummate and 'ginormous' mess that the restitution is, for practical purposes, incalculable,'' Lesser said. "Paradoxically, (perversely, even), by creating the huge financial mess they did, the defendants now have no restitution order against them. Unfortunately, that is what the law dictates in this situation.''(2)

For the story, see Mortgage cons won't have to pay victims.(3)

(1) Victims in the case can contact the U.S. Attorney’s office at usacac.vnsmail@usdoj.gov.

(2) Edward Seung Ok was sentenced to 15 years in prison for his part in the scheme and his $3 million Huntington Harbour home was seized by the government. Martha Rodriguez, 35, of Downey pleaded guilty in 2007 to 1 count of mail fraud and 1 count of money laundering, and as the “mastermind” of the operation, received 10 years in prison. Others sentenced: Cynthia Valenzuela, 27, of Orange got 1 year and a day in prison; Vladimir Stefanovic, 38, of Lancaster, was sentenced to 18 months in prison, and Maria G. Juarez, 39, of Diamond Bar, was sentenced to 3 years in prison.

(3) For another recent story on over 100 victims of a sale leaseback scam ending uo with little or nothing after the racket participants were prosecuted, both criminally and civilly, see 100+ Victims In Maryland-Based "Money Store" Sale Leaseback Foreclosure Rescue Scam To Get Stiffed In Proposed Civil Suit Settlement.

Pair Dodges Jail, Get Probation For Participation In San Diego-Area Foreclosure Rescue Scam That Conned 22 Homeowners To Sign Over 34 Home Titles

In San Diego, California, The San Diego Union Tribune reports:

• A husband and wife who took part in a foreclosure-rescue scam in San Diego were placed on probation for three years [] and ordered to surrender their real estate licenses. Benjamin and Gloria Hebron pleaded guilty last month to felony charges including rent skimming and deceitful practices by a foreclosure consultant. [...] If the Hebrons violate the terms of probation, they could each be ordered to serve a year in county jail.

• Prosecutors contend that the Hebrons and two other men, one of them a felon, persuaded 22 people to sign over 34 houses to fraudulent trusts. The victims, many of them Filipinos living in the South Bay, believed doing so could save their homes from foreclosure. [...] Their business associate, Joseph Encarnacion, [...] pleaded guilty last month to two counts of securities fraud and was sentenced to a four-year prison term.

• Edmundo Rubi, who prosecutors contend was the mastermind of the scam, has a mental-competency hearing scheduled for July 9 to determine how his case will proceed. In a separate matter, he pleaded guilty in 2005 to operating a pyramid scheme that swindled $24 million from 425 victims, mostly South Bay Filipinos.

Source: Probation for husband and wife in foreclosure scam.

F'closure Rescue Hit Parade Continues As Sacramento Feds Slam Four; Charges Describe Sale Leaseback Peddling, Equity Stripping, Rent Skimming Racket

In Sacramento, California, The Redding Record Searchlight reports:

• Three Redding residents have been indicted by a federal grand jury on mail fraud, money laundering and other charges, prosecutors with the U.S. Attorney’s Office announced Friday. Darrin Arthur Johnston, 45, Todd Allen Smith, 47, and Cheryl Ann Hitomi Peterson, 47, were indicted in what prosecutors described as a “foreclosure recovery” scheme in which homeowners in financial distress signed over the deeds to their homes. In exchange, homeowners were allegedly told they could lease their homes and buy them back in two years.(1)

• Prosecutors said that Jeremiah Andrew Martin, 32, of San Antonio, Texas, who was also indicted, as well as Johnston and Smith, allegedly kept the lease-rental payments instead of paying off the loans.

For the story, see Four charged in housing scheme.

For the indictment, see U.S. v. Martin, et al.

(1) The story describes the alleged racket as follows:

• According to the federal jury’s indictment, Martin, Johnston, and Smith allegedly marketed a “foreclosure recovery” program in which homeowners were convinced to sign over the deeds to their homes.The indictment states the “foreclosure recovery” program was based on their alleged false representations that the homeowners could lease them back for a low rent and that they would help them repair their credit. The homeowners believed they could buy the homes back after two years.

• After obtaining titles to the homes, however, prosecutors said, Martin, Johnston and Smith are alleged to have extracted equity from them by inflating their values and obtaining additional loans, keeping the rent payments rather than making payments to lenders, and then allowing the homes to be lost in foreclosure. Peterson, an escrow officer and notary, is alleged to have used her office and her notary status to lend the appearance of legitimacy to the scheme.

Judge Hammers Mastermind In San Diego-Area Foreclosure Rescue Racket That Ran Land Grant & Sale Leaseback Scams On 400-500 Victims w/ 46 Years In Pen

In San Diego, California, The San Diego Union Tribune reports:

• A man prosecutors described as the ring leader of a real estate fraud scheme that defrauded hundreds of San Diego County residents out of more than $2 million was sentenced Friday to 46 years in prison. A jury found William Jeffrey Hutchings, 63, guilty in March of 160 felony counts including conspiracy, grand theft, rent skimming and violations of the mortgage foreclosure consultant law.

