Saturday, October 29, 2011

Mechanics Liens In NYS: Easy To Create, A Bitch To Enforce Or Defend

In New York City, attorney Victor M. Metsch writes in Thomson Reuters News & Insight:

  • Your sub-contractor client has not been paid for work, labor and materials on a real estate construction job. She sends you copies of the sub-contract, a summary of the work done and the invoices. She asks you to prepare and file a mechanic’s lien.

  • Seems simple enough - take a standard pre-prepared form, fill in the blanks and file the lien. Nothing to it! Of course, that was the easy part. Identifying possible defenses to a mechanic’s lien [under New York law] goes far beyond the narrow confines of the [New York State] Lien Law. And defending the lien, if challenged, may give you—and your client—angina.

  • How can anything that, at the outset, seemed so uncomplicated, become so complex, time-consuming and expensive from both a prosecution and defense vantage point? Let’s take a look at some recent [New York] decisions that sustained, vacated or otherwise adjudicated mechanic’s liens.


  • Once a mechanic’s lien is filed, an action to foreclose must be commenced before the time limit to do so expires. Then, if the property owner defends, the real action begins.

For more, see Mechanics’ liens: Easy to file and a challenge to enforce or defend.

Las Vegas Woman Cops Plea For Role In Scheme To Hijack Control Of HOA To Dispense Financial Favors To Selected Attorneys, Contractors

From the U.S. Department of Justice:

  • A Las Vegas woman pleaded guilty [] for her role in a scheme to fraudulently gain control of condominium homeowners’ associations (HOA) in the Las Vegas area so that the HOAs would direct business to a certain law firm and construction company, announced [several federal and state law enforcement officials].

  • Angela Esparza, 24, pleaded guilty [...] to one count of conspiracy to commit mail and wire fraud. Esparza is the fifth person to plead guilty in connection with the scheme to defraud HOAs in the Las Vegas area.

  • Esparza admitted that from approximately July 2006 until February 2009, she participated in a scheme to control various HOA boards of directors so that the HOA boards would award the handling of construction-related lawsuits and remedial construction contracts to a law firm and construction company designated by Esparza’s co-conspirators.

For the USDOJ press release, see Fifth Guilty Plea in Connection with Scheme to Fraudulently Control Condominium Homeowners' Associations.

Strip Shows, Sex Peddling, Drug Sales, Gang Activity Put Foreclosed Homes Left Vacant, Unsecured By Reckless Loan Servicers To 'Lowest & Worst Use'

In Jamaica, Queens, The New York Times reports:

  • The boarded-up homes that changed the face of Jamaica, Queens, in recent years were bad enough, the flotsam of the record wave of housing foreclosures that roared through the streets like nowhere else in New York City.

  • But those vacant homes are now recalled almost fondly. For nature, as the saying goes, abhors a vacuum, and so do criminals. The police and neighbors say those vacant homes are filling with drug dealers, addicts, prostitutes, gang members, squatters and copper thieves.

  • They’re becoming a magnet for criminal activity,” said Deputy Inspector Miltiadis Marmara, the commanding officer of the 113th Precinct in South Jamaica. “They hang out in these abandoned homes that may be foreclosed, or the owners walked away.” He added, “Every day we respond to something to that effect.”

  • The police do not keep statistics specifically on crime rates involving foreclosed homes. But Inspector Marmara said his officers had seen a rise both in vacant homes and in crimes occurring in those homes — like theft of copper pipes for scrap, which has spiked in the last year.

  • It is not uncommon for a team of officers to research property records for an address — in hope of tracking down an owner to make a complaint — only to find another foreclosure, he said. People who live on these blocks said criminals flocked to newly vacant homes that were taken in foreclosure.

  • You see them smoking their drugs in the driveway at night,” said a community activist who spoke only on the condition of anonymity, for fear of retaliation. “They have parties. If the cops come, they run. During the day, they’re quiet as a church mouse.”

  • Councilman James Sanders Jr., who represents a nearby Queens district, said the problem was growing. “And why wouldn’t it happen?” he said.

  • We’re seeing activities where people are having strip shows in these homes.” Jamaica’s councilman, Leroy G. Comrie Jr., said: “I just drove by a house we boarded up, and it’s open again and there are squatters living there. It fell into foreclosure because the developer ran out of money.”

For more, see Foreclosures Empty Homes, and Criminals Fill Them Up.

Friday, October 28, 2011

Loan Servicers To Think Twice About Filing Faulty Foreclosure Docs In Nevada As Potential Felony Charges Could Loom Under New State Law Now In Effect

Housing Wire reports:

  • Many mortgage servicers stopped initiating foreclosures in Nevada because of a new law, which carried threats of criminal penalties for faulty filings.

  • Assembly Bill 284 took effect Oct. 1, making it a felony if a mortgage servicer or trustee made false representations concerning a title. There also will be a $5,000 fine assessed if fraud, such as robo-signing, is detected. The new law requires servicers to provide a new affidavit that provides the amount due on the mortgage, who is in possession of the note and who has the authority to foreclose.

For more, see Potential felony charges make servicers pause Nevada foreclosures.

Mass. High Court Ruling Voiding Title To Property Bought At Faulty Foreclosure Also Leaves Four Condo Homebuyers (& Their Title Insurers) Holding Bag

The following excerpts in The Boston Globe on the recent Massachusetts Supreme Judicial Court ruling in Bevilacqua v. Rodriguez, an Ibanez follow-up case dealing with the rights of a purchaser at an invalid foreclosure sale indicates that, in addition to the foreclosure buyer (real estate developer Francis J. Bevilacqua) ending up with a void title to property, there may be four other subsequent bona fide purchasers of the subject property who have apparently also been left holding the bag:

  • The court’s decision could have major repercussions because it raises the specter that anyone else who purchased foreclosed homes with questionable paperwork may not actually own those properties. The court did not address who does own the Haverhill property, if not Bevilacqua.


  • Already the court’s ruling implicates others beyond Bevilacqua, as he subsequently built and sold four condos on the property, so that it would appear the buyers of those condos likely do not own their homes.

Source: SJC puts foreclosure sales in doubt.

Lawsuit: Operators Of Bogus Real Estate Investment Seminar Used Participant Questionaire To Get, Use Property ID Info To Score Forged Mortgage Loans

In Orange County, California, Courthouse News Service reports:

  • California couple say they were victimized by operators of a "real estate seminar" who had them fill out forms describing real estate they owned, then used the information to "brazenly forge" their names and get "a fraudulent $245,000 loan" secured by their property.

