Cops Probe Central Florida Network Of Squatters In Vacant, Foreclosed Home Takeovers

In Ocoee, Florida, the Orlando Sentinel reports:

• Police think family members arrested at an Ocoee home this week are part of a network of squatters who live in houses facing foreclosure. Detectives are investigating whether three other houses in the city are occupied by people with no legal authority to be there, Ocoee police Sgt. Mike Bryant said. At least some of those residents are thought to be related, he said.

• A day-care center was being operated in one of the homes until the state Department of Children and Families shut it down in July. More people were suspected to be living in unsold town houses not long ago. These takeovers of empty homes have increased as foreclosures have skyrocketed, authorities said. In July, the Orlando area had the eighth-highest foreclosure activity in the nation. Florida has thousands of empty dwellings where the homeless can stay.

For more, see Cops: Vacant, foreclosed houses attract homeless squatters.

Recession, Cubs' Lousy Record Leaves One Wrigley Rooftop In Foreclosure, Others On Shaky Ground

In Chicago, Illinois, the Chicago Tribune reports:

• The Lakeview Baseball Club apartment building across from Wrigley Field is best known for the tote board under its rooftop seats that details the years elapsed since the Cubs' last division, league and World Series titles. But after Lakeview slipped into foreclosure this year, it is the numbers outlined in court filings that are particularly telling. They offer a rare glimpse into the shaky finances of a rooftop club operating in a bad economy.

***

• Other rooftops are scrambling to feed their own multimillion-dollar mortgages as the recession leaves their corporate customer base gun-shy from spending $30,000 on an outing that revolves around watching the Cubs play. Throw in the Cubs' dismal record, which depresses ticket demand, and several rooftops are now selling entire blocks of games on half-price online coupon sites such as Groupon.

For more, see Wrigley rooftop owners on shaky financial ground (Multimillion-dollar mortgages no match for recession, Cubs' dismal season).

See also, Cubs Wrigley Rooftops Struggle, Recycling Booms.

F'closing Bank's Failure To Assume Management Duties Of 4-Plex Results In Unpaid Utility Bill; Leads To City "Red-Tags", Tenants Get The Boot

In Albuquerque, New Mexico, KRQE-TV Channel 13 reports:

• The city of Albuquerque red-tagged four apartments Thursday after tenants were without hot water for nearly a week. It’s all due to a recent foreclosure on the property that led to a gap in management.

• It was the latest blow for Shane Netherly. He lives in the recently red-tagged four-plex along with three other families. Last month he found out the building was foreclosed. The city said the building was bought by a bank out of Florida but the bank has yet to hire a manager to take care of the property or collect the rent. “Nobody here wants to move,” Netherly said. "We're all paying rent.”

• Netherly said August was the first month the tenants didn’t pay because they don’t know where to send the money. A portion of their rent pays for water and gas service. "They shut our gas off; now we no longer have any hot water,” Netherly said.

• Last week, the gas company removed the main gas meter to the entire building. That shut off hot water to all four apartments. The city said that is against city code and is why the city had to shut down the four-plex.

***

• The city said it also discovered some more health issues. “The vent pipe is not properly attached to the water heater,” said Joe Martinez, who manages the Safe City Strike Force. Martinez said the city has tried several times to get the Florida bank to respond to the issues but has had little luck. So on Thursday, Martinez hand-delivered the bad news.

• “They're just caught in limbo," Martinez said. "They're caught in midstream before the bank can make the necessary arrangements to have somebody manage this property,” Martinez said. “It’s like where would I go, and finding the place is even more difficult part,” Netherly said. Tenants were moved to a hotel Thursday night. The city said if the Florida bank does not fix the problems soon the tenants will have to permanently move out.(1)

Source: Foreclosure leads to evictions (4 families forced to move out).

(1) One may wonder whether the foreclosing lender's (actually the loan servicer's) foot-dragging in this story that led to the tenants' eviction is a not-so-subtle way for it to circumvent the Federal Protecting Tenants At Foreclosure Act, which requires the lender (as well as any 3rd party foreclosure sale purchaser not intending to reside on the premises) to respect any existing tenant leases, and provide at least 90 days notice when vacating month-to-month renters. See Section 702(a)(2) of the Protecting Tenants at Foreclosure Act of 2009.

Law Students Take To Orlando-Area Streets Warning Vulnerable Homeowners Away From Foreclosure Rescue Scams, Loan Refinance Rackets

In Orlando, Florida, Voice of America News reports:

• A group of students in the southern state of Florida is taking its studies to the streets. The law students from Florida A&M University are going door-to-door in low-income neighborhoods to educate residents about property foreclosures and loan refinancing scams. The program is backed by a national nonprofit organization created by Congress to help revitalize communities.

• As they walk the streets of Pine Hills, a suburb of Orlando, the students don't have to go far to find victims of the collapse of the US housing market. People like Louvon and Thomas Roberson, who are struggling to stay in their home. They paid a company to help them get a mortgage loan modification but their loan was not modified and, they say, the money they paid to the company was not returned. [...] The Robersons now attend a clinic at Florida A&M's law school. The law students [...] are helping them take action in small claims court to recover their money.

For the story, see Law Students Help Homeowners Facing Foreclosure (Last line of defense for families facing loss of their homes).

Some Property/Casualty Insurers Note Pattern Of Higher Fire Loss Claims In States With Above-Average Foreclosure Rates

InsuranceNewsNet.com reports:

• A pattern involving higher incidents of fire loss in states with above-average foreclosure rates has the attention of State Auto Financial Corp. Bob Restrepo, chairman, president and chief executive of the Columbus, Ohio-based property/casualty insurer, said the trend materialized last year and his company has taken steps in response.

• "We have an inspection program in place now for any homeowner who is behind on their mortgage by more than 150 days," Restrepo said. The purpose is to make sure any homes falling within that category are properly maintained and occupied. During a recent earnings call, Restrepo explained that State Auto Financial [] is taking appropriate underwriting action when warranted.

***

• State Farm has experienced an increase over the past couple of years in arson-related homeowners claims, according to company spokesman Dick Luedke. "While we don't have data that definitively proves it, we do attribute at least some of that increase to the proliferation of foreclosed upon homes in the U.S.," Luedke said in an e-mail.

For more, see Insurers Connect Rise in Home Fires to Financial Hardship.

Condo Officer/Unit Owner Facing Foreclosure Again Invokes "Mental Illness" Defense To Dodge Jail Time After Swiping $82K From HOA; Gets Probation

In DuPage County, Illinois, Chicago Breaking News Center reports:

• A former Addison condominium association official who admitted stealing about $82,000 from the association was sentenced to four years of probation [] by DuPage Judge Kathryn Creswell, who cited the defendant's long history of mental illness.

• Patricia Wilkinson, 54, wrote herself association checks and signed the names of other condo officials to pay medical and other personal bills in 2008 and 2009, said DuPage County Assistant State's Attorney Diane Michalak. Wilkinson was president of King's Point 3, a bookkeeper for King's Point 1, and the treasurer of the master association for all four groups, which include a total of about 150 units in four buildings [...].

• "I was stressed out and I had a lot of medical bills," Wilkinson said. "I felt so depressed that I didn't have any other choice." Creswell cited the defendant's clinical depression, obsessive compulsion disorder, her use for 20 years of psychotropic medication and the fact that she is in remission for cervical cancer.

• Wilkinson was arrested last December as she was about to flee the condo parking lot with $34,000 in cash after her own condo was placed in foreclosure. Creswell ordered that the $34,000 be used for restitution and that she still owes $8,550 to the condo association, with insurance paying about $40,000. She also ordered that Wilkinson take all medications, as ordered by the county probation department.

