CASTLE AND COOKE IS ONE OF FIRST TO BE SUED FOR OVERPAYING ITS LOAN OFFICERS.
FACTS
The Consumer Financial Protection Bureau on July 23
This lawsuit is the first time the federal government has accused a lender of violating the new rule, which was enacted by the Federal Reserve to prevent lenders from benefiting by steering borrowers into inappropriate or costlier loans.
The lawsuit proves that CFPB is taking a tough stance toward alleged abuses among mortgage lenders. The compensation rule became effective on April 6, 2001 and it prohibits any person from compensating a loan originator based on a term or condition of a mortgage loan.
MORAL
Play games. Get caught and pay the piper. Since the case was just filed the outcome remains to be seen. But according to the complaint the bonuses were given quarterly apparently to avoid discovery if possible. This is one attorney’s guess but it remains to be seen as the case moves forward.
Further to this I suggest you have us look at your compensation for loan officers for compliance before you get sued. There are six U.S. Attorneys listed on this case.
NEVADA BUILDER SENT TO FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On July 23, Paul Wagner a Las Vegas-area homebuilder has been sentenced to 14 years in prison, five years of supervised release, and ordered to pay $4.4 million in restitution for selling houses at inflated prices in order to fraudulently obtain mortgage loans’
Wagner was a home builder in Las Vegas for 20 years, building tract homes in the northwest part of the Las Vegas valley. From about 2007 to 2009, Wagner created a scheme to provide large cash incentives to buyers, real estate agents, and others to sell his homes. The incentives included Wagner paying buyers’ mortgage payments, making large cash payments to real estate agents and others to find buyers, and paying buyers’ down payments. To pay the incentives, Wagner inflated the value of the homes by causing appraisers to create false appraisals. Wagner concealed the incentives from the lenders, who would not have made the loans had they known about his methods. Using this fraudulent scheme, Wagner sold about 85 houses from March 2007 to mid-2009. Most of the homes went into foreclosure after Wagner stopped making the mortgage payments. The losses to the financial institutions were more than $18 million. (usattynv72313)
MORAL
Time and again we inform our clients, see us first before you do anything to be sure of compliance. Later, as here and as in Castle and Cooke above, is usually too late.
VERDICT AGAINST DAN HARKEY AND POINT CENTER FINANCIAL OF NOW STANDS AT $10 MILLION WITH PUNITIVE DAMAGES INCLUDED
FACTS
On July 15, an Orange County, Calif. jury awarded $1 million in punitive damages against loan broker Dan Harkey and his Aliso Viejo-based company, Point Center Financial Inc. This is added to the $9 million in damages for investor losses the Orange County Superior Court jury handed down on July 11. The verdict allegedly benefits only about 40 of Point Center's 1,300 investors. Point Center Financial is still in Chapter 11 bankruptcy.
The trial lasted 10-week trials and the jurors deliberated for 12 days.
The jury foreman is quoted as stating "The biggest thing that struck me was that people put a lot of money (into Point Center investments) and never read the contract.” The prospectus had a provision that was brought out at trial stating that the investment was speculative and that the investor could lose all of his or her money.
The defense attorney said he will ask Judge Stephen L. Perk to throw out the verdict. The legal theory is that the investors won on claims that could only be exercised by a Point Center affiliate, National Financial Lending. Since the affiliate didn't bring the claims the investors have no right to bring them or to collect their verdict. This case is five years old and was brought as Charton v. Point Center. The judge allegedly has to decide issues over the Harkeys' Ritz Cove home and over whether Dan Harkey is the "alter ego," or legal stand-in, for Point Center.
The case still has more phases with a new jury in mid-August. One will concern a mortgage-note investment program. Another will be over fractionalized trust deeds and the last will be over mortgage trust deeds. (ocr71613, lat71513)
MORAL
A 10-week trial is 50 working days. Another trial to go on. What is noticeable is that affluent investors are normally considered sophisticated and yet they allegedly did not read the contracts. This is a lesson to learn. Read first and then if okay, sign. There is another point everyone seems to overlook, that Harkey does have the right to make a motion for judgment notwithstanding the verdict and he can appeal the verdict. His attorney is asking the court to throw out the verdict.
FORMER GEORGIA MORTGAGE BROKER INDICTED FOR MORTGAGE FRAUD
FACTS
On July 18, Amy B. Williams was indicted by a federal grand jury on charges arising out of a scheme to defraud First Coweta Bank.
According to the United States Attorney’s office, the indictment, and other information presented in court, Williams was the sole owner of United International Mortgage in Buford, Ga., and was in the business of arranging construction loans for residential builders.
In April 2007, UIM closed three construction loans for one of its customers, Mainstreet Builders Inc. The loans were intended to finance the cost of constructing three new houses in Suwanee, Ga. The loans, which totaled more than $1.7 million, were funded by First Coweta Bank.
