Legal Corner

NATION STILL IN RECESSION WITH 85,000 JOBS LOST IN DECEMBER 2009

FACTS

Employers shed a more-than-expected 85,000 net jobs in December 2009. However, the unemployment rate held at 10%. The rate would have been higher if more people had been looking for work instead of leaving the labor force because they can't find jobs. The sharp drop in the workforce -- 661,000 fewer people -- showed that more of the jobless are giving up. Once people stop looking for jobs, they're no longer counted among the unemployed.

When discouraged workers and part-time workers who would prefer full-time jobs are included, the so-called "underemployment" rate in December rose to 17.3%, from 17.2% in November. That's just below a revised figure of 17.4% in October 2009. The labor force has shrunk by 1.9 million people since May 2009. Employers cut 4.2 million jobs in 2009. Nearly 15.3 million people are unemployed, an increase of 3.9 million during 2009. The economy has lost more than 7.2 million jobs since the recession began in December 2007. (ap1910)

MORAL

With this going on, collection agencies are becoming more aggressive in attempting to collect debts owed to creditors. Additionally, lenders are suing the consumers after foreclosure of the home to collect on the second mortgage that did not get paid at the foreclosure sale as well as suing the mortgage brokers including the corporate individual broker for the loss. We have seen a significant increase in these lawsuits. This being the case, bankruptcy is an option.

MORE ON THE NEW GFE AND THE NEW HUD-1

FACTS

The new Good Faith Estimate requires lenders to indicate the sum of all fees and charges from origination-related services on Page 2, Box 1 of the GFE. On the HUD-1 Settlement Statement, a lender may itemize the specific origination fees and charges in the empty 800 lines of the HUD-1.

If a seller is contributing to the borrower's closing costs or prepaid-expenses, the credit is not shown on the GFE, but is disclosed on the HUD-1. Seller credits are displayed on Section J, lines 204-209 of the HUD-1 with a corresponding offset in Section K, lines 506- 509 of the HUD-1. If a seller is contributing to more than one expense, the lump sum credit must be shown on the HUD-1.

The initial GFE and any subsequent GFEs must be included in the FHA case binder for endorsement purposes. The GFE must be placed on the right-side of the case binder. (alrgs12010)

MORAL

Practice makes perfect. And if you do not practice FHA and HUD will be sure to let you know the hard way.

NEW RESPA SPECIAL INFORMATION BOOKLET FOR CONSUMERS AVAILABLE ON HUD WEBSITE

FACTS

HUD makes available on its Web site the revised special information booklet pursuant to the Real Estate Settlement Procedures Act. The booklet provides information designed to assist individuals with the home-buying process. Under RESPA, lenders and mortgage brokers are required to give borrowers this booklet within three days of applying for a mortgage loan. (75fr423-1510)

MORAL

Be sure you are giving the borrower the new booklet or you will be in trouble in the event of a HUD audit.

NEW RULES ON VA MORTGAGE LOANS DUE TO RESPA CHANGES

FACTS

MORALRead the circular to stay out of trouble with VA and especially read ML 2009-53 to stay out of trouble with HUD.

A REMINDER ABOUT ONE PARTICULAR NEW LAW THAT MAKES IT TOUGHER ON CALIFORNIA REAL ESTATE LICENSEES

FACTS

Senate Bill 36 is effective as of Jan. 1, 2010. Among other changes in the bill are the following:

1.      A real estate licensee shall disclose his or her license identification number and, if that licensee is a mortgage loan originator, the unique identifier assigned to the licensee by the Nationwide Mortgage Licensing and Registry, on all solicitation materials intended to be the first point of contact with consumers and on real property purchase agreement when acting as agents in those transactions. This includes business cards. B&PC §10140.6(b)(1) .

2         A real estate broker who makes, arranges, or services loans secured by real property containing one to four residential units, and any salesperson who acts in a similar capacity under the supervision of that broker, shall notify the department by Jan. 31, 2010, or within 30 days of commencing that activity, whichever is later. The notification shall be made in writing, as directed, on a form that is acceptable to the commissioner. B&PC §10166.02(a).

