FACTS
The Federal Reserve published for public comment a proposed rule amending Regulation Z (Truth in Lending) to implement amendments made by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal would implement statutory changes made by the Dodd-Frank Act that expand the scope of the ability to repay requirement to cover any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan). In addition, the proposal would establish standards for complying with the ability-to-repay requirement, including by making a “qualified mortgage.” The proposal also implements the Act’s limits on prepayment penalties. Comments on this proposed rule must be received on or before July 22. All comment letters will be transferred to the Consumer Financial Protection Bureau.
MORAL
If you cannot beat them, join them. Since the CFPB will get the comments up to July 22, it is best for the creditors to start learning the proposed rule now. That way when it goes into effect in any form there are no real surprises to underwriting.
NEW KIND OF MORTGAGE FRAUD IN SHORT SALES
FACTS
During the first half of 2010 one in every 52 short sales was “suspicious," the lender possibly falling victim to fraud per an analysis by CoreLogic. California led the nation in these “suspicious” sales. By the end of 2011 U.S. banks could lose up to $375 million because of short sale fraud.
The suspicious transactions work like this: the short sale is very quickly followed by a resale for a substantially higher price, sometimes on the same day. Short sales that show the same property being sold again on the very same day amount to 16% of all suspicious short sales in the industry. The same day resales on average amount to approximately $50,000 greater than the lender agreed upon as to the short sale price. Ocregbus2-52801)
MORAL
It takes the FBI about two years to build a case, but build it they will like bulldogs. Anyone involved in this where they represent the REO lender and short sell knowing about the resale may find in about a year or two a criminal indictment with their name on it. Those persons should see their respective attorneys now.
CALIFORNIA AG INVESTIGATES FORECLOSURES AND POSSIBLY FORGERIES
FACTS
California Attorney General Kamala D. Harris is investigating a Florida firm that processes foreclosures for many of the nation's major financial institutions. She has subpoenaed Lender Processing Services, a company that handles loans in default on behalf of several major banks. The subpoena requires LPS to produce documents and provide written answers to questions from the attorney general's office by June 24.
As part of an investigation into so-called robo-signing, Harris said she is investigating whether employees of the company fraudulently signed key foreclosure documents in California. LPS processes more than 50% of all mortgages in the United States and has contracts with more than 80 financial institutions, she said.
The robo-signing scandal came to light late in 2010 when several banks admitted to employing people who improperly signed documents used in foreclosures. Much of the evidence surrounding robo-signing has been uncovered in states where courts oversee the process and require significant paperwork when a lender seizes a home; California foreclosures occur largely outside the courtroom.
Attorney General Harris emphasized that California homeowners may have fallen victim to robo-signers who didn't verify the accuracy of the documents they were putting their names on and, in some cases, failed even to read the documents. Often, individuals signed thousands of times a day, she said.
Harris' actions came as state attorneys general across the country increase pressure on the mortgage industry. On May 26, Illinois Atty. Gen. Lisa Madigan also said that she was issuing subpoenas to LPS as well as another foreclosure processing company in Florida, Nationwide Title Clearing, in connection with the robo-signing scandal.
At a meeting May 25 in Washington, a coalition of state attorneys general and federal agencies warned the top five mortgage servicers that they could face at least $17 billion in civil lawsuits if a settlement is not reached related to alleged foreclosure improprieties, a person familiar with the matter said. The five banks are BofA, JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.
Although courts in California do not oversee the foreclosure process, certain key legal documents are necessary to take back a home. One such document is the notice of default, which initiates the foreclosure process and filed at county recorders' offices. Another key document necessary for foreclosure is the assignment of the deed of trust, the legal term for a mortgage, which proves that a financial institution has the right to foreclose.
LPS was used by many of the largest mortgage lenders and servicers in the country, and former LPS employees have testified that documents were robo-signed there, Harris said in a statement. The company has several offices in California. (loat52611)
TWO CALIFORNIA MEN SENTENCED TO PRISON FOR MORTGAGE FRAUD SCHEME
FACTS
On May 20, Wrenl Burge was sentenced to 41 months and Albert Lewis Ellis to 33 months in prison for a scheme to falsify mortgage loan documents. Burge was ordered to pay $1,011,524 in restitution, and Ellis was ordered to pay $548,178 in restitution to the mortgage lenders.
Burge and Ellis each admitted that they each obtained a Social Security number that belonged to another person and used that Social Security number to obtain mortgages to purchase various properties in Fresno. As part of their scheme to defraud, Burge and Ellis, using the fraudulently obtained Social Security numbers, would each submit mortgage loan applications to lenders and would falsify information regarding their employer, their salary, and their assets. The homes eventually went into foreclosure, causing a combined loss to the lending institutions of $1,559,702 (usattycaed52011)
MORAL
Seems like the federal people are now lining up more loan officers in California. Combine this with the State Attorney General new task force of 17 attorneys and eight agents, I would suggest that anyone involved contact their attorney now to determine risk before agents arrest.
