FACTS
Although there has been a lot printed and the act itself will not really take effect for six-to-18 months when the regulations are due to be published, here is a further summary. The more you read about it, the more you will absorb and be comfortable with.
1 Abolishes the Office of Thrift Supervision, transferring its functions to the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.
3 Effectively ends new lending under the Troubled Asset Relief Program.
4 Establishes strong mortgage protections requiring lenders to ensure that their borrowers can repay their loans by establishing a simple federal standard for all home loans.
5 Office of Credit Ratings established within the SEC. Purpose: conduct annual examinations of each credit rating agency, including a review of: (1) whether the rating agency follows its policies, procedures and rating methodologies; (2) the management of conflicts of interest; (3) the implementation of ethics policies; (4) the agency’s internal supervisory controls; (5) the agency’s governance; (6) the activities of its compliance officers; (7) the processing of complaints; and (8) the agency’s policies governing the post-employment activities of former staff.
6 Title IX, Subtitle D, changes the process of securitization by requiring companies that sell asset backed securities to retain a portion of the risk. Section 941 requires companies that sell products like mortgage-backed securities to retain at least 5% of the credit risk. This 5% may be raised or lowered by the regulators pursuant to certain guidelines to be set in the yet to be published regulations.
7 Creates the new Consumer Financial Protection Bureau within the Federal Reserve Board that will “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.” The Bureau will enforce the federal consumer financial protection laws consistently so that “markets for consumer financial products and services are fair, transparent, and competitive.” The Bureau is to see that consumers receive timely and understandable disclosures and are protected from unfair, deceptive or abusive acts and practices and from discrimination. The Bureau also is to identify and address regulations that place an “unwarranted burden” on market participants. Six primary functions are listed for the BCFP. The most important of these are adopting rules and guidance to implement the federal consumer financial protection laws, supervising and enforcing those laws against some financial institutions and companies, developing and publishing information on risks to consumers and to the markets, and addressing consumer complaints. Its authority extends to all nonbank consumer mortgage loan originators, brokers and servicer, and to mortgage loan modification and foreclosure relief service providers.
The Bureau is specifically empowered to require specified disclosures and to draft model disclosure forms. Just as with the current forms created by the Fed, use of the proper model form would be deemed to satisfy the relevant regulatory disclosure requirements. The BCFP is directed to create a combined Truth in Lending/Real Estate Settlement Procedures Act form unless another agency has already done so. The bill includes a requirement that those who sell financial products or services must provide consumers with information about the products or services they have purchased. This includes information on transactions, costs and usage. However, sellers only are required to provide information they have—there is no requirement that any specific information be maintained.
The BCFP is given standard investigative and enforcement powers. These include the ability to launch investigations, require the production of information, subpoena witnesses and enforce these demands. It can proceed through administrative hearings or, in appropriate circumstances, through litigation. Remedies available to the Bureau include contract rescission, refunds or restitution, damages and civil money penalties. In the case of a knowing violation of a federal consumer financial protection law, the BCFP can impose a civil money penalty of as much as $1 million per day. The Bureau also has the power to place limits on a person’s future activities, such as excluding someone from participation in the financial services industry.
The Fair Credit Reporting Act would be amended to require that an adverse action notice provide the affected consumer with any numerical credit score that was considered by the lender, insurer or employer. The amendment would not require disclosure of credit scores as part of the routine credit report disclosures to which consumers have a right.
Loan originators are required to offer consumers residential mortgage loans on terms that “reasonably reflect” their ability to repay the loans. The legislation expands the protections available under federal rules on high-cost loans by lowering the interest rate and the points and fee triggers that define high-cost loans.
A creditor in a consumer credit transaction secured by a first lien on the principal dwelling of the consumer must establish an escrow or impound account for the payment of taxes and hazard insurance and any other applicable required periodic payments or premiums.
A creditor is prohibited from extending credit in the form of a subprime mortgage to a consumer without first obtaining a written property appraisal. In addition, the act amends TILA to provide that unfair or deceptive practices in extending credit or providing services for a consumer credit transaction secured by the consumer’s principal dwelling are unlawful.