• Michalak had asked for a six-year prison sentence out of a range of three to seven years, stating "a lot of people have a lot of serious personal issues in this economy, but that's not a license to steal."

• Wilkinson had received probation following several robberies of Subway stores in the early 1990s in Schaumburg. That sentence came after she received court-ordered mental health treatment at a state facility.

For the story, see Probation for woman who stole $82,000 from condo association.

Florida Keys Elected Officials Suspected Of Improperly Claiming Real Estate Tax Exemption For Homestead Property

In Monroe County, Florida, KeysNet.com reports:

• An elected Mosquito Control Board member faces stiff civil penalties for apparently claiming homestead exemptions on houses in both the Keys and Levy County, near the Panhandle. Commissioner Charles Langstaff, who lives on Mahogany Drive in Key Largo, has a 2,088-square-foot mobile home on five acres of land in the town of Morriston. He has received a $25,000 homestead exemption on that home since 2002, Levy County property appraiser records show.

***

• Karl Borglum, with the Monroe County Property Appraisers office, said his office sent a letter to Langstaff on Wednesday notifying him that they are aware he is claiming homestead exemptions in both counties. Borglum said both counties could put a lien on Langstaff's homes seeking back taxes and a civil penalty equaling his back taxes plus another 50 percent. He also faces interest payments, which are determined by the county tax collector.

For more, see Mosquito Control commissioner faces stiff fines.

See State Lawmaker Among Many Bagged By Central Florida County Appraisers For Illegal Homestead Exemption Claim for another recent story involving a Central Florida elected public official who was caught this year improperly claiming a tax exemption for homestead property.

Nevada AG Announces Public Awareness Campaign Against Real Estate Scams Targeting Financially Strapped Homeowners

In Las Vegas, Nevada, the Las Vegas Sun reports:

• Nevada’s foreclosure pandemic has attracted a slew of scam artists hoping to take advantage of homeowners desperate to avoid losing their homes. In response, Nevada Attorney General Catherine Cortez Masto [...] announced a new public awareness campaign to help citizens spot fraud and point them toward legitimate businesses.

***

• Cortez Masto rattled off a list of statistics to illustrate the crisis: Her office has received complaints against more than 200 companies, opened 14 cases in criminal court, obtained five felony convictions and sent 51 cases to civil courts, she said. The plan now is to catch the problem before it expands, she explained.

***

• One common scam happens when a company requires a large down payment and then sends the homeowner a small refund after completing no work — called an automatic refund scam. Or, a company will guarantee to reduce a homeowner’s principal on a mortgage as a marketing ploy.

• In other instances, a company will pledge that, if the homeowner sells the house to a group of investors, they will sell it back with a reduced mortgage — called a “phantom investor scam.” Officials advised citizens to be wary of any business that make guarantees or pressures them to sign and pay.

For the story, see AG announces campaign to fight foreclosure scams.

NY Fed Reserve Joins Others In Bid To Make Big Banks Eat Crappy Mortgage Loans; Stonewalling Servicers, Trustees Refuse To Turn Over Requested Info

Reuters reports:

• The Federal Reserve Bank of New York [...] said it may try to force banks to repurchase bad home loans backing securities it holds, joining the ranks of other big investors who have been gaining momentum with identical demands. The effort from the New York Fed to boost the value of its Maiden Lane portfolio is similar to what U.S. mortgage finance giants Fannie Mae and Freddie Mac have been doing as they try to hold accountable sources of irresponsible lending that caused steep losses.

• The investors are seeking to enforce representations and warranties that ensure the quality of loans put in bonds, such as residential mortgage-backed securities and collateralized debt obligations sold by Wall Street during the housing boom. [...] The three Maiden Lane funds combined held an average $67.4 billion in assets in the week ending July 28, Fed data shows.

• The Fed's acknowledgment comes after Reuters last month reported that investors representing $500 billion in bonds—or a third of the private mortgage bond market—said they have taken the biggest steps yet in their effort to force banks to repurchase loans sold in error.(1)

• These investors have topped the key 25 percent threshold for voting rights on 2,300 "private-label" mortgage bonds, which will give them the ability to force trustees to act on repurchase requests. Investors heretofore have been frustrated by trustees and servicers, who have said they are limited in the information they can share.(2)

For the story, see NY Fed joins other investors on loan repurchase bid.

(1) See Mortgage bond holders get legal edge; buybacks seen (U.S. mortgage bond investors have quietly banded together to gain the long-sought power needed to challenge loan servicers over losses the investors claim resulted from violations in securities contracts).

(2) Apparently, financially strapped homeowners seeking sustainable loan modifications aren't the only ones getting the jerk-around from the mortgage servicers and trustees.

90-Year Old Homeowner To Escape Foreclosure After Media Report; Son Said Servicer Refused For Months To Take His Money Even Though He Co-Signed Loan

In Stratford, Connecticut, WTNH-TV Channel 8 reports:

• A 90-year-old Stratford woman who faced foreclosure won't lose her home after all. John Puchowicz said he was contacted by Chase bank after his story aired on News 8 earlier this week.(1) Puchowicz told News 8 Monday his mother was threatened with foreclosure on her condo. Making matters worse, he said the bank didn't notify him about the foreclosure, even though he was a co-signer, and they refused to let him pay it off.

• It went on for months but has now been settled. Puchowicz said Chase will be sending a payoff statement that will allow him to pay off the mortgage. The bank says as long as it's paid the home won't go through foreclosure.

Source: Foreclosure threat ends for 90-year-old.

(1) See Bank foreclosing on man willing to pay for condo:

• A man says his 90-year-old mother is being threatened by foreclosure on her Stratford home. He says he is all too willing to pay her debt but claims the bank is the one doing the stonewalling.

BofA Begins F'closure On House Homeowner No Longer Owns; Property Sold In Bank-Approved Short Sale Months Earlier; Apology Given When Media Intervenes

In Lee County, Florida, WINK News reports:

• [C]ape Coral homeowners spent a year trying to avoid a foreclosure. [...] Finally, after three short sale offers fell through, Bank of America approved an offer for $128,000 in cash. They closed on the sale in February.

• The Schunemann's nightmare was over; or so they thought. "My husband said to me, a few weeks ago, opening the mail, 'you are not going to be happy about this,' and I took a look at it and I cannot believe that we are being sued by Countrywide," she recalls. That's right. Countrywide, now Bank of America, was taking the Schunemanns to court to foreclose on a property no longer in their possession.

***

• After contacting the law firm that filed the foreclosure lawsuit, the Schunemanns say they haven't heard one word, back. They aren't sure what will happen on their court date. "There's nothing more they can take. There's nothing more. They can't take-- they took the house, they can't take anymore. There's nothing," she says.

• We talked to Bank of America, trying to get some answers for the Schunemanns. While the law firm never called us back, we did get a response from the bank. In an email BOA told us, "We apologize to the Schunemanns, for this was a mistake and we are correcting the records to stop the court actions."

For the story, see WINK gets results after case of bad bank communication.

Sexual Assault Victim's Attempt To Satisfy Money Judgment By Snatching Now-Vacated, Jailed Perpetrator's Texas House Squelched By Homestead Claim

A recent ruling by a Texas appeals court serves as another reminder that, once an individual/debtor establishes real estate as his/her homestead, a subsequent criminal conviction resulting in his/her being shipped off to prison for a long time is not enough to terminate the benefit from the exemption against a creditor's attempted forced sale or other taking of the individual/debtor's home that is available in some states. The following facts have been extracted (mostly verbatim, but slightly adapted) from the case:

• One, Conley, has previously been convicted of, and is serving 35 years in prison for, sexual assaults against one, Driver.(1)

• For those torts, Driver obtained a civil money judgment against Conley. As part of Driver's efforts to collect that judgment, she appeals from the denial of her request for a turnover order(2) on a house and lot that Conley claims as his homestead.

