FEDERAL TRADE COMMISSION EXTENDS TIME TO HAVE RED FLAG IDENTITY MANUAL IN HOUSE TO NOV. 1, 2009
FACTS
The Federal Trade Commission staff has stated it will redouble its efforts to educate institutions about compliance with the "Red Flags" Rule. FTC states it will ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the rule and what they must do to comply. (Notably this ease of compliance has in fact attempted to make attorneys have the same manual requirements. It sounds like the IRS saying "we are here to help you" I would add, have less money since an agency generally interprets laws and regs to keep them even when they should know they are invalid as has been proven from time to time.)
To give creditors and financial institutions more time to review this guidance and develop and implement written Identity Theft Prevention Programs, the FTC will further delay enforcement of the rule until Nov. 1, 2009.
The Red Flags Rule is an anti-fraud regulation, requiring creditors and financial institutions with covered accounts to implement programs to identify, detect, and respond to the warning signs, or "red flags," that could indicate identity theft. The financial regulatory agencies, including the FTC, developed the rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003. FACTA's definition of creditor includes any entity that regularly extends or renews credit -- or arranges for others to do so -- and includes all entities that regularly permit deferred payments for goods or services.
"Financial institutions" include mortgage brokers as well as mortgage lenders. The FTC's Red Flags Web site,
The enforcement FAQ states that Commission staff would be unlikely to recommend bringing a law enforcement action if entities know their customers or clients individually, or if they perform services in or around their customers' homes, or if they operate in sectors where identity theft is rare and they have not themselves been the target of identity theft. If this statement is true then why do they attempt to enforce it against attorneys who know their clients and identity theft is in fact rare with attorneys.
The three-month extension, coupled with this new guidance, should enable businesses to gain a better understanding of the rule and any obligations that they may have under it. FTC will delay enforcement of the rule until Nov. 1, 2009, does not affect other federal agencies' enforcement of the original Nov. 1, 2008, compliance deadline for institutions subject to their oversight. (FTC Press Release, July 29, 2009)
MORAL
I would like you to note how "helpful" the FTC is in letting you have longer to have the manual in place. They extend it on Wednesday, July 29, just two week days BEFORE IT IS TO GO INTO EFFECT. Most businesses have in fact created a manual or purchased one by this date. So much for assistance and help in giving more time. I have given you the appropriate links above should you want to create your own manual. If not, you can purchase our manual by going to our website at
YOU MAY BE ELIGIBLE FOR BANKRUPTCY EVEN WHEN SOMEONE ELSE SAID NO
FACTS
The Federal Court of Appeal affirmed a Bankruptcy Appellate Panel judgment where, in calculating monthly income under the means test for identifying an abusive Chapter 7 petition, the plain language of 11 U.S.C. sec. 707(b)(2) allows debtors to deduct payments due on a secured debt notwithstanding the debtor's intention to surrender the collateral. (In re Ruder, 08-9007, 1st Cir. USCA)
MORAL
Some people are found ineligible for a Chapter 7 bankruptcy to discharge all their debts because the attorney or person computing income does not include the debt on the property the people own since they intend to let a foreclosure complete itself. Until the actual sale, the amount of the monthly payment can be included as a monthly payment and this can make them eligible. Have them see us or their own attorney and bring this to the attention of the person computing eligibility at the time.
FOUR MORE STATES JOIN THE SAFE ACT
DELAWARE JOIN THE SAFE ACT
FACTS
Effective July 30, 2009 Delaware repealed the Mortgage Loan Originator Act and enacting the S.A.F.E. Mortgage Licensing Act of 2009. Mortgage loan originators and loan processors or underwriters acting as independent contracts must obtain a license under the SMLA, unless exempt. New requirements with respect to education, fees, exemptions, examinations, renewals, and bonds. All application forms, solicitations and advertisements must contain the NMLS unique identifier of the person originating the mortgage loan. Mortgage loan originators, and loan processors and underwriters acting as independent contractors have until July 31, 2010 to obtain a license under the SMLA.
FLORIDA REQUIRES MORTGAGE LOAN ORIGINATOR LICENSING, AMENDS MORTGAGE BROKERAGE AND LENDING ACT BY JOINING THE SAFE ACT AND SETS RESTRICTIONS ON LOAN MODIFICATION SERVICES
FACTS
Florida passed a bill requiring mortgage loan originator licensing. Mortgage loan originators are required to obtain a license under the Mortgage Brokerage and Lending Act. Loan originator requirements with respect to education, fees, exemptions, and renewals are set. The SAFE Act NMLS unique identifier of each loan originator responsible for providing loan originator services must be printed on every mortgage broker agreement.
The bill amends the mortgage lender and broker requirements of the Mortgage Brokerage and Lending Act. Mortgage lender and broker requirements are amended with respect to fees, net worth, bonds, exemptions, disclosures, advertising, notification and renewals.
