A REMINDER ABOUT TRUTH-IN-LENDING LAWS, REG Z, HIGHER COST MORTGAGE LOANS AND ADVERTISING RATES TO AVOID LITIGATION
FACTS
Remember there are restrictions on the new "Section 35 loans." These are the "higher priced mortgage loans" as opposed to the Section 32 high cost/high fee loans. As of July 30, 2009 early disclosures are required for any closed end extension of credit secured by the dwelling of a consumer excluding time-shares. The dwelling must be subject to RESPA. The Higher Priced Loan regulations are all effective Oct. 1, 2009. (tilman1.01[5])
The early disclosures must be delivered or placed in the mail within three business days after the creditor receives the consumer's loan application and it must occur at least seven business days before loan consummation. The disclosure must state in conspicuous type size and format:
"You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."
Variable Rate Loans: Payment schedule must be labeled, "Payment Schedule Payments Will Vary Based on interest Rate Changes." Type size and format are controlled.
Redisclosure of APR is required if it becomes inaccurate by more than ¼ of 1%.
No upfront charges on higher priced mortgage loans allowed other than reasonable credit report fee until creditor gives initial early disclosures. This includes no collecting of appraisal fee in any form whatsoever until the disclosures are given.
On HELOCs, even brokers must comply with the new advertising rules (tilman4.08, 226.16, .24). May only display terms that advertiser can offer or arrange now or in the future. Advertising that includes certain trigger words may require further disclosures.
Higher Priced Loans Restrictions and Prohibitions
1. Must determine borrower ability to repay.
2. Prepayment penalties restricted and then not allowed after a two year period has elapsed. If refinance is through same creditor not allowed at all.
3. Amount of the periodic payments of principal and interest cannot change during the first four years. (5.04,.05)
4. Escrow accounts required under certain conditions.
5. Mortgage brokers subject to Section 36 prohibited acts.
MORAL
There are more details and the above is but a very brief summary of the major changes.
FHA MORTGAGE STATISTICS
FACTS
From Oct. 1, 2008 through mid-August 2009 FHA mortgage applications are up 50% to 2.52 million from one year ago. Approvals for purchases, refinancings and reverse mortgages are up 70% to 1.67 million. Eighty percent of the FHA mortgages for purchasing homes went to first-time buyers using the FHA's low-down payment requirements, starting at 3.5%. Market share for FHA rose from 3% in 2006 to 23% in 2009. Borrowers on FHA loans now have credit scores of about 690. (usatdy9209)
MORAL
If this does not tell you where to find your market for loans, nothing will!
MORTGAGE RELATED LAWSUITS UP 54% THIS YEAR
FACTS
Litigation that is related to real estate appraisals, loan modifications and foreclosures contributed to a 54% increase in mortgage-related lawsuits. (mdai.com9409)
MORAL
I would venture to say the lawsuits against mortgage brokers in California alone have increased will over 100%. We have received sox new cases in the last seven days to defend, all against mortgage brokers and their respective companies. It is not only the lenders that are suing. In fact attorneys doing foreclosure rescue cases are suing everyone in the chain where the deed of trust is being foreclosed upon. Unfortunately for you, the broker, the plaintiff borrower is suing the loan officer and the individual brokers that are the designated officers for the corporations. For those of you that have listened to me and have E&O insurance, you should be okay. For the rest of you that may be getting sued or in fact have been sued, you will have to pay the attorney fees and attendant costs.
CALIFORNIA FINANCE LENDER LICENSEES WILL SOON BE REQUIRED TO HAVE A $250,000 NET WORTH INSTEAD OF $25,000
FACTS
There are two bills pending before the California Legislature, AB 34 and SB 36, which amend Financial Code section 22104 to require a net worth of all California Finance Lender licensees to maintain a net worth of $250,000 if they fire even one loan originator. The same is true for RMLA licensees wherein AB 34 amends Financial Code Section 50201. However RMLA licensees are already required to have a net worth of $250,000 so the net impact on them is zero. This bill has not yet been signed into law but if you are CFL licensed keep close track.
MORAL
If I was you and I was a CFL licensee, I would immediately go out and get a DRE license. These are both urgency statutes, which means they become law immediately on the governor signing them.
