HUD/RESPA JOINT VENTURE GUIDELINES ARE NOT SUBJECT TO CLASS ACTION LAWSUITS SAYS OHIO UNITED STATES DISTRICT COURT
FACTS
Legal CornerLegal CornerThe United States District Court for the Northern District of Ohio denied certifying a Real Estate Settlement Procedures Act class action lawsuit on March 11, 2010. The Carter v. Welles-Bowen Realty, Inc., case No. 3:05 CV 7427, consolidated No. 3:09 CV 400, 2010 WL 908464 (Northern District of Ohio) is a case where the plaintiffs asserted that Welles-Bowen Realty, Inc was engaged in operating illegal affiliated business arrangements (aka sham AfBAs) which is a violation of RESPA Section 8(a) and 8(b) (12. U.S.C. 2607 (a) and (b))
Judge Jack Zouhary's believes that class actions are not a proper method of litigating RESPA civil suits. Judge Zouhary's partially based his decision to deny class certification because it was his opinion that state and federal regulators should prosecute RESPA claims not class action litigation. The controversy surrounds the opinion because the Real Estate Settlement Procedures Act does allow for civil class action lawsuits. State and federal regulators routinely rely on class action lawsuits to help them in their investigations the loss of this informational stream may have an adverse impact on the consumers some believe if this ruling is universally adopted across the United States. The Court was overruled once before in this case by the U.S. Court of Appeals for the Sixth Circuit on the issue of whether a RESPA class action requires a concrete financial injury in fact. The question is whether the plaintiffs will appeal this ruling or will they find another way to continue on but avoid this particular Court.
MORAL
Do not bet on this being upheld or that HUD will change its mind. If you are going to do a joint venture it had better be legitimate and above the line or you will be defending a lawsuit like this. Of course if you draw a judge that does not like RESPA you may get this same decision, denial of the class. It remains to be seen if plaintiffs will appeal.
TWO MEN THAT RAN MORTGAGE RELIEF FRAUD COMPANY GUILTY AFTER REPRESENTING THEMSELVES AT TRIAL HAVE APPEAL REJECTED
FACTS
Two men from the Bay Area, Kurt F. Johnson of Sunnyvale, and Dale Scott Heineman of Union City, represented themselves at their criminal trial for multiple counts of mail fraud for allegedly running a nationwide debt elimination business.
The "Dorean Process" as they called it required homeowners to transfer title of their property to a trust naming Johnson and Heineman as trustees. Johnson and Heineman then sent demand letters to the lenders questioning the validity of their business practices. When the lenders ignored the letters or failed to reply satisfactorily, the defendants recorded bogus documents with county clerks ostensibly establishing the properties were no longer subject to the mortgages.
The homeowners would then refinance using the supposedly now unencumbered properties as collateral and the defendants collected their upfront fees plus a large part of the new loans the client homeowners obtained. When the original lenders sent default notices and initiated foreclosures Johnson and Heineman sued them in federal court. When the judge had dismissed 15 of these cases he ordered Johnson, Heineman and Heineman’s then attorney Thomas J. Spielbauer of Santa Clara to show cause why they should not be sanctioned for filing multiple frivolous lawsuits.
In January 2005 the two defendants and the attorney were ordered to pay $76,000 in legal fees to lenders they had sued. Spielbauer withdrew from representing Johnson and Heineman and explained at the time in a sealed declaration that some of Johnson and Heineman’s statements to customers were false. He expressed concern that he had been employed in an effort to supply credibility to the possibly illegitimate Dorean Process.
When Johnson and Heineman were indicted in 2005, the same federal Judge Alsup was assigned the case since he had handled the civil matter. The judge tried to persuade them to take attorneys but they refused representation. At all the hearings in the criminal case the defendants were adamant in their desire to represent themselves asserting an absurd legal theory wrapped up in Uniform Commercial Code gibberish. The trial concluded and they were found guilty.
The jury then "slammed" them with long prison terms ranging from 21 to 25 years. They appealed based on being competent to stand trial but incompetent to represent themselves.
The 9th Circuit of the U. S. Court of Appeals said affirmed. In affirming the court was quoted as saying: "The record clearly shows the defendants are fools, but that is not the same as being incompetent." They were entitled to represent themselves and go down in flames. (ladjl7710p4)
MORAL
Considering the federal public defender is free they really had fools for clients and idiots for lawyers. It is better than "even money" they would have drawn less than half the 21-25 years referred to above.
TWO DENVER MEN INDICTED IN MARCH PLEAD GUILTY TO MORTGAGE FRAUD
FACTS
I originally wrote on this indictment in March 2010. This is July. It did not take them long to plead guilty, only four months.
On July 7, 2010, Shawn R. Tieskotter and Craig D. Patterson each pled guilty before U.S. District Court Judge Robert E. Blackburn to one count of mail fraud related to a mortgage fraud scheme. Tieskotter and Patterson were indicted by a federal grand jury in Denver on March 10, 2010. On May 20, 2010, a superseding indictment was filed. Both defendants pled guilty on July 7, 2010, and are scheduled to be sentenced by Judge Blackburn on Nov. 12, 2010.
Between March 26, 2005, and continuing through June 30, 2005, in Colorado and elsewhere, Shawn Tieskotter and Craig Patterson knowingly executed and attempted to execute a scheme to defraud various financial institutions as well as commercial mortgage lenders. The scheme was executed in connection with residential mortgage loan applications relating to 13 properties in the Denver metropolitan area. As part of the scheme, Tieskotter and Patterson prepared and submitted applications for two loans, a first mortgage and a second mortgage. Each of these applications contained materially FALSE AND FRAUDULENT REPRESENTATIONS THAT TIESKOTTER INTENDED TO USE THE PROPERTY AS HIS PRIMARY RESIDENCE. Most of the applications also contained materially false and fraudulent representations about the extent of Tieskotter’s liabilities related to other residential mortgage loans, in that they failed to include a complete list of the properties Tieskotter owned OR WAS IN THE PROCESS OF PURCHASING and falsely indicated that one of Tieskotter’s other properties was leased. All of the false information was material to the lenders because it affected their ability to assess Tieskotter’s ability to re-pay the loans for which he was applying and it affected his eligibility for various loan products.