• Driver argues that "someone who intentionally commits criminal acts of sexual assault within a home against a minor child may [not] be entitled to claim continuing homestead exemption" since "imprisonment in a new residence" should be deemed abandonment of homestead.

• Because the appeals court held that Conley's imprisonment for his crimes does not constitute abandonment of his homestead, it affirmed the trial court's denial of Driver's request for a turnover order concerning the house and lot in question.(3)

For the ruling, see Driver v. Conley, No. 06-10-00004-CV (Tex. App. [6th Dist.] Texarkana, August 11, 2010).

(1) Conley was convicted of two counts of aggravated sexual assault, three counts of sexual assault, and four counts of indecency with a child. He was sentenced to thirty-five years' incarceration on both counts of aggravated sexual assault and twenty years' incarceration on all remaining counts, all to be served concurrently.

(2) To try to collect on the judgment, Driver filed with the trial court a motion for turnover order asking the court to order Conley to turn over his home and lot along with other unimproved lots. While the trial court ordered turnover of the unimproved lots, it agreed with Conley that the property containing his home remained his homestead.

(3) In reaching its conclusion, the Texas appeals court made a detailed analysis of the Texas case law; the bulk of its analysis follows (bold text is my emphasis, not in the original text):

• “Homestead rights have historically enjoyed great protection in our jurisprudence.” Florey v. Estate of McConnell, 212 S.W.3d 439, 443 (Tex.App.-Austin 2006, pet. denied) (prisoner who murdered his wife was entitled to claim homestead exemption). Our Texas Constitution provides that “[t]he homestead of ... a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts” not specifically enumerated within. Tex. Const. art. XVI, § 50.

• Homestead rights are liberally construed to prevent citizens from losing their homes. Florey, 212 S.W.3d at 443. The party seeking a turnover order must prove that the property is not exempt. Hanif v. Clarksville Oil & Gas Co., No. 06-09-00110-CV, 2010 WL 2105936, at *3 (Tex.App.-Texarkana May 27, 2010, no pet.) (mem.op.); see Tex. Civ. Prac. & Rem.Code Ann. § 31.002(a)(2), (b)(1) (Vernon 2008); Tanner v. McCarthy, 274 S.W.3d 311, 322 (Tex.App.-Houston [1st Dist.] 2008, no pet.).

***

• All parties agree that the property in question was the homestead of Conley at some point. “Once acquired, homestead rights are not easily lost. Property may lose its homestead character only by the claimant's death, abandonment, or alienation.” Duran v. Henderson, 71 S.W.3d 833, 842 (Tex.App.-Texarkana 2002, pet. denied).

• Driver argues that Conley's incarceration constituted an abandonment of his homestead. “Abandonment of a homestead requires both the cessation or discontinuance of use of the property as a homestead, coupled with the intent to permanently abandon the homestead.” Womack v. Redden, 846 S.W.2d 5, 7 (Tex.App.-Texarkana 1992, writ denied). Evidence relied on as establishing “abandonment of a homestead must make it undeniably clear that there has been a total abandonment with an intention not to return and claim the exemption.” Id.

• Driver's first argument is that Conley's homestead was abandoned due to his long-term imprisonment. Driver had the burden of proving abandonment with legally and factually sufficient evidence. Florey, 212 S.W.3d at 446. Conley was married and divorced several times. The home was purchased as his separate property in 1985. He testified, “I've lived there ever since. I have supported it fully. I have not abandoned it or anything of that type․ I have never left my home with the intention of not going back.” Records from the appraisal district list the property as Conley's homestead. [...] Conley's responses to discovery establish that his books and records are still kept at his home and that his daughter lived in the home from time to time. Conley testified he planned on living in the home on his release from incarceration.

• Abandonment of a homestead must be voluntary. Id. at 444 (citing King v. Harter, 70 Tex. 579, 8 S.W. 308, 309 (1888)).

• “An act of necessity is not a voluntary abandonment of the homestead.” R.B. Spencer Co. v. Green, 203 S.W.2d 957, 959 (Tex.Civ.App.-El Paso 1947, no writ). While Conley voluntarily committed the crime, he did not voluntarily change his residence.

• A homestead is not abandoned merely because a person does not occupy the home during a prison sentence. Florey, 212 S.W.3d at 447. We conclude that there was some evidence to support the trial court's finding that Conley's homestead was not abandoned.

Free Legal Documents May Help Financially Strapped Homeowners Against Being Bulldozed By Foreclosure Mills, "Rocket Dockets" In Attempts To Take Homes

In Central Florida, the Sarasota Herald Tribune reports on Richard Kessler, a local retired lawyer who offers an electronic packet of foreclosure defense legal forms he calls the "Rocket Docket Annihilator" -- complete with an instruction sheet and fill-in-the-blank templates -- free on his website for homeowners looking to thwart attempts by foreclosure mills to take their homes by filing error-filled and allegedly fraudulent documents in "rocket docket" court proceedings.

• [J]udges in those slam-bam proceedings know they sign papers that take homes away even though the documents are often faulty, incomplete and ripe to be shot down, if only a defense lawyer or savvy homeowner raised a simple objection or two. Most judges insist they don't have time, or legal responsibility, to check for flaws themselves. That's a task for homeowners or their lawyers, the argument goes.

• That bothers Kessler, a rabble-rouser who urges people to fight because lawyers on the other side count on people rolling over. "If you don't show up at all, you're going to lose," Kessler said, so better to give yourself a chance by playing lawyer. At the least, that should force the judge to read the documents filed.

***

• Few people would know which parts of Kessler's online document apply to their own mortgage. The result, [Florida's 12th Circuit Chief Judge Lee] Haworth warns, may be filings more flawed than the ones from the other side. Could be. But so what?

• The other side's legal professionals barely blink, it seems, when their many "errors" are found, like untrue claims that the owner had no desire to work out a loan modification. The lawyers blame clerical blunders and get away with it. Why should a homeowner be so afraid to make a legal goof if the only alternative is giving up?

For more, see Online foreclosure form may beat doing zip.

In a related story, see Retiree says he can halt foreclosure's 'rocket docket'.

NJ AG Bags Pair In Alleged Short Sale, Straw Buyer Flipping Scam Using Phony I.D.s That Scored $100-300K Per Deal

From the Office of the New Jersey Attorney General:

• Attorney General Paula T. Dow and Criminal Justice Director Stephen J. Taylor [] announced that a Union County mortgage loan solicitor has been charged with conspiring with others – including a Kearny woman who was charged previously – in a scheme to steal millions of dollars by obtaining mortgage loans using false identities and counterfeit documents.

• According to Director Taylor, Nuno J. Sousa, 34, of Elizabeth, was arrested [] (Aug. 11) by detectives of the Division of Criminal Justice Major Crimes Bureau as a result of an ongoing investigation into the conspiracy. The Elizabeth Police assisted in the arrest. He was charged by complaint with first-degree conspiracy, first-degree money laundering, second-degree securities fraud and second-degree theft by deception. He is being held in jail with bail set at $200,000.

• Sousa is charged in connection with an alleged conspiracy that also included Genilza R. Nunes, 36, of Kearny, who was arrested by the Division of Criminal Justice on March 9. She was charged by complaint with the same offenses. Those charges are pending, and she is being held in jail with bail set at $2 million.(1)

***

• Nunes, Sousa and their co-conspirators allegedly defrauded numerous lending institutions of millions of dollars through what is known as a “short sale mortgage loan property flip scheme.” [...] In this case, individuals involved in the scheme were purchasing the properties as straw buyers, using false identities supported by counterfeit driver’s licenses, false financial records, and fictitious credit histories.

