CFPB TARGETS REVERSE MORTGAGE DISCLOSURES AND MAY START LEANING ON BROKER ADVERTISING
FACTS
The Consumer Financial Protection Bureau is planning stronger disclosure requirements for reverse mortgages as more evidence emerges that senior citizens are using the product without fully understanding its main features and risks.
As part of a Dodd-Frank Act requirement, the agency has released a study showing signs reverse mortgages are not being used as intended, with increasingly younger borrowers taking out larger pots of money rather than gradual income streams to help finance their later years.
The bureau found that 73% of borrowers last year accessed nearly all or almost all of their home equity available in the reverse mortgage—an increase of 30 percentage points since 2008—leaving few funds available later in life.
Nearly half of borrowers were younger than 70 and taking out a loan at the earliest eligibility (typically age 62) has become more common. The study found the biggest players in reverse mortgages currently are nonbanks, and the sector is "increasingly dominated by small originators." The two largest providers, Wells Fargo and Bank of America, left the market last year and MetLife left it in April.
The market has become much more heavily dependent on mortgage brokers and small correspondent lenders," the study said. Taking all the equity available creates problems later on to pay off taxes and insurance related to their home. However, the borrower still remains responsible for paying property taxes and homeowner's insurance, which can cause real problems, including loss of the home if plans are not in place to continue meeting those obligations each year.
Products such as reverse mortgages transferring "a large lump of money" to seniors "can pose special dangers, making elderly borrowers into attractive targets for unscrupulous salespeople and scam artists who peddle products unsuitable to their situations."
CFPB policy related to reverse mortgages will likely focus on disclosure. The bureau is planning a project to "improve and integrate" disclosure requirements under the Truth in Lending Act and Real Estate Settlement Procedures Act specifically related to reverse mortgages. One suspicious mailer characterizing a reverse mortgage as a government benefit, and claiming a "phony" piece of legislation would help seniors keep their homes. The mailer also contained blatantly false information about loan repayment options. (cfpb62812)
MORAL
I can see where we will be defending a lot more people in the near future that are using reverse mortgages say like right next to an annuity office?
MANY LOAN ORIGINATORS ARE TELLING REVERSE MORTGAGE BORROWERS THEY CANNOT DEFAULT ON THE LOANS; THIS IS NOT TRUE AND COULD LEAD TO LITIGATION AND POSSIBLE CLASS ACTIONS
FACTS
While it is true that reverse mortgage borrowers do not have pay back the mortgage and the mortgage does not have to be paid except on death or what amounts to permanent leaving of the residence, the reverse mortgage borrower can still breach the mortgage agreement.
Most, if not all of the reverse mortgages provide that the borrower must pay the homeowners insurance and the property taxes timely. If a reverse mortgage borrower takes the full amount of money available at the time of the loan it is more likely than not, there are no reserves built up to take care of these two matters. Thus having spent the money, the borrower cannot afford to pay the property taxes and/or the homeowners insurance and is in default on the note, thus allowing the mortgage holder to foreclose because the security is in jeopardy.
MORAL
At a minimum prepare a disclosure to warn the borrower of this possibility and of the responsibility to keep the insurance and taxes current and have the disclosure signed and notarized for your own protection. Remember, there are plenty of lawyers out their ready to sue for failure to warn of disclosures and this is a good one. There is another solution as well. If you need legal advice on this issue contact me.
THE DESIGNATED OFFICER OF A CALIFORNIA CORPORATE REAL ESTATE BROKER MAY NOT BE HELD LIABLE BY THIRD PARTIES FOR ALLEGED FAILURE TO SUPERVISE CORPORATE EMPLOYEE
FACTS
Bernard and Linda Sandler sued 765 South Windsor LLC, Gold Coast Financial, a real estate brokerage corporation, and Carlos Sanchez, Gold Coast’s designated officer/real estate broker.
The complaint alleged that Keith Desser, a real estate salesperson, who was the sole shareholder of Gold Coast and the principal of the South Windsor, LLC solicited the Sandlers to loan $600,000 to South Windsor to finance improvements to an apartment building to convert units to condominiums. Further that Desser failed to reveal that the loan amount was insufficient to finance the necessary repairs.