  • Gerald and Marilyn Hays sued a long list of defendants - 12 people and seven corporations(1) - in a racketeering complaint in Orange County Court. The Hays say the scammers "marketed a 'real estate seminar'" that supposedly would teach "the topic of purchasing properties at a short sale and reselling the properties at a profit."

  • The complaint continues: "In fact, and unknown to attendees, the 'seminars' were a method used by defendants to advance their fraudulent scheme.

  • At the seminars, guests were asked to fill out questionnaires seeking the identification of real estate that they owned. Defendants' fraudulent purpose in seeking such information was to obtain title and other data concerning the third party's properties.

  • Defendants thereafter used that data in their fraudulent schemes; fraudulently obtaining title insurance for the fraudulent transactions in order to inter alia sell the fraudulently obtained properties to third parties that they in fact did not own; and fraudulently placing 'loans' on unencumbered property that defendants did not own without the true owners' consent."

For more, see Couple Call Real Estate 'Seminar' a Scam.

For the lawsuit, see Hays v. Shallup, et al.

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

(1) According to the story, the individual defendants are John Shallup, George G. Grachen and his daughter Katie Grachen, Pete Rossell, Robert Yann, Salem Abbadi, Joyce Kim, James A. Santan, Kaffi Botehsazan, Joanna G. Martinez, Edward Park and Aladdin Alsarairah. The corporate defendants are Financial and Real Estate Services Inc., Above Board Real Estate Solutions, Jo Cal Investments, United Escrow Co., Orange Coast Title Company of Southern California, Bency 26 LLC, and Merchants Bonding Company.

Florida Insurer's Roof Inspection Requirement May Leave Some Homeowners Stuck Between Possible Foreclosure Threats & Contractor Ripoffs

In New Port Richey, Florida, The Tampa Tribune reports:

  • Roofer Mark Gelling was saddened when he heard about a Pasco family on the verge of losing their home because of a worn out roof. But empathy turned into anger when he saw detailed photos of the roof, which seemed to be in fine shape. So he decided to do something about it.

  • "I knew something was wrong," he said. "I went to church on Sunday, and I came home and told the wife, 'I'm going to run by there.' And I drove by and looked and said, 'He definitely doesn't need a roof.' " After inspecting it himself, he said Jeff Zilinski's roof will last about five more years.

  • This is after four other contractors Zilinski hired to inspect his roof and sign off on a required insurance form all said his roof needed to be replaced immediately. They wouldn't sign the form, and that nearly forced Zilinski, who has never missed a mortgage payment, into foreclosure. "At this point I just don't have the assets to get a new roof," Zilinski said.

  • Without the form, Citizens Insurance said it would drop Zilinski's coverage October 28. He didn't have the $5,000 needed to replace the roof. And because he has a mortgage, the lender would have assigned him a policy — likely at triple the cost.

  • That would have pushed his mortgage payment beyond what he could afford, and Zilinski said he likely would have lost the home to foreclosure. He asked Citizens for more time to save money for a new roof, but that request was denied.


  • Zilinski is one of thousands across Florida whose homes must pass a roof inspection before they can get a policy renewed with Citizens, the state's insurer of last resort. Any home 25 or more years old is subject to the inspection, which verifies the roof is expected to last at least three years.

  • Many have gotten inspection reports signed with no problems. But Zilinski's case raises the question: Are consumers at a disadvantage by relying on roofers who have something to gain by recommending a new roof? Gelling thinks so. He said roofing business is down, and he fears some roofers see easy money in Citizens' requirement.

For the story, see Insurer's rule for roofs raises fraud fears.

Thursday, October 27, 2011

California Regulator Issues C&D Order Against Operator Allegedly Running Illegal Upfront Fee Loan Modification Scam

California Watch reports:

  • The [California] state Department of Real Estate issued a desist-and-refrain order against a Los Angeles man accused of running an illegal loan modification business, as boom times continue for mortgage scams.

  • Last year, California Watch reported that George Bolanos was targeting Latino homeowners in Southern California with offers to help avoid foreclosure for an illegal advance fee. Bolanos advertised on Spanish-language radio and sometimes refused to give his last name to clients.

  • A state investigation prompted by the story documented six cases in which Bolanos charged money up front for loan modifications, which is banned in California to protect consumers. The desist-and-refrain order bars Bolanos from running any kind of real estate business because he is not licensed.

For more, see State targets mortgage scams, but problems persist.

Rhode Island AG Scores TRO In Effort To Shut Down Alleged Loan Modification Racket Accused Of Clipping Homeowners With Upfront Fees For Phony Promises

From the Office of the Rhode Island Attorney General:

  • Attorney General Peter F. Kilmartin announced the Office sought and received a temporary restraining order shutting down East Coast Fidelity, LLC, aka Fidelity Corp., and the company’s manager Janice McCarthy, citing the company in violation of the state’s Deceptive Trade Practices Act and the Mortgage Foreclosure Consultant Regulation Act.

  • East Coast Fidelity, with a business address of 10 Dorrance Street, Providence, advertised and marketed itself to homeowners across the country as a loan modification and foreclosure rescue services provider.


  • The law is clear in Rhode Island that the soliciting of upfront fees for loan modifications or other types of foreclosure relief, is absolutely prohibited,” said Attorney General. “As a result of these unconscionable and unscrupulous actions, homeowners, who are already desperate to save their homes are put in danger of imminent and irreparable harm. These types of scam artists are devoid of conscience in their deceptions and must be shut down.”

  • The Office began to investigate the company after receiving multiple consumer complaints from several states, including New York, North Carolina, and Kentucky that the company required upfront fees for mortgage modification and foreclosure services in violation of the Mortgage Foreclosure Consultant Regulation Act.

  • Several weeks or months after signing a contract and paying the upfront fees, consumers complained of not receiving the promised services and in most cases could not get a refund from the company.

For the Rhode Island AG press release, see Attorney General Kilmartin Shuts Down Fraudulent Mortgage Modification Company.