3      An independent contractor who is employed by a mortgage loan originator may not engage in the activities of a loan processor or underwriter for a residential mortgage loan unless the independent contractor loan processor or underwriter obtains and maintains an endorsement as a mortgage loan originator under this article. Each independent contractor loan processor or underwriter who obtains and maintains an endorsement as a mortgage loan originator under this article shall have and maintain a valid unique identifier issued by the Nationwide Mortgage Licensing System and Registry. B&PC §10166.03(c).

4. Notwithstanding subdivision (a) of Section 10148, the business documents and records of real estate brokers described engaged in brokering, making or servicing mortgage loans and real estate salespersons acting under those brokers are subject to inspection and examination or audit by the commissioner, at his or her discretion, after reasonable notice. That real estate broker or salesperson shall, upon request by the commissioner and within the time period specified in that request, allow the commissioner, or his or her authorized representative, to inspect and copy any business documents and records. B&PC §10166.11(b).

5. The commissioner shall examine the affairs of each real estate broker who is required to notify the commissioner or obtain a license endorsement as a mortgage broker for compliance. These examinations shall also include a review of the affairs of all real estate brokers and real estate salespersons acting under the supervision of each real estate broker who is required to file reports with the department pursuant to Section 10166.07. The commissioner shall appoint suitable persons to perform these examinations. The commissioner and his or her appointees may examine the books, records, and documents of the licensee, and may examine the licensee's officers, directors, employees, or agents under oath regarding the licensee's operations.

B&PC §10166.12(a)

MORAL

Free translation of the above: 1. Put the unique identifier with the license number on your business cards, all advertising and flyers. 2. By Jan. 31, 2010 let the DRE know you are brokering, lending or servicing mortgage loans. 3. Independent contractor loan processors or underwriters must obtain the unique identifier and notify the DRE. 4. Business documents and records are subject to examination by DRE in addition to the normal licensed activity records. 5. DRE can examine all employees, officers and directors under oath whether or not they are licensed by DRE. Be prepared for the above in upcoming DRE audits.

CALIFORNIA MAN DRAWS THREE YEARS IN STATE PRISON FOR MORTGAGE FRAUD

FACTS

Robert Anthony Ceccarelli of Atwater, an unlicensed home mortgage broker who was convicted in 2009 of running a Ponzi scheme which bilked about a dozen people out of $1.2 million, was sentenced on Jan. 6, 2010 to three years in prison on 22 counts including grand theft, fraud and forgery. The crimes happened from November 2004 to October 2006, according to Deputy District Attorney Walter Wall, the prosecutor in the case. Ceccarelli brokered home mortgage loans under the Heritage Funding Group and dealt in private hard-money loans on the side. A restitution hearing in the case is scheduled for March 1, 2010. (mercsnstr1810)

MORAL

He now has three years to think it over. He was unlicensed so it is curious how he had lenders fund the loans without a license.

CALIFORNIA ACCOUNTANT AND WIFE ENTER MORTGAGE FRAUD GUILTY PLEAS

FACTS

On Jan. 8, 2010, accountant Kevin Sluga, and his wife, Leslie Sluga, the father- and mother-in-law of former Realtor David Crisp, entered guilty pleas in federal court to charges of felony wire fraud and aiding and abetting. There plea is conditioned on their daughter Megan Balod pleading guilty later. They are scheduled to be sentenced on July 12 for their crimes in the federal case related to operations of the former Crisp, Cole & Associates.

Their daughter Megan Balod, who was named in documents outlining the plea agreements of her parents, is supposed to enter a plea Jan. 25, 2010.

Kevin Sluga has admitted use of fake CPA letters in support of loans taken out by Balod and his other daughter, Jennifer Crisp.

The Slugas will likely be asked to testify against David Crisp and his former business partner, Carl Cole both of whom lost their real estate licenses in 2008 after the state determined they had engaged in mortgage fraud at their real estate firm, Crisp, Cole & Associates, better known locally as Crisp & Cole Real Estate. Cole and the Crisps have not been charged criminally, but they face civil litigation from defrauded mortgage lenders.