The Dodd-Frank Act amends Ch. 2 of TILA by redesignating the second section of Sec. 129 as 129A and adding a new Section 129B that prescribes fiduciary standards for originators of residential mortgages. The amendments are intended to ensure that consumers are offered and receive residential mortgage loans on terms that “reasonably reflect their ability to repay.”
DUTY OF CARE. Mortgage originators must be qualified and, when required, registered and licensed as a mortgage originator under state and federal law, including the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Mortgage originators also are required to include on all loan documents any unique identifier of the mortgage originator provided by the Nationwide Mortgage Licensing System and Registry.
For any mortgage loan, the mortgage originator may not receive compensation that varies based on the terms of the loan, other than the amount of the principal. In general, a mortgage originator may not receive an origination fee or charge from any person other than the consumer except bona fide third-party charges. No person other than the consumer who knows, or has reason to know, that the consumer has directly compensated the originator may pay any origination fee or charge except bona fide third-party charges.
Before making a residential mortgage loan, a creditor is required to make a reasonable and good faith determination based on verified and documented information that at the time the loan is consummated the consumer has a reasonable ability to repay the loan. If the creditor knows that one or more residential mortgage loans secured by the same dwelling will be made to the same consumer, the creditor must determine that the consumer has a reasonable ability to repay the loan using verified and documented information.
Documented information must include verification of the consumer’s credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio, employment status and other financial resources other than the consumer’s equity in the dwelling. A creditor must determine the ability of the consumer to repay using a payment schedule that fully amortizes the loan over the term of the loan. If the documented income, including income from a small business, is a repayment source for the loan, a creditor may consider the seasonality and irregularity of the income in the underwriting of and scheduling of payments for the loan.
Verification of the consumer’s income must be made by Internal Revenue Service transcripts of tax returns or a method that quickly and effectively verifies income documentation by a third party, subject to rules prescribed by the Federal Reserve Board. Nonstandard loans require different methods of determining a consumer’s ability to repay the loan. For variable rate loans that defer repayment of principal or interest, a creditor must use a fully amortizing repayment schedule. To determine whether a consumer is able to repay an interest-only loan, a creditor must use the payment amount required to amortize the loan by its final maturity. When making a determination as to a consumer’s ability to repay a nonstandard residential mortgage loan, a creditor also must take into consideration any balance increase that may accrue from any negative amortization provision. The minimum standards outlined in the subsection do not apply to reverse mortgages or temporary or bridge loan with a term of 12 months or less, including any loan to purchase a new dwelling when the consumer plans to sell a different dwelling within 12 months.
The creditor or servicer of a hybrid adjustable rate mortgage must provide six months notice before the interest rate in effect during the introductory period of the loan resets.
The term “hybrid adjustable rate mortgage" means a consumer credit transaction secured by the consumer’s principal residence with a fixed interest rate for an introductory period that adjusts or resets to a variable interest rate after the introductory period. The written notice must be separate and distinct from other correspondence to the consumer and include: the index or formula used in the adjustment or resetting of the rate with a source of information about the index or formula; an explanation of how the new interest rate and payment would be determined; the creditor’s or servicer’s good faith estimate, using industry standards, of the monthly payment after adjustment or resetting of the rate; a list of alternatives consumers can pursue before the date of adjustment or resetting, plus descriptions of the actions consumers must take to pursue the alternatives including: refinancing, renegotiation of loan terms, payment forbearances and foreclosure sales; and information such as addresses and phone numbers of counseling agencies or programs approved by the Housing and Urban Development Secretary of State housing finance authority, along with the contact information for the state housing finance authority for the state in which the consumer resides.
The standards for points and fees related to high-cost mortgages, open-end consumer credit plans and bona fide discount points and prepayment penalties, are input by amending the Truth in Lending Act.
The term “high-cost mortgage” refers to certain consumer credit transactions, other than reverse mortgages, that are secured by the consumer’s principal dwelling. The residential mortgage is high-cost if the total points and fees due in connection with the transaction, other than bona fide third-party charges not retained by the mortgage originator, creditor or an affiliate, exceed 5% of the total for transactions of $20,000 or more, or the lesser of 8% of the total or $1,000 for transactions less than $20,000.