• Through a series of fraudulent transactions, the short sale properties were then sold or “flipped” at inflated values derived from fraudulent appraiser reports. A second straw buyer applied for a mortgage loan on the inflated property and obtained the loan under a false identity. The short sale property was then purchased with the loan proceeds, and, by design, the straw buyer made no payments on the loan, causing a loan default.

• Because the straw buyer used a false identity, the lending institution was unable to locate the borrower. The difference between the sales price for the short sale transaction and the inflated loan obtained represented the net proceeds of the fraudulent scheme. Typically Nunes, Sousa and their co-conspirators obtained $100,000 to $300,000 per transaction.

• The fraudulent enterprise allegedly included other licensed and unlicensed professionals, including real estate agents, mortgage loan brokers, real estate appraisers, notaries, lawyers, straw buyers and counterfeit document makers.

For the NJ AG press release, see Union County Mortgage Broker Charged in Multi-Million Dollar Scheme to Obtain Loans Using Fake Identities & Documents.

(1) According to the press release, the state has specifically alleged that Nunes and Sousa – with Sousa acting as the mortgage loan solicitor – engaged in fraudulent transactions involving five properties, with a total fraud of $2,152,800. However, it is believed that the scheme is much larger.

More Underwater Homeowners Combine "Strategic Default" With "Straw Buyer" Purchasing As "Technique" To Keep From Losing Homes?

On Long Island, New York, Newsday reports:

• More Long Islanders faced with mortgages that are more than their homes' worth are turning to an illegal tactic. They intentionally default and convince lenders to take less than owed in a "short sale" of the house, then covertly arrange for someone they trust to buy the home back for them at today's lower prices, say attorneys, lenders, real estate agents and federal officials.

• Or they wait for foreclosure, then give money to relatives or friends to buy new homes on their behalf. It's hard to pull off, hard to catch and risky, but waning home prices have made the combination of "strategic default" and straw purchase tempting.

***

• At least one Long Island lender and several agents say they have noticed an uptick in default-straw-purchase attempts but don't think it's widespread. Because it's illegal, participants don't come forward to talk.(1)

For more, see LI home borrowers turning to illegal default schemes (More Long Islanders faced with mortgages that are more than their homes' worth are turning to an illegal tactic).

(1) An Atlanta man who tried to combine straw buyer purchases with short sales to reduce the amounts owed on properties he already owned (he allegedly used stolen identities, created fictitious straw buyers, and negotiated phony short sale deals for properties in an effort to defraud FDIC of millions of dollars he owed on mortgages) recently got 39 months in prison after copping a guilty plea. See Atlanta Man Sentenced to Prison for Fraud Related to Failed Omni National Bank (Defendant Used Stolen Identities for Short Sale “Buyers” When He Sought Forgiveness of $2.2 Million in Loans).

Title Insurer Not Responsible For Incorrect Informal Statements Made As To Lien Status Of Property; Leads To $1M Hit For Foreclosure Sale Bidder

A recent ruling by a California appellate court highlights the importance of obtaining title insurance protection when buying (or renting) real estate. The basic facts of the case have been extracted (mostly verbatim, but slightly adapted) from the ruling as follows:

• Individual/Plaintiff alleges that he was an investor in distressed real estate. His business plan involved the purchase of real properties that were being foreclosed upon by mortgage holders.

• In order to decide whether to bid on a particular property, he needed to know if the foreclosing lender was in fact the senior lender on that property. Put another way, if he made a successful bid at a foreclosure sale and the foreclosing lender held a secured position junior to other more senior liens, then plaintiff's title would be subject to such liens.

• In order to avoid such a result, plaintiff alleges that he entered into an oral agreement with Chicago Title Company ["Chicago"] agent, Miguel Escutia, in which it was agreed that Escutia, on behalf of Chicago, would provide title information upon which plaintiff would rely in deciding whether to make a bid at a particular foreclosure sale.

• In exchange, plaintiff alleges that he agreed that he would place business with Chicago upon the subsequent resale of the foreclosed properties. The information that plaintiff wanted from Chicago was limited, specific and time sensitive.

• He needed, usually within twenty-four hours before a particular foreclosure sale, a "yes" or "no" answer to the question of whether a particular designated foreclosing loan was a senior lien.

• Plaintiff emphasizes he neither sought nor obtained a "preliminary title report." What he sought and what Escutia allegedly provided were simple short e-mail answers to his questions as to the senior status of multiple loans. Other than his promise of future title insurance business, plaintiff neither paid nor agreed to pay for these services.

• On March 6, 2008, plaintiff requested seniority information as to a loan that was being foreclosed upon a property located in Encino, California. Through Escutia, Chicago allegedly informed plaintiff that the foreclosing loan (in the amount of $990,000) was in a senior position. In fact, it was junior to a first deed of trust held by Citimortgage, Inc., in the sum of $1,600,000.

• Plaintiff alleges that, in reliance on Chicago's one-word "yes" e-mail response to his inquiry about the mortgage loan, he submitted a bid at the foreclosure sale on March 11, 2008 in the sum of $1,000,000.01. He further alleges that he was only able to sell the property for $1,200,000 and, after negotiating a reduction in and then paying the balance remaining on the senior Citimortgage lien, he sustained a loss in the sum of $1,000,000.

• He then filed a lawsuit against Chicago for negligence and negligent misrepresentation, which he subsequently amended by adding causes of action for breach of oral contract and so-called "abstractor negligence."

Given these facts, the state appeals court found that Chicago Title Company had no responsibility for the investor's loss that may have resulted from the incorrect statements of its agent and, accordingly, affirmed a lower court ruling dismissing the lawsuit.(1)

For the entire ruling, with the analysis of the California law applied in resolving this lawsuit, see Soifer v. Chicago Title Co., No. B217956, ___ Cal App. 4th ___ (2nd Dist. Div.3, August 10, 2010) (certified for publication).

(1) In holding in favor of the title insurer, the court summarized their decision and legal analysis as follows (bold text is my emphasis, not in the original text):

• In Southland Title Corp. v. Superior Court (1991) 231 Cal.App.3d 530 (Southland), we held that a title company could not be held liable for the negligent preparation of a preliminary report of title. Rather, if a representation was sought from the title company as to the condition of the title to a particular property, an abstract of title should have been obtained.

• Here, plaintiff neither sought, obtained nor desired a policy of title insurance or an abstract of title, but nonetheless seeks to hold the respondent, Chicago Title Company (Chicago), liable in both tort and contract for alleged negligence and misrepresentations with respect to the seniority status of encumbrances on certain properties that were in the process of trust deed foreclosure.

• We adhere to our analysis in Southland and extend and apply it here to the several claims asserted by plaintiff. We hold that a plaintiff cannot recover for errors in a title company's statements regarding the condition of title to a property in the absence of a policy of title insurance or the purchase of an abstract of title. We therefore will affirm the judgment.

Uncooperative Lenders Holding 2nd Mortgages On Underwater Homes Have Much To Fear From Lien-Stripping Homeowners Filing Chapter 13 Bankruptcy

Lien stripping in a Chapter 13 bankruptcy has been described as an unexpected financial life raft that underwater homeowners are jumping onto to escape crippling second mortgage debts and keep their homes.(1)

It applies in the case of a homeowner with two or more mortgages on their home. In short, it allows a homeowner with a home worth less than the amount owed on the first mortgage to reclassify the second mortgage debt (as well as 3rd, 4th, 5th liens, etc.) as an unsecured loan, thereby freeing the home from that lien. Depending on the debtor's financial circumstances, the now-unsecured debt may not have to be paid in full, and could possibly be wiped out for pennies on the dollar.