FBI and IRS agents raided 13 local sites associated with the company, including the Slugas' home, in 2007. Kevin Sluga, through his accounting firm California Business Solutions (later renamed Comprehensive Business Solutions), created fraudulent letters verifying employment in mortgage applications related to Crisp, Cole & Associates and its mortgage brokerage, Tower Lending. His fake CPA letters were used to buy more than $12.6 million worth of property that defrauded lenders of nearly $4 million, according to his guilty plea.

Leslie Sluga bought three homes totaling about $2.5 million, defrauding lenders of $912,000, after making false statements about her employer, income, other loans and whether the purchased properties would be owner-occupied and thus eligible for more favorable loan terms. (bksfld.com1810)

MORAL

As I always said, the family that plays together stays together.

OWNERS OF VESTA STRATEGIES INDICTED FOR $25 MILLION PONZI SCHEME

FACTS

On Jan. 6, 2010, John D. Terzakis, of Hinsdale, Ill., and Robert E. Estupinian, of San Jose, Calif., were arraigned in federal court for 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering, in an indictment that accused the pair of operating their company, Vesta Strategies, as a Ponzi Scheme.

A federal grand jury in San Jose, indicted Terzakis and Estupinian on Dec. 30, 2009. The indictment alleges Terzakis was the majority owner of Vesta Strategies and controlled its business activities. Estupinian was the former chief executive and minority owner of Vesta until approximately December 2007. Vesta, based in San Jose, was a qualified intermediary for the purpose of conducting tax-deferred real estate exchanges pursuant to Internal Revenue Service Code Section 1031 (26 U.S.C. § 1031).

The indictment alleges that Terzakis and Estupinian solicited and caused others to solicit prospective clients to deposit funds with Vesta based upon, among other false representations and promises, the promise that Vesta would hold those deposits and return them as promised. Instead, the defendants stole client funds for their own use, and also that they used new client deposits to pay redemptions owed to earlier clients.

Shortly before the collapse of the scheme in July 2008, Terzakis and Estupinian sued each other in federal court in San Jose, blaming one another for misappropriating Vesta client deposits. The case number for those matters is C 07-06216 JW. In August, 2009, a federal civil class action was filed in San Jose federal court against Terzakis, Estupinian and others by the Vesta clients alleging misappropriation of client funds. That matter, case number C 09-02388 JW, is also pending.

Terzakis was arrested in Hinsdale on Jan. 6, 2010, and made his initial appearance in federal court in Chicago on that same date. He is currently in home confinement with electronic monitoring. Terzakis' next scheduled appearances are on Jan. 13, 2010 in Chicago for further bail proceedings, and on Jan. 28, 2010, in San Jose federal court for further case proceedings before Magistrate Judge Patricia V. Trumbull.

Estupinian was arrested in San Jose on January 6, 2010, and made his initial appearance in federal court in San Jose on that same date. He is currently in home confinement with electronic monitoring, secured by a $1 million bond. His next scheduled appearance is at 10 a.m. on Jan. 20, 2010, in San Jose federal court for further bail proceedings before Magistrate Judge Trumbull.

The maximum statutory penalty for each count of wire fraud and conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349, respectively, is 20 years imprisonment, a fine of $250,000 or twice the gross gain or twice the gross loss to any victim, and restitution. The maximum statutory penalty for each count of money laundering, and conspiracy to launder monetary instruments, in violation of 18 U.S.C. §§ 1957 and 1956(h), respectively, is 10 years imprisonment, and a fine of $250,000 or twice the amount of the criminally derived property involved in the transaction. The government is also seeking forfeiture from the defendants in the amount of $24,633,341.34. (usattyndca1610)

MORAL

Do you know anyone doing 1031 exchanges? Is their money safe? Do you know the gentlemen under indictment? Do you have business dealings with them?

