NFL Cornerback, Pastor Accused In Alleged San Diego-Area Equity Stripping, Foreclosure Rescue Scam

In San Diego, California, KGTV Channel 10 reports:

• A professional football player and a pastor are both accused of preying on San Diegans facing foreclosure, 10News reported. According to court records obtained by 10News, the player and pastor ran a foreclosure rescue scam with the player's mother. A civil complaint was filed against Baltimore Ravens cornerback Anwar Phillips, who is accused of playing a role in a local foreclosure scam.

***

• The complaint said the [homeowners] met one of the foreclosure group's members at a local church who was a pastor. The group promised to be the answer to their financial prayers. "This group promised to save these people's house by temporarily putting someone on the title, and they would be able to get the house back in a couple of months," said [homeowners' attorney Mike] Vallee. However, their prayers were left unanswered, and Vallee said the [homeowners] are victims of an equity draining scam.

• In the alleged scheme, a troubled homeowner transfers the title of the home to so-called rescuers, who then take out a new mortgage and pocket the equity. "What they ended up doing is stripping out somewhere between $90,000 to $120,000 of equity, quit paying the loan and now the people are facing foreclosure again," said Vallee.(1)

For more, see NFL Player Accused In Local Foreclosure Scam.

(1) If the homeowners who were allegedly defrauded out of their home equity can demonstrate that they were unaware of the nature of what they were signing, this could, under California law, constitute grounds for declaring the deed void from the time it was executed ("void ab initio" - for those who speak Latin), thereby leading to voiding the foreclosing mortgage as well. See Schiavon v. Arnaudo Bros., 84 Cal. App. 4th 374; Cal.Rptr.2d 801 (Cal. App 6th Dist. 2000):

• "A deed is void if the grantor's signature is forged or if the grantor is unaware of the nature of what he or she is signing. (Erickson v. Bohne, 130 Cal.App.2d [553] at pp. 555-556)."

The Schiavon case goes on to say that "where the grantor is aware of what he or she is executing, but has been induced to do so through fraudulent misrepresentations[,]" then such a deed is not void, but is merely voidable.

In the event the deed is found to be merely voidable, the homeowners victimized by the alleged fraud can still attempt to void or cancel the deed to the purported buyer, and the mortgage obtained by the buyer. However, central to such an effort would be the ability to:

• prove the buyer and/or lender either participated in, or had actual knowledge of, the fraud, or
• assuming the buyer and/or the lender neither participated in, nor had actual knowledge of, the fraud, impute upon them notice of the fraud and/or any other unrecorded rights and equities (ie. equitable mortgage) the victimized homeowners may have had at the time of the conveyance.

Lack of participation in the fraud, and lack of any actual knowledge thereof, by subsequent purchasers & encumbrancers is not enough to sustain a claim of bona fide purchaser / encumbrancer. In this case, the homeowners' continued possession of the property after signing away the deed may have triggered a duty to inquire, upon both the buyer, and the buyer's mortgage lender, into the nature of the homeowners' continued occupancy in their home. For support for this proposition under California law, see Pell v. McElroy, 36 Cal. 268, 1868 Cal. LEXIS 186 (Cal. 1868), where the California Supreme Court ruled:

• The continued exclusive possession of a vendor after his formal conveyance of the legal title is a fact in conflict with the legal effect of his deed, and is presumptive evidence that he still retains an interest in the premises, and is sufficient to put a purchaser upon inquiry, and subject him to the general rule heretofore announced in case of the party in possession being a stranger to the title as of record.

The obligation of a subsequent purchaser to inquire into the rights of the seller when the seller retains exclusive possession after the conveyance also applies to a subsequent encumbrancer/mortgage lender. See J. R. Garrett Co. v. States, 3 Cal.2d 379, 44 P.2d 538 (Cal. 1935):

• As a general rule, possession of real property is constructive notice to any intending purchaser or encumbrancer of said property. This rule is so well established that citation of authority is hardly necessary.

The obligation of a subsequent purchaser or encumbrancer to inquire is summarized by these excerpts from Pell v. McElroy:

• The fact of open, notorious, and exclusive possession and occupation of lands by a stranger to a vendor's title, as of record, at the time of a purchase from and conveyance by such vendor out of possession, is sufficient to put such purchaser upon inquiry as to the legal and equitable rights of the party so in possession, and such vendee is presumed to have purchased and taken a conveyance from the vendor with full notice of all the legal and equitable rights in the premises of such party in possession and in subordination to these rights; and this presumption is only to be overcome or rebutted by clear and explicit proof on the part of such purchaser, or those claiming under him, of diligent, unavailing effort by the vendee to discover or obtain actual notice of any legal or equitable rights in the premises in behalf of the party in possession. And when the location of the lands is such as to render personal application to and inquiry of the occupant practicable, a purchaser failing to make such application and inquiry is no more entitled to be regarded a purchaser in good faith than if he had so inquired and ascertained the real facts of the case.

In Scheerer v. Cuddy, 85 Cal. 270, 24 P. 713; (Cal. 1890), the California Supreme Court made this statement regarding a purchaser's duty to know who is in possession of the property he/she is purchasing:

• Whether the respondent knew of the appellant's possession, or not, is immaterial. It was his duty to know who was in possession of the property before making the purchase, and his purchase without ascertaining the fact must be regarded as the strongest evidence of bad faith on his part. The burden of making the proper inquiry was cast upon him by the mere fact of actual possession on the part of the appellant. If it were allowed that by failing to acquaint himself with the fact of possession on the part of another than the vendor the vendee could avoid the effect of the rule above stated, he could purposely avoid any inquiry on the subject, and thereby evade the rule and its consequences entirely.

For a California case applying the bona fide purchaser doctrine and the purchaser's duty to inquire of persons in possession in the context of an equitable mortgage, see Hyde v. Mangan, 88 Cal. 319, 26 P. 180 (1891).

For more on the aforementioned points, see:

• Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?,
• California Bona Fide Purchaser, Possession, Duty Of Inquiry,
• Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire,
• California Equitable Mortgage.
• California Civ. Code §§ 18,19 and § 2925.

More On Void & Voidable Deeds, & Unwinding Deed & Refinancing Scams

An earlier post touched on the distinction between a deed that is void (void from the moment it is executed, "void ab initio" - a nullity) and a deed that is voidable (defined generally as a deed that, while possessing some defect, is nevertheless valid until the defect is raised as an issue, and the deed is successfully challenged and voided). See Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?

The post contained excerpts from California case law that essentially said that a deed containing a signature that is not genuine and is a forgery, is void, whereas a deed containing a genuine signature from the grantor, but was procured through fraudulent means, may be either void or voidable, depending on the state of mind of the grantor. The rule with respect to deeds that are procured by fraudulent means, according to the above-referenced California case law, depend on the grantor's state of mind when signing the instrument, and can be described as follows:

• If a grantor is aware that the instrument he/she is executing is a deed and that it will convey title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Conversely, if the grantor is unaware of the nature of what he or she is signing and had no intention of conveying title to the real estate, the deed is void (in the same way as if the signature was actually forged), and a subsequent purchaser or encumbrancer, no matter how innocent, will hold no title or lien.

Subsequent to my earlier post, I stumbled into Colorado cases, excerpts that follow below, that say the same thing as the California cases. Specifically, the cases say that, in the context of a deed procured by fraud, the deed will be considered void if the person has been fraudulently deceived about the nature of the document, so that he or she is excusably ignorant about what has been signed, and is referred to therein as "fraud in the factum." Said another way, the deed in this situation will be treated as a forgery, despite the fact that the signature on the deed is genuine.

I emphasize this point because, in so many media reports, homeowners in foreclosure who unwittingly signed away their homes in equity stripping, foreclosure rescue scams have claimed that they were unaware that they were transferring title to their homes, recall signing numerous legal documents that were referred to or described as refinancing documents, and claim that they decided to do business with the foreclosure rescue operator that approached them because it represented itself as a firm of "foreclosure specialists" who help homeowners "save" their homes from foreclosure.