NO ADVANCE FEES CAN BE COLLECTED BY ANYONE IN CALIFORNIA INCLUDING ATTORNEYS FOR LOAN MODIFICATIONS ONCE GOVERNOR SIGNS SB 94
FACTS
California SB 94 is urgency legislation. Once the governor signs the bill, it immediately becomes law. No one may collect advance fees for performing loan modifications that is licensed by DRE, DOC or the State Bar of California under pain of a fine or criminal prosecution.
TWO CALIFORNIA MEN INDICTED IN LOAN MODIFICATION AND FORECLOSURE RESCUE SCAM
FACTS
Rene Alvarez was arrested on charges he defrauded 500 California homeowners, most of whom are Hispanic. Authorities are searching for his business partner Mariano Ortega. The two San Jose men have been accused of bilking these hundreds of people who needed help saving their homes from foreclosure.
The men owned M & R Contemporary Solutions and promised to help people reduce their monthly mortgage payments by selling their loans to a third-party at a discounted rate. The clients, who paid thousands of dollars in fees upfront, would get a new principal loan.
The Santa Clara County District Attorney's Office said the scheme may have generated more than $2 million in fees and no homeowner was ever helped. (ap9409sanjose)
MORAL
Law enforcement is getting tougher and tougher. I do seriously suggest you consult with your attorney now if you have been involved in anything like this. Remember, after law enforcement sees you there if a lot less the attorney can do by way of recommending legal mitigation alternatives.
DENVER REAL ESTATE AGENT AND MORTGAGE BROKER INDICTED FOR MORTGAGE FRAUD
FACTS
Cedric Lipsey and Philip A. Martinez, both from Denver, were indicted by a federal grand jury on charges of wire fraud as part of a mortgage fraud scheme, Lipsey was arrested by federal agents without incident. On Sept. 3, 2009 U.S. District Court Magistrate Judge Kristen L. Mix authorized his release on a $50,000 property bond.
According to the indictment, beginning in April 2004, and continuing thereafter until about March 2006, Lipsey, aided and abetted by Martinez, did knowingly devise and intend to devise a scheme to defraud lending companies that funded residential mortgage loans and to obtain money from them by means of materially false and fraudulent pretenses, representations, and promises.
Cedric Lipsey, a licensed real estate agent, held himself out as a successful real estate agent and investor. Philip A. Martinez was a loan officer and mortgage broker. Lipsey orchestrated the purchase and resale or refinancing of numerous residential properties, including the sale of one of his own homes, by paying individuals to participate as "investors" in what he referred to as an investment "opportunity." Lipsey and Martinez arranged for these so-called "investors" to use their good credit to obtain mortgage loans to purchase the properties. Shortly after the first set of loans that helped these individuals purchase properties, Lipsey caused them to sell the properties to a second set of buyers at substantially higher prices, with Lipsey and Martinez taking a combination of commissions, fees, and proceeds from the first and second transactions.
Lipsey falsely represented that the first buyers would be purchasing and had purchased the properties for less than their actual market value. The first sales were not distressed, as the defendants sometimes represented to facilitate their fraud. In fact, the first buyers purchased the properties at or near their market value, and there was no legitimate reason for the substantial increase in price when the same properties were resold shortly thereafter.
Lipsey and Martinez arranged to have a variety of fraudulent documents submitted to the lenders in support of the loan applications. These consisted primarily of documents purporting to show proof of the borrowers' employment, proof of the borrowers' assets, and sources of the borrowers' assets and incomes. The defendants also used forged signatures where necessary to facilitate the scheme. Furthermore, Lipsey enabled certain appraisers to create false reports, which reflected that the subject properties were comparable to the higher quality or otherwise more valuable properties, when they were not.
If convicted of wire fraud, which are counts one through 27, the penalty is not more than 20 years in federal prison, and up to a $250,000 fine, per count. If convicted of count 28, monetary transaction in property derived from unlawful activity, the defendant faces not more than 10 years in federal prison, and up to a $250,000 fine. (usattco9309)
FLORIDA REALTOR GETS 18 MONTHS IN FEDERAL PRISON FOR LYING TO LENDER ON MORTGAGE LOANS
FACTS
U.S. District Judge Virginia Hernandez Covington sentenced Klara Horvath of Clearwater Beach to 18 months in federal prison for conspiring to commit mortgage fraud, a violation of the mail and wire fraud statutes. The court also entered a money judgment in the amount of $770,000, the proceeds of the conspiracy.