Illinois AG Slams Outfits, Individuals In Three Seperate Suits Alleging Operation Of Upfront Fee Loan Modification, Debt Settlement Scams

From the Office of the Illinois Attorney General:

  • Attorney General Lisa Madigan [] filed lawsuits against three Chicago area companies for fraudulent mortgage rescue and debt settlement schemes that cheated consumers out of large thousands of dollars.(1)

  • Madigan filed the lawsuits [] in Cook County Circuit Court, alleging the three companies took large upfront fees from consumers with a promise to help them obtain a loan modification on their mortgage or to reduce their mounting debt, when in fact, little or no work was performed on the consumers’ behalf.

  • These companies are nothing more than scam operations, illegally charging consumers upfront fees but doing no work to help modify their loan or negotiate with creditors,” Attorney General Madigan said. “They scammed families out of thousands of dollars while putting people deeper in debt and at higher risk for foreclosure.”

For the entire Illinois AG press release, see Madigan Files Three Lawsuits Against Chicago Area Mortgage, Debt Settlement Scams.

(1) According to the press release, the Attorney General filed suit against Debt Care Financial Group Inc., in Chicago, and its president Malgorzata Baran, and Starlex Financial Consulting LLC and Flagship Mortgage Corporation, in Deerfield, and employees Jeffrey M. Entratter and Neil Borland. Madigan also filed suit against E.A.C. Financial LLC, based in Chicago, and its owners Everett D. Pope and Colbi Andry.

Phoenix Man Pleas Guilty In Upfront Fee Foreclosure Rescue Scam; Agrees To Pay Ripoff Victims $2.8M+ In Restitution

In Phoenix, Arizona, KPHO-TV Channel 5 reports:

  • A Phoenix man has pleaded guilty to conspiring to commit wire fraud and mail fraud in a Valley foreclosure scam, the U.S. Attorney's Office said. Luis Belevan, 34, and his co-conspirator, were charged with defrauding at least 1,800 local distressed homeowners out of a $1,595 up-front fee for bogus promises of assistance in avoiding home foreclosure in 2009 and 2010. As part of his plea agreement, Belevan agreed to pay restitution to the victims in the amount of $2,871,000.

  • Belevan admitted to telling homeowners who were unable to make their mortgage payments that his company, The Guardian Group, would purchase and refinance their mortgages based on the lower property values that followed the housing market crash of 2007, the U.S. Attorney's Office said.

  • Belevan falsely claimed that his company had access to a $40 billion hedge fund for this purpose, when it actually had no financing at all. Belevan's company charged each homeowner a $1,595 up-front fee, generating almost $3 million in funds in just 9 months, which he and others used for personal expenses and for other failed business ventures, according to the U.S. Attorney's Office.

Source: Man faces prison in foreclosure rescue scam.

For the U.S. Attorney press release, see Phoenix Man Pleads Guilty to Defrauding 1,800 Victims in Foreclosure Scam.

Wednesday, October 26, 2011

Walls Beginning To Close In On Title Insurance Industry After Recent Massachusetts High Court Foreclosure Rulings?

A recent article on Amvona shines light on the apparent reluctance of many in the title insurance industry to discuss the implications of the recent ruling by the Massachusetts Supreme Judicial Court in Bevilacqua v. Rodriguez, a ruling earlier this year by the same court in U.S. Bank National Association v. Ibanez, and a case currently before the court in Eaton v. Fannie Mae and Green Tree Servicing, LLC [go here for the lower court ruling currently on appeal).

One might conclude after reading this article that the title insurers and their agents are beginning to feel the walls closing in on them for writing all the title policies on the crappy foreclosure titles in the past,(1) and may be in a position that they're all forced to keep issuing them because, in this economy, they need the cash flow to stay above water.

For the article, see Houston, we've got a problem - Bevilacqua.

Thanks to Deontos for the heads-up on the article.

(1) For more on the crappy title problem in connection with improperly foreclosed homes, see:

Nevada Supreme Court Orders Sanctions On Banksters For Conduct In Violation Of State Foreclosure Mediation Law

The Las Vegas Sun reports:

  • While the constitutionality of the state's foreclosure mediation law is being challenged, the Nevada Supreme Court has ruled that penalties should be imposed on two lending companies that failed to follow those rules.

  • The court said Washoe District Judge Patrick Flanagan should determine the appropriate sanctions against Wells Fargo Bank and First American Loanstar-MERS for their conduct in two separate cases.

  • In 2009, the Legislature, responding to a wave of foreclosures, enacted a law setting up a system for lenders and homeowners to meet to see if some compromise might be worked out to avoid a foreclosure. From September 2009 until June 30, 2011 there were 12,556 mediation meetings.

  • But in another case before the Supreme Court, Wells Fargo is challenging the validity of the foreclosure mediation law, saying it is taking real property without just compensation.

  • In the two cases decided Wednesday, the court ruled that in both instances the lending companies failed to bring to the mediation sessions certified copies of the mortgage note and appraisals of the property as required by law. The court overturned both decisions of Flanagan, who issued foreclosure certificates after the unsuccessful mediations.


  • Wells Fargo has appealed to the Supreme Court. In its opening brief, the bank says the ruling by Flanagan "is a taking of real property and other private property for a public use without any compensation, much less just compensation, which violates the Taking Clauses of the U.S. and Nevada Constitutions."

For the story, see State Supreme Court orders banks be sanctioned for not following foreclosure mediation.

Thousands In Central Florida Pushed Into Foreclosure Over Rampant 'Force Placed Insurance' Fraud? Homeowner Advocate: Bankster Scam Is Running Rampant

In Hernando Beach, Florida, Fox Channel 13 reports:

  • Thousands of people in Hernando County are being forced into foreclosure because of what banks call "force placed insurance." But some homeowners and their advocates call it fraud, and they are fighting back.

  • At issue is homeowner's insurance. If a homeowner doesn't pay it, the bank will buy insurance and bill the homeowner. In Hernando County, where sinkholes are rampant, insurance rates have skyrocketed.

  • It has left people like Joyce Wogan vulnerable. Wogan pays her mortgage on time every month, but she just got an ominous letter from the bank. . It read in part "....your current flood insurance doesn't meet the minimum required amount. We've purchased temporary insurance to protect our investment in the property."

  • Here's the problem: Wogan's annual insurance premium went from rough $1,500.00 a year to more than $7,000.00. Wogan's attorney calls it a case of fraud.

