Saturday, June 8, 2013

Some East-End Long Island Residents Temporarily Ditch Million Dollar Homes & Join Parade To Local Trailer Parks While Pocketing Ten$ Of Thousand$ On Sizzling Short-Stay Summer Rentals

From way out on the east end of Long Island, the New York Post reports:

  • Hamptons residents are trading in their luxury million-dollar homes for the summer — to live in a trailer park.

    The savvy folks are squeezing into digs the size of a tiny Manhattan studio so they can lease out their sought-after houses and rake in thousands of dollars during the sizzling summer rental season.

    “We call it ‘glamping,’ or glamour-camping,” said real-estate agent Danielle Becker-Wilson, 36, who jumped on the bandwagon and is temporarily ditching her million-dollar pad for a trailer at “Montauk Shores Condominiums” — also known as the Ditch Plains Trailer Park — in Montauk.

    Becker-Wilson is now living with her husband, George, 36, daughter Lila, 7, and son Liam, 4, in a 400-square-foot trailer in the park, where Mercedes and Audis can be seen coming and going daily. It’s a far cry from the family’s quaint digs on a lush property in the village of East Hampton.

    But the deal was just too good to pass up: In just two months, July and August, she and her husband will have collected $50,000 in rent. And they can use their $60,000 trailer year after year.

    “It was an affordable investment for us to make so that we can make our house in the village of East Hampton work for us,” Becker-Wilson said.

    Daniel Shapiro Real-estate agent Danielle Becker-Wilson, husband George Wilson, and their kids, Lila and Liam, go “glamour camping” in their temporary home.

    She said the couple plans to use the cash to add a pool to their primary residence — which also will allow them to jack up the rate on the rental next summer.

    “For us, it was just the cheapest way to have somewhere to go while we rent our house,” Becker-Wilson said of the trailer, where she put in bunk beds for the kids and a pull-out couch for her and her husband. “You have to be really strategic with the space,” she added.

    The family leases the land for their trailer for $1,400 per month, or $16,800 a year.

    Becker-Wilson, who works for Halstead, currently has a double-wide trailer on the market for $700,000.

    The 200-unit trailer park boasts two swimming pools and a playground and has attracted scores of other families who are renting out their homes for the summer.

    “Everyone's doing it. Montauk is hot,” said a retired city fireman who also lives there and asked to remain anonymous. He said he’s renting out his 3,500-square-foot, million-dollar home in Montauk to help put his kids through college.

    His primary home — a brick mansion with five bedrooms, two living rooms, pool and hot tub — rents for nearly $60,000 for July and August.

    Two East Hampton teachers also have been renting out their home — a $1.2 million gem on more than an acre — for more than $30,000 for two months. The pair didn’t want their name used, but their 23-year-old son, who lives with them in the trailer, called the trailer park “beautiful.’’

Ex-Michigan High Court Justice Gets 366 Days For Illegal Short Sale Shuffle Intended To Wipe Out $600K In Mortgage Debt On Underwater Home While Leaving Lien-Free Florida Residence Untouched

In Ann Arbor, Michigan, USA Today reports:

  • Former Michigan Supreme Court Judge Diane Hathaway was sentenced to 12 months and one day behind bars Tuesday for bank fraud.

    Hathaway, who pleaded guilty in January to misleading her bank during a short sale of her Grosse Pointe, Mich., home, also is to pay $90,000 in restitution and will spend two years on probation. It is unclear where she will serve her sentence.
  • Hathaway, who also held a real estate license, retired Jan. 21 amid the scandal involving the sale of her home.

    Hathaway was charged with and pleaded guilty in January to one count of bank fraud after investigators said she moved ownership of property in Florida to relatives so she could qualify for the short sale. Short sales are when a bank allows a sale for a home for less than is owed by the mortgage holder, typically when property values fall.

    Hathaway's short sale in Michigan erased nearly $600,000 in mortgage debt on the $1.5 million Grosse Pointe Park home on Lakeview Court, which eventually sold for $850,000. The debt-free Windermere, Fla., home then went back into Hathaway's name.

Jury Convicts Once High-Flying, Now Financially Strapped Real Estate Operator Of Bumping Off Wife; Messy Finances, Potential $30M Life Insurance Policy 'Cash-In' Seen As Murder Motive; Hubby's Estranged Kids Applaud Verdict As Justice For Mom

In Redwood City, California, the Contra Costa Times reports:

  • A Peninsula real estate mogul was found guilty Thursday of murdering his wife in their mansion to collect a $30 million insurance policy as creditors closed in on his crumbling empire.

    Pooroushasb "Peter" Parineh, 67, didn't react as the clerk in the San Mateo County Superior courtroom of Judge Lisa Novak read aloud the verdict, which leaves him facing a mandatory sentence of life without the possibility of parole. The hefty penalty stems from the jurors finding that he fired the shot that killed his wife, Parima Parineh, in their Woodside home on April 13, 2010, for money.

    At trial, defense attorney Dek Ketchum argued Parima Parineh, depressed and distraught over the family's eroding fortune, killed herself to unlock the whopping insurance payment for the couple's three adult children. The policy, he noted, would pay out only to the Parineh siblings, who had a poor relationship with their father.

    The Parinehs' three children were frequently seen in the courtroom, and on Thursday, Austiag Hormoz Parineh, 33, of Irvine, cried with relief and hugged jurors after the verdict. "I'm just glad justice is done for my mother," he said, of the 56-year-old painter and homemaker.
  • Parima Parineh suffered three gunshot wounds -- two to her head -- the day of her murder. Deputy district attorney Jeff Finigan argued the position of her body, the numbers of shots, and the way her blood splattered made it clear the scene had been staged. Though the husband made a hysterical 911 call claiming his wife had killed herself, San Mateo County sheriff's detectives immediately suspected murder.

    Their theory found a motive in Peter Parineh's messy finances. Though his holdings had been worth up to $70 million in 2006, some bad investments, the real estate crash and a legal judgment left him facing ruin. Multiple properties were in foreclosure, including the family's Fox Hill Road mansion, and the funding for Parima Parineh's life insurance policy was about to collapse.(1)

    Jurors said Parineh's need for money certainly provided motive but was less decisive than the physical proof. "There really was no other possible explanation for why things looked the way they did," said Sood, the juror, fighting back tears.

    If jurors had rejected the prosecution theory that Parineh killed his wife for money, he would still have faced 50 to life in prison because he used a gun, said District Attorney Steve Wagstaffe. Novak, the judge, could overturn the jurors' decision on the money motive, but Wagstaffe saw it as a near impossibility. Parineh is due back July 12 at 1:30 p.m. for sentencing.

    "Justice was done today in San Mateo County," said Wagstaffe. "(Parineh's) defense wasn't just 'I didn't do it' -- it was 'she did it.' That's as vile as you can get." Parineh was being held at San Mateo County jail without bail.
For the story, see Peninsula real estate mogul guilty of killing wife for $30 million insurance payout.

(1) In Estate of Kramme v. Kramme (1978) 20 Cal.3d 567 [143 Cal. Rptr. 542, 573 P.2d 1369], the California Supreme Court made the following observation (in footnote 11) on allowing one who causes the death of another to benefit from such death, outside the context of inheritances/probate proceedings:
  • [I]t should be noted that the courts of this state have used sections 2224 and 3517 outside the probate context only to prevent a person who intentionally killed from benefiting from that unlawful act.

    For example, persons convicted of murder were denied proceeds of life insurance policies on their victims in Beck v. West Coast Life Ins. Co. (1952) 38 Cal.2d 643 [241 P.2d 544, 26 A.L.R.2d 979] and West Coast L. Ins. Co. v. Crawford (1943) 58 Cal. App.2d 771 [138 P.2d 384], and a man convicted of voluntary manslaughter in the death of his wife was not permitted to succeed by right of survivorship to property the couple held in joint tenancy in Abbey v. Lord (1959) 168 Cal. App.2d 499 [336 P.2d 226].

    On the other hand, in Throop v. Western Indemnity Co. (1920) 49 Cal. App. 322 [193 P. 263], a man who unintentionally caused his wife's death through negligent handling of a firearm was permitted to keep the proceeds of an insurance policy on her life. (But see Prudential Ins. Co. of America v. Harrison (S.D.Cal. 1952) 106 F. Supp. 419.)
Regarding right of one who causes the death of another to benefit from such death, the California Supreme Court pointed out, in footnote 10 that there were cases in at least two other jurisdictions that permitted the 'killer' to benefit from the victim's death if there was no intent to kill the victim.

