Saturday, March 2, 2013

Elderly Widows Left Unnamed On Now-Deceased Hubbies' Home Loans That Subsequently Become Delinquent Face The Boot As Banksters Refuse To Negotiate Payment Modifications

In Bradenton, Florida, the Sarasota Herald Tribune reports:

  • Sandra Vance had her Cypress Bend home built with her physical limitations in mind. [...] Now 72, she expected to spend life's final chapter in the single-story home with tile floors and electric appliances — installed because gas fumes make her too dizzy to stand.

    But the nation's largest loan servicer now contends Vance must leave that all behind after a three-year foreclosure saga — one that her husband did not live through — revealed problems with the promissory note.

    Vance is not alone. Legal experts say similar paperwork mistakes are poised to evict hundreds, if not thousands, of elderly windows throughout Florida from their dream retirement homes.

    "It's just horrible," said Kathy Vance, Sandra's daughter. "I know my mother may lose this house. But we will not go without a fight."

    Like many recession-battered borrowers, Wells Fargo filed suit against Vance's late husband after the couple fell behind on their payments.

    When her husband, Merle, died, Vance lost the authority to assume the mortgage — even though she is listed as an owner on the property's deed.

    That is because her name was never on the promissory note tied to the home's loan — a strategy sometimes employed to obtain better financing rates by listing only her husband's income and credit history.

    But now, Vance cannot legally defend against the default. The bank says it will work with Vance to modify the debt, but only after $14,000 in delinquent payments are made current.

    The complication is common throughout Florida — the fallout from a high demographic of elderly homeowners, the state's boom-bust real estate cycle and a lingering recession that still grips retirement incomes.

    The result has left thousands of Sunshine State widows who are now behind on payments — and lacking a sufficient mortgage note — with no entitlement to their home.

    "I wish I could say these are the only people this has happened to, but I can point to 10 more in my office," said Susannah Savitsky, a Bradenton attorney who represents Vance.

Unanticipated Threat Of Deficiency Judgments Lingers Over Now-Foreclosed Ex-Homeowners When Sales Proceeds Fail To Cover Unpaid Mortgage Debt

In Sarasota, Florida, the Sarasota Herald Tribune reports:

  • Since the great recession took hold in Southwest Florida, thousands of mortgage borrowers have lost homes to grueling foreclosure fights that often take up to three years.

    But for many, losing their home is not the end of the financial hit they suffer. That's because many foreclosures come with an unanticipated hangover, in the form of thousands of dollars of additional penalties stemming from lenders' inability to sell properties at prices equal to the amount originally financed.

    Called deficiency judgments, they are permitted in Florida because the state permits "recourse," allowing banks to pursue defaulting customers for the difference between the amount owed on the original loan and current market value. Even more damaging to consumers, banks can seek to be repaid their attorney's fees and court costs.
  • Many homeowners assume, incorrectly, that when lenders foreclose on their properties and take control of them, their debt is forgiven. But for many, deficiency judgments add to the pain of foreclosure and sometimes years to the effort of buying another home. To get recourse, banks can dock borrowers' salaries and even seize money from personal checking accounts, experts note.

    The law is not new, but local foreclosure attorneys warn that most borrowers now navigating a foreclosure -- which are at record levels and growing, the result of re-filings that ramped up statewide toward the end of 2012 -- are unaware of those potentially costly consequences.

    Now that banks have clearer, and more streamlined, guidelines for repossessing homes -- the result of the $25 billion fraud settlement last spring -- many are becoming more aggressive in pursuing deficiency-related losses, real estate counselors say.
  • And while most large lenders do not go after customers' assets after a foreclosure, not all are willing to relinquish the debt they are entitled to by law. In particular, lenders have become more aggressive in pursuing deficiency judgments if they have reason to believe a borrower was using a home as an investment property instead of as their primary residence.
  • Florida is among 41 states, together with the District of Columbia, that permit lenders to sue borrowers for lingering mortgage debt left behind after a foreclosure.

    The statute of limitations [in Florida] for banks to file for a deficiency judgment is five years after the default, attorneys say. But that, too, could change. State lawmakers have pushed to reduce the time frame to one year.

Financially Strapped Real Estate Developer Facing Foreclosure Faces Charges In Wife's Slaying; Authorities: 'He Did It To Score Life Insurance Cash'

In San Mateo County, California, the Redwood City-WoodsidePatch reports:

  • A Woodside man will soon stand trial for allegedly murdering his wife for the insurance money.

    Pooroushasb "Peter" Parineh, 65, who worked as a real estate developer in Woodside, is accused of shooting his wife in the head multiple times in the bedroom of their Foxfire Drive mansion on April 13, 2010 "for financial gain," the San Mateo County District Attorney's Office said.

    The District Attorney's Office asserts that Parineh killed his wife because he was "in financial ruin," with the Foxfire mansion facing foreclosure, and having "no liquidity and enormous debt."

    The District Attorney's Office said Parineh tried to make her shooting death look like a suicide, but that investigators believe Parineh is the one who fired the gun, killing her, in hopes of collecting on the "large life insurance policyhe had in her name.

    Parineh's trial was scheduled to begin next week on Feb. 25, but on Monday when Parineh appeared in court with his defense attorney, Dek Ketchum, the date was postponed.

    The District Attorney's Office said Ketchum requested the postponement in order to allow authorities to "conduct further scientific testing" - reportedly, retesting of the gunshot residue tests authorities performed at the time of the crime.
Source: Woodside Man Accused of Murdering Wife for Insurance Money (The real estate developer's wife was found shot to death in their Woodside home).

Friday, March 1, 2013

Threatened With Imminent Foreclosure, Some Borrowers Move On From Homes Only To Find Out Long After That Premises Was Never Sold

CNNMoney reports:

  • Borrowers are discovering that their foreclosed homes are coming back to haunt them -- long after they have moved out.

    In these "zombie foreclosures," borrowers move out after their bank schedules a foreclosure auction only to learn months or years later that the auction never took place or the bank never transferred the deed. That means the borrower still technically owns the house and is on the hook for property taxes, fees and homeowners' association dues.
  • Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.

    "The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager. Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."

    "On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's." She sold her belongings and moved to Hawaii.

    Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house.

    Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.

    Meanwhile, the unpaid debt has crushed Nathan's credit score. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. Eventually her credit card companies cut her off, even though she said she was making her payments.

    Her auto loan now carries a 25% rate. Her car insurance premiums have skyrocketed. She can only afford a one-bedroom apartment where she lives with her three kids. And forget about buying another home. "Nobody will give me a mortgage," she said.

    Citi declined to comment on the case. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home..

L.A. Feds Net Two On Race-Based Housing Rights Interference Charges In Connection With Street Gang's Alleged Attempt To Use Violence, Threats To Drive Blacks Out Of Neighborhood

From the U.S. Department of Justice (Washington, D.C.):

  • A federal grand jury has indicted two members of the Compton 155 street gang on federal hate crime charges related to a racially motivated attack on four African-American juveniles at a residence in the city of Compton, Calif., on New Year’s Eve.

    Jeffrey Aguilar, aka “Terco,” 19, and Efren Marquez Jr., who is also known as “Stretch” and “Junior,” 21, were named in a five-count indictment returned [...] by the grand jury.

    The indictment specifically charges Aguilar and Marquez with one count of conspiracy to interfere with housing rights and four counts of interfering with housing rights. The indictment alleges that they attempted to intimidate African-Americans from living in Compton.

    Aguilar and Marquez allegedly are members of the Compton 155 street gang, which uses violence and threats of violence in an effort to drive African-Americans out of their “territory” on the west side of Compton.

    According to the indictment, members of the Compton 155 gang often refer to themselves as “NK” or “N***** Killers.” To instill fear in African-Americans, members of the gang tag their gang moniker and “NK” throughout their “territory.”

    “Hate-fueled crimes have no place in our society,” said U.S. Attorney for the Central District of California Andre Birotte Jr. “No one should have to look over their shoulder in fear because of who they are. Incidents like the one described in the federal indictment prove that we must remain vigilant to ensure that the rights of every single American resident are protected at all times.”