Restrictions on mortgage lenders, brokers and loan originators performing loan modification services are detailed. A mortgage lender, correspondent mortgage lender, mortgage brokerage business, mortgage broker or loan originator may not engage in or initiate loan modification services without first executing a written agreement with the borrower. Borrowers have the right to cancel a loan modification agreement within three business days after signing the agreement. Lenders, brokers and loan originators are prohibited from executing a loan modification without the borrower's consent or securing payment prior to performing all loan modification services.
The bill generally becomes effective Oct. 1, 2010, however the loan modification provisions of the bill become effective Jan. 1, 2010. (alrg8709)
TENNESSEE JOINS THE SAFE ACT BANDWAGON
FACTS
Tennessee repealed and reenacted the Residential Lending, Brokerage and Servicing Act. This establishes pre-licensing education and examination requirements for loan originators; requires loan processors and underwriters acting as independent contractors to obtain a mortgage loan originator license; establishes loan originator continuing education requirements; requires the loan originator's NMLS unique identifier on all mortgage loan applications, solicitations and advertisements; and establishes a number of additional prohibited acts. The bill also amends requirements with respect to bonds, exemptions, renewals and notification.
The bill also amends the Industrial Loan and Thrift Companies act. A lender may not make a residential mortgage loan unless each individual that acts as a mortgage loan originator with respect to the loan has obtained a mortgage loan originator license under the Tennessee Residential Lending, Brokerage and Servicing Act and has been sponsored by the lender. The bill amends requirements with respect to bonds and establishes requirements with respect to the sponsorship of loan originators.
TEXAS JOINS THE SAFE ACT PARTY
FACTS
As of June 19, 2009 Texas established the Secure and Fair Enforcement for Mortgage Licensing Act of 2009. Under the TSFEMLA, mortgage loan originators and loan processors or underwriters acting as independent contractors must obtain a license and comply with the requirements of the TSFEMLA. There are requirements affecting renewals, fees, education, examinations, notification, exemptions and advertising. All application forms, solicitations and advertisements must contain the NMLS unique identifier of the person originating the mortgage loan.
MORAL
That brings the number of states in the SAFE Act to 30 at this time.
AMENDMENTS TO CALIFORNIA FORECLOSURE LAW AND SHORT PAY DEMANDS EFFECTIVE JAN. 1, 2009
FACTS
SB 306 has been signed by the Governor and goes into effect on Jan. 1, 2009. Below are some of the changes enacted. Before you foreclose read the updated law carefully or consult your attorney. This bill amends Civil Code Sections 2923.5, 2923.6, 2924.8, and 2924f and amends, repeals, and adds Section 2943 of, the Civil Code, and amends Section 17312 of the Financial Code
Existing law requires that, upon a breach of the obligation of a mortgage or transfer of an interest in property, the trustee, mortgagee, or beneficiary record a notice of default in the office of the county recorder where the mortgaged or trust property is situated and mail the notice of default to the mortgagor or trustor.
Existing law, until Jan. 1, 2013, prohibits a mortgagee, trustee, beneficiary, or authorized agent from filing a notice of default for an additional 30 days on loans made from Jan. 1, 2003, to Dec. 31, 2007, that secure residential real property, under certain circumstances.
This bill as of Jan. 1, 2010 until Jan. 1, 2013, provide that these provisions apply to mortgages and deeds of trust recorded between Jan. 1, 2003, to Dec. 31, 2007, secured by owner-occupied residential real property containing no more than four dwelling units. This law as of Jan. 1, 2010 revises the declaration that is required to be filed in this connection with the notice of default.
Existing law requires a trustee or authorized agent, upon posting a notice of sale, to post and mail a specified notice addressed to residents of property subject to foreclosure upon posting a notice of sale. Existing law requires a notice of sale to be recorded in the county in which the property or some part of it is situated at least 14 days prior to the date of sale.
This bill specifies how and when this notice is to be mailed and extends the time during which the notice of sale must be recorded from 14 to 20 days.
Existing law requires a beneficiary on a deed of trust or a mortgagee on a mortgage to prepare and deliver a beneficiary statement or a pay-off demand statement within 21 days of receipt of a written demand from specified entitled parties.
Existing law requires the written statement to include information reasonably necessary to calculate the payoff amount on a per diem basis for the period of time, not to exceed 30 days, during which the per diem amount is not changed by the terms of the note.
This bill until Jan. 1, 2014, require a beneficiary, within 21 days of the receipt of a short-pay request, as defined, to prepare and deliver a short-pay demand statement, which would be a written statement, conditioned on the existence of a short-pay agreement, that is prepared in response to a request from an entitled person or authorized agent, setting forth an amount less than the outstanding debt, together with any terms and conditions, under which the beneficiary would execute and deliver a reconveyance of the deed of trust securing the note that is the subject of the short-pay demand statement. The bill provides that the short-pay agreement is an agreement in writing in which the beneficiary agrees to release its lien on a property in return for payment of an amount less than the secured obligation. The bill permits a beneficiary that elects not to proceed with the transaction that is the subject of the short-pay request to refuse to provide a short-pay demand statement, but would require that he or she provide a written statement, indicating that the beneficiary has elected not to proceed. The bill provides that if the terms and conditions of the short-pay agreement require approval by the beneficiary of a closing statement prepared by an escrowholder, approval or disapproval shall be provided not more than four days after receipt by the beneficiary of the closing statement, or the closing statement shall be deemed approved, except as specified.