  • "This fraud is running rampant," Mark Stopa said. He accused Wogan's bank and others of buying insurance policies at hugely inflated prices as a way to improve profits. He said often the insurance companies are associated with the banks.(1)

For more, see Forced insurance leading to foreclosure.

(1) For more on the banksters' force placed insurance racket, see:

Title Agency Owner Nailed For Attempt To Cover Escrow Shortage By Refinancing Home, Failing To Pay Off Existing Mtgs, Applying Proceeds To Shortfall

From the Office of the U.S. Attorney (Baltimore, Maryland):

  • James Kevin Hughes, age 53, of Crownsville, Maryland pleaded guilty [] to wire fraud arising from a scheme to defraud lenders and a title insurance company of approximately $3.1 million. A co-defendant is scheduled for trial on November 7, 2011.


  • According to his plea agreement, Hughes was a part-owner, President, and oversaw the day-to-day activities of Troese/Hughes, a title company in Greenbelt, Maryland, that performed title searches, provided title insurance, and conducted settlements. Hughes was also a signatory on the escrow account. Troese/Hughes had an agency agreement with Chicago Title that enabled Troese/Hughes to provide title insurance, which meant that Chicago Title was liable for title defects to homeowners and lenders.

  • Troese/Hughes shared an escrow account with another title company, Troese Title Services. Although Hughes was unaware of the fact that the escrow account was shared, he was aware that there were shortages in the account. Sometime in 2006, Troese/Hughes opened a new escrow account, and the escrow accountant, Brenda Lukenich, a co-defendant who previously pleaded guilty, “assigneda $1 million escrow shortage to the new Troese/Hughes escrow account.

  • In approximately 2006, the real estate industry started to slow. As business slowed down, it became the policy of Troese/Hughes to check with Lukenich as to when mortgage pay-off checks could be sent out, so that she could confirm that there were sufficient funds in the escrow account to cover the check. At this time, the mortgage payoff checks were stored in Federal Express envelopes under the credenza in Hughes’s office.

  • Hughes made efforts to fill the escrow shortage at Troese/Hughes by re-financing his own home twice and not paying off the prior mortgage, causing a loss of over $1 million to Chicago Title.

  • In addition, after an employee of Troese/Hughes re-financed his home, Hughes caused the prior mortgage on that home to not be paid off so that the money could be used to fill the escrow shortage, causing a loss to Chicago Title of approximately $217,000.

For the entire U.S. Attorney press release, see Title Company Owner and President Pleads Guilty In $3.1 Million Mortgage Fraud Scheme.

California Appeals Court Affirms 46-Year Prison Sentence For Sale Leaseback Peddler Who Ran Purported Federal Land Grant Home-Saving Racket

A California Court of Appeals recently affirmed a 46-year prison sentence(1) for William Jeffrey Hutchings for running a racket where he peddled a phony sale leaseback land grant program targeting homeowners in or near foreclosure in the San Diego area.(2)

In addition to clipping financially strapped homeowners for a one-time $10,000 upfront fee, he also pocketed the homeowners rent on the leaseback arrangement without paying the mortgages, allowing the homes to be foreclosed and the victims to get booted out of their homes.

While the 46-year prison imposition is the result of a laundry list of minor sentences made to run consecutively, the trial court, in a possible show of mercy, avoided a 'piling-on' effect by staying or ordering concurrent some of the sentencing terms and dismissing one of the sentence enhancements in the interest of justice.

For the court ruling, see People v. Hutchings, No. D057451 (Cal. App. 4th Dist, Div. 1, October 18, 2011).

(1) A jury convicted William Jeffrey Hutchings of one count of conspiracy to commit grand theft (Pen. Code, §182, subd. (a)(1)); 65 counts of grand theft (§ 487, subd. (a)); 41 counts of deceitful practices by a mortgage foreclosure consultant (Civ. Code, § 2945.4); and 56 counts of rent skimming (Civ. Code, §§ 890, 892).

The jury also found true the special allegations that Hutchings took funds and property of another with the value exceeding $100,000 (§ 1203.045, subd. (a)), the aggregate losses from all the charges exceeded $150,000 (§ 12022.6, subd. (a)(2)), and the charges involved a taking in excess of $500,000, through a pattern of fraud and embezzlement (§ 186.11, subd. (a)(2)).

(2) The following excerpt from the ruling briefly describes the phony Federal land grant racket run by Hutchings:

  • Beginning in 2006, Hutchings commenced a purported federal land grant program promising to save homeowners facing foreclosure from losing their homes. He promoted the program with the following assertions: (1) the United States agreed to honor the land grants issued by the governments of Spain and Mexico in 1848 in the Treaty of Hidalgo, through which the United States acquired California as a territory; (2) when California became a state in 1850, it issued patents to the land owners to protect their respective titles in real property under federal and California law; (3) because the land and the structure upon the land were separate entities, a homeowner facing foreclosure could defeat the mortgage by (a) placing the land back under federal control in a "federal land grant program" mimicking the Treaty of Hidalgo and (b) waiting four to seven years, at which time the house would revert to the title holder free and clear of any mortgage when the bank wrote off the loan or the statute of limitations expired.

    Hutchings and/or his representatives provided manuals and seminar presentations assuring homeowners the land grant was superior to any other forms of title and prohibited the bank from enforcing its loan, trespassing on the property, initiating eviction proceedings, or taking any action to defeat the homeowner's possession of the house permanently affixed to the land.

Tuesday, October 25, 2011

Citi To Cough Up $285M To Resolve Charges In Alleged Mortgage-Backed, "Dog$#!t" Paper Peddling Racket; Some Call Settlement A Bull$#!t Deal

The New York Post reports:

  • Citigroup really stepped in it this time. The bank was forced to shell out $285 million in a settlement linked to the sale of 2007 vintage mortgage bonds one unnamed Citi trader described as dogsh-t,” according to a lawsuit filed by the Securities and Exchange Commission.

  • The settlement follows allegations by the SEC charging that Citi tailor-made a $1 billion pool of toxic mortgages, handpicked to blow up after the bank unloaded it to an unsuspecting client.

  • Citi’s hefty penalty marks the biggest since Goldman Sachs shelled out a whopping $550 million a year and a half ago to settle allegations that it mislead investors in originating toxic mortgage securities.

  • Investors were not informed that Citigroup had decided to bet against them and had helped choose the assets that would determine who won or lost,” Robert Khuzami, enforcement director at the SEC, said in a statement.

