Three Nevada residents and one California resident have been indicted by a grand jury on several felonies in connection with their operation of a mortgage lending fraud scam.
Lynda Finch-Estrada, 54, William Chrissikopoulos, 43, Alan Dornhuber, 63, all of Las Vegas, and William Patterson, 51, of El Monte, Calif., were indicted April 22, according to Nevada Attorney General Catherine Cortez Masto.
Operating under the name USFP, Estrada, Chrissikopoulos, Dornhuber, and Patterson pushed a so-called “forensic audit” promising clients that if a “forensic audit” of their mortgage uncovered one or more “Real Estate Settlement Procedures Act (RESPA)” violations, clients would be entitled to a legal remedy resulting in the elimination of their mortgage obligation.
The defendants also peddled an “administrative process” by falsely claiming that sending documents to various entities signed and fingerprinted in accordance with specific instructions including the use of multi-colored inks had legal significance which would result in clients obtaining their home free and clear of their mortgage.
Finally, the defendants sold a program whereby clients would obtain their home free and clear of their mortgage by quitclaiming their home to a nonprofit, “American Home Rescue,” paying rent to the alleged nonprofit for a period of time, and then having the nonprofit deed the home back to the clients.
The defendants typically charged $6,295 to $12,990 up front for one or multiple programs but failed to deliver the promised services.
In fact, after four years, only 862,279 remain in a HAMP permanent modification. As of March 31, 2013, more than 312,000 homeowners have redefaulted on their HAMP permanent modification. For these homeowners, the HAMP permanent mortgage modification they received was not sustainable. Although Treasury has not defined “sustainable,”Treasury designed the program so that homeowners could keep their modifications for up to five years. The Treasury press release accompanying the January 2013 Housing Scorecard stated that “after six months in the program, more than 94% of homeowners remain in their permanent HAMP modification.” However, whether a modification is sustainable cannot be determined after six months. Unfortunately, Treasury’s data show that the longer homeowners remain in HAMP, the more likely they are to redefault.
Redefaults on HAMP modifications have negative consequences for all involved: homeowners, taxpayers and the government, servicers and investors, neighborhoods, the housing market, and the greater economy. Homeowners who cannot sustain their new HAMP mortgage and thus fall out of the program are left with the original terms of the mortgage and are responsible for making up
the difference between the original monthly mortgage payment and the HAMP modified payments. These back payments can be substantial. Servicers can also charge homeowners late fees on principal and interest that was not paid during the HAMP modification. In some cases, this may result in homeowners owing more on their house after redefaulting than they did before the modification. As a result, homeowners may lose their homes.
In Edwards v. Mortg. Elec. Registration Sys., Inc. (Idaho, 2013); the homeowner argued that listing MERS as beneficiary of the trust was not enough to give MERS the authority to appoint Pioneer as a successor trustee with foreclosure rights.
The Idaho Supreme Court disagreed holding: “the beneficiary has the authority to appoint a successor trustee and MERS, as nominee of the lender, had the authority to appoint Pioneer as successor trustee.”
“MERS is the beneficiary under this security instrument,” the court wrote. “Thus, MERS, as beneficiary, was acting solely as the nominee of the lender and its successors and assigns.”
The appraiser who was crucial to an east side mortgage fraud scheme was sentenced to 15 months in federal prison this afternoon as more than 30 supporters looked on, some sobbing.
“Oh my God,” someone in the packed courtroom shouted as the judge, James K. Bredar, sentenced David C. Christian to a sentence well below what’s called for by federal guidelines, which range toward four years.
Christian admitted his role in 16 loans that cost lenders—most bailed out by federal taxpayers—nearly $2.5 million. The fraud was masterminded by a mortgage broker named Joshua Goldberg who, with his husband, has since fled to Israel. Goldberg was indicted in January but it is unclear when or if he will be extradited.
Both the prosecution and defense agreed that Christian was “browbeaten” by Goldberg into providing bogus appraisals for small, unrenovated rowhouses in the Upper Fells Point neighborhood between 2004 and 2008. As City Paper revealed in a 2008 story, the houses were worth about $120,000 at the market’s peak. Christian’s appraisals valued them at $300,000. In some cases, photographs of renovated interiors were included in the appraisals in order to fool the lenders.
Another central figure in the scheme, Ken Koehler, received an 18 month sentence. At one point Bredar asked a prosecutor to assess Christian’s culpability compared to that of Koehler, who sold most of the houses in the scam. “There is a necessity for some correlation,” the judge said.
In passing the sentence, Bredar observed that Christian, who left the real estate business and works at Eddies of Roland Park, where he is beloved, did not earn more than his $350 fee for the appraisals. He did get himself a crooked loan though in a later deal.
“His involvement is not so much out of personal greed, but personal weakness,” the judge said. “But it’s not an excuse.
“At his moment of truth in his professional life, he was weak,” Bredar said. “And that integrity is critical to our well being as a society.”
Christian’s lawyer, Andrew C. White, gathered Christian’s family and friends to tell them that, with good time credits, Christian may be home by Christmas.
Indymac Bank, FSB V. Decastro, NJ: Appellate Div. 2013 (“we now have made clear that lack of standing is not a meritorious defense to a foreclosure complaint. Russo, supra, 429 N.J. Super. at 101 (holding that “standing is not a jurisdictional issue in our State court system and, therefore, a foreclosure judgment obtained by a party that lacked standing is not ‘void’ within the meaning of Rule 4:50-1(d)”). Furthermore, even if there were filing deficiencies, as alleged here, dismissal of the complaint is not necessarily the appropriate remedy.Guillaume, supra, 209 N.J. at 475. Based on the foregoing, DeCastro’s standing challenge is rejected because lack of standing would not void the final judgment.
