FTC FILES SIX NEW LAWSUITS AGAINST LOAN MODIFICATION COMPANIES AND ATTORNEYS
FACTS
On Nov. 24, 2009 the Federal Trade Commission filed six lawsuits, making it 28 cases it has brought against loan modification companies since the housing crisis began. It alleged that defendants falsely claimed that they would obtain mortgage modifications that would make consumers' monthly mortgage payments substantially more affordable. After charging large up-front fees, they often did little or nothing to help homeowners renegotiate their mortgages. According to the FTC's complaints, some of the defendants allegedly falsely claimed a high success rate and promised to give consumers refunds if they failed to modify their mortgages, and others misrepresented that they were affiliated with the federal government or consumers' mortgage lenders or servicers. Each of the cases allege violations of the FTC Act. In addition, several cases allege violations of the Telemarketing Sales Rule or the Credit Repair Organizations Act. In each case, the FTC is asking the court to stop the defendants' deceptive claims and make them forfeit their ill-gotten gains.
In five of the cases, a court has issued a temporary restraining order and froze the defendants' assets.
Crossland Credit Consulting Corp. and its co-defendants allegedly operated deceptive mortgage refinancing, credit repair, and loan modification schemes. According to the FTC complaint, they falsely promised to use proceeds from mortgage refinances to promptly pay off consumers' original loans, but often pocketed the money instead. They misrepresented that they would repair consumers' credit records by removing truthful negative items from their credit reports so they could obtain mortgage loans, and charged advance fees for those services in violation of both the CROA and the TSR. They also falsely claimed that they would modify consumers' mortgages to obtain substantially lower interest rates and monthly payments. The court immediately barred the practices and froze the defendants' assets pending a hearing.
The complaint was filed in the U.S. District Court for the Southern District of Florida. At the FTC's request, the court ordered a halt to the unlawful operations, pending resolution of the case.
Crowder Law Group and its co-defendants allegedly misrepresented themselves as a federal government agency or affiliate. Their personalized postcards to consumers stated, "You may qualify under the new government bailout to refinance your current mortgage..." Some postcards described the defendants' programs as federal programs and were signed by an attorney in the consumer's state. The defendants charged a $2,000 fee. The court immediately barred the practices and froze the defendants' assets pending a hearing. Some of the defendants have stipulated to a preliminary injunction with an asset freeze. The complaint was filed in the U.S. District Court for the Middle District of Florida.
The Debt Advocacy Center charged consumers $1,500 in advance and promised a refund of $1,500 or more if they failed to successfully obtain a loan modification, according to the FTC complaint. The Commission alleged that when consumers did not get a loan modification, The Debt Advocacy Center told them that the $1,500 was only for advice and educational materials and refused to return payments from consumers. The Debt Advocacy Center also claimed a 90% success rate and allegedly debited consumers' bank accounts and charged their credit cards without authorization. In April 2009, The Debt Advocacy Center received a letter from the FTC warning that its ads may violate federal law, but it did little to change its practices. At the FTC's request, the court ordered a halt to the unlawful operations and froze the defendants' assets, pending resolution of the case. The complaint was filed in the U.S. District Court for the Northern District of Ohio, Eastern Division.
On its Web site and in unsolicited telephone calls to distressed homeowners, First Universal Lending and its principals allegedly said they would negotiate mortgage modifications that would reduce homeowners' monthly mortgage payments. The FTC complaint alleged that they charged consumers huge up-front fees, sometimes as much as $7,000, and told them if they stopped paying their mortgages it would help them in negotiations with lenders. In many cases, they failed to obtain loan modifications for consumers. At the FTC's request, the court ordered a halt to the unlawful operations and froze the defendants' assets, pending resolution of the case. The complaint was filed in the U.S. District Court for the District of Florida, West Palm Beach Division.
Kirkland Young and its manager allegedly misrepresented themselves as consumers' mortgage lenders or servicers or their affiliate. The company left telephone messages for consumers stating that they wanted to approve the consumers for a loan modification. By telephone, they discussed specific interest rates and monthly payments and promised that they would stop foreclosure. The complaint alleges that they failed to keep their promises to obtain loan modifications to make payments more affordable. At the FTC's request, the court ordered a halt to the unlawful operations and froze the defendants' assets, pending resolution of the case. The complaint was filed in the U.S. District Court for the Southern District of Florida.
