A REMINDER ABOUT MORTGAGE TRANSFER DISCLOSURE STATEMENTS UNDER TILA TO BE GIVEN WITHIN 30 DAYS FOR BOTH CLOSED END MORTGAGES AND HELOCS
FACTS
The purchaser or assignee that acquires the loan must provide the required disclosures no later than 30 days after the date on which it acquired the loan. This applies to any consumer credit transaction secured by the principal dwelling of the consumer. This became effective May 20 to all mortgage loans sold or otherwise transferred on or after that date. Failure to comply leaves the transferee subject to civil liability.
Under the final rule, the disclosures must state (1) The name, address, and telephone number of the new owner; (2) the transfer date; (3) the name, address, and telephone number of an agent or other party authorized to receive the consumer’s rescission notice and resolves issues concerning the consumer’s payments on the loan (if other than owner); and (4) where the transfer of ownership is recorded.
The final rule applies only to persons that acquire more than one mortgage loan in any 12-month period. A party servicing the mortgage loan is not treated as the owner of the obligation if the obligation was assigned to the servicer solely for the administrative convenience of the servicer in servicing the obligation. The final rule is effective October 2010 and all “Covered Persons” must start complying as of January 1, 2011.
Remember, A ‘‘covered person’’ means any person that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation. (75fr58489, 9-24-10)
MORAL
Remember when this rule goes into permanent effect. Between this and the RESPA version you could be leaving yourself open to a potential class action lawsuit. Therefore, be sure you are in compliance and starting now may not be a bad idea.
PROPOSED AMENDMENT TO REGULATION Z OF TILA TO IMPLEMENT SECTION 1461 OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
FACTS
The Federal Reserve Board is publishing for comment a proposed rule to amend Regulation Z, which implements the Truth in Lending Act. The proposed rule would implement Section 1461 of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1461 amends TILA to provide a separate, higher threshold for determining coverage of the Board’s escrow requirement applicable to higher-priced mortgage loans, for loans that exceed the maximum principal balance eligible for sale to Freddie Mac.
Under the 2008 HOEPA Final Rule, a higher-priced mortgage loan is a consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling. For such loans, the Board prohibited creditors from extending credit based on the value of the consumer’s collateral without regard to the consumer’s ability to repay the obligation. The Board also placed restrictions on the inclusion of prepayment penalty provisions in higher-priced mortgage loans. Finally, the Board prohibited extending a higher-priced mortgage loan secured by a first lien unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor.
Section 1461 of the Dodd-Fran Reform Act creates TILA Section 129D that escrow accounts for taxes and insurance be established for first-lien higher-priced mortgage loans that do not exceed the current, maximum original principal obligation for mortgages eligible for purchase by Freddie Mac. For loans that exceed the Freddie Mac maximum principal balance, TILA Section 129D provides that the escrow requirement applies only if the APR exceeds the applicable average prime offer rate by 2.5 or more percentage points. The current maximum principal balance for a mortgage loan to be eligible for purchase by Freddie Mac (or Fannie Mae, which uses the same loan-size limit), assuming a single-family property that is not located in any of various designated "high-cost" areas, is $417,000. Thus, for example, under TILA Section 129D(b)(3), if a single-family mortgage loan’s original principal balance is $415,000, the determination of whether it is subject to the escrow requirement in is made using a threshold of 1.5 percentage points over the average prime offer rate; if the principal balance is $420,000, on the other hand, the determination is made using a threshold of 2.5 percentage points over the average prime offer rate. Loans that are not eligible for purchase by Freddie Mac or Fannie Mae because their loan sizes are too great are widely referred to in the mortgage market as "jumbo" mortgages. Hence, the term "jumbo" is used in this proposed rule to refer to such loans.
This proposed rule would implement TILA Section 129D(b)(3)(B). Section 129D(b)(3)(B) provides a different, higher threshold for the escrow requirement for first-lien, jumbo loans. For such loans, under this proposal, escrows would be mandatory if the loan’s APR exceeds the average prime offer rate for a comparable transaction as of the date the loan’s interest rate is set by 2.5 or more percentage points.
Proposed staff comment 35(b)(3)(v)−1 would clarify that this higher threshold applies solely to whether a jumbo loan is subject to the escrow requirement. The determination of whether jumbo loans are subject to the other protections in Section 35, such as the ability to repay requirements and the restrictions on prepayment penalties under would continue to be based on the 1.5 percentage point threshold.