    “The Civil Rights Division will continue to protect the right of every person who lives in this country to do so free of racially-based violence and intimidation," said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division of the Department of Justice. “The Justice Department will not tolerate those individuals or gangs who would prevent a family from living in a particular neighborhood simply because of their race or the color of their skin.”

    The indictment specifically alleges that on Dec. 31, 2012, Aguilar, Marquez and a co-conspirator confronted an African-American juvenile, who was walking on a street in Compton, and threatened him by referring to themselves as “NKs.”

    The 17-year-old victim ran to his girlfriend’s house, where three other African-American juveniles were located. Aguilar and Marquez followed the 17-year-old victim to the home, yelled racial slurs at the four juveniles at the residence, and demanded that the African-Americans get out of the neighborhood. Aguilar and Marquez then allegedly assaulted the 17-year-old victim with a metal pipe and threatened another juvenile with a gun.

    After the juveniles managed to escape and run into the house, the indictment alleges that Aguilar and Marquez left the scene and informed other gang members that the African-American juveniles lived in their “territory.” Shortly thereafter, Aguilar and approximately 15 other gang members went to the victims’ home and threatened them by yelling racial slurs and warning the juveniles that they did not belong in the neighborhood. During this time, a member of the gang smashed one of the windows of the house.

$50M Lawsuit: Ex-Tenant/Jazz Club Operator Gutted Historic Harlem Nightclub Of Original Art Deco Fixtures, Iconic Decorative Elements, Signage, Etc. & Hired Thugs Posing As Cops To Prevent Landlord From Intervening

In New York City, the New York Post reports:

  • It could have been a scene from “American Gangster.”

    In the early-morning darkness of New Year’s Day, hired thugs posing as cops warned the landlord of Harlem’s historic Lenox Lounge not to intervene as the shuttered club’s former operator allegedly gutted it of its original art deco fixtures and iconic zebra-striped wallsa lawsuit alleges.

    Landlord Ricky Edmonds, 56, this week slapped former Lenox Lounge operator Alvin Reed, 73, with a $50 million Manhattan Supreme Court lawsuit for the Jan. 1 stunt.

    “The ‘police,’ who had some type of shield hanging from their necks, informed Mr. Edmonds that if he intervened, he would be arrested and carted off to jail,” the suit states.

    After Reed’s workers had carted away most of the goods, the lawsuit alleges, the “police” reportedly admitted they were actually security hired by Reed’s attorney, Tyreta Foster.

    Longtime Harlem resident Reed ran the jazz joint, which hosted greats like Billie Holiday and Miles Davis, for 30 years. He was forced out Jan. 1 when he couldn’t pay the rent, which had skyrocketed from $3,000 a month in 1996 to $10,000 a month in 2012.

    Reed, who took the goods a few blocks north to the site of his planned new club, is prevented from selling or otherwise altering the iconic items until the case is concluded, a Manhattan judge ruled at a hearing yesterday.

    In December, Page Six reported that Nobu guru Richie Notar plans to reopen the nightclub at Lenox Avenue and 125th Street this spring. It’s rumored Robert De Niro will be involved in the project.

    The lounge has been featured in films from the 2000 remake of “Shaft” to 2007’s “American Gangster,” where 1970s drug kingpin Frank Lucas, played by Denzel Washington, meets rival Nicky Barnes, played by Cuba Gooding Jr., in the famed Zebra Room.

    The 29-foot-by-6-foot bar “was sawn off from adjacent walls at each end,” four square yards of zebra wallpaper were “vandalized” and “165 dime-store ashtrays used as ceiling decorative elements,” were torn from their fixtures, according to court papers.

    “The once proud Lenox Lounge, for the first time since its founding in 1939, stood completely bare and empty,” Edmonds, who’s owned the property since 1983, says in the documents.

    The court fight revolves around the seemingly simple question: What’s a fixture? Edmonds asserts in the lawsuit that Reed stripped the haunt of a long list of etched mirrors, glass shelving, light covers, interior doors and red-metal paneling.

    Reed insists the property belongs to him.

    “My client actually owns most of the property inside the Lenox Lounge,” attorney Tyreta Foster told Judge Anil Singh in Manhattan Supreme Court yesterday. “The things that were affixed remain,” she insisted, claiming, “The bar was not a fixture. The bar was removable.”

    Judge Singh said the question would be settled in court. “It’s going to be an issue, what’s a fixture, what’s not a fixture,” he said. “That’s what it’s going to come down to.”

    The parties return next month.

Thursday, February 28, 2013

State Supremes: Failure To Include "Unofficial Witness" On Georgia Mortgage Sinks Bankster In Homeowner's Bankruptcy Where Trustee Successfully Voided Lender's Lien

From US Law:

  • In 2006, debtor Denise Codrington executed a security deed with appellant Wells Fargo that was recorded with the Clerk of the Superior Court of Fulton County on October 13, 2006. The deed provided: "[i]f one or more riders are executed by Borrower and recorded together with this Security Instrument, the covenants of each such rider shall be incorporated into ...this Security Instrument as if the rider(s) were a part of this Security Instrument."

    The security deed specifically identified the "ARM Rider" as being incorporated. The last page of the deed was signed by the debtor, the co-debtor (Alvina Codrington), and a notary, but the signature line for an "Unofficial Witness" was left blank.(1) Contemporaneously recorded with the security deed were a number of other exhibits, including a "Waiver of Borrower's Rights."

    The waiver provided that "the provisions hereof are incorporated into and made a part of the security deed." The parties agreed that the waiver was signed by the debtor, the co-debtor, an unofficial witness, and a notary. In June 2008, the debtor filed for Chapter 7 bankruptcy.

    Appellee Neil Gordon, Trustee for the debtor's bankruptcy estate, commenced an adversary proceeding against Wells Fargo seeking to avoid Wells Fargo's interest in the property. Appellee asserted that because the security deed lacked the signature of an unofficial witness, it was not duly recorded and it did not provide constructive notice to a subsequent bona fide purchaser, rendering the security deed avoidable per 11 U.S.C. 544. Wells Fargo moved for summary judgment, the bankruptcy court denied the motion, and the bankruptcy court entered judgment in favor of appellee.

    Wells Fargo appealed to the Eleventh Circuit Court of Appeals which certified two questions to the Georgia Supreme Court: (1) whether a security deed that lacks the signature of an unofficial witness should be considered "duly filed, recorded, and indexed" as required by OCGA 44-14-33; and (2) if no, whether such a situation would nonetheless put a subsequent hypothetical bona fide purchaser on inquiry notice.(2)

    Upon review, the Supreme Court answered both certified questions in the negative.(3)
Source: Opinion Summary - Wells Fargo Bank, N.A./Gordon, S12Q2067 (February 18, 2013.

For the ruling of the Georgia Supreme Court, see Wells Fargo Bank, N.A. v. Gordon, S12Q2067 (February 18, 2013).

(1) From the bankruptcy court ruling in In re Codrington, 430 BR 287 (Bankr. N.D. Ga., 2009), which ruled that it was proper to void the defectively-executed mortgage:
  • The signatures of the grantors appear on lines labeled "Borrower." Below the signatures of the grantors is the signature and seal of a notary public.

    A signature line, labeled "Unofficial Witness," is blank. Other than the notary's signature and seal, there is no language or other signal to indicate that anyone saw the grantors sign the deed. The deed was recorded in the real estate records of Fulton County, Georgia on October 13, 2006.
(2) See In re Codrington, 691 F3d 1336 (11th Cir. 2012) (order certifying questions).

(3) The Georgia Supreme Court's analysis follows:
  • We address each certified question in turn.

    1. In order for a security deed to be in recordable form, it must be attested by an official witness and an unofficial witness. OCGA §§44-14-61 and 44-14-33. Specifically, OCGA §44-14-33 provides that a security deed "must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a [security deed] must also be attested or acknowledged by one additional witness."

