Mercedes-Driving Squatter Makes Himself At Home Using Vacant Three-Story Mansion In Foreclosure As 'Party House'

In Southern California, NBC Los Angeles reports:

• In an upscale enclave in the San Fernando Valley, there's a new neighbor on the block. He drives a big Mercedes, sometimes a fancy SUV and residents say he's been living in a three-story mansion, which was empty and going into foreclosure.

• His name is Dawud Walli, and neighbors say he moved into a huge empty home last July, furnishing nearly every room of the house. "We feel unsafe. We can't sleep. We have families," say some of the residents who live nearby. They say Walli made this a party house.

• Inside, we found booze and condoms scattered about. But no one really knew what went on here, because some of the windows were covered with tape and garbage bags. "They don't want to make contact with the neighbors. They do not want to make eye contact with you. They do not talk to you," says someone who lives nearby.

• Prosecutors say this is happening across Southern California. They've caught squatters illegally living in homes in Bel-Air, Marina Del Rey and Winnetka. "It's a huge problem and growing every day," says Los Angeles City Attorney Maureen Rodriguez. "It's just amazing how nervy they can be: presenting false leases," says Rodriguez.

For more, see Is Your New Neighbor a Squatter?

Do-It-Yourself Mortgage Cancellation Racket A New Foreclosure Avoidance Technique?

In Atlanta, Georgia, WSB-TV Channel 2 reports:

• A Channel 2 Action News Investigation has uncovered a new scheme homeowners are using to avoid foreclosure. It involves canceling their own mortgage, and some homeowners told Investigative Reporter Jodie Fleischer it’s working. But at least one local official calls it fraud.

• The Internet is flooded with offers promising to help save your house. Susan Weidman started her research after losing her husband to a brain tumor. With mounting bills, she didn’t want to lose her home, too. “I didn’t really set out to think that I could possibly get a free house. I just wanted to stall,” Weidman said. Weidman said she hasn’t paid her mortgage in a year. She received several foreclosure notices but the sale never happened.

• “I’d like to think it was the paperwork I filed all right, because everything I filed was basically with fair warning and asking them questions that they refused to answer,” she said.

• Weidman filed several documents with the Cobb County clerk of court including a document that challenged the mortgage and another that revoked her power of attorney.
  “The way they foreclose,” she said “is basically signing your name to a foreclosure document.”

• But Weidman told Fleischer there was one document in particular that made the difference. She canceled her own mortgage by signing her name for World Savings Bank. “You actually signed this as attorney-in-fact for the CEO of the mortgage company,” Fleischer asked. “That’s right…, for John Stumpf,” replied Weidman. She sent a letter to the bank telling the CEO she was going to sign his name. Because he didn’t respond, she said, that effectively gave her permission to do so.

• But the Cobb Clerk of Court said it’s fraud and a felony. Fleischer found at least 15 different homeowners who have done the same thing in Cobb County. “They’re desperate, they’re reaching for straws and these people tell them they have a straw,” said Cobb County Clerk of Court Jay Stephenson.

• Stephenson said “these people” are the ones teaching homeowners what to file. Fleischer found one advertisement for a seminar held in DeKalb County last year by a group called the Underground Railroad Network. Lateef Kareem-Bey spoke at the group’s Stone Mountain office on behalf of one Gwinnett county couple facing foreclosure. The couple signed for the bank and said their mortgage was fully paid, but still got evicted.

• Stephenson said it won’t be long before desperate homeowners start getting prosecuted for their paperwork.

For more, see 2 Investigates: Homeowner Tricks To Get Out of Paying Mortgage.

Judge Slams 'Adverse Possession' Defense; Trial Gets 'Go-Ahead' For Attorney Accused Of Hijacking Vacant Home In F'closure, Pocketing Rent From Tenant

In Allegan, Michigan, The Allegan County News reports:

• Allegan attorney John Watts has been ordered to stand trial on all the charges against him. Watts, 65, was in Allegan County District Court Friday, Nov. 19, for a preliminary hearing before visiting Judge Richard A. Santoni.

• Watts, of Cheshire Township, was arrested in May and charged with five felonies in three cases including two counts of false pretenses and one count each of embezzlement between $1,000 and $20,000, unlawfully driving away a motor vehicle and passing false title. He has pleaded not guilty to all charges.

• At the hearing Friday, Santoni heard testimony on one of the false pretense charges. Police and prosecutors allege that in that case, Watts rented a home in Martin that didn’t belong to him and tried to collect rental income from it.

***

• [Watts' defense attorney James] Shek [] made an argument regarding the state’s adverse possession laws that in this state it was technically legal to occupy unoccupied property and take ownership if the rightful owner didn’t attempt to eject you over a certain term of years. Shek said this was a “conundrum” of Michigan law.

• Santoni, a Kalamazoo County district judge brought in because both of Allegan County’s district judges recused themselves, didn’t agree with any of those arguments. “Adverse possession is not a defense to a criminal act and I find that legal argument without merit,” he said.

For more, see Watts case moves to circuit court.

'Ike' Victim Sues Loan Servicer Claiming Improper Withholding Of Insurance Proceeds Makes It Difficult To Complete Repairs To Hurricane-Damaged Home

In Galveston, Texas, The Southeast Texas Record reports:

• Shirley Peebles seeks to recover from Green Tree Servicing insurance funds she claims are necessary for repairs to her property in Bacliff. Peebles and Green Tree Servicing were issued a check in the amount of $9,759 after Hurricane Ike inflicted damage to the complainant's property, according to a lawsuit filed Nov. 16 in Galveston County District Court.

• Recent court documents state that the defendant maintained a security interest in the aforementioned property by way of a loan. Green Tree Servicing "has continued to hold a portion of the proceeds and has made it extremely difficult for (Peebles) to make repairs," the original petition says.

For more, see Bacliff woman wants insurance funds released so home can be repaired.

Feds Announce Recent Actions Against Various Alleged Upfront Fee Foreclosure Rescue Rackets

The Federal Trade Commission recently announced:

• The Federal Trade Commission [] announced a series of law enforcement actions as part of the FTC’s continuing crackdown on scams that target homeowners behind in their mortgage payments or facing foreclosure.

• At the FTC’s request, federal courts have halted two allegedly bogus mortgage relief operations that posed as government mortgage assistance programs, pending trial. In addition, 17 marketers have been banned from selling mortgage loan modification and foreclosure relief services under court judgments and settlements in several previously filed law enforcement actions. The FTC has charged another mortgage relief operation with contempt for violating 2008 court orders.

• All of these cases involved alleged false claims that the defendants can obtain dramatically lower mortgage interest rates in exchange for hefty up-front fees.(1)

For the names of the outfits and individuals targeted by the FTC, and the details underlying its actions against these rackets, see FTC Announces Series of Actions Against Mortgage Relief Operations Charged with Deceiving Distressed Homeowners.

(1) Among the outfits' alleged bad acts are:

• Pocketing upfront fees using false claims of high sucess rates and promises to give full refunds if they failed to obtain loan modifications,
• Misrepresenting that they would stop, postpone, or prevent foreclosure,
• Misrepresenting loan and modification terms,
• Misrepresenting their ability to improve someone’s credit history,
• Advising people to stop making mortgage payments,
• Falsely saying that negotiations with their lenders were under way in response to consumers' inquiries,
• Falsely claiming that a lawyer would negotiate the terms of consumers’ home loans with lenders,
• Falsely claiming that only selected customers meeting certain conditions could “qualify” for modification assistance, when in fact, these rackets pocketed upfront fees from pretty much everyone who applied for help,
• Falsely claiming that it had attorneys and forensic accountants on staff,
• Using mailers that falsely peddled loan modification services as federal programs, and having those mailers signed by an attorney in the consumer’s state,
• Misrepresenting themselves as part of the federal government,
• Misrepresenting an affiliation with the federal government,
• Using logos that simulated government seals,
• Falsely claiming to have taken reasonable and appropriate measures to protect consumers’ personal information from unauthorized access,
• Improperly disposing of consumers’ information in unsecured dumpsters,
• Stopped responding to consumers' phone calls or e-mails,
• Disconnecting their businesses' phone numbers,
• Changing the name of their business while continuing to make promises and take money from consumers,
• Using mailers that appear tailored to individual recipients, expressing certainty that the consumers could receive a loan modification by stating that consumers had been “PRE-SELECTED” because their loan situation met the defendants’ criteria, and specifying the consumer’s “New 30 Year Fixed Payment.”