Truman Foreclosure Assistance and its co-defendants charged fees ranging from $1,500 to $3,000, a substantial portion of which was due up-front. According to the FTC complaint, they falsely claimed a 99% success rate and stated that hiring them entailed little risk because their services were backed with a "100% Money Back Guarantee," which they allegedly refused to honor in several instances. The complaint was filed in the U.S. District Court for the Southern District of Florida.
The FTC also announced an amended complaint charging additional defendants in a previously filed mortgage relief services case against Dinamica Financiera LLC, adding as defendants Oficinas Legales de Eric-Douglas Johnson, Inc. and former attorney Eric Douglas Johnson, which continued the defendants' operations after the court entered a preliminary injunction on June 3, 2009. At the time defendant Eric Douglas Johnson joined the operation, California law permitted attorneys to accept up-front fees for mortgage modification services. The original complaint, filed in May 2009, alleged that the defendants falsely promised Spanish-speaking consumers who were behind in their mortgage payments that they would stop foreclosure. The complaint and proposed amended complaint were filed in the U.S. District Court for the Central District of California.
In addition to these cases, the FTC has reached settlements in three previously filed cases against mortgage relief scams and a partial settlement in another case.
First, the Commission has obtained an agreed upon federal court order barring deceptive practices by Peter J. Porcelli, Safe Harbour Foundation of Florida, Inc., Silverstone Lending LLC, and Silverstone Financial LLC, who allegedly lured homeowners into high-cost, short-term loans secured by an additional mortgage on their homes, in violation of federal law and a previous court order against them. The settlement also resolves a contempt action against those defendants. The settlement order bars the settling defendants from engaging in specific lending practices in violation of the Home Ownership and Equity Protection Act, including making a HOEPA loan without regard to a consumer's repayment ability. In addition, they are barred from lending practices in violation of HOEPA and Regulation Z's disclosure and misrepresentation provisions. The order imposes a $2.79 million judgment that will be suspended based on the defendants' inability to pay. The full judgments against them will become due immediately if they are found to have misrepresented their financial condition. A separate settlement order against co-defendant Southeast Advertising Inc. applies the same prohibitions and bars the company from accepting the assignment of a loan with any of the characteristics described in the orders. The orders were filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.
The FTC has obtained a stipulated order that bans Thomas Ryan from offering mortgage relief services. It alleged that his Web sites -- bailout.hud-gov.us and bailout.dohgov.us, which featured an official looking seal and the names of federal homeowner relief plans -- misled homeowners that he was the U.S. government. The settlement order also bars Ryan from making misrepresentations about financial related or any other goods and services. The order was entered in the U.S. District Court for the District of Columbia.
FTC has agreed to settlements in its case against Freedom Foreclosure Prevention Services LLC that, pending court approval, would ban Jeffrey Segal and Michael Workman from working in the loan modification industry and bar them from misrepresenting material facts in selling any goods or services. The settlements also would impose suspended judgments of $5,462,432, based on the defendants' inability to pay. Segal and Workman allegedly ran a bogus mortgage foreclosure relief operation that misrepresented both the loss mitigation services it offered and the earnings potential of the business opportunity it sold. The orders were filed in the U.S. District Court for the District of Arizona.
The FTC has obtained a partial settlement that, pending court approval, will prohibit the allegedly deceptive practices of Brian Blanchard, sole owner of B Home Associates LLC d/b/a Expert Foreclosure, and Michael Grieco, both of whom are part owners of Home Assure LLC. The settlement orders prohibit Blanchard and Grieco from misrepresenting material facts about any goods or services and selling or otherwise disclosing personal information about anyone who paid them. The orders impose suspended judgments of $3,849,919.84 and $3,721,807.84 on Blanchard and Grieco, respectively. They falsely promised consumers that they could stop foreclosures, regardless of how much money consumers owed, charged up to $2,500 in advance, and promised a full refund if they failed. The action continues against other defendants who have not settled. The orders were filed in the U.S. District Court for the Middle District of Florida. (ftc112409)
MORAL
FTC is federal and federal people are like bulldogs. Once they get hold they do not let go.