While the cases in California and Colorado are obviously not binding outside the borders of those two states, they nonetheless may be considered persuasive precedent. Further, they deserve careful analysis by anyone looking to unwind a foreclosure rescue scam (or any other deed or refinancing scam, for that matter) in that these cases may, in fact, reflect what the case law holds in other jurisdictions.

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(Any bold text is my emphasis, not in the original.)

Delsas v. Centex Home Equity Co., 186 P.3d 141; 2008 Colo. App. LEXIS 674 (Colo. App. 2008):

• There is an important difference between a void deed and one that is voidable. A void deed is a nullity, invalid ab initio, or from the beginning, for any purpose. It does not, and cannot, convey title, even if recorded. Empire Ranch & Cattle Co. v. Coldren, 51 Colo. 115, 121, 117 P. 1005, 1007 (1911). The interest of a good faith purchaser under a void deed is not protected. See Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 706 (Colo. 1992).

• In contrast, a voidable deed conveys property and creates legal title unless, and until, it is set aside by the court. 23 Am. Jur. 2d Deeds § 162 (Mar. 2008); see Logue v. Von Almen, 379 Ill. 208, 224, 40 N.E.2d 73, 81-82 (1941); Dent v. Calhoun, 326 So. 2d 320, 321-22 (Miss. 1976).

• The interest of a good faith purchaser who asserts ownership under a voidable deed will be protected. "[T]he distinction between void and voidable deeds becomes highly important in its consequences to third persons, 'because nothing can be founded upon a deed that is absolutely void, whereas from those which are only voidable, fair titles may flow.'" Medlin v. Buford, 115 N. C. 260, 20 S.E. 463, 463 (1894) (quoting Somes v. Brewer, 19 Mass. (2 Pick.) 184, 203, 2 Pick. 184 (1824)).

• Courts have developed rules to determine what sorts of defects render a deed void or voidable, and which defects have no effect. For example, a forged deed is void. Upson, 823 P.2d at 705-06. Generally, deeds obtained by fraud are voidable. Svanidze v. Kirkendall, 169 P.3d 262, 266 (Colo. App. 2007). Thus, the interest of a good faith purchaser in a deed voidable because of fraud will be protected.

• A deed obtained as a result of fraud committed against the grantor or by use of undue influence by the grantee may be rescinded by the grantor. If a grantor is aware that the instrument he is executing is a deed and that it will convey his title, but is induced to sign and deliver by fraudulent misrepresentations or undue influence, the deed is voidable and can be relied upon and enforced by a bona fide purchaser. Fallon v. Triangle Management Services, Inc., 169 Cal. App. 3d 1103, 1106, 215 Cal. Rptr. 748, 749-50 (1985) (citation omitted).

• However, a deed procured by a particular kind of fraud, called fraud in the factum, is void. If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Svanidze, 169 P.3d at 266 (citation omitted); see also Upson, 823 P.2d at 706; Dan B. Dobbs, Handbook on the Law of Remedies § 9.6, at 645-46 (2d ed. 1993).

Svanidze v. Kirkendall, 169 P.3d 262; 2007 Colo. App. LEXIS 1515 (Colo. App. 2007):

• Plaintiffs assert that § 38-30-144(2) offers no protection to bona fide purchasers or encumbrancers if the pertinent corporate instrument has been forged. And they assert that, in this case, the warranty deed was forged because it was "obtained by fraud." We accept the legal premise of plaintiffs' argument but reject the factual premise. The undisputed evidence shows that the deed was not forged or otherwise void.

• It is well established that a forged deed is void and conveys no title. Upson v. Goodland State Bank & Trust Co., 823 P.2d 704, 705 (Colo. 1992). It is similarly clear that fraudulent acts generally render a deed voidable, but not void. See Bray v. Trower, 87 Colo. 240, 247, 286 P. 275, 278 (1930); Sec. Servs., Ltd. v. Equity Mgmt., Inc., 851 P.2d 921, 924 (Colo. App. 1993). If a deed is voidable for fraud, it will convey good title to a bona fide purchaser. See Martinez v. Affordable Housing Network, Inc., 123 P.3d 1201, 1205 (Colo. 2005); Sec. Servs., Ltd. v. Equity Mgmt., Inc., supra, 851 P.2d at 924.

• If a person has been fraudulently deceived about the nature of a document, so that he or she is excusably ignorant about what has been signed, courts recognize "fraud in the factum." See Meyers v. Johanningmeier, 735 P.2d 206, 207 (Colo. App. 1987) (explaining relationship between statutory defense against holders in due course of negotiable instruments and the common law defense of fraud in the factum). Unlike other types of fraud, fraud in the factum yields an instrument that is void, and not merely voidable. Akins v. Vermast, 150 Ore. App. 236, 945 P.2d 640, 643 n.7 (Or. Ct. App.), adhered to on reconsideration, 151 Ore. App. 430, 950 P.2d 907 (Or. Ct. App. 1997); Bennion Ins. Co. v. 1st OK Corp., 571 P.2d 1339, 1341-42 (Utah 1977).

• Here, plaintiffs did not allege fraud in the factum. They did not dispute that Warren signed the deed, knowing that it would convey an interest in real property. Therefore, even if Warren and her husband defrauded the corporation as plaintiffs allege, the deed was merely voidable and conveyed good title [...]

******************

Addendum:

While it is made clear in these cases that a bona fide purchaser or encumbrancer's interest is protected by the recording statutes when it is acquired from one with a voidable title, a victim of a foreclosure rescue scam looking to undo the transaction and the associated damage is not without recourse in such a situation.

Where a subsequent buyer or mortgage lender, who neither participated in, nor had knowledge of the scam, attempts to assert the protection of the recording statutes by claiming the status of bona fide purchaser/encumbrancer, their entitlement to that protection will depend on whether "inquiry notice" will operate to impute knowledge to the buyer or lender where the circumstances surrounding the transaction are such that they would have aroused the suspicions of an ordinary purchaser.

An illustration of this can be found in Martinez v. Affordable Hous. Network, Inc., Case No. 04SC421, 123 P.3d 1201; 2005 Colo. LEXIS 1075 (Colo. 2005). The Colorado Supreme Court ruled that, while the deed in the foreclosure rescue scam at issue was found to be voidable, and not void, the subsequent purchaser acquiring his interest from the foreclosure rescue operator was not entitled to the protections accorded a bona fide purchaser. The court ruled that, because the possession of the home involved was still in the exclusive possession of the financially strapped homeowners who were victimized in the scam, knowledge of the scam was imputed to the purchaser, despite the lack of proof that he either participated in, or had knowledge of, the scam. Among other things, the Colorado Supreme Court stated:

• It is well settled in Colorado that, with certain exceptions inapplicable here, possession of real estate is sufficient to put an interested person on inquiry notice of any legal or equitable claim the person or persons in open, notorious, and exclusive possession of the property may have.

Go here for more on Bona Fide Purchaser, Possession & Duty Of Inquiry; and here for case law on California Bona Fide Purchaser, Possession, Duty Of Inquiry.

Go here for more on void and voidable deeds. DeedVoidVoidable

Current, Former L.I. Local Municipal Officials Accused Of Swiping 4-Acre Parcel; Used Unlawful Tax Deed Scheme, Says Developer In Civil RICO Suit

In Nassau County, Long Island, Newsday reports:

• A developer has filed a civil racketeering lawsuit against a dozen Freeport Village and former Nassau County officials, accusing them of conspiring to take by unlawful means a 4-acre parcel he owns. The suit claims that Freeport Mayor William Glacken and his brother-in-law, village attorney Harrison J. Edwards, plotted with former Nassau deputy treasurer Keith Sernick and others between 2000 and 2004 to take the property through an unlawful tax deed scheme. The defendants acquired the property, which the owner subsequently retrieved through court action.