Horvath was involved in a property flipping scheme in which she lied about her income to induce lenders to authorize mortgage loans for her to buy several waterfront and water-view properties. She intended to flip the properties for a profit. Instead, she went bankrupt and the properties are in various states of foreclosure. While property flipping itself is not a crime, lying to lenders to get loans is a crime. (usattymiddistfl81409)
MORAL
Lying about income, lying about owner occupied, lying about anything on a 1003 is a federal offense if the 1003 is submitted to a federally insured lender.
FOUR SENTENCED IN MICHIGAN FOR MORTGAGE FRAUD AND ORDERED TO PAY $1.2 MILLION IN RESTITUTION
FACTS
On Sept. 2, 2009 Myron L. Hooker Jr., of Detroit, Peter Garland, formerly of Southfield, Nicole Jackson, formerly of Detroit and Antwan Mcrea, of Detroit, were sentenced for obtaining fraudulent mortgage loans on numerous properties and splitting illegal proceeds in varying proportions among themselves.
Myron Hooker, the lead defendant in the case, was sentenced by U.S. District Court Judge Julian Abele Cook to serve 63 months in federal prison on wire fraud charges, and 40 months for conspiracy to commit wire and mail fraud, the terms to be served concurrently.
The remaining defendants were convicted of conspiracy to commit wire and mail fraud and received the following sentences:
Peter Garland was sentenced to serve 27 months in federal prison;
Antwan Mcrea was sentenced to serve 24 months in federal prison;
Nicole Jackson was sentenced to serve one day in federal prison, to be followed by three years supervised release and five months home confinement
In addition Hooker, Garland, Jackson and Mcrea were ordered to pay, in various amounts, more than $1.2 million in restitution among other conditions.
Information showed Hooker conspired and agreed with the other defendants to defraud and obtain money and funds from lending institutions, banks and individuals by obtaining fraudulent mortgage loans. Hooker orchestrated the fraud by coordinating and directing the activities of loan officers, straw buyers, collusive sellers, real estate appraisers, and closing agents, some of who are also charged in the indictment. For instance, Hooker obtained falsely inflated appraisals on real estate and paid straw buyers to act as purchasers of the property. To bolster the straw buyer's credit-worthiness, Hooker provided false income and asset documentation. Relying on the falsely inflated appraisals and fraudulent documentation, lending institutions approved and disbursed loans. These loans often subsequently went into default leaving the lending institutions with insufficient collateral and substantial losses, well in excess of $1 million. (usattyedmi9309)
MEMPHIS SEES FIVE INDICTED FOR MORTGAGE FRAUD
FACTS
On August 19, 2009 an indictment was returned against Michael Lusk, Mykisha Williams, Gloria Buntyn, Keith Threatt and Melanie Wilkes on charges of conspiracy, mail, wire, and bank fraud arising from their involvement in a flipping scheme.
The indictment alleges between approximately February 2003 and March 2008, Lusk who owned and operated several companies, recruited defendant Williams (his wife), and defendants Buntyn, Threatt and others (the sellers) to purchase residential properties. The sellers would then flip the properties to straw buyers including defendant Wilkes for substantially more than the sellers had originally paid. Lusk arranged for mortgage loan financing in the names of the straw buyers to finance the purchases of the properties from the sellers. In order to qualify the straw buyers for the loans, Lusk and others would submit false, fraudulent and fictitious loan underwriting and closing documents. The indictment also alleges that Rex McCasland, an appraiser who has previously entered a guilty plea to a criminal information charging him in the conspiracy, prepared appraisals containing false statements regarding the value and condition of some of the properties. The indictment also alleges that in addition to acting as a straw buyer, defendant Wilkes, who was commissioned as a notary public, notarized signatures of other straw buyers on closing documents when the buyers were not present at the closing. Lusk was also charged with two counts of money laundering. The indictment seeks forfeiture of $12 million, two residential properties purchased by Lusk, several vehicles, and two Rolex watches. (usattywdtn81909)
MORAL
The prosecutors went back to loans that occurred over six years ago. Note that if anyone reading this was overly creative in the last 10 years, let alone the last six years is vulnerable.