A mortgage also is considered high-cost if the credit transaction documents allow the creditor to charge or collect prepayment fees or penalties more than 36 months after the closing of the transaction or if the penalties exceed more than 2% of the amount prepaid.
The Dodd-Frank Act amends Sec. 129 to provide that high-cost mortgages may not contain a balloon payment—a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the consumer or in the case of a balance due under the terms of a reverse mortgage. The creditor may not recommend or encourage default on a loan or other debt in connection with the closing of a high-cost mortgage that refinances all or part of an existing loan or debt.
A creditor may not impose a late payment charge or fee in connection with a high-cost mortgage in an amount in excess of 4% of the amount of the payment that is past due unless the loan documents specifically authorize the charge or fee.
The creditor is not permitted to impose a charge or fee before the 15-[day period following the date the payment is due or, if the interest on each installment is paid in advance, before the 30-day period following the date the payment is due. In addition, a creditor is prohibited from imposing a late payment fee or charge more than once for a single late payment.
If a payment is a full payment for the period, paid on its due date or within a stated grace period, and the only delinquency stems from a late fee or delinquency charge assessed on an earlier payment, a creditor can not impose a late fee or delinquency charge on the payment.
If the terms of a loan provide that a payment first be applied to a past-due principal balance, and the consumer fails to make an installment payment but subsequently resumes making installment payments without paying past due installments, the creditor is permitted to impose a separate late payment charge for any principal due—without deduction due to late fees or related fees—until the default is cured.
In addition, a creditor may not: accelerate the debt, except when repayment has been accelerated by default in payment, pursuant to a due-on-sale provision or pursuant to a material violation of the loan unrelated to payment schedule; directly or indirectly finance any prepayment fee or penalty payable by the consumer in a refinancing transaction if the creditor or an affiliate holds the note being refinanced; finance points or fees; take any action in connection with a high-cost mortgage to structure a loan transaction as an open-end credit plan or another form of loan or divide a loan transaction into separate parts for the purpose of evading the provisions of Title XIV of the Dodd-Frank Act; charge a consumer a fee to modify, renew, extend or amend a high-cost mortgage, or to defer payment on the mortgage; charge a fee for providing information on the balance due to pay off an outstanding balance on a high cost mortgage—however, if the payoff statement is delivered by courier or facsimile, the creditor or servicer is permitted to charge a processing fee to cover the cost in an amount not exceeding an amount comparable to fees for similar services in connection with mortgages that are not high-cost mortgages; or extend credit to a consumer under a high-cost mortgage without first receiving certification from a counselor approved by the Department of Housing and Urban Development or, at the discretion of the HUD Secretary, a state housing finance authority stating that the consumer has received counseling as to the mortgage.
Violations. A creditor in a high-cost loan who, acting in good faith, fails to comply with the TILA Sec. 129 mortgage requirements, will not have committed a violation if the consumer is notified—or discovers—the violation within 30 days of the loan closing and restitution is made along with whatever necessary adjustments to the loan to, at the consumer’s choice, either make the loan satisfy requirements or change the terms in the loan, so that it will no longer be a high-cost mortgage. In addition, a creditor will not be in violation if within 60 days of the creditor’s discovery or receipt of notification of an unintentional or bona fide error, the consumer is notified and offered the choice to make the loan satisfy the requirements of this section or change the terms, so that the loan is no longer a high-cost loan.
MORTGAGE SERVICING
Title VII, Subtitle E, amends TILA Chapter 2 (15 USC 1631) to provide that a creditor in a consumer credit transaction that is secured by a first lien on the principal dwelling of the consumer must establish an escrow or impound account for the payment of taxes and hazard insurance and, if applicable, flood insurance, mortgage insurance, ground rents and any other required periodic payments or premiums. This provision does not apply to a consumer credit transaction under an open-end credit plan or a reverse mortgage.
A creditor is prohibited from requiring an impound, trust or other type of account for payments as a condition of a real property sale contract or a loan secured by a first deed of trust or mortgage on the principal dwelling of the consumer. This prohibition would not apply to a consumer credit transaction under an open-end credit plan or a reverse mortgage, except in certain limited cases. The account would have to be open for a minimum period of five years, beginning with the date of the consummation of the loan and until the borrower has sufficient equity in the home securing the consumer credit transaction so as to no longer have to maintain private mortgage insurance or any period provided in regulations.