MORAL
If you are going to foreclose or you get a beneficiary demand for a short payoff be sure you respond in writing. You do not have to accept a short pay but you better say so in writing or you can pay the penalty.
NO IMPOUND ACCOUNTS FOR TAXES AND INSURANCE WHEN THE LOAN IS A HIGHER PRICED MORTGAGE
FACTS
California Senate Bill 633 amends Civil Code Section 2954. Existing law prohibits requiring an impound, trust, or other type of account for payment of property taxes, insurance premiums, or other purposes relating to the property as a condition of a real property sale contract or a loan secured by a deed of trust or mortgage on real property containing only a single-family, owner-occupied dwelling, except as specified.
Effective Jan. 1, 2010 the includes among those exceptions sales where a loan is made in compliance with the requirements for higher priced mortgage loans established in Regulation Z, as defined, whether or not the loan is a higher priced mortgage loan, and where a loan is refinanced or modified in connection with a lender's homeownership preservation program or a lender's participation in such a program sponsored by a federal, state, or local government authority or a nonprofit organization.
MORAL
If you want to require impounds on your loan be absolutely certain you read this code section in full or you may wind up paying the borrower a penalty.
CALIFORNIA COUPLE SETTLE MORTGAGE FRAUD SUIT BROUGHT BY VENTURA COUNTY DA
FACTS
Oscar Soto Vasques, a Fillmore real estate business owner, and his wife, Delia admitted to hiding the terms of contracts from customers agreed to pay tens of thousands of dollars in restitution, fees and penalties as part of a permanent injunction filed by the Special Prosecutions Division of the Ventura County District Attorney's Office, according to prosecutors.
Senior Deputy District Attorney Miles Weiss said Soto Vasquez and his wife were switching the terms of customer loan documents, which were written in English. Many Spanish-speaking borrowers complained they could not read the contracts.
By law, contracts written in English must be translated into Spanish for Spanish-speaking consumers, Mr. Weiss said.
The couple admitted negligently misrepresenting and concealing interest rates, monthly payment amounts, whether the loans were fixed or adjustable, the existence of penalties and the amount of cash borrowers were to receive under the new loans, he said.
Under the agreement, the Vasquezes and their businesses will have to pay $140,000 as restitution if it is paid by the end of August 2009. If they do not meet the deadline, the Vasquezes will have to pay an additional $270,000, Mr. Weiss said. He said they have paid $60,000 so far.
Weiss said the businesses had "dozens and dozens, many dozens" of customers because they did a lot of advertising in the Spanish media. The loan company operated under the name Quest Home Loans Inc. and was doing business under the name Quest Mortgage of Oxnard. The realty company's name is Real Estate Vision Inc., doing business as Century 21 New Vision of Oxnard.
Ventura County Superior Court Judge Frederick Bysshe signed the court order on Aug. 3, 2009 as part of a civil consumer enforcement action filed by the Prosecutions Division.
Weiss said Oscar Vasquez has a broker's license, but his wife did not. She had taken and failed the California real estate licensing examination multiple times, Weiss said. Delia Vasquez and the real estate business falsely advertised that they were offering "free" real estate licensing training courses, he said. (vetcostr8509)
MORAL
Anyone doing business with Quest? Anyone doing business with Century 21 New Vision? Any sales agreements or purchase documents signed by Delia? Anyone want to bet whether the California Department of Real Estate will or will not investigate for purposes of filing an accusation to discipline the license?
FORMER FLORIDA JUDGE PLEADS GUILTY TO LYING ABOUT SOURCE OF DOWN PAYMENT ON LOAN APPLICATION
FACTS
Thomas E. Stringer pleaded guilty on Aug. 6, 2009 to one count of bank fraud. Stringer faces a maximum penalty of 30 years in federal prison. The government intends to seek forfeiture of $222,362.00, the amount of the proceeds from the fraud. Stringer was a state appellate court judge.
According to court documents, Stringer engaged in a scheme to defraud a bank that loaned him money to purchase a residence in Hawaii. There was no loss to anyone in the transaction. Stringer falsified his mortgage application for the residence by claiming that he had borrowed none of the money he was using for the down payment, when in fact he had borrowed funds from a third party. (usattymdfl8609)
MORAL
He lied about the source of the down payment. There was no loss on the loan and he was indicted and pled guilty to a federal felony. Does this tell you anything about seeing your lawyer if you were creative in putting down the borrower's down payment?
LOUISIANA SAYS MORTGAGE FRAUD AS A STATE CRIME CAN EARN YOU 10 YEARS IN STATE PRISON AND A $100,000 FINE
FACTS
Louisiana makes residential mortgage fraud a crime. A person who commits residential mortgage fraud is subject to up to 10 years imprisonment and a $100,000 fine. A person found guilty of residential mortgage fraud may be ordered to pay full restitution to the victim and any other person who has suffered a financial loss as a result of the offense.
