HOW NOT TO USE THE NEW GFE LEGALLY
FACTS
Under the new regulations as you know, the new good faith estimate must be used and given to the borrower within three days of receiving or completing the loan application. The new GFE requires complete accuracy plus or minus 10% for certain third-party fees. However, what is a loan application?
Many loan officers and lending institutions are sidestepping the new, price-bound GFE by giving the potential borrowers "work sheets" and "loan scenario" forms that do not have the GFE legal requirements for accuracy. In effect they are substitutes for the new GFEs but not subject to the requirements of the new GFE law. This allows for errors to be made without any violation of the new laws.
The worksheet is said to have as much of the information as the GFE and is issued only when the borrower does not provide or is specifically asked not to provide key information that constitutes an "application" under the Department of Housing and Urban Development's definition in the rules. Among other things the loan officer do not ask for and even tell the borrower not to give them the address of the property to be financed and therefore the GFE does not have to be completed since the property is not known.
Loan officers using this "technique" defend it because of the harshness of the new regulations on costs contending that HUD is forcing them to provide hard-and-fast estimates on services or charges that they cannot always know with the accuracy required by HUD, especially with title and settlement services.
HUD's position as of Jan. 17, 2010 is quoted as being that although the reform rules were silent on the subject of work sheets, such forms "can be a useful tool when the consumer doesn't want to give enough information" to constitute a formal application according to Vick Bott, deputy assistant secretary for single-family housing. However Ms. Bott is paraphrased as saying if worksheets become too commonplace and threaten to water down the consumer protection on settlement fees provided by the GFE reforms, her agency will need to take a thorough look at the situation and possibly issue updated guidelines to lenders. (lat11710)
MORAL
Where there is a will, there is a way!
LOOK FOR STRONGER ENFORCEMENT IN HUD FHA AUDITS
Nearly 9% of all Federal Housing Administration-insured single-family loans are 90-days or more past due, according to the FHA. The November 2009 report shows that FHA has an 8.94% default rate, up over 2% from 6.53% in November 2008. FHA officials are expected to unveil several moves to tighten underwriting and possibly increase mortgage insurance premiums. (bkrun11510)
MORAL
This lawyers' opinion: HUD/FHA will be asking for more indemnifications from lenders in their audits of approved mortgagees. The insurer is trying to keep its capital reserves in the black and there's renewed speculation in the industry that it's only a matter of time before HUD will be forced to ask Congress for a bailout of the fund. To date, FHA officials have said they can avoid a bailout. Later this month, agency officials are expected to unveil several moves to tighten underwriting and possibly increase mortgage insurance premiums. Meanwhile, FHA lenders originated $26.6 billion in single-family loans in November, down 11% from the previous month, according to the activity report. Purchase mortgage transactions totaled $15.8 billion and comprised 60% of FHA originations.
PAY A REFERRAL FEE AND GET VIOLATED BY HUD/RESPA ENFORCEMENT EVEN ONE YEAR AFTER YOU STOPPED
FACTS
Alyeska Title Guaranty Agency allegedly had a sham employment agreement with Kirk Wickersham, owner of FSBO System Inc., of Anchorage, Alaska. The title agency settled Real Estate Settlement Procedure Act Section 8 kickback allegations made against it by the Department of Housing and Urban Development and the Alaska Division of Insurance. Per the settlement agreement posted on the HUD website, Mr. Wickersham was a "title marketer" for Alyeska, marketing the agency's services to FSBO. It is alleged the employment agreement was actually a way to pay referral fees to Mr. Wickersham, who supposedly did not provide any actual services for the payment. The relationship was terminated one year ago, on Jan. 14, 2009, and Alyeska states it has no other such relationships. In the agreement Alyeska denied any RESPA or state law violations, and that entering into the agreement was not an admission of guilt. The agreement required Alyeska to pay $50,000 to both HUD and Alaska DOI ($25,000 each), within 30 days of the effective date; plus an additional $50,000 within one year. The agreement states the payments are not a civil money penalty or fine. There is a third payment totaling $55,000 that is scheduled to be made within two years. This payment will be waived if there are no further RESPA or state law violations and Alyeska remains in compliance with the settlement agreement. Mr. Wickersham is not a party to the agreement. (bkruniv11410)
MORAL
Alyeska stopped a year ago and it still cost them $100,000. That kind of tells you how serious HUD is about RESPA enforcement.
U.S. AG ANNOUNCES FURTHER INCREASE IN AGENTS AND ATTORNEYS TO PROSECUTE MORTGAGE FRAUD
FACTS
The Attorney General of the United States announced the FBI is investigating more than 2,800 mortgage fraud cases and he hopes to have 50 new FBI agents and 155 new attorneys working on financial crime cases this year. (lat11510)
MORAL
More agents more attorneys equals more investigations and even more prosecutions. As I have said so many times, if you have been involved in any creative loans, especially stated income and false documents, I suggest you get advice from legal counsel now before the FBI comes to see you later.
