HUD DELAYS ENFORCING "REQUIRED USE" DEFINITION OF RESPA UNTIL APRIL 16, 2009
FACTS
Among those regulatory changes to be implemented upon the effective date of Jan. 16, 2009, was the revised definition of the term "required use." This amendment has become the subject of recently initiated litigation. (National Association of Home Builders, et al. v. Steve Preston, et al., Civ. Action No. 08- CV-1324, United States District Court for the Eastern District of Virginia, Alexandria Division.) For reasons related to the proper litigation of this case, HUD is issuing this final rule to delay the effective date of the revised definition of "required use" for an additional 90 days until April 16, 2009. (74 FR 2369-1-9-09)
MORAL
The reasons related to the proper litigation are: 1-NAHB sought a temporary restraining order and preliminary injunction; 2-HUD stipulated to holding off on the enforcement of the "required use" definition because a summary judgment motion is set to be heard on April 3, 2009 on this very issue. So, builders can direct buyers to their affiliates and if used give the buyer the "upgrade packages" as they have been doing all along.
NAMB SUES HUD OVER NEW GOOD FAITH ESTIMATE
FACTS
NAMB also sued HUD on Dec. 19, 2008 in the District of Columbia. In the matter of National Association of Mortgage Brokers, Inc. vs. Steve Preston, Honorable Secretary of the United States Department of Housing and Urban Development, civil docket for case #: 1:08-cv-02208-jr). However, no temporary restraining order and no preliminary injunction appears to have been sought and therefore the new RESPA went into effect as of Jan. 16, 2009 for the most part except that the new GFE is not mandatory until January 2010.
MORAL
Sort of like déjà vu? Calendar ahead and we will see what happens.
REMINDER THAT THE NATIONWIDE SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT IS EFFECTIVE AUG. 1, 2009
FACTS
This is the new nationwide loan originator licensing registration system that all states must comply with starting on Aug. 1, 2009. It sets the minimum standards for anyone to be a mortgage broker, loan officer, mortgage bank loan originator, independent contractor processor, financial service company and its agents and depository institution loan officer.
The applicant shall, at a minimum, furnish:
(1) Fingerprints for submission to the FBI, and any governmental agency or entity authorized to receive such information for a state and national criminal history background check; and
(2) Personal history and experience, including authorization for the system to obtain--
(A) An independent credit report; and
(B) Information related to any administrative, civil or criminal findings by any governmental jurisdiction.
Issuance of license. The minimum standards for licensing include the following:
(1) Never had a loan originator license revoked;
(2) Not been convicted of, or pled guilty or nolo contendere to, a felony:
(A) During the seven-year period preceding the date of the application; or
(B) At any time preceding the date of application, if the felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering.
(3) Demonstrate financial responsibility, character, and general fitness to command the confidence of the community and to warrant a determination that the loan originator will operate honestly, fairly, and efficiently;
(4) Pass a written test;
(5) Meet either a net worth or surety bond requirement, or paid into a state fund, as required by the state;
(6) Pre-licensing education
(1) Complete at least 20 hours of education which shall include at least three hours of Federal law and regulations; three hours of ethics, which shall include instruction on fraud, consumer protection, and fair lending issues; and two hours of training related to lending standards for the nontraditional mortgage.
An independent contractor may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless such independent contractor is a state-licensed loan originator. (12usc5103(b)(2))(12usc5101-5116)
MORAL
There is much more to this law but this is the meat of it. What is interesting, believe it or not, is that the states do not have to comply unless they choose to do so.