Tieskotter and Patterson also hid from lenders the extent of Tieskotter’s liabilities for other mortgages by preparing, submitting, and causing to be prepared and submitted applications for multiple loans, secured by multiple properties, before such liabilities would appear on Tieskotter’s credit reports. This practice further affected the lenders’ ability to assess Tieskotter’s ability to re-pay the loans for which he was applying.
Tieskotter and Patterson also pulled money from the transactions at the time of closing by causing the disbursement at closing of additional monies to PK DESIGN GROUP, LLC, an entity controlled by Patterson, or DREAM DESIGN, a trade name for an entity controlled by Tieskotter. Tieskotter and Patterson concealed from the lenders and other parties associated with the transactions their control of these entities. Tieskotter and Patterson also misrepresented that these monies would be used entirely for repairs or improvements to the properties, which led the lenders to falsely believe that the value of their collateral would increase as a result of these payments.
Mail fraud carries a penalty of not more than 20 years' imprisonment, and up to a $250,000 fine, per count. (usattyco7910)
MORAL
Pay attention to two things: 1- Indicted for putting on the loan application it would be his primary residence when it turned out he did not move in; 2-Indicted for failing to disclose other properties he was in the process of purchasing. I would also remind you as I have been that the federal government is looking at loans now from 2005 forward. As you read these mortgage fraud excerpts, notice the dates of the fraud. It takes about two years for the government to build its case for prosecution. Right now we are defending cases where the lenders and the FDIC are suing on loans that were closed in 2004 and just now filing the civil lawsuits against the brokers and borrowers and the criminal cases we are defending go back to 2005.
MINNESOTA WOMAN PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On July 8, 2010, Sharon Michelle Thomas from Otswego, Minn., pleaded guilty in the St. Paul federal court to participating in a mortgage fraud scheme that resulted in a $400,000 loss to several mortgage loan lenders. She pleaded guilty to one count of aiding and abetting mail fraud.
Thomas admitted that from 2005 through 2006 she assisted others in obtaining money through fraudulent pretenses by depositing 10 "closing packages" in the U.S. mail or with private commercial carriers. During this time, Thomas was a closing agent for a licensed title company, which was affiliated with a local builder and closed residential real estate transactions for the builder. Thomas provided documents to mortgage loan companies that were funding the mortgage loans for each residential transaction, after which the lenders would approve loans and provide loan proceeds to the title company. Thomas admitted concealing from the lenders payments she made to "investors" associated with SUPERIOR INVESTMENT GROUP on 10 Minnesota properties. Thomas admitted receiving only her customary salary and small bonuses for closing the transactions.
SIG was owned and operated by Troy David Chaika of Burnsville, and Dustin Lee LaFavre of Webster. The two men conspired to obtain money fraudulently through approximately 183 residential property transactions that defrauded real estate mortgage lenders out of more than $7 million. LaFavre pleaded guilty to one count of conspiracy to commit mail and wire fraud and awaits sentencing. Chaika has been indicted on seven counts of wire fraud, three counts of mail fraud, and one count of conspiracy to commit wire fraud and mail fraud.
Thomas faces a potential maximum penalty of 20 years in prison. Judge Kyle will determine her sentence at a future date, yet to be scheduled. (usattymn7810)
MORAL
Note that she only received her regular salary and a small bonus and now risks prison for 20 years for "assisting." THIS ASSISTING CONSISTED OF "DEPOSITING CLOSING PACKAGES IN THE MAIL." An apparently innocent act of dropping off the mail in the post office that consisted of fraudulent loans or even innocent and accurate data but in "furtherance of the fraud." Has anyone reading this deposited any mail? As I have said all along and for several years: "If you have doubts resolve them and consult with an attorney now." The consult can buy you potential peace of mind.
REAL ESTATE CLOSING ATTORNEY FOUND GUILTY OF MORTGAGE FRAUD IN PENNSYLVANIA; AT RISK FOR 220 YEARS IN FEDERAL PRISON
FACTS
On July 7, 2010 a jury of six men and six women in Pittsburgh found John L. Chaffo Jr., of Murrysville, Pa., guilty of two counts of wire fraud conspiracy and nine counts of wire fraud in connection with a mortgage fraud scheme.
Chaffo was an attorney who specialized in closing real estate transactions. Over a six-year period, Chaffo closed at least 60 fraudulent loan transactions totaling more than $9 million. The documents related to the closing that were fraudulent included settlement statements that falsely reported that the purchasers of the real estate had made significant down payments associated with the purchases, when, in fact, they had not. The settlement statements were also fraudulent because they included elevated sales prices and purported seller-held second mortgages that did not exist.
Chaffo closed fraudulent loans that had been brokered by Michael Dokmanovich. The primary seller was John Orth and the primary buyer was Daniel Smithbower. Dokanovich, Orth and Smithbower have all pleaded guilty to their roles in the conspiracy and are awaiting sentencing.
The primary broker was also Dokmanovich, but the primary seller was Bernardo Katz. Katz has been charged in connection with his role, but he is currently a fugitive believed to be in Brazil.
Judge Ambrose scheduled sentencing for Nov. 1, 2010. The law provides for a total sentence of 220 YEARS IN PRISON, a fine of $2,750,000, or both.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