  • A second bank, Credit Suisse, agreed to pay $2.5 million for its role in arranging the structured residential mortgage offering.

  • According to the SEC, Citi pocketed $160 million from arranging the debt. The CDO debt, known as Class V Funding 111, which was sold to 15 investors, lost almost all of its value within months.

  • At one point, the SEC suit states, an unnamed Citi trader referred to the CDO offering asdogsh-t” and “possibly the best short ever.”(1)

  • Citi has settled the charges without admitting or denying any wrongdoing. The SEC also sued former Citi banker Brian Stoker(2) while another former Credit Suisse banker, Samir Bhatt, agreed to pay $50,000 and serve a six-month suspension from working as an investment advisor.(3)

Editor's Note: Apparently, there is more than meets the eye in this settlement as it is viewed with some disdain in some quarters.(4)

Source: Citi fined $285M for selling dog$#!t paper.

See also, Securities and Exchange Commission press release: Citigroup to Pay $285 Million to Settle SEC Charges for Misleading Investors About CDO Tied to Housing Market (Former Citigroup Employee Separately Charged for His Role in Structuring Transaction).

(1) See U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc. (paragraph 58):

  • [O]ne experienced CDO trader characterized the portfolio as "a collection of dogsh!t" and "possibly the best short EVER!" An experienced CDO collateral manager commented, "the portfolio is horrible."

(2) See SEC Complaint Against Brian H. Stoker.

(3) Order in the Matter of Credit Suisse Alternative Capital, Credit Suisse Asset Management and Samir H. Bhatt.

(4) See:

Pennsylvania Lawsuit Says Securitization Process Waives Bankster Foreclosure Rights; Homeowner Seeks Damages Recovery, Invalidation Of Mortgage Loan

In Pittsburgh, Pennsylvania, the Pittsburgh Post Gazette reports:

  • The millions of mortgages that were bundled into giant investment pools and traded like stocks shouldn't be subject to foreclosure, according to an unusual lawsuit filed Wednesday.

  • That's because when banks chose to turn mortgages into investment products, they gave up the right to take the house, attorney Luke Lucas argues.

  • His lawsuit in U.S. District Court focuses on one Plum man's mortgage. But if its theory were accepted by courts, it would have huge implications for the entire mortgage market.


  • The lawsuit alleges violations of multiple federal laws. It seeks cancellation of Mr. Schott's debt, repayment of interest paid times three and damages including punitive damages. The lawsuit names Bank of America, several of its subsidiaries and the Bank of New York Mellon as defendants. BNY Mellon became the trustee for the REMIC, it said.

For more, see Plum man files suit over home foreclosure.

Harvard Law Students At Center Of Another Foreclosure Fight On Behalf Of Massachusetts Homeowner Before State High Court

From Harvard Law School News:

  • Just two months after landing a major victory in the Massachusetts Supreme Judicial Court on behalf of homeowners fighting eviction, the Harvard Legal Aid Bureau (HLAB) was back before the high court last week seeking more protections for people with homes in foreclosure. The court’s decision, expected to come down in several months, could lead to greater accountability for lenders trying to foreclose.

  • Sam Levine ’12, president of the HLAB’s Foreclosure Task Force, argued before the high court that a bank or other entity seeking to foreclose on a house can’t do so unless it holds both the mortgage and the promissory note underlying the debt.

  • In this case, Green Tree Servicing conducted a foreclosure sale on the home of a Boston woman even though it was owed no debt and held nothing more than the assignment of a mortgage securing a loan that the woman received from a bank. The case, Eaton v. Fannie Mae and Green Tree Servicing, LLC [go here for the lower court ruling currently on appeal], is being closely watched by observers and analysts of the foreclosure crisis nationwide.

  • Levine first began working on the case over a year ago when the homeowner, Henrietta Eaton, who lives in the house with her three grandchildren, became an HLAB client after HLS students in Project No One Leaves knocked on her door to inform her that her home was in foreclosure, and offered to represent her. HLAB won a preliminary injunction in Superior Court in June to stop the foreclosure, but the other side appealed to the state Appeals Court.

  • Then, in August, the high court took the unusual move of asserting jurisdiction over the case before the appeals court had ruled.

For more, see HLS students advocate before Mass. high court in closely watched foreclosure case.

Bay State High Court To Foreclosure Fraud Banksters: 'You Can't Give What You Don't Have!" (No Matter How Unwitting Or Lacking In Bad Faith Buyer Is)

Georgetown University Professor of Law Adam J. Levitin writes in Credit Slips:

  • The Massachusetts Supreme Judicial Court just handed down a second major mortgage foreclosure ruling, Bevilacqua v. Rodriguez. The case was an Ibanez follow-up dealing with the rights of a purchaser at an invalid foreclosure sale. I thought this was a no brainer case and said so in an amicus brief co-authored with some of the Credit Slips crew.(1)

  • As the trial court noted,(2) the foreclosure sale purchaser has to lose otherwise I could actually sell you the Brooklyn Bridge or some other property I don't own.

  • What was cool about this case from an academic perspective was that it pitted two heavyweight, Latin-inscribed principles of commercial law against each other: the nemo dat quod non habet principle (you can't give what you don't have) and the bona fide purchaser principle (one who takes in good faith for value and without notice of defect will get legal protection against claims).

  • While these are both venerable principles of commercial law, there should have been no question that nemo dat prevails. It is arguably the foundational principle of commercial law: the most one party can transfer to another are the rights it has.

  • We have one critical carve-out to that principle, the holder-in-due-course doctrine, but the holder-in-due-course is much like the bona fide purchaser: it only applies if you take in good faith and without notice of defect. And if you're buying at a non-judicial foreclosure sale, you've got notice of possible defect (and one might argue about good faith). It's a little like the problem of finding a bargain when shopping--if it's too good of a deal, it could be a fraudulent transfer.

  • And so the Massachusetts Supreme Judicial Court held. If the foreclosure was done improperly, the foreclosing party didn't have title to the property and thus couldn't transfer title to the purchaser. The court didn't dismiss the suit with prejudice, so Mr. Bevilacqua could get the property--if the foreclosure is done right in the first place, but that means starting over again.

  • A lot of people think that the ruling in Bevilacqua will kill the REO market. I doubt it. It might make it a bit harder to get title insurance, but the title insurers have to keep issuing titles because they need the cash flow. If there's a widespread problem, they're already insolvent, so why not keep on doing business? There's no tort of deepening insolvency (at least in Delaware).