For more, see Suit accuses Freeport, Nassau officials of land scheme.

Vegas Loan Modification Firm Shuts Down Amid Suspicions Of Unlicensed Practice Of Law

In Las Vegas, Nevada, KLAS-TV Channel 8 reports:

• A local company that claims it can stop foreclosures closed its doors Monday. A sign posted at the U.S. Justice Foundation tells clients it is filing for bankruptcy, but the I-Team has learned that's only part of the story. The I-Team has been looking at the U.S. Justice Foundation, and its owner Jack Ferm, for some time. So has the state Attorney General's Office, the District Court, the Federal Court, and the state bar.

• The company claims it can stop foreclosures by helping people to sue their mortgage companies themselves. Though it's unclear how many if any of those suits have been successful, they've captured the courts attention. Ferm has been ordered by both the state and the federal court to explain why he shouldn't be held in contempt for practicing law without a license. He is not an attorney.

For more, see Mortgage Relief Company Closes Amid Investigation.

For story updates, see:

• I-Team: Owner of Embattled Mortgage Relief Company Speaks Out,
• I-Team: Authorities Hearing from Justice Foundation Clients,
• KVVU-TV Channel 5: Foreclosure Aid Company Claims Bankruptcy (Homeowners: Company Took Money, Gave No Help).

Scammer Sentenced For Hate Crime For Targeting Now-Deceased Elderly Alzheimer's Victim In Theft Of Home Equity

In Jamaica, Queens, the New York Post reports:

• A former Long Islander was sentenced on hate-crime charges yesterday for pulling a brazen, $800,000 mortgage scam on a 94-year-old Alzheimer's victim, officials said.(1) Alexandra Gilmore, 37, will have to serve two to six years behind bars for the cruel con job because New York hate-crime laws apply to victims targeted because of their age, said Queens District Attorney Richard Brown.

For the story, see 'ALZHEIMER' SCAMMER GETS 2 YRS.

Go here for the Queens DA press release: Long Island Woman Is Sentenced In Hate Crime For Targeting 93-Year Old Queens Man In $800,000 Mortgage Fraud Scheme (Receives Two To Six Years In Prison).

Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) According to the story, Gilmore first went after Artee McKoy, a Jamaica resident and friend of her late father, in 2004, when she posed as his daughter and took out a $150,000 mortgage on his [...] home. Not satisfied with that haul, she took out a second, $420,000 mortgage on the home without McKoy's knowledge. In 2005, Gilmore expanded her con, stealing McKoy's house away by teaming up with a "straw buyer" and forging the elderly man's name on documents of sale. The phony buyer - who officials say is Rebecca Tharpe, 31, of Brentwood, LI - got a mortgage on the home for $395,000. The pair then allegedly split the dough. The house was eventually put into foreclosure. McKoy died last Christmas Eve. DeedGammaTheft

State Legislator Proposes Law To Protect Texas Homesteads From Homeowner Association Lien Foreclosures

In Austin, Texas, The Dallas Morning News reports:

• Homeowners associations in Texas would lose their power to foreclose on individual homeowners for nonpayment of dues and other fees under a proposed constitutional amendment filed Friday by a Dallas-area lawmaker. [...] "Things have gotten out of control with homeowners associations," [Rep. Burt Solomons, R-Carrollton] said.(1)

***

• Solomons' proposal, which is expected to be opposed by HOA groups, would submit a constitutional amendment to Texas voters that would prohibit foreclosures by associations on homesteads within their jurisdiction.

For more, see Proposed constitutional amendment would prohibit HOA foreclosures.

(1) According to the story, Solomons said the plight of many Texans in HOAs has been illustrated in news stories, such as when a Frisco homeowner was threatened with fines by his association in August for parking his Ford F-150 pickup in his driveway. HOA rules there required that nonluxury trucks be kept in the garage.

NY Loan Modification Firm Facing $100M Class Action Suit Back In The News

In New York City, the New York Daily News recently ran a couple of stories that mention Long Island-based loan modification firm American Modification Agency ("AMA"). The firm reportedly is facing a $100 million class-action suit that claims the company has collected fees from more than 7,000 homeowners nationwide - all potential victims. For the stories, see:

• Foreclosure crisis brings out scam 'helpers' all over nation,
• Bronx woman says she's a victim of bogus foreclosure 'helper.'

For an earlier story on AMA, in which former employees were interviewed and who give an insider's description of the firm, see Crain's New York Business: No helping hand (Struggling families sue mortgage fixer AMA; paid but got nothing in return).

NYC Lawmakers Move To Toughen Regs On Debt Scavengers Buying Up, Filing Lawsuits To Collect "Zombie Debt"

In New York City, the New York Post reports:

• The city moved yesterday to toughen regulations against collection agencies, 17 months after a study found debt-ridden New Yorkers are losing judgments worth $800 million each year because they're not showing up for court hearings. Councilman Dan Garodnick (D-Manhattan) said unscrupulous agencies are gobbling up consumer debts for pennies on the dollar to pursue debtors without regard to the law and, perhaps, without serving notices of lawsuits ["sewer service"]. "We've even heard of cases where debt collectors would threaten to have residents deported," he said.

For more, see TARGETING DEBT CHEATS.

Go here for other posts on zombie debt. zeta SewerServiceAlpha

State AG Reminds Servicemembers That Upfront Fees For Foreclosure Rescue, Debt Reduction Programs Are Illegal In NC

From Pope Air Force Base, North Carolina, The Fayetteville Observer reports:

• North Carolina’s attorney general [last week] cautioned military personnel about scams. [... North Carolina Attorney General Roy] Cooper spoke to an audience of commanders, senior noncommissioned officers and airmen at the Military Saves Week Kickoff at the Pope Airmen and Family Readiness Center.

***

• Companies prey on people by offering to help them fight foreclosure and getting money up front. “They write a perfunctory letter to the lender, and they may do something just to show they are doing something, but they really aren’t doing anything,” he said.

• “These kinds of scam artists are the reason that we passed a law in North Carolina that it is illegal for you to charge money up front to help with foreclosure,” he said. "It is also illegal to charge money up front to get people out of debt.”

For more, see N.C. atttorney general warns of scams.

Alleged Bogus Notary Acknowledgements On Roof Repair Home Improvement Mortgages Leads To Charges Against Florida Man

In Tallahasse, Florida , the Florida Department of Agriculture and Consumer Services announces:

• Florida Agriculture and Consumer Services Commissioner Charles H. Bronson announced [Wednesday] the arrest of a Pinellas County man for allegedly saddling seven homeowners with second mortgages for roof repairs his company performed for the homeowners.

• The defendant - Peter E. Wozniak, 69, of Largo – was charged with 7 counts of false or fraudulent acknowledgements by a notary public. The charges stem from Wozniak asking the victims to sign an installment payment contract for the roof repairs and then notarizing the signatures and allegedly using them without the homeowners’ knowledge to file second mortgages with the Hillsborough County Clerk’s Office in the name of Home Improvement Services, the business for which he worked.

***

• [Office of Agricultural Law Enforcement] investigators have identified at least 7 victims but suspect that there may be additional cases in which second mortgages were taken out on homes on which the company installed new roofs.

For the press release, see Bronson Announces Arrest In Mortgage Scam.

Foreclosure Defense Self-Help Seminar Upcoming In Downtown Miami

In Miami, Florida, South Florida Caribbean News reports:

• Homeowners who are in any stage of foreclosure in Miami can now get the help they need during a FREE legal seminar designed to address homeowners’ rights and the types of foreclosure defenses available to them. The Homeowners Legal Assistance Program for the public will be held Saturday, March 14 at the Miami-Dade College Wolfson Campus, located at 245 N.E. 4th Street, Room 3210, Building 3000, from 9 a.m. to 3 p.m. Attendees will have an opportunity to ask questions of attorneys who handle foreclosure cases.(1)

• Homeowners will be able to meet with an attorney one-on-one after the presentations. They will be seen on a first come, first served basis. Homeowners should bring [their loan and court] documents related to their case[. ... M]ayor Carlos Alvarez’ Mortgage Fraud Task Force [...] will distribute forms for filing criminal complaints involving mortgage fraud.