MORAL
Since this affects jumbo loans only you may want to pay attention because if approved as is for those jumbos that do not exceed 2.5%, you will not be required to have an escrow. This becomes a business judgment rule.
MORE AMENDMENTS TO TILA REGULATION Z PER THE MORTGAGE DISCLOSURE IMPROVEMENT ACT
FACTS
On July 30, 2008, Congress enacted the Mortgage Disclosure Improvement Act of 2008. The MDIA requires transaction-specific TILA disclosures to be provided within three business days after an application is received and before the consumer has paid a fee, other than a fee for obtaining the consumer’s credit history. In addition, the MDIA requires creditors to mail or deliver early TILA disclosures at least seven business days before consummation and provide corrected disclosures if the disclosed APR changes in excess of a specified tolerance. The consumer must receive the corrected disclosures no later than three business days before consummation.
The MDIA also includes loans secured by a dwelling even when it is not the consumer's principal dwelling.
The MDIA also requires disclosure of payment examples if the loan’s interest rate or payments can change. The MDIA requires disclosure of a statement that there is no guarantee the consumer will be able to refinance the transaction in the future. Those provisions of the MDIA become effective on Jan. 30, 2011, or any earlier compliance date established by the Board.
Under this interim rule, creditors will be required to disclose in a tabular format the contract interest rate together with the corresponding monthly payment, including any escrows for taxes and property and/or mortgage insurance. Special disclosure requirements are imposed for adjustable-rate or step-rate loans to show the interest rate and payment at consummation, the maximum interest rate and payment at any time during the first five years after consummation, and the maximum interest rate and payment possible during the life of the loan.
Additional special disclosures are required for loans with negatively amortizing payment options, introductory interest rates, interest-only payments, and balloon payments. Finally, the interim rule requires the disclosure of a statement that there is no guarantee the consumer will be able to refinance the loan with a new transaction in the future. This new rule is effective Oct. 25, and mandatory as of Jan. 30, 2011.
Transactions secured by real property with no dwelling or other structure built thereon would be subject to the enhanced disclosures, assuming such transactions are consumer credit.
MORAL
Read the new rule very, very carefully—12 CFR Section 226.18. Understand it. Especially if you are a hard money lender and are giving loans on dwellings and vacant land. Remember this is not restricted to a consumer’s primary residence. Remember Jan. 30, 2011 this is mandatory.
FTC PROPOSES NEW RULES ON DECEPTIVE MORTGAGE ADVERTISING AND REQUIRES KEEPING COPY FOR 24 MONTHS AND PROOF THE PRODUCT WAS AVAILABLE
FACTS
The Federal Trade Commission is proposing a rule that would ban misrepresentations for all mortgages and would allow the FTC and the states to seek civil penalties against those who violate the rule. The proposed rule would prohibit all material misrepresentations in advertising about consumer mortgages. The proposed rule lists 19 examples of misrepresentations about fees, costs, obligations ad other aspects of credit that would be violations.
The proposed rule would apply to mortgage lenders, brokers, and servicers; real estate agents and brokers; advertising agencies; home builders; lead generators; rate aggregators; and other entities under the FTC’s jurisdiction. The FTC’s enforcement program has included many cases against mortgage lenders, brokers, and others for allegedly deceptive mortgage advertising.
Currently, under the FTC Act, the Commission may bring actions against those under its jurisdiction who engage in deceptive mortgage advertising, and it may seek injunctive relief against them. Under the proposed rule, the FTC would be able to bring actions against violators to seek civil penalties in addition to injunctions. The proposed rule would also allow the states to bring actions for civil penalties for violations of the rule.
The FTC also seeks public comment on whether the rule should include a provision that prohibits persons from providing substantial assistance to those who violate the rule. The Notice of Proposed Rulemaking has a 45-day public comment period ending Nov. 15. (ftc92210)
MORAL
The FTC is a bulldog when it gets started and the fines it now sends out are generally six figures more often than not. I suggest you have legal counsel approve the advertising before using it. That is definitely much cheaper than defending a federal case in the United States District Court and a lot safer.
CALIFORNIA ATTORNEY DISBARRED OVER LOAN MODIFICATIONS
FACTS
Brian Colombana, a Laguna Hills lawyer has admitted poorly advising his clients on loan modifications, the state bar says. He handled dozens of foreclosure cases and has admitted "extensive misconduct" and will be disbarred, the State Bar of California announced last week. Colombana, who was placed on involuntary inactive status last summer, said he committed nine acts of misconduct, according to the bar.