MORAL
If the federal people do not get you for mortgage fraud using the federal mail fraud and wire fraud statutes then the state will get you for the state mortgage fraud. Everybody wants to jump on the bandwagon. This seems like overkill.
LOUISIANA BROKER INDICTED FOR MORTGAGE FRAUD BECAUSE HE SIGNED BORROWER'S NAME TO LOAN DOCS
FACTS
William Everett Nichols of Alexandria, La., has been indicted and arrested on federal fraud charges. The indictment alleges that Mr. Nichols, president and sole shareholder of First Fidelity Mortgage Inc., knowingly and willfully conspired to devise a scheme to defraud Sabine State Bank. The defendant and others allegedly prepared fraudulent notes by forging signatures of borrowers and notaries public and delivered them to Sabine State Bank as collateral in order to cause the bank to deposit money into an account of First Fidelity Mortgage, which Mr. Nichols controlled. Mr. Nichols was unavailable for comment. (bkrun8309uattywdla)
MORAL
Has anyone out there signed the borrower's name to the 1003? Signed borrower's name to other documents in the loan file? See your lawyer now or you may see prison later. There is so much fraud that we are publishing the more interesting ones that have a thread we believe you will find interesting so you can move to prevent it in your company. This way you may avoid license discipline by the state or a criminal investigation.
SEVEN GUILTY IN LOUISIANA HUD MORTGAGE FRAUD SCHEME INCLUDING AN UNDERWRITER
FACTS
MICHELLE COCHRANE, a resident of Folsom, La., was sentenced on Aug. 5, 2009 in federal court to one year and one day in federal prison for her role in a conspiracy to make false statements to obtain HUD insurance. Additionally, she was ordered to pay restitution in the amount of $95,000. She had cooperated with the government and this was considered in imposing the sentence.
COCHRANE conspired with CALVIN DAVIS, and devised a housing flipping scheme and their respective roles in that scheme. COCHRANE, a former underwriter at Citywide Mortgage, previously pled guilty admitting that while employed at Citywide, she participated in a house flipping scheme in which DAVIS purchased properties, obtained fraudulent appraisals which overvalued the property and then arranged for the straw buyers to purchase them. COCHRANE approved fraudulent FHA/HUD loan applications for the straw buyers. The fraudulent loan applications included false tax information, false credit information and an inflated real estate appraisal. HUD insured the loans. Citywide then sold the loans to another mortgage company. Various properties eventually went into default and HUD became responsible for paying off those loans.
COCHRANE is the sixth person to be sentenced for offenses stemming from this investigation. CALVIN DAVIS was sentenced to 40 months pursuant to his pleas of guilty to Conspiracy to Commit Mail Fraud, Making False Statements in an Income Tax Return and Making False Statements in a HUD Transaction. ROBERT GREEN, who pled guilty to Making False Statements in HUD transaction and admitted that he prepared the fraudulent tax returns, was sentenced to a probationary term. Three straw buyers TIMOTHY FALLS, DENNIS ADDISON and DENNIS LEBLANC who also pled guilty to Making False Statements in HUD Transaction were sentenced to probationary terms. MICHAEL O'KEEFE JR., who pled guilty to Making False Statements in a HUD transaction, is awaiting sentencing. (usattyedla8609)
MORAL
Notice she cooperated and still received over one year in federal prison. Notice she was a HUD underwriter. This means audit your files; audit your employees so that all audits cover everyone including the underwriters. That is what your Quality Control Plan requires and what is covered in the Mortgagee Approval Handbook, 4060.1 REV 2, Chapter 7.
MISSOURI REQUIRES BUYER OF FORECLOSURE PROPERTY TO NOTIFY TENANT OF NEW OWNERSHIP AND GIVE 10 BUSINESS DAYS NOTICE TO VACATE
FACTS
Effective Aug. 29, 2009, Missouri requires purchasers of foreclosed property to provide a notice to any tenants of the property. If foreclosed property is occupied by a residential tenant, the new owner must give the occupant a notice that informs the tenant that: the sale has occurred; the purchaser is the new owner; and the occupant has not less than 10 business days to vacate the premises if the new owner seeks possession from the occupant. Prohibits an unlawful detainer action or any other action seeking possession from being commenced against the occupant within the 10 business days following the date of notice.
MORAL
Isn't Missouri nice? An entire family has two weeks to move. Most states give at least 30 days. But not Missouri. Get out in two weeks. Family has a house rental, all that furniture, a couple of children and they are expected to locate, sign a lease and move in two weeks. This notwithstanding they had a signed lease and probably paid last month's rent and a security deposit.
NEVADA DIVISION OF MORTGAGE LENDING PROPOSES SETTLEMENT OF DISCIPLINE AGAINST VSV CAPITAL LLC DBA TELLUS CAPITAL
FACTS
Tellus is alleged to have failed to conduct business in accordance with the law and violated provisions of Chapter 645B of NRS by failing to properly name bank accounts belonging to investors as trust accounts and commingled monies belonging to the investors with monies belonging to Tellus in violation of NRS 645B.670(2)(c) and NRS 645B.175(1)(b) (1) and NRS 645B.175(4)(b)(1). No consumer appears to have been harmed by these alleged violations.