  • As with Ibanez, the Supreme Judicial Court merely upheld very sensible principles that shouldn't be controversial: you need to be the mortgagee to foreclose and you can't sell what you can't deliver.

  • What's kind of astounding is that the banks have had the chutzpah to challenge these basic principles of commercial law, as if centuries of commercial law jurisprudence should suddenly bend to their convenience. This is the same sort of arrogance that engendered the creation of MERS and the Article 9 mortgage transfer process.

  • There's a third case awaiting decision from the Massachusetts Supreme Judicial Court, Eaton v. Fannie Mae [go here for court docket with links to all briefs] which deals with the question of whether a "naked mortgagee"--a mortgagee that isn't the noteholder--can foreclose. I filed an amicus arguing no way no how, but we'll see how the court rules.(3)

Source: Nemo Dat Trumps Bona Fide Purchaser.

(1) See also, Law Professors To Bay State High Court: "U.S. Bank, N.A., Was No More Capable Of Passing On Good Title To The Rodriguez Property Than A Common Thief".

(2) Bevilacqua v. Rodriguez, MISC 10-427157 (KCL), 2010 WL 3351481 (Mass. Land Ct. Aug. 26, 2010).

(3) See HLS students advocate before Mass. high court in closely watched foreclosure case.

Valuing A Covered Loss Under Title Insurance Policy? Not As Simple As It May Seem

The Alabama Supreme Court recently addressed, without deciding, several somewaht nuanced issues relating to the valuation of a covered loss under a title insurance policy.

The case is probably not of any interest to anyone other than title insurance geeks, although possibly, with all the crappy real estate titles created by fraudulent foreclosures seeping back into the market, homebuyers left holding the bag on recently foreclosed real estate(1) (and their attorneys) may have a bit of interest in the type of hassle they can expect when filing a claim with their title insurer.

For more, see Stewart Title Guaranty Company, v. Shelby Realty Holdings, LLC, No. 1100215 (Ala. October 14, 2011).

(1) See, for example:

Monday, October 24, 2011

California AG Begins Putting Squeeze On BofA In Probe Into Suspected Peddling Of Crappy Mortgage-Backed Securities

The Los Angeles Times reports:

  • Investigators with the state attorney general's office have subpoenaed Bank of America Corp. in connection with the sale and marketing of troubled mortgage-backed securities to California investors, according to a person familiar with the probe.

  • The state is trying to determine whether the bank and its Countrywide Financial subsidiary sold investments backed by risky mortgages to institutional and private investors in California under false pretenses, according to the person, who was not authorized to speak publicly and requested confidentiality.

  • The subpoenas, which were served Tuesday, come as talks continue for a broad foreclosure settlement by a coalition of state attorneys general and federal agencies. California walked away from those discussions with major banks more than two weeks ago, saying what the banks were offering was not enough and the state would pursue its own investigations.

For more, see California reportedly subpoenas BofA over toxic securities (California is trying to determine whether BofA and its Countrywide Financial subsidiary sold investments backed by risky mortgages to investors in California under false pretenses, a source says).

Bay State High Court: Innocent 3rd Party Purchaser At Faulty F'closure Sale Left Holding The Bag; Unwitting Buyer Merely Acquires Mortgage Assignment

In Boston, Massachusetts, Bloomberg reports:

  • A Massachusetts man who bought property in a faulty foreclosure sale isn’t the true owner and so doesn’t have the right to sue over it, the state’s high court ruled. The Supreme Judicial Court, which in January found that banks can’t foreclose on a house if they don’t own the mortgage,(1) went one step further in a closely watched case and said a sale after that foreclosure doesn’t transfer the property. Therefore, the buyer couldn’t bring his court action against a previous owner, the court ruled.

  • The high court upheld a lower-court decision that said Francis J. Bevilacqua III, the buyer of residential property in Haverhill, Massachusetts, never owned it because U.S. Bancorp foreclosed before it got the mortgage. Today’s ruling could have implications in the foreclosure crisis, in which banks are accused of clouding home titles through sloppy transferring of mortgages.(2)

  • By alleging that U.S. Bank was not the assignee of the mortgage at the time of the purported foreclosure, Bevilacqua is necessarily asserting that the power of sale was not complied with, that the purported sale was invalid, and that his grantor’s title was defective,” the court wrote.

  • In light of its defective title, the intention of U.S. Bank to transfer the property to Bevilacqua is irrelevant and he cannot have become the owner of the property pursuant to the quitclaim deed.”

    ‘Disappointed’ in Ruling

    Jeffrey B. Loeb, a lawyer for Bevilacqua, said that while he is “disappointed” in the ruling, it holds out a possible solution for so-called third-party buyers: re-foreclosure. “It reaffirms the concept that a defective foreclosure deed operates as an assignment of the mortgage and if you can trace the ownership of the mortgage, that person would have the right to re-foreclose,” said Loeb, of Rich May PC in Boston.

  • The state high court’s January ruling in the earlier case, U.S. Bank v. Ibanez, didn’t address the status of third-party buyers who purchase property from someone who conducted an invalid foreclosure.


  • Domino Effect’

    In the rush to foreclose, the banks’ reckless origination and foreclosure practices have created a domino effect that has harmed Massachusetts homeowners as well as third-party purchasers,” Coakley said in a statement today. “This is yet another clear demonstration that the only way we are going to restore a healthy economy is to address the foreclosure crisis and hold the banks accountable for their actions.”

  • Bevilacqua bought the property in 2006 from U.S. Bancorp, which oversees the mortgage-backed trust containing the loan. The bank isn’t a party to the case. “The court said he doesn’t have ownership rights but he has rights as a mortgagee and so he has the right to foreclose,” Loeb said.

  • Re-foreclosure may present problems because someone else could win the auction, Richard D. Vetstein, a real-estate lawyer in Framingham, Massachusetts, who has represented clients in situations similar to Bevilacqua’s, said in a phone interview.

    ‘High and Dry’

    They’re saying the innocent third-party purchaser, they’re out of luck,” Vetstein said of the Bevilacqua decision. “The court ruled that not only doesn’t he own it, but he has no standing under that procedural mechanism to have the court decree him as the owner. It’s another Ibanez case, where an innocent person bought at foreclosure and he’s left high and dry.”