See Legette v. Smith (1955) 226 S.C. 403 [85 S.E.2d 576], and In re Wolf (1914) 88 Misc. 433 [150 N.Y.S. 738], both involving a jilted hubby who unlawfully, but accidentally, shot and killed his cheating wife when, in fact, he was really trying to blow away his wife's lover:
  • In both cases, the husband, while attempting to shoot his wife's lover, unintentionally shot her as she intervened. Both courts, applying equitable principles, permitted the husband to succeed to his wife's estateslayer statute

Friday, June 7, 2013

All Eyes Focus On Closing Agent In Building Sale Paperwork Screw-Up; Legal Description On Deed Included Two Add'l Improved Parcels Not Covered In Sales Price; Seller's Broker: “Somebody Definitely Made A Boo-Boo!”

In Tampa, Florida, the Tampa Bay Business Journal reports:

  • Talk about getting more than you paid for.

    A real estate investor recently paid $732,000 for the 21-unit Camelot Apartments near the University of South Florida in Tampa.

    But an alert commercial real estate chief at the Hillsborough County Property Appraiser’s Office noticed the warranty deed included a lot more.

    Our examination of the deed for the Camelot Apartments sale clearly indicates that it included two additional parcels containing two more buildings,” Ken Engel wrote in an email to the Tampa Bay Business Journal.

    He pointed out that folio numbers and legal descriptions for the nearby 12-unit Villas of North Tampa and 8-unit Spanish Villas are also on the deed.

    There is no doubt all three properties have been transferred,” Engel wrote. “If it was not their intention to include the other two properties, they need to have a corrective deed of some sort filed to rectify the error or they are going to get a surprise when someone tries to buy the other two from them.”

    Broker Kevin Kelleher of Franklin Street Real Estate Services, which represented the seller, said the other two properties were not part of the deal and are still for sale.

    Somebody definitely made a boo-boo,” he said.

    American National Title in Largo prepared the deed. A call to the company was not immediately returned Wednesday afternoon. All three properties are from 35 to 45 years old and went through foreclosure in 2010.

    Kelleher said Camelot, 13135 N. 19th St., was the first pre-2000 construction in the USF area to sell for more than $30,000 per unit in at least five years. He said the remaining two properties probably would not fetch as much as Camelot.

    After somebody corrects the deed.

Ex-Homeowner Pinched For Allegedly Forging, Filing Fraudulent Real Estate Documents After Foreclosure Sale In Attempt To Reclaim Home

From the Office of the San Bernardino County, California District Attorney:

  • A Moreno Valley man suspected of committing real estate fraud was arraigned last week on multiple counts of Forgery and Procuring and Offering False or Forged Instrument.

    Stefan Mahaley, 52, is suspected of forging and filing several fraudulent real estate documents at the San Bernardino County Recorder’s Office, which is a felony offense in the State of California.

    “During the course of our investigation, it was discovered that Mr. Mahaley had purchased a home in the City of Fontana, which eventually went into foreclosure and was sold to a new buyer through a public auction,” said Senior Investigator Jaime Samaniego, who is assigned to the case.

    According to Samaniego, after the sale was complete, the defendant allegedly filed fraudulent documents granting the property back to him in an attempt to reclaim the home.

    Following the investigation, the District Attorney’s Office filed eight felony counts against Mahaley and he was arrested without incident May 14 by investigators from the San Bernardino County District Attorney’s Office at his place of employment in Los Angeles.
For the San Bernardino County DA press release, see Moreno Valley Man Arraigned on Real Estate Fraud Charges.

County Sheriff To Adverse Possession-Claiming Squatters Using Bogus Recorded Documents As Low-Cost Housing Vouchers: "If You Need A Place To Live, Don't Worry About It ... I'm Going To Give You A Place To Live At The County Jail!"

In Lakeland, Florida, The Lakeland Ledger reports:

  • If a deal sounds too good to be true, it probably is.

    Those words we have all heard can easily be applied to the idea of adverse possession as a way to quickly obtain a very low-cost house. It is too good to be true, and it can land people in jail if they get carried away with the concept.

    Recent cases of people moving into vacant houses and trying to claim them have focused attention on the law, and its misuse.

    There is, in fact, a Florida law that allows for adverse possession. But it's not designed to help people snatch up other people's houses for a song.

    It can allow people to take possession of property in certain cases if certain criteria is met: Primarily, pay the taxes and claim it for seven years. Filing a document in the county Property Appraiser's Office and moving into someone else's house absolutely is not a way to take it over, authorities say.

    Polk Sheriff Grady Judd said he has advice for anyone seeking housing by a novel, but improper, route: "If you need a place to live, don't worry about it because when you move into one of these houses illegally, I'm going to give you a place to live at the county jail."

    Lawmakers have tried for years to change the law to better suit modern needs. This past session, the Legislature approved changes that should reduce some of the problems with sketchy attempts to take homes.

    Starting July 1, people who try to adversely possess a piece of property must wait until after April 1, when unpaid property taxes become delinquent, before they swoop in and pay what's due on someone else's property. Paying taxes on a parcel for seven years is one of the requirements in a legitimate adverse possession case.

    If someone seeks to own an abandoned piece of property or home that no one else claims -- perhaps one that a relative intended to deed over but didn't because of death -- they can file the proper paperwork stating intent, pay the taxes for seven years and possibly become the owner. If all the criteria is met and the property becomes theirs, they can move in or build on land.

    But that's at the end of a long wait and can be a long shot.
  • Asked for an opinion about the law, Lakeland lawyer J. Kemp Brinson said he doesn't think there is a legal problem.

    "I think the public response to these stories misses an important distinction between adverse possession, a civil court remedy for a title-related problem, and criminal statutes that prohibit trespassing and breaking into places where you don't belong," he said in an email response to questions.

    "They are two different things."

    Those charged were arrested for breaking into the house, not for starting the process of adverse possession, he said. And they were caught in part because they filed papers with the property appraiser indicating that they intended to adversely possess it.

    "If they have deluded themselves, or been deluded by others, into thinking that their acts are perfectly legal ways to go about 'adverse possession' of someone else's property, they are just plain wrong," Brinson said.
  • "You just can't move into someone else's legally owned property," [Polk County Sheriff Grady] Judd says [...]. "That's trespassing, burglary and theft. There is no such thing as a free lunch, and we are going to arrest people who try this scam to steal homes in Polk County."
For the story, see Adverse Possession: Taking Over A Home Can Land You in Jail (Recent cases have focused attention on misuse of law).

Flood Insurance Rate Increase To $28K/Year Threatens To Literally Blow Louisiana Family, Neighbors Out Of The Water!

In Bayou Gauche, Louisiana, WWL-TV Channel 4 reports:

  • Being next to the water is one of the pleasures of life in Louisiana. But alarm is spreading over the potential for massive flood insurance hikes.

    "It's my house," said tearful Bayou Gauche homeowner Lisa Taylor. Robert and Lisa Taylor choked back emotion at the potential huge flood insurance rate increase they face, even though they live in a neighborhood that has never flooded.

    "$28,554 and it can only mean one thing – foreclosure and bankruptcy,” Robert Taylor said. "I don't know what we can do," added Lisa, still crying. "We can't afford $28,000 a year."

    Robert Taylor gave 1,100 keys for homes and businesses that could be affected to Sen. David Vitter (R-La.) to take to Washington as area leaders fight the increases.

    "This is going to affect the real estate market, it is going to affect the banking industry," Jefferson Parish President John Young said. "This is un-American and this is something that we cannot stand for," exclaimed St. John Parish President Natalie Robottom. "People will have to abandon their homes, abandon their jobs," Lafourche Parish President Charlotte Randolph warned. "That is criminal," St. Charles Parish President V.J. St. Pierre said. "Losing is not an option with us. We have to be successful in this goal," noted Terrebonne Parish President Michele Claudet. "If nothing is done, it will be devastating, but I think something is going to be done," New Orleans City Council Member James Gray said.
  • Now Louisiana leaders are reaching out to other states to form a national coalition to fight the flood insurance hikes.

