Quantcast

Forget Notice, Face Litigation Risk

NOV 21, 2012 2:38pm ET
Print
Email
Reprints
Comment (1)
Twitter
LinkedIn
Facebook
Google+

A REMINDER ABOUT A NOTICE TO THE BORROWER THAT YOU COULD EASILY FORGET UNDER THE DODD FRANK ACT AND PUT YOU AT RISK OF POTENTIAL LITIGATION

FACTS

NOTICE BEFORE REFINANCING THAT WOULD CAUSE LOSS OF PROTECTION—In the case of any residential mortgage loan that is subject to protection under an anti-deficiency law, if a creditor or mortgage originator provides an application to a consumer, or receives an application from a consumer, for any type of refinancing for such loan that would cause the loan to lose the protection of such anti-deficiency law, the creditor or mortgage originator shall provide a written notice to the consumer describing the protection provided by the anti-deficiency law and the significance for the consumer of the loss of such protection before any agreement for any such refinancing is consummated. (Dodd-Frank Section 1411(g)(3))

MORAL

One example—Homebuyer purchases home on an 80-20 purchase money loan. Later because of increased value refinances the second mortgage and gets higher amount that pays off the existing second mortgage and also gives cash-out. This could arguably cause the borrower loss of the purchase money mortgage anti-deficiency protection given by CCP Section 580b and therefore you the creditor have to five notice or risk litigation at some point if the first ever forecloses leaving an unsecured note since the second deed of trust is now extinguished. This means the new lender at a minimum. A word to the wise. If in doubt, make the disclosure. You can invent your own disclosure or you may have us create one for you.

VIOLATE THE GRAMM-LEACH-BLILEY ACT BY NOT SHREDDING FINANCIAL DOCUMENTS THE FTC WILL GIVE YOU CAUSE TO REGRET IT

FACTS

PLS Financial Services Inc. and the Payday Loan Store of Illinois Inc. are two companies that allegedly failed to safeguard discarded, sensitive personal information will now have to pay $101,500 to settle related Federal Trade Commission charges filed in the U.S. District Court for the Northern District of Illinois, according to a consent order released Nov. 7 (United States v. PLS Financial Services Inc., N.D. Ill., No. 1:12-cv-08334, consent order entered 10/26/12).

PLS Financial Services Inc. provides management services to more than 300 payday loan and check cashing stores, and The Payday Loan Store of Illinois Inc. is an affiliated company that owns and operates such stores, the FTC explained in a Nov. 7 statement. The two companies are jointly and severally liable for the penalty.

The companies allegedly discarded documents containing sensitive personal identifying information in unsecured dumpsters near several PLS Loan Stores or PLS Check Cashers locations, the commission explained in its statement.

The commission's complaint alleged that the defendants violated the FTC's Disposal Rule, the Gramm-Leach-Bliley Safeguards Rule and Privacy Rule, and the FTC Act.  The FTC's Disposal Rule requires companies dispose of credit reports and information derived from them in a safe and secure manner. PLS Financial Services and The Payday Loan Store did not take reasonable steps to protect against the unauthorized access to consumer information when disposing credit reports, the FTC alleged. The commission said that this case is the third time it has brought charges under the Disposal Rule.

The complaint further claimed that the companies violated the Gramm-Leach-Bliley Safeguards Rule. Those rules “require financial institutions to develop and use safeguards to protect consumer information, and deliver privacy notices to consumers,” the commission said.

The alleged violation of the FTC Act stems from the defendants' misrepresentations about the reasonable measures they implemented to protect sensitive consumer information. In addition to the civil penalty imposed on PLS Financial Services and The Payday Loan Store, the consent order:

• Prohibits all of the defendants from misrepresenting the privacy and security of consumers' personal information;

• Prohibits the defendants from further violating the Disposal Rule, Safeguards Rule, and Privacy Rule;

• Requires the defendants to establish and implement a comprehensive information security program;

• Requires the defendants to obtain independent, third-party audits every other year for 20 years; and

• Requires each defendant to submit a compliance report to the FTC one year after the order's entry, in addition to other recordkeeping and compliance monitoring requirements.

