CFPB ISSUES UPDATED RULES ON TILA AND RESPA; READ, LEARN AND STAY OUT OF THE CFPB TARGET ZONE
FACTS
On Aug. 15, the Consumer Financial Protection Bureau released a second update to its exam procedures in connection with the new mortgage regulations issued in January 2013. The interim exam procedures offer guidance to financial institutions and mortgage companies on what the CFPB will be looking for as the rules become effective.
The CFPB issued several new regulations reforming the mortgage market in January 2013. Many (but not all) of the new rules were directed by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules cover the various stages of a consumer’s mortgage from shopping for a loan to paying it off. Most of the new rules go into effect in January 2014.
These new updates cover ability-to-repay/qualified mortgages, high cost mortgages and appraisals for higher-priced mortgage loans as well as new amendments related to the escrow rule.
The exam procedures now cover the Bureau’s mortgage origination rules issued through May 29 and mortgage servicing rules issued through July 10.
The CFPB is showing what it will be looking for in its examinations under the new rules by updating the applicable sections of the exam procedure manuals for the Truth in Lending Act and the Real Estate Settlement Procedures Act. (Interim TILA Examination Procedures (08-2013))
MORAL
Read carefully and learn. Remember all of it including loan officer compensation is effective Jan. 10, 2014 so you have six more months to become very familiar and incorporate.
Have your internal quality control person review and audit files for compliance.
ARIZONA REAL ESTATE DEVELOPER AND ESCROW AGENT SENT TO PRISON FOR MORTGAGE FRAUD
FACTS
On Aug. 9, Walter Scott Fruit and Sandra Jackson were sentenced by U.S. District Court Judge Cindy K. Jorgenson for their roles in a mortgage fraud scheme. Fruit was sentenced to 30 months in prison; Jackson was sentenced to six months in prison. Fruit had previously pleaded guilty on Feb. 28 to charges of conspiracy to commit bank fraud and conspiracy to commit transactional money laundering, both felonies. Jackson pleaded guilty on Feb. 27 to conspiracy to commit wire fraud, also a felony.
Fruit, a real estate agent and real estate developer, admitted his participation in a mortgage fraud scheme to obtain various loans between July 2006 and May 2007. He and another co-conspirator, also a real estate developer, purchased several properties using various business entities with which they were associated. Thereafter, Fruit and his co-conspirator sold these properties to straw buyers. Fruit also admitted that he fraudulently inflated the true sales price of the properties.
He knowingly caused to be submitted documents containing false statements representing that the borrowers would provide the down payment or cash to close the real estate transactions. Portions of the fraudulently obtained loan proceeds were wired or deposited into bank accounts controlled by Fruit or another co-conspirator.
Jackson, a former escrow agent, admitted as part of her guilty plea that she obtained three properties through fraudulently obtained loans and that she knew that documents provided to the lenders on her behalf relating to these properties contained one or more material false representations.
The properties obtained as a result of this mortgage fraud scheme went into foreclosure resulting in significant losses to the lenders. As part of Fruit’s sentence, he was ordered to pay a restitution judgment totaling more than $2.5 million dollars. Jackson was ordered to pay approximately $480,000. (usattyaz81213)
MORAL
Loans go down seven years ago. Because it is federal conviction it will always stay a felony for all purposes. No owning firearms, no voting, no real chance at good jobs. Doesn’t hold much promise, does it?
CALIFORNIA REAL ESTATE BROKER GETS 10 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On Aug. 15, Hoda Samuel was sentenced to 10 years in prison for a mortgage fraud scheme that caused more than $5.5 million in losses.
Samuel, a licensed real estate broker, owned and operated real estate agency Liberty Real Estate & Investment Co. and Liberty Mortgage Co. The government presented evidence of 30 fraudulent sales transactions between April 5, 2006 and Feb. 26, 2007. Samuel was the real estate agent for the buyer in 29 of the home sales and, in at least 15, also represented the seller. Each transaction involved false statements on loan applications in order for unqualified buyers to qualify for the loans.
These included false statements about income, employment, and rental history. False documents were created and submitted to lenders to support these lies. Persons were paid to answer lender calls and affirm the false statements. All the properties went into foreclosure.