The limited exception to the requirement of an escrow account for loans secured by shares in a cooperative and for certain condominium units.
Disclosures. A creditor must make certain disclosures to a consumer when an escrow or impound account will be established at consummation of the consumer credit transaction. Disclosure must be by written notice, and the creditor must provide the notice within three business days before consummation. The notice must include the: fact that an escrow or impound account will be established; amount required at closing to initially fund the account; estimated amount of mandatory periodic payments and premiums, including taxes and insurance, plus the value of improvements on the property, for the first year following consummation; estimated monthly amount to be escrowed for required periodic payments or premiums; and the fact that if the consumer chooses to terminate the account in the future, after the required minimum of five years, the consumer will become responsible for required periodic payments or premiums unless a new account is established.
Creditors are required to provide a disclosure notice to consumers who waive escrow services if an impound, trust or escrow account for required periodic payments and premiums relating to a consumer credit transaction secured by real property is not established. Creditors also must provide a disclosure notice if a consumer chooses, by written notice to the creditor or servicer, to close the account
Higher risk mortgage loans must have a certified written appraisal. A creditor may not make a higher-risk mortgage loan without first obtaining a written appraisal of the property to be mortgaged. The appraisal must be performed by a certified and licensed appraiser who conducts a physical property visit of the interior of the mortgaged property. The term “qualified appraiser” means a person who, at a minimum, is certified or licensed by the state in which the property to be appraised is located and who performs each appraisal in compliance with the Uniform Standards of Professional Appraisal and Practice.
A creditor must obtain a second appraisal if the purpose of the higher-risk mortgage is to finance the purchase or acquisition of the mortgaged property from a person within 180 days of the purchase or acquisition of the property by that person at a price lower than the current sale price of the property.
The second appraisal must be done by a different certified and licensed appraiser and include an analysis of the difference in sale prices, changes in market conditions and any improvements made to the property between the previous sale and the current sale. The creditor may not charge the cost of the second appraisal to the applicant.
A creditor must provide one copy of each appraisal of property with a higher-risk mortgage to the applicant without charge and at least three days before the closing date. A creditor must provide an applicant with a statement at the time of the initial mortgage application that any appraisal prepared for the mortgage is for the sole use of the creditor, and the applicant may have an independent appraisal conducted at the applicant’s expense. If a creditor willfully fails to obtain an appraisal, the creditor will be liable to the applicant or borrower for the sum of $2,000. (Dodd-Frank Bill signed by President Obama)
MORAL
This is seven pages and is pretty detailed as to the creditors and servicers of residential mortgage loans. However, regulations have to be enacted. The bill for the most part and that includes the above is not to take effect for 180 days from its signing meaning January 2011 and is supposed to be effective within 18 months of signing when the regulations are due out in detail. This would be January 2012. There will be a lot of “jockeying” for position to influence the regulators generating the regulations especially in the comment period. You must keep track of this. READ THIS CAREFULLY so you know where the regulations are headed. In a nutshell, the new Consumer Bureau is yet another agency that will be regulating you in addition to the S.A.F.E. Act, the state licensing agencies, TILA and RESPA.
MORTGAGE BROKER EMPLOYER (AT LEAST IN CALIFORNIA) CANNOT USE BANKRUPTCY TO DISCHARGE UNPAID WAGES IF THE FAILURE TO PAY IS WILLFUL
FACTS
From June 1981 to January 1983, Petralia was employed by George Jercich Inc., a real estate company wholly owned and operated by debtor Jercich. The company performed mortgage broker services, and Petralia's primary duty was to obtain investors to fund loans arranged by Jercich. Pursuant to an employment agreement between Petralia and Jercich, Petralia was to be paid a salary plus a commission for loans which were funded through his efforts. The commissions were to be paid on a monthly basis.
Jercich failed to pay Petralia his commissions as required under the employment agreement. Petralia quit his employment with Jercich in January 1983 and in February 1983 filed an action against Jercich in California state court. In this action, Petralia sought to recover unpaid wages, "waiting time penalties" (penalties imposed on employers under California law for failure to timely pay employees), and punitive damages.