    This Court has recently held that "a security deed is `duly filed, recorded, and indexed' only if the clerk responsible for recording determines, from the face of the document, that it is in proper form for recording, meaning that it is attested or acknowledged by a proper officer and (in the case of real property) an additional witness." U.S. Bank N.A. v. Gordon, 289 Ga. 12, 15 (709 SE2d 258) (2011).

    A deed that is not properly attested is ineligible for recording. Id. The recording of a properly attested security deed serves as constructive notice to all subsequent bona fide purchasers. OCGA § 44-14-33.

    In this case, because the eight-paged security deed lacked the signature of an unofficial witness, it was not in recordable form as required by OCGA § 44-14-33 and did not provide constructive notice. See U.S. Bank N.A. v. Gordon, supra, 289 Ga. at 15; Higdon v. Gates, 238 Ga. 105, 107 (231 SE2d 345) (1976). See also In Re Yearwood, 318 B.R. 227, 229 (M.D. Ga. 2004) (a patently defective security deed does not provide constructive notice).

    Despite the facial defect in the security deed at issue, Wells Fargo urges that because the waiver was attested in accordance with OCGA § 44-14-33 and because the waiver was incorporated into the security deed by reference, the security deed was thereby properly attested and in recordable form.

    We disagree. While we are not bound by the United States bankruptcy courts' interpretations of Georgia law, we nevertheless find In re Fleeman, 81 B.R. 160 (M.D. Ga. 1987) to be analogous to this case and persuasive to our resolution of the question before us.

    In Fleeman, the debtor executed a security deed and an adjustable rate rider. While the rider contained the signature of an unofficial witness, the security deed did not. As with the instant case, the deed and rider were contemporaneously submitted to the superior court for recording.

    After the debtor filed for bankruptcy, the unofficial witness issued and recorded with the superior court an affidavit stating that she had witnessed the debtor sign the security deed.

    One of the arguments advanced by the lender was that the attached and fully attested rider was sufficient to validate the security deed, in particular because the security deed incorporated the covenants and agreements of the rider. Id. at 162-163. The United States Bankruptcy Court for the Middle District of Georgia rejected this argument reasoning as follows:

    By attesting a document, an individual signifies that he has witnessed the execution of the particular document. Black's Law Dictionary 117 (5th ed. 1979) (citations omitted). Thus the signature of [the unofficial witness], which appears on the adjustable rate rider, attests to the proper execution of that document only. Although the adjustable rate rider is incorporated into the terms of the deed to secure debt, the deed to secure debt itself remains improperly attested and ineligible for recordation.

    Id. at 163.[3]

    We agree with the above analysis. As in Fleeman, the attestation of the waiver in this case cannot be substituted for the proper attestation of the security deed. Such a construct would be false and contrary to the purpose of attestation, namely for the witness to verify that the document in question has been executed by the signatories. Allowing a more lenient rule as Wells Fargo urges would likely lead to more complications than it would resolve for lenders, debtors, and subsequent purchasers alike.

    As we admonished in Bank N.A. v. Gordon, supra, 289 Ga. at 17, it costs nothing for lenders or their agents to review their paperwork to make sure the proper signatures are in place before submitting documents to the superior court clerk for recording.

    Accordingly, we answer the first certified question in the negative.

    2. Having answered the first certified question in the negative, we now address the second certified question. Wells Fargo argues that the fully executed, attested, and recorded waiver in and of itself was sufficient to provide "inquiry notice"[4] such that a bona fide purchaser would be prompted to make inquiries as to the existence of a security deed in the property's chain of title.

    We disagree. The rule regarding inquiry notice is summarized as follows:

    [A] purchaser of land in this state "is charged with notice of every fact shown by the records, and is presumed to know every other fact which an examination suggested by the records would have disclosed." [Cits.] ... Although "it is essential that the description of the land in the conveyance should be reasonably certain and sufficient to enable subsequent purchasers to identify the premises intended to be conveyed; but while the description may be inaccurate, meager or erroneous, yet if it is expressed in such a manner or connected with such attendant circumstances as that a purchaser should be deemed to be put upon inquiry, if he fails to prosecute this inquiry he is chargeable with all the notice he might have obtained had he done so." [Cit.] Deljoo v. SunTrust Mortgage, 284 Ga. 438, 439-440 (668 SE2d 245) (2008). When, however, a property description is "manifestly too meager, imperfect, or uncertain to serve as adequate means of identification," a court may adjudge it "insufficient as a matter of law" for a subsequent purchaser to be put upon inquiry. Id. at 440.

    In this case, while the waiver identifies the lender and grantors (debtor and co-debtor), it only generically references a security deed and fails to identify or describe the property purportedly to be conveyed or encumbered by the referenced security deed. In the total absence of identification or description of the property subject to the security deed, the waiver itself would not place a bona fide purchaser on notice that he should make further inquiry.

    Accordingly, we answer the second certified question in the negative.

    Certified questions answered. All the Justices concur.

Notary's Failure To Insert Borrowers' Names In Certificate Of Acknowledgement Leads To Voided Mortgage In Homeowner's Bankruptcy Proceeding

From a blog post from the law firm Pepper Hamilton LLP:

  • [In re] Kebe provides a classic example of the exercise of bankruptcy “strong arm” powers. Based on a defective notarization, the lien of a mortgage was avoided, and the bankruptcy court left open the possibility that the value of the lien could be recovered from the mortgagee in the future. Not a happy prospect.

    Section 544 of the Bankruptcy Code gives the debtor or trustee the ability to assert the rights and powers of, and to avoid transfers that are voidable by, a bona fide purchaser of real estate as of commencement of the bankruptcy. To the extent that a bona fide purchaser would have been able to void or take clear of an interest, the debtor or trustee will be able to do the same. State real estate law commonly provides that a bona fide purchaser of real estate can take free of unrecorded interests. In that case, if a mortgage is not recorded, the lien of the mortgage can be avoided in bankruptcy.

    Kebe is one of a long string of cases that finds that defective or improper notarization of a mortgage results in the mortgage being treated as unrecorded under Ohio law.

    In this case the mortgage was properly executed by the mortgagors, but the notary failed to insert the name of the mortgagors so that the acknowledgement block read “This instrument was acknowledged before me this 20th of September, 2004 by ________.”

    Interpreting Ohio law, the bankruptcy court held that the mortgage was not properly recorded, and consequently did not provide constructive notice to a bona fide purchaser of the property. It was not persuaded by arguments that there would have been actual notice because any reasonable purchaser would have searched the land records and found the mortgage even though it didn’t have a legal status as properly recorded.

    Thus the court granted the Chapter 7 trustee’s request to avoid the lien of the mortgage. In case you wonder what happened to the lien, it was preserved for the benefit of the estate. Whatever the mortgagee could have recovered as a result of the mortgage lien would be for the benefit of the bankruptcy estate instead. However, that was not the only relief requested by Chapter 7 trustee.

    Under Section 550 of the Bankruptcy Code, when a transfer is avoided the value of the property transferred may be recovered from the transferee if the court orders. In connection with avoided mortgages, trustees and debtors have been using this section to attempt to recover the amount of the mortgage lien from the mortgagee.

    In a world of seriously underwater mortgages, this presents an opportunity for the trustee or debtor to recover more than they would be able to get from selling the property, and leaves the mortgagee coping with the fact that it may be required to pay the estate more than it will be able to recover itself.

    In this case, the court concluded that recovery was not yet appropriate. The trustee was seeking to sell the property, so that avoiding the mortgage was potentially a sufficient remedy. However, the court left the door open for the trustee to renew its request for recovery of the value of the lien if the trustee was unable to sell the property.

    This case illustrates that formalities can really matter. There is certainly room to litigate various issues, including how to value the grant of the mortgage lien, but no lender will want to find itself in this position in the first place.
Source: Bankruptcy “Strong Arm” Powers- Bye Bye Mortgage.

For the court ruling, see Rhiel v. Central Mortgage Co. (In re Kebe), 469 B.R. 778 (Bankr. S.D. Ohio 2012).