CALIFORNIA SHUTS DOWN LOAN MODIFICATION BUSINESS OF TWO MEN ALLEGEDLY WORKING WITH ATTORNEYS
FACTS
The state has closed the loan modification businesses of two Southern California men for allegedly lying to consumers about being supervised by attorneys. The two operated firms under the trade names Guardian Credit Services, Green Credit Solutions, Green Credit Services, Erickson Law Group, Green Credit Law and PacWest Funding. The state bar, which acted with the Orange County Superior Court in the case, has worked with other state and local officials to crack down on companies promising homeowner aid but not delivering it. The bar alleges Curtis Melone of Huntington Beach and Christopher Fox of Redondo Beach promised to help homeowners facing foreclosure keep their homes but did nothing. (nmn11410)
MORAL
Keep doing loan modifications. The State Bar of California will look to your license and other enforcement agencies may look to curtailing your freedom.
IF YOU WANT A MODIFICATION OR LOAN FORBEARANCE IN CALIFORNIA AND THE LENDER AGREES TO DELAY THE FORECLOSURE, GET IT IN WRITING OR YOU MAY FIND YOURSELF WITHOUT A HOME
FACTS
Borrowers stated the lender agreed not to foreclose while making payments. Borrowers were making up arrears in payments and lender foreclosed anyway. Borrower sues. Trial court says lender wins.
The 4th Appellate District says affirmed. A notice of default and election to sell under a deed of trust is valid. Any agreement by which a lender agrees to forbear from exercising the right to foreclose under a deed of trust securing an interest in real property comes within the statute of frauds. The forbearance agreement must be signed by a representative of the lender in order to be valid. The borrowers failed as a matter of law to establish that the lenders could not plead the lack of writing as a defense because they asserted only payment of money as past performance. (Secrest v. Security Nat. Mortg. Loan Trust 2002-2 (2008) 167 CA4th 544)
MORAL
Any extensions you get on behalf of the borrower or as the borrower get in writing. No writing equals no extension to which the lender is bound. I have seen this happen time and again where the borrower is negotiating a modification and the lender representative says the borrower has an extension and lo and behold the property is sold at foreclosure sale while the negotiations are still ongoing. Get it in writing or be prepared to lose your home. If they said it have them confirm it and you also confirm it in writing but have the lenders representative sign it.
CALIFORNIA MORTGAGE BROKER AND GIRLFRIEND ARRESTED FOR IDENTITY THEFT
FACTS
Cesar Cruz, a Rialto mortgage broker and Realtor and his girlfriend have been charged with conspiracy to defraud at least 23 people in the Inland Empire. Cruz was allegedly soliciting personal information from potential clients he called for home loan modifications. He would then change the victim's address with the U.S. Postal Service and have it forwarded to one of three vacant homes in Rialto, sheriff's officials said. Once Cruz collected the mail, he would apply for credit cards using the victim's information.
A search warrant was served in mid-November 2009 and investigators said they found bank statements, credit cards and bank checks belonging to 23 victims.
Warrants were issued for Cruz and his girlfriend Jeannette Torres. They were arrested Dec. 23 and booked at West Valley Detention Center in Rancho Cucamonga. Both have posted bail and were released from custody. (sbcosun123109)
MORAL
I hope they have good attorneys. San Bernardino County and Riverside County District Attorneys are not known for their leniency.
FOUR PEOPLE IN SAN DIEGO PLEAD NOT GUILTY TO FLEECING ABOUT A DOZEN HOMEOWNERS
FACTS
Four people (Edmondo Rubi, Joseph Encarnarcion, along with husband and wife Benjamin and Gloria Hebron) were indicted, accused of running an investment scheme that defrauded more than a dozen Filipinos out of their homes. The four pleaded not guilty to dozens of felony counts in San Diego Superior Court and denied all charges. The accused includes a former felon, his long time business associate and a pair of real estate brokers.
At the arraignment, Deputy District Attorney William La Fond characterized the operation as a continuation of a $24 million Ponzi scheme led by one of the defendants.
Edmundo Rubi was convicted in 2005 of masterminding a scheme that promised 425 people, mainly South Bay Filipinos, 3% returns by investing in U.S. government obligations that would be sold at a profit overseas.
Once Rubi was released from prison in 2008, Mr. La Fond said, he began setting up his next operation, enlisting his longtime business partner and co-defendant, Joseph Encarnacion, to recruit investors. Mr. La Fond outlined a scheme in which investors were given an opportunity to get involved with several projects, including the financing of a high-speed rail between San Francisco and Las Vegas, a low-income housing development in San Diego and massive nursing homes in Northern California. Some of the victims were homeowners struggling with foreclosure who were also promised help, Mr. La Fond said. In all, 22 people transferred ownership of 34 properties to various trusts run by the group. "All these material representations were false," Mr. La Fond said.