Thursday, June 6, 2013

Nevada AG Charges 8 In Alleged Ripoff That Peddled Worthless "Sovereignty" Paperwork To Purportedly Eliminate Home Loans For 96 Homeowners; 75-Year Old Suspect Wins Race To Prosecutor's Office, Bailing Out On Cohorts, Copping Quick Plea & Agreeing To Cooperate With Investigators

From the Office of the Nevada Attorney General:

  • Nevada Attorney General Catherine Cortez Masto announced the arraignment of three defendants who were recently indicted for their involvement in a mortgage fraud scam targeting the Hispanic community in Southern Nevada.
  • Defendants Yanay Aguirre, 24 of Las Vegas, Maria Lorena Anzu, 39 in custody in the Clark County Detention Center, Jose Benjamin Rodriguez, 39 (whereabouts unknown), Rodolfo Cruz, 75 of Las Vegas, Silvia Patricia De La Cruz, 34 (whereabouts unknown), Franklin David Marquez, 49 in custody in Los Angeles County Jail, Jose Gilberto Navidad, 54 in custody in the Clark County Detention Center, and Roberto Vargas, 51 of Hesperia, California, have each been charged with multiple counts of mortgage lending fraud and theft. In addition defendants Rodriguez and Anzu have been charged with bribing or intimidating a witness to influence testimony.

    Defendant Rodolfo Cruz has already entered a plea to a reduced charge and is cooperating with the investigation.(1)  Aguirre and Navidad made their initial appearances in court today, along with Anzu who was re-arraigned on a new indictment. All defendants plead not guilty, and are presumed innocent until proven guilty in a court of law.

    The group, operated under the business names Majestic Group, LLC, and Nevada Sky Premier, LLC. They falsely promised to eliminate mortgage debts for approximately 96 distressed homeowners who in total as a group paid nearly $1.5 million dollars for help that they never received.

    Instead of legitimately working on behalf of the homeowners, worthless “sovereignty” paperwork was sent to lenders—paperwork that did nothing to affect the mortgage of a single homeowner.

    Distressed homeowners were recruited from seminars to participate in the company’s “new start”, “principle reduction”, or “foreclosure back” programs that promised, in exchange for fees, that Majestic Group or its later named counterpart Nevada Sky, would eliminate the homeowners’ mortgage woes within six to nine months through a process that involved quit-claiming their property over to a trust.

    Victims were told that a secret group of investors would purchase all of the homes owned by the trust at a substantially reduced cost and then restore the victims to ownership in their respective homes. The company failed to tell distressed homeowners that their scheme did not work. Many of the company’s clients lost their houses to foreclosure and were evicted from their houses as a result of the scheme.

    The company even went to far as to file inappropriate bankruptcy documents in the names of some Majestic Group clients to delay foreclosure and eviction, in many cases without the knowledge or consent of the client.

    The AG’s office is seeking the public’s help to locate Jose Benjamin Rodriguez (also known as Ben Rodriguez). Investigators describe the suspect as a 39 year old Hispanic male, 5'6 tall, weighing between 165 pounds with brown hair and hazel eyes.
For the Nevada AG press release, see Attorney General Masto Announces Arraignment of Defendants Indicted for Involvement in a Mortgage Fraud Scam Targeting the Hispanic Community (AG’s Office Seeks Public’s Help in Locating Suspect on the Run).

For the indictment, see State of Nevada v. Rodriguez, et al.

(1) "When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed." United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) (referring to the not-uncommon 'race to the prosecutor's office' that breaks out among participants in an 'about-to-fall-apart' criminal conspiracy).

Fresno Feds Pinch Pair For Allegedly Running Foreclosure Rescue Racket Peddling Forensic Audits; Duo Accused Of Recording Bogus Documents Purportedly Replacing Lenders' Trustees With Their Own Trusts

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

  • An 11-count indictment was unsealed [] charging Juan Curiel, 34, of Visalia, and Santiago Palacios, 44, of Salinas, in a foreclosure rescue scheme, United States Attorney Benjamin B. Wagner announced.
  • The indictment alleges that Curiel and Palacios were the principal operators of “Star Reliable Mortgage,” a business in Bakersfield, Visalia and Salinas, through which they offered prospective clients a home loan “elimination” service.

    The defendants falsely represented to clients that the government had allocated to each of their social security accounts $1 million, which could be used to pay off their mortgages. The defendants also falsely represented to clients that they could own their homes “free and clear” by paying fees to defendants, who, in turn, would conduct forensic audits of the clients’ mortgage lenders’ files to uncover supposed fraud by the lenders.

    According to the indictment, between August 2010 and October 2011, Curiel and Palacios charged clients an upfront fee for their services — ranging from $2,500 up to $4,500 — as well as monthly fees.

    Curiel and Palacios then fraudulently recorded and mailed to the clients’ mortgage lenders deeds and re-conveyances supposedly replacing the lender-trustees with fictitious trusts affiliated with the defendants. On at least one occasion, Curiel fraudulently filed bankruptcy on behalf of a client. The scheme involved more than $2.5 million in losses to private homeowners and lending institutions.

NYC Judge, State Appeals Court Slam Lawyers For Milking Dead, Big-Time Real Estate Operator's Estate For $40+ Million In Unconscionable Legal Fees, $5M In 'Secret, Extraordinary Gifts' From Widow

In New York City, the New York Law Journal reports:

  • A state appeals panel has thrown out a $16 million contingency fee for work Graubard Miller performed for Alice Lawrence, the late widow of New York real estate magnate Sylvan Lawrence, finding the firm's fee agreement "unconscionable."

    Manhattan Surrogate Nora Anderson had already slashed the $44 million initially sought by Graubard Miller down to $16 million (NYLJ, Sept. 13, 2011).

    The First Department's May 23 decision in Lawrence v. Graubard Miller, 175/82, found that Anderson's fee award, which was meant as a compromise, had to be vacated and replaced with a purely hourly fee.

    Daniel Kornstein of Kornstein Veisz Wexler & Pollard, who represents Ms. Lawrence's estate, estimated that the hourly fee award, including interest, would be about $3 million.

    The Appellate Division, First Department, panel also affirmed Anderson's ruling that three individual Graubard partners—Daniel Chill, Steven Mallis and Elaine Reich—must return more than $5 million in cash gifts they received from Ms. Lawrence.(1)
  • In his final report, [Referee Howard] Levine said the contingency fee the firm stood to earn, which would be the equivalent of $11,000 an hour, was "astounding" and should be reduced. He rejected the estate's argument that the fee award should be calculated on a purely hourly basis, yielding about $1.7 million, and suggested the final $16 million figure as a compromise.

    He also recommended that the individual Graubard partners should not have to return their gifts. Anderson upheld the fee award, but ordered the gifts returned as well. Both sides appealed.

    Firm's Risk Disputed

    The First Department ruled May 23 in an unsigned decision that the entire contingency agreement was unconscionable and should be replaced by an hourly rate plus interest.

    "The revised retainer agreement is both procedurally and substantively unconscionable," the panel wrote. "The evidence shows that the widow believed that under the contingency arrangement, she would receive the 'lion's share' of any recovery. In fact, as it operated, the law firm obtained over 50 percent of the widow's share of proceeds. Thus, the law firm failed to show that the widow fully knew and understood the terms of the retainer agreement—an agreement she entered into in an effort to reduce her legal fees."

    The panel also said the firm did not seem to have taken any risk to justify the large fee.

    "The law firm had internally assessed the estate's claims to be worth approximately $47 million so that the contingency fee provision in the revised retainer would have meant a fee of about $19 million," the panel wrote. "Contrary to the law firm's assertion, on this record it seems highly unlikely that the firm undertook a significant risk of losing a substantial amount of fees as a result of the revised retainer agreement's contingency provision. Rather, the Referee accurately characterized this attempt by the law firm to justify its action as 'nothing but a self-serving afterthought.'"

    A compromise like the one ordered by the surrogate, the panel said, was not satisfactory.(2)
For more, see Firm Takes Another Hit in Bid to Collect 'Unconscionable' Fees.

For the court ruling, see In re Lawrence, 2013 NY Slip Op 03759 (May 23, 2013).

(1) With regard to requiring the lawyers to return the $5 million in gifts they received from the real estate operator's widow, the court observed:
  • The claims relating to the gifts the widow made to the three individual defendants are not time-barred. Rather, they were tolled under the doctrine of continuous representation (Glamm v Allen, 57 NY2d 87, 93-94 [1982]).

    Contrary to the individual defendants' contention, the doctrine applies where, as here, the claims involve self-dealing at the expense of a client in connection with a particular subject matter (cf. Woyciesjes v Schering-Plough Corp., 151 AD2d 1014, 1014-1015 [4th Dept 1989], appeal dismissed 74 NY2d 894 [1989]).

    As to the merits, the individual defendants failed to meet their burden of showing by clear and convincing evidence that the widow gave the gifts willingly and knowingly (Matter of Clines, 226 AD2d 269, 270 [1st Dept 1996], lv dismissed 88 NY2d 1016 [1996]).