After a bench trial, the state court granted judgment in favor of Petralia. The court found that Jercich had not paid Petralia commissions and vacation pay as required under the employment contract; that "Jercich had the clear ability to make these payments to Petralia, but chose not to"; that instead of paying Petralia and other employees the money owed to them, "Jercich utilized the funds from his company to pay for a wide variety of personal investments, including a horse ranch"; and that Jercich's behavior was willful and amounted to oppression within the meaning of
While the appeal of the state trial court judgment was pending, Jercich filed a Chapter 7 bankruptcy petition. In November 1986, after the state trial court judgment had been affirmed on appeal, Petralia initiated the an adversary proceeding seeking to have the state court judgment excepted from discharge under 11 U.S.C. § 523(a)(6)
The 9th Circuit of the U.S. Court of Appeals said reversed. Wages owed were excepted from discharge. Under the circumstances, the failure to pay the wages was tortious, and the injury resulting there from was willful and malicious. (Petralia v. Jercich, 238 F.3d 1202 (2001)
MORAL
Now you might say why bring up a case that is nine years old. Well, with the state of the economy and people not being paid, it is wise to know that the employer, no matter who he is, can be sued and possibly be personally liable even though the employee is an employee of the corporation as was the case here. Do you own a corporation? Are you the sole owner? Do you have employees? Before you abandon the corporation are they all paid current? Was there money available to pay them current? Did you use company money to pay your own personal bills before paying the employees? Wrong answers can engender personal liability that is not dischargeable in bankruptcy.
WHY IT DOES NOT PAY TO LIE ON YOUR BANKRUPTCY FILING ESPECIALLY IN MISSISSIPPI
FACTS
On July 22, 2010, Rhonda Marsalis of Summit, Miss., entered a guilty plea to wire fraud, bankruptcy fraud, and perjury before Judge Tom S. Lee in U.S. District Court in Jackson. Marsalis is scheduled to be sentenced on Oct. 21, 2010. She faces a maximum penalty of 30 years in prison and fines of up to $750,000.
Rhonda Marsalis used the Social Security number of another person and falsified her employment and income information in order to obtain a mortgage loan of over $250,000 for the purchase of a house. After foreclosure proceedings had been initiated less than a year later, Marsalis filed a Chapter 13 Bankruptcy. She again falsely represented her Social Security number and falsified her employment and income. Marsalis also falsely testified under oath that the misused Social Security number was hers and that she had used it all of her life.
The U.S. Trustee’s Office investigated the discrepancy concerning Marsalis’ Social Security number further and discovered numerous other Social Security numbers that Marsalis had previously used, including several prior bankruptcy filings in Mississippi and in other states spanning back to 1992. Further investigation revealed that Marsalis had been working under her actual Social Security number and that one of the employers that she identified as a source of income did not exist. (usattysdms72210)
MORAL
Our in house bankruptcy attorney will tell you this in no uncertain terms. Hiding assets, failure to disclose only risks federal prison. There is a large sign at the creditors meeting all debtors must attend. It is blatant, large type and in bold face capital letters. Freely translated it says lying is a felony and will be prosecuted. If you have ever attended a bankruptcy creditors meeting it is usually on the wall to your left as you are seated facing the trustee.
FLORIDA MAN ARRESTED FOR MORTGAGE FRAUD
FACTS
On July 6, 2010, criminal information was filed against defendant Stanley Gabart of Miami. The defendant surrendered on July 8, 2010, and made his initial appearance in West Palm Beach federal court.
The two-count information charges defendant Gabart with conspiracy to commit bank fraud and making false statements on loan applications to Bank of America and JP Morgan Chase Bank N.A., in connection with the purchase of various properties. If convicted, the defendant faces a maximum statutory term of imprisonment of 30 years on each count.
According to the allegations in the information, Gabart conspired with others to submit loan applications for the properties that contained false information about the applicants’ employment, income, assets and intention to live in the homes. In addition, Gabart allegedly recruited straw purchasers and paid the straw purchasers a fee for participating in the scheme. The fraud scheme resulted in more than $7 million in losses to several banks. (usattysdfl72010)
MORAL
And on and on the arrests go. Presuming he did it, I am willing to bet there are more properties involved. You ask why? Because generally when criminal information is filed as opposed to a Grand Jury Indictment it means the defendant is cooperating with law enforcement to get to others and/or he cut an early deal to avoid finding of other properties which can cause a longer term in federal prison based on a larger loss. The larger the loss, the more time in prison.