Rubi faces 54 felony charges and Encarnacion 15. Their attorneys denied the allegations and sought reductions in their bail amounts, set at $5 million and $1 million, respectively. Rubi's attorney argued that his bail should be set at $25,000 because he has been a San Diego County resident for the better part of
15 years, has three children and has never failed to appear in court.
Encarnacion's attorney asked for his bail to be reduced because it's out of proportion to the alleged crime, he does not have a criminal record and he served in the Navy for more than 25 years.
Judge John Einhorn denied the requests, but scheduled a bail hearing for Encarnacion at the next proceeding,
Two other defendants, Benjamin Hebron and Gloria Hebron, also denied the charges. They face 44 felony counts each, and in a grand jury indictment are described as serving as president and treasurer of two fraudulent trusts set up for the alleged scheme.
A jury trial date has been set for March 3, but Einhorn said it could be pushed back given the volume of evidence, which includes the grand jury indictment and a joint investigation by the District Attorney's Office and the FBI.
The San Diego Union-Tribune first exposed the operation in March, when several individuals struggling to make mortgage payments said they had paid hundreds of dollars in upfront fees and deeded their properties to the group, but received no benefit.
In an interview with the newspaper last March, Rubi and the Hebrons admitted they had collected $30,000 in rent and fees, and not modified a single mortgage. They defended their actions as legal, saying they never guaranteed results, and homeowners willingly transferred their properties. (sduntrb11310)
MORAL
I trust they have the money to defend themselves. They are all innocent until proven guilty but the expense in proving innocence and mitigation is high. Do you know any of these names?
NEW YORK MAN ARRESTED FOR PURPORTED INVESTMENTS IN FORECLOSED REAL ESTATE PROPERTIES
FACTS
On Jan. 14, 2010 Home Free Realty Inc. president Elviston Ramasir of Manorville, N.Y., was arrested on a complaint charging him with orchestrating a scheme involving purported investments in foreclosed real estate properties.
Home Free Realty Inc. is a New York State corporation with an office in East Meadow, N.Y., which provides foreclosure-related real estate services. While serving as its president, Ramasir obtained investments from a victim investor on the pretense that he would use the money to purchase foreclosed real estate properties, and subsequently resell them at a profit. Ramasir falsely represented that these sales would yield a 40% profit on the initial investment, typically within 90 days. From June 2008 through December 2009, the investor gave Ramasir approximately $2,048,850 for purported investments for himself and several other victims who had given the investor money to invest with Ramasir.
Though the defendant did pay some of the investor's money back as purported returns, Ramasir did not purchase any properties. Instead, he stole over $1.5 million for his personal use, using the proceeds of the fraud for, among other things: transfers of over $600,000 to an E*Trade bank account; payments of nearly $200,000 in credit card debt; student loan payments in excess of $40,000; financing of approximately $29,852 for at least one Mercedes-Benz; air travel; and luxury hotels in locations such as Paris, Las Vegas and Atlantic City.
As part of the scheme to defraud, Ramasir falsely represented over time that he had obtained ownership of approximately 38 properties in Brooklyn and Queens for the investor's benefit. All but one of these 38 properties either did not exist or were owned by individuals or entities that had no apparent affiliation with the investments he solicited from the investor.
In addition to providing the investor with purported returns, he supported his misrepresentations with false documentation -- including a forged check, fake deeds of sale, and a document fraudulently purported to be a freeze order issued by the Federal Bureau of Investigation.
Ramasir is charged with one count of wire fraud. If convicted, he faces a maximum potential penalty of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss derived from the offense. (usattysdny11410)
MORAL
Usually, federal prosecutors freeze the assets at the time of arrest or indictment so it is difficult for one person to defend themselves unless they paid an attorney well in advance of the indictment or criminal complaint which they usually do not do.
FLORIDA MAN PLEADS GUILTY TO MORTGAGE FRAUD IN MASSACHUSETTS COURT
FACTS
On Jan. 14, 2010 four government agencies in Boston announced the guilty plea of Samuel Jean-Louis of Florida to 12 counts involving wire fraud. That is how mortgage fraud is charged since the defendants use the telephone and faxes during the mortgage transactions and the lenders wire the funds. It also gives the government 10 years in which to seek an indictment.
At the plea hearing the prosecutor told the court that had the case proceeded to trial the government's evidence would have proven that in or about 2005 and 2006, Jean-Louis participated with others in a conspiracy to defraud mortgage lenders in connection with certain property transactions in and around the Boston area. Jean-Louis acted as a mortgage broker and recruiter in the underlying scheme to defraud. Specifically, Jean-Louis prepared several mortgage loan applications containing false representations for certain property transactions and caused these applications to be submitted to mortgage lenders. As a result, the mortgage lenders wired funds, via interstate wire, to a bank account of a Boston attorney responsible for closing the loans. Jean-Louis also recruited a "straw" borrower for a fraudulent loan application on another property transaction during the course of the conspiracy.