For links to resources of information in this regard, see Law on Rice: Lien stripping resources.

See also, Introduction to Cramdown and Lien Stripping for a technical discussion on lien stripping basics in bankruptcy that lawyers might find useful.

Go here for earlier posts on lien stripping a 2nd mortgage in a Chapter 13 bankruptcy proceeding.

(1) See In Re Pond, 252 F.3d 122 (2d Cir. 2001) for some case law that approves the "lien stripping" maneuver in Chapter 13 bankruptcy proceedings, in which the U.S. Court of Appeals for the 2nd Circuit held:

• We therefore join the Third, Fifth, and Eleventh Circuits, as well as the Bankruptcy Appellate Panels of the First and Ninth Circuits, in holding that a wholly unsecured claim, as defined under Section 506(a), is not protected under the antimodification exception of Section 1322(b)(2). See McDonald, 205 F.3d at 611; Bartee v. Tara Colony Homeowners Ass'n (In re Bartee), 212 F.3d 277 (5th Cir. 2000); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. 2000); Domestic Bank, 249 B.R. at 838; Lam v. Investors Thrift (In re Lam), 211 B.R. 36 (B.A.P. 9th Cir. 1997), appeal dismissed on other grounds, 192 F.3d 1309 (9th Cir. 1999). But cf. American Gen. Finance, Inc. v. Dickerson (In re Dickerson), 222 F.3d 924, 926 (11th Cir. 2000) (explaining that, if the panel were to decide the issue on a clean slate, it would adopt the minority view, but that it was bound by the majority view because the Circuit had already adopted this view).

See also In re Bollerud, No. 08-12177 (Bankr. S.D. Cal. 2009) for an interesting ruling that allowed a junior lien to be stripped in a Chapter 13 case, even though discharge was not eligible to the debtor. According to the facts of this case, discharge was unavailable because the debtor had previously filed a chapter 7 petition, and the new bankruptcy laws prevented a subsequent discharge within 8 years of that filing in another chapter 7 or 4 years in a chapter 13. See Bankruptcy Law Network: Chapter 20: San Diego Bankruptcy Court allows Lien Stripping in Chapter 13 after Chapter 7.

Loan Servicing Racket Horror Stories Continue; Local Media Outlet Intervenes, Obtains Some Resolution w/ Tax Escrow, Forced Placed Insurance Problems

In Dallas, Texas, a recent story from KDFW-TV Channel 4 points to the problem of unregulated mortgage loan servicing companies by highlighting three stories involving homeowners driven into foreclosure, allegedly due to paperwork screw-ups by American Home Mortgage Servicing, Inc., the outfit handling their house payments.(1)

• [Beth] Shores says the trouble started last year. The company that manages their mortgage account sent a notice stating her mother was delinquent on her property taxes. But Shores’ mother, Helen Jordan had deferred her Dallas County property taxes, as Texas law allows for people over the age of 65. And she had written proof. But the mortgage servicer went ahead and paid the back taxes of $14,348.82 and demanded repayment. “There is no dealing with this company,” said shores. “I faxed. I called. I certified lettered. I did everything to everybody, including the tax office that this was deferred…including the original deferral affidavit and it was totally ignored.” Then the foreclosure letter arrived.

***

• Charles Smith says he is irate and at his wits end. He says he has never missed a mortgage payment yet he fears he could also lose his home because of delinquent taxes. Even though Smith has written proof from the county tax office that his taxes have been paid in full, he says his mortgage servicer set up an escrow account to cover the taxes. Then, the company nearly doubled his monthly payment. But he kept making his regular monthly payments. "Now I am in default and now they can accelerate the loan and put me in foreclosure and put my house on the auction for sale,” Smith told FOX 4.

***

• For the Christophers, of Port Arthur, Texas, it wasn’t their taxes, but their insurance. Even though they had a letter from Farmers [Insurance] stating their policy had never lapsed, AHSMI set up an escrow account, purchased a policy and then jacked up their payment. “I had just spoke to a supervisor telling me all this will be straightened out in 10 days and then the very next day is when we get the letter saying they were wanting to do the foreclosure,” Connie Christopher told FOX 4. Connie says she gets calls at work demanding payment. The Christophers say they can’t refinance because their credit is now a mess.

Reportedly, after being asked by FOX 4 for comment on these three stories, American Home Mortgage Servicing stated that it “resolved all open issues” with all the homeowners. Smith said his monthly mortgage payment has now been returned to the original amount, and Shores said her mother received a letter stating her tax issue has been cleared up, the story states. The Christophers, however, reportedly have a pending lawsuit against the loan servicer.

For the story, see Mortgage Servicing Companies Unregulated in Texas.

(1) See More and Better Predatory Loan Servicing Fraud for commentary on the loan servicing racket recently appearing in RisMedia.com. Among the "tricks" reportedly used by loan servicers when setting up borrowers for a screwing-over described in this story are:

• “We take so long to process our mail it could really cost you.”
• “We didn’t get your payment and you can’t prove we did.”
• “Please try our easy-pay program.”
• “You didn’t pay your property taxes, so we did.”
• “You do not have insurance.”
• “For your benefit, we’ve established an escrow account.”
• “We’re here to help in your time of need.”

NYS F'closure Mill, MERS Named In Class Action Racketeering Suit; Action Seeks To Void "Tens Of Thousands" Of F'closures, Impose Million$ In Punitives

From a press release from New York City attorney Susan Chana Lask:

• On August 17, 2010, attorney Susan Chana Lask filed a Federal Class Action Complaint on behalf of tens of thousands of New York State homeowners who lost their homes to an alleged foreclosure fraud orchestrated for years by a New York “foreclosure mill” attorney and major mortgage companies. The case is filed in the US District Court, Eastern District of New York, entitled “Connie Campbell against Steven Baum, MERSCORP, Inc, et al.”, Case #10CV3800.

• It alleges RICO civil racketeering, RESPA, Fair Debt Collection Practices Act violations and that homeowners paid inflated foreclosure and other fees fictionalized by Mr. Baum who profited from the scheme since 2005. The action seeks to return tens of thousands of foreclosed homes to their owners or the values thereof and hundreds of millions in punitive damages against Mr. Baum, MERSCORP and HSBC.

• Attorney Susan Chana Lask discovered the alleged foreclosure scheme after her client lost her 1.7 Million Dollar Brooklyn Caroll Gardens Brownstone home to a $190,000 mortgage foreclosure filed by attorney Steven Baum for HSBC. The foreclosure court filings were false as filed in HSBC v. Cncepcion Campbell, et al, New York Supreme Court, Kings County, Index #20393/07.

• Steven Baum’s foreclosure complaint he filed was for HSBC against Ms. Campbell . It admits the loan was never assigned to HSBC, yet he sued for HSBC. A later Satisfaction of Mortgage was not filed for HSBC but for a company named MERS, admitting HSBC never owned the loan and the foreclosure complaint should have never been filed in the first place. The actual Mortgage was always in MERSCORP's name and never assigned as required by law. Just who owns the loans Steven Baum forcloses on is a deliberate mystery and potentially tens of thousands of New York homeowners lost their homes on a mystery.

• But there's more. The documents filed in the Courts are signed by attorneys from Mr. Baum's office under penalty of perjury that they are filing with knowledge of the transaction; however, they have no knowledge as they admit they do not have the documents they attest to in their office. In fact, in the later case filed of [plaintiff] Concepcion Campbell [...], New York Supreme Court, Kings County, Index # 08-3467, when Ms. Lask subpoenaed Mr. Baum's firm for the original Note, they responded it was not needed and refused to produce it; implying they never had it yet they swear they reviewed it in their court filings "under penalty of perjury."

