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Originators Must Comply With Red Flags Rule

DEC 6, 2012 5:54pm ET
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FTC AMENDS “RED FLAGS” IDENTITY THEFT RULES AND ORIGINATORS MUST COMPLY

FACTS

On Nov. 30, the Federal Trade Commission announced publication of an Interim Final Rule on identity theft “red flags” that narrows the circumstances under which creditors are covered by the Rule. Congress directed the FTC, along with several banking agencies to develop regulations requiring “financial institutions” and “creditors” to develop and implement a written identity theft prevention program. By identifying “red flags” for identity theft in advance, businesses can be better equipped to spot suspicious patterns that may arise−and take steps to prevent potential problems from escalating into a costly episode of identity theft.

Under the Rule, red flag programs must have four parts:

First, the program must include reasonable policies and procedures to identify signs–or “red flags”– of identity theft in the day-to-day operations of the business.

Second, the program must be designed to detect the red flags of identity theft identified by the business.

Third, the program must set out the actions the business will take upon detecting red flags.

Fourth, because identity theft is an ever-changing threat, a business must re-evaluate its Program periodically to reflect new risks from this crime.

The agencies promulgated the Red Flags Rule in 2007. In December 2010, Congress enacted legislation narrowing the definition of “creditors” covered by the Rule. The amended Red Flags Rule now provides that a creditor is covered only, if, in the ordinary course of business it regularly obtains or uses consumer reports in connection with a credit transaction (This applies to lenders, mortgage brokers and mortgage loan originators); furnishes information to consumer reporting agencies in connection with a credit transaction; or advances funds to or on behalf of a person, in certain cases.

FTC is seeking comment on the Interim Final Rule for 60 days. After the expiration of the 60-day comment period and a review of the comments received, the Interim Final Rule will become final. The interim rule is effective Feb. 13, 2013.

MORAL

This means by Jan. 31, 2013 the rule becomes final.  It should not affect anyone that has a Red Flags Identity Theft Manual in place because all the rule does is clarify the definition of creditor to avoid confusion.

ARIZONA WOMAN GETS 30 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD

FACTS

On Nov. 26, Michelle Marie Mitchell was sentenced by U.S District Court Judge James A. Teilborg to 30 months in prison, restitution of $110,490, and three years of supervised release.

Mitchell and an associate, Jeremy West Pratt, were indicted by a federal grand jury. Pratt pled guilty to conspiracy to commit wire fraud and got six months in jail and three years of supervised release.

Mitchell held herself out to be a mortgage broker, loan officer, and real estate investor. She did business at an office on East Vista Bonita Drive in Scottsdale. Pratt was president of Arizona Cooling Control Plus Inc. and involved in construction and remodeling work. Mitchell and Pratt recruited people with good credit scores to act as straw buyers to ostensibly purchase one or more properties as investments. Mitchell and Pratt enticed the straw buyers by offering to pay a kickback of up to $15,000 per property or to make the mortgage payments until the property could be resold for a profit or both. In addition, the defendants submitted false loan applications and supporting documents to induce lenders to fund loans and at the close of escrow enriched themselves by directing a portion of the loan proceeds, or “cash back,” to a company which one of them controlled.

Between October 2005 and February 2007, Mitchell obtained mortgage financing for 17 properties and induced lenders to fund approximately $17 million dollars in loans. Pratt aided Mitchell’s efforts in eight of the 17 properties that are located in Glendale, Scottsdale, Surprise, Peoria, Goodyear, and Phoenix. The defendants failed to make the mortgage payments as promised, and each of the 17 properties went into foreclosure.  (usattyaz112812)

MORAL

First guess who cooperated with the federal prosecutors? Second, notice that the fraud loans were from 2005, over seven years ago!

IN CALIFORNIA A NEW WAY TO SUE FOR A DEFICIENCY JUDGMENT ON A

SECOND MORTGAGE AFTER THE FIRST MORTGAGE FORECLOSES

FACTS

The California Court of Appeal (4th District) considered whether Code of Civil Procedure Section 580d prohibited the assignee of a junior lien on a property from seeking a money judgment when the assignee of a senior lien had already conducted a nonjudicial foreclosure sale of the property. The court ruled that although Section 580D precludes a deficiency judgment by the junior lienholder when the same lender is both senior and junior lien holder, it does not preclude such a judgment when both loans are subsequently assigned to different entities soon after loan origination.