For more, see Free Homeowners Legal Assistance Program Provides Foreclosure Help To Residents of Miami Dade County.

(1) Presenters include former U.S. Attorney for South Florida Kendall Coffey; Consumer Advocate attorney Leonard Elias of the Miami-Dade Consumer Services Department; attorney Erik Wesoloski, whose law practice concentrates in real estate litigation and real estate transactions; bankruptcy attorney Jordan Bublick; Chief Counsel Glen Theobald of the Miami-Dade Police Department; and Richard Zaretsky, who is a Florida Bar Board certified real estate attorney. Elias will be the moderator, and Tim Ravich, President of the Dade County Bar Association will give the opening remarks.

Attorneys Incur License Suspensions For Fee Sharing, Other Violations In Arrangement With Loan Modification, Foreclosure Rescue Operator

Two relatively recent decisions from the Ohio Supreme Court illustrate how attorneys who allow themselves to be pimped out by upfront fee loan modification firms and foreclosure rescue operators can find themselves in hot water.

The attorneys accepted client referrals from WJW Enterprises, an organization that purported to assist persons trying to keep their homes after foreclosure proceedings had been filed against them. Some of the clients referred by WJW to the attorneys were in need of advice and representation on bankruptcy matters. The president of WJW was James Warsing,(1) who was not an attorney licensed to practice law in Ohio.

Among the violations of the attorneys' Code of Professional Responsibility were findings that the homeowners never paid the attorneys any money but rather, paid money to WJW, who passed along some of it to the attorneys providing the legal services, and pocketed the rest.

The Ohio high court made this observation on the need to prohibit this type of arrangement:

• [T]he prohibition against sharing legal fees with nonlawyers benefits the public by (1) limiting the possibility that a nonlawyer will interfere with the exercise of a lawyer's professional judgment in representing a client and (2) ensuring that the total fee paid by the client is not unreasonably high. ABA Comm. on Ethics and Professional Responsibility, Formal Op. 356 (1988). The prohibition also limits the possibility that a nonlawyer will be motivated to engage in the improper solicitation of business for a lawyer.

For more, see:

• Disciplinary Counsel v. Simonelli, 113 Ohio St. 3d 215; 2007 Ohio 1535; 863 N.E.2d 1039; 2007 Ohio LEXIS 851 (2007),(2)
• Disciplinary Counsel v. Stranke, 110 Ohio St.3d 247, 2006 Ohio 4357, 852 N.E.2d 1202 (2006).

For another Ohio attorney disciplinary action involving a different loan modification, foreclosure rescue operator using a similar compensation arrangement with the lawyers involved, see:

• Cincinnati Bar Assn. v. Mullaney, 119 Ohio St.3d 412, 2008-Ohio-4541 (2008).

(1) On December 12, 2007, the Ohio Feds hit Warsing with a Federal mail fraud indictment in connection with the activities where he allegedly promised homeowners he could save their homes from foreclosure. See Indictment - U.S. v. Warsing, and U.S. Attorney News Release. The matter is still pending. At last check, Warsing appears to be in the process of changing his not guilty plea. A hearing is scheduled in an Ohio Federal Court for the end of March.

(2) The attorney in this case also held a license to practice law in New York, which the Committee on Professional Standards in New York moved for and obtained an order imposing reciprocal discipline (see 22 NYCRR 806.19), resulting in a reciprocal suspension for a period of one year, effective as of April 18, 2007, the date of his suspension in Ohio. Matter of Simonelli, 2007 NY Slip Op 6326; 43 A.D.3d 548; 842 N.Y.S.2d 587; 2007 N.Y. App. Div. LEXIS 8834 (NY App. Div. 3d Dept. 2007).

Maryland Feds Indict Title Agent For Pocketing Escrow Proceeds, Failing To Pay Off Existing Liens; Accused Of Using "Ponzi" Method Of Hiding Bad Acts

From the Office of the U.S. Attorney in Maryland:

• A federal grand jury indicted title company owner Deborah Williams, age 56, of Pasadena, Maryland, [Wednesday] for mail fraud related to a scheme to divert settlement funds to her own benefit, announced United States Attorney for the District of Maryland Rod J. Rosenstein.

***

• According to the 15 count indictment, Williams [the sole officer and director of Day Title, Incorporated, ...] used for her own benefit settlement funds from real estate closings that were deposited in Day Title’s escrow account and were intended to pay off the lien holders on those properties. Williams attempted to conceal her illegal transactions by falsely representing on the settlement documents that her company had paid off lien holders, then sent the falsified settlement documents to the lender by commercial carrier. In fact, Williams either initiated stop payments of payoff checks that had been disbursed or intentionally failed to mail the payoff checks to the lien holder.

• According to the indictment, Day Title’s failure to make the pay offs to the lien holders was not detected until sellers began receiving delinquency notices from their mortgage companies. The time delay between the settlement and the date when Day Title made the pay offs to the lien holders allowed Williams to replenish the escrow account with proceeds from new real estate settlements.

For the U.S. Attorney's press release, see Pasadena Title Company Owner Indicted for Allegedly Defrauding Lenders of over $3.4 Million (Diverted Real Estate Proceeds to Personal Use and Created False Settlement Documents).

Fake NY Lawyer Cops Plea To Swindling Two Out Of $200K In Home Sale Proceeds; Failure To Pay Existing Mortgage Leads To Foreclosure Notice

In New York City, the Staten Island Advance reports:

• A West Brighton man who bilked his girlfriend's family and an acquaintance of almost $200,000 by pretending to be a lawyer now faces real consequences: Up to eight years in prison. Renauld A. Gregg, 29, pleaded guilty yesterday in state Supreme Court, St. George, to three felony counts of grand larceny stemming from two separate incidents.

• Gregg was charged in July with swindling $156,877 from an acquaintance by keeping the proceeds from the sale of her Stapleton home. [...] He was successful with the sale in 2007, police say, but didn't use the cash to pay off Ms. White's mortgage, instead keeping it for himself, prosecutors said. Ms. White discovered her home had been sold when she received a notice of foreclosure, said William J. Smith, spokesman for District Attorney Daniel Donovan. The lender stopped foreclosure proceedings after learning Ms. White had been victimized.

• Gregg also persuaded his girlfriend and her family to let him represent them in a real-estate deal on May 23 of last year. [...] He bilked the unwitting victims of $31,100, then wired his ill-gotten gains to the Borgata Casino in Atlantic City to pay off gambling debts, prosecutors said.

For more, see Man who pretended to be lawyer faces up to 8 years in prison (West Brighton resident bilked his girlfriend's family and an acquaintance of almost $200,000).

Suit Filed Against Firm That Allegedly Provides Advice To Homeowners In Connection With Walking Away From "Underwater" Homes

In Capistrano Beach, California, MISH'S Global EconomicTrend Analysis posts that You Walk Away LLC was sued for alleged violations of California State Law. A copy of the News Release from attorney Benjamin L. Meeker announcing the lawsuit is included in the post:

• CAPISTRANO BEACH, Calif., February 23, 2009 – The Law Offices of Benjamin L. Meeker, APC announced today that it represents the plaintiffs in a class action lawsuit filed against You Walk Away, LLC, a “foreclosure consultant” company located in Carlsbad, California. According to the complaint filed in San Diego County Superior Court on February 13, 2009, You Walk Away peddles foreclosure consulting “services” and “protection kits” through which it entices desperate homeowners into paying an upfront fee of $995 for an essentially worthless service.

• “We believe that You Walk Away’s conduct falls within that described by the California Attorney General’s Office as the ‘Foreclosure For a Fee Scam’” says attorney Benjamin Meeker.(1)

For the rest of the post, see You Walk Away LLC sued in class action lawsuit.