The complaint further alleged that Sanchez as the designated officer of Gold Coast owed a fiduciary duty to the private lenders (Sandler) under the Real Estate Laws and it failed to supervise Desser. The Sandlers further claimed that if Sanchez had done his job, he would have learned of Desser’s misrepresentations and either disclosed them or cancelled the loan transaction. Sanchez demurred to the complaint which was granted holding that Sanchez as designated officer owed no duty absent allegations that he personally participated in the wrongful conduct. The Sandlers appealed.
The 2nd District Court of Appeals said affirmed. Section 10159.2 states that a licensed individual real estate broker who is the designated officer of a corporate broker is responsible for the supervision and control of the corporate broker’s employees. The designated officer's duty to supervise the broker's employees is owed to corporation rather than to third parties. If a designated officer breaches his duty under the Business and Professions Code the licensing entity may seek administrative discipline against the officer, but the third party (Sandlers) may not bring an action for a breach of that statute. In this case the Sandlers could not sue Sanchez as a designated officer of Gold Coast to hold him liable for failure to supervise the salesperson/owner Desser and the trial court properly dismissed the action against Sanchez. (Sandler as Co-Trustee, etc. et al., vs. Sanchez 2012 DJDAR 8129,2ND App. Dist. 6-18-12)
MORAL
How many years have I been telling you all to incorporate and why? This is a classic example as to why.
CALIFORNIA DEVELOPER, HIS NEPHEW AND A REAL ESTATE BROKER INDICTED FOR MORTGAGE FRAUD
FACTS
On June 26, a Los Gatos developer, his nephew and a real estate broker were indicted by a federal grand jury on charges of bank fraud, conspiracy and making false statements to financial institutions related to the sale of homes in a Salinas subdivision.
The indictment, which was unsealed following the arrest of two of the defendants, alleges that Muhammad Safadi and his nephew Scott Safadi, of Focus Construction, built the homes and then sold them to low-income homebuyers who they knew would not be able to afford them.
The indictment states that the suspects falsified loan documents to secure financing, and when a dozen homes went into foreclosure, the prices plummeted from the 2006 sale price—one home that sold for $725,000 resold for $288,000 and another for $212,000.
According to the U.S. Department of Justice, the Safadis made more than $4.5 million through the sales, while broker Raquel Ramirez got $230,000. The banks lost more than $5.5 million.
Agent Arlette Lee of the Internal Revenue Service's criminal investigation unit said the suspects inflated monthly income, made false employment claims and inflated assets. Both men were placed under home arrest, with bail of $250,000 for Muhammad Safadi and $150,000 for his nephew. Ramirez is out of custody. (sjmercnws62612)
MORAL
Here the federal prosecutors went back to 2006, six years ago, to catch the three.
FORMER RE AGENT FROM SAN JOSE ARRESTED FOR MORTGAGE FRAUD INVOLVING ABOUT $1.2 MILLION
FACTS
On June 27, Jill Silvey was arrested in San Jose, Calif., on charges she defrauded 13 people out of $1.2 million according to Deputy District Attorney Paul Colin of Santa Clara County. She was booked into Santa Clara County Jail and charged with 44 counts of loan fraud which authorities are alleged to have said took place between 2005 and 2011. She had recently worked for Stevenson and Neal Realtors but was dismissed after just a few months and did not conduct any transactions while there according to the owner and broker Mark Stevenson as printed in the Campbell Patch on June 29. Bail for Silvey was allegedly set at $3 million.
According to the Assistant District Attorney Paul Colin she allegedly created at least 14 fraudulent loans over the last seven years. She is alleged to have forged the names of the supposed borrowers to create fake loan documents and deeds to convince the investors that their money was secured by an interest in each fictitious borrower’s real estate. Allegedly some of the people were at least 65 years of age and so she has been charged allegedly with several elder fraud counts.
Victims allegedly included one couple that had five loans with her and two notary publics whose names were fraudulently used according to Colin. An investigation is going on into four more complaints according to the release. She allegedly did this alone without any help. She faces 31 years in state prison if convicted. (campbellPatch62912)
FORMER TAX PREPARER GETS TWO YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On June 18, Pablo Araque, a former tax preparer from Downey, was handed a two-year federal prison sentence for his role in a mortgage fraud scheme that preyed on Latino homeowners by secretly taking title to their properties and draining the equity from their homes. He was also ordered by U.S. District Judge S. James Otero to pay restitution of $1 million.
Araque pleaded guilty in January to federal identity theft and mail fraud charges stemming from the scam in which homeowners' properties were sold, usually without their knowledge, to third-party straw buyers. Loans in the straw buyers' names were taken out in connection with the supposed purchases. Falsified employment and income records—sold to co-conspirators by Araque—for bogus borrowers were used to ensure that the loans were approved.
