Legal Corner

WHAT SERVICES MAY A NON FHA-APPROVED MORTGAGE BROKER PERFORM AND HOW DOES THIS PERSON GET PAID?

FACTS

This information is on the restrictions when there is a non-FHA approved mortgage broker involved in the FHA loan process. The FHA policy includes the RESPA prohibition against duplicative fees.

Note: While FHA regulations permit a borrower to engage a broker who is not FHA-approved to assist him/her in obtaining mortgage financing, the loan origination services may not be performed by that broker and the FHA-approved lender may not compensate the broker for such services.

RESPA prohibits the payment of duplicative fees. The payment to an unapproved broker for duplicated services amounts to an unearned fee in violation of Section 8(b) of RESPA. Further, this payment may also act as a disguised referral fee for steering the borrower to the FHA-approved lender or loan correspondent, which is in violation of section 8(a) of RESPA.

The approved mortgagee loan origination functions must be completed by the FHA approved mortgagee consisting of:

Services That May Be Provided by a Non-FHA Approved BrokerServices that are considered counseling in nature (such as educating prospective borrowers in the home buying and financing process, advising the borrower about different types of loan products available, and demonstrating how closing costs and monthly payment could vary under each product), may be performed by a non FHA-approved broker so long as the services provided constitute meaningful counseling, and not steering.

Under RESPA, when "counseling type" services are performed, HUD also looks at whether:

Note: In these instances:

WOMAN INDICTED FOR $1.2 MILLION EMBEZZLEMENT FROM ARIZONA CREDIT UNIONFACTS

Marlene Aguilar Pena of Globe, Ariz., was indicted by a federal grand jury on July 7, 2009 for allegedly embezzling approximately $1.18 million from a Gila County credit union. She has been charged with 25 counts of embezzlement from the now defunct Marian Miami Federal Credit Union of Miami, Ariz.

Pena was hired by the credit union in 1994 and became its manager in 2000. The indictment alleges that beginning in January 2001, through at least December 2006, Pena operated a scheme to defraud the credit union. The indictment goes on to allege that through her access to the credit union's computer system, she created approximately 141 fictitious loans and fraudulently issued loan proceeds checks to her friends and family members. Pena misappropriated approximately $1.18 million, according to the indictment, a sum which caused, or contributed to, the failure of the credit union.

Pena has been charged with 25 felony offenses of embezzlement by an employee of a lending, credit or financial institution. The charged embezzlements are alleged to have occurred between July 2004 and July 2006. A conviction for each of these offenses is punishable by up to 30 years in federal prison and a fine of up to $1 million.

An indictment is the method by which a person is charged with criminal activity and raises no inference of guilt. An individual is presumed innocent until a jury determines that a defendant's guilt has been proven beyond a reasonable doubt. (usattyaz7809)

MORAL

This is what happens (if true) when there is no quality control plan in place. Had there been one mortgage loan as legally required by HUD/FHA the fraud should have been discovered. The indications from the release in my opinion indicate a quality control plan was not in place or if in place was not being complied with. At a minimum HUD requires 205 of all mortgage loans to be reaudited at random after the loan closes and within 90 days of closure. Is your quality control plan current? Are you auditing 10% of all loans such that they cover all loan officers? Is your quality control plan up to date? If it is over three years old since you last modified it, then it is not and a new one should be acquired.

CALIFORNIA DRE STATISTICS AS OF JUNE 30, 2008

FACTS

1.      Approximately 522,000 people licensed as salespeople and real estate brokers.

2.      The Department of Real Estate has 344 positions that are authorized.

3.      344 divided into 522,000 means that each position can examine about 1,220 people in any one year.

4.      There are approximately 239 working days in any one year at best presuming 365 days per year, 104 days for weekends, 12 week days for holidays and each employee takes off 10 working days per year for vacation.

5.      Presuming all authorized positions examined all licensees and they do not, then there are 77,436 working days available to the employees. Presuming two days per examination, settlement and/or hearing that means at best in an ideal world only 38,709 licensees can be examined and results and/or discipline imposed. This means that hopefully only one out of thirteen 13 is doing anything improper.

IT DOES SOUND KIND OF RIDICULOUS, DOESN'T IT?

That would explain why the complaints pile up and there is selective auditing in order to do a good job. It seems like the governor should allow the commissioner more positions so he can do a better job since the above numbers are ridiculous at best.