See also, San Diego Union Tribune: Foreclosure consultants in Carlsbad target of suit.

For docket information on this case, see Hurst v. You Walk Away LLC.

(1) If the firm actually counsels homeowners to cease making their mortgage payments, said conduct may give rise to a cause of action for the mortgage lender as a tortious interference with an existing contract. See Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal. 4th 26; 960 P.2d 513; 77 Cal. Rptr. 2d 709; 1998 Cal. LEXIS 5419 (1998):

• "The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal. 3d 1118, 1126 [270 Cal. Rptr. 1, 791 P.2d 587].)

Foreclosure Rescuer Who Pocketed $3,500 For Failed Mortgage Assistance Claims He Was Scammed By Loan Modification Firm He Farmed Out The Work To

In Bradenton, Florida, ABC News reports:

• It was $3,500 Nickie Struthers couldn't afford -- but desperate to stave off foreclosure, the 45-year-old and her fiance, Dr. Dan Howard, a surgeon, scribbled their signatures on the check they thought would yield salvation. She handed the check to someone she'd done business with in the past, a mortgage broker-turned-foreclosure rescuer. But months went by, and the broker seemed to disappear. He had promised to modify her loan, she said, "but he wouldn't take our phone calls, e-mails, nothing. I never thought this would happen."

***

• But the man who admits he accepted Struthers' check, Chris Campbell of the company Lionstar LLP, insisted he is not a scammer. Rather, he said he believes he may have been scammed by a subcontractor to which he passed along the money, which in turn was supposed to deal with [the lender].

• He said he went into a deep depression after believing he'd lost his clients' money, and that's why he did not answer their calls. But he claimed he is working to find a way to refund Struthers' and Howard's money.

For more, see Foreclosure Scams Up as 'Piranhas' Circle (FBI Adds Resources to Battle Mortgage Fraud Amid Exponential Rise in Complaints).

Calif. Widower Takes On MERS As Bankruptcy Judge Thwarts Foreclosure Attempt, Sanctions Attorney For Sloppy Motion; Homeowner Files Suit Seeking $1M+

In Cerritos, California, msnbc.com reports:

• Questions linger here, as ripe and nagging as the odor that once wafted over this former dairy capital: Who is trying to seize the home of Ray Vargas, child of the Great Depression, D-Day veteran and loving husband who just wanted to do right by his dying wife? And are they entitled to it?

• In bankruptcy court documents, the party attempting to foreclose is identified as Mortgage Electronic Registration Systems Inc., or MERS,(1) a small Vienna, Va.-based company employed by lenders to streamline the resale of mortgage loans and servicing rights. In that role, MERS claims an interest in tens of millions of U.S. home loans and the legal right to foreclose on those in default.

• But MERS never gave Vargas a loan. It never collected money from him or recorded his payments. It had no ability to modify his loan. What it did have was a copy of a document that named it a “beneficiary” of the mortgage on his home and a “nominee” for the lender and “lender’s successors and assigns.” But it has never identified the current holder of the loan.

• While such documentation has allowed many foreclosures to proceed around the nation, the judge in Vargas’ case threw MERS for a loop, ruling that the company had no right to attempt to seize his home on behalf of unnamed plaintiffs. “No such unidentified parties are permitted in a motion before the court,” wrote Judge Samuel L. Bufford. Bufford’s October ruling kept the foreclosure on hold and opened the door for Vargas to sue MERS in an action aimed at clearing his home of the $826,549 in debt he says is the result of fraud, forgery and abuse of process.

***

• [J]udge Bufford’s ruling in Vargas’ case was greeted with enthusiasm by [consumer bankruptcy advocates]. In a withering opinion, the judge said MERS “presented no admissible evidence” in its case. And he found that sanctions should be imposed against [Mark T.] Domeyer, the attorney representing MERS, for bringing such a sloppy motion to court. The bottom line, Bufford said, was that the true owners of the loan — “highly unlikely” to be original lender Freedom — did not come forward in court and MERS failed to prove any right to act on their behalf.

For the entire story, see D-Day vet's tale parallels mortgage meltdown (Ex-corpsman, 84, blames 'greed, greed, greed' as he faces losing his home) - (go here for entire story on one web page).

For Judge Bufford's ruling in this case, see In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008).

Go here for the homeowner's lawsuit against MERS and Freedom Home Mortgage Corporation.

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here.

(1) A 2007 lawsuit against MERS (Trevino v. Merscorp Inc., et al.) identified its controlling shareholders as: Citigroup, Inc., Countrywide Financial Corporation, Fannie Mae, Freddie Mac, GMAC-RFC Holding Company, LLC, (doing business as GMAC Residential Funding Corporation), HSBC Finance Corporation, JP Morgan Chase & Co., Washington Mutual Bank, and Wells Fargo & Company.

Among other things, the 2007 lawsuit alleged that "MERS is grossly undercapitalized to cover the potential liability stemming directly from its role as primary mortgagee on tens of millions of Mortgage Notes." Because of this, the suit sought to "pierce the corporate veil of MERS" and hold the the controlling shareholders jointly and severally liable for damages as well as MERS (see Trevino v. Merscorp Inc., et al. - page 8, paragraphs 9(l) and 9(m)). See also, Homeowners In Foreclosure Being Clipped For Illegally Inflated Legal & Appraisal Fees, Says Lawsuit. Copyright 2009 The Home Equity Theft Reporter (http:/HomeEquityTheft.blogspot.com) ThetaMissingDocsMtg

D.C. Appeals Case Provides Roadmap For Obtaining Triple Damages Plus Punitives Against Foreclosure Rescue, Equity Stripper

A 2006 decision of the District of Columbia Court of Appeals may provide a roadmap for how a state's consumer protection laws can be used to obtain significant damages from a foreclosure rescue operator engaged in an equity stripping arrangement. The players in this case are Rodney Byrd, the foreclosure rescue operator, and Hattie Smith, the homeowner. Tina Jackson, Hattie Smith's grandchild, brought the case on behalf of her grandmother's estate.

The fact pattern, in Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006), is summarized in the first paragraph of the appellate court's opinion:

• Plaintiff-appellee, the grandchild and personal representative of the estate of the deceased Hattie Smith, brought suit against appellant (Byrd) for his conduct in persuading Smith to sign documents which resulted in the sale of her home to a partnership Byrd controlled. After a bench trial, the judge found that Byrd had committed multiple violations of the District of Columbia Consumer Protection Procedures Act, D.C. Code §§ 28-3901 et seq. (2001) (the CPPA or the Act), and awarded treble and punitive damages to the estate.

• The judge found, in essence, that despite representing himself to Smith as a foreclosure specialist who would assist her in retaining ownership of her home, Byrd "orchestrat[ed] ... the sale of [her] property worth $ 200,000" to the partnership he controlled for $ 33,000, then "flip[ped] the property to [a third person] for $ 150,000 from which Byrd would take substantial money." n1

[Opinion, footnote 1: Indeed, the judge found that ultimately Byrd had paid Smith nothing for the property].

In applying the D.C. consumer protection statute, the appellate court rejected the foreclosure rescue operator's attempt to characterize the relationship between himself and the frail, elderly homeowner as "a purchaser-seller relationship in which Smith, in an arm's length transaction, sold her house to him in circumstances admittedly unfavorable to her but not of his making."

The appellate court agreed with the lower court ruling that the relationship between Byrd, who presented himself to the homeowner as a "foreclosure specialist" who would aid her in keeping her home -- and not as a prospective buyer, and Hattie Smith was a merchant-consumer relationship to which the D.C. consumer protection statute was applicable.

• As the [trial] judge concluded, it enabled him to gain Smith's trust by a promise to save her home, after which he "orchestrat[ed]" the scheme to gain title to the home "for a fraction of its value." Both the treble damages, which under the CPPA "serve a remedial rather than a punitive purpose," [...], and the separate punitive damages award -- which the judge assessed after finding Byrd's actions to have been "particularly malicious because . . . calculated to take advantage of a frail, elderly and vulnerable widow" -- are entirely justified on this record.