    Indeed, the secrecy surrounding the gifts, and their extraordinary amounts, which the individual defendants accepted without advising the widow to seek independent counsel, preclude a finding in the individual defendants' favor (see Code of Professional Responsibility EC 5-5).
(2) On this point, the court stated:
  • The amount the law firm seeks ($44 million) is also disproportionate to the value of the services rendered (approximately $1.7 million) (see Lawrence v Graubard Miller, 11 NY3d at 596). The record shows that the law firm spent a total of 3,795 hours on the litigation after the revised retainer agreement became effective, resulting in an hourly rate of $11,000, which, as the Referee stated, is "an astounding rate of return for legal services."

    However, the remedy recommended by the Referee and adopted by the Surrogate — namely, a new "reasonable" fee arrangement for the parties — was improper. Where, as here, there is a preexisting, valid retainer agreement, the proper remedy is to revert to the original agreement (Matter of Smith [Raymond], 214 App Div 622 [1st Dept 1925], appeal dismissed 242 NY 534 [1926]; Naiman v New York Univ. Hosps. Ctr., 351 F Supp 2d 257 [SD NY 2005]).

    For the reasons found by the Referee, we reject the firm's suggestion that it receive a reduced contingency fee. Accordingly, the matter is remanded for the determination of the fees due the law firm under the original retainer agreement. Given that the firm is entitled to fees under the original retainer agreement, it is also entitled to prejudgment interest from the date of the breach (see CPLR 5001).

Attorney Ripoff Reimbursement Fund Again The Focus Of Recovery-Seeking Victims Of Scam Involving Closing Lawyer's Role In Failure To Convey Clear Title To Condos Peddled By Non-Lawyer Real Estate Developer

In Edmonton, Alberta, the Edmonton Journal reports:

  • They’ve been left with less than nothing: lawsuits and creditors, and mortgages to nowhere.

    Fifteen months after the Leduc Fire Department issued an emergency evacuation order for Bellavera Green condos, and the troubled development hit the news, former condo owners are wondering why they weren’t protected from walking into impending financial collapse, a disaster that cost them hundreds of thousands of dollars each.

    Most had secured mortgages for at least two condos. Several bought three or four, unaware the project was helmed by a convicted mortgage fraudster.
  • Former condo board president Darryl Short considers himself comparatively lucky. The 33-year-old mechanical engineering technologist still has a house in Edmonton. Unlike those who lost their only home, his loss was an investment. Like other condo owners, Short’s $444,000 disappeared after his lawyer transferred the money to [developer Kevyn] Frederick’s lawyer.

    Expecting to receive encumbrance-free titles to his condos, Short has instead had two years’ of financial headaches over fights with mortgage companies and encounters with a legal system.

    Many claimants have refocused legal efforts on the lawyers who processed the deals. The biggest flurry is against Leslie Meiklejohn, the lawyer Frederick hired to process condo sales.

    With 43 years’ experience in Alberta, Meiklejohn is best known for representing dozens of Edmonton claimants for residential school abuse. With Bellavera, he was entrusted to give buyers clear titles and to pay off Frederick’s creditors. That never happened.

    Meiklejohn is involved in bankruptcy proceedings and declined to comment “for both personal and legal reasons.”

    Ironwood [Financial] and other lenders have been wrangling with the Alberta Law Society(1) over Meiklejohn’s $2-million insurance policy — the mandatory minimum for Alberta lawyers — and the possibility of additional money to cover their debts.

    The ALS won’t comment on ongoing cases, but it does have an assurance fund to cover cases in which lawyers misappropriate trust money.(2) Since 2000, it has paid out nearly $5 million.

    Although the fund may be Short’s last avenue to recoup his money, he isn’t holding his breath.

(1) The Law Society of Alberta is a self-governing body for Alberta, Canada's lawyers with a mandate to regulate the legal profession in the public interest (it is, in effect, the 'state bar' for Alberta). 

(2) The Law Society of Alberta maintains an Assurance Fund to compensate clients for misappropriation or wrongful use of trust money or missing trust funds by their Alberta-licensed lawyer. Go here for the Assurance Fund Claims Guideline.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other Canadian provinces and states throughout the U.S., see:

Maps available courtesy of The National Client Protection Organization, Inc.

Wednesday, June 5, 2013

Foreclosure Rescue/Insurance-Related Ponzi Scammer Stiffs Victims On Restitution Payments In Violation Of Court-Approved 'Jail-Time Buy-Out' Deal; Judge Revokes Defendant's Probation, Throws Her Into The Slammer For 15 Years

In Orlando, Florida, WFTV-TV Channel 9 reports:

  • There are two big developments in Action 9 investigations that uncovered hundreds of fraud victims. One woman has been sent to prison for selling phony grants. And another woman is now behind bars for peddling insurance investments the state called a ponzi scheme.

    Action 9's Todd Ulrich confronted Nanci Hubsch in 2008. "Do you have anything to do with HUD?" Ulrich asked Hubsch. "Get out of here." Hubsch said.

    Hubsch did not answer Ulrich's questions about her foreclosure rescue and insurance companies.

    Hubsch was sentenced to 15 years in state prison for failing to pay restitution to victims of her insurance investments. State investigators called the investment plan a ponzi scheme. 
  • Hubsch was first sentenced to probation only, but when a judge found she failed to make any restitution payments, that triggered prison time. 

Foreclosure Rescue Equity Stripping Scam Among Ripoffs Totaling $200K+ Allegedly Perpetrated By Twin Cities' 'Theft By Swindle' Suspect

From the County Attorney's Office for Dakota County, Minnesota:

  • Dakota County Attorney James Backstrom announced that James Michael Hayden, age 36 of Burnsville, has been charged with a series of crimes relating to mortgage and home foreclosure scams from 2011-2013. Specifically, Hayden has been charged with three counts of Theft by Swindle of over $35,000 (all felonies).

    These charges relate to allegations that Hayden convinced various individuals and friends he had met through business contacts and through his children’s participation in various sports and activities, to invest with him and his business (JMH Properties LLC) in apparent efforts to purchase various homes subject to foreclosure in Burnsville, Lakeville and other communities in the Twin Cities.

    Hayden promised these individuals profit sharing related to their investments once the properties had been purchased and later sold. In most of these cases, Hayden and his business never purchased the properties for which these investments were intended.

    In one case, Hayden convinced a homeowner whose home was subject to foreclosure to sell it to a third party investor, promising profit sharing the homeowner never received and money up front, some of which was never received.

    In another case, Hayden had a contractor who had invested with him on two properties also perform roofing work on a home of one of Hayden’s relatives for which the contractor never received payment. Hayden returned little or none of the initial investments made by nine victims who have been identified to date. In total, between $200,000 and $250,000 is alleged to have been stolen in these schemes.
For the Dakota County Attorney's press release, see Burnsville Man Charged in Mortgage and Home Foreclosure Scams.

Cincinnati-Area Trio Get Federal Time For Peddling Bogus Sale Leaseback Ripoffs That Left Financially-Strapped Victims Booted From Homes, Unwitting Straw Buyer/Investors Drowning In Debt With Ruined Credit On Artificially Inflated, Underwater Mortgages

In Cincinnati, Ohio, The Enquirer reports:

  • Men from Mason, Monroe and Covington were sent to federal prison for a foreclosure-rescue scheme that left victims facing foreclosure, bankruptcy and ruined credit, authorities say.

    On Thursday, a U.S. District judge in Cincinnati sentenced Adam P. Moellers, 35, of Mason, to three years in prison and sentenced Gary P. Dailey, also known as Gary Klump, 33, of Covington, to a 21-month prison term. A third defendant, Perry Bensick, 37, of Monroe, was previously sentenced to a year in prison.

    Moellers and Besnick each had pleaded guilty to a count of conspiracy; Dailey pleaded guilty to a count of wire fraud, a news release said.

    The men were involved with a company called American Equity Group.

    Here’s how their scheme worked, authorities said: The company approached homeowners facing foreclosure and pledged to find buyers who would allow them to remain in their homes as renters and later repurchase their homes.(1)

    The company promised investors that they could buy a property with no money down, collect rent for a year or two then sell it back to the renter at a profit.

    But “AEG inflated the sale price, put together fraudulent loan applications, and took out extra cash at closing,” the release said. “The renters never purchased the properties back and the investors couldn’t afford to keep them.”

    “As a result, the properties went into foreclosure with even larger loan balances and with investors/borrowers who did not appreciate the risk that they had undertaken,” Assistant U.S. Attorney Timothy Mangan wrote in a court filing.

    The FBI calculated that in 2006 and 2007, the scheme caused losses of $6,849,460 to lenders; the court will decide how much restitution the defendants must pay.