Samuel not only falsified the borrowers’ ability to repay the loans, she also falsified the value of the collateral securing these loans. Fraudulent purchase prices, often exceeding the actual asking prices by $15,000 to $40,000, were inserted into contracts that included repairs and costs for disability access modifications.
At times, the buyers’ minor children were named as building contractors so that money could be funneled back to buyers. The excess amounts were paid back to the buyers. The repairs and remodeling were seldom if ever done, and the lenders were unaware that the true purchase price for each property was below the total amount funded. Because Samuel saddled the banks with borrowers incapable of making payments, and properties worth less than the loans, loss was practically assured regardless of the market.
Eight of Samuel’s associates in the scheme pleaded guilty prior to trial and are awaiting sentencing. (usattyedca81513)
MORAL
Note the government went after loans that occurred seven years ago! Note also, the eight that await sentencing. Do you want to bet they cooperated with the prosecution and probably even testified at her trial?
CALIFORNIA JURY AWARDS TRUST DEED INVESTOR OVER $300,000 BECAUSE BROKER BREACHED FIDUCIARY DUTY
FACTS ALLEGED AT TRIAL
In 2006 Jolene Clayton invested $150,000 in a promissory note and deed of trust for a loan secured by three different properties in San Francisco. Clayton entered into the investment with Marin Mortgage Bankers Corp., Charles Flynn, and the original owners of the note and deed of trust.
Clayton later claimed that as a result of significant problems and other failures, her investment was lost. She then sued Marin Mortgage, Charles Flynn and others, alleging their actions constituted a violation of California Securities Laws, Corporations Code Section 25401, a breach of fiduciary duty, negligence constructive fraud, and misrepresentations.
Plaintiff contended the manner in which the investment was packaged and marketed was fraudulent and misrepresentative. She claimed that the defendants did not disclose material facts and overstated the value of the property securing the loan, causing her to lose her investment.
Defendants contended that based on the valuation of the property there was no fraud or misrepresentation.
After a seven-day jury trial, the jury was out only three hours. The trial court awarded a directed verdict on the Securities Law causes of action. The defendants were ordered to pay $196,058.33, plus interest, fees and court costs. (Jolene C. Clayton v. Marin Mortgage Bankers Corporation, Charles J. Flynn, Mik P. Flynn, Glenn H. Larsen / CIV 1101598, Judge: Hon. Roy O. Chernus)
MORAL
There does not appear to have been any counter offers from defendants. Note that the total judgment now appears to be over $344,000 PLUS including the attorney fees award. The case has been appealed but no briefs filed as of Aug. 13. A bond has been posted by defendants which I believe prevents the plaintiffs from executing on the judgment since the bond will be available in the event defendants lose the appeal (which by the way can take two or three years to hear). I wonder if the defendants had E&O insurance. I always recommend it and it is a lot cheaper in the long run than paying for your own attorney and the judgment. In this case the overall costs to defendants including verdict is about $344,000 and E&O insurance is about $5,000 per year, the judgment with costs would have paid for over 65 years of insurance! So get the E&O now.
CALIFORNIA MAN GETS 15 YEARS IN STATE PRISON FOR SELLING REAL ESTATE INVESTMENTS
FACTS
On Aug. 16, Ralph John Solis was sentenced to 15 years in state prison by a Riverside County (Calif.) Superior Court judge who ordered him to pay $12.6 million in restitution to victims of a real estate Ponzi scheme he operated.
Solis pleaded guilty July 24 to four counts of grand theft and operating a business for the purpose of committing securities fraud, authorities said. Between 2007 and 2009, he operated a real estate Ponzi scheme in which he sold forged first and second trust deeds to investors, according to Riverside County prosecutors.
Solis created fictitious deeds of trust by finding mortgages held by nontraditional lenders and private parties, obtaining copies of the documents and putting his name on them as the beneficiary. The fake deeds were bundled and sold directly or through third parties. Solis was able to raise more than $12 million through the scheme. (lat81713)
MORAL
You would think the investors would have asked for an ALTA policy. Notice the state went back six years to get to him. As you have seen from previous blogs, all government agencies are cooperating on anything to do with mortgage fraud. The BRE cooperates with the FBI cooperates with the IRS cooperates with the DBO cooperates with county District Attorneys. Remember, if the loss to the investor/lender exceeds $250,000 overall, the odds are excellent there is a criminal investigation.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. ANATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