Williams allegedly directed an unindicted co-conspirator to forge signatures on loan documents and caused those documents to be faxed to First Coweta Bank. The bank then wire transferred the loan proceeds to an account controlled by Williams. Williams was required to hold the money in trust for the builder and to disburse the money to the builder on a draw basis, as work on the three houses progressed. Instead, she used more than $1.1 million of this money to pay off her personal debt at another bank and wire transferred $60,000 into her personal checking account. After converting First Coweta Bank’s money to her own use, Williams attempted to cover up her crime by e-mailing false documents and misleading photos to the bank.
Williams was charged with one count of conspiracy and six counts of bank fraud. Each count carries a maximum sentence of 30 years in prison and a fine of up to $1,000,000. (usattyndga71813)
MORAL
She is innocent until proven guilty but with an “unindicted co-conspirator” she has an uphill battle. Remember on average it takes two years or more for the federal prosecutor to build a case due to this type of crime being paper intensive and the necessity of issuing grand jury subpoenas.
INDIANA LOAN OFFICER PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On July 18, John Carlisle, a Fort Wayne loan officer pleaded guilty in U.S. District Court to charges related to a mortgage fraud scheme. He was originally charged with 13-counts of bank fraud and wire fraud as well as making false statement regarding mortgage loans.
In the plea agreement, Carlisle pleaded guilty to four counts of making false statements regarding mortgage loans. From 2008 to 2010, Carlisle worked with Ryan Webb, Johnny Stine and others to purchase low-end homes. Using advertisements, they attracted buyers for the properties, flipping them for two to three times what was paid for them.
Because the buyers often couldn’t qualify for the mortgage loans, Webb and Stine provided money for closing, to make it appear the buyers had money in reserve. Carlisle helped prepare phony gift letters to document the money came from family or relatives of the buyers, in violation of federal mortgage regulations.
Stine and Webb pleaded guilty previously to their roles in the scheme. U.S. District Judge Jon E. DeGuilio in South Bend sentenced each to 21 months in prison and two years of supervised release. They each also had to pay $585,000 in restitution.
Another man was also indicted in connection with the scheme. Brian A. Edwards was accused of making false statements in connection with a mortgage loan and mortgage insurance. He pleaded guilty and is scheduled for sentencing in early August, 2013. (jlgaz71913)
MORAL
Based upon experience and research my best guesstimate is Carlisle will be doing more than 21 months in a federal prison. It is also a better than even money bet that Edwards may be a cooperating witness since his sentence is delayed.
BACKGROUND EMPLOYEES YOU HIRE OR LIKE THIS TITLE COMPANY IN MISSOURI YOU MIGHT FIND YOUR BANK ACCOUNTS A LITTLE SHORT
FACTS
On July 11, Terri Lynn Johnson pleaded guilty in federal court today to charges of bank fraud and money laundering, which were part of a $576,000 mortgage fraud and embezzlement scheme at the title company where she was employed.
Johnson was hired for a clerical position with Guaranty Land Title Co. in 2001 and was eventually promoted to become the branch manager of the Fulton, Mo. office after the company was acquired by Landchoice Co. LLC. She remained in that position until her termination on Dec. 4, 2008.
Johnson admitted that she engaged in a $300,000 mortgage fraud scheme while she was employed as the Fulton branch manager. Johnson refinanced the mortgage on her residence twice. As a result of the false and fraudulent information provided by Johnson, two banks approved mortgage loans for $175,000 in 2007 and for $125,000 in 2008. The combination of those two loans clearly exceeded the appraised value of Johnson’s residence, which was used to secure both loans.
Johnson also admitted that she embezzled $276,173 from Landchoice. Johnson diverted income checks from Landchoice into a bank account that had been opened for Guaranty Land Title and which her employer did not know existed. She also diverted escrow funds which had been obtained by Landchoice for loan closings into that account.
Johnson then wrote checks to herself that she deposited into her personal checking account. Johnson wrote checks totaling approximately $59,465 payable to herself or to cash. Johnson also wrote checks to Johnson Gardens (her personal business) totaling approximately $12,500. Johnson also wrote checks believed to be for her personal use totaling approximately $19,916. In addition, Johnson utilized a debit card issued for the account, which she used to access $184,292 from that account for her personal benefit. The total personal benefit realized by Johnson from this embezzlement scheme is estimated to be approximately $276,173.
Under federal statutes, Johnson is subject to a sentence of up to 40 years in federal prison without parole, plus a fine and an order of restitution. (usattywdm071113)
MORAL
Where were the internal audits? Where is the internal quality control? If the employer does not have an internal manual of checks and balances this happens. Do you have your “Red Flags Manual?” Do you have your HUD/FHA Audit Manual?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