    “The lenders were not the only victims,” Mangan told the court. “For the investors, they typically ended in bankruptcy or with ruined credit in exchange for a rescue plan by AEG that was doomed to fail.”
Source: $6.8M scam leaves trail of foreclosures, bankruptcies.

See also, Four Charged With Running $13 Million Loan Fraud Scheme.

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

San Diego Feds Send Loan Modification Peddler Packing For 57 Months For Ripping Off 120+ Homeowners Out Of $670K+; Probe Into Legitimacy Of Offered Services Triggered When Postal Inspectors Scored 750+ Undeliverable Solicitation Letters In One Month Bearing Non-Existent, Incorrect Return Addresses

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

  • United States Attorney Laura E. Duffy announced that Christian Hidalgo of Chula Vista was sentenced [] to 57 months of custody by District Court Judge William Q. Hayes for a mortgage loan-modification scheme that cheated over 120 people out of over $670,000, and resulted in the loss of many homes to foreclosure. Hidalgo was also ordered to pay full restitution to all of his victims.
  • In order to carry out his fraud, Hidalgo sent hundreds of solicitation letters in which he falsely represented that these businesses were affiliated with the U.S. Department of Housing and Urban Development ("HUD"), and its Home Affordable Modification Program ("HAMP").

    The letters would direct the recipients to contact one of Hidalgo's business entities by telephone, or obtain information from one of the websites he had created to advertise his services. Hidalgo targeted low-income persons in Southern California with Hispanic surnames by obtaining marketing leads with this specific criteria.
  • For his part, Hidalgo spent the victim funds in a variety of ways, including purchasing a BMW, diamond rings, a large-screen television, and firearms. All of these items, were seized by the United States and forfeited as part of Hidalgo's sentence. The items will be sold at auction, with proceeds going to the victims.

    Hidalgo's scheme was discovered after Special Agents from the United States Postal Inspection Service of the Downtown San Diego Station received over 750 undeliverable solicitation letters in April 2011 sent by Hidalgo and associates. The solicitation letters appeared to offer loan modification services and a free consultation regarding HAMP, or another HUD home-loan restructure program.

    Because the letters bore non-existent or incorrect return addresses, Postal Inspection agents began investigating the legitimacy of the offered services. In conjunction with the HUD Office of the Inspector General, agents interviewed hundreds of victims, conducted various searches, and seized property purchased with proceeds obtained pursuant to Hidalgo's fraudulent scheme.

Lawyers' Committee, Pro Bono Counsel Continue Private Enforcement Efforts Against Another Alleged Attorney-Operated Loan Modification Racket

From a recent press release from the Lawyers' Committee for Civil Rights Under Law:

  • The Lawyers' Committee for Civil Rights Under Law (Lawyers' Committee) has filed a lawsuit in Los Angeles County, California against a network of for-profit loan modification companies on behalf of eight California homeowners. The suit alleges that defendants defrauded vulnerable homeowners out of tens of thousands of dollars by falsely promising to obtain—for substantial upfront fees—much-needed mortgage modifications on the homeowners’ behalf, but consistently failing to deliver results. Attorneys in the Los Angeles office of Arnold & Porter LLP are providing pro bono counsel on the case.
  • “The Lawyers’ Committee and our pro bono co-counsel continue our private enforcement efforts to put a stop to scamming operations preying upon distressed homeowners.

    This is our seventh lawsuit nationwide, third in California, alleging attorney involvement in such unlawful schemes,” said Linda Mullenbach, senior counsel for the Fair Housing and Fair Lending Project of the Lawyers’ Committee. “These scamming activities have a devastating effect on vulnerable homeowners who are seeking solutions and, instead, find themselves at a greater risk or foreclosure and in greater financial peril as a result of the deceptive and unlawful conduct.”

    ”Arnold and Porter is pleased to work with the Lawyers’ Committee on this case,” said Ronald Johnston, a senior litigation partner at Arnold & Porter. “Our firm has an extensive history handling pro bono matters in a wide range of areas.”

    The complaint alleges that the loan modification scam in this case is operated by multiple corporate and individual defendants, led by California attorney Jerry A. Stevenson and former mortgage broker David Gomez. The key corporate defendants named are California-based entities Platinum Law Group, Inc., Platinum Law Center, Priority Realty Group, Priority Mortgage Group, Inc., Priority Financial Group, and LaBrea Group LLC.

    The case, Baker, et al. v. Platinum Law Group, et al., was filed in California Superior Court in Los Angeles County and seeks monetary damages, including those related to the illegal upfront fees paid by plaintiffs, and injunctive relief to put a halt to the deceptive practices of the named defendants.

    Baker v. Platinum Law Group is the Lawyers’ Committee’s fourteenth loan modification scam lawsuit filed nationwide and its fifth filed in California.

    As part of the Lawyers’ Committee’s work with the Loan Modification Scam Prevention Network (LMSPN), this litigation effort has sought to put an end to the fraudulent and deceptive behavior of so-called loan modification “specialists” in California, Florida, Georgia and New York. LMSPN is a broad coalition that also includes representatives from key governmental agencies, such as the Federal Trade Commission, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Justice, the U.S. Department of the Treasury, the Federal Bureau of Investigation, and the offices of numerous state Attorneys General.

    Since the launch of the national LMSPN database in March 2010 through April 30, 2013, more than 32,000 homeowners nationwide have reported loan modification scams or potential scams that have resulted in total losses of over $78 million. Approximately 6,300 of these reports have been submitted by California homeowners, who have reported losses of over $22 million in fees paid to alleged loan modification scammers.

    Homeowners who believe they have been victims of a scam are encouraged to call 888-995-HOPE (4673) or visit and click the “Report a Scam!” link.

Tuesday, June 4, 2013

Sacramento Feds Score Jury Verdict Over Brothers Who 'Headed' Up Nationwide Sale Leaseback-Peddling, Equity Stripping Foreclosure Racket; Most Co-Conspirators Copped Earlier Plea Deals; 2nd Prosecution Involving Separate Ripoff Remains Pending

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

  • After a nearly four-week trial, a federal jury in Sacramento returned guilty verdicts against Charles Head, 36, of Pittsburg, Pa., (formerly of Los Angeles), and Jeremy Michael “Mike” Head, 33, of Huntington Beach, United States Attorney Benjamin Wagner announced. Both were convicted of conspiracy to commit mail fraud in connection with a nationwide “foreclosure rescue” scam. Charles Head was convicted of four counts of mail fraud, and Mike Head was convicted of two counts of mail fraud.(1)

    According to evidence presented at trial, Charles Head was the leader of a scam that, operating through an entity called Head Financial located in Orange County, between January 2004 and March 2006 netted more than $15 million in fraudulently obtained funds from scores of homeowners, many of whom were in California.

    On February 28, 2008, a federal grand jury indicted Charles Head, Mike Head and 14 other defendants with violations of mail fraud, conspiracy to commit mail fraud, and other charges. The grand jury narrowed the charges in a superseding indictment in 2010. The evidence at trial established that the defendants solicited homeowners facing foreclosure, promising them that they would help the homeowners avoid foreclosure and repair their credit.

    Instead, through misrepresentations, fraud and forgery, the defendants led the victims to complete transactions that substituted straw buyers for the victim homeowners on the titles of properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyers were on title to the homes, the defendants applied for mortgages to extract the maximum available equity from the homes. The defendants then shared the proceeds of the ill-gotten equity and the “rent” that the victim homeowners paid them. Ultimately, the victim homeowners were left with no home, no equity, and with damaged credit ratings.(2)
  • A second indictment, returned March 13, 2008, charges Charles Head and six other defendants, including three not charged in the first indictment, with operating an additional “equity-stripping” scheme that netted approximately $5.9 million in stolen equity from 68 homeowners nationwide. That indictment alleges that Charles Head revised the original scheme by recruiting strangers via the Internet to act as straw buyers. Under this new scheme, the indictment alleges, he received approximately 97 percent of the stolen equity. His “sales agents” and employees, and the other defendants, allegedly received the remaining 3 percent of equity. Trial in that case is scheduled for September 9, 2013.

    Charles Head and Domonic McCarns were indicted in both indictments and are set for trial on the charges in the second indictment on September 9, 2013. Also charged in the second indictment and set for trial are: Keith Brotemarkle, 45, of Johnstown, Penn.; Benjamin Budoff, 44, of Colorado Springs; and Lisa Vang, 27, of Westminster. John Corcoran and Kou Yang were charged in both cases but have pleaded guilty.
For the U.S. Attorney press release, see Jury Returns Guilty Verdict For Nationwide Foreclosure Rescue Scam.

For the original indictments, see:
Go here for earlier posts on the Charles Head nationwide sale leaseback equity stripping ripoffs.