Feds Finalize Rules Regulating Upfront Fee Foreclosure Rescue 'Rackets'

The Federal Trade Commission recently announced:

• Homeowners will be protected by a new Federal Trade Commission rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable. [...] The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis.

***

• All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.

For more, including the ban on advance fees, disclosure requirements, prohibited claims, and the exemption for attorneys, see FTC Issues Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams (Rule Outlaws Advance Fees and False Claims, Requires Clear Disclosures).

Go here for the Text of the Federal Register Notice.

Another Homeowner Falls For Servicer's Loan Modification Promise, Then Has Home Sold Out From Under Her

In Birmingham, Michigan, WXYZ-TV Channel 7 reports:

• Debra Graves has been begging her bank for help for years. [...] Graves seemed like the ideal borrower – she put 30% down on her home in Birmingham, and says she always paid on time. Until – like so many in Michigan – she lost her job. “I have done everything that Wells Fargo has asked me to do, and they have not worked with me at all,” said Graves.

• Graves says, after 3 years of calling -- she finally got through to someone in the president’s office at the bank – she was assured they were trying to modify her loan. “She made promises to me. She said they would bump my Sheriff’s sale back to November 7th,” said Graves.

• Graves took on roommates -- she even took a low-paying retail job just to show she had some income to qualify for the modification. But then Graves found out, her house had been sold at Sheriff’s sale in September – and Wells Fargo never told her. “How could they do this to me? I never thought, at my age, that I would be worried about whether or not I would have to move in with my mom. It’s just a really bad situation to be in,” said Graves.

For more, see Steaming mad about loan modifications.

Oregon AG Targets Loan Modification Outfit In Lawsuit For Allegedly Clipping Homeowners Out Of $80K+ In Illegal Fees

From the Office of the Oregon Attorney General:

• Attorney General John Kroger [] announced a lawsuit that accuses the California-based American Team Mortgage, Inc., of repeatedly violating Oregon's Unfair Trade Practices Act and Mortgage Rescue Fraud Protection Act.

***

• The lawsuit filed [] in Marion County Circuit Court alleges that since January 2009, American Team Mortgage charged 32 homeowners a total of more than $80,000 in fees for mortgage loan modifications. Most of those fees were charged in advance of providing services in violation of Oregon law, the suit alleges.

• The company obtained loan modifications for only a fraction of their Oregon clients, and possibly as few as two, the suit claims. Despite American Team Mortgage's poor record of obtaining loan modifications and despite promises to refund clients it could not help, the company refunded only two of the 32 Oregon homeowners who paid advance fees for loan modifications.

• By June 2010, the lawsuit alleges, American Team Mortgage effectively went out of business. Its phone number was disconnected. Mail was returned. Dozens of Oregon homeowners were left without a loan modification or a refund. At least one client lost his home to foreclosure. Others are facing foreclosure.

For the Oregon AG press release, see Lawsuit Accuses California Loan Modification Company Of Cheating Oregon Homeowners (The lawsuit alleges that American Team Mortgage charged more than $80,000 in fees from nearly three dozen Oregon homeowners in violation of Oregon law).

Minnesota AG Files Unrelated Suits Charging Two Out-Of-State Outfits With Running Illegal Upfront Fee Loan Modification Rackets

In Hennepin County, Minnesota, the Star Tribune reports:

• Minnesota Attorney General Lori Swanson filed lawsuits Wednesday against two out-of-state firms that she says are taking advantage of people in or near foreclosure who seek mortgage modifications. Swanson said the firms represent a new tactic of "advance-fee" mortgage-modification cons that try to capitalize on negative publicity about such schemes by portraying themselves as good guys who can help protect homeowners.

***

• The latest lawsuits were filed in Hennepin County District Court. One alleges that a Los Angeles law firm called the Balanced Legal Group and a California lawyer named Deepak S. Parwatikar offered mortgage modification services in Minnesota without being licensed to practice here, and they collected upfront fees of $3,500 or more from clients before performing any services. That's against the law, Swanson said.

***

• The defendant in the other lawsuit is a Cheyenne, Wyo.-based firm called Home Protection Coalition, which did business under the name Housing Recovery Program. The suit says the firm claims to be a tax-exempt organization sponsored by the federal government to help struggling homeowners, but it isn't registered as a tax-exempt organization.(1)

For more, see Swanson targets new foreclosure schemes (Attorney general files suits against two firms, accusing them of using a new type of "advance-fee" mortgage-modification con).

For the lawsuits, see:

• State of Minnesota v. The Balanced Legal Group, et ano.,
• State of Minnesota v. Home Protection Coalition, dba Housing Recovery Program.

(1) Reportedly, the firm allegedly copied the distinctive logo of a federal campaign called the "Loan Modification Scam Alert," simply deleting the word "scam" from the logo, and it claims its services are free of charge, but, in fact, it solicits a "donation" of $2,300 before working with clients, the suit says.

NH Attorney Peddling Loan Modifications Abandons Clients After Regulator Issues Cease & Desist Order

In Concord, New Hampshire, the Concord Monitor reports:

• Closed firm fulfilled duties, he says. The website is still up, but the phone line has been cut off. Dan Dargon's law firm no longer exists. Not all of Dargon's clients got the memo, however. A month after the Dargon Law Firm shut its doors amid an investigation by the state into its loan modification practices, clients who say they were never informed of the firm's closure don't know what's happened to their cases.

• "I never got a phone call, never got an e-mail - I didn't get mail," said Glen Whelden, 43, of Pelham, who paid Dargon $2,500 last year to get help lowering his monthly mortgage payments.

***

• Dargon said [] clients have no reason to be angry with him. He said he's fulfilled the terms of their contracts, which specified that he would submit their loan modification requests to lenders but didn't guarantee specific results. "If they want to call somebody, call (Banking Commissioner) Peter Hildreth, or whoever that deputy guy is," Dargon said. "Ask them what they're thinking and how they're going to take care of them now. "Not to be rude about it," he added, "but this was not our fault."

• Dargon said Gorham attorney Don Lader agreed to take on the 300 client files that were still active when Dargon closed the doors to his Concord office in September, months after the state Banking Department issued him a cease-and-desist order to stop modifying loans without a state license.

For more, see Irate clients want word from lawyer.

Nevada Regulator Clips Loan Modification Outfits Out Of $110K In Fines, Probe Costs In Unrelated Cease & Desist Orders

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

• A Las Vegas loan modification and foreclosure consulting business has been fined $50,000 by the state for mishandling the money of homeowners. The state Division of Mortgage Lending also issued a closure order against U.S. Loan Modification Services, owned by Jeff and Gail Strum, which was licensed in January.

• The order, signed by Commissioner Joseph L. Waltuch, said the business didn't keep the money of its clients in a separate account as required by regulations and it converted the money from homeowners to its own use. The complaint said the Strums “withdrew moneys collected from homeowners from its bank account without being able to explain what the money was used for.”

• It ordered the business to return the money collected from homeowners and for the Strums to hire a certified public accountant to reconcile the books. The Las Vegas business, after an appeal hearing, was also ordered to pay the division more than $15,000 to cover the cost of its investigation, lawyer time and administrative work.

• The division also announced it has ordered a closure order and imposed a $15,000 fine on Pronto Solutions and Angela Gavilan. It directed the company to cancel all of its contracts with homeowners and refund them their money. Waltuch said the company has been operating without a state license. It did not request an appeal hearing.

• The division imposed a $30,000 fine and ordered GSH 360 FM and Marsha Tolentino of Las Vegas to stop acting as a foreclosure and loan modification consultant. The order says GSH 360 and Tolentino never applied for a state license and is not a tax-exempt, nonprofit corporation as advertised. GSH 360 FM can ask for an appeal hearing.