In Stark v. Sandberg, Phoenix & von Gontard, PC , the Court of Appeals reinstated a six million dollar punitive damage arbitration award against a mortgage loan servicer. EMC Mortgage Corporation bought Stark’s loan after he was in default. The fact that the loan was in default at the time of the purchase made EMC subject to the Fair Debt Collection Practices Act, even though it was collecting its own loan. The arbitrator was outraged at the lender’s disregard for the borrower’s right (1) to be free from physical intrusion into the home and (2) to be represented by legal counsel. He decided that the prohibition in the arbitration agreement against punitive damages “. . . as to which borrower and lender expressly waive any right to claim to the fullest extent permitted by law” might not prohibit punitive damages because the law did not expressly permit the borrower to waive such damages. Furthermore, the arbitration agreement incorporated Missouri law and public policy, which prohibited waivers of this nature.
Since this clause was ambiguous, the arbitrator held that the borrowers could seek all damages permitted by law. The arbitrator found EMC violated the FDCPA and awarded the Starks $1000 each in statutory damages, $1000 each in actual damages, $22,780 in attorneys fees, and $9300 for the cost of the arbitration. The arbitrator found EMC’s forcible entry into the premises “reprehensible and outrageous and in total disregard of plaintiff’s [sic] legal rights” and awarded $6,000,000 in punitive damages against EMC.
The District court overturned the award, but the Court of Appeals reinstated the award, holding that the arbitrator was not irrational. The Court stated:
The arbitration clause states any claims will be resolved in accordance with the FAA, which permits a waiver of punitive damages. The choice of laws provision, however, states claims must be resolved in accordance with “applicable [Missouri] law,” which does not permit the waiver of punitive damages argued for by EMC in this case. Thus, an arbitrator could reasonably conclude this agreement is ambiguous.
The Court of Appeals noted that the arbitration agreement could have stated that it should be governed by federal law, and not by state law. In such case, the wavier of punitive damages would have been upheld:
We recognize the FAA allows parties to incorporate terms into arbitration agreements that are contrary to state law. See UHC Mgmt. Co. v. Computer Sciences. Corp., 148 F.3d 992, 997 (8th Cir. 1998) (holding “[p]arties may choose to be governed by whatever rules they wish regarding how an arbitration itself will be conducted.”) (citation omitted). Thus, had the parties to this agreement intended its interpretation to be governed solely by the FAA, the punitive damages waiver might have barred any such award. The plain language of the agreement, however, makes it clear Missouri law applies to this issue.
A Baltimore native who defaulted on a subprime loan has been awarded $1.25 million in damages from her lender, Wells Fargo Bank N.A. The case may lead to similar lawsuits nationwide, and also may help Baltimore City’s suit against the bank, claiming it targeted minority neighborhoods with subprime loans, legal and banking experts say.
Kimberly L. Thomas was awarded $250,000 in damages and $1 million in punitive damages in Montgomery County Circuit Court July 31. A six-member jury convicted Wells Fargo of fraud, negligence and other charges for inflating Thomas’ income and assets on her mortgage application, and locking her into a bigger loan than she had applied for — one she couldn’t afford.
Thomas, 41, said in an interview with the Baltimore Business Journal that her case “destroys the myth” that the subprime mortgage meltdown is fueled by homebuyers taking loans they can’t handle.
“They make it seem like it’s the person’s fault,” Thomas said from her Silver Spring townhouse. “But they don’t know what’s going on behind the scenes.”
Brian Maul, her attorney, said Thomas’ loan agent pushed through a bigger mortgage to reap a higher commission. Teri Schrettenbrunner, a Wells Fargo spokeswoman, said the bank followed “responsible lending practices” and will appeal the verdict.
Thomas’ lawsuit, filed in February 2007, may impact Baltimore City’s case; the city alleges that Wells Fargo targeted Baltimore’s minority neighborhoods with “unfair, deceptive and discriminatory lending,” thus helping fuel a foreclosure crisis. The suit, filed in January in U.S. District Court of Maryland, has not gone to court yet.
Suzanne Sangree, chief solicitor in the city’s Department of Law, said the case may not set a legal precedent because it was decided by a jury, without a judge-issued opinion. But the verdict would help nonetheless, as it “supports the allegations of our complaint,” she said.
“The fact that a jury looked hard at the loan documents and said Wells Fargo was negligent, that’s essentially what we’re saying in Baltimore City as well,” Sangree said.
Thomas’ case dates back to June 2006. At the time she was considering separating from her husband, so Thomas, a mother of two, decided to leave Silver Spring and buy a $505,000 house in Burtonsville. Her sister referred her to a Wells Fargo Home Mortgage office in Westminster, where Thomas applied for a $535,000 loan, with a 7.13 percent interest rate.
Roughly two to three weeks later, her loan agent submitted the application with a string of incorrect information, according to court documents. This included the Social Security number of Thomas’ sister, who had a higher credit rating; a monthly income of $14,000, which was nearly double Thomas’ actual income; and assets that included $30,000 cash at Constellation Federal Credit Union. According to the suit, Thomas never claimed to have this much money socked away, at Constellation or elsewhere.