GEORGIA WOMAN GETS 18 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On July 22, 2010, Nancy Barlet of Atlanta was sentenced to 18 months in federal prison for her role in a Luzerne County mortgage fraud scheme five years ago. She was sentenced by senior U.S. District Court Judge William J. Nealon for fraud that involved mortgages worth more than $400,000. The fraud scheme took place in 2005 and 2006.
The woman previously pleaded guilty to a charge of mail fraud as an aider and abettor, according to the document. She admitted to providing false employment and income information on mortgage applications for numerous properties in the Wilkes-Barre area in 2005 and 2006.
Nealon also ordered Barlet to serve three years of supervised release after her prison stint and pay a special assessment of $100, according to the release. She still has to make restitution and the amount for restitution will be determined within 90 days. (usattmdpa72310)
MORAL
Notice they went after her for loans that occurred in 2005 and 2006.
CHICAGO SEES SEVEN INDICTED FOR $35 MILLION MORTGAGE FRAUD INVOLVING OVER 120 PROPERTIES
FACTS
On July 20, 2010, Kenneth Steward, a South Holland man was arrested on federal charges alleging that he and six co-defendants participated in a $35 million mortgage fraud scheme involving more than 120 residential properties. Steward, who bought and sold homes and recruited others to act as residential purchasers, and his co-defendants allegedly caused various lenders and financial institutions to lose at least approximately $16 million on mortgage loans that were not repaid by the borrowers or fully recovered through subsequent foreclosure sales.
Steward also operated various businesses including a property renovation company called Jireh Development in South Holland. He was charged with mail, wire and bank fraud in an 18-count indictment that was returned by a federal grand jury. Six other defendants, including two licensed loan officers and an unlicensed loan officer and mortgage originator, were each charged with one or more counts of fraud in the same indictment. The scheme allegedly ran between June 2004 and May 2008.
Also indicted were James Wilson of Chicago, who allegedly created false documents and sold them to clients to enable them and others to fraudulently obtain mortgage and automobile loans; Vanessa Mayes, of Chicago, an unlicensed loan officer; William Bart Rusk of Woodridge, a licensed loan officer; Stephen Iwerebon of Oak Park, who owned a real estate company that purchased, renovated and re-sold residences; Emmit Suddoth of Chicago, who also bought and sold homes and operated purported property management companies; and Lennell Willis of Frankfort, another licensed loan officer.
According to the indictment, the defendants provided false residential real estate loan applications and supporting documents to banks and lenders on behalf of prospective purchasers, knowing that these individuals, whom they had recruited, could not, or did not intend to, fully repay the loans. Steward and Suddoth and others referred and recruited individuals to buy homes by promising potential purchasers that they would not have to use any of their own money for down payments or deposits; they would be paid to act as purchasers and attend closings; in some instances, they would not have to make any payments on the mortgages obtained; and the homes were ready for occupancy or would be renovated.
The indictment seeks forfeiture of $35 million. Each count of bank fraud, or mail or wire fraud affecting a financial institution, carries a maximum penalty of 30 years in prison and a $1 million fine. (usattyndil72210)
MORAL
Note two things: 1-the loans go back to 2004, six years ago; 2-Ongoing nationwide effort by all law enforcement to combat mortgage fraud as shown by the number of cases I have published here and that is not all of them by a long shot.
BALTIMORE LEADER OF MORTGAGE FRAUD RING GETS OVER FOUR YEARS IN FEDERAL PRISON
FACTS
On July 20, 2010, Timothy Reed of Beltsville, Md., was sentenced to 51 months in prison followed by five years of supervised release for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia, and Virginia using false mortgage and settlement documents. It was also ordered that Reed pay $4,196,967 in restitution.
According to Reed’s plea agreement, Reed and others paid over 15 straw purchasers $10,000 per property to purchase houses for Reed and others. Reed created false mortgage and settlement documents, many of which misrepresented the straw purchasers’ income and assets. Reed and others also created false invoices to claim that their company, Brotherly Investment Group, performed “renovations” on some of the properties. Using these false invoices, Reed and others were “repaid” at closing for the purported renovations. Reed was an organizer and leader in this scheme.