• It also ordered Mortgage Planners Advantage and Roy Donald to stop conducting its business as a foreclosure and loan modification consulting business without being licensed by the state. It also ordered the company to refund all the money it collected from homeowners. No appeal hearing was requested.

Source: Las Vegas loan modification, foreclosure firm fined $50,000.

For the Cease & Desist Orders and imposed fines, see:

• U.S. Loan Modification Services, LLC, Jeff Strum and Gail Strum,
• Pronto Solutions and Angela Gavilan,
• GSH 360 FM and Marsha Tolentino,
• Mortgage Planners Advantage and Ray Donald.

Loan Servicer Pockets Three Months Of Loan Modification Payments, Then Forecloses Home Out From Under Unwitting Borrower Anyway

In Ceres, California, KXTV-TV Channel 10 reports:

• After struggling for more than a year to get their house payments reduced, Carol Ann Rangel received formal notification from Citimortgage in May that her family had been approved for a loan modification.

***

• News10 first featured the Rangels in November, 2008, as they began the long process of seeking a loan modification. The letter from Citimortgage was dated May 20, 2010:
  
  Congratulations! You are approved to enter into a trial plan under the Home Affordable Modification Plan! This is the first step toward lowering your mortgage payments. If you make your new payments timely . . . we will not conduct a foreclosure sale.

• Rangel provided News10 with banking statements showing electronic payments to Citimortgage in the amount of $723.15 on June 1, June 29 and July 29.

• Rangel called Citimortgage on Aug. 30 because she had not received a coupon for the September payment. That's when she learned her home had been sold at auction 11 days earlier. "I never received a letter, never received a phone call, never received any notice that my home was being auctioned," Rangel said.

For more, see Ceres homeowner's loan modified; house auctioned anyway.

(1) This homeowners and others who are similarly situated could have a claim against the loan servicer to enforce its promise to hold off on foreclosure, even if not contractually obligated to do so. For more, see Court: "Promissory Estoppel" Could Make Lender’s Verbal Agreement To Halt F'closure Sale Enforceable, Even Absent Consideration For Promise To Stall.

Central Florida Judge Heightens Scrutiny In Cases Involving Process Servers Charging "Ridiculous" Fees, Arousing Suspicions Of Wrongdoing

In Central Florida, The Tampa Tribune reports:

• Pasco County Circuit Judge Susan Gardner decided to take a closer look at her foreclosure cases after law firms were accused recently of overbilling and forging documents. She doesn't like what she's finding – a mountain of fees to serve notice of foreclosure lawsuits to homeowners and to people who don't exist.

• "Routinely, routinely, I'm seeing charges of $1,600, $1,800, $1,000, $800, any of those are ridiculous, and there had better be a good reason for it," Gardner said, noting that these fees should typically be $45 to a couple hundred bucks.

• The judge chose 12 random files and said she found 11 of them had what she says appear to be inflated charges to serve homeowners with lawsuits. Some of the lawyers who submitted affidavits to the court saying the fees are "reasonable" often sign their names and bar numbers in an illegible scribble, court records show.

• "I used to think this was just sloppy work, but I truly have begun to wonder if it's not concealment," Gardner said. The files in question involve two of the law firms that are currently under investigation by the Florida Attorney General's Office for submitting fabricated or misleading documents in foreclosure cases.

For more, see Judge wants answers to foreclosure document fees.

Alleged Foreclosure Fraudulent Document Manufacturing Racket Now Faces Charges Of Federal Securities Law Violations; Suit Seeks Class Action Status

The law firm Robbins Geller Rudman & Dowd LLP announces:

• Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) [...] announced that a class action has been commenced on behalf of an institutional investor in the United States District Court for the Middle District of Florida on behalf of purchasers of the common stock of Lender Processing Services, Inc. (“LPS” or the “Company”) between July 29, 2009 and October 4, 2010 (the "Class Period"), inclusive, seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”).(1)

***

• The complaint charges LPS and certain of its officers and executives with violations of the Exchange Act. LPS operates in the mortgage industry and is the industry’s number one provider of mortgage processing services, settlement services and default solutions, and the nation’s leading provider of integrated data, servicing and technology solutions for mortgage lenders.

• The complaint alleges that, throughout the Class Period, defendants failed to disclose material adverse facts about the Company’s true financial condition, business and prospects. Specifically, the complaint alleges that defendants failed to disclose:
  
  (i) that the Company had engaged in improper and deceptive business practices;
  
  (ii) that the Company’s subsidiary Docx had been falsifying documents through the use of robo signers;
  
  (iii) that the Company had engaged in improper fee sharing arrangements with foreclosure attorneys and/or law firms, including, but not limited to, undisclosed contractual arrangements for impermissible legal fee splitting, which are camouflaged as various types of fees;
  
  (iv) as a result of the Company’s deceptive business practices, the Company reported misleading financial results; and
  
  (v) further, as a result of the foregoing, at all relevant times, the Company’s financial outlook lacked a reasonable basis.

For more, see Robbins Geller Rudman & Dowd LLP Files Class Action Suit Against Lender Processing Services, Inc.

For the lawsuit, see City of St. Clair Shores General Employees' Retirement System v. Lender Processing Services, Inc., et al.

Note: If you purchased LPS securities between July 29, 2009 and October 4, 2010, you may qualify to serve as a lead plaintiff in this action. To inquire about serving as lead plaintiff, see Notice of Opportunity to Serve as Lead Plaintiff.(2)

(1) Receiving prominent mention in the lawsuit is LPS' now-shuttered, notorious subsidiary, Docx.

(2) If you "sold short" shares of LPS stock (or stock in foreclosure mill attorney David J. Stern's DJSP Enterprises, for that matter) during the relevant period, you are to be congratulated for your keen foresight.

BofA Facing Doom By Countrywide Ticking Time Bomb?

Attorney Abigail Field writes in AOL's Daily Finance:

• Testimony in a New Jersey foreclosure case decided last week may spell big trouble for Bank of America. If what one bank employee said on the stand proves to be accurate, paperwork problems it acquired when it purchased the failing mortgage provider Countrywide in 2008 could leave BofA on the hook for billions of dollars.

• As first reported by Kate Berry for American Banker, Linda DiMartini, a supervisor and operational team leader for the Litigation Management Department of BAC Home Loans Servicing, testified in the foreclosure case of John T. Kemp that it was "customary for Countrywide to maintain possession of the original note and related documents."(1)

• If that's true, then Bank of America may discover that it has millions of loans on its books that it thought it had transferred to trusts that issued mortgage backed securities, because 96% of Countrywide loans were ostensibly securitized. As the Congressional Oversight Panel explained, that outcome alone could cause massive damage to a bank's balance sheet. And as bad as that would be, it isn't the only problem that could result from Countrywide hanging on to the notes.

For more, see Countrywide's Mortgage Document Errors May Doom Bank of America.

For the court ruling, see Kemp v. Countrywide Home Loans, Inc.

(1) Go here for the transcript of court hearing in which BofA's attorney conceded that DiMartini's testimony was accurate and that as a result, BofA had failed to deliver the note at issue in that case to the trust under the contract or otherwise applicable law.

Recent Bankruptcy Court Ruling Provides Evidence Supporting View That Many Mortgage Securitizations Are Invalid

Georgetown University Associate Professor of Law (and witness testifying in November 6, 2010 Congressional hearings on "Problems In Mortgage Servicing From Modification To Foreclosure") Adam J. Levitin writes in Credit Slips:

• Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.

• Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust. The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan. That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.

• This opinion could turn out to be incredibly important. It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction: failure to properly transfer the mortgage meant that the mortgages were never actually securitized. The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.

For more, see The Big Fail.

Go here for Professor Levitin's written testimony during the recent Congressional hearings.

Go here for the transcript of lender attorney's failed attempt at giving the judge a satisfactory explanation for the bank's screw-up in the Kemp case.