(1) According to the press release:
  • Ten other defendants have pleaded guilty in this case, charges were dismissed against one, and three remaining defendants are set for trial on November 4, 2013.

    The following have pleaded guilty and are scheduled for hearings regarding their sentencing dates on July 24, 2013:

    Elham Assadi , aka Elham Assadi Jouzani, aka Ely Assadi, 33, of Irvine;
    Akemi Bottari, 31, of Los Angeles;
    Sarah Mattson, 30, of Phoenix;
    Omar Sandoval, 35, of Rancho Cucamonga;
    Xochitl Sandoval, 32, of Rancho Cucamonga;
    Andrew Vu, 42, of Santa Ana;
    Justin Wiley, 31, of Irvine;
    Kou Yang, 35, of Corona;
    John Corcoran, aka Jack Corcoran, 55, of Anaheim.

    Leonard Bernot, 54, of Laguna Hills, pleaded guilty and is scheduled to be sentenced on July 10, 2013.

    A jury trial is scheduled for the remaining defendants on November 4, 2013. Those defendants are Domonic McCarns, 36, of Brea; Joshua Coffman, 32, of North Hollywood; and Anh Nguyen, 39, of Los Angeles.
(2) For more on this type of foreclosure rescue ripoff, see:

NC Business Court: County Register Of Deeds Lacks Standing To Sue MERS On Behalf Of Screwed-Over Homeowners For Littering Recording Office With Robosigned Land Documents; Unfair/Deceptive Practices Claim Also Fails Where There Is No Direct Consumer Interaction Between Litigants

In Guilford County, North Carolina, The Business Journal reports:

  • A lawsuit filed last year by Guilford County alleging that the use of an electronic mortgage registrations system and a practice known as robo-signing had made a "mess" of the county's property records registry has been dismissed.

    The lawsuit, brought by Register of Deeds Jeff Thigpen, targeted a number of banks, loan services and foreclosure specialists who used MERS, a private mortgage registry, and robo-signing in the creation of mortgage-backed securities.

    Thigpen alleged that the use of MERS and robo-signing created legal uncertainty concerning property titles, made it difficult to discover and remedy title defects, caused the loss of homes due to illegal foreclosures and led to decreases in property values, among other damages. Among the defendants named in the lawsuit are Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC) and MERS.

    But in an opinion issued Wednesday, Judge John Jolly of the N.C. Business Court dismissed Guilford County's complaint, finding that the Guilford County register of deeds didn't have legal standing to sue on behalf of landowners affected by the practices.

    Additionally, Jolly ruled that the register can't claim unfair and deceptive business practices in the use of MERS or robo-signing because there's no commercial transaction with the register when recording a deed, nor enough of a hindrance to landowners who have been damaged to seek relief that the register of deeds has to seek it on their behalf.

    Thigpen had also alleged that the defendants were unjustly enriched by the practices at the center of the lawsuit, a contention Jolly dismissed.

Foreclosing Bankster Screws Itself Over Failure To Timely Pursue Deficiency Claim Against Bankrupt Real Estate Investor Within State Law-Prescribed 90-Day Period Where Judge Grants Automatic Stay Relief Order In Very Broad Terms


  • In [In re Wright, 486 B.R. 491 (Bankr. D. Ariz. 2012)], a mortgage lender obtained relief from the automatic stay in a chapter 11 bankruptcy and proceeded with a state non-judicial foreclose sale on two properties.

    However, it did not take the next step and file an action as required under state law to preserve its deficiency claim. The lender then attempted to pursue a claim for the deficiency in the bankruptcy court. The court begins its opinion with the following: “Ultimately this is a cautionary tale woven from wealth and its loss, a proof of claim that was lost in the paperwork, and hazy memories of years past.” Translation: The lender lost.

    A chapter 11 debtor owned 240 units of rental housing on 160 parcels of real property, which it listed in its schedules as having an aggregate value of ~$36.4 million subject to liens of ~$43.2 million. (The court concludes its rendition of these facts with the statement: “Thus, the Debtor could be described as a real estate investor, who utilized the income received from his numerous rental properties to subsidize a lifestyle of comfort until the value of his real estate assets dramatically declined in value.”)
  • Prior to bankruptcy MidFirst had commenced non-judicial sales that were stayed when the debtor filed bankruptcy. MidFirst sought relief from the automatic stay, arguing that the debtor had no equity and that MidFirst’s interests were not adequately protected. It also argued that the debtor had converted prepetition rents.

    Ultimately the parties stipulated to an order granting relief from the stay in very broad terms:

    All stays and injunctions in this case, including the automatic stay of Bankruptcy Code §362(a), with respect to the Properties shall be, and hereby are vacated, terminated, and annulled… MidFirst is immediately entitled to enforce all of its rights and remedies in connection with the Properties, including without limitation any acts which MidFirst may undertake or direct to obtain possession and control of the Properties pursuant to its loan and security documents entered into with the debtor, and applicable state and federal law.

    MidFirst proceeded with the foreclosure sales, and as expected, was left with deficiency claims. Under applicable state law, a secured creditor that pursues a non-judicial foreclosure sale must bring an action to recover a deficiency judgment (that includes a determination of the fair maket value of the property) within 90 days after the date of the sale. In this case, MidFirst did not pursue the required action.
  • Given the very broad nature of the relief from stay, it was the court’s expectation that MidFirst could pursue all actions relating to the foreclosure proceedings, including any action required to establish the deficiency. With respect to the proof of claim, it was not sufficient to satisfy the statutory requirement for an action. Among other things, MidFirst waited for over a year after the foreclosure proceeding to amend its proof of claim to reflect the results of the sale.
For more, see What Comes After Stay Relief The Disappearing Deficiency Claim (Round 1).

For the ruling, see In re Wright, 486 B.R. 491 (Bankr. D. Ariz. 2012).

Real Estate Title Acquisition By Tax-Foreclosing Municipality Where No Public Sale Or Other Competitive Bidding Is Legally Required May Be Vulnerable To Attack & Set Aside In Chapter 13 Bankruptcy Proceedings


  • City of Milwaukee v. Gillespie, 47 B.R. 916 (E.D. Wis. 2013) –

    Under Wisconsin’s strict tax foreclosure procedure, a tax authority can obtain property in satisfaction of a delinquent property tax bill without any public sale or other competitive bidding. Gillespie was one of several cases in which a bankruptcy court held that the tax foreclosures were fraudulent transfers. On appeal, the district court agreed that the tax sales could be fraudulent conveyances, but remanded the cases for further consideration.

    As discussed in a prior blog on the bankruptcy court decision (Delinquent Property Tax Collection: Foreclosure May Be Vulnerable), grounds for finding that a transfer is a fraudulent conveyance include that the debtor (1) was insolvent and (2) did not receive “reasonably equivalent value” in connection with the transfer. All of the parties agreed that the only issue was whether the debtors received reasonably equivalent value.

    The City contended that a regularly conducted tax foreclosure sale should be deemed to be reasonably equivalent value under the Supreme Court decision in BFP Resolution Trust Corp., 511 U.S. 531, 114 Sup. Ct. 1757, 128 L. Ed. 2d 556 (1994).

    However, the district court agreed with the bankruptcy court that it should not be presumed that reasonably equivalent value was received as a matter of law unless there was some form of sale or competitive bidding.

2nd Mortgage Holder Screws Itself When Making Loan Without First Inquiring As To Existence Of Prior Undisclosed Loans Secured By Existing 1st Mortgage Containing Cross-Collateralization Clause Appearing Conspicuously On Face Of Instrument

From a Opinion Summary:

  • Peoples Bank loaned Debtors $214,044, secured by a mortgage recorded in 2004 ["Peoples Loan 1].

    In 2008, Debtors obtained a $296,000 construction loan from Banterra, secured with a second mortgage on the same property.

    Banterra was aware of the first mortgage, but did not know was that in 2007, Debtors obtained a second loan from Peoples, for $400,000, secured by another mortgage on a different piece of property. ["Peoples Loan 2"]

    The 2004 Peoples mortgage contained a cross-collateralization provision, stating that “In addition to the Note, this Mortgage secures all obligations … of Grantor to Lender … now existing or hereafter arising,” and a provision that “At no time shall the principal amount of the Indebtedness secured by the Mortgage … exceed $214,044.26 … “Indebtedness” … includes all amounts that may be indirectly secured by the Cross-Collateralization provision.”

    In 2010 Debtors filed a Chapter 11 bankruptcy petition. The balance due on Peoples 2004 loan [Peoples Loan 1] was then $115,044.26.