The proposed settlement is an administrative fine in the amount of $2,500 and $300.00 for investigation costs, upon execution of the settlement agreement. (dmlwebsite8609)
MORAL
Here you can see the commissioner is very reasonable. No harm, no foul, no loss of license. In California, under a Department of Real Estate license, I believe the outcome would have been a lot more serious with a suspension stayed at best, even though no harm to the consumer. This decision is just.
HOWEVER, HERE IS WHAT HAPPENS WHEN A NEVADA LICENSEE OPERATES UNREASONABLY AND VIOLATES MORTGAGE LENDING LAWS
Mortgage Lending Division Revokes Licenses and Issues Fines of $48,025, for Licensee Misconduct
Division of Mortgage Lending continues to vigorously discipline licensees who have violated NRS 645B. It recently took following disciplinary action against several licensees, fining the violators a combined amount of $48,025.
Actions were taken against the mortgage agents and brokers listed below for violations ranging from unlicensed activity to failing to meet examination requirements to gross negligence:
* Heather Barnes - License revoked and $5,000 fine
* Bridget Barnes - Cease and desist order and $5,000 fine
* Excel Funding LLC - $20,000 fine
* Raymond E. Wilson - License revoked and $525 fine
* Diane M. Mills - $5,000 fine
* MDE Capital and James Mason - Cease and desist Order and $10,000 fine
* Desert Star Financial, LLC, and Joey DeBlanco - $2,500 fine
"We will definitely take action against licensees who violate our laws," says Mortgage Lending
Commissioner Joseph Waltuch.
MORAL
Do you have a self-audit manual to avoid these problems? You can obtain one from us.
NEVADA DIVISION OF MORTGAGE LENDING GIVES GUIDANCE ON PLACEMENT OF LICENSE NUMBER ON LOAN DOCUMENTS
FACTS
As of May 29, 2009 a new section of the law was added to chapter 645B of NRS to read:
A mortgage broker shall ensure that each loan secured by a lien on real property for which he engages in activity as a mortgage broker includes the license number of the mortgage broker.
This section only applies to loans secured by liens on real property offered on or after May 29, 2009. For loans made between May 29, 2009 and Oct. 1, 2009, AB 151 also provides that a mortgage broker who does not include his license number on the loan as required may, without penalty, cure his failure to comply no later than 30 days after the date the loan was made.
The new legislation does not provide guidance on where in the loan the broker's license number must appear. The Division has been requested by several licensees to provide that guidance.
The Mortgage Lending Division believes that the most practical way to identify the broker is to place the broker's name and license number on the loan application, the note, the deed of trust, and the final HUD settlement statement, when the broker prepares any one or more of these documents, as follows:
On the loan application, using the current version of the uniform 1003 as an example, insert the broker's name followed by "NV license # _____" in the space provided at the end of Section X, "Information for Government Monitoring Purposes." If a prior version of the uniform 1003 is utilized, insert the same information above the caption "Uniform Residential Loan Application."
On the promissory note, using a uniform FNMA note as an example, in the top margin of the document insert the broker's name and "NV license # ____" above the caption, possibly in close proximity to the loan or account number that is generally placed on the top of this document.
On the deed of trust or other security instrument, again using a uniform instrument as an example, insert the broker's name followed by "NV license # ____" in the space immediately above and to the left of the "Space above this line for recording data." If placing the information in this section will cause a particular recorder's office to reject the document, place the information immediately below the line.
On the HUD settlement statement, insert "NV license # ____" on any vacant line in the 800 series after the broker's name that is shown for payment of loan origination fees. If no fees are being paid to the broker, insert the broker's name as well as the license number. If there is insufficient space in the 800 series, insert the same information on any vacant line in the 1300 series.
The Division is aware that mortgage brokers generally do not prepare the final loan documents, such as the note and deed of trust. In those cases the Division recommends that the broker request that the lender insert the information on behalf of the broker.
The above guidance is directed towards mortgage loans where a broker generally utilizes uniform FNMA/Freddie or similar documents. For a broker who prepares his own documents, such as in a commercial or private investor loan, the broker's name and license number information should at a minimum appear on the note and security instrument in the same general areas as described above. These brokers should also include this information on any additional collateral instrument that may also be recorded or filed with the state or a county office.
If the license number is not inserted in a loan made between May 29, 2009 and Oct. 1, 2009 the mortgage broker may cure his failure to comply within 30 days after the loan was made. The Division recommends that in order to be compliant, the broker send an amended application, settlement statement, or a copy of the face sheet of the note and deed of trust, which includes the license number, to the consumer, along with a cover letter that indicates the purpose of the corrected documents is the result of the passage of AB 151.
The Division will examine to determine that the broker's license number is placed on the loan documents, along with the mortgage broker's name if it is not readily apparent from the transaction. The Division will permit some flexibility in placement, however, depending on the nature of the loan and the particular loan documents (mldguidance72909)
MORAL
I am willing to bet at a minimum that four out of every five audits the MLD does between now and Dec. 31, 2009 will fail to comply. Any takers?