Colorado Judge Slams Brakes On Foreclosure As Homeowner Claims Bank "Showed Up With A Forged Document" To Rule 120 Hearing In Attempt To Take Home

In Crestone, Colorado, Boulder Weekly reports on the successful effort of homeowner Wooddora Eisenhauer, 70, to get a judge at a Rule 120 hearing to slam the brakes on the bank some believe is the home lending industry's 'stagecoach to hell' - Wells Fargo, and an ostensibly illegal foreclosure attempt:

• The third and current foreclosure involves her primary residence, a 650-square-foot, one-bedroom, one-bath home that Wells Fargo is attempting to foreclose on after buying the loan from Washington Mutual, Eisenhauer says. At her March 1 Rule 120 hearing, the administrative procedure held to determine whether a house can be foreclosed on and sold, she claims that Wells Fargo “showed up with a forged document.”

• She and her attorney, Erich Schwiesow of the law firm Lester, Sigmond, Rooney and Schwiesow in Alamosa, argue that the first page of the promissory note clearly did not match the rest of the document, in part because it didn’t have the same fax stamp. In addition, they claim, the initials and signature on the document do not match Eisenhauer’s handwriting.

• “It was clear it was manufactured,” Schwiesow says, adding that a local judge agreed and denied authorizing the sale of the property. Wells Fargo initially filed a motion asking the judge to reconsider the decision, but dropped that motion [last] week.

For the story, see Twice bitten? Second Crestone resident claims fraud.

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

NY Trial Judge: Buffalo-Based Foreclosure Mill Law Firm's Actions "A Dereliction Of Professional Responsibility!"

In Suffolk County, New York, State Supreme Court Justice Melvyn Tanenbaum has recently been giving the notorious, Buffalo-based foreclosure mill law Steven J. Baum, P.C. a real hammering.

Over the last month and a half or so, Justice Tanenbaum has denied a request to proceed with foreclosure sales in thirty (30) of Baum's cases. A sample of his 'standard' execoriation of Baum contained in his orders follows:

• This Court has repeatedly directed plaintiff's counsel to submit proposed orders of reference and judgments of foreclosure in proper form and counsel has continuously failed to do so. The court provided counsel's office directly with copies of orders and judgments which would satisfy the requirements and counsel has responded by submitting correspondence addressed to the Court from non-attorney employees with improper and inadequate submissions. The court deems plaintiff's counsel's actions to be an intentional failure to comply with the directions of the court and a dereliction of professional responsibility.

Go here for the short form copies of each of Justice Tanenbaum's 30 orders excoriating foreclosure mill Steven J. Baum, P.C. (made available online courtesy of StopForeclosureFraud.com).

DOJ Document 'Scrubbers' Intensify Efforts In Search Of Lenders' Paperwork Screw-Ups, Improper Practices In Homeowners' Chapter 13 Bankruptcy Cases

The Wall Street Journal reports:

• The Justice Department and other federal agencies have intensified their review of the banking industry's foreclosure documentation problems, using their powers over bankruptcy proceedings to scrutinize the treatment of troubled mortgages.

• A key part of the effort is the Justice Department Trustee Program, the federal watchdog overseeing bankruptcies, which has launched a broad review of Chapter 13 bankruptcy filings by homeowners trying to halt foreclosure proceedings.

• A U.S. official said Wednesday that 17 federal Trustee offices around the nation have recently stepped up efforts to scrub Chapter 13 filing documents, looking for documentation errors or improper practices such as inflated fees. Under Chapter 13 bankruptcy, a borrower seeks to halt foreclosure and comes up with a plan to catch up with their mortgage debt within five years.

***

• The increased federal scrutiny puts more pressure on the banking industry, which is already dealing with probes by 50 state attorneys general into allegations of the improper use of "robo-signers" to foreclose on homes. The industry is also bracing for the results of a separate probe by the Federal Housing Administration, which is scrutinizing the way banks process mortgage payments.

For more, see U.S. Looks Deeper Into Foreclosures.

Foreclosure Mills Begin Returning To Court With 'Rehabbed' Paperwork Expecting Judges To Sign Off On Prior Screw-Ups

The Palm Beach Post reports:

• Some large law firms that handle the state's foreclosures are regrouping and re-filing court documents that were pulled earlier this fall, claiming that flaws have been fixed and hoping to move home repossessions forward.

• But foreclosure defense attorneys are crying foul. They say judges shouldn't allow simple do-overs on what they believe amounted to fraud upon the court when attorneys submitted "robo-signed" affidavits or other questionable documents that bank and law firm employees have said were not verified, reviewed or correctly notarized.

• St. Petersburg defense attorney Matt Weidner said the re-filings are placing the courts in an "absurd" position, requiring judges to "bless or at least overlook the fraud committed." "The foreclosure mills and their clients have caused themselves and this entire country a profound mess," Weidner said. "Now they want our courts to sign off on their misdeeds."

For more, see Dormant foreclosure cases in Florida starting to trickle back into courts.

Ruling That Sale Leaseback Was Equitable Mortgage Crucial To $294K Damages Award For Consumer Lending Law Violations In Equity Stripping Scam

A recent ruling from a U.S District Court in Trenton, New Jersey, sitting in an appellate capacity in a bankruptcy matter, affirmed a decision by a U.S. Bankruptcy Court awarding damages of $690,000 (and an additional $34,000+ for the homeowners' legal fees and costs) to a homeowner-couple who were ripped off in a sale leaseback, foreclosure rescue scam.

Of that amount, approximately $294,000 of that amount was attributable to statutory damages for violations of a state consumer lending law: the New Jersey Homeowner Security Act ("HOSA"), and two federal consumer lending laws: the Truth in Lending Act ("TILA") and the Home Ownership and Equity Protection Act ("HOEPA").(1)

For those of you wondering how there can be violations of consumer "lending" laws in a transaction that did not ostensibly involve a loan of any type (ie. the subject transaction involved a sale of the home, coupled with a contemporaneous leaseback of the premises with an option to repurchase the home within a certain time frame), the ripoff victims invoked the equitable mortgage doctrine, which when suucessfully invoked in the context of a sale leaseback deal, will recharacterize the deal as a secured loan.(2)

In the following excerpt, the U.S. District Court addresses this equitable doctrine, as applied in the State of New Jersey (bold text is my emphasis, not in the original text):

• The Court will affirm the Bankruptcy Court's determination that the transaction involved in the present case, although nominally structured as a sale/leaseback transaction, is in actuality an equitable mortgage. "`The whole doctrine of equitable liens or mortgages is founded upon that cardinal maxim of equity which regards as done that which has been agreed to be, and ought to have been, done. . . . The form which an agreement shall take in order to create an equitable lien or mortgage is quite immaterial, for equity looks at the final intent and purpose rather than at the form.'" In re Bridge, 18 F.3d 195, 200 (3d Cir. 1994) (quoting Rutherford Nat'l Bank v. H.R. Bogle & Co., 114 N.J.Eq. 571, 169 A. 180, 182 (N.J. Ch. 1933)). Thus, form is irrelevant, as:
  
  '[t]he doctrine has been firmly established from an early day that when the character of a mortgage has attached at the commencement of the transaction, so that the instrument, whatever be its form, is regarded in equity as a mortgage, that character of mortgage must and will always continue. If the instrument is in its essence a mortgage, the parties cannot by any stipulations, however express and positive, render it anything but a mortgage, or deprive it of the essential attributes belonging to a mortgage in equity.'
  
  Johnson v. Novastar Mortgage, Inc., 698 F.Supp.2d 463, 469 (D.N.J. 2010) (quoting Humble Oil & Refining Co. v. Doerr, 123 N.J.Super. 530, 303 A.2d 898, 906-07 (Ch. Div. 1973)). In fact, "New Jersey courts have repeatedly found that sale-leaseback arrangements made to avoid foreclosure are in fact equitable mortgages." Id.

• The Bankruptcy Court thus did not err in its determination that the transaction at issue is an equitable mortgage. The Bankruptcy Court based this determination on a number of factors:
  
  (1) Cleveland Development's solicitation letter to the Plaintiffs contains ... telling terminology .... (2) The `Lease Agreement Buyback' provides for sale proceeds to be disbursed to the Plaintiff upon cancellation of the agreement. (3) The property had a value of over $800,000; however, the Defendant `purchased' it for only $555,232. (4) The O'Briens have the option to repurchase their home for $650,483.83. (5) The O'Briens were not represented by counsel in the transaction. (6) The O'Briens were in financial distress .... (7) The Plaintiffs' intent was that this transaction was a loan, secured by their home ....
  