COLORADO AG SUES LENDER FOR MISREPRESENTATION

FACTS

Alternative Lending of Colorado, Colorado Springs, Col. and two of its officials have been sued by the Colorado Attorney General's office for misrepresenting the interest rates, monthly payments and other terms of loans they made, many of which ended up in foreclosure.

The lawsuit was filed Oct. 8, 2009 in Fremont County District Court, and it alleges that 84 of the 192 loans made by April Bigler, the top loan originator for Alternative Lending, between 2004 and 2008 in El Paso, Fremont and Pueblo counties ended up in foreclosure because she led borrowers to believe they were taking out a fixed-rate loan and instead found later they had gotten two variable-rate loans with much higher interest rates and monthly payments than they expected.

Bigler is alleged to have also failed to tell borrowers that their loan payments didn't include property tax and insurance costs, repeatedly delayed closings to leave borrowers with few alternatives to the loans she arranged, inflated borrowers' incomes on loan applications and worked with appraisers to inflate the value of homes being mortgaged, the lawsuit alleges. As a result, borrowers ended up with loans they could not afford, according to the lawsuit.

Although Bigler allegedly made hundreds of loans during the four-year period, the Attorney General's office has information about only the 192 loans, the lawsuit said. Most of the loans were made on homes in Fremont County, although some were in the Springs and Pueblo, it said.

The lawsuit also names James W. Dale III, who is managing general partner of Alternative Lending, as a defendant for failing to enforce the company's policies or discipline Bigler for violating them. The civil lawsuit charges Bigler with 15 violations of Colorado consumer protection laws, Dale with nine such violations and the company with four violations, and seeks fines of up to $10,000 per violation and restitution to all victims of the alleged scheme.

The Colorado Board of Real Estate Appraisers also has revoked the license of one appraiser, put another on probation for 2½ years and fined another $500 in connection with their work for Bigler, according to a news release issued by the Attorney General's office. The Colorado Real Estate Division also is seeking to revoke Bigler's license and fine her $16,000. (gazette.com102709)

MORAL

Do not mess with the Attorney General of any state unless you have a lot of money to give the state.

INDIANA MAN DRAWS SEVEN YEARS IN A FEDERAL PENITENTIARY FOR MORTGAGE FRAUD

FACTS

On Jan. 4, 2010, Circuit Judge David F. Hamilton sentenced Robert Andrew Penn to seven years in prison for his part in a multi-million dollar mortgage fraud scheme in the Indianapolis area. Penn had entered guilty pleas to charges of wire fraud, conspiracy to commit wire fraud, and money laundering. Co-defendant Tamara E. Scott was sentenced to 24 months in prison for conspiracy to commit wire fraud and money laundering, and co-defendant Stephen Scott Brown, was sentenced to 37 months in prison for conspiracy to commit wire fraud and money laundering.

A total of nine individuals have been charged in these schemes. Jerry Jaquess and Timothy Brown were previously sentenced to 30 months and 37 months in prison, respectively, and the remaining cases are currently pending before Circuit Judge Hamilton. The investigation is continuing as to other individuals who were involved in the mortgage fraud schemes.

Between November 2003 and August 2005, at least 136 fraudulent loans, totaling $16,613,850, were obtained by Penn and his numerous business entities, assisted by Scott Brown, and others. The loans were obtained from Argent Mortgage, The MoneyStation, and People's Choice Mortgage/Countrywide Home Loans. Penn accepted responsibility for all 136 of these loans. Busy little beaver, wasn't he?

Penn and his associates owned and operated numerous business entities which were created and used to illegally obtain loans on residential real estate properties in the Indianapolis area. Penn controlled and directed the activities of the other people involved in the illegal activities. Scott was married to Penn during the commission of all of the mortgage fraud crimes, and was involved in the business activities of most of the entities used to purchase, sell and manage properties in the fraudulent transactions. Brown was involved in the mortgage brokerage business and assisted in brokering many of the loans with Argent Mortgage and The MoneyStation.

All of the loans involved in the schemes went into default, and the lenders either foreclosed on the homes or took other action, including granting deeds in lieu of foreclosure or allowing short sales of the properties.