NEW JERSEY GIVES BORROWERS ON HIGH RISK MORTGAGE LOANS
SIX MONTHS FORBEARANCE
FACTS
As of July 2, 2009 New Jersey has granted a six month foreclosure forbearance period for "high risk mortgage" loans. Lenders must notify borrowers of the right to obtain a six month period of forbearance. A borrower is required to make a written request to the lender in order to receive the forbearance.
MORAL
Lender loss will increase by six more months before it can foreclose.
OREGON HAS TWO NEW LAWS AFFECTING MORTGAGE BROKERS AND BANKERS
NEGATIVE AMORTIZATION LOANS
Effective Jan. 1, 2010 Oregon has imposed restrictions on negative amortization loans. Mortgage bankers, brokers and loan originators are prohibited from negotiating or making a negative amortization loan without regard to the borrower's ability to repay the loan. Prepayment penalties are restricted on negative amortization loans to the first 24 months of the loan and lenders are prohibited from collecting any prepayment penalty on an existing negative amortization loan in return for or as a consequence of refinancing the loan.
A NOTICE TO TENANTS MUST BE INCLUDED IN THE NOTICE OF FORECLOSURE SALE
Effective Aug. 28, 2009 a "Notice to Tenants" must be included with the Notice of Sale. The exact language is in the new law.
MORAL
Read the new laws carefully, or you will see quite a few plaintiff lawyers looking to sue you when they go into effect.
ARIZONA SENATOR SEEKS REPEAL OF HIS OWN FORECLOSURE SENATE BILL THAT ALLOWS LENDERS TO SEEK DEFICIENCY JUDGMENTS ON ALL MORTGAGE LOANS EFFECTIVE SEPTEMBER 30, 2009
FACTS
The state senator who sponsored legislation to change Arizona's foreclosure laws called for a repeal of his bill. Sen. Steve Pierce, R-Prescott, said Senate Bill 1271 should be revoked before it goes into effect on Sept. 30, 2009.
The bill was designed to protect small banks from people who buy speculative new homes but can't later sell for a profit. The impact of the change, however, is much larger. The bill will make many homeowners in foreclosure liable to lenders for the difference between their mortgage and what a lender can recoup from selling the home. In the Valley, prices are down 45 percent so many homeowners could be liable for $100,000 or more.
The legislation allows lenders to go after borrowers' assets, including other properties, retirement accounts and earnings if they default on a mortgage and haven't lived in the home for six straight months.
The Legislature and the Governor's Office have been asked to repeal the bill. (azrep73009)
MORAL
Anyone want to bet whether or not the senator read the bill before he sponsored it? Any bets as to a special interest group liking the bill as it passed? Any bets the person that gave the bill to the senator had the intent to let it have the consequences it in fact does have. Letting anyone chase retirement funds properly labeled as such I think is reprehensible. Especially when it is not fraud. Someone buys property for investment and then the investment goes bad, his or her personal retirement is now at risk.
CONNECTICUT MAN INDICTED FOR MORTGAGE FRAUD
FACTS
A New Haven, Conn. federal grand jury handed down an indictment charging GARY T. JOHNSON of Groton, with four counts of wire fraud and two counts of engaging in illegal monetary transactions while operating his former mortgage lending business. The indictment was returned on July 22, 2009 and ordered unsealed on July 26, 2009 today by United States Magistrate Judge Thomas P. Smith in Hartford during JOHNSON's arraignment.
According to the indictment, JOHNSON operated a family-run business known as Matrix Investment Corp., which was based in Groton. Matrix provided mortgage loans to interested borrowers either as a broker for other lenders or as a loan originator itself. JOHNSON was the chairman of Matrix and oversaw lending activity at the company.
The indictment alleges that, during 2004 and 2005, Matrix and JOHNSON began to use monies disbursed for the benefit of borrowers for purposes other than the payoffs set forth in the relevant HUD settlement statements, including to pay Matrix's ongoing operating expenses or to make payoffs to other lenders on unrelated refinancings.
The indictment further alleges that, in the summer of 2004, JOHNSON informed some of his employees that he was seeking to refinance certain of his personal properties to put money into the business to fund Matrix. As part of that process, a Matrix employee began to explore refinancing options for JOHNSON from various lenders, including Greenpoint Mortgage Funding Inc., for approximately $640,000 and a line of credit for $80,000, both to be secured by JOHNSON's personal residence. Several months later, JOHNSON sought refinancing for $563,500 with Flagstar Bank, to be secured by another house he purportedly owned in New London.
The indictment alleges that JOHNSON caused fraudulent personal loan applications to be submitted to Greenpoint, Flagstar Bank, and other lenders. JOHNSON had input on the content of the applications, and he reviewed and signed preliminary applications and final applications, on or about the date of closing, and prior to any receipt of funds. The Indictment further alleges that, on the applications, JOHNSON misrepresented his ownership interest in his primary residence, misrepresented the occupancy status of the second residence, overstated his monthly income, and falsely represented that the monies would be used, in part, to repay preexisting debts, including existing liens on the relevant properties. The debts were not ultimately repaid.