  O'Brien, 423 B.R at 491.

• Although Appellants claim that "at all times, Plaintiffs and Cleveland intended the transaction to be a sale/leaseback with an option to repurchase" (Appellants' Br. at 32), the Court agrees with the Bankruptcy Court that the evidence shows "the transaction was meant to refinance the mortgage allowing [Appellee] to keep his home." O'Brien, 423 B.R. at 492. It is of no matter that "the documents memorializing the transaction clearly memorialize the parties' intent to effectuate a sale of the Property to Cleveland, the subsequent lease of the Property by Cleveland to Plaintiffs, and the eventual repurchase of the Property by Plaintiffs." (Appellants' Br. at 32.)

• Rather, "`[t]he rule is firmly established that a deed absolute on its face intended only as security for a loan will be decreed to be operative as a mortgage. Equity will look beyond the written instrument and explore the character of the transaction and the contemporaneous intentions of the parties.'" James Talcott, Inc. v. Roto American Corp., 123 N.J.Super. 183, 202 (Ch. Div. 1973) (quoting Vreeland v. Dawson, 55 N.J.Super. 456, 465 (Ch. Div. 1959)).

• The Court joins the Bankruptcy Court in looking beyond the written instrument here to the actual character of the transaction. Furthermore, Appellants' arguments regarding the intent of the parties does not change the Court's decision. Rather, courts look to the "final intent" of the parties; in the present case the final intent was clearly that Appellees keep their home.

• Thus, this Court does not find clear error in the Bankruptcy Court's determination that the transaction at issue was an equitable mortgage.(3)

For the ruling of the District Court, see Cleveland v. O'Brien (aka O'Brien III), Civ. No. 10-3169 (GEB), (D. N.J., November 12, 2010), affirming:

• In re O'Brien (aka O'Brien I), 423 B.R. 477 (Bankr. D.N.J. 2010) (as to the approximately $690,000 in actual and statutory damages), and

• In re O'Brien (aka O'Brien II), unpublished (Bankr. D. N.J., 2010) (as to the homeowners' attorney fees of $33,932.50 for 81.5 hours of work and $627.50 in costs).

(1) Another chunk of the damages awarded to the homeowner-couple was attributable to violations of the New Jersey Consumer Fraud Act ("CFA"), for treble damages in the amount of $350,374.47 (representing the amount of home equity the couple was screwed out of, $116,791.49, and then multiplied by three as mandated by the CFA).

Asserting claims under state statutes prohibiting unfair and deceptive practices as was done in this case is not unusual in sale leaseback foreclosure rescue scam cases (see footnote 3 of this post). For an overview of such state statutes throughout the U.S., see CONSUMER PROTECTION IN THE STATES: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.

(2) See generally:

• When is a Sale-Leaseback an Equitable Mortgage?,
• Sale-Leasebacks: Things May Not Be What They Seem,
• Online References On Sale Leaseback Recharacterization.

(3) In footnote 7 of the ruling, the District Court makes the following additional observation on the application of the equitable mortgage doctrine in New Jersey in another recent case:

• The Court notes that the Bankruptcy Court's decision has recently been utilized by another Judge in this District in finding that a sale-leaseback transaction similar to the one at issue was actually an equitable mortgage. Johnson, 698 F.Supp. at 465. In Johnson v. Novastar Mortgage, Inc., the court persuasively used what it refers to as the "O'Brien factors" in determining that the sale-leaseback arrangement at issue was actually an equitable mortgage; specifically, the Court considered:
  
  (1) Statements by the homeowner or representations by the purchaser indicating an intention that the homeowner continue ownership; (2) A substantial disparity between the value received by the homeowner and the actual value of the property; (3) Existence of an option to repurchase; (4) The homeowner's continued possession of the property; (5) The homeowner's continuing duty to bear ownership responsibilities, such as paying real estate taxes or performing property maintenance; (6) Disparity in bargaining power and sophistication, including the homeowner's lack of representation by counsel; (7) Evidence showing an irregular purchase process, including the fact that the property was not listed for sale or that the parties did not conduct an appraisal or investigate title; and (8) Financial distress of the homeowner, including the imminence of foreclosure and prior unsuccessful attempts to obtain loans.
  
  Id. at 469-70.
  
  While not determinative, Johnson's reliance on the Bankruptcy Court's decision is probative.

The court rulings referenced herein appear to add weight to the proposition that, whether it's through civil lawsuits brought by victims, suits brought by the state Attorney General's office, or criminal probes (by the FBI) and prosecutions (by the U.S. Attorney's office), the State of New Jersey is a hostile environment for sale leaseback peddlers looking to rip off financially strapped homeowners of their home equity with this type of foreclosure rescue scam. For more on this point, see NJ An Unfriendly Place For Sale Leaseback Peddlers As Judge Slams Another Operator With $225K In Triple Damages, $50K+ In Homeowners' Legal Fees, footnote 1.

85-Year Old Victim Of Convicted Sale Leaseback, Equity Stripping Peddler Temporarily Dodges The Boot As Judge Grants '11th Hour' Stay Of Eviction

In Winter Park, Florida, the Orlando Sentinel reports:

• In an unfortunate era marked by foreclosures, short sales and evictions, thousands of distressed Central Floridians struggle every day to hold onto their homes. Genevieve Barbour is one of them. The 85-year-old faces eviction from the Winter Park home she has lived in for about 46 years.

• But the way Barbour lost her home is what makes her story unlike most any other foreclosure case. In reality, she doesn't own any part of her home today. She is barely a tenant. That's because she was swindled out of her large, tri-level on leafy Worthington Drive back in May 2007, during the real-estate boom.

• This month, she testified at the sentencing of John Pavao, the head of an "equity skimming" or "equity stripping" scheme that robbed Barbour and other vulnerable seniors of homeowner values built up over decades. A judge sent Pavao to prison for 10 years as a result. His daughter Shastine, another felon involved in the racketeering scam, received a lengthy probation sentence.

• But now, a little more than three years after Barbour unwittingly signed a document used by the unscrupulous group to claim her home, lending and loan servicing institutions are working to remove the woman from the residence, according to documents mailed to her home.

***

• She asks a basic question: How can she be kicked out of a home that was sold from under her and without her knowledge — transactions that led to people being convicted of felonies? "They proved it was fraud, it was a felony," Barbour said. "They put the guy in jail, and I still lost my home."

***

• When told about the Barbour situation [], Orange Circuit Judge Stan Strickland, who oversaw part of the foreclosure matter but not the final judgment, immediately halted all proceedings in the case, including the eviction. It should give Barbour time to get representation and sort out the legal mess, he said.(1) "I don't think it's written anywhere that I have to sit on my hands when I know something is wrong," Strickland said. "I'd rather err on the side of caution here and not have a woman thrown out."

For more, see Elderly Winter Park woman deals with scam aftermath — and possible eviction.

(1) This story serves as a reminder that, even when the scammer gets convicted on criminal charges connected to this type of home equity ripoff, the burden is still on the victim to file a civil lawsuit against the scammer and any other party that may have acquired an interest in the property as part of, or subsequent to, the swindle if the recovery of title to the home is desired.

In this case and others (assuming the scammed homeowner can't establish that the conveyance is absolutely void, such as in the case involving forged land documents - in which case all subsequently acquired interests in the home are also absolutely void) where the scammed homeowner retains and maintains continued possession of the home after signing the 'ripoff' documents conveying title to another, a strong case can arguably be made that a successful attempt to void the title conveyance to the scammer could also lead to the voiding of any subsequent mortgage placed on the home, even if the lender had no actual knowledge of the scam and claims to have the protection of the recording statutes as a bona fide purchaser.