Screw-Up In Preparing Loan Document Invalidates Lender's Lien In Borrower's Bankruptcy Proceeding; Contention That Trustee Had Constructive Notice Of Mortgage Falls On Deaf Ears

From a post on the blog

  • Typically an unrecorded mortgage will be void as against a bona fide purchaser under state law. This in turn will allow an unrecorded mortgage to be avoided in a bankruptcy using the "strong arm" powers under Section 544 of the Bankruptcy Code.Thulis reaches this result after a discussion of circumstances that may provide notice to a purchaser besides constructive notice from a recorded document.

    The debtors owned two adjoining parcels described as Lot 1 and Lot 2.The mortgage securing a loan to finance construction of a residence on Lot 1 was supposed to encumber both lots. Unfortunately for the bank, only Lot 2 was included in the legal description attached to the mortgage. When the construction loan was refinanced, the new mortgage also referenced only Lot 2.

    Although all parties acknowledged that the bank intended to take a mortgage on Lot 1, the bankruptcy trustee pointed out that "it is not the thought that counts, but what is recorded with the register of deeds." (The court commented in a footnote that a Google search of this phrase turns up a response attributed to Winnie-the-Pooh that: "If it is the thought that counts, why are there fingers?"However, it also noted that in many situations the observation of a 19th century naturalist that "the smallest deed is better than the greatest intention" is more applicable.)

    This case involves a typical state statute that provides that unrecorded mortgages are void as against subsequent good faith purchasers. Normally a purchaser receives constructive notice of prior interests through recorded documents. However, the court acknowledged that there are limited circumstances in which a purchaser is deemed to have notice of interests through other sources (which would mean that it would not be a good faith purchaser).

    Under applicable state law if a purchaser has actual notice of the prior interest, it would not be entitled to the benefit of the statute providing that unrecorded interests are void. However, this does not apply in the context of exercising the rights of a bona fide purchaser under Section 544 of the Bankruptcy Code since this section specifically provides that the rights are "without regard to any knowledge of the trustee or of any creditor."

    The court acknowledged that a purchaser could also be held responsible under state law for things that would be revealed by the public record or the property itself. One example was a sale involving a boundary dispute. The court concluded that the key was possession. Another similar example was a purchaser under an unrecorded land contract that was in sole possession of the property. The focus is on "use or occupancy" of the property that would provide notice of the interest.(1)

    Although the court characterized it as "possible" that a visit to the property or discussion with the owners might happen to lead a buyer of Lot 1 to learn about a mortgage on the adjacent Lot 2, that was not legally relevant. The court determined that there was nothing in the circumstances of this case that would have provided affirmative notice of the bank's intent to encumber Lot 1.

    The bottom line is that the bank was out of luck: It could have protected itself by recording a mortgage with a proper legal description. The bank's mortgage was outside Lot 1's chain of title and a subsequent good faith purchaser would not have had any notice of the bank's mortgage. Consequently, the mortgage was void as against a bona fide purchaser, and the bank's claim was treated as unsecured.

    As illustrated in several prior blogs (for example, Strong Arm Powers: Bye Bye Mortgage), minor errors in a mortgage can have major consequences in a bankruptcy. Thulis serves as a reminder that attention to detail is critical since the mortgage lien itself is at stake.
Source: Mortgage Legal Descriptions: When Is A "Boo-Boo" Fatal (Round 1)?

For the court ruling, see In re Thulis, 474 B.R. 668 (Bankr. W.D. Wis. 2012).

(1) With regard to the effects on the bankruptcy trustee, the court made the distinction between "actual notice" and "constructive notice", and the effect on the trustee of the rights of others arising from use or occupancy of real estate by others pursuant to some unrecorded property interest:
  • In addition, Wis. Stat. § 706.09(2)(a) describes the limited situations in which a purchaser is deemed to have notice of a prior claim apart from the title record. A purchaser is presumed to have affirmative notice of a prior claim apart from the title record only if there is "notice, actual or constructive, arising from use or occupancy of the real estate by any person at the time such purchaser's interest therein arises."[13]

    Actual notice means exactly what it says. Someone who actually knows about a prior claim or interest cannot claim the benefit of the recording statute.

    However, actual notice is no defense against the bankruptcy trusteeIn re Sandy Ridge Oil Co., 807 F.2d 1332, 1336 (7th Cir. 1986) ("actual knowledge is irrelevant under § 544(a)").

    Constructive notice is a different story. Courts have typically concluded that a bankruptcy trustee's avoidance powers are subject to any state law limitations regarding constructive notice. See In re Probasco, 839 F.2d 1352 (9th Cir. 1988); Brown v. Job (In re Polo Builders, Inc.), 433 B.R. 700 (Bankr. N.D. Ill. 2010). In that regard, Wisconsin law reflects a public policy that prospective purchasers are subject to any liabilities or interests which could have been discovered through a reasonable degree of care in consulting certain "avenues of information." Bump, 133 N.W.2d at 299.

    The relevant avenues are the records in the office of the appropriate register of deeds, other public records, and the land itself, by which it is possible to "discover by observation the rights which arise outside of the recording system by virtue of possession or use." Bump, 133 N.W.2d at 300 (emphasis added). If it is possible to discover something (such as evidence of a competing claim) by reviewing one of these resources, a subsequent purchaser cannot rely on the recording statute.
  • The purpose of the recording statute is to ensure a "clear and certain system of property conveyance." Brown, 656 N.W.2d at 61. Wis. Stat. § 706.09(2)(a) addresses situations in which a purchaser is deemed to have notice of a prior claim "apart from the record." Because the bank's mortgage is outside the chain of title, it is void against the claim of the trustee as a subsequent purchaser unless such a purchaser would have had constructive notice of the mortgage "arising from use or occupancy of the real estate by any person at the time such purchaser's interest therein arises."

    As Wisconsin courts have noted, "No other types of constructive notice are detailed." See Bank of New Glarus v. Swartwood, 2006 WI App 224, 297 Wis. 2d 458, 725 N.W.2d 944, 956 (2006). The policy behind this provision is a compromise between two competing goals — namely, merchantability of title and the protection of legitimate but otherwise hidden land interests. Id. (citing Lubahn, 365 N.W.2d at 621).

    In balancing these goals, Wisconsin courts have imputed notice to purchasers only in limited situations, such as instances involving the adverse rights of someone actually in possession of the property or where the purchaser was deemed to have notice of issues with the property that were visible upon physical inspection.

    In this regard, the land is a "universal manuscript, open to the eyes of all,and a purchaser is expected to read that manuscript to discover any evidence of the rights of third parties. See Horicon State Bank v. Kant Lumber Co., 165 Wis. 2d 543, 478 N.W.2d 26, 28 (Wis. Ct. App. 1991) (citation omitted).

    Bump, for example, involved a boundary dispute. The defendant purchased part of an adjoining lot and landscaped the property to "physically incorporate" it into his yard. The sale was not recorded and the subsequent purchasers of the adjoining property contended that they owned the entire lot. The court concluded that the subsequent purchasers had constructive notice of the initial purchaser's claim because they could have located the actual boundaries of the property with relative ease and did not do so.

    The court observed that the possession of land is constructive notice of "whatever rights the possessor may have in the land if such possession is visible, open, clear, full, notorious, unequivocal, unambiguous, inconsistent with, or adverse to the title or interest of the vendor." Id. at 298.[20] The key to this inquiry is possession, as an occupant with an adverse interest isn't likely to hide it when asked.

    This concept fueled the result in both Fitzpatrick (which was cited by the bank) and this Court's own Fibison decision, both of which involved a dispute between a bankruptcy trustee and purchasers who acquired their interests pursuant to unrecorded land contracts.

    In each case, the trustee was found to have constructive notice of the land contract interests because the property was held by someone whose interest was inconsistent with record title.[21] A land contract purchaser who has sole possession of the property is clearly the sort of "inconsistent or adverse interest" that could be discovered through a simple inquiry.