Both the $640,000 and the $80,000 loans with Greenpoint closed on Aug. 9, 2004. The Flagstar loan for $563,500 closed on Oct. 9, 2004. The indictment alleges that in the fall of 2005, JOHNSON ceased making payments on both the Greenpoint and Flagstar loans. The loans went into default, and the lenders have suffered substantial loss.
If convicted, JOHNSON faces a maximum term of imprisonment of 20 years on each of the first two wire fraud counts, a maximum term of imprisonment of 30 years on each of the next two counts of wire fraud, and a maximum term of imprisonment of 10 years on each of the two counts of engaging in an illegal monetary transaction.
An indictment is only a charge and is not evidence of guilt. The defendant is entitled to a fair trial at which it is the government's burden to prove guilt beyond a reasonable doubt. (usattyct72809)
MORAL
As usual note that the investigation went back five years. Anyone reading this has any questionable loans in the last five years. Note payment is on his own property and note he paid for almost one year before the properties went into default. Which goes to prove that default in the first year and the lender will audit the file and stated income does not excuse stated fraud and criminal prosecution is very active in pursuing stated income loans that grossly exceed the actual earnings of the borrower. Especially interesting is the federal people are pursuing the loan officers.
USA CAPITAL PRESIDENT PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
Joseph D. Milanowski of Las Vegas entered a guilty plea for misappropriating over $50 million of client moneys to fund loans for his own pet projects in relation to the one count of wire fraud. He was released on a personal recognizance bond pending sentencing. In pleading guilty, the defendant agreed to serve up to12 years in federal prison and agreed to make full restitution in an amount to be determined by the court. Sentencing is set for Oct. 23, 2009, at 9:00 a.m.
Per the court records, Milanowski was the president and de facto chief operating officer of USA Commercial Mortgage Co., which did business as USA Capital from 1998 through April 2006. USA Capital raised money from investors to loan to developers for the construction of real estate. In May 2000, USA Capital created the Diversified Fund to make secured loans to the developers and to pay the investors interest on the loans. Milanowski and others represented to investors that all of the loans made by the Diversified Fund would be secured by first deeds of trust. Investors were also advised that no loans would be made to company insiders, that no loans larger than $20 million would be made once the Diversified Fund reached a certain value, that no loan would exceed 15% of the value of the Fund, and that the Fund would not loan more than 25% of its funds to a single borrower.
On or about April 15, 2002, Milanowski created a loan known as the "10-90 Loan" which he used to fund private developments and investment projects for himself and other company insiders and affiliates. From about March 27, 2003, to about Nov. 12, 2004, Milanowski transferred approximately $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects. Milanowski and others concealed the existence of the 10-90 Loan from investors until Sept. 30, 2005, when Milanowski included the 10-90 Loan on a list of the Diversified Fund's loan portfolio in which he claimed that the 10-90 Loan was secured by three master-planned communities in Southern California when he knew that the loan was not secured by three communities. When USA Capital Mortgage Co. and the Diversified Fund filed for bankruptcy on April 13, 2006, Milanowski had caused the Diversified Fund to attribute $55.9 million of its principal to the 10-90 Loan. The investigation is ongoing. (usattynv8409)
MORAL
I would like you all to notice how the federal agents went back nine years to get to Mr. Milanowski and that Mr. Milanowski has agreed to do up to 12 years in a federal prison. Now you have to ask yourself, why would anyone 48 years old, agree to 12 years in a federal prison which means he will be 60 when he gets out since there is no parole in the federal system; maybe because a trial might cause him to spend 30 or more years in the federal prison. Also, remember, the judge is not bound by any agreement the U.S. Attorney makes with a defendant and the defendant is informed of this in writing, in the plea agreement.
TWO MORE IN NEW JERSEY INDICTED IN FORECLOSURE SCAM
FACTS
GARTH CELESTINE, and PHIL A. SIMON, both of Brooklyn, N.Y., were arrested on Aug. 5, 2009 at their residences without incident and charged with attempt and conspiracy to commit wire fraud in connection with a home foreclosure scheme. They owned and operated Home Savers Consulting Corp., which held itself out as a foreclosure rescue company. The company conducted business in both New York and New Jersey. According to the complaint, Celestine and Simon allegedly conspired with each other to defraud both homeowners facing foreclosure and mortgage lenders by making materially false representations and promises and causing wire transfers to perpetuate the scheme. A key aspect of the scheme was the targeted victims: homeowners with substantial equity in their homes who were facing foreclosure because of an inability to make the monthly payments. The criminal complaint specifically alleges five incidents of fraudulent mortgage loan applications generated by the defendants in August and September of 2005 for properties located in Bergenfield, Paterson and Elizabeth, N.J.
Based on the complaint, there were three separate groups of victims. First, there were the defrauded homeowners. Celestine and Simon would promise to help the homeowners keep their homes by avoiding foreclosure and repairing their damaged credit. The homeowners would be required to allow the title of the homes to be put in the names of straw buyers for one year with the promise of obtaining more favorable mortgages on those homes and having the title returned to them at the end of the one-year period. Furthermore, Celestine and Simon allegedly told the homeowners that any equity withdrawn from their homes would be kept in escrow and used to pay the mortgages and expenses on those homes, as well as to repair the original owners' credit.