Lenders ultimately suffered more than $1 million in losses as a result of loans they funded by relying partly on phony documents provided by Araque.
A co-defendant, Juan Rangel, last year got 22 years behind bars for running both the foreclosure fraud and a separate Ponzi scheme that took in at least $30 million from over 500 victims. (prstel61812)
MORAL
Twenty-two years in a federal hotel is a lot of time for mortgage fraud, let alone two years. As I have been saying for the past several years the federal prosecutors are still at it, hot and heavy. If anyone had some questionable loans, now is a good time to see your lawyer to see what your risks are as opposed to later after the federal agents come to see you.
IN MARYLAND, ASSISTANT MANAGER OF MORTGAGE FIRM SENTENCED TO OVER FOUR YEARS IN PRISON IN $4.9 MILLION FRAUD SCHEME
On June 27, U.S. District Judge Catherine C. Blake sentenced Todd R. Bettin to 51 months in prison, followed by three years of supervised release, for conspiracy to commit wire fraud in connection with a five-year scheme to divert or hold mortgage payoff funds from clients’ closings on 17 Maryland properties. Judge Blake also ordered Pierce to pay restitution of $3,392,047.51.
Bettin was the assistant manager of At Home Mortgage, owned by co-conspirator Gary Pierce, who also owned and managed At Home Settlements LCC in Gambrills, Md. At Home Settlements provided settlement services and sold title insurance policies to clients who were buying homes or refinancing existing properties.
In 2007 Bettin refinanced the mortgage on his home. Pierce acted as the settlement agent. Rather than paying off the original mortgage as required, Bettin kept the payoff amount and never informed the original lender that he had refinanced the property. Also in 2007, Pierce obtained a mortgage loan on a property in Edgewater that he did not own. Bettin acted as the loan officer on the transaction. Bettin and Pierce created false documents purporting to show that Pierce owned the property and provided those fraudulent documents to the lender.
Bettin and Pierce used the funds obtained from the lender to perpetuate the scheme and each personally diverted $50,000 to themselves. The true owner of the property had no knowledge that documents had been created purporting to show that the property had been sold to Pierce.
Beginning in 2007, Bettin and Pierce diverted or held mortgage payoff funds from clients’ closings for a matter of days, weeks and sometimes, years. Pierce falsely represented on HUD-1 forms sent to the borrower’s lender that the payoff was made, when, in fact, Pierce intended to divert the funds. Bettin and Pierce fabricated wire confirmation reports, which purported to be a bank record of the transfer, to include in loan files. These were created in advance of audits in order to deceive the title insurers. Additionally, to forestall discovery by the lenders, Bettin and Pierce contacted the mortgage lender who should have been paid off and posed as the borrower/homeowner. Bettin would either create an online profile for the borrower and stop any mail from being sent to the borrower, or he would tell the lender that his, the borrower’s, address had changed and would re-direct the lender to send all correspondence to a post office box owned by Pierce. Bettin would then make monthly mortgage payments to the existing lender. Believing that the bank had been paid off as a result of the settlement, the borrower stopped making monthly payments on that mortgage. And since that lender was receiving monthly payments, it had no reason to notify the borrower of any delinquency. With no delinquency in the account, the scheme went undetected.
Because the existing mortgages were not paid off, the liens against the property were not removed and clear title could not be passed to the new lender and borrower. The total amount of diverted or otherwise improperly obtained funds totals $4,971,380.
Judge Blake previously gave Pierce six years in prison and ordered him to pay restitution of $4,174,044.41. (usattymd62712)
MORAL
This one is easy. Of all the fraud cases I have published, you must admit this is the most unique, especially about not paying off the old lender for years.
MARYLAND BORROWER GUILTY OF MORTGAGE FRAUD
FACTS
Dennis Edwards pleaded guilty to conspiracy to commit bank fraud in connection with a scheme in which he submitted fraudulent loan applications to obtain over $2.241 million to purchase or refinance homes. During the scheme, Edwards was unemployed and received Social Security disability payments of approximately $1,000 a month.
In early January 2006, Edwards purchased a home on in Silver Spring, Md., claiming on the loan application that he worked as a nurse and as a mover, earning a combined $6,000 a month from both employers. In fact, Edwards was unemployed at the time and received Social Security disability payments of approximately $1,000 a month. Edwards obtained mortgage loans totaling $342,000, based upon the fraudulent loan application. A co-conspirator worked as a loan officer for Bank of America.