Thomas soon learned that her loan was at 10.625 percent interest, with a monthly payment of roughly $4,600, well above the $3,000 she was expecting. She signed the contract anyway, at the urging of her attorney at the time, figuring it was an honest mistake and Wells Fargo would correct it.
But over the next few days, Thomas said, the bank urged her to refinance with another lender. Thomas then realized she couldn’t back out of the deal, and within a week of closing on the loan, she put the house back on the market.
She also decided to sue; among other problems, her credit rating was getting clobbered by missed mortgage payments. She feared this would harm her job as a government contractor and impede future big-ticket purchases.
Eight law firms rejected Thomas. She said they worried she didn’t have enough money to take on the bank, before Gordon & Simmons LLC, of Frederick, took the case.
“Everybody knows somebody who’s been messed over by them,” Thomas said of the San Francisco bank. “But you don’t see results. You don’t actually see people who say that they won.”
A jury in Galveston, Texas, has awarded $11.5 million to a customer of Ocwen Financial Corp. and its former Ocwen Federal Bank subsidiary, after determining they committed fraud in servicing her home equity loan.
The verdict against West Palm Beach-based Ocwen Financial (NYSE: OCN) and Ocwen Federal was issued Tuesday in Texas’s 212th District Court. The jury ordered the Ocwen companies to pay Sealy Davis $10 million in actual damages and about $1.5 million for mental anguish and economic damages.
The jury found the Ocwen companies made fraudulent, deceptive and misleading representations to Davis after she missed a loan payment while hospitalized in 2003.
Documents filed in the civil suit assert Ocwen began demanding additional money to make up for the missed payment and then began foreclosure proceedings on Davis’s home in Texas City, Texas.
Davis retained the home after filing for Chapter 13 bankruptcy protection, court documents state.
Davis, in 2002, got a $31,000 home equity loan from Aames Home Loan with Deutsche Bank as trustee. Ocwen Federal Bank serviced the loan, including collecting payments.
The jury determined Ocwen contributed 100 percent to a wrongful foreclosure and none of that activity was attributable to the other defendants, Deutsche Bank, its law firm Baxter & Schwartz and several attorneys with that firm.
William Erbey, Ocwen’s chairman and chief executive officer, and Kelly Herzik, a Wichita, Kan.-based attorney who represented Ocwen, did not return phone calls.
The Business Journal’s questions included whether Ocwen might appeal the verdict to a Texas court of appeals.
Ocwen “has a specific plan and scheme to take homes that have equity in them,” said Robert Hilliard, a partner in Corpus Christi, Texas-based Hilliard & Munoz, which represented Davis.
Hilliard said he represents about 100 people who are considering similar suits against Ocwen in Texas state courts.
In April 2004, Ocwen Federal Bank, which was based in Fort Lee, N.J., signed a written agreement with the U.S. Office of Thrift Supervision, agreeing to improve its compliance with the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
The OTS written agreement is no longer in force because Ocwen Federal has ceased operations, OTS spokeswoman Erin Hickman said. Nearly six months ago, the OTS approved Ocwen Financial’s request for “voluntary dissolution” of Ocwen Federal.
In that arrangement, Ocwen Financial sold the bank’s Fort Lee office to Marathon National Bank of Astoria, N.Y., and transferred its assets and liabilities to several other banks.
“Plaintiff attempts to “lodge” “[t]he facts and statements made in the securitization audit attached herein.” Frankly, the Court is astonished by Plaintiff’s audacity. Instead of providing the “short and plain statement” of facts required by the Federal Rules of Civil Procedure, Plaintiff requires the Court to scour a poorly-copied, 45-page “Certified Forensic Loan Audit” in an attempt to discern the basic facts of his case. This alone would be sufficient for dismissal. However, the Court is equally concerned by Plaintiff’s attempt to incorporate such an “audit,” which is more than likely the product of “charlatans who prey upon people in economically dire situation,” rather than a legitimate recitation of Plaintiff’s factual allegations. As one bankruptcy judge bluntly explained, “[the Court] is quite confident there is no such thing as a ‘Certified Forensic Loan Audit’ or a ‘certified forensic auditor.’” In fact, the Federal Trade Commission has issued a “Consumer Alert” regarding such “Forensic Loan Audits.” The Court will not, in good conscience, consider any facts recited by such a questionable authority.” – C. Ashley Royal, Chief District Judge, United States District Court, M.D. Georgia.
Like the template complaint filed in this case, it appears that this document may be a form “audit,” with the facts of Plaintiffs’ mortgage transaction inserted among pages of observations and opinions about the mortgage industry in general. See, e.g., Carter v. Bank of America, N.A., ___ F.Supp.2d ___, No. 11-01584, 2012 WL 3198354, at *2 n. 8 (D. D.C. Aug. 8, 2012) (apparently examining a similar “forensic audit”); Hewett v. Shapiro& Ingle, No. 1:11CV278, 2012 WL 1230740, at *4 n. 4. (M.D. N.C. April 12, 2012) (discussing various forms of the audit in existence and sharing its observation that “the documents make no more sense than anything else in the Debtor’s papers and confirm the empty gimmickery of these types of claims.”).-Janet T. Neff, District Judge, United States District Court, W.D. Michigan
A New York appeals court reversed a Brooklyn judge’s 2011 decision throwing out a foreclosure and ordering $15,000 in sanctions against lender HSBC, saying the judge had abused his discretion by consulting the Internet and newspapers for evidence of “robosigning.”