    Under Wisconsin law, a bankruptcy trustee would clearly have constructive notice of such an interest. See Wis. Stat. § 706.09(2)(b) (a purchaser has notice apart from the record arising from "use or occupancy of the real estate by any person at the time such purchaser's interest therein arises"); Fitzpatrick, 29 B.R. at 704; Fibison, 2011 WL 6149269, at *4.
For the rights of persons in possession of real estate pursuant to an unrecorded interest, or by reason of some equity, see generally, Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

Wednesday, February 27, 2013

Another Operator Gets Bagged By Feds For Allegedly Using 'Fractional Interest' Deed Transfers Of Financially Distressed Homes To Gum Up Foreclosure, Bankruptcy Process

From the Office of the U.S. Attorney (San Francisco, California):

  • A federal grand jury in San Francisco indicted Walter Bruce Harrell, of Montara, with eight counts of bankruptcy fraud and two counts of making false statements in bankruptcy proceedings, United States Attorney Melinda Haag announced.

    The Indictment alleges that Harrell devised and executed a scheme to defraud creditors who were attempting to lawfully foreclose on numerous properties, and that he did so by delaying and obstructing foreclosure sales through the improper use of the federal bankruptcy process.

    According to the Indictment, Mr. Harrell, 71, is alleged to have arranged for property owners to grant fractional interests of between 2% and 20% of their properties to individuals whom Harrell had paid to file bankruptcy cases in the U.S. Bankruptcy Court for the Northern District of California. These actions invoked the “automatic stay” provision of the U.S. Bankruptcy Code, which halts foreclosure sales until the creditor seeks relief from the stay or until the bankruptcy case is dismissed.

    The Indictment alleges that Harrell’s scheme forced creditors to file motions to lift the automatic stays, or to wait until the debtors’ bankruptcy cases were dismissed, in order to proceed with the foreclosure sales.(1) A number of the creditors affected by the scheme were recipients of funds under the Troubled Asset Relief Program.

    The Indictment identifies at least six properties involved in the scheme, one of which was occupied by Harrell. The Indictment also charges Harrell with making false statements in bankruptcy proceedings with respect to two bankruptcy cases that Harrell paid an individual identified as “T.W.” to file.
For the U.S. Attorney press release, see Montara Man Charged With Running Bankruptcy Fraud Scheme.

Go here for other posts on fractional interest deed transfer, foreclosure rescue bankruptcy scams.

(1) See Final Report Of The Bankruptcy Foreclosure Scam Task Force for a discussion of fractional interest deed transfer scams and other foreclosure rescue rackets involving the abuse of the bankruptcy courts.

Four Cop Guilty Pleas In DC-Area Property Title-Hijacking Conspiracy; Targeted Neglected, Tax-Delinquent R/E & Used Forged Docs, Straw Buyers In Attempt To Score $1M+ In Loot From Unwitting Owners, Heirs

From the Office of the U.S. Attorney (Alexandria, Virginia):

  • Four individuals – including two settlement agents in Annandale, Va. – have pleaded guilty to conspiring to fraudulently taking over the titles of homes in Washington, D.C., without the real property owners’ knowledge, selling those homes, and keeping the profit.
  • According to court records, Jamaul Roberts, 25, College Park, Md., conspired with others to visit the D.C. tax courts to identify properties with overdue property tax bills.

    They would use sources such as and the D.C. property tax database to locate vulnerable properties where they could take over the home’s title without the real owners’ knowledge. These homes included those left vacant, passed on to heirs after the owner’s death, or owned by the elderly in nursing homes who did not understand the transactions taking place.

    The fraudulent sales were facilitated by two settlement agents, Patricia Mantilla, 35, of Lorton, Va., and Melissa McWilliams, 35, Chantilly, Va., who worked at Ace Title & Escrow in Annandale. The agents knew the home sales were fraudulent and that the owners appearing at settlement were not the rightful owners. They also assisted the conspirators in hiding profits on the property sales from other parties involved in the sale through fictitious invoices to be paid at closing.

    The conspirators, including Michael Brown, 41, Hyattsville, Md., recruited straw sellers to sign documents and falsely represent themselves as the owners of the properties. Brown, for example, appointed himself the personal representative of the rightful owner of a property and prepared a fake death certificate for the owner, although the owner was still living. He attempted to sell the property to another member of the conspiracy for $350,000.

    During the course of the scheme, numerous properties were fraudulently sold, resulting in more than $1 million in actual and intended losses.

HOA Opts To Do Battle With Government Over Disabled Resident's Claim That Her Three-Wheeled Hand-Controlled Motorcycle Constitutes A "Reasonable Accomodation" Under Federal Fair Housing Act

In Hollywood, Florida, the South Florida South Sentinel reports:

  • Had things gone her way, Larraine Best's trike would be parked at her condo right now and she'd be living the relaxed life of a beachfront snowbird.

    Instead she's become embroiled in a federal case over a parking space.

    Best's fight isn't just another squabble between a retiree and her condo board. This one's being handled by Broward County's attorneys, paid for with public funds.

    Broward County civil rights investigators believe the disabled woman's rights were violated by Summit Towers in Hollywood, where management refused to let her park her three-wheeled, hand-controlled motorcycle – what she calls her "trike'' -- in her condo parking space. The condo doesn't allow motorcycles in its garage.
  • Summit Tower's attorneys, Rachel K. Beige and Ryan Fogg, who couldn't be reached for comment, said in communications to Broward County's human rights officials that Best is just using the disability claim as "an afterthought … to obtain her desire at any cost.''

    They said Best hasn't provided medical records to prove she's disabled or that she needs the motorcycle because of a disability. Her request to park the trike, they said, was "neither reasonable, nor necessary.''
  • County officials, handling the case on behalf of the U.S. Department of Housing and Urban Development, which provides most of the funding, said the federal Fair Housing Act gives Best the right to a "reasonable accommodation'' to the condo rules to allow her an "equal opportunity to use and enjoy'' her home.

    In a letter to Broward Equal Opportunity Officer Fay Outten, Summit's attorneys Beige and Fogg wrote in February 2012 that an investigative finding in favor of Best "would be nothing less than a clear abuse of the system and a mockery to the disabled individuals across this state who actual [sic] do suffer from discriminatory acts.''

    As a settlement offer, they said she could park her motorcyle at the condo "so long as she does not also park her vehicle on property.''

    The county rejected that and will file suit. County commissioners approved the litigation Tuesday.
For the story, see County sues to defend disabled woman's parking rights at Hollywood condo (Condo board sees no reason to exempt her from its ban on motorcycles).

Tuesday, February 26, 2013

LPS Shareholder Hits Directors With Suit Alleging Their Failure To Hold Management Responsible For Robosigning Scandal Left Outfit On The Hook For Hefty Legal Expenses

In Wilmington, Delaware, Law 360 reports:

  • Lender Processing Services Inc. directors were hit with a shareholder derivative suit [] alleging their failure to go after higher-ups responsible for the “robosigning” of foreclosure documents and other faulty practices left the mortgage servicer on the hook for hefty legal expenses.
For more, see Mortgage Co. Execs Sued Over Robosigning Defense Fees (requires subscription).

NYC Feds Get Green Light On Civil Suit Tagging Wells With False Claims Act Violations In Connection With Peddling FHA-Insured Loans; Judge: Multistate Foreclosure Fraud Settlement Doesn't Immunize Bankster From Liability

American Banker reports:

  • A federal judge has ruled that the multistate mortgage settlement does not bar a lawsuit by the government against Wells Fargo over its lending practices before and after the financial crisis.

    The suit, filed in New York in October by the U.S. Attorney's office in Manhattan, may proceed, Judge Rosemary Collyer of the U.S. District Court in Washington ruled on Tuesday. The Justice Department charges the nation's fourth-biggest bank by assets with wrongdoing in connection with loans insured by the Federal Housing Administration over roughly a decade beginning in May 2001.

    Wells Fargo contended that a $25 billion pact the judge approved in April among Wells Fargo, Bank of America (BAC), Citigroup (NYSE:C), JPMorgan Chase (JPM), Ally Financial, the Justice Department and 49 states bars the lawsuit.