FORMER DALLAS COWBOYS FOOTBALL PLAYER AND 8 OTHERS INDICTED FOR MORTGAGE FRAUD
FACTS
A federal grand jury has indicted Eugene Lockhart Jr., a former player with the Dallas Cowboys, and eight others on various charges related to a mortgage fraud scheme he and the others allegedly ran from 2001 through 2005. FBI agents arrested Lockhart, of Carrollton, Texas, and co-defendant Lendell Beacham, of DeSoto, Texas, on Sept. 3, 2009.
All nine defendants are charged with various offenses related to the scheme, including conspiracy, bank fraud, and wire fraud. In addition to Lockhart and Beacham, the following defendants are named in the indictment: William Randolph Tisdale Jr., formerly of Dallas, but currently serving a federal sentence on unrelated charges; Hubert Jones III, of Garland, Texas; Patricia Ortega Suarez of Dallas; Suzette Switzer Hinds of Dallas; Michael Anthony Caldwell of Arlington, Texas; Donna Lois Kneeland of Grand Prairie, Texas; and Bryan J. Moorman, of Mesquite, Texas.
All nine defendants are charged with one count of conspiracy to commit bank fraud and wire fraud. In addition, Lockhart, Beacham and Moorman are each charged with one count of wire fraud; Tisdale is also charged with two counts of bank fraud; Jones is also charged with two counts of bank fraud and one count of wire fraud; Suarez is also charged with one count each of bank fraud and wire fraud; and Hinds is also charged with one count of bank fraud.
According to the indictment, Lockhart was involved with several real estate entities, including America's Team Mortgage; America's Team Realty; America's Team Funding Group; Ace Mortgage; Cowboys Realty; Cowboys Mortgage and KLT Properties. Tisdale was involved with Pinnacle Development and Realty Corporation; Atilla Capital Corporation; and KLT Properties. Jones was the President of Pinnacle Development and Realty Corporation and Director of Atilla Capital Corporation. Beacham was the owner of Cowboys Mortgage and was involved with Ace Mortgage. Defendants Suarez, Hinds and Kneeland were escrow officers at various title companies. Caldwell was the general manager at New Land National Title and Moorman was an appraiser.
The indictment alleges that the defendants ran a scheme in which they located single-family residences for sale including distressed and pre-foreclosure properties, and negotiated a sales price with the seller. They created surplus loan proceeds by inflating the sales price to an arbitrary amount substantially more than the fair market value of the residence.
They recruited individuals to act as nominee or straw purchasers or straw borrowers, promising to pay them a bonus or commission of between $10,000 and $20,000 for their participation in a particular real estate transaction. The conspirators caused the loan applications for each straw borrower to include false financial information, often including inflated false income figures to conceal the borrower's true financial condition so that the lender would more likely approve the loan. The conspirators falsely represented in loan documents that the straw purchaser intended to use the property as their primary residence. The indictment also alleges that the conspirators caused bogus and fraudulent marketing fees to be listed on loan closing documents to provide a means for the conspirators to receive surplus/excess loan proceeds.
The scope of the conspiracy involved approximately 54 fraudulent residential property loan closings resulting in the funding of approximately $20.5 million in fraudulent loans.
If convicted, the conspiracy and each bank fraud counts carries a maximum statutory sentence of 30 years in prison, a $1 million fine and restitution. Each of the wire fraud counts, upon conviction, carries a maximum statutory sentence of 20 years in prison, a $250,000 fine and restitution. They could also forfeit up to $20.4 million. (usattyndtx9309)
MORAL
Note two critical things: 1-The federal prosecutors went back to 2001 to find fraudulent loans; 2-They can go to prison up to 30 years but I have not seen one yet. I trust they all have good attorneys familiar with mortgage loans and how they work.
MAN PLEADS GUILTY IN HOUSTON TO MORTGAGE FRAUD
FACTS
Grant William Gondrezick pleaded guilty to conspiring to commit wire fraud on Aug. 14, 2009 before U.S. District Judge Melinda Harmon. Sentencing is set for Dec. 4, 2009, when he faces up to five years in prison, a fine of up to $250,000 and up to $1.9 million in restitution. Gondrezick will remain on bond pending his sentencing. Gondrezick is a current resident of Benton Harbor, Mich., and formerly of Houston.