It was the second time Kings County Judge Arthur Schack had his hand slapped for taking the politically popular, but legally questionable move of dismissing foreclosure proceedings against borrowers who had clearly defaulted on their loans. The judge was also reversed in a similar case in 2011, and in its March 20 decision the Appellate Division of the New York State Supreme Court chided Schack for failing to follow the law.
The decision undermines a popular strategy promoted by lawyers around the country of challenging foreclosures by claiming the lender doesn’t have legal right to the collateral. The theory often involves claims that the chain of ownership was broken through “robosigning” or the use of the central registry known as MERS, leaving the property in legal limbo which, conveniently enough for the borrower, prevents the home from being foreclosed.
These lawyers sometimes charge thousands of dollars in fees and throw around impressive-sounding terms like “quiet title,” but have had little success in proving that lenders have forfeited their claims on collateral. Last November, the Idaho Dept. of Finance filed a cease and desist order against one such firm, Residential Litigation Group, for putting out advertisements in the form of fake “litigation notices” designed to lure borrowers into paying a $6,000 fee for assistance challenging foreclosures. No one at Residential Finance was immediately available to comment.
According to the New York appellate decision, Eileen N. Taher defaulted on her home loan and HSBC initiated foreclosure proceedings in 2009. As is common in foreclosure proceedings, Taher never appeared in the case.
Judge Schack, after performing his own investigation including reading newspaper articles and the Internet, decided that HSBC lacked standing to foreclose because the bank had engaged in robosigning, or submitting court documents that were signed by low-level employees without direct personal knowledge of their contents. He also determined that the original lender, not HSBC, was the only party with the right to foreclose because the transaction transferring the note to HSBC was invalid.
The judge also criticized HSBC for allowing Ocwen, the mortgage servicer, to handle the foreclosure, and ordered $15,000 in sanctions against the bank and its lawyers for that and various other transgressions.
But the appeals court threw out the sanctions and ordered the foreclosure proceedings reinstated, strongly criticizing Schack in the process. First, the appeals court noted, Schack had no power to use lack of standing as a reason for dismissing the foreclosure since the borrower had waived that argument by failing to show up in court. The judge also abused his discretion by holding a hearing on sanctions.
Since Judge Schack was reversed approximately two months before he dismissed this complaint, the appeals court said:
We take this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent. We also caution the Justice that his independent internet investigation of the plaintiff’s standing that included newspaper articles and other materials that fall short of what may be judicially noticed, and which was conducted without providing notice or an opportunity to be heard by any party, was improper and should not be repeated.
The number of mortgages that are delinquent or in foreclosure is declining, but those in the pipeline are years away from clearing, according to a report from Lender Processing Services Inc. released today.
Of all the loans in the foreclosure process in January 2012, 42 percent were still in the foreclosure process a year later, the report said. Only 22 percent had become real estate owned (REOs), and 11 percent had been liquidated through short sales or deeds-in-lieu.
In states where the foreclosure process is handled by the courts, 58 percent of loans in foreclosure are more than two years past due. In judicial foreclosure states, that figure is 33 percent. Judicial foreclosure states have three times as much foreclosure inventory as judicial foreclosure states.
In judicial foreclosure states, it takes an average of 62 months (more than five years) for a foreclosure to clear, almost twice as long as in a nonjudicial foreclosure state: 34 months, or nearly three years.
Broken down by state, judicial states New York and New Jersey had the longest timelines: 607 months (more than 50 years) and 483 months (more than 40 years), respectively. By comparison, in nonjudicial Texas and Virginia, the averages were 40 and 39 months, respectively.
But the difference between judicial and nonjudicial states is decreasing due to recently enacted “judicial-like” legislation in some nonjudicial states, the report said. In Nevada, legislation has resulted in a jump from a 27-month timeline in June 2012 to 57 months at the end of January, and in Massachusetts, the average timeline has risen from 75 to 171 months since last January, the report said.
“As California’s recently enacted Homeowner Bill of Rights is closely modeled on the Nevada legislation, we’ll be watching that state closely over the coming months to gauge its impact, as well,” said LPS Applied Analytics Senior Vice President Herb Blecher in a statement.
The report found that states with high numbers of underwater borrowers are still seeing high levels of new problem loans, particularly “sand states” such as Nevada, Florida and Arizona where 45 percent, 36 percent and 24 percent of mortgages, respectively, are underwater.
Credit standards have improved across the board in recent years, so the majority of the new problem loans are coming from “bubble” vintages (loans originated in 2007 and earlier). Loans to “subprime” borrowers — sometimes characterized as those with credit scores below 620 — were common.
Currently, even loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs average credit scores above 700, LPS said. The average overall credit score in 2012 was 747.
The U. S. Court of Appeals for the Sixth Circuit recently affirmed the district court’s dismissal of a putative class action filed against Mortgage Electronic Registration Systems (MERS), its parent company, and 15 financial institutions by two Kentucky county clerks. The clerks alleged that the defendants had violated Kentucky law by failing to record mortgage assignments. The plaintiffs sought recovery of unpaid recording fees and an injunction ordering MERS to cease its practice of not recording assignments.
In Christian County Clerk v. Mortgage Electronic Registration Systems, Inc., the Sixth Circuit agreed with the district court’s finding that the clerks’ allegation of injury to their financial interests provided Article III standing to bring the lawsuit. But the Sixth Circuit affirmed the district court’s dismissal of the lawsuit because the clerks had no private right of action to sue MERS for a violation of Kentucky’s recording requirements.