For the story, see Home Sale After Bad Foreclosure Isn’t Valid, Court Rules.

For the ruling, see Bevilacqua v. Rodriguez, No. 10880 (Mass. October 18, 2011).

See also, Credit Slips: Nemo Dat Trumps Bona Fide Purchaser.

Thanks both to Mike Dillon at and to Deontos for the heads-up on the ruling.

(1) U.S. Bank v. Ibanez, 458 Mass. 637 (Mass. 2011).

(2) At the risk of emphasizing what may be obvious to many, this 'crappy title' problem can affect both those properties that have gone through foreclosure, as well as those that haven't.

For more on the crappy title problem in connection with the filing of bogus land documents and improperly foreclosing on homes, see:

NC High Court To Decide Litigation Where Bankster Allegedly Failed To Prove It Had Right To Foreclose On Homeowner

In Raleigh, North Carolina, an excerpt from an editorial in the Charlotte News & Observer:

  • Today, the state Supreme Court is scheduled to hear the case of Linda Dobson, an impoverished widow represented by Legal Aid of N.C.,(1) who is appealing a ruling that would result in the loss of her home through foreclosure to a large mortgage servicer - before the party seeking to enforce a loan document has presented evidence of a right to do so.

  • The essence of the case is this: According to state law, a party pursuing a right arising from a promissory note must comply with enforcement provisions of the Uniform Commercial Code, meaning the party must establish that it is in possession of the underlying loan documents.

  • The bank - without showing that it holds the original note, and without showing Dobson was delinquent - simply asserted that she was delinquent and the bank had the right to foreclose. It could not even produce a proper payment history showing what amount, if any, Dobson owes.

  • What's at stake for Dobson is her home. For the rest of us, if the court eventually rules for the bank, we will lose longstanding principles and tradition protecting private property rights embedded in American legal history.


  • No doubt our Founders would be repulsed to learn of a powerful corporate litigant boldly stating a claim to a right in a lawsuit, and then fully expecting to acquire and enforce this right in the court based upon a mere statement. To enforce the note as the holder, the bank was obligated - but failed - to present evidence of possession of the properly endorsed Dobson note.

  • Let's hope, not only for Dodson's sake, that our highest court is still in the business of rendering just, even-handed and fair decisions, even for parties whose net worth amounts only to the value of their homes.

For more, see No shortcuts to foreclosure.

(1) Legal Aid of North Carolina (LANC) is a statewide, nonprofit 501(c)3 law firm that provides free legal services in civil matters to low-income people in order to ensure equal access to justice and to remove legal barriers to economic opportunity. LANC operates in all 100 counties in North Carolina through 24 geographically based offices.

Bankster Bellyaching Continues Over Adverse Florida Ruling Requiring Valid Affidavits To Proceed With Foreclosure

In West Palm Beach, Florida, The Palm Beach Post reports:

  • An appeals court ruling in favor of Wellington homeowners in foreclosure is causing "calamitous confusion," according to bank attorneys who say it could snarl hundreds of thousands of pending foreclosure cases.

  • The bank is asking for a rehearing and clarification of the Sept. 7 decision by the 4th District Court of Appeal, which said a foreclosure affidavit submitted by a bank employee was hearsay because the person relied on computerized information and did not have personal knowledge of the case.

  • The lack of personal knowledge of foreclosure documents is the foundation of the robo-signing controversy that continues to delay foreclosure proceedings.

For more, see Foreclosure ruling irks banks.

Sunday, October 23, 2011

GA Cops Pinch 'Sovereign Citizen' In 'Paper Terrorism' Case; Suspect Allegedly Targeted Government Officials w/ 'Maritime Liens' Filed Against Homes

In Fannin County, Georgia, WSB-TV Channel 2 reports:

  • A north Georgia man is under arrest, accused of threatening several public officials through what law enforcement officers call "paper terrorism." Agents with the Georgia Bureau of Investigation said Robert Eugene Stephens filed fraudulent liens against his victims. "If you have an issue with wanting a new credit card, something as simple as that or a loan, or you want to sell your property your house, then you're gonna have a problem," GBI spokesman John Bankhead said.

  • According to arrest warrants, Stephens went to the Fannin County Courthouse in Blue Ridge in September and filed the fraudulent documents against the personal properties of Georgia's Speaker of the House, the Fannin County Clerk of Court, a Superior Court Judge and her secretary, the Fannin County Tax Commissioner and two others. "It can be a nightmare to straighten out and so when it came to our attention our agents went out and obtained the arrest warrants," Bankhead added.

  • Agents arrested Stephens at his home in Mineral Bluff, seizing additional documents and his computer. He's facing a total of 12 counts, including the intimidation and obstruction of court officers.

  • "In this case it was pretty clear that this was a violation of the law what he did," said Bankhead. "When they interviewed him he was pretty wrapped up in this 'sovereign citizen' issue, and you couldn't convince him otherwise."

  • Stephens also filed court paperwork calling himself a "sovereign citizen." The group typically espouses anti-government philosophies and files documents that can be time consuming and frustrating to combat.

  • Bankhead said Stephens referred to his paperwork as "maritime liens." "What they do they come up with their own version, based on this maritime lien, which is an actual Coast Guard lien for ships. They feel a person is 90 percent water, so that's some relationship to a vessel. So they feel they can use this maritime lien to file liens against public officials," Bankhead said.

  • Agents said it may sound ridiculous, but the liens and other bogus paperwork filed by "sovereign citizens" can cause real problems. They're usually designed to bog down court systems and frustrate the law enforcement and public officials they target.

For more, see Police arrest, accuse man of "paper terrorism"

Sunday School Teacher/Church Band Singer Leaves Banksters Terrified After Squeezing BofA For $8.5B; Once Told Them To 'Take Their Money & Shove It!'

Forbes reports:

  • The biggest private legal settlement in the history of Wall Street was a few sentences away from death. In early June a ­little-known Texas lawyer named Kathy Patrick was putting the final touches on her carefully crafted $8.5 billion deal with Bank of America over so-called mortgage put-backs, when she got a last-minute demand from the other side.

  • Sitting in her Houston office, Patrick learned that BofA wanted her clients—a clutch of the world’s most important investment firms, including BlackRock and Pimco—to promise they would not go after the bank with separate claims over the same mortgage pools.