• Prosecutors argued that Hutchings and other defendants convinced 400-500 victims, most of them Hispanic homeowners from San Diego and other counties, that he could keep them from losing their homes to foreclosure. The criminal enterprise lasted 21 months.(1)

***

• Deputy District Attorneys Stephen Robinson and William La Fond contended during the two-month trial that Hutchings and others led the victims to believe they could save their homes through his so-called land-grant program. They could either pay a one-time fee of $10,000 to put their property in a land grant or they could transfer their property to the defendants and rent it back through monthly payments.

For the story, see Foreclosure scam's mastermind gets 46 years in prison.

(1) Eight of the 10 co-defendants have been convicted of criminal charges, prosecutors said, and two are scheduled to go to trial Monday, the story states.

33 Months For Midwest Man In Scam Targeting Homeowners In Foreclosure; Filed Phony Liens To Pilfer Proceeds From Fraudulently Financed Sales, Say Feds

In St. Louis, Missouri, the St. Louis Business Journal reports:

• [S]t. Louis real estate broker [Randall Penberthy Jr.] was sentenced to 33 months in prison Wednesday for a $500,000 bank fraud scam, the U.S. attorney’s office said.

***

• Between late 2006 and October 2007, Penberthy recruited investors to buy residential real estate directly from distressed property sellers whose homes were in danger of foreclosure, prosecutors said.(1) With Penberthy’s assistance, investors would finance the purchases through bank loans.

• Penberthy would fraudulently place and record a second or third deed of trust on the property, typically in the name of First Choice or some other entity he controlled,(2) in order to make it appear that a legitimate second or third mortgage had been placed against the property, according to the U.S. attorney’s office.

• Bank loan funds were used to pay the sales price of the property as well as to pay off the fraudulent second or third mortgage, prosecutors said. Funds used to pay off the fraudulent second or third mortgage were paid to entities controlled by Penberthy, including First Choice and Midwest.

Source: St. Louis real estate broker gets 3 years jail time.

(1) Although the story is silent on this point, it is not unreasonable to suspect that Penberthy peddled bogus sale leaseback programs to dupe his financially strapped victims into doing business with him.

(2) Reportedly, Penberthy operated and controlled several business entities, including Covenant Financial LLC, First Choice Investment and Loan LLC and Midwest Management LLC.

California AG Charges Nine In Alleged Loan Modification Racket That Ripped Off At Least $2.3M From 1500+ Homeowners

From the Office of the California Attorney General:

• Attorney General Edmund G. Brown Jr. [] announced that nine men engaged in a Southern California boiler room, tricked out in high-roller style with a roulette wheel and other casino equipment, have been charged with 97 criminal counts for stealing at least $2.3 million from more than 1,500 desperate homeowners who were promised loan modifications but received no relief.

• Arrested [...] were Gregg Scott Quinn, 37, of Camarillo and Juan Pierre Washington, 40, of Winnetka, who worked as company sales managers and supervisors. They are being held at Los Angeles County Jail. Gary Arnold Eisenberg, 71, of Westwood, a top telemarketer with the company, and Ira Itskowitz, 58, a sales manager, each spent more than five years in federal prison for previous fraud convictions and are already in federal custody for violating parole in connection with their participation in the scheme.

• The four principal owners of the business, Niv Iskin, 30, of Reseda, Reviv Karpman, 38, of Tarzana, Tomer Kogman, 29, of Receda and Avraham Yechizkia, 34, of Encino; and a sales manager, Barel Iskin, 23, of Woodland Hills, are still being pursued by law enforcement.

• "This company was just a boiler room, long on promises and upfront fees but short on foreclosure relief," Brown said. "Its operators cruelly defrauded citizens trying valiantly to hang on to their homes."

• Brown's office initiated its investigation in March 2009 in response to numerous consumer complaints against the defendants' Canoga Park-based loan modification business, which operated as Mason Capital Group, LLC and Gretchen Fox and Associates. When agents executed a search warrant at the office, they found a Las Vegas casino-themed sales floor complete with craps, poker and black jack tables fashioned as workstations, and a roulette wheel that top-selling telemarketers spun for cash bonuses (see photos attached - #1, #2, #3, #4). Between January 2008 and June 2009, the four owners took in at least $2.3 million in up-front fees, which ranged from $1,000 to $5,000, from more than 1,500 homeowners throughout the country. In almost every case, no loan modifications were completed, as promised.

For the California AG press release, see Four Arrested, Five Wanted for Fleecing Hundreds of Homeowners Seeking Foreclosure Relief.

For more from the California AG:

• AG's Criminal Complaint,
• Arrest Warrant,
• Defendant Photos.