According to the plea agreement, Gondrezick engaged in a mortgage fraud scheme between November 2004 and May 2005 that involved the sale of 24 homes. Gondrezick recruited straw buyers who entered sales contracts for homes which stated that substantial amounts (typically between $80,000 and $100,000) were going to be taken out of the seller's proceeds at closing and sent to one of Gondrezick's contracting companies for home improvements. These amounts were added to the asking price of the homes though neither the seller nor the nominee buyer asked for the improvements or hired Gondrezick's company. Gondrezick submitted invoices to the title companies in these amounts to justify the third-party disbursements, claiming that custom renovations or home theater work had been performed. In fact, no such work was performed. Because the nominee buyers never planned to live in the homes, the buyer never complained about the lack of renovations which had been paid out of the closing. Gondrezick received approximately $1.9 million in these disbursements out of the loan proceeds which totaled approximately $10 million.
Gondrezick further admitted that the straw buyers were paid to participate in this scheme and that the loan applications contained false information relating to the buyers income, employment, assets and intent to occupy the homes.
Co-defendants Tiffany Brooks, who worked as a loan processor, Dirk Minnifield, a Realtor, and Marc Jason Williams, who worked with Brooks as a loan processor, are also charged for their alleged involvement in this scheme and are scheduled for a Feb. 1, 2010 trial. (usattysdtx81409)
MORAL
Have you noticed how the federal prosecutions are increasing? If you are involved in anything like mortgage fraud in the last 10 years, which is the amount of time the federal prosecutors have to request an indictment against you, then consult an attorney now so that he/she can advise you of your rights in the event you are approached by anyone concerning questionable loans. Doing it now can save you untoward misery later.
OWNER OF BROWNSTONE CONSTRUCTION INDICTED FOR FRAUD
FACTS
A 16-count indictment charges Melvin Lendall Brown, the owner of Brownstone Construction, Houston, with wire fraud arising from an alleged multi-million dollar mortgage fraud scheme.
Brown was charged with 16 counts of wire fraud arising from a scheme to defraud residential mortgage lenders of approximately $5 million in loans in connection with home purchases in the Houston area. Brown surrendered to the FBI on Sept. 3, 2009 and appeared before Magistrate Judge Calvin Botley. Brown has been ordered released upon posting 10% of a $100,000 bond into the registry of the court. Arraignment has been set for Sept. 11, 2009.
According to the allegations in the indictment over a one-year period beginning in June 2004, Brown recruited individuals with good credit to act as borrowers in applications for residential mortgage loans to purchase one or more homes knowing the borrowers had no intention of making payments on the mortgage loans. Brown generally told each borrower he would buy the home in the borrower's name, make any monthly mortgage payments, find others to live in the home and pay monthly rent, take the home out of the borrower's name after a period of time and compensate the borrower. He then completed and caused to be completed Uniform Residential Loan Applications in the names of the borrowers that overstated their employment income and other assets, understated or omitted their debts and other liabilities, falsely represented that the borrowers leased the homes they resided in and received income from the rent and falsely claimed that the borrowers intended to occupy the newly purchased homes. In support of those fraudulent loan applications, Brown submitted and caused to be submitted false and fraudulent documentation, including sham lease agreements and bogus employment information.
At or near the closings for those home purchases, the indictment alleges Brown caused title companies to disburse the fraudulently induced loan proceeds to various individuals and entities, including Brownstone Construction. Brown represented to the title companies that Brownstone Construction had been hired for projects to improve those properties when, in fact, Brown did not perform or arrange for others to complete the projects. Brown allegedly received more than $500,000 of the fraudulently-induced loan proceeds, which he used for expenditures unrelated to those properties.
The maximum penalty, upon conviction, for each wire fraud count is 20 years in prison and a fine up to $250,000. (usattysodttx9409)
MORAL
Notice how they started in 2004. Anyone do any creative loans in 2004? 2005? 2006? 2007? 2008? See your attorney now if you want to mitigate the problem.