Sentencing is set for June 29, 2010. Jean-Louis faces up to five years' imprisonment, to be followed by three years of supervised release, and a $250,000 fine on the conspiracy count, and 20 years' imprisonment, to be followed by up to three years of supervised release, and up to a $250,000 fine on each count of wire fraud. (usattyma11410)
MORAL
It would appear the government is also looking to forfeit the assets of the defendant Jean-Louis.
NEW JERSEY FEDERAL JUDGE SENTENCES WAYNE PUFF WHO DEFRAUDED MORTGAGE LENDERS OF OVER $100 MILLION TO
18 YEARS IN FEDERAL PRISON
FACTS
On Jan, 14, 2010 Wayne Puff of Old Bridge, N.J., the ringleader of a massive Ponzi scheme which defrauded hundreds of investors and mortgage lenders of more than $100 million through a purported real estate investment business, was sentenced to 216 months in federal prison. U.S. District Judge Jose L. Linares also ordered Puff to pay approximately $101.1 million in restitution and to serve three years of supervised release upon the completion of his prison term.
Puff, the founder and president of NJ Affordable Homes Corp., pleaded guilty before Linares on April 9, 2009, to one-count Information that charged him with conspiracy to commit wire fraud. The criminal Information filed by the government described a broad fraud conspiracy spanning from 1998 to September 2005, during which Puff and his co-conspirators obtained more than $120 million from individual investors by falsely touting the profitability and security of their investment in NJAH, which were secured, in part, with fraudulent mortgage loans.
Beginning in late 2003, in need of substantial cash to maintain and conceal the ongoing fraud, Puff and others created a second investment program referred to as "Our Money, Your Credit." Under this program, Puff and others solicited investors who would serve as purported purchasers of NJAH properties, and would allow NJAH to use their names and credit histories for purposes of obtaining mortgage loans for multiple lenders, and NJAH would assume all fees and costs associated with the transactions. The buyers, however, did not pay money in connection with the purchases, although the closing documents that were submitted to the mortgage lenders and Department of Housing and Urban Development falsely stated they did.
Puff recruited so-called "independent" licensed real estate appraisers to create false and misleading appraisals that grossly inflated the true value of NJAH properties. Many of the mortgage liens were essentially worthless, as they were premised on inflated and fraudulent appraisals.
Puff and others also submitted a variety of fraudulent documents to the lenders, such as false mortgage applications, false sales contracts, false employment verification data, false investor statements, and false HUD-1 Settlement Statements. The false HUD-1s were often ultimately submitted to HUD and the Federal Housing Administration, which, in turn, insured the loans.
Puff and others shredded thousands of incriminating documents to conceal the fraud. Puff also obstructed justice by submitting false information to the New Jersey Bureau of Securities in violation of a consent judgment entered by a New Jersey state court judge. The fraud required the participation of numerous individuals, both in and out of the company, including a high-level NJAH executive and outside licensed real estate appraisers and lawyers. In total, 10 of Puff's coconspirators have pleaded guilty and admitted their roles in the conspiracy. (njtody.net11510)
MORAL
Notice how they went back 12 years to 1998. Over $120 million in loans and loss of over $100 million. This is the biggest one I know of to date. Nevertheless he will spend 18 years in federal prison and as I have said before, there is no parole in the federal system.
SEVEN PEOPLE IN CINCINNATI INDICTED ON 33 COUNTS FOR MORTGAGE FRAUD
FACTS
On Jan. 13, 2010 a federal grand jury indicted six members of a family and one of their employees charging them with operating a mortgage fraud conspiracy between 2004 and 2009. Charged are Debbie Sferrazza; her husband Salvatore; her brother Keiron Ashurst; her daughter Whitney Bonapfel; her son James Ashurst and his wife Heather; along with employee Tabatha Sturgill.
The indictment alleges that Debbie Sferrazza worked in the mortgage lending and real estate industry through her management of several different companies, including Alpha Mortgage Lending LLC; Alpha Mortgage Exchange LLC; S.D.S. Processing LLC (also known as S.D.S. Inc.); and Target Loan Packaging (also known as Target Loan Processing). The indictment accuses the seven of operating a mortgage fraud conspiracy that involved family members and mortgage brokerage businesses from at least 2004 to 2009.
The 33-count indictment charges the defendants with conspiracy, wire fraud, mail fraud, money laundering, and the filing of false tax returns.
Each count is punishable by a maximum sentence of 20 years' imprisonment, except for filing false income tax returns, which is punishable by up to three years' imprisonment.
According to the indictment, Debbie Sferrazza, Tabatha Sturgill, and the others used their mortgage lending companies to submit fraudulent loan applications for herself, her family and her customers. The loan applications showed a pattern of inflating the borrower's income by, among other methods, creating false verifications of employment, fake paystubs, fake Social Security benefit letters and fake W-2 forms. The loan applications sometimes misrepresented the borrower's assets, supported by fake bank statements or verifications of deposit. The loan applications allegedly misrepresented the identity of the mortgage broker or contained forged signatures for the borrower or other names involved in the loan application process. The loan applications sometimes misrepresented whether the property would be used as a primary residence or whether another property had been sold by the borrower.