SELLERS OF REAL PROPERTY CAN BE LIABLE TO HUD FOR THREE TIMES THE LOSS UNDER THE FEDERAL FALSE CLAIMS ACT
FACTS
The United States sued the sellers, Morteza Eghbal and Jarilyn Sylvia Trujillo, under the FCA to recover treble damages and civil penalties for making false statements to procure mortgage insurance from HUD on homes they first purchased from HUD as REOs and then resold. The sellers sold to buyers who did not have sufficient assets for the down payment. The sellers then put up the down payment for the buyers. In the process, the sellers had to sign the HUD-1 Addendum certifying sellers did not and would not pay the buyer for any part of the down payment and that the sellers had no knowledge of any loans the buyers had taken to finance the down payment other than what appeared in the sales contract. The sellers supplied the down payment and falsely signed the addendum that they had not done so. The sellers sold 200 properties this way, of which 62 went into default. Both were criminally charged and convicted concerning the 62 properties. They were then sued civilly under the FCA for $2.8 million the government paid out on the insurance for 27 of the properties. The government was granted summary judgment for $8.4 million (treble the loss paid on insurance) subtracting $2.7 million received from resale of the 27 properties resulting in a net judgment to the government of $5,702,664 plus the civil penalties of $148,000. The defendants appealed.
The 9th Circuit Court of Appeals said affirmed. The use of fraudulent information that has a material effect on the government's eventual decision to pay a claim leaves defendants liable. They signed the HUD-1 addendum stating they did not contribute to the down payment and that had a material effect on the government insuring and then paying the claim. Additionally, defendants have been found liable in other cases where they caused the buyers to make a fraudulent application for an FHA insured loan that defaulted. (U.S. vs. Eghbal, No. 07-55372, 12-5-08, 9th Cir.)
MORAL
This is called adding insult to injury. First the two get indicted, then convicted, then sentenced according to the loss suffered, then ordered to pay restitution and now get treble the payout in a civil suit to get hit with another $5 plus million. Why? Probably because the government found they had assets that could be reached civilly that the criminal court could not get to. So, have you created income such as "stated income" for a borrower? Have you contributed to the down payment via a cashiers check drawn at your bank and traceable to a withdrawal of the exact same amount on the same date from your account? The government is suing loan officers civilly, it is suing the officers of the corporations civilly and the lenders are suing loan officers civilly.
Noteworthy: Wells Fargo, among others, is suing the borrowers on "sold out seconds" that are refis. They sue on the note itself as unsecured since the second mortgage is rendered worthless.
2008 FORECLOSURES ARE WAY UP HERE IN THE STRATOSPHERE
FACTS
Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level. A research firm predicts the number of homes lost to foreclosure is likely to rise by another 18% in 2008 before tapering off slightly through 2011.
The four states with the highest foreclosure rates in 2008 were Nevada, Florida, Arizona and California.
More than 1.1 million properties in those four states received a foreclosure notice, almost half the national total. More than one in five of those households were in California.
Among metro areas, Stockton, Calif., was first, with 9.5% of all housing units receiving a foreclosure filing last year. It was followed by Las Vegas, Riverside and Bakersfield, Calif., and Phoenix.
In December 2008 more than 303,000 properties nationwide received at least one foreclosure notice. Lenders repossessed nearly 79,000 properties in December 2008. (findlaw11509)
MORAL
Maybe lenders will be more serious about considering modifications now.
CHAPTER 13 BANKRUPTCY FILED FOUR YEARS AFTER A CHAPTER 7 BANKRUPTCY WAS FILED CAN GIVE THE DEBTOR A DISCHARGE
FACTS
Under the Bankruptcy Code, a chapter 13 debtor may not receive a discharge of his debts if he "received a discharge ... in a case filed under chapter 7 ... of this title during the four-year period preceding" the filing of his chapter 13 petition. Jason Sanders filed this chapter 13 case more than four years after he filed an earlier chapter 7 case but less than four years after the bankruptcy court issued his chapter 7 discharge.
The question is whether the four-year clock runs from the date he filed the chapter 7 petition or the date of the discharge?