VIRGINIA ATTORNEY SENTENCED TO OVER FIVE YEARS IN FEDERAL PRISON
FACTS
Former attorney Kristina Marie Cardwell, of Virginia Beach, Va., was sentenced to 66 months in prison on Aug. 17, 2009 for her participation in a mortgage fraud scheme. She was also sentenced to serve a three-year period of supervised release after her incarceration and to pay $708,339.60 in restitution. Cardwell pled guilty to committing wire fraud on Dec. 4, 2008.
Cardwell was employed by law firms associated with co-defendant Troy Aurelius Titus for almost ten years. Cardwell admitted that between May and October 2005 she purchased three residential properties in Virginia Beach from entities associated with Titus. She purchased the properties in her own name and received mortgages on the properties in her own name, although both she and Titus intended for Titus to retain control over the properties and sell them to third parties at a later time. The funds taken from Cardwell's purchases were used to cover some of Titus's financial obligations. Cardwell admitted that while applying for the mortgages, she made false statements about her income, assets and financial liabilities. During the application process, thousands of dollars were moved into Cardwell's bank account to inflate her account balance then moved out of the account. In one instance, Cardwell authored a letter to a lender falsely claiming that she had received a $91,000 disbursement of funds from her firm. (usattyedva81709)
MORAL
Even if you plead guilty you can go to federal prison for small amounts if you are a professional such as an attorney.
MORTGAGE BROKER PLEADS GUILTY TO IN WASHINGTON, D.C. AND AGREES TO PAY BACK ALL COMMISSIONS
FACTS
Rasheeda M. Canty, of Upper Marlboro, Md., a former mortgage broker, pled guilty on Sept. 3, 2009 to engaging in an extensive mortgage fraud scheme involving properties in the District of Columbia and Maryland.
Canty entered her plea at a hearing in U.S. District Court of the District of Columbia. During the plea hearing, Canty admitted that the intended loss to victims from the scheme was over $1,000,000. Canty agreed to a forfeiture Order requiring her to pay the government $342,572, which represents the amount of commissions she received from lenders on the fraudulent transactions. Canty faces up to 30 years in prison under the federal fraud statute when sentenced next year, but likely will face 41-51 months of imprisonment under the Federal Sentencing Guidelines.
Canty was a mortgage broker with an office in Lanham, Md. Canty completed and filed, often by mail or interstate wire transactions, loan applications to financial institutions.
From about June of 2005, Canty and others conspired to defraud financial institutions for the purpose of influencing the financial institutions to approve mortgage loans. Canty and others conspirators did this by identifying distressed homeowners whose properties were facing imminent foreclosure and offering to purchase their properties. The conspirators told some of the homeowners that they could repurchase their properties within one year. Canty prepared fraudulent letters to have derogatory information deleted from the sellers' credit reports so that their credit scores would be increased. The conspirators would then seek out unsophisticated individuals, with good credit scores or credit scores that could be fraudulently raised, to act as straw purchasers, also known as credit partners, for these transactions, often in exchange for a $5,000 to $10,000 fee for the use of his or her personal information to purchase the respective property. The straw purchasers understood that one of the conspirators would make the monthly mortgage payments, and the straw purchaser would not be otherwise financially responsible for the property or required to live there. On some occasions, the conspirators would use the identification of innocent, unknowing victims to make these purchases. Canty obtained financial information from the straw purchasers which she then falsified in order to qualify the applicants for their mortgage loans. Canty inflated the straw purchaser's income, so it would decrease the debt-to-income ratio for a more favorable rate and loan approval. Canty knew the significance of debt to income ratio on a borrower's ability to obtain high mortgage loans. Canty knowingly falsified the loan applications in a number of ways, including, among others: inflating the gross income of the applicant; falsifying, often with fraudulent documents obtained from other conspirator, the job position of the applicant; failing to report the applicant's financial obligations, such as child support, falsifying rental verification documents; failing to report personal bankruptcies filed; and falsely reporting that the straw purchasers intended to occupy the properties as their primary residences.
Canty benefited by charging a large fee, usually five percentage points of the purchase price, on these transactions. Her commissions from lenders to which she had submitted fraudulent information was approximately $342,572. The conspirators benefited from this scheme by skimming equity from the properties, often after inflating the appraisals, and charging excessive brokerage fees. (usattydc9409)
MORAL
Notice that it is the same old story but different players?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