In one allegation, a false and forged rental agreement was submitted to the lender relating to the property to be purchased. In another instance, property was transferred to an unemployed mother-in-law who had no intention of paying for or ever living in the property. At the closings, the defendants would often misrepresent the source of the borrower's funds at closing and divert the sale proceeds back through Debbie Sferrazza's family. The scheme also included the sale of properties at inflated values in order to obtain additional funds from the mortgage lenders.
The gross funds that were allegedly fraudulently obtained in these 14 transactions are in excess of $3 million, and the net amount of funds laundered through the Sferrazza family is allegedly in excess of $900,000. (usattysdoh11410)
MORAL
As I said in the last e-Alert, the family that commits fraud together (if proven) stays together (in federal prison). Six family members equal six lawyers because of conflict of interest issues ethically. I hope the family of six has enough money for six lawyers. There were 17 governmental agencies that participated in this investigation. That is how serious mortgage fraud is treated
PAST OWNER/SUPERVISOR OF TEXAS MORTGAGE COMPANY SENTENCED TO OVER THREE YEARS FOR FALSIFYING HUD LOAN DOCUMENTS
FACTS
On Jan. 8, 2010 James Ragnauth, was sentenced to 37 months in federal prison for mortgage fraud. He had been on the lam for about six weeks and apprehended on a shrimp boat in the Caribbean Sea by the U.S. Coast Guard in March 2009. He also ordered to pay approximately $205,000 in restitution.
Ragnauth pleaded guilty in September 2009 to one count of causing false entries to deceive the U.S. Department of Housing and Urban Development. Ragnauth incorporated J.R. Mortgage, located in Dallas, and was in charge of the company's day-to-day loan operations and supervised several loan officers, including co-defendant Rosa Irene Galvan and Ignacio Juan Jasso, charged in a related case.
Ragnauth admitted in documents filed in court that in 1997 and 1998, he and loan officer Jasso knowingly and willfully made false entries in HUD statements in connection with several residential loans. As part of their scheme to defraud HUD, Ragnauth and Jasso created, and caused others to create and later submit to HUD, several false and fraudulent documents, such as a Uniform Residential Loan Application which contained false information, a fraudulent W-2 form and a fraudulent credit report. At the sentencing hearing Ragnauth was found to be the organizer leader of a mortgage fraud scheme that caused the fraudulent funding of 30 residential loans, totaling more than $1.8 million.
Both Galvan and Jasso have pleaded guilty to their roles and are scheduled to be sentenced on Feb. 26, 2010.
The U.S. Coast Guard captured Ragnauth, a naturalized citizen, when he was attempting to flee to his native Guyana. Guyana is located just east of Venezuela on the northern coast of South America. Ragnauth made it about half way to Guyana, being arrested in international waters between Cuba and Haiti. (usattyndtx1810)
MORAL
Did you notice the federal indictment involves loans that occurred with HUD 13 years ago! Watch your step if you were overly creative.
HUD INSPECTOR GENERAL SUBPOENAS 15 FHA DIRECT-ENDORSEMENT LENDERS IN INVESTIGATION INTO HIGH DEFAULTS AND CLAIMS RATES
FACTS
The HUD Inspector General has subpoenaed 15 Federal Housing Administration direct-endorsement lenders as part of an investigation into why these firms have the highest default and claim rates in the nation.
Even though subpoenaed the 15 lenders will continue to originate FHA-insured mortgages. This investigation is "focusing on many of the worst performers in the FHA portfolio," said FHA commissioner David Stevens at a Washington press conference. The FHA chief said he supports the IG's effort to determine why these lenders have such a high claim rate on mortgages that are only 30 months old.
The lenders issued subpoenas include: First Tennessee Bank N.A., Memphis; Alethes LLC, Lakeway, Texas; Security Atlantic Mortgage, Edison, N.J.; Pine State Mortgage of Georgia; Birmingham Bancorp Mortgage, West Bloomfield, Mich.; Alacrity Financial Services, Southlake, Texas; Assurity Financial Services, Englewood, Colo.; D and R Mortgage Corp. Farmington, Mich.; Webster Bank, Cheshire, Conn.; Mac-Clair Mortgage Corp., Flint, Mich.; Americare Investment Group, Inc., Arlington, Texas; 1st Advantage Mortgage, Lombard, Ill.; American Sterling Bank, Independence, Mo.; Sterling National Mortgage, Great Neck, N.Y.; and Dell Franklin Financial, Columbia, Md.
These lenders have originated at least 1,000 FHA loans and their claim rates exceed their peers by 200%. (nmn11210)
MORAL
I have audited you all for over 20 years. I have consistently told you to watch that "comparison ratio" in "Neighborhood Watch." These 15 are going to feel heat.