The answer on appeal is that Sanders filed his chapter 7 petition more than four years before initiating this chapter 13 proceeding, so the Code permits the discharge. (carroll v. sanders, no. 08-1201, 12-29-08, 6th Cir. USCA)
MORAL
Sanders get his discharge and gets on with his life. With the new president, you may want to consider a bankruptcy option to save your home with the cramdown legislation option coming in bankruptcy. In fact, the lenders may now be even more willing to modify their loans.
IN BANKRUPTCY TRANSFERRING CREDIT FROM ONE CREDIT CARD TO PAY ANOTHER IS A PREFERENTIAL TRANSFER AND IF WITHIN 90-DAYS THE CREDIT CARD PAID CAN BE MADE TO GIVE IT TO THE COURT
FACTS
Debtors had two credit card accounts with MBNA. They also had two credit card accounts with Capital One -- a Platinum MasterCard account with a $30,000 line of credit and a Platinum Visa account with a $25,000 line of credit. On July 27, 2005, Debtors directed Capital One to pay MBNA $17,000 on the 6264 MBNA account through a balance transfer from their Capital One Platinum MasterCard account. On the same day, they directed Capital One to pay MBNA $21,000 on the 7781 MBNA account through a balance transfer from their Capital One Platinum Visa account.
On Oct. 13, 2005, Debtors filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code.
The Bankruptcy Court and the District Court held this was not a preferential transfer since not property of the debtors but just a transfer of debts.
The 10th Circuit of the United States Court of Appeals said wrong. Debtors could have taken the money directly and thus they had control of it when they directed the transfer. A balance transfers from one credit card to another, made by debtors during the 90-day period prior to the filing of their Chapter 7 petition, are preferential transfers. Such payments constitute transfers of "an interest of the Debtor in property," because the debtor exercises control over the loaned proceeds even if he is never in actual possession of them, and such transactions deplete the bankruptcy estate. The credit card paid is ordered to surrender the money to the bankruptcy trustee. (parks vs. fia, 12-30-08, 10th Cir. No. 08-3080)
MORAL
1-Why didn't the bankruptcy attorney wait 13 more days and then file? Then it is 91 days and no preferential transfer. It seems the attorney did not ask the right questions?
2-Remember keep track of what you did in last 90 days if you intend to file bankruptcy.
JPMORGAN CHASE WILL ACTIVELY PURSUE MORTGAGE MODIFICATIONS FOR LOANS THAT IT SERVICES IN PHOENIX
FACTS
JPMorgan Chase said it would extend its mortgage-modification efforts to include $1.1 trillion of loans that it services for others, expanding the reach of its foreclosure-prevention program.
Chase, which has the largest bank presence in Arizona in terms of deposits, also plans to set up an office in Phoenix in coming weeks to deal specifically with distressed homeowners.
The office will be located in or near central Phoenix. The office is set to open in March 2009 and will have roughly 10 mostly bilingual mortgage counselors.
Troubled homeowners, including Washington Mutual customers, also can seek assistance, both now and after the office opens, by calling 1-866-550-5705.
In the announcement, Chase said it believes it can legally modify the vast majority of mortgages owned by investors and intends to change loan terms where appropriate.
Chase vowed to seek investor approval in cases where mortgage contracts contain specific terms that limit modification actions.
Chase, one of the largest mortgage lenders in Arizona, said it has prevented about 330,000 foreclosures since early 2007, primarily by modifying terms. Since October 2008 Chase has delayed foreclosure starts on more than $22 billion in Chase-owned mortgages affecting 80,000 homeowners pending review for possible modification.
In early February, Chase will mail modification offers to borrowers of Chase loans who are in imminent risk of default.
The Phoenix office dedicated to mortgage counseling will be one of 24 centers nationally. Two have already opened, and 12 are expected to open by the end of February. The Phoenix office and the others will open by mid-March. Chase also has boosted its troubled-mortgage counselor staff by 300 people to 2,500. (azrep11609)
MORAL
If Chase is willing to work with Arizona licensed mortgage brokers this can mean a lot of business in aiding homeowners to modify their loans. Additionally, once modified the homeowner may be able to refinance and/or sell the home if there is loan reduction on the principal. Think about it!