The second victim-group consisted of the straw buyers. Celestine and Simon allegedly recruited individuals with good credit scores to act as "buyers" of the homes facing foreclosure. This was accomplished by misrepresenting to the straw buyers that they were helping the true owners to "save" their homes. The straw-buyers were also paid a fee up to $10,000 per property in exchange for their participation in the transactions.
The third group of victims was the mortgage lenders. Based on the criminal complaint, Celestine and Simon submitted and caused to be submitted fraudulent loan applications to lenders in the straw buyers' names. The applications contained false personal and financial information about the straw buyers, most importantly their income, assets, and debt. The combination of the high equity properties, the good credit ratings of the straw buyers, the false information in the loan applications, and the promise that the straw buyers intended to live in the homes all influenced the mortgage lenders into granting the mortgages. Celestine and Simon also allegedly applied to different lenders for multiple mortgages on the same properties at the same time to extract the maximum available equity from each property.
According to the complaint, Celestine and Simon attended each loan closing and controlled the payout of the loan proceeds. Once all the homeowner's debts and other fees were paid off, the remainder of the loan proceeds was deposited in one or more of three different company accounts owned and controlled by Celestine and Simon. However, Celestine and Simon kept every penny for themselves. Furthermore, the complaint charges that Celestine and Simon eventually failed to make the mortgage payments in nearly every case and caused the loans to default. In the end, Celestine and Simon caused lenders to fund more than $10 million worth of fraudulent loans and stole $1.5 million worth of equity from the properties.
After reading the details of this scheme, one might assume Celestine and Simon were experts in the mortgage business. In fact, Simon currently cuts hair at his salon, "House of Hair" in Brooklyn.
If convicted, the defendants could face a maximum sentence of up to 30 years in prison, a $1,000,000 fine, or both. A criminal complaint is merely an accusation. Despite this accusation, every defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt. (usattynj8509)
MORAL
Loan modifications without a license; foreclosure prevention without a license; collecting advance fees without approval from the licensing agency: All these can earn you time in a federal prison. It is only a matter of time before it happens. The FTC, Calif. Attorney General Jerry Brown and now the FBI have started digging up the dirt. I suggest you take a bath before they find you covered with it. That is if you have been involved with any creative collection of advance fees without approval of the licensing agencies.
HOUSTON MAN SENTENCED TO OVER 10 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD WITHOUT POSSIBILITY OF PAROLE
FACTS
Richard Bell, president and CEO of Harborside Mortgage Corp., was sentenced to 121 months in prison without parole on July 28, 3009 for bank fraud and money laundering.
Bell stipulated that his conduct charged in the indictment and other relevant conduct caused actual losses of $1.6 million dollars. The court held Bell responsible for defrauding First National Bank, Wachovia Bank, Compass Bank, Hibernia Bank, Wells Fargo and at least two individuals. After finding that Bell's criminal history and the final sentencing guideline score did not adequately address the seriousness of his offense, the court departed upward from the recommended sentencing guideline range and handed down the 10-year and one month prison term to be followed by a five-year-term of supervised release.
According to the superseding indictment and the plea agreement, Bell entered into a contract to purchase 97 acres of land in Rosharon, Texas, in 2005 for approximately $1.1 million. The contract specified Bell would make an earnest money down payment of $385,000 and obtain a loan for the balance of the purchase price. Bell made application to First National Bank for a loan of $720,000. As part of the loan application package, Bell submitted false and fraudulent documents, including false financial statements, false income tax returns and copies of false and fraudulent cashier's checks as proof of the $385,000 down payment.
The cashier's checks totaling $385,000 were in reality two money orders obtained from Wells Fargo Bank with a true value of $35. According to Wells Fargo Bank records, Bell purchased a $25 money order Nov. 8, 2005 and a $10 money order Dec. 9, 2005. The money orders were altered using an optical scanner and computer software to make them appear to be cashier's checks in the amount of $135,000 and $250,000. The settlement statement for the closing of the sale of the property was signed by Bell and the seller and reflected that the cash down payment of $385,000 was "held by seller." On Dec. 15, 2005, $676,000.84 from the proceeds of the First National Bank loan were wire transferred to the seller of the property.
The factual basis in the plea agreement also included details of an unsecured $100,000 line of credit obtained by Bell from First National Bank Jan. 13, 2006, that was obtained using false and fraudulent tax returns and financial statements. By Jan. 19, 2006, Bell had withdrawn more than $50,000 against the line of credit via checks payable to himself, Harborside Mortgage and Custom Design Pools. (usattysdtx72909)
MORAL
$1.6 million loss. Judge did not like the lower guidelines and added on time ABOVE THE SUGGESTED GUIDELINES. Like I have said, a federal judge is not bound by any plea agreement. Therefore, get a good lawyer and learn the judges. Hopefully, you can mitigate the problem substantially. Remember, he who gets the "brass ring" first, does not leave any prizes for anyone else.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