CALIFORNIA ATTORNEY ON TRIAL FOR MORTGAGE FRAUD FOUND GUILTY
FACTS
On April 26, the trial started in the matter of the U.S. vs. Gerald L. Wolfe. It is alleged he pocketed $2 million by buying 30 homes suing falsified mortgage documents. Wolfe is allegedly using a defense by blaming the bank’s own shoddy lending practices in his defense to the criminal charges.
Federal prosecutors accuse Wolfe and others of falsely obtaining 100% financing to buy homes in Riverside and Orange Counties for between $30,000 and $188,000 over the asking price. It is alleged Wolfe then had the sellers funnel the excess to him or his companies according to the indictment.
The allegations in the indictment go on that Wolfe and his co-conspirators would knowingly provide false and fictitious information on loan applications including inflated income statements and promises that the homes would be owner-occupied. The indictment contains one count of conspiracy to commit wire fraud based on 35 overt acts involving the 30 homes.
U.S. District Judge Andrew H. Guilford ruled Wolfe could, at least for the time being, put on evidence showing that lenders were negligent in accepting the phony loan applications. In a motion filed earlier in the month of April, Assistant U.S. Attorneys Brett A. Sagely and Joseph T. McNally argued that Wolfe should not be allowed to blame the victim of his crimes. The focus of the criminal trial should be on the defendant's misconduct, not on whether his victims should or even could have done more to avoid losing a tremendous amount of money. Wolfe's attorney however wrote he has no quarrel with this principle but the defense can use the lenders’ negligence to rebut elements of the crime of mortgage fraud including materiality and intent to defraud. Further, he said, that the government is not entitled to a one-sided trial in which only evidence supporting its theory of the case is admitted.
Two of Wolfe's co-conspirators had pleaded guilty. On May 13, the federal jury in Santa Ana, Calif. found Wolfe guilty of Count I, conspiracy to commit wire fraud. He still has the right to make motions and to appeal the case.
MORAL
Defendant Wolfe allegedly conspired to present false documents to lenders and argues it does not matter since lenders did not rely on the information because they did not read it and therefore the information is not material. Very interesting argument. However, since the jury found him guilty I can only presume the argument did not work.
TWO FORMER REAL ESTATE PROFESSIONALS SENTENCED FOR MORTGAGE FRAUD SCHEME
FACTS
On May 26, 2011 United States District Judge Morrison C. England, Jr. sentenced Ralondria Stafford and Necole Ward for their roles in a mortgage fraud scheme carried out in Vallejo between 2005 and 2006. Judge England sentenced Stafford to 21 months in prison and Ward to 12 months and a day in prison. The prison sentences are to be followed by three years of supervised release and both defendants were ordered to pay $200,000 in restitution.
Stafford and Ward, who are sisters, operated RN Realtors in Vallejo, Calif. Between July 2005 and August 2006, they used two straw buyers to purchase properties that they owned in Vallejo. They offered the buyers $5,000 for the use of their names and financial information, and told the buyers that the purchase would be in name only and that Stafford would purchase the properties back in six to 12 months.
In the course of the conspiracy, Stafford and Ward prepared "Uniform Residential Loan Application" forms in the straw buyers' names containing false statements that included overstating of the straw buyer's income, claiming false employment at employers, and misidentifying properties as a primary residence.
At sentencing, Judge England said that the sentences were driven by several justifications, including the need to punish the defendants for their acts of greed and to deter others who might be considering similar conduct. He also cited the fact that both defendants had real estate licenses at the time of their crimes and were therefore aware of the illegal nature of their fraud.
Judge England dismissed Stafford's argument that she should be given a sentence of home confinement so as not to be separated from her 7-year-old son. Judge England told Stafford that had her child been her number one priority at the time she was considering breaking the law, she would not have gotten into trouble. "You made your choice," said Judge England, "now I have to deal with it."
In addressing Ward, Judge England noted that she was highly educated, with degrees from Swarthmore and the University of San Francisco, and her conduct in this case was extremely serious given that she knew that her conduct was illegal and her education made her more culpable than someone who could not appreciate fully the wrongfulness of her acts. (usattyedca52611)
MORAL
Notice the fraud loans took place in 2005 to 2006 starting over six years ago! Anyone involved in these types of loans over the last six years should consult with their attorney to learn what their exposure is or what it may be and how to best legally protect themselves. Now Ms. Stafford is going to miss her 7 year old for over a year which includes his next birthday.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