HELP FOR HOMEOWNERS PROGRAM TRANSFERRED TO HUD AND EXCLUDES MILLIONAIRES AS DEFINED
FACTS
In accordance with the Helping Families Act, the interim rule prohibits mortgagors with a net worth that exceeds $1 million from participation in the H4H program. For purposes of the statutory ban on millionaires, the interim rule defines net worth as the total dollar amount of all the liabilities subtracted from the total dollar amount of all the assets (other than retirement accounts) of the mortgagor. A homeowner may only own one residence if using this program. There are exceptions if property is inherited. DTI to be computed at time borrower applies for H4H program help. Among other declarations the mortgagor must declare it has not deliberately defaulted on the loan. There are other changes so if you are involved in the program read 24 CFR Part 257 very carefully and if you want more understanding read 75 FR 007. (24cfrpart257)
MORAL
Who is even doing these loans? All I have been reading indicates the lenders avoid these loans almost like they are a plague.
CALIFORNIA SAFE REGISTRATION FOR UNIQUE IDENTIFIER
FACTS
California Department of Real Estate requires all licensees that are involved in mortgage loans to register with the DRE by Jan. 31, 2010 at the latest using Form RE 866. It is interesting to note that this form is not listed in the forms list on the DRE web site. Yet you are supposed to use it to notify the DRE by Jan. 31, 2010. It will be interesting to see how the DRE will enforce this when the form is not readily available. (ca dre real estate bulletin winter2009)
Some of you have called me about the unique identifier requirements and the issue of "financially responsible." There is no set definition. In this attorney's opinion one can be financial responsible when filing bankruptcy. One example would be if you have a terminally ill child or spouse (God forbid) and no insurance due to being laid off. Obviously, anyone in their right mind will have to agree you spend the money for health care for your child or spouse and bills come later. To me this is financially responsible.
However, this does not mean the licensing agencies agree with me. We will represent you when you get your unique identifier if the Department of Real Estate or the Department of Corporations declines to let you broker loans when you have the identifier if one of the reasons is not financial responsible. Of course, if you have a felony conviction for mortgage fraud, that is another matter. I would say do not waste your money. No state that is part of the SAFE system will allow you do mortgage loans.
This is just one instance of a viable exception to the rule. However, none of the rules have been tested and as far as I am aware, no rules are yet promulgated by DRE or DOC to interpret the language as to various issues including but not limited to "financially responsible."
But in all events remember:
1. Register with the DRE by Jan. 31, 2010 on form RE 866.
2. Obtain your endorsement as a Residential Mortgage Loan Originator on or before Dec. 31, 2010.
3. The Mortgage Loan Originator license endorsement must be renewed each year. The endorsement is the nationwide identification number known as a "unique identifier" assigned by the National Mortgage Licensing System and Registry. The real estate license itself is still good for four years.
4. If you are intent on registering as a mortgage loan originator take the NMLS&R test now. I understand it is a bear. I have been told there is an exam preparation provider. Cost is allegedly $300. Take it! It is better to pass the first time. Especially when you need 75% to pass.
MORAL
As to the form RE 866 did I miss it somewhere? The only thing I see is a partial form where you have to start filling it out before you get to see the next part of the same form. But nowhere do you see the blank form in its entirety as you do in the forms file of the DRE website.
CALIFORNIA MAN SENTENCED TO OVER SIX YEARS IN PRISON FOR MORTGAGE FRAUD
FACTS
On Jan. 11, 2010 Jared Tornow, a San Clemente man who acted as a mortgage broker under several umbrellas, including the Orange-based Lucrativo Real Estate Solutions Inc., was sentenced this to 70 months in federal prison for his conviction on tax evasion, mail fraud and credit card fraud charges related to a mortgage fraud scheme that caused at least $7 million in losses.
United States District Judge David O. Carter, who called this scheme one of the most sophisticated, sentenced Tornow and arrogant frauds he had ever seen. According to court documents, Tornow fraudulently provided mortgage services from 2001 until 2006 through several companies, including Lucrativo Real Estate Solutions, which he operated with Mikhail Kosachevich during the last two years of the scheme. Tornow solicited homebuyers and assisted them in obtaining mortgages, often by submitting fraudulent paperwork to lending banks. As a part of the scheme, Tornow and others inflated borrowers' income and assets on loan applications, leading lenders to believe that their clients were creditworthy. In an effort to substantiate the false statements made on the loan applications, Tornow and others fabricated W-2 forms, paycheck stubs, bank statements and other documents.
Relying upon the false statements made on loan applications by Tornow and others, lenders issued more than $40 million in residential loans to Tornow's clients. When a number of the properties went into foreclosure, the banks suffered losses of more than $7 million.
Tornow and his co-schemers received hundreds of thousands of dollars in commissions and payments from loans that were funded based upon their false statements and submission of fraudulent documents to lenders. Tornow concealed his commission income from the Internal Revenue Service and failed to pay more than $300,000 in federal income taxes. Tornow, who had been ordered not to work in the mortgage industry by California authorities about 10 years ago, used the names of legitimate brokers when he submitted loan packages to lenders. To cash the commission checks he received in the name of licensed brokers, Tornow created fictitious business names that were similar to the companies whose names appeared on the checks, and then cashed the commission checks at a check-cashing business.