The trial judge found that Hattie Smith lost $148,175.41 equity in her home, and accordingly based the treble damage calculation on that amount. (The actual award of $315,026.23 represented a multiplier of three minus a credit of $ 129,500 from other settling defendants).(1)

For the opinion, see Byrd v. Jackson, No. 04-CV-940, 902 A.2d 778; 2006 D.C. App. LEXIS 362 (2006).

For the trial court ruling, see Jackson v. Byrd, Civil Action No. 01-ca-825 , 2004 D.C. Super. LEXIS 19 (D.C. Super. Ct., 2004) (link may require free registration at LexisOne Free Case Law).

For a media report on this case, see The Washington Post: Judge Rules Against Foreclosure Rescuer (Investor Ordered to Pay Widow's Estate).

(1) The trial court noted in its ruling that Byrd, who (as a result of a motion filed by Plaintiff) was prohibited from testifying at trial because during his deposition, he invoked his 5th Amendment right to remain silent, was no stranger to the D.C. courts in cases with similar fact patterns:

• This was not the only time Byrd inserted an unconscionable price into a contract to buy the home of a frail elderly person. In Cole v. Herbert (Civ. Action No. 98-9252), Byrd bought a house worth $ 120,000 for $ 8000 by defrauding the personal representative of three elderly people who owned interests in the home. (P Ex. 96) In Crockett v. Byrd (Civ. Action No. 98-1584) Byrd purchased a home worth $ 150,000 for $ 56,000 from an elderly lady suffering from dementia. (P Ex. 73)

• From all of the facts described above, the Court concludes by a preponderance of the evidence that Byrd made and enforced an unconscionable sales price by taking advantage of Smith's frail physical and mental condition. As a self-proclaimed foreclosure specialist, he got this frail elderly woman to trust him with saving her home, and then he took it for himself at an unconscionable price.

Buyers Cautioned To Address Title Issues When Buying Foreclosed Homes

In a Q & A article in The Memphis Daily News, Tennessee real estate attorney Ryan E. Byrne cautions investors about buying foreclosed properties without understanding all the risks and legal ramifications. One potential problem arises when a lender, in its effort to unload a foreclosed home, requires the use of a title insurance agent selected by them to insure the title to the home.

• [T]he perception is that a foreclosure wipes away any clouds on a title that were there before. A foreclosure wipes away a lot, but it doesn’t clean the slate completely clean. If there’s anything that was in existence prior to the deed of trust that was foreclosed upon, that remains an issue, and often times, these foreclosing banks require you to close with their chosen title officer. They don’t give you the option of closing with your own attorney, and sometimes these old title issues – not only are they not dealt with properly by the foreclosing banks – they usually aren’t disclosed to the purchaser. Sometimes, several years later, these things pop up when the client is going to sell the property.(1)

For the story, see Byrne Warns of Legal Pitfalls With Foreclosure Buys.

(1) Reading between the lines, the story may be cautioning purchasers of foreclosed homes to be alert to attempts by the lender/seller to unload a property that may have title problems, and that the requirement that the buyer use the lender's title agent may be an attempt by the lender to "control" the closing in a way that will make it easier for it to "slip something past" the unwitting buyer.

One source of title problems involving foreclosures may arise from the fact that a lender may have lacked the legal standing to initiate the foreclosure process in the first place. In such a case, an argument can be advanced that the court (or the trustee, in non-judicial foreclosure states) lacked jurisdiction/authority to authorize the foreclosure sale, potentially making such a sale, and any subsequent conveyances of the property, void.

Go here for case law that supports the proposition that a lender that lacks standing to initiate the foreclosure process leaves the court without subject matter jurisdiction to entertain the matter.

See also, Thousands Of Foreclosures Are Void, Says Massachusetts Class Action Demanding Lenders & Their Lawyers Prove Note Ownership. title insurance legal issues

Lenders Owning Foreclosed, Dilapidated Cincy Homes Dodge Criminal Trial By Failing To Show Up In Court; City Legal Tactic Copies Cleveland Approach

In Hamilton County, Ohio, the Cincinnati Enquirer reports:

• Cincinnati prosecutors tried a controversial legal tactic Friday in the city's ongoing campaign to get banks and other corporations to take care of foreclosed and abandoned properties they own. In Hamilton County Municipal Court, Assistant City Prosecutor Keith C. Forman asked a judge to proceed with trials against three corporate defendants - even though the companies and their lawyers failed to show up.(1) [...] But Judge Russell J. Mock denied the city's motion, saying he's not convinced that the law allows it in misdemeanor housing cases. [...] The city had building inspectors and neighbors lined up to testify.

***

• The city's attempt is fashioned after Cleveland, where Housing Court Judge Raymond L. Pianka has used it against speculators, landlords and banks. But two recent appellate decisions out of Cleveland are split on whether such trials are legal, and one of those cases is now before the Ohio Supreme Court.

• In one Cleveland ruling, the appeals court conceded that its decision "leaves a difficult gap in the law."(2) Corporations can't be arrested and jailed, so they can escape responsibility by simply failing to appear in court.

For more, see Corporations avoid trial by not showing up (City's attempt to try landlords fails).

(1) The trial in the absence of a defendant - or "in absentia," in legal jargon - is allowed against corporations in some cases under Ohio law, the story states.

(2) See City of Cleveland v. Wash. Mut. Bank, No. 91379, 2008 Ohio 6956; 2008 Ohio App. LEXIS 5827 (Ohio Ct. App. 8th Dist., Cuyahoga County; December 31, 2008), footnote 1.

NBC Nightly News On Courtroom 676: Home Of Philadelphia's Residential Mortgage Foreclosure Diversion Pilot Program

In Philadelphia, Pennsylvania, NBC Nightly News ran a story Saturday evening on Courtroom 676, home of the city's Residential Mortgage Foreclosure Diversion Pilot Program. Among those interviewed for the story is Judge Annette Rizzo, who heads the operation designed to help homeowners in foreclosure keep their homes by restructuring repayment agreements with their mortgage lenders.

For the story (approx. 2:38), see Seeking Solutions.

Go here for other posts on Philadelphia's Courtroom 676.

Foreclosure Mediation Now Available "On Demand" For Orlando-Area Homeowners

In Orlando, Florida, the Orlando Sentinel reports:

• Orange County residents who are being sued for foreclosure [Wednesday] got help. Chief Judge Belvin Perry Jr. signed an order, giving them the right to demand mediation. That means that instead of running into a roadblock when they call their mortgage companies, hoping to work out a solution, they'll be able to sit down with someone and negotiate.

***

• [Wednesday's] order does not require mediation, but it let's borrowers know that if they demand it, they'll get it. It also allows judges to order it.

The order, which covers the 9th Judicial Circuit Court of Florida, applies only to owner-occupied homes in Orange and Osceola Counties.

For more, see Judge offers help to Orange homeowners facing foreclosure.

See also, Mandatory mediation ordered in foreclosures.

Law Students To Staff Jacksonville Legal Clinic Representing Low Income Tenants Facing Eviction

In Jacksonville, Florida, the Jacksonville Business Review reports:

• Florida Coastal School of Law recently launched a new housing rights legal clinic so students can work with low-income families facing housing-related legal problems. The clients are tenants who could be facing eviction and whose household income falls within the federal poverty guidelines. The clinic offers the service free to people who qualify and in conjunction with Jacksonville Area Legal Aid.

• “Most of these people are in between an emergency and living on the street,” said Professor Lois Ragsdale, who oversees the clinic at Florida Coastal. [...] The clinic focuses on landlord-tenant cases in Duval County ranging from security deposit issues up to evictions.

For more, see Florida Coastal School Law program fights evictions.