MORAL

I have seen another just like this one. In that case also the party had to comply with audits for the next 20 years! Just what you need, another audit procedure. Are you disposing of your credit reports properly? More importantly, are your loan originators doing it properly. Remember, you the owner suffer if the loan originator does not comply.

CALIFORNIA MAN INDICTED FOR MORTGAGE FRAUD

FACTS

On Nov. 15, Daniel Gherasim was indicted by a federal grand jury for bank fraud, false statements on a loan and credit application, money laundering, and structuring in connection with an alleged scheme to defraud a bank in obtaining a home equity loan.

According to the indictment, in November 2008, Gherasim submitted a fraudulent loan application for a home equity line of credit he took out on a home he owned. The application inflated the amount of equity he had in the property. After receiving the $215,800 HELOC, Gherasim transferred the money to another bank account he held, in part by writing checks to himself in amounts over $10,000. The indictment alleges that Gherasim then withdrew money from that account in increments ranging from $490 to $9,500 in order to evade currency reporting requirements.

If convicted, Gherasim faces a maximum penalty of 30 years in prison and a $1 million fine.  (usattyedca111612)

MORAL

One loan and if convicted, one felony and loss of many civil rights and job potentials. Note the fact that the federal prosecutor chased the one loan. So if anyone was overly creative on a loan application that person should see the attorney now.

CONNECTICUT LAWYER DRAWS TWO YEARS IN FEDERAL PRISON FOR $10 MILLION MORTGAGE FRAUD-TWO OTHERS AWAIT SENTENCING

FACTS

On Nov. 16, Bradford J. Rieger was sentenced in New Haven to 24 months of imprisonment, followed by five years of supervised release, for his role in a multimillion-dollar mortgage fraud scheme in New Haven. Rieger also was ordered to pay a $10,000 fine.

Between approximately 2006 and 2008, Rieger, an attorney with offices in East Haven along with Ronald E. Hutchinson and Menachem Levitin, conspired to defraud mortgage lenders and financial institutions by obtaining millions of dollars in fraudulent mortgages for the purchase of dozens of multi-family properties in New Haven. As part of the scheme, sellers of the properties agreed to accept sale prices that were significantly lower than the contract prices. The lower prices were not disclosed to lenders from which the buyers obtained financing to purchase the properties, and scheme participants submitted to mortgage lenders false HUD-1 forms that often did not match another, undisclosed HUD-1 form that was actually used to disburse the fraudulently obtained proceeds at the closing. As a result of the submission of the false HUD-1 forms and other false documentation in support of the loans, including falsified monthly rental income and fictitious leases, the mortgage lenders would issue mortgages based on the inflated sales prices.

Scheme participants used the fraudulently obtained mortgage proceeds to pay themselves and others. In most of the fraudulent transactions, the buyers did not make any deposits or down payments for the properties they purchased. Rather, the co-conspirators used some of the fraudulently obtained mortgage proceeds to cover the down payments and deposits. In addition, at or shortly after a closing, a borrower would often receive several thousand dollars, although this payment was not disclosed to the lender.

Rieger acted as a closing attorney during 19 fraudulent transactions, which have caused more than $2.2 million in losses to lenders. In connection with many of these closings, Rieger prepared false HUD-1 forms that were submitted to lenders. In some of these transactions, while the HUD-1 form that Rieger sent to the lender indicated that the borrower brought funds to the closing, Rieger actually distributed funds to the borrower.

In total, more than $10 million in fraudulent mortgages on more than 40 properties were obtained during the conspiracy. Many of the houses purchased during the scheme went into default and have been foreclosed upon, causing losses of more than $7 million to lenders.