    As part of the settlement, Wells Fargo agreed to pay $5 billion and to take varied steps to help borrowers at risk of foreclosure in exchange for the government's releasing the company from certain liability.

    The settlement "wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its FHA mortgage loan portfolio, among other areas," Wells' lawyers wrote in court papers filed with Collyer, who approved the settlement.

    According to Wells Fargo, the settlement barred the government from bringing additional cases against the bank based on the FHA program unless the government could show that an individual Wells underwriter certified falsely that a specific loan met FHA eligibility requirements,

    The company contended that the Justice Department's charges related to allegedly false certifications by the company and not to individual certifications.

    Collyer disagreed, interpreting the settlement as authorizing the government to sue Wells Fargo based on allegedly illegal conduct, including violations of FHA requirements, so long as the charges are not based solely on false annual certifications. "The plain language of the release governs and it does not have the meaning ascribed to it by Wells Fargo." Collyer wrote.
For the story, see Wells Fargo Suit Can Proceed Despite Mortgage Settlement.

See also Los Angeles Times: Government wins round in suit accusing Wells Fargo of FHA abuse:
  • The False Claims Act lawsuit, seeking "hundreds of millions of dollars," is one in a series of government attempts to recover losses related to the mortgage meltdown.

Litigation Over Foreign Company's Common Carrier Status, Eminent Domain Rights Back In Front Of State Appeals Court As Texas Landowners Continue Battle To Keep Pipeline Outfit From Snatching Their Property On The Cheap

In Beaumont, Texas, The Southeast Texas Record reports:

  • In a few weeks, an appeals court will hear arguments on whether a Beaumont judge erred by granting a foreign company’s petition to condemn land for the construction of a crude oil pipeline.

    In June 2011, TransCanada Keystone Pipeline filed the petition for condemnation against Texas Rice Land Partners, James and David Holland and Mike and Walter Latta. TransCanada filed the petition seeking to build a pipeline to carry crude from Alberta to the Gulf Coast.

    On Sept. 24 Judge Tom Rugg, who was presiding over the Jefferson County Court at Law No. 1 at that time, ruled that the company has the right to seize land in Jefferson County for the pipeline.

    A month later, Texas Rice Land Partners filed a petition for a writ of mandamus, court records show. Justices seated on the Texas Ninth District Court of Appeals in Beaumont will hear oral arguments on March 7.

    In its appeal, Texas Rice Land Partners argues that the “trial court abused its discretion by refusing to require TransCanada to establish its authority as a common carrier before granting TransCanada possession of Texas rice property.”

    “TransCanada does not have the power of eminent domain because it is not a common carrier and the pipeline is not a common carrier pipeline.”

    Conversely, TransCanada argues in court papers that the pipeline is a common carrier pipeline available for public use and that the foreign company is a common carrier.

    During a Sept. 12 hearing, Terry Wood, the attorney for the rice farmers, attempted to link the TransCanda case to a ruling made by the Texas Supreme Court in August 2011 denying Denbury Green common carrier status in a pipeline project of its own.

    However, the Denbury pipeline would have carried CO2, not crude oil.

Monday, February 25, 2013

6th Circuit: "[County] Clerks Have No Private Right Of Action" To Tag MERS In Suit Alleging Recording Fee Dodge, Failure To Record Mortgage Assignments; Says Property Owners, State AG May Make For More Appropriate Plaintiffs

In Louisville, Kentucky, The Associated Press reports:

  • A federal appeals court has rejected a lawsuit brought by two Kentucky county clerks alleging that a private company took part in a scheme to avoid paying mortgage registration fees.

    The U.S. 6th Circuit Court of Appeals on Tuesday upheld a decision to dismiss the suit brought by the clerks in Christian and Washington counties against MERSCORP Holdings Inc. and Mortgage Electronic Registration Systems Inc.

    The county clerks accused MERSCORP and others of not recording mortgage assignments with county clerks when mortgages were sold or transferred from one bank to another.

    Judge Helene White wrote that Kentucky law doesn't give the clerks legal grounds on which to sue the company.(1)

    The ruling lets stand a decision by U.S. District Judge Joseph McKinley in 2012.(2)
Source: Federal appeals court rejects lawsuit against mortgage company.

For the ruling, see Christian Cnty. Clerk v. Mortgage Elec. Registration Sys., Inc., No. 12-5237 (6th Cir. February 15, 2013).

(1) The court stated:
  • "The district court held that the Clerks have no private right of action against Defendants for their alleged violation of Ky. Rev. Stat. Ann. § 382.360(3), which requires that mortgage assignments be filed for recording with the county clerk’s office. We AFFIRM."
It may be that the Plaintiff county clerks in this case were simply the wrong parties to bring this lawsuit, and that the individual homeowners, and/or the State of Kentucky itself, through the state attorney general's office, may have been the proper parties to pursue this matter, as one might surmise by this observation buried deeper in the three-judge panel's opinion:
  • "Last, the Clerks surmise that property owners have no cause of action under the Kentucky statutes to enforce 382.360(3)’s requirement that mortgage assignments be recorded, and argue that the legislature could not have intended that the statutes could be violated with impunity.

    However, even if no express cause of action is provided under that provision, section 382.365(3) grants property owners a cause of action against lienholders who fail to record lien assignments in accordance with section 382.360.

    And nothing in our opinion forecloses property owners from bringing suit based on alleged statutory violations. Moreover, the Kentucky attorney general presumably has “the power to act to enforce the state’s statutes.” Kentucky ex rel. Conway v. Thompson, 300 S.W.3d 152, 173 (Ky. 2009) (citation omitted)"

Foreclosing Lender Left Holding The Bag, Unwittingly Screwing Itself By Forfeiting All Rights To Additional Loan Collateral When Credit-Bidding Full Amount Of Judgment In Forced Sale Of One Parcel

From a client alert from the law firm Barnes & Thornburg:

  • The Sixth Circuit Court of Appeals recently affirmed the decisions of the courts below and held in an unpublished opinion that a secured lender's credit bid at a Michigan foreclosure sale extinguished all of the Chapter 13 debtor's indebtedness to the lender, thereby precluding the lender from executing on a prepetition foreclosure judgment obtained against the debtor in Wisconsin. State Bank of Florence v. Miller (In re Miller), 2013 WL 425342 (6th Cir. Feb. 5, 2013).(1)

    The decision in Miller reminds lenders that foreclosure sales and credit bids in connection therewith require careful planning, especially where multiple parcels of property are at issue.(2)
For more details, see Lender’s Credit Bid Of Entire Debt At Foreclosure Sale Results In Forfeiture Of Rights To Additional Collateral.

(1) Initially, the United States Bankruptcy Court for the Western District of Michigan determined that the lender's credit bid for the total amount of the debt satisfied the entire debt. In re Miller, 442 B.R. 621, 628-37 (Bankr. W.D. Mich. 2011). The bankruptcy court lifted the automatic stay only to allow the lender to, among other things, dismiss the Wisconsin action with prejudice and turnover the Wisconsin property to the debtor free and clear of any mortgages and claims.

The lender appealed to the Sixth Circuit Bankruptcy Appellate Panel, but the BAP found that the bankruptcy court below got it right. State Bank of Florence v. Miller (In re Miller), 459 B.R. 657 (B.A.P. 6th Cir. 2011).

(2) The appeals court stated:
  • The rule is clear in both jurisdictions that a purchaser who overbids at a sheriff's sale based on a unilateral mistake must accept the consequences of that decision, unless the purchaser can show fraud or other improper inducement in the making the bid. Miller was not involved in the Michigan foreclosure by advertisement, and the Bank has not alleged that Miller or anyone else defrauded the Bank or induced it to overbid the price for the Michigan parcels.
The appeals court also pointed out that, under Wisconsin law, a distinction is to be made between a purchase overbid and a purchase underbid:
  • Where a purchaser underbids the price so as to shock the conscience of the courtthe trial court may set aside the completed execution sale in order to protect the debtor, "who has little or no control over the amount bid, and to insure that the property being sold is not given away or sold to the prejudice of the debtor." Id. at 702.