Scott's involvement in the business included attending closings and signing fraudulent documents, receiving checks for fraudulent loan proceeds, depositing those checks to corporate bank accounts, obtaining cashiers' checks to pay co-conspirators, and directing others in the disbursements to be made from the corporations. As part of the Windsor Village transactions, Scott, at Penn's direction, added the names of investors to bank accounts of numerous entities and forged their signatures on bank account signature cards, to make it appear that the investors had assets which they did not have. Scott's sentence reflected her involvement in approximately 130 fraudulent loans. The total amount of those loans was $14,931,300. Her total fraud loss was calculated at $6,149,300.

Stephen Scott Brown's participation included filling out false loan applications, obtaining false documents, obtaining inflated appraisals, and submitting the fraudulent loan packages to the lenders, knowing the documents to be false. Brown received $1,500-2,000 for each fraudulent loan which he brokered. He also assisted in funding some of the fraudulent down payments. Stephen Scott Brown's sentence reflected his involvement in 43 fraudulent loans. The total amount of those loans was $6,575,300. The actual loss was calculated at $2,793,412.64.

According to Assistant United States Attorney Susan Heckard Dowd, who prosecuted these cases for the government, Circuit Judge Hamilton also ordered Penn, Scott and Brown to serve three years on supervised release following their incarceration and make restitution as follows: Penn: $11,411,722.32; Scott: $2,793,412.64; and Brown: $11,122,891.82. (usattysdin1510)

MORAL

Notice haw the federal prosecutors are going back to loans that occurred seven years ago Notice how Penn got 7-11? Seven years in prison and $11 million in restitution. I guess 7-11 did not work for him.

SEVERAL NORTH CAROLINA PEOPLE INCLUDING A PARALEGAL THAT HAD WORKED AT A LAW FIRM ARE SENTENCED FOR MORTGAGE FRAUD

FACTS

On Jan. 5, 2010 two Whiteville, N .C. men were sentenced for their part in a $6 million mortgage fraud scheme that also involved an area mortgage broker, an appraiser and a paralegal. Daniel Adam Rooks was sentenced in U.S. District Court in Raleigh to 87 months in prison and three years' supervised release, and was fined $5,000. Alford Eugene Rooks received five years' probation, a $5,000 fine and was ordered to forfeit $36,000. He pleaded guilty June 1 to conspiracy to commit money laundering.

In October 2009, three other defendants named in a 2008 indictment were sentenced. Stanley Garfield Williams Jr., of Bolivia, was sentenced to 70 months in prison and five years' supervised release. The indictment described Williams as a licensed mortgage broker.

Henry Clay Blake Jr., of Riegelwood and an appraiser, received a deferred sentencing. If, after 12 months, he meets certain requirements, charges will be dropped. Part of those requirements is that he surrenders his appraiser license and his real estate broker license, according to court records. Blake surrendered his residential appraiser certification in September, according to Roberta Ouellette, assistant attorney general with the N.C. Appraisal Board.

Cynthia Tilley Greer, of Clarendon, was a paralegal and notary at a Whiteville law firm, which was not identified in the indictment. She was sentenced to 36 months in prison, with five years' supervised release. She also was fined $2,000.

From roughly January 1998 until April 2004, the defendants and others devised a scheme to defraud homebuyers, banks and other lenders to obtain money and property from homebuyers and lenders, by materially false and fraudulent pretenses, the Justice Department said in October 2009.

According to a Justice Department, Daniel Rooks bought about four tracts of land in Whiteville, subdivided them, put trailers on them and sold them to low-income people in the area.

Rooks lied about the cost of the property to the buyers, the payment amounts and his ability to secure loans, the Justice Department said. He would then take the buyers' Social Security numbers and names, and turn them over to Williams, a mortgage broker, to finance the homes. Williams then falsified the loan applications and sent them for approval, the Justice Department said.

When the first round of sales foreclosed because buyers couldn't afford payments, Williams bought the properties and the scam started anew, the Justice Department said. (starnwsonlin152010)

MORAL

Notice the government went back to mortgage fraud that occurred 12 years ago.

THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE