DEC 19, 2013

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Compliance Matters

Marketing Agreements, RESPA and CFPB

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MARKETING AGREEMENTS, RESPA AND CFPB

FACTS

Marketing agreements have been around over 20 years and become very common depending on the real estate market and the mortgage loan market place. This is generally an agreement between a real estate brokerage and a mortgage company where the real estate broker performs marketing services in exchange for a fee from the mortgage broker. The agreements are allowed under the Real Estate Settlement Procedures Act as long as certain requirements are met. But I have never seen one that worked.

The problem is that keeping RESPA compliant means the marketing fees have to be reasonable in lieu of the services performed. If you have marketing agreements you must be very careful to keep the agreement to marketing only and no other subject matter. The marketing fee received cannot be so disproportionate to the services rendered that RESPA will hold it is a disguised kickback and then you have a RESPA lawsuit from the Consumer Financial Protection Bureau and some severe penalties being requested.

“There’s a significant amount of regulatory scrutiny among these things and the CFPB is actively going after mortgage companies right now for improper marketing service agreements,” says Marx Sterbcow, managing partner of Sterbcow Law Group LLC, during the Louisiana Land Title Association’s annual convention. Sterbcow is of the opinion there could be an enforcement action coming from CFPB that could change the way MSA’s are done.

But there is another way that is legal if done correctly and it is a lot easier. On a second note do you have your new loan originator agreements in compliance with CFPB Reg Z, Section 36?  If not you are more than likely out of compliance when the new law goes into effect Jan. 1. 

HARD MONEY LENDERS CAN BE SUBJECT TO COMPLYING WITH RESPA

FACTS

RESPA applies to all “federally related mortgages.” (1024.5(a))

A “federally related mortgage.” is defined in part as: (1) a loan that is a financing of a single family residence owner occupied or to be owner-occupied or a refinancing of such a property and (2) the loan is made by a creditor.  A creditor is defined as someone that makes or invests in residential real estate loans aggregating more than $1 million per year.  (sec. 103(g) of the consumer credit protection act (15 u.s.c. 1602(g))

MORAL

So if a person or entity makes consumers loans totaling more than $1 million in one year on a single family residence that person or entity must comply with RESPA. Now think about that. It means the consumer has a potential lawsuit against the creditor and it can act as an offset in any debt. Did you make more than $1 million in consumer loans this year?

CALIFORNIA MAN WHO CREATED FALSE QUIT CLAIM DEEDS GETS 4 YEARS IN STATE PRISON

FACTS

On Dec. 13, Blair Hanloh was sentenced by an Orange County (Calif.) Superior Court judge to four years in state prison for filing false real estate documents to collect rent on properties he did not own. Hanloh was convicted of five felony counts of recording false quit claim deeds, which fraudulently showed that foreclosed properties has been deeded to him or his company. 

During his trial, Hanloh testified he had seized about 70 properties that were financially distressed or foreclosed upon, renting them out to tenants.

Hanloh had taken over the properties, installed tenants in vacant homes in four counties, holding himself out as a crusader against bank foreclosure (a modern day Robin Hood?). He was arrested in June 2010 and charged with 14 counts of grand theft, burglary and filing false instruments for seizing five houses in Anaheim Hills, Dana Point, San Clemente and Capistrano Beach. (ocreg121413)

MORAL

 

I wonder what he did with all the rent money.  If he rented the 70 homes times say $1,500 per month for rent is $105,000 per month times 12 is $1.26 million per year.

FLORIDA MAN GETS FIVE YEARS IN PRISON FOR MORTGAGE FRAUD THAT FUNDED NINE YEARS AGO

FACTS

On Dec. 9, James Olivos was sentenced to five years in federal prison for bank fraud and money laundering. As part of his sentence, the court also entered a money judgment in the amount of $2,866,121.39, the proceeds of the fraud scheme.

Between March 2003 and November 2007, Olivos engaged in a scheme wherein he recruited other individuals to purchase expensive homes, which they could not afford. Olivos prepared loan applications for these straw purchasers, which grossly overstated their incomes and gave false employment histories. Additionally, these applications stated that these homes would be used as primary residences, but Olivos had actually told these buyers that the homes would be investments and that he would find renters to cover the mortgage payments. Further, in order to increase his profits, Olivos convinced the sellers of the homes to inflate the sales prices by stating additional money would be necessary for home improvement. Olivos would then split the proceeds of the sales with the sellers. As a result of this fraud, Olivos caused a total loss to the lenders of approximately $3.2 million dollars.  (usattymdfl12913)

MORAL

Note the loans that took place in 2003! As I repeatedly state, the federal government has 10 years to file the criminal charges and here they did it nine years after the first event. 

TWO LOS ANGELES DEPUTY SHERIFFS CONVICTED OF MORTGAGE FRAUD IN MISSOURI FEDERAL COURT

FACTS

On Dec. 6, James Nash and Arman Nshanian, two deputies of the Los Angeles County Sheriff’s Department were convicted in federal court for their roles in an $11 million mortgage fraud scheme. They were each found guilty of conspiracy to commit wire fraud. In addition to the criminal conspiracy, Nash was convicted of four counts of wire fraud, and Nshanian was convicted of two counts of wire fraud related to fax transmissions and e-mails that were sent across state lines during the mortgage application process.

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