    But "the test used for an underbid is inapplicable to an overbid." Id. at 703. Where the purchaser bids too much for the property, he acts at his own peril and will be held to the amount of his bid."

5th Circuit: Liens That Are Constitutionally Defective Under Texas Homestead Law Are Merely Voidable, Not Void Ab Initio; Kiboshes Homeowners' Effort To Invaildate Mortgage Brought After Expiration Of 4-Year Statute Of Limitations

From US Law:

  • Plaintiffs sued for a declaratory judgment that the lien on their homestead was void and that the mortgage holder was required to forfeit all principal and interest. Plaintiffs also sought damages for defamation.

    The court concluded that plaintiffs' claims were time-barred under Tex. Const. Art. XVI 50(a)(6);(1) because there was no evidence or allegation of defendants' attempting to conceal information, and because the facts that gave rise to any claims were obvious and not hidden, the doctrine of fraudulent concealment did not apply in this instance to estop the lenders' assertion of the limitations defense; because the loan was valid, and plaintiffs were delinquent, the statements at issue were true and no defamation occurred; the court rejected plaintiffs' claim that the statute of limitations barred only remedies; and the district court did not abuse its discretion in striking the amended complaints. Accordingly, the court affirmed the judgment.
Source: Opinion Summary: Priester, Jr., et al v. JP Morgan Chase Bank, N.A., et al.

For the court ruling, see Priester v. JP Morgan Chase Bank, N.A., No. 12-40032 (5th Cir. February 13, 2013).

(1) In addressing whether the a statute of limitations is generally applicable to claims of invalid liens on homestead property in Texas, the court stated:
  • We first address whether a limitations period applies to the Priesters' claims. Although the state constitution does not include a limitations period related to claims under Section 50(a)(6), "[e]very action for which there is no express limitations period, except an action for the recovery of real property, must be brought not later than four years after the day the cause of action accrues." TEX. CIV. PRAC. & REM. CODE § 16.051.

    The Texas Supreme Court has not addressed whether that residual limitations period applies to defects in homestead liens, but the two Texas courts of appeals that have addressed the issue have found that the residual statute applies.

    Addressing a Section 50(a)(6) defect, the court in Rivera v. Countrywide Home Loans, Inc., 262 S.W.3d 834, 839 (Tex. App.-Dallas 2008, no pet.), concluded that the "four-year statute of limitations applies to the constitutional and fraudulent lien causes of action" embodied in the Texas Constitution.

    The court in Schanzle v. JPMC Specialty Mortg. LLC, No. 03-09-00639-CV, 2011 WL 832170, at *4 (Tex. App.-Austin Mar. 11, 2011, no writ), adopted that position as well, noting that the "four-year statute of limitations has been applied to violations of the constitutional requirements for home equity loans, calculated from the date of closing on the loan."

1st Circuit: Borrower Has Standing To Challenge Mortgage Assignments When Invalid, Ineffective, Or Void; Transfers That Are Merely Voidable Are Immune From Protest

The National Law Journal reports:

  • In a case of first impression, the U.S. Court of Appeals for the First Circuit has ruled that a borrower has standing to challenge an assignment of her mortgage to a foreclosing bank. But the court found that the foreclosure itself was legal.

    A unanimous panel made the rulings on February 15, concluding that Aurora Loan Services' foreclosure on Oratai Culhane's property was legal. The court held that the framework of the Mortgage Electronic Registration Systems Inc. (MERS) "is faithful to the age-old tenets of mortgage law in Massachusetts."

    As part of a $548,000 mortgage refinancing Culhane undertook in April 2006, she signed a document making MERS mortgagee of record. MERS held legal title to the mortgaged property and could sell the mortgage as a so-called "nominee" for the lender.

    According to the opinion, "In an assignment dated April 7, 2009, MERS transferred the mortgage to Aurora."Aurora was thus the mortgagee of record when Culhane fell behind on her mortgage payments.

    Culhane first filed a temporary restraining order in Norfolk County Superior Court in Massachusetts in June 2011 to stop a foreclosure sale of the property, and Aurora quickly removed the case to federal court.

    In November 2011, Judge William Young of the District of Massachusetts issued a summary judgment ruling in favor of Aurora. He ruled that "equity requires that the holder of bare legal title to a mortgage have the capacity to assign it to the note holder or the note holder's loan servicer, so that a valid foreclosure may be effectuated. This analysis does not change because the mortgagee is MERS." Culhane appealed.

    Senior Judge Bruce Selya wrote the opinion in Culhane v. Aurora Loan Services, joined by Chief Judge Sandra Lynch and retired U.S. Supreme Court Justice David Souter, who heard the case by designation.

    Selya wrote that people with a Massachusetts mortgage have standing to challenge an assignment of the mortgage in comparable circumstances: "There is no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred upon them under state law. We hold, therefore, that a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity's status qua mortgagee."(1)

    But having found that Culhane had standing, Selya wrote, "there is no reason to doubt the legitimacy of the common arrangement whereby MERS holds bare legal title as mortgagee of record and the note holder alone enjoys the beneficial interest in the loan." He noted that "MERS was formed by a consortium of residential mortgage lenders and investors desiring to streamline the process of transferring ownership of mortgage loans in order to facilitate securitization."

    He added that the MERS framework "corresponds with longstanding common-law principles regarding mortgages."

    Culhane's lawyer, George Babcock of the Law Office of George E. Babcock in Pawtucket, R.I., said that the First Circuit's conclusion that a mortgagor has standing to challenge assignments is a "gigantic step that gives plaintiffs' attorneys something to sink their teeth into." "Anyone who takes a case like his has the opportunity to challenge assignments," he said.

    The problem with the Culhane case, he said, is that MERS was able to put certain documents into evidence at the trial level without objection.

    Rockwell Ludden of Ludden Kramer Law in Yarmouth Port, Mass. also represented Culhane.
For the story, see First Circuit: Borrower has standing to challenge mortgage assignment but still loses (requires free registration).

For the ruling, see Culhane v. Aurora Loan Services of Nebraska, No. 12-1285 (1st Cir. February 15, 2013).

(1) However, the three-judge panel continued by adding the following caveat:
  • We caution that our holding, narrow to begin with, is further circumscribed. We hold only that a mortgagor has standing to challenge a mortgage assignment as invalid, ineffective, or void (if, say, the assignor had nothing to assign or had no authority to make an assignment to a particular assignee).

    If successful, a challenge of this sort would be sufficient to refute an assignee's status qua mortgagee. See 6A C.J.S. Assignments § 132. Withal, a mortgagor does not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title. See, e.g., Serv. Mortg. Corp. v. Welson, 200 N.E. 278, 280 (Mass. 1936); Murphy v. Barnard, 38 N.E. 29, 31 (Mass. 1894); see also 6A C.J.S. Assignments § 132.
    In this case, the plaintiff's challenge to the assignment from MERS to Aurora is premised on the notion that MERS  never properly held the mortgage and, thus, had no interest to assign. If this were so, the assignment would be void (not merely voidable). Consequently, the plaintiff has standing to challenge the validity of the assignment.
It then further added, in footnote 5 of the opinion, the following tidbit in connection with a February 12, 2013 ruling in a separate case:
  • We are confident that this holding is consistent with our recent decision in Juárez v. Select Portfolio Servicing, Inc., ___ F.3d ___, ___ (1st Cir. 2013) [No. 11-2431, slip op. at 14-15]. In all events, the standing determination in Juárez rested on the peculiar facts of that case.
In related posts, see;

Sunday, February 24, 2013

2nd Mortgage Loophole Allows Banksters To Satisfy Billion$ In Monetary Obligations Under Foreclosure Fraud Settlement With Worthless, Crappy Paper

Elizabeth M. Lynch, a lawyer at MFY Legal Services (a New York City organization that provides free civil legal aid) writes in The New York Times on one big loophole the banksters scored for themselves when picking the ostensibly asleep Feds' bones clean during the foreclosure fraud settlement negotiations, and that she describes as a "backdoor mechanism to continue foreclosures at the same pace as before":

  • The problem involves second mortgages, which millions of homeowners took out during the housing bubble. It’s estimated that as much as a quarter of all mortgage debt in the United States is in the form of second mortgages. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an “80/20 mortgage,” in which 80 percent of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage, often with a much higher interest rate.