During sentencing hearing, Judge Carter directed Tornow to return to court on March 3 to determine the amount of restitution he will be ordered to pay to victim lenders.
Kosachevich pleaded guilty in 2009 to conspiracy to commit mail fraud and money laundering and faces a statutory maximum penalty of 25 years in prison. A third man involved in the scheme, pleaded guilty to conspiracy to commit mail fraud and faces a statutory maximum penalty of five years in federal prison. Judge Carter is scheduled to sentence both men on Jan. 25.
INDIANA MAN SENTENCED IN THE ROBERT PENN MORTGAGE FRAUD SCHEME
FACTS
On Jan. 12, 2010, Mark Roth of Indianapolis was sentenced today to 43 months in federal prison following his guilty pleas to one count of wire fraud and one count of money laundering. This sentencing concerned Roth's role in a multi-million dollar mortgage fraud scheme operated by Robert Penn. Roth was found responsible for 25 fraudulent loans amounting to more than $5 million.
Eight other individuals have been charged in the scheme. The remaining three cases are currently set for sentencing before Circuit Judge Hamilton on Feb. 2, 2010.
Previously sentenced in this investigation were: Robert Penn - 84 months' imprisonment; Timothy Brown - 37 months' imprisonment; Stephen Scott Brown - 37 months' imprisonment; Jerry Jaquess - 30 months' imprisonment; and Tamara Scott - 24 months' imprisonment.
Mark Roth was involved in the mortgage brokerage business and assisted in brokering numerous loans through Argent Mortgage Co. and The MoneyStation Inc. Roth prepared the Argent mortgage broker application packages for Web Mortgage Co. LLC and American Funding Solutions Inc., to assist these companies in being able to broker loans through Argent. Roth also opened and ran the Indianapolis branch office of 1st Start Mortgage.
Roth, alone and with the assistance of others, prepared and submitted to the lenders false and fraudulent loan applications along with false supporting documentation for the loans, knowing that the documents were false when he submitted them. On some occasions, Roth also requested other individuals to front down payment checks for the investors. Roth received money from the fraudulent loan proceeds. He opened an entity and bank account in the name WJP Roth Investments Inc., and used this bank account to deposit the fraudulent loan proceeds which he received.
Roth was also a partner with Jaquess in Homevestors LLC, a company involved in the purchase of the first 11 Windsor Village properties. These properties were purchased for $50,000 each, and then "sold" to straw purchasers for $120,000 each. 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.
Many of the duplexes later re-sold in 2007 and 2008, generally for amounts between $3,500.00 and $15,000.00.
Roth is to serve three years on supervised release following his 43 months of incarceration and also ordered him to pay a total of $1,459,025.97 in restitution to Argent Mortgage and Homecomings Financial. (chicprs11210)
MORAL
He gets over 3-1/2 years in federal prison, must pay over $1.4 million in restitution which he cannot discharge in bankruptcy, loses the right to vote, cannot get numerous licenses because of the conviction and his family bears the initial notoriety along with his children. Somehow it does not seem worth it.
FOUR DETROIT RESIDENTS INDICTED FOR
MORTGAGE FRAUD
FACTS
On Jan. 12, 2010 four Detroit area residents were indicted on charges of wire fraud and interstate transportation of money taken by fraud. Charged in the 14-count indictment were Melvin A Johnson, Curtiss Johnson, Brady Muse Jr., and Lanita J. Gatewood.
The indictment charges that from November 2004 through February 2006, these individuals knowingly participated in a scheme to defraud mortgage lenders. The loan applications were completed or supervised by Melvin Johnson or Curtiss Johnson at Challenge Mortgage's branch office in Southfield, Mich., where Melvin was the branch manager and Curtiss a loan officer. Challenge Mortgage was a mortgage broker based in Florida.
The indictment alleges that the loan applications were materially false or fraudulent and that when the mortgage loans closed, Melvin Johnson and Curtiss Johnson benefited financially through checks made payable to Challenge Mortgage and other businesses with which Melvin Johnson was associated, such as JEM Marketing Realty, JEM Processing, and First United Realty.
The indictment also alleges that the fraudulent information provided in the loans documents included false employers, overstated income, fictitious bank accounts, stolen identities, and information obtained from forged deeds, and that as a part of the scheme, Brady Muse created counterfeit documents to support the fraudulent loan packages assembled by Melvin Johnson and Curtiss Johnson. It also alleges that Lanita Gatewood allowed property she did not own to be titled in her name, and that she distributed the proceeds of the fraud to other participants in the scheme.
The defendants are charged with multiple counts of wire fraud and interstate transportation of money taken by fraud. Each count of wire fraud carries a maximum penalty of 20 years' imprisonment and a $250,000 fine. Each count of interstate transportation of money taken by fraud carries a maximum penalty of 10 years' imprisonment and a $250,000 fine. The defendants could also be ordered to pay restitution to the mortgage lenders. (usattyedmi11210)
MORAL
Notice how the indictments and convictions go on and on and on and on.