MORTGAGE LOAN MODIFICATION SCAMS ON THE RISE IN CALIFORNIA

FACTS

The California DRE has over 750 open cases on loan modification violations. The United States Attorney General states the FBI's "rescue scam" caseload is up 400% from five years ago.

The California Attorney Genera's office investigating one of the cases determined that much of the money seemed to go to Juan Jose Perez and Isuara Hernandez, a married couple with three children who had once lived in San Bernardino County.

On Oct. 27, 2008 the Office of the California Attorney General filed a 39-count complaint charging Hernandez, Perez and several others with grand theft, money laundering and conspiracy. Five have already pled guilty and Hernandez and Perez are still at large and are the ringleaders according to the Office of Attorney General.

During the investigation, Anna Santos of North Hills, Calif. was interviewed by an investigator. Santos told the investigator she had no idea she was involved in anything illegal and had just answered a help wanted ad to the U. S. Financial Representative for a firm selling time shares in Mexico according to court papers and her husband.

She had been told by a woman named Laura to open post office boxes and bank accounts in her own name and every few days Laura would call and tell her to get the mail, deposit the money and keep $100 for herself and to wire the rest to Mexico. The investigator informed Santos the activities were illegal and not to pick up any more money at the post office and that others doing it had been arrested. Santos was not arrested at the time. But two weeks later, the investigator received a call from the post office in North Hills that Santos had picked up two packages and signed for them. Santos then deposited checks at a bank and withdrew $5,963 in cash according to court records. Santos was later arrested, pleaded guilty and on May 20, 2009 was sentenced to two years in prison. (latimesa37609>

MORAL

Santos was warned by a government investigator not to pick up mail and did it anyway. Up to them the government had not charged her. Then disobeying the government warning she picked up mail anyway. She got two years for stupidity. She or anyone should have known the post office box was being watched in one form or another. Additionally, she had been forewarned the activity was illegal and yet after the warning went back.

Loan modifications that violate the law can be prosecuted by the state or by the federal government or by both. We are defending several now. If you are involved in, notice the word involved, as opposed to own loan modification companies see your attorney to make sure you are legal. Believe me it is far more expensive to defend, than it is to take the advice of your attorney to stop if there is any question of legality.

MORE ABOUT CALIFORNIA LOAN MODIFICATION PROBLEMS

FACTS

Helena Cameron is alleged to have paid $1,500 to Debt Barter Inc., to help her negotiate a deal with her lender. The company is alleged to have fumbled her case and not returned her money. In an interview with the Orange County Register, Sean R. Roberts, founder of the company declined to comment beyond saying Ms. Cameron is scheduled to receive a refund in August. A check of the California DRE Web site indicates that a desist and refrain order was issued against Debt Barter Inc., and Sean R. Roberts on Jan. 9, 2009. It is alleged that Debt Barter still collected more money from Ms. Cameron after the Desist and Refrain order issued. According to Tom Pool of the DRE, taking money after the Desist and Refrain order issued is inviting criminal prosecution.

Lawyers have been cautioned about loan modifications from the State Bar of California and it is alleged the State Bar filed a complaint against an attorney alleging that United Law Group in Irvine, Calif. accepted $1,750 from a consumer but never negotiated a loan modification and failed to return the money months after a refund was requested. The Federal Trade Commission has filed a lawsuit against the Federal Loan Modification Law Center for false advertising and that lawsuit is pending. The lawsuit named individual lawyers as well as the corporation including the managing attorney. (ocr71209b1-2)

MORAL

What does all this mean to you? It means if you are intent on doing loan modifications check with your attorney first before you do it. This is a lot cheaper than having to defend yourself and your assets later when a government agency pursues your or borrowers that feel they have been harmed by your conduct. We are defending several people now because of alleged transgressions. Check with your attorney first rather than have us defend you later. I guarantee that is much cheaper.

COLORADO INCREASES NOTICE REQUIREMENTS BEFORE A LENDER MAY FORECLOSE

FACTS

Effective Aug. 2, 2009 Colorado requires a foreclosure deferment for eligible borrowers. The term eligible borrower means a grantor under a deed of trust that secures a first lien residential mortgage loan. If an eligible borrower contacts a foreclosure counselor and qualifies for a foreclosure deferment, the foreclosure sale must be continued for 90 calendar days. The standards to follow when determining if the borrower qualifies for a foreclosure deferment are set forth in the new law. In addition, the holder of the deed of trust must post a Notice of the Opportunity for Foreclosure Deferment on the property subject to foreclosure and provide an affidavit to the public trustee that the notice was posted. During the foreclosure deferment, a borrower is required to make monthly loan payments that equal 66 2/3% of the monthly payment due prior to delinquency. (alrgs7609)

MORAL

With all the various deferments in the states, it is more likely than not a decent attorney can keep the borrower legally on the property for 12 months or more starting with the first missed payment.