    The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.

    It’s a real problem: when it comes to keeping your home, it’s the first mortgage that counts.

    Take Tiberio Toro, a Queens resident who took out an 80/20 mortgage in 2006 when he purchased his home, and who now owes far more to the bank than his house is currently worth. Recently, Wells Fargo told him that it completely forgave his second loan. But at the same time, it declined to modify his first mortgage — an adjustment Mr. Toro needs to get his monthly payment to a level he can afford.

    Why would a bank forgive a second mortgage completely but move forward with foreclosure on the first mortgage?

    Surprisingly, such a tactic often makes sense for banks. When a lender forecloses on a first mortgage, the house in question is typically sold at auction. If the house is worth less than the loan amount, the bank gets only part of its money back. But after the sale, of course, there’s no asset left to pay off any of the second loan. The holder of that second loan — which has lower priority than the holder of the first — gets nothing.

    So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.

    The five banks covered under last year’s settlement are wiping out second mortgages in record numbers. In New York State, for example, during the first six months of the settlement period, three times as many homeowners received second-mortgage forgiveness (2,933) as received permanent modifications on first mortgages (967).

    In New York State, 36.2 percent of the banks’ credits under the settlement have been related to second loans, compared with only 18.2 percent for first mortgages.

    In 2011, the five banks that are subject to last year’s settlement sent 230,678 pre-foreclosure notices to New York State homeowners, according to data I obtained from the Finance Department through the Freedom of Information Law.

NJ Sale Leaseback Peddler Cops Guilty Plea In Racket That Used Straw Buyer Scam To Screw Financially Strapped Homeowners In Equity Stripping Ripoff

From the Office of the U.S. Attorney (Newark, New Jersey):

  • An Ocean County man [] admitted his role in a mortgage loan fraud scheme that succeeded in obtaining $4.4 million in mortgage loans while masquerading as a foreclosure rescue operation based in Holmdel, N.J., U.S. Attorney Paul J. Fishman announced.

    Vito C. Grippo, 58, of Jackson, N.J., the president of Morgan Financial Equity Shares and Vanick Holdings, LLC, pleaded guilty [] to an Indictment charging him with one count of conspiracy to commit wire fraud, two counts of filing a false tax return for the years 2006 and 2007, and one count of aiding and procuring the filing of a false tax return for the year 2008.

    According to documents filed in this case and statements made in court:

    Between January 2008 and February 2010, Vito Grippo held Morgan Financial out to the public as a company that could help homeowners who faced foreclosure on their homes through something Grippo called the “Equity Share Program.” As described by Grippo and his associates, the Equity Share Program involved creating a limited liability company (“LLC”) in the name of the homeowner’s house, in which the homeowner would supposedly own a 90 percent interest with the rest to be owned by one or two private investors.

    In reality, the so-called investors invested nothing and were instead straw buyers recruited by Vito Grippo or his son, Frederick “Freddie” Grippo, because they had good credit. The Grippos and their associates then applied for mortgages in the names of the “investors” for the purchase of the properties owned by the homeowners in distress. Freddie Grippo pleaded guilty to conspiracy to commit wire fraud before Judge McNulty on Nov. 28, 2013.

    A homeowner in distress would come to a closing in Vito Grippo’s office in Holmdel and be given a stack of documents to sign to prevent foreclosure. The homeowners frequently did not understand that they would be transferring title to their homes to the “investor.”

    The so-called investor was in reality a straw buyer of the homeowner’s house. The new mortgage loan applications filled out by the Grippos or their associates in the name of one of the investors contained materially false information about the loan applicant’s monthly income, his assets and whether the residence to be bought would be applicant’s primary residence.

    Once the new loan application was filled out, it would be submitted to Worldwide Financial Resources for processing where Freddie Grippo, a loan officer at Worldwide, would see to it that the loan was approved. Once the loan was approved and the loan money was wired to the settlement agent for a given transaction, Vito Grippo would direct the settlement agent to forward a portion of those loan proceeds to bank accounts that Vito Grippo controlled.(1)

    Properties that lost money through the Equity Share Program were found throughout the metropolitan area, including homes in Rutherford, N.J., Monroe, N.J. and Brooklyn, N.Y.
For the U.S. Attorney press release, see President Of Bogus Foreclosure Rescue Company Involved In Mortgage Fraud Pleads Guilty.

(1) For more on this type of foreclosure rescue ripoff, see:

Coral Gables Cops Waste No Time In Squatter Trespassing Probe; Conclude That Document Purportedly Giving Occupants Right Of Possession Was Forged, Promptly Give Them The Boot From $1M Home

In Coral Gables, Florida, The Miami Herald reports:

  • Damian Echauri finally got the keys to his million-dollar Coral Gables house Wednesday after police ordered a family of squatters to leave.

    Inside the five-bedroom home at 601 Sunset Dr., he found sinks missing, mattresses and box springs stacked on the floors and a poster of Scarface’s Tony Montana hanging in the dining room.

    “They thought they knew how to play the system,” Echauri said as detectives and uniformed officers walked in and out and motorists along the leafy street lined with luxury homes slowed to gawk. “But they’re trespassing.”

    Police cited Robert Ramos, 33, his wife Ana Alvarez, 52, and her son Jonathan, 27, for trespassing Wednesday after finding they had no valid lease to be in the home.

    After installing new locks, Echauri agreed to give the family until midnight to load up three U-Haul trucks, and tow away a broken down Range Rover that had been sitting in the driveway for months.

    The sprawling house sitting on a walled, 31,000-square-foot lot came under scrutiny earlier this month when city commissioners asked staffers to look into beefing up the city’s code on abandoned property.

    City officials had suspected since September that the family was squatting in the house around the corner from CocoPlum, but its ownership was complicated by a sketchy history that included a foreclosure suit and a mysterious deed that Echauri said was forged.

    Echauri and his wife bought the house in 1997, when it was first in foreclosure and fixed it up by installing new appliances, marble floors and a home theater system. When they divorced in 2008, Echauri said he gave his wife the majority of the house as part of a settlement. She was supposed to sell it so they could divide the proceeds, but when she couldn’t, she stopped paying the mortgage. J.P. Morgan Chase initiated foreclosure proceedings.

    In November, Echauri’s son spotted an ad on Craigslist advertising a room in the house for rent. Echauri confronted the family, but police were unable to determine the rightful owner and advised him to seek eviction.

    When city officials asked for proof that they were legally in the house, they turned over what officials said was a forged lease. Police opened an investigation and asked the tenants to come in with other proof, they refused.

    “Even after being told, you’re here illegally, they refused to leave,” said police spokesman Dean Wellingoff. “It’s a complex issue any time you deal with foreclosure.” On Wednesday, when police arrived, they found a young child living in the house, as well as a new tenant.

    Echauri, his parents and his son stood by Wednesday, along with police, waiting for the family to pack up several U-Haul trucks and leave. The family’s American Bulldog, secured in a crate, could be heard barking inside.

    At one point, two people could be heard arguing in Spanish. A woman yelled “I can't do it all alone, don’t you understand!”

    How the family managed to move into the home remains unanswered. On Wednesday, Echauri said he found that a back glass door had been replaced. He also discovered that the locks had been replaced.

    Echauri said three central air-conditioning units had been stolen and replaced with window units. And except for a dishwasher, the high-end appliances he installed had been removed and cheaper ones put in their place.

    “I don’t know if they’re victims or not, but I want to give them the benefit of the doubt,” said Echauri, who plans to stay in house overnight Wednesday. He said he will be moving back temporarily. Asked whether he would try to rescue it from foreclosure, he answered, “That’s going to be chapter three. We’re still working on chapter two.”