In Florida, (as well as in most other jurisdictions), any subsequent purchaser of the home, or lender acquiring a security interest in the home, has a duty to conduct a physical inspection of the home, and where a physical inspection of the property would reveal an adverse interest or where there is a party in possession other than the record title owner, the subsequent purchaser or lien claimant has a duty to inquire of the possessor as to his interest and is charged with knowledge of the facts discoverable from such an inquiry or inspection.

Failure to make such inspections or inquiries will:

• leave the subsequent purchaser's or subsequent lender's interest in the property subject and subordinate to any legal rights and equities that the scammed victim can establish, and

• disqualify the subsequent purchaser or lender from the protections accorded a bona fide purchaser or bona fide encumbrancer.

For more on the duty of a subsequent purchaser or encumbrancer to conduct inspections and make the appropriate inquiries of persons in possession of real estate in Florida, (for which there is case law dating back over a century), see:

• Florida Bona Fide Purchaser, Possession, Duty Of Inquiry.

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

For some insights on the various legal theories and startegies to attacking this type of scam in litigation brought on behalf of the screwed-over homeowner, see:

• Foreclosure Rescue Scams I (part of a larger work from the National Consumer Law Center),
• Foreclosure Rescue Scams II (work made available online by the State of Washington Office of the Attorney General).

Void & Voidable Land Documents Used In Home Equity Scams

In an attempting to unwind/undo/void an abusive or fraudulent real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles), one of the initial determinations generally to be made (particularly when one seeks to restore title to property in the name of the scammed homeowner) is whether the contract, deed, or mortgage placed on the property contemporaneously with the scam (or at some point thereafter) is absolutely/wholly void (ie. void ab initio), or whether it is merely voidable. Further, in the case of a contract, deed, or contemporaneous/subsequent mortgage that is merely voidable, whether that instrument can be cancelled will turn on whether the grantee or lender qualifies as a bona fide purchaser or bona fide encumbrancer.

A June, 2010 ruling by the Maryland Court of Appeals (the state's highest court) in the context of a sale leaseback foreclosure rescue ripoff addressed the void vs. voidable question, and the implications to a bona fide purchaser, in the following excerpt (beginning at page 25 of the ruling, bold text is my emphasis not in the original text; text of court footnotes omitted):

• The distinction between a transaction being deemed void and voidable is clearly an important one. A void contract “is not a contract at all,” Restatement (Second) of Contracts §7 cmt. a (1981), and all parties, present and future, would be equally allowed to avoid the contract. See United States for the Use of the Trane Co. v. Bond, 322 Md. 170, 179-80, 586 A.2d 734, 738 (1991); Monumental Building Ass’n v. Herman, 33 Md. 128, 132 (1870); Harding v. Ja Laur Corp., 20 Md. App. 209, 214, 315 A.2d 132, 135 (1974) (“A deed obtained through fraud, deceit or trickery is voidable as between the parties thereto, but not as to a bona fide purchaser. A forged deed, on the other hand, is void ab initio.”).

• A voidable contract, on the other hand, is “one where one or more parties thereto have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.” Restatement (Second) of Contracts § 7 (1981); see Coopersmith v. Isherwood, 219 Md. 455, 461, 150 A.2d 243, 247 (1959) (adopting Restatement of Contracts § 13 (1932), precursor to § 7).

• We have long recognized that contracts obtained by fraud are not absolutely void, but are “voidable at the election of the parties affected by the fraud” and “binding until properly avoided.” Urner v. Sollenberger, 89 Md. 316, 332, 334, 43 A. 810, 811-12 (1899); see also Iseli v. Clapp, 254 Md. 664, 669-72, 255 A.2d 315, 318-19 (1969) (holding that a foreclosure rescue scam victim’s deed was voidable, but not as against innocent third parties); Hoffman v. Seth, 207 Md. 234, 239, 114 A.2d 58, 60 (1955) (stating that an agreement or conveyance procured by a false representation of a material fact is voidable, but not void); Wicklein v. Kidd, 149 Md. 412, 424-25, 131 A. 780, 784-85 (1926).15

• The distinction between a void contract and a voidable one is especially important in situations involving deeds; once a deed is considered void ab initio or of no legal effect, there are lasting consequences to everyone in the subsequent chain of title. As a result, we have been circumspect at common law16 in finding a deed void ab initio and have limited our rulings regarding voidness to circumstances that go to the face of the deed, e.g., forgery. See Maskell v. Hill, 189 Md. 327, 335, 55 A.2d 842, 845 (1947) (holding that a forged deed is a nullity); see also Harding, 20 Md. App. at 214, 315 A.2d at 135 (“A forged deed . . . is void ab initio.”). In Harding, our intermediate appellate court discussed how a forged deed, void from inception, does not protect bona fide purchasers:
  
  [T]here can be no bona fide holder of title under a forged deed. A forged deed, unlike one procured by fraud, deceit or trickery is void from its inception. The distinction between a deed obtained by fraud and one that has been forged is readily apparent. In a fraudulent deed an innocent purchaser is protected because the fraud practiced upon the signatory to such a deed is brought into play, at least in part, by some act or omission on the part of the person whom the fraud is perpetrated. He has helped in some degree to set into motion the very fraud about which he later complains. A forged deed, on the other hand, does not necessarily involve any action on the part of the person against whom the forgery is committed. So that if a person has two deeds presented to him, and he thinks he is signing one but in actuality, because of fraud, deceit or trickery he signs the other, a bona fide purchaser, without notice is protected. On the other hand, if a person is presented with a deed, and he signs that deed but the deed is thereafter altered e.g. through a change in the description or affixing the signature page to another deed, that is forgery and a subsequent purchaser takes no title.
  
  Id. at 215, 315 A.2d at 136.

• With respect to alleged violations of statutes, we have recognized that not all contracts that transgress in that regard are necessarily void, but are dependent upon legislative intent. See Beard v. American Agency Life Ins. Co., 314 Md. 235, 254-55, 550 A.2d 677,686-87 (1988); DeReggi Constr. Co. v. Mate, 130 Md. App. 648, 663-65, 747 A.2d 743, 751-52 (2000) (holding that a violation of the Consumer Protection Act will not render a contract unenforceable without proof of injury or damage). As we recognized in Lester v. Howard Bank, 33 Md. 558, 564 (1871), we examine the statute as a whole:
  
  “[B]efore the rule can be applied in any case of a statute prohibiting or enjoining things to be done, with a prohibition and a penalty only for doing a thing which it forbids, . . . the statute must be examined as a whole to find out whether or not the makers of it meant that a contract in contravention of it should be void, or that it was not so to be. In other words, whatever may be the structure of the statute in respect to prohibition and penalty, or penalty alone, that is not to be taken as granted that the Legislature meant that contracts in contravention of it were to be void, in the sense that they were
  not to be enforced in a court of justice.”
  
  Id., quoting Harris v. Runnels, 53 U.S. 79, 84, 13 L. Ed. 901, 903 (1851).

• Hudson v. Maryland State Housing Co., 207 Md. 320, 114 A.2d 421 (1955) and Romm v. Flax, 340 Md. 690, 668 A.2d 1 (1995) are particularly instructive in determining whether failure to comply with a statutory provision renders a deed voidable or void.

For more of the court ruling, see Julian v. Buonassissi, 414 Md. 641; 997 A.2d 104 (Md. 2010).

By the way, the bottom line in this case was that the court:

• Found the contract (and therefore the deed) used in pulling off the scam was merely voidable, and not void ab initio upon proof of violations of the Maryland Protection of Homeowners in Foreclosure Act,

• Found that the foreclosure rescue scam victim's failure to file a supersedeas bond to stay the ratification by the trial court of the foreclosure sale of property in which she had been in the chain of title, did not moot an appeal where the purchaser at the sale does not qualify for protection as a bona fide purchaser, and

• Remanded the case back to the trial court to determine whether the assignee of an original mortgagee, who bought at the foreclosure sale, had notice of the alleged defect surrounding the foreclosure rescue scam prior to the foreclosure sale.

See The Maryland Daily Record: Foreclosure appeal revived by Maryland Court of Appeals despite failure to post bond for some (easier-to-read) background on this ruling.