FORMER GEORGIA ATTORNEY PLEADS GUILTY TO MORTGAGE FRAUD BILKING VICTIMS IN FLORIDA, GEORGIA AND TENNESSEE

FACTS

Steven H. Ballard, of McDonough, Ga., pleaded guilty on July 9, 2009 in federal district court to committing a real estate investment scam that lasted over five and a half years and defrauded over a dozen victims in Georgia, Florida and Tennessee.

According to United States Attorney Nahmias and the information presented in court: Ballard, a former real estate and business law attorney based in McDonough, operated a fraudulent real estate investment scam, commonly known as a Ponzi scheme. From September 2002 through May 2006, he collected over $2 million dollars. He told the victims that he was making "lucrative" real estate and other investments which were not actually transacted. He often used bogus HUD-1 Settlement Statements, warranty deeds and sales contracts to reflect non-existent property purchases, while using a portion of the scheme proceeds to repay former victim investors. The repayments included their principal plus substantial "returns" often exceeding 50% of the initial investment, but those repayments were all funded with money from new victim investors. Ballard's law license was suspended by the State Bar of Georgia in September 2005, and he was disbarred in May 2006.

Ballard was charged in a criminal information in June 2009 with one count of wire fraud to which he pleaded guilty on July 9, 2009. He could receive a maximum sentence of 20 years in prison and a fine of up to $250,000, plus full restitution to all victims who have not been repaid as of July 9, 2009. Sentencing is scheduled for September 29, 2009, at 10 a.m. There is no parole in the federal system. (usattyndga7909)

MORAL

The investigation went back seven years. Anyone out there commit fraud seven years ago? The federal government can go back 10 years to indict for mortgage fraud. There were three government agencies involved in the investigation. This is the mortgage fraud task force organized in 2008 and you will note most of the indictments and convictions coming down now are due to investigations, not by one government agency but by at least three agencies. Since no restitution made and this is a disbarred attorney, I would say he is looking at substantial prison time.

HAWAII MORTGAGE SERVICES ACT

FACTS

Effective July 1, 2010 Hawaii will start enforcing the Mortgage Servicers Act. A person may not engage in the business of mortgage servicing without a license, unless exempt. Mortgage servicer requirements are set with respect to fees, renewals, notification, disclosures and default. (alrg7809)

MORAL

If you intend to do mortgage servicing in Hawaii after July 1, 2010, let me know and we will brief you.

KENTUCKY LOAN OFFICER DRAWS 57 MONTHS IN FEDERAL PRISON FOR MORTGAGE LOAN FRAUD AND IDENTITY THEFT

FACTS

Crystal Smith, a loan officer in Ashland, Ky., was sentenced to 57 months in federal prison on July 6, 2009 for using a scheme to embezzle more than $165,000 from her employer.

Smith pleaded guilty to the charges and admitted that she used her position as a loan officer at the Bluegrass Credit Union in Ashland to create fraudulent loans over an 18-month period that started in October of 2006.

Smith used other people's social security numbers to create the fraudulent accounts. Using this scheme, Smith embezzled more than $165,000. The credit union terminated Smith for reasons unrelated to the scheme. However, Smith opened an account at another local bank and soon discovered that she still had access to the Bluegrass Credit Union's money market account. In a span of a few days in August of 2008, Smith illegally withdrew more than $77,000 from the credit union's money market account.

Under federal law, Smith must serve 85 percent of her prison sentence, and, upon release, will be under the supervision of the United States Probation Office for five years. (usattyedky7709)

MORAL

I can almost guarantee you three things: 1-The credit union did not have a quality control plan in place; 2-The credit union did not have the "Red Flags Identity Theft Manual" in place as required by federal law and mandatory after Aug. 1, 2009; 3-The credit union did not quality control any files or they would have found this over the 18 months. This is especially true since the loan officer was terminated for a reason having nothing to do with the loan fraud.