NEW TILA REQUIREMENT NOW EFFECTIVE
FACTS
There is a new requirement under the Truth in Lending Act for notifying consumers of the sale or transfer of their mortgage loans. The purchaser or assignee that acquires the loan must provide the required disclosures in writing no later than 30 days after the date on which the loan is sold or otherwise transferred or assigned. Compliance with the interim final rule is optional for 60 days from the date of publication; during this period, covered persons would continue to be subject to the statute's requirements. This interim final rule was effective Nov. 20, 2009. Compliance with this interim final rule is optional until Jan. 19, 2010. This applies to closed end loans and HELOC loans on owner occupied properties. There is civil liability for failure to comply.
This new rule applies to any person that acquires ownership (legal title) of the loan whether they regularly extend credit or not as long as they acquire title to more than one loan secured by real property in a 12-month period.
The disclosures must identify the loan that was acquired or transferred and contain the following: (1) The identity, address, and telephone number of the covered person that owns the mortgage loan; (2) the date of the acquisition or transfer; (3) contact information that the consumer can use to reach an agent or party having authority to act on behalf of the covered person; (4) the location of the place where the transfer of the ownership of the debt is recorded.
After Jan. 19, compliance becomes mandatory. This does not apply to loan servicers who act solely as the servicer of the loan even though title to the debt may be in the name of the servicer for purposes of servicing the loan. (71 FR 60143; 15 USC §1641(g), 15 USC §1640(a), 12 C.F.R. §226.39)
PHOENIX MAN SENTENCED TO 18 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
Brandon Azadegan of Phoenix, was sentenced Nov. 23, 2009 to 18 months in prison for an April 2009 conviction for his role as an investor selling four homes to a straw buyer. Azadegan pleaded guilty to one count of Conspiracy to Commit Wire Fraud and one count of Transactional Money Laundering. Six other co-conspirators have pleaded guilty for their involvement in the conspiracy. Gheorge Babeti was sentenced to 14 months in federal prison in August 2009. The remaining defendants will be sentenced in the next few months.
Azadegan sold his four homes to Babeti, a straw buyer who submitted loan applications to lenders containing false information. Other co-conspirators received cash back at closing. In addition to purchasing Azadegan's four homes, Babeti purchased six others. All went into foreclosure. (usattyaz112409)
MORAL
Remember, there is no parole in the federal criminal system. Therefore, you serve your time. If you are involved as a straw buyer, or had something to do with questionable loans in the last nine years (the statute of limitations is 10 years to file criminal charges), I suggest you consult with your attorney for purposes of mitigating the problem.
CALIFORNIA DRE BANS DAVID CRISP FROM ANY REAL ESTATE LICENSED ACTIVITIES FOR THREE YEARS
FACTS
The California Department of Real Estate has barred former real estate agent David Crisp from working in any real estate-related field for three years. The ban applies to all real estate firms, including lenders, banks, escrow companies and title companies. Crisp had initially intended to fight the order and two hearings were set, but he failed to show up to either one and lost by default, according to Department of Real Estate spokesman Tom Pool. The DRE authority to ban someone from real estate entirely was granted effective 2009 with the passage of SB 1737.
In fall 2007, FBI and IRS agents raided 13 sites related to Crisp, Cole and Associates, the now defunct real estate firm Crisp ran with partner Carl Cole. The state revoked the licenses of Crisp and Cole in 2008 after finding them guilty of fraud and dishonest dealings, among other charges, in an administrative hearing.
In September, Jerald Allen Teixeira, a loan officer who worked for Crisp and Cole for more than a year, pleaded guilty to being a part of mortgage fraud. He was offered leniency in exchange for promising to assist federal prosecutors. (bkrsfildcal112309)
MORAL
Now, not only can your license be revoked, but DRE can ban you from any work in the real estate field including but not limited to real estate, mortgages, title work, finance and escrows!
NEVADA SENIOR FBI AGENT MICHAEL RAWLINS ON TAKING OUT THE MORTGAGE FRAUD BROKERS AND FORECLOSURE RESCUE SCAMMERS
FACTS
Senior FBI agent Michael Rawlins is on the Mortgage Fraud Task Force. His office has generated 40 criminal cases since March 2008, with all but one resulting in guilty pleas. Since arriving in Las Vegas in March 2008 he has generated 40 criminal cases, all but one of which are ending in guilty pleas.