• Also, in the original foreclosure case of HSBC, they file documents by an alleged officer of MERS named Rebecca A. Cosgrove by a notary in "Erie County". But MERS is located in Virginia and Erie County is in Buffalo New York where Steven Baum's office is. It is suspect that Ms. Cosgrove is even an officer of MERS, no less that she flew all the way to Buffalo NY for the day just to sign a document before a notary. In fact, other courts recently discovered these same false notaries and "officer" claims in other cases involving Mr. Baum and MERS.

***

• Courts blast Mr. Baum for his sloppy filings claimed to be deliberate to hasten foreclosures on unwitting homeowners and courts. On July 29, 2010 NY County Supreme court Judge Alice Schlessinger summed up a MERS foreclosure as “I am unable to say with any confidence that this was an honest transaction." (Index #109824/05).(1) The Manhattan US Trustees office started an investigation of Steven Baum months ago.

For the entire press release, see Class Action RICO Suit Alleges Tens of Thousands of New York Foreclosure Frauds Orchestrated by "Foreclosure Mill" Attorney & Banks (Hundreds of Millions in Damages Demanded for New York Homeowners).
For the lawsuit, see Campbell v. Baum, et al., Case #10-CV-3800 (E.D. N.Y. August 17, 2010).
(1) See Mortgage Elec. Registration Sys., Inc. v Folkes, 2010 NY Slip Op 32007(U) (NY Sup. Ct. New York County, July 21, 2010). Justice Schlessinger summarizes her decision in this particular case in the following excerpt (bold text is my emphasis, not in the original text):

• I am not prepared to grant plaintiffs cross-motion for summary judgment. Beyond that and despite the fact, as counsel points out, that Folkes does not oppose their motion, I am dismissing the action. I am doing this for essentially three reasons. Some of which has to do with deficiencies in documentation.

• Even without opposition, a plaintiff in a foreclosure action must satisfy a court that it has proper standing or title to bring the action, that the mortgage and note was actually funded by the plaintiff, and that the transaction itself, the one sued upon, has the indicia of reliability and is free of fraud. Kluge v Fugazy, 145 AD2d 537 (2nd Dep’t 1988); Katz v East-Ville Realty Co, 249 AD2d 243 (1st Dep’t 1998). None of those criteria have been satisfied here.

Judge Gets Bagged Rubber-Stamping A Foreclosure Judgment Against Homeowner Mistakenly Believed To Be "Pro Se" At Least An Hour Before Court Hearing???

Florida foreclosure defense attorney Mark P. Stopa writes in Stopa Law Blog about a recent experience representing a homeowner in the courtroom of Pinellas County, Florida Circuit Court Judge Pamela Campbell:

• Yesterday, I had an experience in court that has absolutely rocked my world, causing me to wonder: When do judges decide who wins a foreclosure case?

***

• My experience yesterday, though, as outlined in this Motion to DQ Judge, makes me wonder, not about myself, but about the thousands of cases in Florida where homeowners don’t have an attorney. I strongly encourage you to read the entire Motion to DQ Judge, as it’s a matter of public record, but here’s the cliff notes version.

• On August 19, 2010 at 9:30, a summary judgment hearing was set on a mass-motion calendar. My clients were pro se until just a few days prior, so the documents I filed in opposition to summary judgment had not yet made it into the Court file yet. As such, the Judge thought my clients were pro se. At or before 8:15 a.m. on August 19, 2010, the Judge entered conformed copies of a Final Judgment of foreclosure even though the summary judgment hearing was not scheduled until 9:30 a.m. that day. That’s worth repeating: The judge entered a Final Judgment of foreclosure more than an hour BEFORE the scheduled hearing.

• Sounds impossible to believe, but it’s true. I learned about this, in fact, only by happenstance - my associate went to the courthouse to review the court file before the hearing, and, upon review of the court file, saw conformed copies of the Final Judgment in the file. The hearing was not set to begin for more than an hour, yet the Judge had already made copies of the executed Final Judgment, to be mailed to all parties.

For more, see When do judges decide who wins a foreclosure case?

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

(1) The following excerpts from the Motion to Disqualify Judge (paragraphs 7-12, 18-20) provides Mr. Stopa's account of part of what he alleges went on at the summary judgment hearing (bold text is my emphasis, not in the original text; "Mr. Del ‘Etoile" is the bank's attorney from foreclosure mill law firm Florida Default Law Group; "Mr. Healy" is the homeowner's attorney and Mr. Stopa's associate; "Mr. Hoffman" is the homeowner facing foreclosure):

• 7. As the hearing began, it was uncomfortable from the start. The Judge, very oddly, volunteered that Mr. Del ‘Etoile had been her intern, apparently just recently (since Mr. Del Etoile is a very young attorney), and spoke of him glowingly. It was as if the Judge was introducing Mr. Del Etoile to Mr. Stopa, Mr. Healy, and Mr. Hoffmann (an experience which Mr. Stopa can never recall seeing before in ten years of practicing law). The relationship and introduction was so odd that Mr. Hoffmann would indicate, after the hearing, he felt the hearing was "doomed" from that point forward.

• 8. As the hearing began, Mr. Stopa informed the Judge that Mr. Healy had found the conformed copy of the Final Judgment, in the Court file, that morning. Mr. Stopa advised the Judge that he was troubled by this and requested an explanation (of why there was a conformed Final Judgment in the court file before the hearing had begun).

• 9. The Judge was clearly and visibly annoyed at being "called out" like this, and told Mr. Stopa that he did not understand "procedures." The Judge indicated she was "not hiding anything," as seen by her willingness to provide the file, including her "notes," to Mr. Healy, but that "next time," she would refrain from showing Mr. Healy her "notes." (Apparently, the Judge was referring to the conformed copies of the Final Judgment as her "notes, even though there were no "notes" on that document.) The Judge then attempted to show Mr. Stopa an unsigned Final Judgment, taking the position that she had not signed a Final Judgment, as if she had done nothing wrong.

• 10. Unfortunately, despite Mr. Stopa’s request, the Judge was unwilling or unable to explain why there were conformed copies of the Final Judgment in the court file, as if the Final Judgment had already been entered, before the hearing had begun. Mr. Stopa was hoping for an innocent explanation, but none was forthcoming. In retrospect, and under the circumstances, the explanation seems clear. The Judge did not realize that Mr. Hoffmann had retained counsel (given that Mr. Stopa appeared in the case just before the summary judgment hearing and his filings had not yet appeared in the Court file), thought he was pro se (like many of the other defendants on the mass-motion calendar that morning), and had predetermined that Final Judgment would be entered, so she made conformed copies of the Final Judgment before the hearing even began. Whether the Judge predetermined the case because of her relationship with Mr. Del Etoile is unclear, but it was clear that the Judge had predetermined the outcome.

• 11. Worse yet, it seems that this is a routine practice of the Judge – to prepare conformed copies of Final Judgments in cases where the Defendants are pro se. This sounds harsh, but there seems to be no other explanation (particularly in light of the Judge’s inability or unwillingness to provide one).

• 12. Notably, the Final Judgment of foreclosure was many pages long, yet the Judge made multiple conformed copies to mail to the parties before the hearing. It was clearly a fair amount of work to prepare those conformed copies, and the envelopes that went with them, which of course begs the question – why did the Judge make these copies before the hearing rather than after? Was she so determined to get this case (and other foreclosure cases) off her desk that she predetermined the outcome of the case before the hearing even began? Respectfully, it certainly appears that way. Again, that sounds harsh, but if the Judge was willing to give the parties a "fair shake," why not wait until after the hearing to make the conformed copies? What was the rush?

