DEC 19, 2013
Compliance Matters

Marketing Agreements, RESPA and CFPB

DEC 19, 2013 5:20pm ET
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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.

Nash and Nshanian are among ninedefendants who participated in a mortgage fraud scheme from early 2005 through Aug. 4, 2006. Mortgage lenders made loans of approximately $11,092,886 on 16 residential properties. From that total, unbeknownst to the lenders, buyers received approximately $2,006,845 from the loan proceeds. The scheme resulted in a financial loss to mortgage lenders of nearly $5 million.

There are seven others who have pled guilty in this case, including two mortgage loan officers.

Nash fraudulently purchased two residential properties in Blue Springs, Mo. He received $100,000 from each property. Nshanian fraudulently purchased a residential property in Lee’s Summit, Mo., and received $100,000.

Under federal statutes, Nash and Nshanian are each subject to a sentence of five years in prison without parole for the conspiracy conviction and up to 20 years for each count of wire fraud. (usattywqdmo12613)

MORAL

Nine defendants, 6 from California and two were L.A. Deputy Sheriffs.  Note also that in this case the government went back to mortgage loans that took place in 2005 to prosecute. Note the fact that the sentence on conspiracy whatever it may be, does not allow for parole.

FEDERAL AGENT PLEADS GUILTY TO $800,000 MORTGAGE FRAUD

FACTS

On Dec. 6, in the Western District of Missouri, Jeffrey Morriss, a special agent for U.S. Immigration and Customs Enforcement’s Homeland Security Investigations pleaded guilty in federal court to making false statements to FBI agents in regard to a more than $800,000 mortgage fraud scheme. Morriss had been employed as a special agent for ICE HSI since 1997.

Morriss submitted four separate home loan applications for three houses between August 10, 2007 and March 6, 2012. Morriss admitted that he made at least 12 material misrepresentations and omissions to obtain $811,917 in home loans. Morriss failed to make full payments on these loans, resulting in three defaults and foreclosures.

Morriss admitted that, on each loan application, he omitted the full amount of his debt, and on other occasions he provided other inaccurate and false information, which improved his debt-to-income ratio and assisted him to qualify for the loans. Morriss did not disclose debt for property he purchased in Colorado, did not disclose monthly child support liability, and did not disclose that his property in Pleasant Hill, Mo., had been foreclosed. On a $161,150 loan application for residential property in Kansas City, Morriss falsely inflated his monthly income by about $2,600.

Morriss also lied to FBI agents during an interview about the loan applications that was held on Nov. 18, 2012.

Under the terms of the plea agreement if it is accepted by the court at his sentencing hearing, Morriss will be sentenced to three years of probation and pay $12,794 in restitution. (usattywdmo12613)

MORAL

You might think this is a light sentence until you realize he was 13 years into his retirement. Now he probably gets no retirement and it is quite likely forfeited totally because of the conviction. Taken with the conviction and no ability to get a decent job because of the conviction I would say Morriss took a very large risk for a very small gain and at that there was no gain. This goes back to something that took place six years ago.

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE

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