The clerks were challenging MERS’ practice of not recording an assignment when a note secured by a mortgage naming MERS the mortgagee as nominee for the lender and its assigns is transferred to a new owner who is a system member. Instead, the change in beneficial ownership is registered in the MERS electronic database.
While conceding that the state recording statute did not give them a cause of action, the clerks argued that they could sue under Kentucky’s negligence per se statute. The Kentucky Supreme Court had interpreted that statute to create a cause of action for a person damaged by a violation of a statute that does not provide a civil remedy to someone within the class of persons the statute is intended to protect. Although the Sixth Circuit agreed that the clerks satisfied the statute’s first requirement, it found that the clerks were not among the three categories of persons the recording statute intended to protect. Those persons consisted of:
Existing lienholders and lenders who record their security interests to provide notice of their secured status
Prospective lienholders and purchasers
Property owners and borrowers whose loans have been satisfied
According to the Sixth Circuit, the district court correctly found an absence of legislative intent to protect the officers who administer the recording statute and collect fees.
The Sixth Circuit also rejected the clerks’ common law civil conspiracy and unjust enrichment claims, which the district court had not expressly addressed. The Sixth Circuit found that because the clerks had no claim under the negligence per se statute, they did not have a tort claim needed to support a civil conspiracy claim. Concluding that the negligence per se statute provided the exclusive remedy for violations of statutes that did not contain a remedy, the court also rejected the clerks’ unjust enrichment claim.
In addition, the Sixth Circuit found that the clerks had not alleged facts establishing a necessary element of such a claim—a benefit conferred upon the defendants at the clerks’ expense. According to the court, the benefit from recording mortgages in MERS’ name to the defendant financial institutions, such as lien priority and the ability to release satisfied mortgages, was derived from Kentucky law and not from the clerks themselves.
Similar actions have been brought by county officials across the country against MERS and its member financial institutions. Although most of these cases have not survived motions to dismiss, in Montgomery County, Pennsylvania, Recorder of Deeds v. MERSCORP, Inc., a Pennsylvania federal district court recently allowed such a case to proceed as a quiet title action to compel recordation even though the complaint was not styled as such. The court is now considering the defendants’ motion to dismiss the quiet title action on grounds that include the complaint’s failure to allege facts necessary to state a quiet title claim and join indispensible parties.
A former reporter and bureau chief for broadcast outlets and magazines, Truman Lewis has covered presidential campaigns, state politics and stories ranging from organized crime to environmental protection. Read Full Bio→
A California group accused of victimizing more than 1,000 consumers has agreed to stop promoting its “forensic loan audits” and “mass joinder” lawsuits to homeowners seeking relief from mortgage-related problems.
The Federal Trade Commission (FTC) said the promoters deceived cash-strapped consumers into believing they could hold onto their homes and reduce their mortgage payments by either suing their mortgage lenders in so-called “mass joinder” lawsuits or buying “forensic loan audits.”
All of the defendants, including two individuals and seven companies, will surrender assets and be prohibited from making deceptive claims about any product or service, and all but one are banned from marketing mortgage- and debt- relief services.
The FTC filed a complaint in 2012 against Santa Ana-based Sameer Lakhany and five companies he controlled. The agency later added three more defendants.
“Specialty law firm”
In the first alleged scam, Lakhany and defendants Brian Pacios, Precision Law Center, Inc., Precision Law Center LLC, National Legal Network, Inc., and Assurity Law Group, Inc., allegedly held themselves out as a specialty law firm called Precision Law Center, making the false promise to consumers that if they sued their lenders along with other homeowners in so-called “mass joinder” lawsuits, they could obtain favorable mortgage concessions from their lenders or stop the foreclosure process.
According to the complaint, they charged $6,000 to $10,000 in advance, but failed to follow through with the suits, all of which were dismissed shortly after filing.
The second alleged scam, involving Lakhany and defendants The Credit Shop, LLC, Fidelity Legal Services LLC, and Titanium Realty, Inc., typically charged consumers between $795 and $1,595 for a so-called “forensic loan audit.”
The complaint alleged that these defendants falsely portrayed themselves as nonprofit organizations using the domain names “HouseholdRelief.org,” “MyHomeSupport.org,” and “FreeFedLoanMod.org.”
They told consumers the loan audits would find lender violations 90 percent of the time or more, and that this would force lenders to give them better mortgage terms. In fact, the complaint alleged that consumers rarely if ever obtained better mortgage terms as a result of these “forensic loan audits.”
The Supreme Court held today that an unsuccessful FDCPA plaintiff in a non-frivolous case must pay the defendant’s costs (which could be hundreds or occasionally, as in this case, thousands of dollars), even though the statute’s text provides for attorney-fee- and cost-shifting only where “an action under this section was brought in bad faith and for the purpose of harassment.” The Court held that this provision speaks only to cases brought in bad faith and/or for harassment and that the statute remains “silent” on whether costs can be assessed in other circumstances. Thus, according to the Court, the bad faith/harassment provision did not displace the usual presumption under Federal Rule of Civil Procedure 54(d) that a losing party is liable for costs, even though Rule 54(d) states that its presumption should yield when a statute “provides otherwise.” Marx v. General Revenue Corp.
You know the type: the borrower’s lawyer contests foreclosures by challenging every aspect of your Complaint; he raises MERS as an issue when MERS is not even named in the mortgage; he serves boilerplate discovery requests (likely downloaded from the Internet) seeking documents about securitization when the loan was never even pooled or securitized; he requests the depositions of everyone involved with the loan; he sends nasty letters every other week making baseless threats and/or threatening to contact the media; he appeals adverse decisions whether or not there is any merit; he claims that documents have been robosigned – a term he likely stumbled upon unwittingly while browsing the Internet for ways to defend foreclosures.