The co-conspirator arranged for Edwards to purchase a property in Hyattsville, Md., obtaining a loan for $384,750, based upon false information submitted to B of A. Edwards never lived at the property. While the co-conspirator and Edwards were trying to sell the unoccupied property, the co-conspirator arranged to refinance the original loan, based upon a loan application that falsely stated that Edwards earned $8,528 a month.
In January 2006, the co-conspirator signed a contract to purchase a residence in Columbia, Md., for $1,595,000. To assist in getting financing for the property, in March 2006, Edwards agreed to co-sign a loan for the purchase of the property, at the request of the co-conspirator, with the understanding that the residence would be used exclusively by the co-conspirator.
The co-conspirator submitted two loan applications in Edwards’ name to a Rockville, Md., mortgage originator for the purchase of the property. Both loan applications falsely inflated the income and assets of Edwards, who at the time had no income other than Social Security disability payments of approximately $1,000 per month. For example, both loan applications stated that defendant Edwards had monthly business income of $37,950 from a fictitious company known as Edwards Consulting. In addition, both applications stated falsely that defendant Edwards intended to make the property his primary residence.
The loan applications were subsequently approved for a first trust financing or $1,196,250 and second trust financing for $319,000. The deed transferred title to both Edwards and the co-conspirator, but only defendant Edwards signed the promissory notes. Edwards admitted that, given his limited income, he was not qualified to borrow in excess of $1.5 million and that by signing the documents, he was facilitating a fraud on behalf of the co-conspirator.
Eventually, the loans on the property went into default. To forestall foreclosure, the co-conspirator sent a $12,082.90 cashier’s check to the mortgage company in June 2008. In 2010, outside parties offered to buy the property for $970,000, provided that the bank agree to a “short sale” which would have required the bank to release its liens and suffer an immediate loss in excess of $625,000. To encourage the bank to accept the short sale, another of Edwards’ co-conspirators drafted a letter, dated June 21, 2010, which Edwards signed, stating that “[t]he main reason that [he] fell behind [in payments] is a severe medical issue...chronic/terminal restricted lung disease,” falsely implying that Edwards’s medical disability had occurred after he obtained the loans. In fact, Edwards was already unemployed and receiving Social Security disability payments when he obtained the loans.
Edwards faces a maximum sentence of 30 years in prison followed by five years of supervised release.
United States District Judge Peter J Messitte scheduled his sentencing for Sept. 10. (7thsp62512)
MORAL
Notice how the loans here went back to 2006? Like a bulldog, the federal prosecutors are slow and methodical and persevering.
LAS VEGAS MAN GUILTY OF MORTGAGE FRAUD
FACTS
A Las Vegas man who recruited straw buyers and used fictitious identities to purchase more than 20 houses in the Las Vegas area in order to obtain millions of dollars from the loan proceeds was convicted in federal court of conspiracy and fraud charges.
Tarl Brandon was convicted of three counts of conspiracy and 15 counts of wire fraud. He faces up to 50 years in prison and more than $1 million in fines. He is scheduled to be sentenced Sept. 12.
Brandon was resident agent and a managing member of KTB Construction Co. Between June 2004 and March 2008, Brandon and his co-conspirators paid people to act as straw buyers to apply for mortgage loans to purchase real estate in Las Vegas. After buying the houses, Brandon failed to make payments on the mortgages and allowed most of them to go into foreclosure. Using this scheme, Brandon engaged in more than 20 different fraudulent mortgage transactions, resulting in total losses to the financial institutions of approximately $8 million. (mynews362512)
MORAL
Notice the truth of what I have been saying for some time. The federal prosecutors are still looking at loans in 2004.
APPRAISER IN PITTSBURGH PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On June 26, Joel Reck pleaded guilty to a charge of wire fraud conspiracy before United States District Judge Nora Barry Fischer. In connection with the guilty plea, the court was advised that Reck was an appraiser who participated in a mortgage fraud scheme by knowingly overstating the fair market values of properties serving as collateral for loans. Judge Fischer scheduled sentencing for Nov. 1. The law provides for a total sentence of 20 years in prison, a fine of $250,000, or both. (usattywdpa62612)
MORAL
See. The government is not fussy. It will go anywhere in the country to indict and convict for mortgage fraud.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
