HUD PROPOSES NEW RULE TO SEEK INDEMNIFICATION OF LOANS FROM DIRECT ENDORSEMENT LENDERS UP TO FIVE YEARS FROM ENDORSEMENT
FACTS
The U.S. Department of Housing and Urban Development proposed new regulations to force certain lenders to indemnify or reimburse the Federal Housing Administration for insurance claims paid on mortgages that are found not to meet the agency's guidelines. In addition, HUD's proposed rule would require all new and existing lenders with the ability to insure mortgages on HUD's behalf to meet stricter performance standards to gain and maintain their approval status.
For those lenders with special authority to insure mortgage loans on FHA's behalf, HUD seeks to force indemnification for "serious and material" violations of FHA origination requirements such that the mortgage never should have been endorsed by the mortgagee in the first place just as FHA would not have insured the mortgage on its own.
Specifically, these lenders may be required to indemnify HUD if they failed to: (1) VERIFY AND ANALYZE THE CREDITWORTHINESS, INCOME, AND/OR EMPLOYMENT OF THE BORROWER; (2) VERIFY THE SOURCE OF ASSETS BROUGHT BY THE BORROWER FOR PAYMENT OF THE REQUIRED DOWNPAYMENT AND/OR CLOSING COSTS; (3) ADDRESS PROPERTY DEFICIENCIES IDENTIFIED IN THE APPRAISAL AFFECTING THE HEALTH AND SAFETY OF THE OCCUPANTS OR THE STRUCTURAL INTEGRITY OF THE PROPERTY; OR (4) ENSURE THAT THE PROPERTY APPRAISAL SATISFIES FHA APPRAISAL REQUIREMENTS. HUD MAY SEEK INDEMNIFICATION IRRESPECTIVE OF WHETHER THE VIOLATION CAUSED THE MORTGAGE DEFAULT.
While HUD will seek indemnification in cases of fraud or misrepresentation at any time, the Department intends to codify a "reasonable time period" for requiring indemnification in cases where the mortgagee failed to meet FHA requirements. FOR THOSE CASES NOT INVOLVING FRAUD OR MISREPRESENTATION, IT HAS BEEN HUD'S LONG-STANDING PRACTICE OF REQUIRING INDEMNIFICATION "WITHIN FIVE YEARS FROM THE DATE OF MORTGAGE INSURANCE ENDORSEMENT." The date of endorsement is a fixed date, and therefore has the benefit of being known to both HUD and the lenders with the authority to self insure mortgages. HUD believes five years is a reasonable "seasoning" period for a particular mortgage loan to either perform or go into default and for the Department to ascertain whether origination errors were made. In addition, this five-year period is not considered a burden to lenders who might otherwise face the possibility of indemnifying insurance claims made on long-ago endorsed mortgage loans. (HUD-10-230 Oct. 8, 2010)(75fr195,p. 62335)
MORAL
Make certain you are aware when this rule goes into effect. In a nutshell, it proposes no negotiations as to the amount of the indemnification and that termination is immediate and then you seek review to remove the termination AFTER THE FACT.
TRUTH-IN-LENDING AMENDED
FACTS
On Sept. 24, the Federal Reserve Board published an interim rule requiring "creditors extending consumer credit secured by real property or a dwelling to disclose certain summary information about interest rates and payment changes in a tabular format, as well as a statement that consumers are not guaranteed to be able to refinance their transaction in the future." The amendment is to Title 12 C.F.R. §226.18 and adds subsections (s) and (t).
This interim rule is effective Oct. 25, but compliance is optional until Jan. 30, 2011. The Federal Reserve Board is accepting comments on this interim rule through Nov. 23. Thus the rule can change between now and January. (comp. DocMagic 10-21-10)
MORAL
The rule can change because of the ongoing comment period. Your compliance department should keep very close track of this rule.
CONFORMING LOAN LIMITS TO STAY UP
FACTS
Loans guaranteed by Fannie Mae, Freddie Mac and FHA for high-cost areas will remain at the current $729,750 level. The limit applies to areas that include California and New York. Alaska, Hawaii, Guam and the U.S. Virgin Islands get even higher conforming loan levels. (calfrnian102210)
MORAL
The question is: Who is buying?
THREE NEW INDICTMENTS OF SEVEN PEOPLE FROM DENVER
FACTS
A grand jury in Denver returned three separate indictments charging wire fraud, bank fraud, and related offenses in three separate mortgage fraud schemes.
The first indictment was returned on Sept. 27, alleging that starting in January 2005, and continuing through September 2006, MICHAEL JACOBY, DEREK ZAR, SUSANNE ZAR AND MICHAEL MACY executed a scheme to defraud various financial institutions and other commercial lenders by means of materially false and fraudulent pretenses and representations. The scheme was executed in connection with real estate transactions involving approximately 29 properties within a 50-mile radius of Denver in which Jacoby was the real estate agent and Derek Zar, Susanne Zar, and Macy were the purchasers. It was part of the scheme to purchase and re-sell homes within a short time period at inflated prices financed by mortgage loans which were obtained through false mortgage applications and false appraisals for the properties. Jacoby recommended an appraiser for the home sales and supplied the appraiser with inflated values of comparable homes so the appraiser would overvalue the home. Then Derek Zar, Macy, and Susanne Zar applied for a mortgage, submitting an application with false statements, and at an inflated amount. Financial institutions and commercial lenders suffered losses through foreclosures on such transactions of over $2.5 million. In total, defendants received over $500,000 through commissions and home sales.
The second indictment was returned on Sept. 30, and alleges that starting on June 23, 2005, and continuing through Aug. 31, 2005, the defendant, DEMETRIUS G. GIANOPOULOS, knowingly executed and attempted to execute a scheme to defraud Countrywide Bank and PHM Financial Incorporated (d/b/a Professional Home Mortgage). The scheme was executed through applications for residential mortgage loans and related documents pertaining to properties purchased by Gianopoulus. It was part of the scheme for the loan applications Gianopoulus submitted and caused to be submitted to include materially false and fraudulent representations about Gianopoulus’s assets. He provided altered supporting statements from bank accounts, overstated account balances and falsely represented that he had signatory authority on another account. In addition, Gianopoulus made materially false and fraudulent representations about his liabilities and/or rental income. At the time of the closing, Gianopoulus caused over $570,000 in disbursement to SILVER MOUNTAIN MANAGEMENT or SILVER MOUNTAIN LLC, which were entities controlled by an associate of his. These disbursements were based on fraudulent invoices from Silver Mountain Investments LLC, which distributed some or all of these monies to accounts controlled by Gianopoulus.
The third indictment was returned on Oct. 1, and alleges that between July 2007 and September 2010, SCOTT WHATCOTT AND RAMONA FRICOSU executed and attempted to execute a scheme to defraud financial institutions (Wells Fargo Home Mortgage and USAA Federal Savings Bank) and commercial lenders (Sun Trust Mortgage, Taylor, Bean & Whitaker, Nexgen Lending, Inc., and National City Mortgage dba PNC Mortgage). During the scheme to defraud, Whatcott and Fricosu located sellers in the Colorado Springs area who sought to sell their homes due to imminent foreclosure or the sellers’ relocation away from Colorado. Whatcott would tell each owner that he wished to buy the home and that he would obtain a new mortgage or assume the existing mortgage. He told victims that he would make the seller’s future mortgage payments and convince the home seller to transfer the property to him. Whatcott and/or Fricosu would make mortgage payments to the mortgage lender for some period while the scheme to defraud continued. Through a series of fraudulent steps, the defendants would obtain title to the homes. Once the title was obtained, they would sell the property, receiving the sales proceeds without paying the outstanding mortgage.
Those charged include:
MICHAEL JACOBY, with 11 counts of wire fraud and three counts of money laundering.
DEREK ZAR, with four counts of wire fraud and one count of money laundering.
SUSANNE ZAR, with three counts of wire fraud and one count of money laundering.
MICHAEL MACY, with four counts of wire fraud and two counts of money laundering.
DEMETRIUS GIANOPOULOS, with one count of wire fraud and two counts of money laundering.
RAMONA FRICOSU (AKA RAMONA SMITH), with 22 counts of bank fraud, four counts of wire fraud, seven counts of money laundering and five counts of false statements to a financial institution.
SCOTT WHATCOTT (AKA MICHAEL SCOTT SMITH), AGE 36, with 23 counts of bank fraud, four counts of wire fraud, two counts of aggravated identity theft, eight counts of money laundering and five counts of false statements to a financial institution.
Bank Fraud and False Statements to a Financial Institution carry a penalty of 30 years’ incarceration and a fine of up to $1,000,000. Money laundering carries a penalty of not more than 10 years’ incarceration and a fine of up to $250,000. Wire fraud carries a penalty of not more than 20 years’ incarceration and not more than a $250,000 fine. (usattyco10-20-10)
MORAL
The FBI is very busy investigating theses cases, literally from coast to coast using the licensing agencies, other law enforcement agencies to chase you.
IN ILLINOIS IF YOU FAIL TO DELIVER THE PROMISSORY NOTE TO THE BUYER THAT GOES WITH THE MORTGAGE YOU MAY GET SUED
FACTS
On Oct. 5, the U.S. Court of Appeals for the Seventh Circuit held that A MORTGAGEE WHOSE FORECLOSURE ACTION WAS REJECTED BECAUSE IT COULD NOT PRODUCE THE NOTE COULD PROCEED WITH A BREACH OF CONTRACT CLAIM AGAINST THE PRIOR MORTGAGEE FOR FAILING TO TRANSFER THE NOTE. Cogswell v. CitiFinancial Mortgage Co., 2010 WL 3927694, No. 08-2153 (7th Cir. Oct. 5, 2010). The defendant assigned its interest in a mortgage to the plaintiff, but did not deliver the underlying note. The plaintiff’s subsequent effort to foreclose on the mortgage was rejected by the state court, which held that the failure to produce the note meant that the plaintiff had failed as a matter of Illinois law to establish its ownership of the debt and therefore its right to foreclose. The plaintiff then sued for breach of contract against the defendant and the District Court granted summary judgment for the defendant because the plaintiff had not proven that transfer of the note was required by the parties’ contractual agreement and the plaintiff’s failure to produce the note had not caused its foreclosure action to fail.
The Seventh Circuit reversed. First, the plaintiff had produced sufficient evidence that a fact-finder could find that the defendant had agreed to deliver the note. It also observed (but did not decide) that the obligation to transfer the note could be considered an implied term of all mortgage assignments. Second, the court held that the plaintiff had established that the defendant’s failure to provide the note had caused its damages because a reasonable state court would have allowed the foreclosure to proceed if the plaintiff had possessed the note. Here, the plaintiff did not have even a copy of the note, nor any other evidence that could have been combined with a lost note affidavit to establish its ownership of the debt. The evidence revealed a gap in the chain of title, creating genuine uncertainty as to ownership.
MORAL
If you are going to sell a mortgage on the secondary market, be sure you can deliver the original promissory note with it.
MASSACHUSETTS REALTOR GETS 10 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On Oct. 22, ERNST APPLOLON, a Realtor convicted of conspiracy and wire fraud was sentenced to 10 years in federal prison for various roles in a mortgage fraud ring that conducted 21 fraudulent property transactions in the Greater Boston area involving 10 mortgage lenders and more than $10.6 million in loan proceeds. Appolon was found guilty of one count of conspiracy to commit wire fraud and 34 counts of wire fraud.
The scheme involved the use of inflated purchase prices and documents containing numerous false representations, including false information about the purchase price, borrower income, employment, and intent to reside in the property. The difference between actual purchase prices negotiated with sellers and the inflated purchase prices submitted to lenders ranged as high as $255,000 to more than $1.9 million. From this $1.9 million, the defendants pocketed more than $1.7 million in illegal proceeds. The mortgages on all of the properties were defaulted upon and nearly all went into foreclosure.
Appolon served as the real estate agent to identify properties for use in the fraud scheme. He participated in inflating the purchase prices on mortgage loan applications and helped recruit individuals to act as straw buyers to obtain the fraudulent loans in their names. He was also involved in determining how $1.7 million in proceeds from the loans would be distributed among the conspirators, obtaining a very large share for himself. Appolon is the third defendant sentenced to date.
On Oct. 18, 2010, Judge O’Toole SENTENCED DANIEL APPOLON TO 42 MONTH in prison and ordered co-defendant SAMUEL JEAN-LOUIS TO SERVE A PRISON TERM OF 22 MONTHS. Seven additional defendants are currently pending sentencing.(usattyma102110t)
.
MORAL
As I have been saying for some time, the prosecutions and investigations are still going on, “hot and heavy.” If you have even been remotely involved see your attorney now to mitigate the potential problem.
MINNESOTA WOMAN CHARGED WITH MORTGAGE FRAUD
FACTS
On Oct. 19, BARBARA LYNNAE PURO, a real estate agent from Savage was charged by Information with participating in a multi-million dollar mortgage fraud scheme that victimized lenders across the country. Puro allegedly arranged for homeowners to sell their properties to straw buyers at inflated prices. In each case, she then purportedly funneled to the scheme's masterminds the difference between the amount a particular home seller would accept and that home's inflated sale price. The information specifically alleges that on Nov. 20, 2006, she funneled by way of wire transfer $396,252.14 in fraud proceeds.
From August through November of 2006, Puro purportedly aided and abetted the scheme's masterminds, ZACK ZAFER DYAB, of Golden Valley, and JULIA ALEXANDER ROZHANSKY, of Minnetonka. They were federally indicted in December of 2009 with supplying mortgage loan lenders with fraudulent documents to support loans well in excess of actual home prices. For her part, Puro allegedly facilitated the sale of 15 of the 35 Twin Cities' properties subject to the fraud scheme. As a result, Puro collected substantial real estate commissions and secured future business from Dyab and Rozhansky. The total loss attributable to Puro's actions is approximately $4,028,340.
If convicted, Puro faces a potential maximum penalty of 20 years in prison. (usattymn102010)
MORAL
The government went back to loans that occurred four years ago. Since indicted by information she probably is cooperating. In addition we have noticed a very substantial increase in lenders and investors sending very polite letters to wholesale lenders, brokers and even the borrowers to buy back loans where the paper work was not totally correct or the foreclosure had occurred and they wanted to be made whole.
In other words has anyone heard from Flagstar lately? The FDIC? The U.S. Trustee handling First Magnus or New Century bankruptcy issues. I would be very much surprised if you could tell me less than three out of 10 of you reading this have not received correspondence or a lawsuit requesting buyback or indemnification on loans. The majority of lenders are in this attorneys opinion are trying to mitigate their losses and are looking at ways to take loans out of their portfolios where the balance of the loan is quite a bit more than the value of the property. Or hadn’t you noticed? We have by the increase in clients and new clients requesting our assistance to get out of the problem.
DO NOT BE AN UNLICENSED MORTGAGE LOAN ORIGINATOR IN PENNSYLVANIA
FACTS
The Pennsylvania Department of Banking's Bureau of Compliance, Investigation, and Licensing is identifying and fining unlicensed mortgage activity. The investigation will target all mortgage licensees and is expected to continue into 2011.
In its first quarter, the department issued 24 ORDERS FOR UNLICENSED MORTGAGE ACTIVITY, WITH ASSOCIATED FINES TOTALING $456,250. This enforcement takes place as part of the implementation of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 and state-level mortgage reforms enacted in 2008 and 2009. (on102210)
MORAL
The state levied the fines, but did they collect the money?
VIRGINIA MAN GETS 34 MONTHS IN FEDERAL PRISON FOR RECRUITING STRAW BUYERS IN MORTGAGE FRAUD SCHEME
FACTS
On Oct. 22, 2010 FIDELINO FERRUFINO WAS SENTENCED TO 34 MONTHS IN PRISON, followed by three of supervised release, for conspiracy to commit wire and bank fraud. Ferrufino was also ordered to pay restitution in the amount of $4,131,400 after a jury found Ferrufino guilty of conspiracy to commit wire and bank fraud on Aug. 4.
Ferrufino was part of a wide-ranging mortgage fraud conspiracy, in which he conspired to secure fraudulent mortgage loans for straw buyers with good credit to purchase properties in northern Virginia for other individuals. Ferrufino and his co-conspirators profited through the proceeds they received in the fraudulent loan transactions. Ferrufino was paid by real estate agents a total of approximately $160,000 for the fraudulent transactions. Ferrufino recruited approximately 25 straw buyers to use their names and credit to secure financing for the properties. The straw buyers signed fraudulent loan applications in order to obtain much larger loans than they were qualified to receive. The loan applications misstated, among other things, the straw buyers’ income, assets, employment, citizenship status, and intent to live in the property.
Ferrufino and his co-conspirators engaged in more than 30 fraudulent property transactions in the Eastern District of Virginia and obtained more than $24 million in mortgage loans to purchase the properties. The straw buyers defaulted on the bulk of the fraudulent loans, and the properties either went into foreclosure or were short-sold for sizeable losses. As a result, more than 20 banks and lenders suffered losses in excess of $9 million, approximately $4 million of which is directly attributable to Ferrufino.
A number of Ferrufino’s co-conspirators have pled guilty and been sentenced. RUBEN ROJAS pled guilty on Dec. 22, 2009, for his role as a real estate agent in the conspiracy, and was sentenced to 60 months in prison. Rojas’ sister, LOURDES ROJAS ALMANZA, pled guilty on Dec. 17, 2009, for her role as a loan officer in the conspiracy, and was sentenced to 77 months in prison. LITCIA LINARES pled guilty on Jan. 8, 2010, for her role as a real estate agent in the conspiracy and was sentenced to 27 months in prison. One straw buyer, JUAN DE LA CRUZ AGUAYO, pled guilty on March 18, and was sentenced to 14 months in prison. (usattyedva102210)
MORAL
The more the merrier and more it is with the federal prosecutors chasing anyone and everyone in mortgage fraud. I publish more interesting ones but for everyone I list there are at least 10 others I have left off or the e alert would read like and encyclopedia.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