  • No way, she answered. As far as Patrick was concerned, she had made clear such a release was not on the table. Some of her clients had already filed securities claims against Bank of America. “It’s not every day that you write a letter to someone,” the 51-year-old says, “and tell them to take their $8.5 billion and shove it.”

  • Bank of America’s gambit turned out to be a bluff. On June 29 the nation’s largest bank announced it had struck the second-biggest legal settlement in American history, trailing only the 1998 tobacco master settlement. Three weeks later BofA reported an $8.8 billion quarterly loss, the start of a long and difficult summer in Charlotte.

  • Rather than celebrate a career-capping victory, Patrick viewed it a different way: round one. And that has Wall Street terrified right now.

  • Publicly the financial industry and the White House are dancing around a potential $20 billion settlement being forced on the nation’s biggest banks by state attorneys general over improper foreclosure practices.

  • Quietly and without fanfare, Patrick and her 23 bondholding giants—one of the most powerful investor groups ever assembled for litigation—are gearing up for something big: a painful new reckoning for the mortgage-lending debacle, with most of Wall Street’s big banks in her crosshairs.

  • This group did not come together just to deal with Bank of America. They came together because they wanted a comprehensive industrywide strategy and an industrywide solution,” Patrick tells FORBES. “They started with Bank of America because they thought they could achieve a template that they could extend to other institutions.”

  • The new sheriff of Wall Street, a private-sector Eliot Spitzer described by a peer as “the toughest lawyer you will see,” works out of an unassuming 33-lawyer Houston firm. She teaches Bible study on Sundays and sings in her church band, while raising two teenage boys with her husband. And backed by the biggest investors in bum mortgage-backed securities, she has a mandate to lay siege.

  • Who else has ever gotten $8.5 billion out of anyone? Go find a settlement where anybody in history got $8.5 billion in a private settlement,” says Jason Kravitt, a lawyer who represented Bank of New York Mellon in the Bank of America settlement talks. “She manages to be sufficiently aggressive and constructive with the right combination of threats and creativity.”

For more, see Wall Street's New Nightmare: The Next Wave Of Mortgage-Backed Securities Claims.

Suit: 'Successful' Loan Modifcations No Guarantee Against Subsequent Mortgage Servicer Abuse; Homeowners Target BofA In Action Seeking Class Status

The Boston Globe reports:

  • Property owners in Massachusetts and across the United States say they are being threatened with foreclosure and assessed unfair fees by lenders even after signing agreements with those companies to make lower mortgage payments and stay in their homes.

  • Eight Bank of America borrowers - including two from Massachusetts - have filed a lawsuit against the nation’s largest bank, alleging it violated loan modification contracts, wrongly attempted to collect money from them, damaged their credit, and initiated wrongful foreclosure actions. They expect others to join the suit and are seeking class-action status.


  • [K]athleen Day, spokeswoman for the nonprofit Center for Responsible Lending, based in North Carolina, said the problem is widespread. “It is all too common for banks to enter a loan mod and then try to foreclose on people and try to harangue them for money,’’ Day said. “All the evidence shows that servicing procedures and record keeping are just a mess. It ranges from disarray to out-and-out fraud.’’


  • Shennan Kavanagh, a lawyer with the Boston law firm Roddy Klein & Ryan - which filed the suit - said it is especially traumatic for homeowners who have gone through the stressful monthslong modification process to find they could still be at risk of losing their properties. “There is complete and utter chaos in the servicing industry,’’ Kavanagh said. “These are supposed to be the lucky folks.’’


  • Roddy Klein & Ryan filed its suit this spring in US District Court in California, the site of the offices of BAC Home Loans Servicing LP, a Bank of America Corp. subsidiary that once administered home mortgages for the company. Earlier this year, BAC Home Loans was consolidated with Bank of America.

For more, see Abuses alleged in retooled loans (Despite deals, threats of foreclosure reported).

Whistleblower Suit Alleging That Lenders Clipped VA Borrowers w/ Illegal Attorney Fees Disguised As Title Costs At Center Of Another Bankster Scandal

The Washington Post reports:

  • The chairman of the House Veterans’ Affairs Committee ordered his staff to begin an investigation Friday into allegations that some of the nation’s largest lending institutions have cheated veterans and taxpayers out of hundreds of millions of dollars by charging illegal fees in home refinancing loans.

  • Committee staff members met Friday with officials from the Department of Veterans Affairs to discuss the charges, which are made in a whistleblower lawsuit unsealed this month by a federal court in Atlanta.

  • I will reserve judgment on the appropriate next course of action, to include the potential for a full Committee hearing, after having the opportunity to review the results of the staff investigation,” Rep. Jeff Miller (R-Fla.), chairman of the committee, wrote in a letter Friday to Rep. Bruce Braley (Iowa), the ranking Democrat on the committee’s subcommittee on economic opportunity.

  • Braley on Wednesday requested that the committee hold a hearing to examine the allegations. “It is disconcerting that charges have arisen that banks are not following rules governing fees that can be charged for refinancing loans,” Braley wrote in a letter to Miller.

  • On Tuesday, Sen. Jon Tester (D-Mont.), a member of the Senate Veterans’ Affair Committee, sent a letter to Attorney General Eric H. Holder Jr. demanding that the Justice Department investigate the allegations. “If true, this type of behavior is illegal and it’s un-American,” wrote Tester.

  • Under a VA program, veterans are able to refinance with loans guaranteed by the government, enabling them to lower their interest rates or shorten the terms of their mortgages. The rules prohibit lenders from charging attorney fees.

  • The lawsuit was brought under the False Claims Act by two mortgage brokers in Georgia who allege that the banks instructed them to disguise attorney charges by listing them as part of the title examination fee.

  • The suit, which was filed in 2006 but remained sealed while the allegations were investigated, seeks to recover damages and civil penalties from 13 lending institutions on behalf of the U.S government.

  • The Justice Department has notified the federal court in Atlanta that it is not taking over the case but will consider doing so at a later date. “I request that you provide justification for this decision, and urge you to reconsider,” Tester wrote in his letter to Holder. “I also request that you investigate the full extent of these illegal activities.” The Justice Department has not yet responded to the request, according to Tester’s office.

For more, see Hill staff begins probe of alleged mortgage loan fraud of veterans.

For the whistleblower suit, see U.S. ex rel. Bibby v. Wells Fargo Bank Nat'l Ass'n., et al.