Go here for more on void and voidable deeds. DeedVoidVoidable

Woman Victimized In Sale Buyback Scam Faces Boot After Dubious 'Help' From F'closure Defense Lawyers; Rubber-Stamping 'Rocket Docket" Judge OKs Sale

In Miami, Florida, The Miami Herald reports:

• All she wanted was $50,000 from the equity in her house to help pay the bills while looking for a job in nursing. What Imogene Hall got was a brutal lesson in the sometimes shady ways of the mortgage industry. It's a lesson learned by untold numbers of homeowners in Florida, epicenter of the foreclosure crisis gripping the nation.

• "Everywhere I turn, someone else is scamming me,'' said Hall, a 49-year-old Jamaican immigrant who stands to lose her Miami Gardens home the Monday after Thanksgiving. "All I do is work hard, and I get surrounded by thieves.''

• A review of court records found evidence of misconduct at nearly every stage of Hall's experience. Consider:
  
  • Johnson Cuffy, a former mortgage broker now serving an 11-year prison sentence for grand theft, handled Hall's refinancing in early 2006, using a strategy a state investigator described as ``outright mortgage fraud.''(1) He faces up to 30 more years in prison if convicted of 16 other mortgage fraud charges he's facing.
  
  • The title agent who signed the crucial deed transfers that Hall's fraud claim rests on operated an unlicensed title company that stole more than $1.5 million from South Florida home buyers during closing proceedings between 2005 and 2007, according to Florida Supreme Court records.(2)
  
  • A man [the straw buyer participating in the sale buyback scam] who listed his employer as a nonexistent Blockbuster Video store in New York somehow used Hall's home as collateral to secure a $230,000 loan from subprime lender Argent Mortgage.
  
  • Hall's foreclosure was processed by the Florida Default Law Group, one of four Florida law firms being investigated by the state attorney general for using flawed documents to repossess homes from thousands of owners.

• After spending more than three years in the judicial system, Hall's case was transferred to Miami-Dade's County Court's new foreclosure-only division in July. There, Judge Jeffrey Rosinek, who was fresh to the case, quickly tossed out Hall's fraud defense, and granted the bank a swift summary judgment in a process critics describe as a "rocket docket.''(3)

• Hall's foreclosure defense lawyers, in what has become a booming -- and sometimes predatory -- business, charged her more than $20,000 while regularly failing to show up in court. One lawyer charged Hall $2,800 for work he did trying to withdraw himself from the case.(4)

• Law enforcement officers are scheduled to come to Hall's house to evict her and her family next week, nearly five years after a mortgage broker showed up on her doorstep unannounced, pitching a stress-free refinance.

***

• Closing documents from the sale show that Cuffy and his affiliates made more than $25,000 in transaction fees, and pocketed more than $180,000 from subprime lender Argent Mortgage Company, without Hall's knowledge, she says. Hall received the balance of the $230,000 loan -- about $50,000 -- the proceeds of what she thought was a simple refinance.(5)

For more, see Hellish home refinancing nears bleak conclusion.

(1) According to the story, attorney general Mortgage Fraud Task Force chief R. Scott Palmer said similar mortgage fraud schemes were prevalent during the boom years as fraudsters looked to take advantage of a rising market and unsuspecting homeowners. "They preyed on people who had equity in their homes that they could strip, and what you described happened to this person has happened to a lot of people,'' he reportedly said.

John Swope, a Department of Financial Services agent who has been investigating Cuffy and his entourage for the last three years, said the mortgage fraud ring made millions of dollars in Florida real estate transactions that closely mirrored Hall's. "The loan is never anticipated to be paid back,'' he said. "Unfortunately, I've had people who have become homeless because of this individual.''

(2) Others involved in the sale -- closing agent O.J. Odunna, title issuing company Organized Title and BlueKap affiliate Cliff Johnson -- have all been either charged or convicted by law enforcement officials of mortgage-related offenses in other South Florida cases, the story states.

(3) Reportedly, Judge Rosinek, to whom the case was assigned after he was called back from retirement to preside in Miami-Dade's County Court's new foreclosure-only division, made quick work of the proceedings in August, approving the foreclosure in the type of swift hearing that many have criticized as a "rocket docket'' that favors lenders. Hall claims that during her 15-minute hearing, the judge did not allow her or her lawyer to get in a word, the story states. "The first judge was so nice -- helping me, helping me,'' Hall said. "Then they [transferred] my case, and the second judge wouldn't listen to anything. He just said `You're going to lose the house, you're going to lose the house.'''

(4) Hall reportedly paid her first lawyer, Alan Soven, more than $10,000 to fight the foreclosure. At one point, Judge Ronald Friedman (the Miami-Dade judge to whom the case was originally assigned) rebuked the Miami lawyer for subpar legal work, and the Florida Bar ordered him to refund $2,000 in legal fees to Hall in a mediation settlement, the story states. With a $400 hourly rate, he reportedly charged Hall nearly $3,000 for the 7.2 hours he spent trying to get legal approval to quit the case, court records show. Soven, who appears to have a disciplinary history with The Florida Bar in at least one unrelated matter (see Formal Complaint, Referee's Report, Florida Supreme Court order), reportedly declined to comment to The Miami Herald on the case.

According to the story, Hall's next lawyer, Johnny Kincaide of The Kincaide Law Group in Weston, routinely skipped crucial court hearings and failed to file a response to a court ruling, causing the judge to penalize Hall with an order of default. Reportedly, Kincaide's firm is being investigated by Attorney General Bill McCollum after several homeowners said he promised to help them get a mortgage modification and then disappeared after taking their initial deposits, and did not return calls from The Miami Herald seeking comment on this story.

(5) For some insights on the various legal theories and startegies to attacking this type of scam in litigation brought on behalf of the screwed-over homeowner, see:

• Foreclosure Rescue Scams I (part of a larger work from the National Consumer Law Center),
• Foreclosure Rescue Scams II (work made available online by the State of Washington Office of the Attorney General). sale leaseback

Central Florida Sale Leaseback Peddler Linked To 50 Ripoff Deals Gets 10 Years On Racketeering Charge; Targeted Cash-Strapped, High-Equity Homeowners

In Orlando, Florida, the Orlando Sentinel reports:

• One after another, the victims explained the scheme in court: They needed loans. John Pavao reached out to them and offered help. They signed some documents. And the next thing they knew, they were losing their homes.

• Those victims, several of them sick and elderly, faced Pavao at his sentencing [earlier this month], like ghosts from his past. The Windermere man once made the cover of Opportunist magazine, proclaiming, "All you need is a passion to succeed."

• But Pavao actually needed more than passion, prosecutors said. They said he needed a technique that exploited people in financial duress and at risk of foreclosure and robbed them of their homes in many cases and, especially, their equity in those properties. Officials familiar with the case said the so-called "equity-stripping" scheme is the kind of behavior that fueled the real estate crisis.

• [... T]hat behavior caught up with Pavao when Circuit Judge Alan Apte sentenced the 44-year-old to 10 years in prison after he pleaded guilty to a single count of felony racketeering in late September. Financial-crimes investigators and the prosecution said Pavao's actions resulted in the loss of millions of dollars worth of property and equity across Central Florida.

***

• Seniors and others who had lived in their homes for many years and had significant equity in those properties were especially vulnerable and prime targets. [...] Michelle Dygon, a financial-crimes investigator with the state, told the judge they identified 50 cases linked to the Pavaos, but focused on nine properties worth about $2 million. "They were conned. They were lied to. They lost their homes," Dygon said. "They were not aware they were deeding their property over. They had no intention of selling their homes or deeding their homes."

For more, see John Pavao: Windermere man sentenced to 10 years in property-fraud case.

Countrywide Comes Clean, Admits Screw-Up In Failure To Convey Promissory Notes Into Mtg Securitization Trust; Says It Was Customary To Keep Possession

Naked Capitalism reports:

• Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement.

***

• As we indicated back in September, it appeared that Countrywide, and likely many other subprime orignators quit conveying the notes to the securitization trusts sometime in the 2004-2005 time frame. Yet bizarrely, they did not change the pooling and servicing agreements to reflect what appears to be a change in industry practice. Our evidence of this change was strictly anecdotal; this bankruptcy court filing, posted at StopForeclosureFraud provides the first bit of concrete proof. The key section:
  
  As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affixed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.