In the coming weeks he and the bureau's white-collar crime squad hope to send dozens more cases to federal prosecutors, and dozens more after that.
The reality is that there are thousands of cases in Nevada. Complaints of real estate fraud are still pouring into the Southern Nevada Mortgage Fraud Task Force Hotline.
Rawlins says "Our goal is to weed out these bad individuals, to prosecute them and to get them out of the industry." He is preparing for the December trial of the lone defendant who has refused to plead guilty. "It's realistic to assume we can prosecute a few hundred of these individuals, which would represent only a fraction of the scammers. A fraction, but a significant fraction. The idea we can prosecute everyone is impossible. That will never happen. But we are going to cast as wide a net as possible."
Agent Rawlins is alleged to have said the FBI is moving on two fronts. One is to dismantle crooked operations that ginned up phony loan, appraisal and escrow documents, and made fortunes buying and selling properties through straw purchasers. As an example he cited the defendant who insists on going to trial next month. He is accused of fabricating bank paperwork used in fraudulent property transactions.
The other is to target the latest racket, where operators are running print, television and radio ads luring at-risk homeowners for large upfront fees pledging to realign their mortgages or "rescue" them from foreclosure. (lasvgssun11269)
MORAL
He "ain't kiddin'" folks. I have worked a case or two where special agent Rawlins was involved. Don't play with the FBI. I want you to take special note that the second of the two fronts he mentions was rescuing people from foreclosures and loan modifications. Be forewarned.
OREGON MORTGAGE BROKER DRAWS 41 MONTHS IN FEDERAL PRISON FOR 14 FRAUDULENT LOAN APPLICATIONS
FACTS
On Nov. 24, 2009 Senior United States District Judge Robert E. Jones sentenced Lee Howlett of Portland, Ore., to 41 months in prison, to be followed by three years of supervised release. Howlett pled guilty in February 2009 to a single count of conspiring to make false statements to financial institutions.
Howlett previously operated a mortgage company in Portland, in the name of Taylor Made Mortgage. According to information produced by the government at sentencing, over a two-and-a-half year period, from 2003 to 2005, Howlett submitted 14 false loan applications in connection with the purchase or refinancing of seven properties. Those applications contained false employment information, false income information, false information about the source of down-payments, and false information about the true buyer. In addition, each of these applications was accompanied by a fraudulent appraisal. The appraisals were submitted using the names of appraisers who did not actually complete the appraisals, or, in a few instances, of an appraiser who was nonexistent. As a result of these falsehoods, Howlett obtained more than $3.7 million in financing, of which he personally got $1.3 million. Losses to the financial institutions as a result of these false loans were estimated at between $400,000 and $1 million. (usattyor112409)
MORAL
He pled guilty and drew 41 months in federal prison and remember, the federal prison system has no parole. This gentleman may have needed more help depending on how the sentencing memorandum of the defendant read. It should make interesting reading.
FEDERAL INDICTMENTS HANDED DOWN IN OREGON CHARGING 13 INDIVIDUALS OF MAJOR MORTGAGE FRAUD OF OVER $19 MILLION
FACTS
The principals of the now-defunct Desert Sun Development Inc. face more than three dozen charges, including taking a total of $19 million from banks for commercial construction that was never done and an employee residential real estate investment program that involved lying to banks and falsely inflating participants' assets and income.
Federal investigators believe the conspiracy involved insiders -- including loan officers, mortgage brokers and bank employees.
There are five grand jury indictments handed down Nov. 19, 2009 that outline the alleged conduct of each of the defendants.
The first indictment accuses Desert Sun president Tyler Fitzsimons of Prineville, along with vice president Shannon Egeland La Grande, of conspiring with former office manager Jeremy Kendall of Redmond and Bend business owner John Partin, to defraud four banks, one home loan corporation and a credit union out of a total of $9 million.