A REMINDER FOR ALL CALIFORNIA FINANCE LENDER LICENSEES
FACTS
Each licensee shall file an annual report with the commissioner, on or before the 15th day of March, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded persons. "Nonpublicly traded person" for purposes of this section means persons with securities owned by 35 or fewer individuals. The report shall be made under oath and in the form prescribed by the commissioner. (fc22159)
MORAL
Remember to file your annual report before March 15, 2009 or you will be in trouble with the California Department of Corporations.
A REMINDER FOR ALL CALIFORNIA RESIDENTIAL MORTGAGE LENDERS
FACTS
Each Residential Mortgage Lending Act licensee shall file an annual report for the calendar year just ended containing the information required by the commissioner on or before March 2009. (fc50401(a))
MORAL
Like the CFL licensees, do not forget or get in trouble with the Department of Corporations.
SACRAMENTO FINANCIAL CONSULTANT ARRESTED FOR GRAND THEFT
FACTS
Elias Ayoub owned a three-bedroom, single-family home on Florin Road in Sacramento. Several months ago, the south Sacramento house slipped into foreclosure, the result of a "straw buyer" scheme. The crime was allegedly orchestrated by a financial consultant now accused of pocketing about $40,000 from the home's equity and about $15,000 that was supposed to pay the mortgage, police said.
Nationstar Mortgage LLC, the bank that made the loans, suffered a loss of $347,000, according to Sacramento Superior Court documents.
Sacramento police arrested Robert Yang, also known as John Chu, on Dec. 30, 2008 on two counts of grand theft and one count of financial abuse of an elderly person. He has since made $100,000 bail, police said.
Yang suggested Ayoub transfer the deed into his son's name to obtain the loan on his house. But by October 2005, the house was in a stranger's name. Of the $237,500 borrowed against the house, Ayoub used about $62,500 to pay off debts and gave $100,000 to his son. After paying loan and broker fees, Ayoub was left with about $57,000, Wood said. Yang then allegedly composed eight checks directing another $40,000 into accounts controlled by him and asked Ayoub to sign them.
In January 2007, the property's title was transferred to yet another alleged straw buyer who obtained a $296,000 loan that repaid most of the first loan. Yang pocketed thousands of dollars in commission fees from the transaction, Wood said. Meanwhile, Ayoub continued making what he believed were monthly mortgage payments of $1,800 to Yang. Records show that loan payments to the bank stopped in January 2008. Within months the mortgage was $15,000 in arrears. Yang told police he stopped the payments because Ayoub owed him money. By June 2008, Ayoub was receiving foreclosure notices.
In November, Ayoub and his wife moved into a rental two-bedroom house. (sacrobee11809)
MORAL
Remember you are innocent until proven guilty but it is an expensive process. Anyone know Yang and Chu?
MISSOURI INSURANCE AGENT PLEADS GUILTY TO $12.6 MILLION MORTGAGE FRAUD
FACTS
Ronald E. Brown, Jr., of Gladstone, Mo., an insurance agent, pleaded guilty in federal court on Jan. 8, 2009 to his role in a $12.6 million mortgage fraud scheme that involved 25 residential properties in Lee's Summit and Raymore, Mo.
By pleading guilty Brown admitted that he participated in a conspiracy to defraud mortgage lenders from June 2005 to May 2007. Brown was among more than a dozen conspirators who 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, with kickbacks ranging from $60,000 to $125,000 on each house.
Brown, a self-employed insurance agent doing business as The Brown Insurance Agency in Kansas City, Kan., obtained insurance for the properties that were purchased. After purchasing two false Social Security numbers for $10,000, Brown used the false Social Security number to purchase three properties in Lee's Summit. In each case, Brown made material misrepresentations upon which the lenders relied in making the mortgage loans, which totaled $1,339,700. From the purchase of these properties, unbeknownst to the lenders, Brown received a total of $279,426.
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.
Brown is subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. (usattywdmo1809)
MORAL
The government went back four years for the fraud. Brown gets a fine of $279,426, which he now will have to repay, plus up to five years in federal prison and a fine that can be as high as $250,000. Hardly seems worth the risk. It is amazing what greed will do to people.
KANSAS CITY MAN PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
Craig A. Long, Kansas City, Mo., pleaded guilty to one count of conspiracy to commit mail fraud and money laundering, and one count of mail fraud.
Long admitted he conspired with Leawood real estate agent David Kostelec and others to defraud lenders by submitting fraudulent loan applications and false real estate appraisals. In October 2008, Kostelec pleaded guilty to leading a group of conspirators who fraudulently obtained more than $12 million in home loans.
Long admitted he and others obtained loans for purchase or refinancing of real property by submitting to the Federal Housing Administration and other lenders loan applications containing false information about borrower's identities, employment and income, as well as false information about liens, occupancy and sales contracts.
Long admitted that in June 2005 he provided false information to lenders for money to finance the purchase of a house. A sales contract falsely represented there was a $43,800 lien on the property. The loan application falsely stated the buyer was earning $8,500 a month as the owner of a construction company when in fact the buyer was retired and living on Social Security. Additionally, the value of the property was fraudulently inflated.
Long admitted he committed wire fraud in June 2005 by causing $99,739 obtained through fraud to be sent from Nations Title Agency via Federal Express to the Bank of America in Greensboro, N.C.
Sentencing is set for April 6, 2009. He faces a maximum penalty of five years and a fine up to $250,000 on the conspiracy charge and a maximum penalty of 20 years and a fine up to $250,000 on the wire fraud charge. Kostelec is set for sentencing Feb. 2, 2009. (ksctyinfozine1709)
MORAL
One of the falsities is identity theft. Do you have your "Red Flag" Identity Theft manual in place? It is required by May 2009. If you need one you can obtain it from us by going to our website and turning to publications.
NEVADA MLD SEEKS DISCIPLINE AGAINST A MORTGAGE AGENT
FACTS
Nevada MLD has filed a Notice of Intent to Impose Fine and Notice of Right to Request Hearing against Todd J. Buckner, a mortgage agent. It is alleged he switched a borrower from a fixed into an adjustable rate loan. The Notice states Mr. Buckner has been mailed a copy of the complaint and a request for an explanation on two occasions and has failed to respond. If he fails to request a hearing, the fine appears to be $2,500. (mld1209)
MORAL
If he fails to respond, and does not pay the fine he could be looking at a revocation. Being sent two letters by the MLD and failing to respond to either is rather foolish at best. It could affect his ability to be approved under the Nationwide Mortgage Licensing System.
NORTH CAROLINA ATTORNEY PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
Demetrius Rainer, a real estate attorney, has pleaded guilty before Magistrate Judge David Keesler to charges of money laundering conspiracy and mail fraud in federal criminal cases related to mortgage fraud and drug dealing.
Demetrius Rainer was accused of being the closing attorney for a mortgage fraud cell operating in Mecklenburg and Union counties in 2007 and early 2008. She was also accused of helping a woman conceal drug-trafficking profits by pretending to hire the woman, a charge filed in Virginia and transferred to federal district court in Charlotte.
The charges carry maximum prison terms of five to 30 years and fines totaling up to $2 million. As part of the plea agreement, Rainer will begin winding down her law practice and surrender her law license within 60 days. There will be one more hearing, during which the court will determine Rainer's sentence and whether there was a factual basis for the plea. (charlotteobs11609)
MORAL
Even lawyers get caught in the web. I do not understand why? They spend four years in undergraduate college. Then three more years in law school. Then three days taking an exam to pass the bar. Then to risk it all, their reputation, their family, the embarrassment to their children, is difficult to understand.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