    Debtors received permission and sold the property for $388,500.00. Out of these proceeds, Peoples claimed the balance due on the 2004 loan plus partial payment of the 2007, up to the cap. The Bankruptcy Court found in favor of Peoples.

    The district court reversed.

    The Seventh Circuit reversed, upholding the “plain language” of the cross-collateralization agreement.(1)
Source: Opinion Summary: Peoples Nat'l Bank v. Banterra Bank.

For the court ruling, see Peoples Nat'l Bank v. Banterra Bank, No. 12-3079 (7th Cir. May 20, 2013).

(1) Some of the 7th Circuit's analysis and reasoning in applying the law of Illinois (the state in which the deal took place) as to why Banterra, the 2nd mortgage holder, had an obligation to discover the existence of the undisclosed People's Loan 2 when making its secured loan to Debtors follows:
  • It is undisputed that Banterra did not have actual notice or knowledge of Peoples Loan 2. It is similarly undisputed that Banterra did have actual notice and knowledge of Peoples Loan 1, the mortgage securing it, and the cross-collateralization clause that it conspicuously[1] contained. The dispute is over the legal significance of these two facts.
  • Like record notice, inquiry notice is essentially a form of constructive notice. See Pelfresne v. Village of William Bay, 965 F.2d 538, 542 (7th Cir. 1992); National Family Ins. Co. v. Exchange Nat. Bank of Chicago, 474 F.2d 237, 241-42 n.1 (7th Cir. 1973); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Record notice rules treat a subsequent creditor with no actual knowledge of a prior interest as having actual notice if the prior interest was properly recorded. A subsequent creditor receives no quarter for having failed to search the relevant real estate records, so long as the interest was properly recorded. Inquiry notice operates under a similar principle.

    Inquiry notice describes the situation where the transferee has been made aware of facts or circumstances from which the existence or possibility of a prior claim might reasonably be inferred.

    If so, the purchaser then has a duty to verify or dispel the inference through further inquiry.

    If he fails to make inquiry, he is nonetheless chargeable with knowledge of facts that a diligent inquiry would have disclosed, the same as if he had acquired actual knowledge of those facts. In re Shara Manning Properties, Inc., 475 B.R. 898, 906 (Bankr. C.D.Ill. 2010); see Smith v. Grubb, 402 Ill. 451, 464-65 (1949); 112 Am. Jur. Proof of Facts 3d 419 § 12 (collecting cases).

    Here, we find that the Bankruptcy Court correctly identified the dispositive question presented by these facts when it asked "whether actual notice of a cross-collateralization clause in a mortgage imparts inquiry notice as to the existence of other obligations that may be covered by the security instrument." In re Jones, 2011 WL 6140686, *8 (Meyers, Bankr. J.). On these facts, we hold that it does.

    Banterra concedes its actual notice of Peoples Loan 1 and the mortgage securing it. The cross-collateralization clause is conspicuously placed on the first page of the mortgage, discoverable with just a cursory review of the document. Id.

    The clause states expressly that, in addition to Peoples Loan 1, the collateral secured all debts of the grantor to the lender "now existing or hereafter arising."

    Of this Banterra was aware and "from [this] the existence or possibility of a prior claim might reasonably be inferred." Moreover, it is clear that a reasonable investigation would have disclosed this prior claim.[3]
  • The cross-collateralization clause expressly contemplates debts arising in the future, when Debtors may well have paid down some of the initial loan, creating room under the cap. Nothing in the case explains why this entirely plausible scenario (indeed, it is precisely what happened) should be outside the set of possible outcomes considered by anyone reading the document. Because it is self-evident that the parties intended that the amount of indebtedness under the initial loan would be paid down by Debtors over time, we cannot agree that setting the maximum amount of indebtedness equal to the amount of the initial loan "evidence[s] an intent that the mortgage not secure any other debt." Peoples Nationals Bank, 482 B.R. at 264.
  • Finally, as a matter of policy Banterra laments that the position we adopt today will chill lending and commerce, making it more difficult for third-party lenders like Banterra to confidently approve loans secured by property that has been cross-collateralized.

    As a general matter, we should think that prudent lenders would do well to exercise caution before accepting a second mortgage on real property that has been cross-collateralized. But the more salient response to Banterra's concern is that adopting its position will not in any event dispel the chilling effect—it will merely transfer it between the parties.

    cross-collateralization clause makes a given security interest more valuable to the grantee. The position Banterra urges would reduce that value, shifting it away from the initial grantee and to prospective subsequent grantees.[5] In either case, one lender's incentive to lend is increased, while the other's is reduced. Between the two, however, only one outcome has the virtue of being consistent with the plain contractual language that the parties agreed upon, and we think it more sensible to allow sophisticated parties to contract as they wish. If cross-collateralization clauses are in the end too costly to borrowers, they need not agree to them.
In footnote 3 of the ruling, the appeals court reminds us that the duty to inquire in a case like this is limited to the making of 'reasonable inquiry':
  • It is undisputed that a name search of the Jefferson County land records would have revealed the existence of Peoples Loan 2. Banterra wonders skeptically whether, under Peoples' theory, the investigation required of one put on inquiry notice might entail searching records, not just in Illinois counties, but in every county in neighboring states as well.

    But the law requires reasonable investigation, not endless investigation, and a party allegedly on inquiry notice can rebut the argument by showing that a reasonable investigation did not yield discovery of the relevant information. Jesko v. American-First Title & Trust Co., 603 F.2d 815, 818-19 (10th Cir. 1979); 112 Am. Jur. Proof of Facts 3d 419 § 12 (2013) (collecting cases); 1 PATTON AND PALOMAR ON LAND TITLES § 12 (3d ed. 2012) (collecting cases).

    Ultimately, where to draw that line will be a question for the trier of fact. Here, however, the Bankruptcy Court found, and the parties do not dispute, that the investigation required to have discovered Peoples Loan 2 was within the bounds of reasonableness. See In re Jones, 2011 WL 6140686, *9.

Florida Supremes Kibosh Local Ordinance That Would Have Given Municipal Liens 'Superpriority' Status Over Mortgages, Even If Latter Were Earlier-Recorded

In Tallahassee, Florida, The Florida Current reports:

  • A local Palm Bay ordinance giving municipal liens on property superiority over mortgages was struck down Thursday by the Florida Supreme Court. However, a bill headed to Gov. Rick Scott’s desk could give local governments more power to address municipal liens.

    The court upheld a 5th District Court of Appeal decision nullifying the ordinance, which states that Palm Bay’s liens on a property rank higher than a mortgage lien, even if the mortgage was entered into before the municipal lien. In a 5-2 decision, the court stated state laws preempt such local ordinances.

    “Giving effect to the ordinance superpriority provision would allow a municipality to displace the policy judgment reflected in the Legislature’s enactment of the statutory provisions,” the ruling penned by Justice Charles Canady states. “A more direct conflict with a statute is hard to imagine.”

Monday, June 3, 2013

Ohio Supremes: No Foreclosure Sale 'Do-Overs' When Negligent Banksters Fail To Attend Public Auction & 3rd Party Winning Bidder Scores Property

In Columbus, Ohio, The Toledo Blade reports:

  • Banks and other mortgage lenders in Ohio were put on notice Tuesday: if you don’t attend foreclosure sales, you can’t rescind the foreclosure and do it over.

    In a unanimous opinion, the Ohio Supreme Court reversed a decision by the 6th District Court of Appeals that upheld a ruling in Wood County Common Pleas Court that permitted Countrywide Home Loans Serving to voluntarily dismiss a foreclosure on a Perrysburg home after the property was sold at sheriff’s sale.

    Countrywide representatives had failed to attend the sale, where the property was sold to a third party, so the lender dismissed the complaint before the sale was confirmed. Soon after, Countrywide re-filed the foreclosure action.

    “To grant a lender the right to dismiss an action after a trial court has issued what it had indicated was a final judgment, would lead to the untenable result that an unhappy lender could simply wait until after the sheriff’s sale has occurred, decide that the sale price was too low, and then dismiss the case in order to get a second bite at the apple,” Justice William O’Neill wrote. “This flies in the face of the general policy that judicial sales have a certain degree of finality.”

    John P. Lewandowski, an attorney for homeowners Michael and Joann Nichpor of Perrysburg, said the foreclosure action against his clients is still pending, but the high court’s ruling accomplishes two things.

    “It clarifies the rules a bank must follow, and it allows a third party to bid on a property at a sheriff’s sale with confidence, without fear a bank may be able to do this in the future,” he said.

    Attorney Gary Sommer, who also represents the Nichpors, was encouraged by the ruling.