From 2006 to 2008, Reed and others received approximately $3,830,418 in fraudulent funds as part of this scheme. Many of the purchased properties have been foreclosed upon. (usattymd72010)
MORAL
I don’t know. If Reed had kept over $3 million, it might be with four years in prison. But it is hardly likely he kept it all. This is aside from the fact that the government would have made him forfeit the money anyway.
SEVEN MORE PEOPLE SENTENCED IN MISSOURI $12.6 MILLION MORTGAGE FRAUD
FACTS
On July 22 and 23, 2010 seven more defendants have been sentenced for their roles in a $12.6 million mortgage fraud conspiracy that involved 25 upscale residential properties in Lee’s Summit, Mo., and Raymore, Mo.
JEROME SHADE HOWARD was sentenced to three years in federal prison without parole, and ordered to pay $5,945,996 in restitution and to forfeit $900,731 to the government. STEFAN M. GUERRA was sentenced to one year and one day in federal prison without parole, and ordered to pay $2,425,787 in restitution. MICHAEL CONRAD SMITH was sentenced to five years of probation, including six months of home detention and 4,000 hours of community service, and ordered to pay $640,289 in restitution. GERALD WILLIAMS was sentenced to five years of probation, including six months of home detention and 2,000 hours of community service, and ordered to pay $238,008 in restitution. JUDITH WILLIAMS was sentenced to five years of probation, including four months of home detention and 100 hours of community service, and ordered to pay $238,008 in restitution. JAMES F. SIMPSON was sentenced to one year and one day in federal prison without parole, and ordered to pay $495,578 in restitution. CHERYL ANN ROMERO was sentenced to five years of probation, including six months of home detention and 4,000 hours of community service, and ordered to pay $488,102 in restitution.
They are among 18 defendants who have pleaded guilty in connection with a conspiracy to defraud mortgage lenders from June 2005 to May 2007. Eleven co-defendants have now been sentenced. Conspirators were involved in buying and selling new homes in the Raintree and Belmont Farms subdivisions in Lee’s Summit and the Eagle Glen subdivision in Raymore. Buyers purchased the homes at inflated prices, obtaining mortgage loans by providing false information to mortgage lenders, then keeping the extra proceeds. Buyers created shell companies for the purpose of receiving those kickbacks from the builder, JERRY R. EMERICK OF RAYMORE. Kickbacks ranged from $60,000 to $125,000 on each house.
Emerick, who pleaded guilty to conspiracy to commit mortgage fraud and wire fraud and to transfer funds obtained by fraud across state lines, is scheduled to be sentenced on July 30, 2010. ANGELA R. CLARK, a real estate agent who sold new homes for Emerick, has also pleaded guilty to her role in the conspiracy and awaits sentencing. Co-defendant CYNTHIA JORDAN, another mortgage broker, has also pleaded guilty and awaits sentencing.
In total during the course of the conspiracy, mortgage lenders approved 25 loans totaling $12,616,990. From that total, buyers received approximately $2,343,337 without the lenders’ knowledge. Lenders sustained actual losses totaling $6,434,043.
Guerra was a mortgage broker who obtained loans for co-defendants to purchase 11 properties in the fraud scheme. The loan applications were fraudulent, and all the loans went into default and were foreclosed. Some of the property buyers in the scheme purchased more than one property. In those instances, Guerra PROCESSED THE LOANS QUICKLY SO THAT THE LOANS FOR THE SUBSEQUENT PURCHASES WOULD BE COMPLETED BEFORE THE EARLIER PURCHASES SHOWED UP ON THE BUYERS’ CREDIT REPORTS. Guerra also used different lenders for multiple loans to avoid the risk that the lender would notice an individual was buying more than one property.
Howard purchased two properties in the fraud scheme and recruited five other California residents—including Romero and Smith—who completed a total of 10 additional purchases. Howard acted as the middleman or contact person for the California buyers. He also provided false Social Security numbers to co-defendants Ronald E. Brown, Jr., and Daryle A. Edwards. Brown and Edwards were sentenced on June 11, 2010. All the loans for Howard and the buyers he recruited went into default and were foreclosed. The properties were then sold to third parties, with a net loss of $5,945,996.