***

• 18. As the hearing ended, Mr. Stopa, Mr. Healy, and Mr. Hoffmann left the Judge’s chambers, but Mr. Del Etoile remained in chambers, alone, with the Judge (apparently since Mr. Del Etoile was counsel in the next hearing).

• 19. When Mr. Hoffmann left chambers with Mr. Stopa, Mr. Hoffman immediately expressed his concerns about the Judge’s partiality, as set forth therein. These concerns were heightened even more, after the hearing, when Mr. Del Etoile confirmed to Mr. Healy that the Judge had engaged in ex parte communications with Mr. Del Etoile after the hearing and said "bad things" to Mr. Del Etoile about Mr. Stopa and Mr. Healy.

• 20. The fact that the Judge said "bad things" (in Mr. Del Etoile’s words) about Mr. Stopa and Mr. Healy, behind their backs, merely because they were concerned about the fact that the Judge had entered conformed copies of a Final Judgment before the hearing even began, says all that needs to be said about the Judge’s partiality.

Jacksonville Trial Judge Bags Foreclosure Mill, Chase, WAMU For Fraud On The Court In Foreclosure Action; Dismisses Suit With Prejudice

In Jacksonville, Florida, Duval County Circuit Court Judge Jean Johnson dismissed with prejudice a foreclosure action against a local homeowner after making a finding of fraud on the court being committed by the plaintiffs and the foreclosure mill law firm representing them. One of the choice excerpts from paragraph 12-13 of the ruling (bold text is my emphasis, not in the original text:

• 12. The Court finds that WAMU and Chase made representations to this court during the course of the instant action that are known to be false. The court also finds that Shapiro & Fishman had acutal knowledge of the falsity of any averments and representations made on behalf of the current servicer of the Mortgage. Throughout the litigation, WAMU and Chase and Shapiro & Fishman have represented to this Court that plaintiff owns and holds the note and mortgage. It did so in its original complaint on March 27, 2008; in its First Amended Complaint filed on January 29, 2009 and in its Exparte Motion to Substitute Party Plaintiff on February 5, 2009. Moreover WAMU and Shapiro & Fishman created a false Assignment of Mortgage dated April 11, 2008 as evidence of these assertions.

• 13. The Court finds by clear and convincing evidence that these acts committed by WAMU, Chase and Shapiro & Fishman amount to a "knowing deception intended to prevent the discovery essential to defending the claim" and are therefore fraud. Gerhmann v. City of Orland, 962 So. 2nd. 1059, 1061 (Fla. 5th DCA 2007).(1)

For the ruling, see JP Morgan Chase Bank v. Pocopanni, Case # 16-2008-CA-3989 (Fla. Cir. Ct. 4th Dist. Duval County, August 9, 2010).

The homeowner was represented by Chip Parker, Jacksonville, Florida.

Thanks to Carrie Luft for the heads up on this ruling.

(1) Possibly in an attempt to slither its way out of any possible trouble, the foreclosure mill law firm Shapiro & Fishman, who originally represented the foreclosing bank, apparently had itself replaced as attorney of record during the proceedings by Greenspoon Marder, P.A. The latter, possibly because it wanted to avoid being "soiled" by the "sewage" it found itself involved in, was replaced by Shapiro & Fishman (a 2nd appearance in the proceedings for this outfit). Finally, a third law firm, Greenberg Traurig P.A. filed a notice of appearance in this matter and was the only counsel of record appearing at the hearing which resulted in Judge Johnson's ruling.

I wonder if this attepted "fancy footwork" by the foreclosure mills is common when their allegedly bogus paperwork is challenged in a proceeding where the presiding judge refuses to "roll over" and simply rubber-stamp the foreclosure judgment. For another example of this, see Fla. Foreclosure Mill Voluntarily Withdraws Lawsuit After Being Caught Using Dubious Mortgage Assignment; Efforts Begin Again With Different Law Firm.

Fla. Foreclosure Mill Voluntarily Withdraws Lawsuit After Being Caught Using Dubious Mortgage Assignment; Efforts Begin Again With Different Law Firm

In Lauderdale Lakes, Florida, the South Florida Sun Sentinel reports:

• After months of wrangling with CitiMortgage, Dennis and Joyce Brown got fed up and hired an attorney to fight CitiMortgage's foreclosure on their Lauderdale Lakes home. The Browns claim they are victims of fabricated documents used to foreclose after CitiMortgage failed to credit them for mortgage payments.(1) "They ran my blood pressure up so bad," said Dennis Brown, who hired Fort Lauderdale lawyer Kenneth Eric Trent to fight the foreclosure.

• CitiMortgage and its lawyers, David Stern Law Offices, voluntarily withdrew the case against the Browns in Broward County Circuit Court on June 16. But the Browns can't rest easy. Recently, they've received new foreclosure letters from another lawyer representing CitiMortgage.

• The Browns' story is just one example of foreclosures resulting from allegedly fraudulent mortgage assignments and other tactics that "eliminate due process for the homeowner," Trent said.(2)

***

• University of Utah law professor Christopher Peterson said MERS mortgage processing system goes against long-standing principles of property law in assigning rights to a note or mortgage. He said the "owner" of a mortgage can't be the same as the "agent" representing the homeowner, for example. Yet MERS records "false documents" with names of people who are not executives of the registry system, but often paralegals and clerks of law firms, he said. "It's an extremely controversial and arguably fraudlent practice," Peterson said.(3)

For more, see Homeowner fights foreclosure in lawsuit claiming documents are fraudulent.

(1) Reportedly, one of the issue in the Browns' case is the signature on the assignment of Brown's mortgage, giving rights to CitiMortgage, Trent said. The signature is by Cheryl Samons, who is identified as "assistant secretary of Merscorp" when, in reality, Samons is nothing more than an employee of the David J. Stern law office, the story states.

(2) Reportedly, Trent also is suing Stern and Stern's Plantation law firm in federal court in a separate case with similar allegations (see Lawsuit claims that Florida's largest foreclosure firm faked documents). In that lawsuit, on behalf of Oakland Park homeowner Ignacio Damian Figueroa, Trent contends that Stern and a mortgage registration firm generated fraudulent mortgage documents that are intentionally ambiguous to cloud the real ownership of Figueroa's mortgage note, the story states.

For the lawsuit, see Figueroa v. Merscorp, et al.

(3) For Professor Peterson's 46-page article on MERS, see Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System.

Could 62 Million Homes Be Foreclosure-Proof???

Attorney/author Ellen Brown writes in Seeking Alpha:

• Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles — and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.

***

• MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee” — an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions.

• Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose. That means hordes of victims of predatory lending could end up owning their homes free and clear — while the financial industry could end up skewered on its own sword.

For more, see Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?

Maine High Court Boots MERS For Lack Of Standing To Initiate F'closure Action, Okays Post-Filing Substitution Of Bank As Real Party In Interest

The Maine Supreme Court recently weighed in on whether everyone's favorite mortgage electronic registration system, MERS, had any business initiating foreclosure actions. In a nutshell, the court ruled as follows:

• MERS is not a "mortgagee" within the meaning of the state's foreclosure statute, 14 M.R.S. §§ 6321-6325, and therefore had no standing to institute foreclosure proceedings;

• it OK'd the substitution of the bank, as the real party in interest, for MERS in the lawsuit, subsequent to the commencement of the foreclosure action; and

• given the facts of the case, the Bank was found not to be entitled to summary judgment as a matter of law and, accordingly, the court vacated the judgment of foreclosure and kicked the case back to the lower court for further proceedings.