Although the loans both originated with one lender, the loan originator and various assignees of the senior and junior liens were independent entities who were not acting in concert to avoid the Section 580’s prohibition. (Cadlerock Joint Venture, L.P. v. Lobel, 206 Cal.App. 4th 1531 (2012); 143 Cal. Rptr. 3d 96)

MORAL

What does this mean to the homeowner? It means all those lovely little 80-20 loans made to avoid private mortgage insurance payments now allow the holder of the second mortgage to sue the homeowner if the holder of the second mortgage is not the same as the first at the time of the foreclosure sale. The only possible out is if the second mortgage is held by the same lien holder at the time the foreclosure is started and the first deed of trust sells the second deed of trust to bet good money for it to avoid the anti-deficiency law of same lender holding both at time of foreclosure sale. What is noteworthy is the court factually stated that it was basically “non-purchase money loans.” So if the 80-20 loans were purchase money loans this deficiency availability might not apply. The California Supreme Court denied review so it holds as good law, at least in the 4th District.

CALIFORNIA MAN PLEADS GUILTY TO THREE FRAUD SCHEMES INCLUDING MORTGAGE FRAUD AND RIPPING OFF HIS OWN PARENTS

FACTS

On Nov. 26, Kaveh Vahedi agreed to plead guilty to federal fraud charges, admitting that he ran three separate scams, includes a Ponzi scheme that defrauded 30 families out of more than $8 million.  He also admitted to a mortgage fraud scheme that submitted hundreds of falsified loan applications to banks from his brokerage firm. Vahedi also acknowledged stealing more than $700,000 from his parents by draining their bank accounts and taking out a loan on their home.

Vahedi entered into a plea agreement with prosecutors to plead guilty to one count of wire fraud in connection with the Ponzi scheme and one count of conspiracy in relation to the mortgage fraud scheme. Vahedi also agreed to plead guilty to one count of bank fraud to resolve a previously filed criminal case related to the fraud against his parents.

Once he pleads guilty to the three felony counts stemming from the three schemes, Vahedi will face a statutory maximum sentence of 55 years in federal prison.

According to the plea agreement, Vahedi ran an elaborate Ponzi scheme through his investment company, KGV Investments, which he used to give victims the appearance that he was a successful businessman who made hundreds of millions of dollars brokering international bond deals. He also told investors that his contacts gave him unique opportunities to invest in real estate development projects overseas, including commercial developments in China and Dubai, as well as large real estate projects in the United States. Vahedi admits in the plea agreement that he convinced more than 30 investors to give him approximately $12 million to invest on their behalf. Instead of investing the money in bond or real estate deals, Vahedi used the investors’ money for his own benefit, including making monthly mortgage payments on several properties, luxury vehicles and private school tuition. Ultimately, investors suffered losses of more than $8 million.

Vahedi also ran a successful Glendale-based mortgage brokerage, Countrywide Financial. (There was no connection between Vahedi’s Countywide Financial and the Calabasas-bssed Countrywide Home Loans.) Vahedi admitted in his plea agreement that he submitted at least 250 fraudulent loan applications that included falsified employment and income records to these lenders. Relying on the lies in the loan applications, as well as the forged records that were provided by Vahedi in support of these applications, lenders were duped into approving and funding millions of dollars in loans.

In addition to these crimes, Vahedi also agreed to plead guilty to one bank fraud count in a pending indictment against him related to a fraud he perpetrated against his own family. In his plea agreement, Vahedi admits that he posed as his father in order to withdraw approximately $250,000 from his parents’ bank account. He also impersonated his father and took out a $493,000 home equity loan against his parents’ home.  (usattycdca112812)

MORAL

Now here is a nice unprejudiced guy.  He is unbiased and will rip off his own parents as well as strangers.  The one possible nice thing possible is if the parents have a good lawyer they should be able to get the forged home equity lien set aside as well as suing the notary that notarized it possibly. It is also possible the parents might get the money back from the bank if they made a timely claim.

FLORIDA MAN PLEADS GUILTY TO MORTGAGE FRAUD

FACTS

On Nov 30, 2012, Arthur R. Seaborne, 69, pleaded guilty to conspiracy to commit bank fraud that resulted in more than $6 million in losses for banks. He faces a maximum penalty of five years in federal prison at his sentencing hearing, scheduled for Jan. 24, 2013.