Romero was vice president and branch manager of BANK OF THE WEST IN PICO RIVERA, CALIF., and became acquainted with Howard as a customer of the bank. Romero purchased two properties in Lee’s Summit as part of the mortgage fraud scheme and obtained $180,000 in kickbacks from the loan proceeds.
Smith, Howard’s brother-in-law, purchased two properties in Lee’s Summit as part of the mortgage fraud scheme and obtained $180,000 in kickbacks from the loan proceeds.
Simpson purchased four properties in Lee’s Summit and Raymore as part of the mortgage fraud scheme and obtained $301,500 in kickbacks from the loan proceeds. The loans for all four properties went into default; Simpson arranged a short sale of one of the properties to his parents and the rest of the homes went into foreclosure. The foreclosed properties were sold to third parties, with a loss of $676,413.
Gerald and Judith Williams purchased one property in Lee’s Summit as part of the mortgage fraud scheme and obtained $100,150 in kickbacks from the loan proceeds. They defaulted on the loans and the loans were foreclosed, for a loss of $238,008. (usattywdmo72310)
MORAL
Notice how these loans go back to 2005, over five years ago. Notice there are 18 people involved, all charged and the straw buyers are charged. Did you notice the California vice president of Bank of the West in Pico Rivera, California? She blew her career at age 52 for $180,000. Was it worth it? Now what happens to the retirement package she built up all those years at the bank? As I have said before, if you even remotely think you have been involved in a transaction, see a knowledgeable attorney now to mitigate the problem.
THREE CHARGED IN OKLAHOMA WITH MORTGAGE FRAUD
FACTS
On July 22, 2010 a federal grand jury indicted DERRICK REUBEN SMITH, MICHAEL GIPSON, and TRINA TAHIR on charges of conspiracy, wire fraud, and money laundering in connection with fraudulent mortgages.
According to the indictment, Smith recruited two individuals to buy two new homes in Edmond in mid-2006 and early 2007 for $425,000 and $435,000 respectively. The builder of both homes agreed that Tahir’s real estate brokerage, T&T REALTY, would receive large commissions and bonuses totaling $51,950 and $77,950 respectively. The indictment alleges that after the closings, Tahir caused T&T Realty to write checks to Gipson, an agent at T&T Realty, for $27,059.86 and $58,000 respectively. Gipson then bought cashier’s checks in those same amounts payable to “MP SERVICES,” a business that Smith operated. Smith paid $20,000 to the person who served as the buyer of the first house and used the rest of the money for his own purposes. In short, the defendants are charged with inducing lenders to fund mortgages based on inflated real estate prices and misrepresenting the distribution of excessive loan proceeds to Smith as commissions and bonuses paid to Tahir.
The indictment also charges Gipson and Tahir with fraudulently misrepresenting the source of funds used as a down payment on a house that Gipson bought in Midwest City and charges Tahir with fraudulently disguising the payment of $9,295.52 to a buyer of a house in Oklahoma City as a real estate bonus.
The four wire fraud counts are based on interstate wires from lenders to fund the purchases of the four properties. In addition to the conspiracy count and the four wire-fraud counts, the indictment includes nine counts of money laundering. In each of these, one of the defendants is charged with engaging in a financial transaction designed to conceal and disguise the nature, source, and ownership of the proceeds of the mortgages.
On each of the conspiracy and wire fraud counts, each defendant faces a potential penalty of 20 years in prison and a fine of $250,000. With respect to each of the money laundering counts, each defendant faces a potential penalty of 20 years in prison and a fine of $500,000 or twice the amount of the laundered proceeds. Under federal law, each defendant would be required to pay restitution to victims.
Furthermore, the indictment seeks forfeiture from each of the defendants in the amount of the proceeds of the fraudulent schemes and in the amount of the property involved in the money laundering offenses. (usattywdok72210)
MORAL
If convicted, then: potential 20 years in federal prison. Forfeit what you have to pay for what you received in the illegal transaction. Lose your license. Lose your ability to make a decent living. Hardly seems worth it.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