For the ruling, see Mortgage Electronic Registration Systems, Inc. v. Saunders, et al., 2010 ME 79 (August 12, 2010).

Thanks to Mike Dillon of GetDShirtz.com for the heads-up on the ruling.

Texas Couple Asks Judge To Stop Non-Judicial Foreclosure; Says MERS Was Out Of Line In Attempted Note Transfer; Demands Loan, Lien Docs, PSA

In Sherman, Texas, The Southeast Texas Record reports:

• In an attempt to stop a non-judicial foreclosure on their property, Collin County residents Alan and Kelley Anderson filed a lawsuit against CitiMortgage Inc. and Mortgage Electronic Registration Systems, also known as MERS, on July 23 in Collin County District Court.(1)

***

• The home owners state that they executed a loan to purchase real property located in Lucas, Texas, with lender WR Starkey Mortgage on Aug. 26, 2005. The Andersons claim the promissory note was improperly transferred by MERS to CitiMortgage on June 23 in an attempt to foreclose on their property. Defendant MERS is assigned to act only as a nominee for the lender and cannot act on its own, according to court documents.

• "CitiMortgage is attempting to assume the role of Mortgagee Servicers and Beneficiary in a deceptive and fraudulent attempt to foreclose on Plaintiffs real property," the lawsuit states.

• Causes of action filed against the defendants include deception and fraud, bifurcation of security instrument and negotiable instrument, violations of the Real Estate Settlement Procedures Act and breach of contract, violation of the Fair Debt Collection Practices Act and unjust enrichment.

• The plaintiffs are asking the court for a temporary injunction stopping the foreclosure, to require the defendants to produce the original promissory note, all lien documents and pool servicing agreements,(2) and require the defendants to remove all detrimental credit history regarding the mortgage.

Source: Lawsuit filed to stop wrongful foreclosure of property.

(1) Possibly in an attempt to shop for a friendlier litigation forum, or possibly to impose an additional cost in time and money on the homeowners, the defendants reportedly removed the case from state court to the U.S. District Court in Sherman, Texas on Aug. 6.

(2) See Max Gardner’s Top Reasons for Wanting a Pooling & Servicing Agreement for 20 reasons to ask for these documents. See also, The Alphabet Problem and the Pooling and Servicing Agreement.

Lending, Servicing Operations Cause Conflict Of Interest For Major Banks; Attributed As Reason For Ineffectiveness Of Government's Loan Mod Program

A recent The New York Times story decribes a significant conflict of interest facing the major banks like Bank of America, JPMorgan Chase, Wells Fargo, Citibank and others that also provide loan servicing operations for other institutions/securitized mortgage investors:

• So where does the conflict of interest lie? Often, the same bank that services a primary mortgage owned by another institution also owns a second mortgage or home equity line of credit on the same property. When that borrower has trouble meeting both payments, the servicer has an interest in making sure that amounts owed on the second lien, which it owns, continue to be paid even if the first loan, which it has no interest in, slides into delinquency. About two-thirds of primary mortgages are serviced by banks who do not own them but hold the accompanying seconds.

• This conflict is a crucial reason that the government’s loan modification program has been so woefully ineffective. The Treasury Department never forced the second-lien holders who service troubled primary mortgages to reduce the amount they are owed by borrowers, even though such a move would give them a better shot at keeping their homes.

For more, see In This Play, One Role Is Enough.

Hard-Hit HOAs Ramp Up Pressure On Foot-Dragging 1st Mortgage Holders To Force Legal Action Against Delinquent Unit Owners

In South Florida, the South Florida Sun Sentinel recently ran a story on how financially strapped condominium and homeowners' associations unable to collect substantial amounts of unpaid maintenance fees from unit owners are directing their efforts to stimulate collections at the banks holding the first mortgages on the delinquent units in an effort to stay afloat, as explained in this excerpt:

• Associations now are attempting so-called reverse foreclosures, which force lenders to seize homes more quickly than they otherwise would. Banks often delay taking back these troubled properties to avoid having to pay past-due assessments.(1)

***

• Many boards felt they had little recourse, except to charge higher fees to the remaining owners. Last fall, though, the Association Law Group in Miami decided to try something different for one of its clients. The firm, representing the Keys Gate Community Association in Homestead, maneuvered to force a lender into court for a hearing that resulted in the bank seizing a home within the development.

• The association, which already had taken title when the owner stopped paying fees, asked a judge to assign a certificate of title to the lender on the same day as the hearing. The judge granted the request, making the bank the legal owner. And with that came the responsibility of paying association fees.

• Since then, the firm has completed at least 10 reverse foreclosures in Miami-Dade and Broward counties and has dozens more in the pipeline, said Ben Solomon, co-founder of the Association Law Group.

• "We came up with this new legal strategy to address the flagrant stalling of lenders," Solomon wrote in an e-mail. "Each month of delay by the bank in its foreclosure process will typically turn into an additional month of bad debt to the association, which then must be paid unfairly by the [existing] owners."

For the story, see South Florida homeowner associations get tough collecting delinquent fees.

(1) The story points out that while the crash in condo prices during the past few years pushed many unit owners into foreclosure, banks have been dragging their feet in foreclosing on the apartments, causing widespread maintenance fee delinquencies vacancies leaving the state's 50,000 community associations starving for cash to pay for such services as cable, water and building maintenance & repair.

11,000-Unit NYC Housing Complex Becomes "Pawn In A Financial Chess Game" As 1st Mtg Holder Sues To Stop Next Week's 2nd Mortgagee's Foreclosure Sale

In New York City, Crain's New York Business reports:

• Hedge fund honcho William Ackman’s plan to takeover Stuyvesant Town/Peter Cooper Village hit a major snag Wednesday afternoon. Bank of America and U.S. Bancorp, trustees for the senior lenders of the giant residential complex sued to block his plan to foreclose on the 110-building property(1) next week.

• Last week, Mr. Ackman, through a joint venture of his firm, Pershing Square Capital Management, and Winthrop Realty Trust snapped up a $300 million mezzanine loan, a key piece of the complex’s debt that stands between the owner’s equity and the first mortgage. They bought their stake for a mere $45 million, or 15 cents on the dollar. With that in hand they quickly scheduled a foreclosure auction for Aug 25, which they hoped to win.

• Wednesday’s suit, which was filed in New York State Supreme Court in Manhattan,(2) said Pershing and Winthrop violate the terms of the inter-creditor agreement for the property, which outlines how the loan will be paid by all the different creditors. The suit says that Pershing and Winthrop will file for bankruptcy once they take control of the property and will seek to avoid paying the mortgage.(3)

For more, see Banks sue to block Stuy Town foreclosure (BofA and U.S. Bancorp race to court to block an auction of the sprawling 110-building Manhattan residential complex, that had been set for Aug. 25).

See also The New York Times: Opening Legal Salvos in Stuyvesant Town Battle:

• Dan Garodnick, a city councilman who grew up and lives in Peter Cooper Village, said that he was disappointed but not surprised that the complexes were being treated as a “pawn in a financial chess game.”

For story update, see Court suspends Stuy Town foreclosure (On Sept. 2, Pershing Square Capital Management, Winthrop Realty Services and creditors will come together to haggle over the 110-building complex).

(1) The property consists of over 11,000 apartments and sits on about 80 acres of land. Reportedly, the current owner bought the complexes for a record-breaking $5.4 billion in 2006.

(2) The case is Bank of America Corp. v. PSW NYC LLC, 10-651293, New York State Supreme Court in Manhattan (New York County).

(3) With all this multi-million dollar jockeying around going on to snatch ownership of this complex, which on of these financiers does a tenant call to get a toilet unclogged?