Rieger pleaded guilty to one count of conspiracy to commit mail fraud, wire fraud, and bank fraud. Hutchison and Levitin also have pleaded guilty. The amount of restitution Rieger will be ordered to pay will be determined after further court proceedings. (usattyct111612)

MORAL

Take notice of two things, especially the second:

1.  The loans were from six years ago. This means, as I have been informing some of you that have inquired that the federal prosecutors are still working on 2006 and coming forward.

2.  Note that part of the felony was returning money to the borrower after the closing and not telling the lender. How many of you reading this have I explained that too lately? It changes APR, DTI and borrower risk factors. In other words a material misrepresentation.

MINNESOTA MAN DRAWS THREE YEARS FOR MORTGAGE FRAUD

FACTS

On Nov. 9, Chad Wegscheider was sentenced to 36 months in federal prison for fraudulently brokering loans in a mortgage fraud scheme.

Wegscheider, who was the owner and president of a Maplewood mortgage brokerage business called Minnesota One, conspired with others to devise a scheme to defraud mortgage lenders. From June 2006 through March 2008, Wegscheider’s co-conspirator recruited straw buyers to purchase newly converted condominiums in Minnesota and Wisconsin at inflated prices with borrowed funds. In many cases, straw buyers bought numerous units in short periods of time.

To trick mortgage lenders into providing loans to investors, Wegscheider prepared loan applications that overstated the bank account balances of the straw buyers and falsely stated that the straw buyers would use their own money to make down payments on the properties, when, in fact, he knew his co-conspirator was providing the down payments. Wegscheider also opened accounts in the names of the straw buyers and deposited his co-conspirator’s money into them in an effort to make it appear to potential lenders that the straw buyers had sufficient cash on hand to make the property purchases. All the loans fraudulently brokered by Wegscheider went into default, causing more than $2.5 million in losses to the lenders. (usattymn11912)

MORAL

Note that the loans go back to 2006, six years ago. Anyone that did loose loans six years ago to present should consult with their legal counsel now.

 OREGON MORTGAGE BROKER GUILTY OF MORTGAGE FRAUD

FACTS

On Nov. 13, Peter Wilkinson pled guilty to conspiracy to commit bank fraud and bank fraud charges related to a mortgage fraud scheme in Central Oregon. Wilkinson admitted that he caused financial institutions to lose between $2.5 million and $7 million in bad loans he pushed through as a licensed mortgage broker with his company Deschutes Mortgage Group in Bend, Ore.

Wilkinson and others prepared and submitted fraudulent home loan applications and other false documents to lending institutions to obtain financing to purchase real estate. To convince financial institutions to approve the loans and advance loan funds, Wilkinson and others falsely inflated borrowers’ monthly incomes on home loan applications, omitted borrowers’ liabilities, claimed the financing was for a primary residence and used straw borrowers. Additionally, Wilkinson and others caused large amounts of money, often $100,000 or more, to be deposited into borrowers’ checking accounts to temporarily inflate their account balances, thereby causing borrowers’ banks to generate false verifications of deposit, a document that showed the amount of money in borrowers’ checking accounts. These VODs were used by Wilkinson and others to falsely prove cash reserves, on the part of the borrowers, to the lending institutions as a material part of the loan approval process.

Sentencing is set for Jan. 29, 2013, at 10 a.m. before U.S. District Chief Judge Ann Aiken. The maximum penalty for conspiracy to commit bank fraud and bank fraud is 30 years in prison and a $1 million fine.  (usattyor111312)

MORAL

Pay particular attention to the facts: False income? False “primary residence.” Then look at the California man above indicted for ONE LOAN ONLY!

 

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE

 

Comments (1)
The 'anti-deficiency' notice is being incorporated into the new GFE/TIL and implementation requirements have been delayed until the new form is adopted. 1414(c); 129C(g)(3)
Posted by | Wednesday, November 28 2012 at 10:36AM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.
Twitter
Facebook
LinkedIn
Already a subscriber? Log in here
Please note you must now log in with your email address and password.