Two of his clients lost their homes to foreclosure, one had to sell his home at a loss, and another cashed in insurance policies to bring the mortgage current and avoid losing the home, the bar says in a news release.
Colombana accepted fees of nearly $36,000 from 12 homeowners struggling with mortgages but did not achieve any loan modifications. Eight of the clients live in states where Colombana is not licensed to practice, and he admitted to engaging "in a scheme to defraud these clients, by exploiting them for personal gain and accepting employment where he was not licensed to practice law," according to the bar.
"Colombana affiliated with several loan modification companies, including Loan Negotiators of America, Housing Law Center and Mortgage Relief Law Center," the bar said. "In most cases, he never met his clients. His associates, however, advised them to stop making their mortgage payments. When State Bar Court Judge Richard Honn ordered Colombana to stop practicing in June, he said many homeowners were current but then fell behind as a result of that advice. Many 'were worse off after retaining (Colombana's) services,' Honn said. "In agreeing to disbarment, Colombana, 29, admitted that his misconduct 'resulted in significant harm to multiple clients (and) constituted a pattern of willfully failing to perform and a habitual disregard for clients' interests,'" the bar said.
Colombana is the fifth California lawyer who agreed to be disbarred after complaints by homeowners who paid fees to lawyers who they said did too little or nothing to help them. (ocreg92610)
MORAL
While this is a bad showing there are lawyers that did do good. However, no bad deed goes unpunished.
CALIFORNIA REALTOR AND ONE OTHER ARRESTED FOR MORTGAGE FRAUD
FACTS
On Sept. 24, JIM LANKFORD, FOUNDER AND LONGTIME OWNER OF CENTURY 21 APOLLO REAL ESTATE, along with his roommate JON MCDADE, were arrested and charged with defrauding banks and elderly homeowners of more than $10 million.
Lankford and McDade allegedly bilked seniors and lenders for 11 years, according to a federal grand jury indictment. FBI agents and Stanislaus County fraud investigators arrested the men in Pacific Grove, where they had recently moved, according to the U.S. Department of Justice.
Lankford worked in the Modesto area for more than three decades. The real estate agency allegedly figured in some schemes that started by gaining trust of elderly property owners and featured variations of mail fraud, lying on loan documents, forgeries, moving property between Lankford and McDade and stripping equity, the indictment reads.
Lankford is charged with 49 counts of mail fraud, or using the postal service in an illegal scheme, and McDade faces 10 counts of mail fraud and one of bank fraud. A mail fraud conviction can bring 20 years in prison and a $250,000 fine, while bank fraud can fetch a 30-year term and $1 million fine.
Authorities say the men targeted seniors who owned homes free and clear, and ran schemes that enriched Lankford and McDade with multiple loans on each property. Some homes eventually were sold in short sales—with Lankford's firm reaping commissions—or lost to foreclosure, the indictment says.
In some cases, Lankford filed deeds with forged signatures, or deceived elderly owners into signing away their homes "by telling them it had another legal purpose," authorities allege.
McDade and Lankford registered to vote using their previous address at 3331 Wycliffe Drive in Modesto, which McDade bought for $760,000 in 2004, property records show. Three years later, he used the home to leverage an $880,000 loan.
Threatened with foreclosure, the 3,600-square-foot home went for $385,000 in a June short sale listed by Lankford's company, erasing the loan owed by McDade. The buyer was a limited liability corporation, created only four months before, with both men's attorney. The LLC has not been used for any other transaction in Stanislaus County, according to a search of recorded documents.
Eleven weeks later, the buyer listed the same home for $640,000, and an unknown offer was accepted in a pending deal on Monday. The five-bedroom house had undergone a $1 million renovation before the short sale, according to information on the Multiple Listing Service.
The indictment accused McDade of lying about his salary, assets and debts on a refinance application for the same home. The deal ended up costing Wachovia-Wells Fargo Bank about $580,200, authorities allege.
Lankford and two other defendants said they were victims of overzealous investigators who harmed their reputations and forced them to hire lawyers to fight baseless charges. Lankford, teary-eyed, told The Bee the government abused its power by pursuing false charges that had no merit. (modestobee92510)
MORAL
Remember, an indictment is an accusation only. All accused are innocent until proven guilty in a court of law. However, I believe I have only read of one mortgage fraud case where the federal prosecutors lost and that was years ago.
SAN FRANCISCO FINANCIAL ADVISOR GETS SEVEN YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD AND IDENTITY THEFT
FACTS
On Sept. 16, NICOLE SONG (A/K/A PARIS SAMANTHA SONG) WAS SENTENCED TO SEVEN YEARS IN PRISON AND ORDERED TO PAY $1,645,789.23 IN RESTITUTION for her fraud and identity theft scheme.