Starting in March 2003 running through July 2008, Seaborne and others conspired to commit bank fraud and he used several corporate entities to perpetuate the fraud scheme. Seaborne marketed a "no money down" residential purchase program that made loans to his clients, enabling them to make down payments to purchases of residential properties.

Then, Seaborne and his co-conspirators prepared and submitted fraudulent mortgage loan applications to lenders for the clients that did not specify that the down payments had been loaned. The applications also usually overstated assets and understated liabilities. Some loan applications also said the properties were to be the borrowers’ primary residences, when in fact they were investment properties. Some of the loans on the residential properties went into default, and the losses incurred by the lenders on 49 such residential properties totaled $6.8 million.  (tpo12112)

MORAL

Notice:  The loans occurred in 2003 and prosecution is nine years later in 2012. Notice further, that the conviction includes fraud for stating the property would be owner-occupied when in fact it was investment property. If anyone has this issue you may want to consider consulting an attorney to see where your risks of indictment may be.

KENTUCKY MAN GETS 15 MONTHS IN PRISON FOR MORTGAGE FRAUD

FACTS

Dane Little was sentenced in United States District Court by District Judge Charles R. Simpson III to 15 months in prison and ordered to pay $487,111 in restitution after pleading guilty to engaging in a conspiracy to commit bank and wire fraud. In court, Little admitted to intentionally devising a scheme to defraud various banks and mortgage lenders by submitting fraudulent mortgage loan information in the purchase of 19 properties in Louisville, Kentucky and Jeffersonville, Indiana, totaling nearly $5 million dollars.

According to the indictment returned by a federal grand jury between Nov. 1, 2006 and Aug. 30, 2008, Little and his co-defendants perpetrated a fraudulent scheme against various banks and commercial lending companies. The indictment claims that they submitted applications and other documents for loans which contained false and fraudulent information, including false employment information, false and fraudulent bank account balances, and false representations that down payments were being made toward purchases of properties.

According to court records, after loan applications were approved for funding, the loan proceeds were wire transferred in interstate commerce to designated accounts with various banks in Louisville, Kentucky, whereby the defendants and other unnamed co-conspirators appropriated, for their personal benefit and gain, portions of the fraudulently obtained loan proceeds.

The Louisville grand jury returned a second charge in the superseding indictment against Little and another defendant charging them with conspiracy to commit bank fraud in a separate but similar fraudulent scheme against various banks and commercial lending companies. They submitted applications and other documents for automobile loans which contained false and fraudulent information, including borrower’s employment, income and assets, and identity of the seller of the vehicle.

To date, all six defendants have entered guilty pleas with the court, and two defendants, including Little, have been sentenced. Stephen Netherton was sentenced on April 6, , to serve 24 months in federal prison, concurrent to his state sentence, and ordered to pay restitution in the amount of $874,100. (ysattywdky112312)

MORAL

Notice how the persecutors went back six years to 2006 for the fraud loans. Remember, they have 10 years to indict.

OHIO WOMAN GETS OVER TWO YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD

FACTS

Antoinette Payne was sentenced to more than two years in prison for a mortgage-fraud scheme that resulted in a loss of more than $1 million. She was sentenced to 27 months in prison and ordered to pay more than $1.3 million in restitution. She previously pleaded guilty to one count each of conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with a mortgage fraud scheme to defraud various lenders.

Payne worked as a mortgage broker and loan officer for Supreme Funding and was also the owner of TLC Properties and Designer Loan Properties, which were sham companies that she used to receive kickbacks and reimbursements for undisclosed down payment assistance she was providing to purchasers from the various loans’ closings she was handling.

These funds were in addition to the fees paid to Payne as a mortgage broker and loan officer in handling these transactions. Payne recruited purchasers for properties and promised to pay them money for filling out the paperwork for a mortgage loans where the price of the properties had been greatly inflated. She also provided any down payments as necessary.

To accomplish this, Payne sometimes drew money out of her TLC bank account and purchased official checks made payable to the title company as purported down payments by purchasers. Payne also falsified the income and asset on the loan documents of the purchasers she recruited to ensure their approval. She provided phony lists of improvements to the lender to support inflated the price of the real estate, according to court documents.

Once the purchasers stopped making payments on the mortgage loans, the properties went into default, resulting in a loss to lenders in the amount of approximately $1 million, according to court documents.  (usattyndoh112912)

 

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.

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