Miami Foreclosure Sale Set Aside As Lender Is Unable To Produce The Proper Paperwork Proving The Right To Enforce The Note

In Miami, Florida, The New York Times reports:

• [O]n Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

• With the sale set aside, Ms. Fernandez remains in the home. “We believe this loan was never assigned,” said Ray Garcia, the lawyer in Miami who represented the borrower. Now, he said, it is up to whoever can produce the underlying note to litigate the case. The statute of limitations on such a matter runs for five years, he said.(1)

***

• Mr. Garcia has another case in which a borrower tried to sell his home but could not because the note underlying a $60,000 second mortgage cannot be found. The statute of limitations on the matter will expire in October, he said, and if the note holder has not come forward by then, the borrower will be free of his obligation on the second mortgage.

For the story, see Fair Game: Guess What Got Lost in the Loan Pool?

For posts that reference the failure of mortgage lenders and their attorneys to file the proper paperwork when bringing foreclosure actions, Go Here, Go Here, Go Here, Go Here, Go Here, and Go Here.

(1) Sec. 95.11(2)(c), 95.281(1)(a), Florida Statutes. ThetaMissingDocsMtg

More On Missing Promissory Notes In Foreclosure Actions

An article co-authored by U.S. Bankruptcy Judge Samuel Bufford (Central District of California) and Texas attorney (and former Chief U.S. Bankruptcy Judge, Western District of Texas) R. Glen Ayers with the firm Langley & Banack in San Antonio, Texas directs the reader's attention to, among other things, title issues under Article 3 of the Uniform Commercial Code ("UCC") in the context of mortgage foreclosures.

The authors assert that these issues have received less than adequate focus in foreclosure proceedings. The article, which is part of a UCC presentation to be given by Mr. Ayers at the Advanced Bankruptcy Institute on April 3, 2009, is available online courtesy of his firm.

With respect to the lender's producing the promissory note in order to proceed with a foreclosure action, the authors point out that of even more importance than producing the note, the lender seeking to enforce a missing instrument:

• must be entitled to enforce the instrument,
• must prove the instrument’s terms, and
• must prove its right to enforce the instrument

pursuant to §3-309 (a)(1) & (b) of the UCC.

For the article (in MS Word format), see Where's The Note, Who's The Holder: Enforcement Of Promissory Note Secured By Real Estate. ThetaMissingDocsMtg

Sloppy Bookkeeping In Securitizations Beginning To Bite Financial Institutions As Big Squeeze On Lenders, Servicers Looms In The Horizon

The New York Times reports:

• WE are all learning, to our deep distress, how the perpetual pursuit of profits drove so many of the bad decisions that financial institutions made during the mortgage mania. But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks’ minimalist approach to meeting legal requirements — bookkeeping matters, really — when pooling thousands of loans into securitization trusts.

***

• THE woes brought on by sloppy bookkeeping in securitizations will be on the agenda at the American Bankruptcy Institute’s annual spring meeting on April 3. An article titled “Where’s the Note, Who’s the Holder,” co-written by Judge [Samuel L.] Bufford and R. Glen Ayers, a former federal bankruptcy judge in Texas, will be the basis of a discussion at the meeting.

• Mr. Ayers, who is a lawyer at Langley & Banack in San Antonio, said he expects that these documentation problems will halt a lot of foreclosures. That will mean pain for investors who hold the securities. The problem for those who expect to receive the benefit of the note, Mr. Ayers said, is that they “may not be able to show to the judge they have a right to foreclose.” “It’s a huge problem,” he added. “It’s going to be expensive, I don’t know how expensive, ultimately to the bondholders.”(1)

For the story, see Fair Game: Guess What Got Lost in the Loan Pool?

Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the story.

(1) More and more judges, attorneys, and homeowners are taking note of the fact that foreclosing lenders have no business foreclosing on defaulted mortgages unless the lenders (a) produce the promissory note, and more importantly, (b) produce evidence (ie. the chain of title to the note, etc.) that they have the legal right to enforce the note. First in line in feeling the financial squeeze are the loan servicers, according to a recent story in American Banker:

• [P]ooling and servicing agreements typically require that servicers advance all the principal and interest payments, as well as tax, insurance, maintenance, and foreclosure costs, to investors regardless of whether the borrower is paying. Servicers get reimbursed for expenses incurred while a loan is delinquent but only after the property goes into foreclosure, so getting repaid can take nine months to a year. Large banks with servicing operations may be able to handle the financial strain of paying advances to investors, but independent servicers and special servicers that deal with defaulted borrowers are already cash-strapped, said Matt Stadler, a principal and the chief financial officer at National Asset Direct Inc., a New York buyer and servicer of distressed loans. "Advance lines are ballooning, and servicers are paying interest on those advances," he said. Mr. Stadler likened the state of the servicing industry to the "I Love Lucy" episode in which Lucy is furiously grabbing chocolates off a fast-moving conveyor belt. "The borrowers are just piling up, and servicers are inundated and overwhelmed with calls they can't answer, short sales they can't complete, and not enough staff," he said.

The estimate of nine months to a year that it takes for a servicer to get reimbursed for its advances is obviously based on the foreclosing entity producing the note, and producing satisfactory evidence of its right to enforce it. However, as more and more lenders are unable to produce the proper paperwork in foreclosure actions, these cases are going into indefinite limbo, and will be causing (if they haven't already) a serious financial crush on those loan servicers caught in the middle as they are obligated to continue paying the holders of the securitized interests while the defaulting homeowners continue to properly stiff them. Any payments being made by the homeowners on account of their home mortgage will go directly into a court registry, or their attorney's trust account, pending resolution of the matter. ThetaMissingDocsMtg

Homeowner Facing Foreclosure Gets Help From WV AG In Cleaning Up Mess Left By Loan Modification Firm; Tells Story To Congress

In Charleston, West Virginia, West Virginia Public Broadcasting reports:

• Nancy Dix of Ansted, 67, [testified] before Congress about how she almost lost her home to predatory lenders. She says she came close to being homeless.

***

• [A] Houston-based business called Mortgage Rescue said they could stop the foreclosure – if she sent them $921. “They said if I sent them $921, they would take the loan over and get the payments lower on me. Well, they didn’t. And I lost $921. Because I never did hear from them again.”

• Dix contacted state Attorney General Darrell McGraw’s office, who forwarded her to lawyer Bren Pomponio with Mountain State Justice. They helped her keep her home. Now, she’s [testified] before the Senate Commerce Committee and its new chairman, Senator Jay Rockefeller.

For the story, see Predatory lending victim speaks to Congress.

See also, The Charleston Gazette: W.Va. woman to testify before Jay's panel (Focus will be on consumer foreclosure scams).

For the Senate proceedings, see Consumer Protection and the Credit Crisis.

Watch Out For Masquerading "Non-Profit" Organizations Promoting "HOPE"

In Washington, Connecticut, the Hartford Courant's CT Watchdog blog posts this letter from a reader:

• I recieved a letter from H.O.P.E (Homeownership Protection Education Alliance INC). I called the number and talked to a Gentleman [...]. He started off by telling me they are a non profit agency that helps homeowners trying to keep there [sic] homes from foreclosure. I became suspicious after he told me they could help me but it would require a $1900.00 donation. Then he asked for my social security number and banking information. I did not give him the information, I told him I would call him back.

For more, see Washington residents figures out H.O.P.E. spells SCAM.

Postscript:

The Connecticut Attorney General announced this week an investigation into the activities of a firm called H.O.P.E Alliance in response to consumer complaints against it alleging phony offers of loan modification, foreclosure rescue help while masquerading as a legitimate non-profit organization. See Blumenthal, Courtney Warn About Harmful Mortgage Rescue Deals Hitting Connecticut.