He does this to create delay; to run up your costs in order to leverage a favorable resolution such as a loan modification, short payoff, or principal forgiveness; and/or out of pure spite.
This person will cost you time and money. He will not allow you to proceed through foreclosure at the usual pace so delays and delay tactics should be anticipated.
It may seem like a wise business decision to settle early, particularly if the value of the collateral is low.
Any settlement with this person should be memorialized by a settlement agreement containing a release by the borrower of any/all past/present/future claims (known or unknown), non-disparagement and confidentiality clauses (“shut-up clauses”), and a damages provision for breach of the shut-up clauses.
Shut-up clauses can serve as a deterrence to, but are not an absolute guarantee against, defamatory statements and/or negative articles about you in newspapers (which he may have previously threatened). If settlement involves a forbearance or loan modification, it is advisable not to use a HAMP or another template but, rather, to consult with local counsel as there may be waivers advantageous to lenders/servicers (e.g., waiver of right to contest a foreclosure restart; waiver of appellate rights; waiver of right to participate in a foreclosure diversion or mediation program; waiver of right to contest appointment of receiver; waiver of right to file motions to postpone, stay, or set aside sheriff’s sale) that could be made part of the agreement.
This person may attempt to engage you in a letter-writing campaign by inundating you with threatening letters. Maybe he has too much free time.
In actuality, he may be inciting you to send an equally nasty letter so that he can use it as an exhibit in court filings in which he will likely claim that the “big bad bank” is bullying and harassing him, but will likely make no mention of his own threats or misconduct.
Do not get caught in this trap. There is no reason to engage in a letter-writing campaign. Local counsel may recommend short reply letters refuting any spurious claims made by the borrower(s) and to otherwise ensure that lenders/servicers have not tacitly admitted any adverse facts. Also, consider including in any reply letters a simple sentence advising the borrower(s) that loss mitigation programs are available. This establishes a paper trail showing that loss mitigation has been offered in case the issue as to whether the lender/servicer made any reasonable efforts to settle ever arises at a settlement or pre-trial conference (some jurisdictions may have rules of procedure requiring parties to make some reasonable effort to settle before trial).
This individual will likely challenge your motion for summary judgment. Therefore, to minimize time waiting for a judge to render a decision, it may be advisable to circumvent the motion and proceed right to trial as soon as possible. However, when served with any form of notice or letter indicating that the lender/servicer is requesting trial be scheduled, this individual may quickly serve your counsel with discovery requests and then oppose your request for trial scheduling on the basis that discovery has not been completed.
Do not be afraid of discovery. There are some in the default servicing industry who believe that discovery is a nuisance and, therefore, responses to discovery requests appear rushed and haphazard. The Rambo litigator will likely exploit this. It is advisable to complete discovery quickly and properly so you can move forward. Otherwise, the Rambo litigator may file motions to compel discovery — adding to your timelines and attorneys’ fees.
If you take a chance with a motion for summary judgment, care should be taken to anticipate and pre-emptively address potential counter-arguments, as the Rambo litigator will likely file opposition. Use a simple, easy-to-read payment history (if it is too complex and convoluted, a judge will not take the time to decipher it and may just deny a motion for summary judgment). Also, it would be beneficial to include separate itemizations of escrow and corporate advances as exhibits. Line-items on payoffs or judgment figures labeled as “miscellaneous” or “other” should be avoided (judges may question them too).
Once sheriff’s sale is scheduled, this individual may file one or more motions to postpone or stay the sale. Many times, courts rubber-stamp these to give borrowers more time. Under certain circumstances, it may be advisable to vehemently contest those motions. Under others, it may be advisable to concede to a brief continuance in exchange for a provision in the court order that no further continuances be permitted (however, some judges may not observe these bars to continuances).
Also, he may use bankruptcy as a sword — to create delay — or as a shield in the case of a Chapter 7 filing to discharge his personal liability and prevent a deficiency judgment action. In the event of repeat filings, it is advisable to file the appropriate motions to confirm that the automatic stay is not in effect (“comfort order”) and to dismiss a case for bad faith (in which case, a re-filing bar and in rem provision should be explored).
In the event of appeal and you prevail, you may have the right to file a motion for reimbursement of attorneys’ fees and court cost associated with the appeal. Local counsel should be able to advise you on the availability of such motion (reimbursement of attorneys’ may depend on the appellate court making a specific finding in the appellate decision that the appeal lacked merit).
In addition, it is advisable to take the high road with this individual. The Fair Debt Collection Practices Act applies and it is a violation thereunder to engage in harassing conduct in the collection of a debt. Under that Act, debt collectors cannot harass borrowers, yet borrowers are allowed to harass them (in the event of threats against personal safety or repeated harassing conduct, you may wish to explore filing a police report, which is not prohibited by the FDCPA. Unfortunately, the law is replete with double standards. In fact, it is commonly known that courts generally hold creditors to higher standards than borrowers.
Assuming loan origination was compliant with all applicable laws and the lender/servicer is similarly compliant in its pursuit of foreclosure, it should eventually prevail; however, this will require time, money, patience, developing and implementing appropriate strategies (which may change during the course of litigation), legal posturing and one-upmanship, as well as working closely with local counsel.
Troy Freedman is an attorney with Richard M. Squire & Associates. The opinions expressed above are his own.