MARYLAND MAN GETS 10 YEARS IN FEDERAL PRISON AND FORFEITS THREE HOMES AND THREE CARS

FACTS

Kurt Fordham, of Ft. Washington, Md., was sentenced to 10 years in federal prison for falsely promising to help homeowners facing foreclosure by promising to help them keep their homes and repair their damaged credit. He is personally responsible for over $13.5 million in losses to mortgage lenders and used over $800,000 to pay for his wedding.

Fordham was also ordered o pay restitution of $13,131,287.63, and forfeit three residential properties in Oxon Hill, Capitol Heights and Laurel, Md., and three vehicles.

Kurt Fordham was the president of Fordham & Fordham Investment Group, Ltd., and a director of F&F and Burroughs & Smythe Financial Services, Inc. In May 2005, Joy Jackson, Kurt Fordham's wife, and coconspirator Jennifer McCall incorporated Metropolitan Money Store, located in Lanham, which offered foreclosure consultation and credit services to financially distressed homeowners. At that time, Fordham, Jackson, McCall and other coconspirators incorporated F&F and B&S, based in Lanham and Greenbelt, to assist Metropolitan Money Store in its foreclosure consulting and credit servicing business.

From September 2004 to June 2007, Fordham, Jackson, McCall and others conspired to fraudulently promise to help homeowners, who had substantial equity in their homes but were facing foreclosure because of their inability to make monthly mortgage payments, avoid foreclosure and repair their damaged credit. The homeowners were directed to allow title to their homes to be put in the names of third party purchasers (the straw buyers) for a year, during which time Metropolitan Money Store promised to improve the homeowners' credit ratings, help them obtain more favorable mortgages, and eventually return title to their homes to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit. The straw buyers were paid up to $10,000 to participate in the scheme and allow the properties to be put in their names.

Using the homeowners' properties, the conspirators applied for mortgages to extract the maximum available equity from the homes, and prepared and submitted fraudulent loan applications to mortgage lenders to obtain inflated loans on the target properties in the straw buyers' names. At settlements, the conspirators imposed numerous fees and required seller contributions which were far in excess of industry standards; they imposed fees for services which were not performed, disclosed or explained to the homeowners; and they transferred the sale proceeds out of the escrow accounts into the conspirators' business and personal bank accounts and converted a substantial portion of those funds to their personal use.

In order to carry out the fraud scheme, Fordham and others obtained large cashier's checks in the names of the straw buyers and Metropolitan Money Store employees in order to conceal transactions from the lenders. Jackson misappropriated the license and bond numbers of other brokerage and credit repair companies and used them to broker loans and fraudulently improve homeowners' credit scores by adding fictitious lines of credit to their credit histories.

In addition to directing straw buyers to participate in the scheme and facilitate the submission of false settlement documents, Kurt Fordham personally served as the straw buyer on at least six properties, completing mortgage loan applications which falsely stated, among other things, his income, that the home would be his primary residence and that he would be making the mortgage payments.

During the conspiracy, Fordham and Jackson paid bank employees to provide false income balances for straw buyers to lenders; add straw buyers and others onto accounts for lender verification purposes; transfer money into accounts to show a certain amount of money was in a bank account and thereafter return those funds to the original account; and shift money between Metropolitan Money Store and F&F accounts to facilitate loans in straw buyer's names.

Finally, Fordham and Jackson directed others to transfer the equity proceeds of homeowners into the general checking accounts of Metropolitan Money Store, B&S, and F&F, as well as Jackson's personal accounts. Fordham, Jackson and others withdrew these funds and paid for goods and services for themselves, including art, cars, clothing, credit card bills, homes, fur coats, furniture, airline trips, gambling expenses, jewelry, limousine services, student tuition and a luxury wedding for Jackson and Fordham.

As a result of this scheme, the total loss attributable to Fordham, including the estimated losses to the mortgage lenders, is $13,554,012.40.

Nine other defendants have pleaded guilty to the conspiracy and are facing a maximum sentence of 30 years in prison, including Jackson and McCall, Katisha Fordham, Richard Allison, Clifford McCall, Carlisha Dixon, Chandra Jones (the daughter of co-defendants Jennifer and Clifford McCall), Ronald Aaron Chapman Jr., and Wilbur Ballesteros. (usattymd71009)

MORAL

You may remember that I published the indictment of the above people in June 2008. Federal sentences have no parole system. I suggest if you are involved in mortgage foreclosures or loan modifications that you contact your attorney for the legality of what you are doing. Failure to do so can cause you serious problems as some of you may have already discovered.