    “One of the reasons the Supreme Court got interested in this is that there is a plethora of foreclosure actions in our county and throughout the state so it is a live topic and it does occupy a lot of the court’s docket,” he said.

    In cases like this, where the lender missed the sheriff’s sale and so missed the opportunity to bid on the property, he said, “There were different results depending on what part of the state you were in. Some counties would allow banks that failed to go to the sheriff’s sale to take a do-over, and in other counties the court would say, ‘No. You don’t get a do-over.’”

    Andrew C. Clark, an attorney for Countrywide, could not be reached for comment Tuesday.
Source: Foreclosure ‘do-overs’ rejected (Action can’t be dismissed if lenders miss sale, court rules).

For the ruling of the Ohio Supreme Court, see Countrywide Home Loans Servicing v. Nichpor, Slip Opinion No. 2013-Ohio-2083 (May 28, 2013).

For the court's press release, see Supreme Court: Foreclosure Action May Not Be Dismissed Under Civil Rule After Court Enters Judgment Granting Foreclosure, Order of Sale.

Bankster Moves Forward With State Court Judicial Foreclosure In Case Where Constitutional Challenge To Colorado's Non-Judicial/Public Trustee Proceeding Remains Open; Judicial Review-Evading Bankster To Federal Judge: 'You Must Dismiss This Action - The Case Is Moot!'

In Denver, Colorado, The Denver Post reports:

  • Amid confusion over whether a federal judge can still decide if an Aurora woman's constitutional rights are violated by Colorado foreclosure laws, U.S. Bank has filed a lawsuit in state court to take the house.

    A flurry of documents filed in the federal lawsuit Lisa Kay Brumfiel brought against the bank and some of the state's top foreclosure lawyers indicate that a giant question mark remains: whether Colorado foreclosure law violates the 14th Amendment right to due process and whether a federal judge can still take on the issue even if it doesn't affect Brumfiel anymore.

    U.S. Bank, the trustee for the investment trust that bought Brumfiel's note shortly after she signed the loan in 2006, argues that the entire issue is moot since it dropped its public-trustee case against her.

    And even though U.S. Bank filed a lawsuit Thursday in Arapahoe County District Court to take the house, Brumfiel's challenge involved only the public-trustee foreclosure process.

    While U.S. District Judge William J. Martínez last week agreed that at least one matter was resolved — and issued a permanent injunction against the bank from starting a new public-trustee foreclosure against Brumfiel — he indicated the constitutional matter remained unresolved.

    That came May 14 in an order allowing a pair of advocacy groups — the Colorado Center on Law and Policy and the Colorado Progressive Coalition — to file a brief, called an amicus curiae, in support of Brumfiel's constitutional argument.

    "The court has not issued any decision regarding the constitutional questions about which (the groups) seek to intervene," Martínez wrote in allowing the briefs. There remain "constitutional questions at issue in this case," he wrote.

    The groups filed the 19-page brief May 20 outlining how the state's public-trustee process is fraught with constitutional pitfalls.

    U.S. Bank on Thursday filed a response that simply said the issue is dead — it canceled the public-trustee foreclosure.(1) Brumfiel has said in another filing that thousands of Coloradans facing foreclosure are subject to the same problems, although she stopped short of asking Martínez to stop all public-trustee foreclosures until her case is decided.

    "Plaintiff's constitutional challenges to the Rule 120 public trustee foreclosure process are moot," U.S. Bank said in a brief filed with the court.

    Attorney Larry Castle, whose law firm filed the foreclosure against Brumfiel and helped draft the law in question, said in a court filing that Brumfiel "cannot be harmed by the process of which she complains."

    At issue is a state court hearing, known as a Rule 120 for the procedure that governs it, in which a judge signs the final order for a county public trustee to auction a piece of property, usually a house.

    Brumfiel challenges the law that governs the Rule 120 process, saying a bank's right to foreclose is never firmly established, which is a requirement of due process. Instead, a lawyer can sign a statement declaring that his client, usually a bank or other lender, owns the note and deed of trust but need only provide a photocopy.
For the story, see Constitutionality question in Colorado foreclosures remains open.

(1) From the bankster's 5-page response to the 19-page amicus brief filed by the Colorado Center on Law and Policy and the Colorado Progressive Coalition:
  • [T]he constitutional issues addressed by the Amici Brief are not justiciable in this matter.

    There is no longer any case or controversy regarding the constitutionality of the public trustee foreclosure process under C.R.S. § 38-38-101 or C.R.C.P.120 (“Rule 120 Public Trustee Foreclosure”) that affects Plaintiff.

    Each of Plaintiff’s nine causes of action has been rendered moot by: (1) Trust’s withdrawal of its Rule 120 Public Trustee Foreclosure against Plaintiff as affecting the Property, and (2) the Trust’s consent to a permanent injunction prohibiting any future Rule 120 Public Trustee Foreclosure against Plaintiff under the operative Note and Deed of Trust affecting the Property. See Doc. 126 at 9 (capitalized terms defined in Doc. 126).

    Consequently, and with no case or controversy remaining, “the federal court must dismiss the action for want of jurisdiction.” Jordan v. Sosa, 654 F.3d 1012, 1023 (10th Cir. 2011) (internal quotation marks and citations omitted); see also Doc. 126 at 6-9 (fully incorporated herein by this reference).
Editor's Note: Not surprisingly, in its brief, the bankster failed to address the voluntary cessation doctrine (or any of the 10th Circuit Court of Appeals cases - the federal appeals court that would hear any appeal in this litigation - recognizing the existence of the doctrine), much less why it is inapplicable here. I suspect that the amici will respond to the bankster's assertion that the case is moot by raising this issue.

See United States v. WT Grant Co., 345 US 629 (1953), in which the U.S Supreme Court made these comments regarding the 'voluntary cessation doctrine' and its effect in making a case moot, particularly in a case where there is a public interest in having the legality of the challenged practice settled:
  • Both sides agree to the abstract proposition that voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i. e., does not make the case moot. United States v. Trans-Missouri Freight Assn., 166 U. S. 290 (1897); Walling v. Helmerich & Payne, Inc., 323 U. S. 37 (1944); Hecht Co. v. Bowles, 321 U. S. 321 (1944).

    A controversy may remain to be settled in such circumstances, United States v. Aluminum Co. of America, 148 F. 2d 416, 448 (1945), e. g., a dispute over the legality of the challenged practices. Walling v. Helmerich & Payne, Inc., supra; Carpenters Union v. Labor Board, 341 U. S. 707, 715 (1951).

    The defendant is free to return to his old ways.[4] This, together with a public interest in having the legality of the practices settled, militates against a mootness conclusion. United States v. Trans-Missouri Freight Assn., supra, at 309, 310.
See also, ACLUM v. Conference of Catholic Bishops, 705 F. 3d 44 (1st Cir. January 15, 2013) (discussing the 'voluntary cessation doctrine which provides for an exception to mootness):
  • The voluntary cessation exception "traces to the principle that a party should not be able to evade judicial review, or to defeat a judgment, by temporarily altering questionable behavior." City News & Novelty, Inc. v. City of Waukesha, 531 U.S. 278, 284 n. 1, 121 S.Ct. 743, 148 L.Ed.2d 757 (2001).

    This is to avoid a manipulative litigant immunizing itself from suit indefinitely, altering its behavior long enough to secure a dismissal and then reinstating it immediately after. See Already, LLC v. Nike, Inc., ___ U.S. ___, ___, 133 S.Ct. 721, ___ L.Ed.2d ___, 2013 WL 85300, No. 11-982, slip op. at 4 (U.S. Jan. 9, 2013); Brown, 613 F.3d at 49; see also United States v. W.T. Grant Co., 345 U.S. 629, 632, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) (noting that if a court declares the case moot, "[t]he defendant is free to return to his old ways").

    As the Supreme Court stated last term, "[s]uch ... maneuvers designed to insulate a decision from review ... must be viewed with a critical eye" and, as a result, "[t]he voluntary cessation of challenged conduct does not ordinarily render a case moot." Knox v. Serv. Emps. Int'l Union, Local 1000, ___ U.S. ___, 132 S.Ct. 2277, 2287, 183 L.Ed.2d 281 (2012) (citation omitted).

    However, even in circumstances where the voluntary cessation exception applies, a case may still be found moot if the defendant meets "the formidable burden[[9]] of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) (citing United States v. Concentrated Phosphate Exp. Ass'n, Inc., 393 U.S. 199, 203, 89 S.Ct. 361, 21 L.Ed.2d 344 (1968)); Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 720, 127 S.Ct. 2738, 168 L.Ed.2d 508 (2007).