In its February 13, 2013, opinion in Culhane v. Aurora Loan Services of Nebraska, the court ruled that Mortgage Electronic Registration Systems, Inc., or MERS, has the power, as nominee beneficiary, to assign its interest under a deed of trust. The ruling is consistent with the majority of appellate rulings throughout the country on this question. In addition, the court upheld MERS’s practice of appointing employees of the assignee to the position of “vice president” for purposes of assigning legal title.
The First Circuit also ruled that MERS held valid legal title to the property when it assigned its interest to the servicer. Rejecting the argument that splitting ownership of the note and trust deed invalidated the mortgagor’s repayment obligation, the court held that MERS derived its authority to assign the mortgage both from the mortgage contract and from its status as equitable trustee for the noteholder.
* The 3,300 cases involving New Jersey homeowners were halted by paperwork issues.
Thousands of New Jersey foreclosures that were held up by faulty paperwork are expected to move forward this year, after a recent decision in Superior Court in Paterson.
The case involved Wells Fargo, which has been cleared to resume foreclosures on about 3,300 New Jersey homeowners under an order signed by Superior Court Judge Margaret M. McVeigh in Paterson.
The impact may be felt beyond those 3,300 homeowners because the Wells Fargo case “provided an example for other big lenders to follow procedurally,” according to Kristi Jasberg Robinson, a lawyer with the state judiciary. Foreclosure activity could begin this year on 15,000 or more homeowners affected by the same faulty paperwork that was at issue in the Wells Fargo case, she said.
The foreclosure pipeline in the Garden State slowed to a trickle in 2011 in the wake of reports of foreclosure abuses — known as “robo-signing,” because mortgage industry employees signed legal documents by the thousands without verifying them in their rush to evict homeowners.
But even before the Wells Fargo decision, earlier legal settlements resulted in a tripling of New Jersey foreclosures in 2012 from 2011′s very low numbers. Through November 2012, about 22,000 residential foreclosure actions were filed in New Jersey, according to the state judiciary.
The Wells Fargo case hinges on the “notice of intent to foreclose” that mortgage companies send to delinquent borrowers. Many of these notices named the mortgage servicing company — the company that collects the monthly payments — not the actual owner of the mortgage. Since many mortgages were packaged and sold as investments, the servicing company often is not the owner of the loan.
In a decision last February, the state Supreme Court ruled that the state’s Fair Foreclosure Act requires that the notice to delinquent homeowners must name the owner of the loan, not the mortgage servicing company. The ruling came in a case involving Maryse and Emilio Guillaume of East Orange, who defaulted on a $210,000 mortgage but challenged their foreclosure because the paperwork named the mortgage servicing company, a subsidiary of Wells Fargo.
After the Guillaume case was decided, state Chief Justice Stuart Rabner set guidelines under which mortgage companies could send out corrected notices, so they could move forward with foreclosures. McVeigh and a Trenton judge were appointed to hear arguments as to why the mortgage companies should not be allowed to re-send the corrected paperwork and foreclose in these cases. McVeigh reviewed those arguments with respect to Wells Fargo, and rejected them, writing in her order, “Wells Fargo may resume any foreclosure where the foreclosure defendant has not reinstated the loan.”
Rebecca Schore, a lawyer with Legal Services of New Jersey, which represents many homeowners fighting foreclosure, called McVeigh’s ruling “a disappointing outcome.” She said many Wells Fargo borrowers wrote to the judge in “heart-wrenching” letters that detailed their unsuccessful efforts to get Wells Fargo to modify their loans so they could stay in their homes.
“The key to justice for homeowners in foreclosure is a real shot at a loan modification,” Schore said. “It’s disappointing that the court did not grant hearings in any individual matters and did not exercise its power to require Wells Fargo to negotiate loan modifications in good faith.”
Following the Wells Fargo case, other mortgage companies have begun seeking the court’s approval to re-send the notices and get foreclosure actions started again. About 15,000 homeowners would be affected by those cases, and more are likely to enter the foreclosure system because several big mortgage companies have yet to take action to resume foreclosures stalled by faulty notices, Robinson said.
The Wells Fargo decision is one in a series of actions taken by the legal system and the mortgage industry in an effort to unwind some of the excesses and abuses of the housing boom.
On Monday, 10 mortgage servicers agreed to pay a total of $8.5 billion to 3.8 million homeowners who were in foreclosure in 2009 and 2010, after allegations of foreclosure abuses.
A South Florida company that persuaded scores of troubled Palm Beach County homeowners to give up their property deeds is facing more legal problems as state and federal judges challenge its plan to help borrowers beat the bank.
In three recent court decisions, the firm’s actions were condemned.
Fidelity Land Trust, which was shut down by the state in September, lost a key battle in circuit court last week to unfreeze its operations.
The Jan. 7 order from Broward Circuit Judge Michael Gates follows a blistering report issued last month by a federal magistrate that said the company’s legal theories attempting to cancel underwater mortgages are meritless, frivolous and have “absolutely no chance of success.” That conclusion was affirmed by a federal judge in a Dec. 27 order.
The company, along with an affiliated firm, the Sunshine State Land Trust, owns about 84 homes in Palm Beach County, deeded to them by homeowners believing that they offered a solution to the borrowers’ housing woes. The properties range from a million-dollar Boca Raton mansion on the Intracoastal Waterway to a $60,000 condominium west of Florida’s Turnpike.