SEVEN BUSTED FOR MORTGAGE FRAUD IN MICHIGAN

FACTS

The first complaint alleges that Edward Tate, Craig Wright Covert, Richard Anthony Allen, Richard Ruben Watts, and Louis Anderson Lynch conspired to commit wire fraud. The second complaint alleges that Rodney Dumas and Derek Walker conspired to commit the federal crime of bank fraud.

This complaint alleges in February 2009, Special Agents of the Detroit FBI began conducting an investigation into a real estate/mortgage fraud scheme involving properties primarily located in the Harbortown Condominium development located along the Detroit River. This scheme, orchestrated by Tate, involved a real estate developer who defaulted on a commercial real estate loan that was granted to it by Bank of America. The acquired loan was collateralized by the luxury condominiums located in the Harbortown development. As part of a workout plan that was negotiated by and between the developer and Bank of America, the developer was granted authority to sell the condominiums under the guise of a "short sale" or at a drastically reduced price. Tate purchased some of the condominium units from the developer at a short-sale price, and the assistance of Tate and others, loans allegedly were obtained for unqualified straw buyers based on false loan applications. Allen, Watts and Lynch were three such straw buyers. Each are convicted felons for crimes such as murder and attempted rape who were in prison during the time period of employment and residency claimed on each of their loan applications. Covert was one of the individuals Tate paid to recruit straw buyers. All five individuals were arrested July 8, 2009. Thus far, the fraud exceeds over $1,000,000.

On July 7, 2009, a criminal complaint was filed in the Eastern District of Michigan alleging Dumas, a mortgage broker, and Walker, president of Fidelity Funding, conspired to obtain fraudulent mortgages by "flipping" properties. Other members of this conspiracy have already been indicted in United States v. Pierre Greene, et al., pending before the Honorable Gerald E. Rosen.

The complaint alleges Dumas (or other conspirators) would buy a run-down property, or a property in foreclosure, for a very low price; often, the properties were completely uninhabitable. Dumas might purchase the property in his own name, or in the name of a company he has established for that purpose, CMB Investments. As quickly as possible, Dumas would resell the property. He would obtain a fraudulent appraisal of the property that grossly inflates its value. He would then pay an individual with a good credit rating willing to act as a straw buyer, obtaining a mortgage on the property in the amount of the falsely inflated appraisal and then letting it go into default. If necessary, Dumas and his co-conspirators would supply false employment and bank account documents, and even create false Federal income tax returns, to support the mortgage application of the straw buyer and to persuade the lending institution that the buyer would be able to re-pay the mortgage loan. On occasion, Walker paid underwriters and others whose job it was to review the mortgage applications to "look the other way" and ignore irregularities. Relying on the series of false representations, the banks approved the mortgages and paid the conspirators the inflated value of the property at closing. Dumas, Walker and their co-conspirators, usually including the straw buyer, would then divide the proceeds of the fraud and the mortgages went into default.

To date, losses attributed to this mortgage fraud conspiracy total over $2,500,000. This case was investigated by the Detroit Metro Mortgage Fraud Task Force, led by the FBI and the U.S. Postal Inspection Service, and is being prosecuted by Assistant United States Attorney Cynthia Oberg. (usattyedmi7809)

MORAL

These are allegations. All people are innocent until proven guilty. But, I hope they have enough money to defend their presumption of innocence because the loss in both cases is alleged to exceed $1 million and can mean over 2 years in federal prison if convicted.

PENNSYLVANIA MAN DRAWS 33 MONTHS IN FEDERAL PRISON

FACTS

On June 25, 2009, Francis R. Conti was been sentenced in federal court in Erie to 33 months in prison and ordered to pay $46,183.91 in restitution on his conviction of conspiracy and mail fraud.

Conti and others conspired to falsify mortgage loan applications for homebuyers who could not have otherwise obtained a mortgage. Conti and others also accompanied prospective homebuyers to the buyers' banks and deposited money into the buyers' accounts to make it appear as if the buyers had higher account balances. (usattywdpa6250;24cfr203.27(e))

MORAL

33 months in federal prison. No parole allowed in federal system. Under $50,000 in restitution. BUT THREE GOVERNMENT AGENCIES INVOLVED IN INVESTIGATION! Doesn't this suggest that mortgage fraud is not a good idea? If someone out there is overly creative, I suggest they see the attorney now or they may see prison later.

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.