Song pleaded guilty to charges of wire fraud, bank fraud, and aggravated identity theft. Song admitted that she abused her position as the financial and real estate advisor for her victim by using the proceeds of multiple real estate refinancings for her own personal benefit. Song also admitted forging her victim’s signature on one loan application, and using her victim’s Social Security Number to obtain numerous fraudulent loans and credit cards. Song agreed at sentencing that the loss to the individual victim exceeded $1.5 million, and that the losses to various banks exceeded $140,000.
Song, most recently of Las Vegas, was indicted by a federal grand jury on Dec. 31, 2009. She was charged with wire fraud in connection with her misuse of refinancing proceeds, bank fraud relating to her submission of fraudulent loan applications, and aggravated identity theft based on her misuse of her victim’s Social Security Number.
The victim, who is 73 years old, has been forced to file bankruptcy as a result of these crimes. All six of the victim’s properties that were refinanced by Song are in foreclosure proceedings.
Song’s guilty plea was on one count each of wire fraud in violation of 18 U.S.C. § 1343, bank fraud in violation of 18 U.S.C. § 1344, and aggravated identity theft in violation of 18 U.S.C. § 1028A. Judge White also sentenced the defendant to a five-year period of supervised release, and prohibited her from acting in a fiduciary capacity without prior permission of the U.S. Probation Office. The defendant has been in federal custody since her arrest on Jan. 11, 2010. Case #: CR 09-1214 JSW- 9/17/10
MORAL
Do you investigate the loan officers you hire before you hire then? If not, you may just lose more money than you make from them.
NEW JERSEY MAN PLEADS GUILTY TO $3.8 MILLION THEFT IN LOAN PROCEEDS GIVEN TO HIS TITLE COMPANY
FACTS
RONALD P. MAS JR., OF RED Bank, N.J., a mortgage broker, settlement agent and OWNER OF OLDE GOTHAM TITLE AND SETTLEMENT SERVICES, pleaded guilty before a superior court judge to an accusation charging him with second-degree money laundering and second-degree theft by failure to make required disposition of property received.
Mas admitted that between April 1, 2009 and Feb. 15, 2010, he stole $3,841,616 that he received from various mortgage lenders for real estate closings on behalf of 11 homebuyers throughout New Jersey. Sentencing is scheduled for Oct. 15, 2010. The state will recommend that Mas be sentenced to 12 years in prison. He must execute a consent judgment to pay full restitution to the title company that insured the mortgages.
According to the lawsuit, the state investigation revealed that Mas diverted loan proceeds into his Ameritrade account. Instead of paying off the client’s old mortgage, Mas allegedly would make monthly mortgage payments and invest the balance of the loan proceeds into the Ameritrade account. It is alleged that Mas made monthly payments on some mortgages using funds from new loans provided for clients. At the end of February 2010, Mas had a total loss of over $3.4 million in his Ameritrade account. As a result, 11 mortgages were not paid. (ON92010)
MORAL
Pays to do business with a reputable company.
FORMER CEO OF COBALT FINANCIAL, SENTENCED IN MANHATTAN FEDERAL COURT TO THREE YEARS IN PRISON FOR REAL ESTATE FRAUD SCHEME
FACTS
On Sept. 22, WILLIAM B. FOSTER, THE FORMER OWNER, PRESIDENT, AND CEO OF COBALT FINANCIAL, INC., was sentenced to three years in prison on charges stemming from a fraud that raised more than $23 million from over 250 investors in private placement real estate offerings. FOSTER was sentenced in Manhattan federal court by U.S. District Judge KIMBA M. WOOD, who presided over the three-week jury trial at which FOSTER, along with co-defendants MARK ALAN SHAPIRO and IRVING STITSKY, were found guilty.
Beginning in late 2003, FOSTER, STITSKY, and SHAPIRO founded a group of companies that operated under the name "Cobalt," which purportedly engaged in the acquisition and development of multi-family real estate properties throughout the United States. Through the Cobalt entities, FOSTER, STITSKY, and SHAPIRO fraudulently induced victims to invest by, among other things, (a) misrepresenting Cobalt's operating history; (b) failing to inform prospective investors that Cobalt was owned and controlled by STITSKY and SHAPIRO, both convicted felons; and (c) misrepresenting and causing others to misrepresent Cobalt's purported ownership interests in certain properties to prospective investors. In fact, Cobalt was a new company with little or no record of real estate investment success, was managed and controlled by STITSKY and SHAPIRO, and did not own several of the properties that it claimed to own.