The commercial construction scheme allegedly began in December 2004, a few months after Desert Sun Development was incorporated, according to the Oregon Secretary of State Corporations Division. On Dec. 2, 2004, Kendall allegedly submitted the first fraudulent draw to Community First Bank seeking payment for construction costs. The indictment does not say how much money Kendall requested but alleges that, on Dec. 15, 2004, Fitzsimons bought a $160,676 cashier's check from Community First Bank, which he later used to pay for two 2005 Dodge Vipers. The request was the first of 15 fraudulent draws Kendall submitted to a total of six banks and lenders through June 2007, according to the indictment.
To support the requests, Kendall allegedly gave the bank a fraudulent contract with John Partin's Bend business, Advanced Steel Systems Inc., which sold building kits used for commercial construction projects. Kendall also is charged with giving the banks and lenders at least seven false invoices generated by Advanced Steel and Desert Sun.
The draws, which were supposed to pay for five commercial construction projects in Redmond and Bend, totaled $4.25 million, according to the indictment. The money was paid out despite the fact that Desert Sun "failed to construct any building ...," the indictment reads.
In a separate indictment, former Umpqua Bank employee Robert Brink of Junction City, is charged with making false statements to a financial institution in connection with the commercial case against Desert Sun. The indictment says Brink was employed as a loan officer, who, as part of his job, approved draw requests and verified that commercial construction funded by the bank was under way.
He is charged with recommending approval for $1.62 million in loans to Desert Sun for construction of a 15,000-square-foot building in Redmond and a 23,000-square-foot building in Bend.
The indictments do not specify where all of the money went, but Fitzsimons and Egeland are charged with using about $425,000 to pay personal expenses. In addition to buying the Dodge Vipers, Fitzsimons is accused of writing a $140,000 company check in May 2006 for a down payment on a Ferrari F430 Spider F1. Later that month, Fitzsimons allegedly bought a $69,323 cashier's check from Mid Oregon Credit Union and used it to pay for a speedboat and trailer. And the indictment charges Egeland with writing a $55,000 company check in that same month to pay for his divorce settlement.
A third indictment charges Fitzsimons, Egeland, Kendall and six others with orchestrating a residential real estate investment scheme targeting Desert Sun employees as well as their friends and family. Participants who bought a previously built home were told Desert Sun would help them with mortgage payments until the house sold, according to the indictment. Purchasers agreed to split the profits from the home sales with Desert Sun. Those who opted to have Desert Sun build them a home agreed to use the company as their general contractor. "(Desert Sun) agreed to pay all interest payments on the construction loan during construction but told participants that they could deduct those payments on the participants' taxes," the indictment reads. The group is charged with depositing money to boost participants' bank account balances and lying about where the money came from, preparing and submitting fraudulent home loan applications and forging participants' signatures.
Fitzsimons, Egeland and Kendall are charged with transferring or directing the transfer of more than $350,000 in total into seven participants' personal checking accounts. The transfers, including one made to Egeland, were designed to inflate the participants' assets long enough to get bank balance verifications that were sent to potential lenders. Once building began, or even if it didn't, Kendall allegedly submitted draw requests to lenders for the cost of construction.
"While (Desert Sun) constructed some homes, many of those homes were foreclosed on by lending institutions due to the borrowers' inability to pay the mortgages," the indictment states. "Some homes were only partially constructed, and some homes were never built."
In support of the draw requests, Kevin Palotay, owner of Building Solutions LLC in Bend, is charged with creating a bogus invoice for building materials in July 2007. The invoice was allegedly then submitted to West Coast Bank.
The federal indictment names Sisters Realtor Garret Towne as the "employee house program promoter." He is charged with forging the signature of a participant identified only as "M.T" and submitting fraudulent home loan applications to West Coast, Community First and Wells Fargo banks.
Mortgage brokers Shaun Little, of Waterfield Financial Group, and Pine Mountain Mortgage's Del Barber Jr. -- both of Bend -- are charged with preparing and submitting fraudulent home loan applications in 2006 and 2007 in connection with the Desert Sun residential real estate investment program.
In April 2008, the Oregon Department of Consumer and Business Services issued an order revoking Barber's license and ordering him to pay $15,000 in penalties for "repeatedly" submitting fraudulent loan applications unrelated to the Desert Sun case.
The federal indictment relating to the Desert Sun residential investment program also charges then-West Coast Bank loan officer Jeffrey Sprague and loan processor Barbara Hotchkiss, both of Bend, with preparing and submitting fraudulent loan applications in February, March and May 2007.