Indiana Chief Justice Leads Effort To Give State's Judges, Lawyers Foreclosure Defense Training

In Indianapolis, Indiana, The Associated Press reports:

• Indiana's dubious distinction as one of the leading mortgage foreclosure states has faded some, but not enough for the judicial and legal communities to ignore. Indiana Supreme Court Chief Justice Randall Shepard wants Indiana to have more judges and lawyers than any other state trained in foreclosures, and that effort begins [this] week when about 100 receive training.(1)

***

• The Indiana Supreme Court is sponsoring the mortgage training [this] Friday in Indianapolis with Indiana Legal Services Inc., which provides free legal services to low-income and elderly people, and the Legal Aid Society of Southwest Ohio.

For more, see Shepard wants more lawyers trained on foreclosures.

(1) His goal is to have 700 judges and pro bono mortgage lawyers and mediators by this summer -- a promise Shepard made in his annual State of the Judiciary speech last month, the story states.

Loan Modification Firm Engaged In The Unlicensed Practice Of Law, Says Florida AG

In a recent lawsuit filed by Florida Attorney General Bill McCollum, he accuses loan modification firm Outreach Housing with, among other things, engaging in the unlicensed practice of law in the conduct of its business activities. He describes the loan modification firm's activities in this regard as follows:

• Attorneys licensed in Florida enter into an agreement with Outreach Housing which acknowledges that Outreach Housing retains Limited Power of Attorney for the homeowners (clients) and that Outreach Housing may remove any file from an Attorney with or without cause upon two week’s written notice. (Lawsuit - paragraph 21);

• Outreach Housing’s clients make monthly payments to Outreach Housing for its services. These monthly payments are placed in individual segregated accounts [...] over which Outreach Housing has power of attorney. Outreach Housing authorizes the release of these funds to Attorneys for filing fees and legal representation. These subsequent monthly payments are shared between Outreach Housing and the selected Attorney on a pre-agreed basis. (Lawsuit - paragraph 23-24);

• Defendants represent to consumers that they or their non-lawyer agents review and analyze the homeowners’ mortgage closing documents, identifying violations of federal law, including the Truth-in-Lending Act and Real Estate Settlement Procedures Act, which have occurred. (Lawsuit - paragraph 27);

• Defendants’ putative analyses of homeowners’ mortgage documents for violations of federal law constitutes the unauthorized practice of law in accordance with the principles of the Florida Supreme Court. See State of Florida ex rel. The Florida Bar v. Sperry, 140 So.2d 587 (1962). (Lawsuit - paragraph 28);

• Defendants have engaged in the practice of law by employing Florida licensed attorneys to offer and provide legal services through the Defendants to clients of the Defendants. (Lawsuit - paragraph 29);

• Defendants have engaged in the practice of law by controlling the way Florida licensed attorneys provide legal services to clients of the Defendants. (Lawsuit - paragraph 30);

• Defendants have engaged in the practice of law by controlling the way Florida licensed attorneys are compensated for providing legal services to clients of the Defendants. (Lawsuit - paragraph 31);

• Defendants’ business in offering and providing legal services to the public through Florida licensed attorneys which Defendants engage, control and compensate constitutes the unauthorized practice of law in accordance with the principles of the Florida Supreme Court. See The Florida Bar v. Consolidated Business and Legal Forms, Inc., 386 So.2d 797 (1980). (Lawsuit - paragraph 32).

If, in fact, these activities constitute the unlicensed/unauthorized practice of law, it appears that non-attorney loan modification firms that market and provide "foreclosure defense" services directly to the consumer through the use of forensic loan audits and other activities commonly associated with the work of an attorney have significant cause for concern when operating in Florida, as well as in any other state/jurisdiction that has similar laws regulating the unlicensed/unauthorized practice of law.

Source: Lawsuit: State of Florida v. Outreach Housing, et al.

Postscript:

According to a recent Miami Herald report, at least one attorney who was associated with Outreach Housing is currently under investigation by The Florida Bar. (See State Bar Probe Looks Into Attorney's Role With Embattled South Florida Loan Modification Firm).

NCLC Report: Antiquated State Laws Harm Homeowners, Fuel Foreclosure Crisis

From the National Consumer Law Center:

• While many states have taken steps in recent years to strengthen the rights of renters, only a handful of states have updated their home foreclosure laws, which are now "tilted against homeowners" and acting as a little-understood factor that is helping to accelerate the U.S. home foreclosure crisis, according to a major new report by the National Consumer Law Center (NCLC). Based on a survey of existing state laws, the NCLC report identifies some of the most antiquated state law provisions, including "fast track" foreclosures without any court oversight in 30 states and no requirement of direct notification to homeowners in 33 states upon the initiation of foreclosure proceedings.

For the report, see Foreclosing A Dream: State Laws Deprive Homeowners of Basic Protections.

Go here for the entire NCLC press release.

Thanks to Scott Stapf at The Hastings Group, LLC in Arlington, Virginia for the heads up on the report.

State AG Gets Temporary Injunction Against Central Florida Loan Modification Firm; Company Banned From Continuing To Pocket Upfront Fees

From the Office of the Florida Attorney General:

• Attorney General Bill McCollum [Monday] announced that his office has obtained a court order temporarily prohibiting an Orlando loan modification company from charging up-front fees to homeowners for loan modification services. According to the order issued by the Orange County Circuit Court, FMA Servicing, Inc. is barred from charging homeowners any fee in advance of providing loan modification services. FMA Servicing must comply with written notice requirements contained in the Foreclosure Rescue Fraud Prevention Act.

For the rest of the Florida AG's press release, see Court Grants Request to Temporarily Stop Loan Modification Company's Up-Front Fees.

For the lawsuit filed earlier this month, see State of Florida v. FMA Servicing, Inc., et al.

CNBC's "Power Lunch" Interviews Florida Legal Aid Attorney On Lenders' Failure To Prove Ownership Of Mortgage Loans In Foreclosure Actions

CNBC's program Power Lunch last week featured an interview with Florida attorney April Charney with Jacksonville Area Legal Aid on the inability of many lenders to produce proof that they actually own the promissory note they are trying to enforce through foreclosure.

For the interview (about 5 minutes), see Foreclosure Loophole. ThetaMissingDocsMtg

Foreclosure Rescue, Debt Reduction Complaints Bombard Florida AG's Office; Frantic Callers Jam State Scam Hotline

Buried in a recent Miami Herald article on a Florida loan modification firm currently being sued by the state attorney general is this blurb:

• In the past two weeks, the Florida attorney general's office fielded 108 complaints from possible victims of foreclosure rescue schemes.

Go here for information on filing a consumer complaint with the Florida Attorney General's Office.

Source: Home 'saviors' can make a mortgage mess (Sometimes a firm that promises to help modify your delinquent loan can make matters far worse).

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In Panama City Beach, Florida,WJHG-TV Channel 7 reports:

• Calls from people who have been scammed by companies offering to help lower debt or save their home have more than doubled to one state hotline. Call center operators are having a hard time keeping up with the call volume.

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• Calls here used to average 300 a week, but have been rising steadily. Two days this week they hit 650. Many are about foreclosures, debt loads and worries about companies claiming they can help. Call Supervisor Jack Hagadorn says a new state law says the companies can no longer ask for money up front, but many still do.

• “We’re getting calls from consumers who are being charged, 1200, 1800, 2000 dollars for companies who are claiming they are going to modify the loan with a lender. But when they find out later on that the company has never contacted the lender, and they are now in foreclosure.”

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• The call volume at the hot line is so high, some callers are being asked to leave a message or go to a web site. If you have a complaint, the number to call is 1-866-966-7226. The web site is myfloridalegal.com.

For the story, see Attorney General’s Hotline Swamped with Scams.

CNN On The Lee County, Florida Foreclosure "Rocket Docket"

On the heels of the recent stories in The Wall Street Journal and CBS News (here and here) on the Fort Myers, Florida Foreclosure "Rocket Docket," CNN comes out with its own coverage of the Southwest Florida court blasting away at the backlog of foreclosure cases.

For the story, see As foreclosures mount, Florida court turns to 'rocket docket.' (read story) (watch video). ThetaMissingDocsMtg