FOSTER, STITSKY, and SHAPIRO established Cobalt’s corporate headquarters in Springfield, Mass., and a telemarketing center in Great Neck, N.Y. FOSTER, who worked out of Cobalt’s Massachusetts office, was identified in the Cobalt marketing materials as the individual responsible for overseeing all aspects of the operations of all of the Cobalt entities.
The defendants and their employees solicited funds from investors by making false and misleading oral and written representations about the investment for which the investors’ funds were solicited, including false representations about: (i) the identities and relevant background information about the individuals controlling the Cobalt entities; (ii) the identities of Cobalt’s business partners; (iii) the properties that Cobalt owned; (iv) the properties in which investor funds were to be invested; (v) the history of the Cobalt entities; (vi) the amount of management fees to be taken by Cobalt entities from the investor funds; (vii) the uses of the management fees taken by Cobalt entities from the investor funds; and (viii) SHAPIRO's educational background. FOSTER, STITSKY, and SHAPIRO then caused millions of dollars of investors’ funds to be transferred to accounts for the defendants’ personal benefit.
In addition to the prison term, Judge WOOD sentenced FOSTER, 70, of East Hampton, Mass., to three years of supervised release and ordered him to pay $22 MILLION IN RESTITUTION AND TO FORFEIT $23 MILLION IN PROCEEDS FROM HIS OFFENSES.
IRVING STITSKY, 55, OF MILAN, N.Y., WAS SENTENCED TO 85 YEARS IN PRISON on July 6, 2010. SHAPIRO, 50, of Avon, Conn., is scheduled to be sentenced on October 14, 2010. (usattysdny92210)
MORAL
EIGHTY-FIVE YEARS IN A FEDERAL PRISON FOR FRAUD AND THERE IS NO TIME OFF FOR GOOD BEHAVIOR. It is unlikely he will live that long. Just think—for about $750 each of these 23 people could have done a minimal investigation and found out the company was new by checking the Secretary of State office for date of formation and property records to see the way title to the properties allegedly owned was held. We can do that and they would have saved millions. Oh well! Remember the old proverb. Greed overcomes common sense every time.
NORTH CAROLINA UPDATES HIGH-COST HOME LOAN LAW
FACTS
As of Sept. 20, loan amounts of $20,000 or more will have points and fees limited to 4%. Excluded from this percentage will be MIP and VA funding as well as some other costs. (ncsb 1216)
MORAL
Keep up with the changes.
LUBBOCK, TEXAS MAN GETS 14 MONTHS IN FEDERAL PRISON FOR A $45,000 MORTGAGE LOAN LIE TO THE BANK
FACTS
On Sept. 24, ANDREW KENT CLARK OF LUBBOCK, TEXAS, was sentenced to 14 months in federal prison, to be followed by five years of supervised release, and ordered to pay $45,434.68 in restitution. In late June 2010, Clark pleaded guilty to one count of making a false statement to a bank.
In March 2007, Clark and his wife purchased a lot in Llano Estates, a Lubbock subdivision. The purchase was financed by a loan from City Bank, and in July 2007, the Clarks borrowed additional funds totaling over $550,000 to begin construction on the home. In late 2007, they began the process to finance the house with a mortgage loan and, as a result, in June 2008, City Bank and City Bank Mortgage required Clark to verify assets. On June 8, 2008, Clark submitted a Personal Financial Statement to City Bank showing that he had $750,000 in stocks and bonds, with total assets in the amount of $1,750.350. City Bank and City Bank Mortgage required Clark to verify the stocks and bonds on his Personal Financial Statement and on August 6, 2008, Clark provided City Bank with a document from Wells Fargo Investment that showed he had a brokerage account with a balance of $602,211.
Based on the information provided by Clark, City Bank made a mortgage loan to the Clarks. Subsequently, the Clarks defaulted on the loan and City Bank discovered that there was no investment account at Wells Fargo, and that Clark did not own any stocks and bonds. Clark admitted that he knowingly made a false statement to officers of City Bank, and that it resulted in the loss of $45,434.68 to City Bank (ksdb.com92410)
MORAL
Stated income by borrower on one loan to one bank and only $45,414.68 loss and gets 14 months in a federal prison, loss of voting rights, loss of job, inability to work for government when he gets out, inability to get certain types of licenses like never to own a weapon. All for one loan and one stated income with one false document.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