A fourth indictment charges Bend resident and escrow agent Teresa Ausbrooks with lying about her income and failing to report a debt owed to Tyler Fitzsimons on a 2007 loan application submitted to Columbia River Bank. The bank approved a $434,321 loan, according to the indictment. "While Columbia River Bank provided over $300,000 to (Desert Sun) for the purchase of the lot and the construction of the house, no home was ever built ..." the indictment reads.
In a separate indictment, former Redmond resident Michael Wilson, who once worked as a construction superintendent for Desert Sun, is charged with lying about his wife's income and failing to disclose a $47,000 short-term loan from Desert Sun allegedly used to inflate his personal bank account balance. The indictment states that Countrywide Bank FSB, which merged with Bank of America in September 2009, issued a $500,000 loan to Wilson to buy an existing home built by Desert Sun.
None of the people named in the indictments has been arrested. The 13 are scheduled to appear in federal court in Eugene on Dec. 16 for arraignment.
The charges listed in the indictments carry a range of maximum penalties, from five years in prison and a $250,000 fine to more than 30 years in prison and a $1 million fine for each count of bank fraud and wire fraud affecting a financial institution. (usattyor112009-bndbltn.com112909)
MORAL
Notice the Ausbrooks indictment. She is charge with a federal crime for failing to list one debt in the liabilities section of her loan application.
WASHINGTON STATE UPDATES ITS LOAN ORIGINATOR REGULATIONS TO COMPLY WITH THE S.A.F.E. ACT EFFECTIVE JAN. 1, 2010
FACTS
I am not going to list all of them but just some key factors. You should go to the State of Washington Website for Mortgage Brokers to download all regulations. I suggest you initially used "Draft 4" as a model since it highlights deletions and additions and thereby allows you to focus more.
Now for the key changes. These are some but not all of the changes, I am listing the ones I consider most relevant. This does not mean the ones I didn't list are not relevant.
WAC 208-620-010-Definitions:
"Loan Modification" includes among other things "forbearance."
Loan processors acting as independent contractors must have mortgage loan originator licenses.
WAC 208-620-105-Exemptions from licensing.
Individuals negotiating loans on behalf of immediate family members.
Licensed attorneys subject to conditions.
WAC 208-620-284 - If your mortgage originator license is denied you have 20 days to request an administrative hearing.
WAC 208-620-320-Amount of surety bond for consumer loan license varies between $30,000 and $150,000 based on volume.
WAC 208-620-328-Loan volume must be reported quarterly.
WAC 208-620-371-Cannot employ anyone convicted of felony in last seven years and cannot employ anyone convicted of felony related to mortgage fraud, dishonesty or money laundering.
WAC 208-620-374-Notify NMLSR whenever any originator leaves your employ.
WAC 208-620-500 - Notify NMLSR 10 days before closing any branch office.
WAC 208-620-510- Covers disclosures about rates to consumers within three days of receiving applications. Saturdays are included days. For brokered loans must give the borrower the GFE and TIL within same three days.
WAC 208-620-511- Provide the borrower with a clear, brief one page summary to help borrowers understand their loan terms.
WAC 208-620-513-Before pulling credit need at minimum borrower's name, income, social security number, address and value of property and proposed loan amount.
WAC 208-620-555-Allowable fees. Nonrefundable, prepaid, loan origination fee not to exceed 4% of the first $20,000 and 2% thereafter on the funded portion. There are other tight controls on fees to the lender, broker and third parties. Read this section very, very carefully.
WAC 208-620-565-Broker can collect YSP under conditions and processing fees allowed if paid to independent contractor loan processor.
WAC 208-620-700- Subject to written notice to the borrower you may be both the salesperson on the real estate transaction and the loan originator. No fees or compensation may be paid directly by the borrower to the loan originator, only the company. This must be read very carefully in conjunction with 208-620-555.
MORAL
The regulations contain 129 pages. They are important. I recommend you read them very, very carefully. If you have questions we may be retained for interpretation but they can be read and analyzed. There is a lot of data in the regulations and I have barely scratched the surface. I put what I think you will find most interesting, but there is a lot of very important information here you should read carefully to protect your license and unique identifier.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