Statewide, an estimated 250 homeowners signed over their deeds to the trusts, whose operations were halted in September by the Florida Attorney General’s Office. The civil complaint brought by the office under Florida’s Deceptive and Unfair Trade Practices Act said the land trusts wrongfully guaranteed they could cancel the homeowner’s mortgage, misrepresented that homeowners can void their mortgage through a quiet title action that purports the land trust is a third-party buyer, and charged an advance fee before completing foreclosure rescue services.
Defendants have offered various defenses. Some have said Fidelity’s legal theories should be allowed to run their course in court, not curtailed by the state. At stake are dozens of properties in Fidelity’s possession whose homeowners are in legal limbo — no longer title owner, and either trying to regain their property or hoping Fidelity still will triumph.
The recent orders, however, reflect disdain for Fidelity’s arguments.
“A state judge has told plaintiff (Fidelity) that its legal theory is meritless; a federal judge has told plaintiff its legal theory is frivolous; and the Florida Attorney General has obtained injunctive relief against plaintiff,” wrote federal District Judge Roy Dalton in the Dec. 27 order. “Yet even in its objection, plaintiff clings to the notion that its claims have merit. They do not.”
Dalton also warned Fidelity’s attorney, Boca Raton-based Howard Feinmel, that if he continued to prosecute claims based on the theories presented, he may be referred to a grievance committee. A message left at Feinmel’s office was not returned.
Fidelity’s business model, according to the state’s complaint, is to have homeowners deed their properties to the trust, which then, as the new owner, sues the bank to cancel the mortgage. The idea is if the mortgage was recorded originally, then assigned to another lender without the transfer being recorded, it is not enforceable against Fidelity, which as a third-party purchaser did not know who the new lender was.
The Broward court order by Judge Gates says Fidelity Land Trust was organized in December 2011 by Parkland resident Edward Cherry, using a fictitious name.
In a June article about Fidelity, The Palm Beach Post tied Cherry to the company through his registered fictitious name Edward C. Tudor.
Cherry, who is not an attorney, was permanently barred in a 2009 consent judgment by Florida’s attorney general from dealing in consumer debt-settlement services after a state investigation concluded companies he was involved with “diverted millions of dollars to themselves and a coterie of families and associates.”
Gates’ order denying a request to cancel the state’s asset freeze was in response to a motion by defendant Paul Gellenbeck, who says he is Fidelity’s director of operations. Gellenbeck maintains there are actually two Fidelity companies — Fidelity South, which he runs, and Fidelity North, run by defendant Lawrence Diodato.
Gellenbeck protested the attorney general’s “shotgun approach,” which lumped all defendants and 12 companies together in one complaint. He said his firm is not a foreclosure rescue company and that he never promised he could cancel a client’s mortgage.
Outside companies referred clients to Fidelity, Gellenbeck said. When he learned of inappropriate statements or promises, he asked the companies to correct them.
Also, Fidelity has deeded back several homes to clients who were either unhappy with its service or who the company could not help, a claim supported by county property records.
But the arguments weren’t enough to sway Gates, who wrote, “Despite the established principles of law, Fidelity has misled numerous consumers within Florida since 2011.”
At least 15 lawsuits filed in Florida by Fidelity were moved to federal court by banks. In the majority of cases, Fidelity requested a voluntary dismissal soon after the case was moved. In at least four lawsuits, lenders asked the court to sanction Fidelity and force it to pay attorney fees for filing frivolous cases.
Cherry said in an email last week that the arguments have legal merit and that it wasn’t Fidelity but its attorneys who made the “independent legal decision to dismiss the cases removed to federal court.”
“I wonder why the judiciary will not entertain any legal theory contrary to the position of the banks,” said Cherry, who was not allowed to submit objections in one of the cases.
Indeed, in a case where Fidelity unsuccessfully tried to cancel a mortgage in Orlando, the judge urged sanctions against the firm.
“There was no plausible basis in law for the filing of this action, which any competent, professional attorney would have known by reading the statutes,” wrote U.S. Magistrate Thomas Smith in a December report that recommended Fidelity be forced to pay some bank attorney fees.
Royal Palm Beach-based defense attorney Tom Ice, who tangled with Fidelity to retrieve a client’s deed, said he thinks it will be hard to recover from such sternly worded judicial decisions.
“Faced with this scathing order from a federal judge,” Ice said, “I would definitely have second thoughts about moving forward.”
The Palm Beach Post was the first news organization to bring attention to the controversial practice of transferring a deed and then asking a court to cancel the property’s mortgage.
Three recent court decisions have gone against the land trust.
Jan. 7: Broward County Circuit Judge Michael Gates denied Fidelity’s request to dissolve the attorney general’s injunction that froze its assets, saying the company’s claims are “false, and deceptively and/or unfairly mislead consumers and are contrary to the established law of Florida.”
Dec. 27: U.S. District Judge Roy B. Dalton, of the Middle District of Florida, sanctioned Fidelity Land Trust by requiring it to pay partial attorney fees to the bank it sued trying to cancel an Orlando mortgage. Fidelity voluntarily dismissed its lawsuit 14 days after the bank moved it to federal court. According to Dalton: “(Fidelity) is aware that its claims have no merit. Its business model, however, does not rely on the ability to prevail on the merits. Rather, plaintiff appears to be in the business of delaying lawful foreclosures.”
Dec. 4: U.S. Magistrate Thomas Smith, in the same case involving the Orlando home, wrote in a report that Fidelity brought a “totally meritless” lawsuit against the bank, the real motivation of which was to “further a plan or scheme to defraud the (homeowner) and other consumers.”