For more, see Countrywide Admits to Not Conveying Notes to Mortgage Securitization Trusts.

For the court's ruling, see In re Kemp, Case No. 08-18700-JHW (Bankr. D. N.J. November 16, 2010) (for publication).

See also:

• Seeking Alpha: Countrywide Never Sent Mortgages to Trust,
• The New York Times: Trying to Put a Price on Bank Errors:
  
  In an opinion published last Tuesday, the chief judge, Judith H. Wizmur, cited testimony from an executive at Bank of America, which bought Countrywide. The lender’s practice, the executive said, was “to maintain possession of the original note and related loan documents.” Countrywide did this even though the pooling and servicing agreement governing the mortgage pool that supposedly held the note required that it be delivered to the trustee, the court document shows.
  
  If Countrywide’s practice was to hold onto the note, then investors in this pool and others may question whether the security was constructed properly and legally and may be able to require Bank of America to buy back their securities.
  
  Larry Platt, a partner at the law firm K & L Gates in Washington, spoke on behalf of Bank of America on Friday. He said the New Jersey decision did not constitute a basis for broad mortgage repurchase requests. “We believe the loan was sold to the trust even if there wasn’t an actual delivery of the note,” he said. “The risk of repurchase is going to depend on the unenforceability of the loan and we think the loan is enforceable. We think this is an aberration; Countrywide’s practice was to deliver the notes.”

NJ Federal Judge Upholds Ruling Awarding $690K To Homeowner Screwed Out Of $116K In Sale Leaseback Scam; OK's Add'l $34K For Victims' Attorney Fees

A January, 2010 ruling by a U.S. Bankruptcy Court judge (O'Brien v. Cleveland (In re O'Brien), 423 B.R. 477 (Bankr. D.N.J. 2010)) slamming a peddler of a sale leaseback, foreclosure rescue scam who stripped the home equity from a financially strapped homeowner was affirmed in all aspects earlier this month by U.S. District Judge Garrett E. Brown of New Jersey.(1)

According to a January 28, 2010 New Jersey Law Journal story reporting on the bankruptcy court ruling (see Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam), the total damages awarded to the homeowners was $690,210,(2) even though they were only screwed out of $116,791.

In a subsequent U.S. Bankruptcy Court hearing, U.S. Bankruptcy Judge Raymond Lyons then approved an additional award for the victim-homeowners' attorney fees in the net amount of $33,932.50 for 81.5 hours of work and $627.50 in costs.(3)

For those involved in unwinding these types of scams, especially in cases where a state's equitable mortgage doctrine is successfully invoked (ie. which treats the substance of the arrangement as a secured loan, and disregards the 'masquerading' form of a sale leaseback - ie. "substance over form"), in order to then apply Federal and state consumer lending laws to the scam, the ruling makes for some good reading.

For Judge Brown's ruling, see Cleveland v. O'Brien, Civ. No. 10-3169 (GEB), (D. N.J., November 12, 2010).

(1) Specifically, the Bankruptcy Court found in favor of the screwed-over homeowners:

• on the First Count of the complaint, for fraud, for damages in the amount of $116,791.49;
• on the Second Count of the complaint, for violations of the New Jersey Consumer Fraud Act ("CFA"), for treble damages in the amount of $350,374.47;
• as additional equitable relief for violation of CFA voiding the deed from Plaintiffs to Cleveland dated July 31, 2007;
• on the Fourth and Sixth Count of the complaint, for violation of the Federal Truth In Lending Act ("TILA"), as amended by the Federal Home Ownership and Equity Protection Act ("HOEPA"), damages equal to the sum of all finance charges and fees in the amount of $240,875.32 plus statutory damages of $4,000;
• for violation of TILA rescinding the transaction by voiding the deed from Plaintiffs to Defendant Frederick Cleveland dated July 31, 2007;
• on the Fifth Count of the complaint, for violation of the New Jersey Home Ownership Security Act of 2002 ("HOSA"), N.J. STAT. ANN. § 46:10B-22, et seq., for statutory damages equal to the finance charges plus 10% of the amount financed being a total of $293,836.17;
• on the Seventh Count of the complaint, breach of contract, for damages in the amount of $46,000 plus pre-judgment interest to be calculated at the federal rate from the date of filing of the complaint.

In an attempt to seek a reversal of the Bankruptcy Court ruling, the sale leaseback peddler presented the following issues on appeal:

• 1. Whether the Bankruptcy Court erred in permitting Edward Hanratty, Esq. to testify as an expert witness regarding `mortgage foreclosure rescue scams' . . . .
  
  2. Whether the Court erred in considering the expert testimony and a purported expert report by Edward Hanratty, Esq. . . . .
  
  3. Whether the Court erred in finding in favor of Plaintiffs regarding their claim for fraud, and entering judgment: (a) avoiding Plaintiffs' deed to Cleveland and (b) awarding damages in the amount of $116,791.49.
  
  4. Whether the Court erred in finding in favor of Plaintiffs regarding their [CFA] claim, and entering judgment awarding treble damages to Plaintiffs in the amount of $359,374.47.
  
  5. Whether the Court erred in finding that the transaction between Cleveland and Plaintiffs constituted an equitable mortgage.
  
  6. Whether the Court erred in finding that the Plaintiffs did not act with unclean hands, and finding that Cleveland could not rely on such equitable defense with respect to the Court's findings.
  
  7. Whether the Court erred in finding, with respect to [TILA]: (a) that Cleveland is a `creditor' under TILA; (b) that the transaction between Plaintiffs and Cleveland constituted a `high interest loan' under TILA; (c) that Cleveland was required to make standard disclosures under TILA; (d) that Cleveland was required to make enhanced disclosures under [HOEPA], as incorporated by TILA; and (e) that Cleveland failed to comply with TILA and HOEPA's prohibition of certain terms.
  
  8. Whether the Court erred in finding in favor of Plaintiffs regarding their claim(s) under TILA and HOEPA, awarding damages in the amount of $242,875.32, along with attorneys' fees and costs, and rescinding the transaction between Plaintiffs and Cleveland.
  
  9. Whether the Court erred in finding in favor of Plaintiffs regarding their claim under [HOSA], awarding damages in the amount of $293,836.17.
  
  10. Whether the Court erred in finding in favor of Plaintiffs on their breach of contact claim, awarding damages in the amount of $46,000 plus prejudgment interest.
  
  11. Whether the Court erred in granting Plaintiffs an award of attorneys' fees in the amount of $33,932.50, plus costs in the amount of $627.50 for violations of [CFA, TILA, and HOSA].

(2) The following excerpt in Real Estate Lawyer Liable for Damages for Role in Client's Mortgage Scam explains the breakdown of the $690,210 damages award (alterations added, bold text is my emphasis, not in the original text):

• The O'Briens' [actual] damages were the difference between the new mortgage of $646,000 and the amount paid to benefit the O'Briens [ie. $529,209 - presumably, the outstanding balance of any existing mortgage that was paid off during the execution of the scam, as well as any other liens on the home or other expenses legitimately owed by the victim-homeowners], $116,791, which [U.S. Bankruptcy Judge Raymond Lyons] tripled to $350,374.
  
  Lyons also found the sale-leaseback was an equitable mortgage and violated laws governing mortgages: New Jersey's Homeowner Security Act and two federal laws, the Truth in Lending Act and the Home Ownership and Equity Protection Act.
  
  Cleveland failed to make disclosures required under TILA and HOEPA and the loan included a prohibited balloon payment, resulting in a right to rescind and damages of $240,875 in finance charges and fees, plus $2,000 in statutory damages, held Lyons.
  
  The sale-leaseback agreement contained excessive late fees barred by HOSA, resulting in statutory damages of $293,836, an amount that includes the $240,875 awarded under TILA and HOEPA, plus punitive damages.
  
  Lyons added $46,000 for Cleveland's breach of his agreement to pay that sum for the Chapter 13 balance, bringing the damages to $690,210.

(3) In re O'Brien, (Bankr. D. N.J., May 18, 2010).