OREGON HITS CALIFORNIA LAW FIRM WITH OVER $50,000 IN PENALTIES FOR VIOLATING OREGON LOAN MODIFICATION LAWS
FACTS
The USMAC Law Group of Aliso Viejo, California is prohibited from doing loan modifications in Oregon and must pay $28,857 under a settlement, the Oregon Department of Justice announced. The DOJ investigated allegations that the USMAC Law Group violated state law by collecting advance fees for loan modifications aimed at preventing foreclosure sales. The investigation also focused on allegedly deceptive infomercial advertising for the firm's loan modification program, both violations of The 2008 Oregon Mortgage Rescue Fraud Protection Act. The company also must pay $22,000 to the Oregon Department of Justice and cease doing loan modification work in Oregon. The settlement, in which The USMAC Law Group admitted no wrongdoing, was filed in Marion County Circuit Court. (Oregon DOJ172010)
MORAL
Do not take advance fees if you are going to file lawsuits to prevent foreclosures in Oregon. Remember, a lawyer in California is not a lawyer in another state unless admitted there.
MORTGAGE ATTORNEY IN PITTSBURGH, PENNSYLVANIA PLEADS GUILTY AFTER FOUR DAYS OF TRIAL
FACTS
On January 8, 2010 Robert Danenberg, a resident of Pittsburgh and an attorney that specialized in closing real estate transactions, pleaded guilty in federal court to a charge of wire fraud conspiracy in connection with a mortgage fraud scheme.
He participated in a mortgage fraud conspiracy in which a co-conspirator recruited buyers to purchase properties at fraudulently elevated prices and financed through fraudulently obtained loans. Danenberg's role in the conspiracy was to close the fraudulent loans and the closings themselves were fraudulent in two primary respects. First, the closings required the borrowers to bring their own certified funds to the closings to make the down payments associated with the purchase. The borrowers, however, did not have sufficient funds to make the down payments and were often getting cash back at the closings. The down payments were paid by the sellers, the mortgage broker, and on several occasions, by Danenberg himself. The closings were also fraudulent in that the settlement statements reflected payments to contractors for work purportedly already done on the properties serving as collateral for the loans. In fact, however, as Danenberg well knew, those payments were kickbacks to participants in the conspiracy.
In total, Danenberg closed approximately 70 fraudulent loans totaling in excess of $5 million of loan proceeds. Danenberg pleaded guilty after four days of trial.
Judge Ambrose scheduled sentencing for May 7, 2010. The law provides for a total sentence of 20 years in prison, a fine of $250,000, or both. As part of his plea agreement, Danenberg agreed to forfeit another $250,000. (usattywdpa1810)
MORAL
For this he risked and will lose his attorney license, not be able to practice law to make a living and has probably lost every friend he had. Do you think that is worth $5 million?
CALIFORNIA MAN DRAWS NINE YEARS IN FEDERAL PRISON FROM
VERMONT U.S. DISTRICT COURT
FACTS
On Jan. 11, 2010 Benjamin Osmanson, the former operator of the Highgate Manor, in Highgate, Vt., was sentenced to nine years in prison, to be followed by five years of supervised release, and ordered to pay over $12 million in restitution during an appearance before the Hon. J. Garvan Murtha in federal court in Brattleboro, Vt. Osmanson pleaded guilty in September 2009 to three counts of conspiracy, wire fraud, and money laundering related to his scheme to defraud mortgage lenders by submitting false loan applications in the names of "investors." Osmanson was arrested in October 2008 in Texas, and has been detained since that time.
Osmanson's co-defendant Jillian Protzman pled guilty on Aug. 17, 2009, to two counts of conspiracy and money laundering, and was sentenced yesterday to six months in jail, and ordered to pay 30% of $12 million owed in restitution. Former Florida Realtor Margaret Giresi, who pled guilty in September 2008 to related conspiracy charges, was sentenced to three years of probation. Two mortgage brokers involved in the scheme, Mike Otis and Chris Whitfield, pled guilty earlier this year in the Western District of Kentucky at Louisville, and are awaiting sentencing. Charges against another mortgage broker, Richard Hild, remain pending in the Western District of Kentucky.
The charges to which Osmanson pled guilty allege that from at least as early as January 2006 through at least April 2007, Osmanson and Protzman orchestrated the purchase of at least 50 properties in California, Florida, Kentucky and Vermont in the names of at least 10 investors, obtaining more than $26,000,000.00 in loans to support the purchases. According to the indictment, Osmanson recruited friends, family members, and acquaintances to invest in real estate. Osmanson and Protzman then submitted fraudulent loan applications in the names of the investors to obtain fully financed mortgage loans. The indictment states that Osmanson, Protzman, and others sought loans from multiple lenders, and closed the loans for each investor within a short period of time, in order to preserve the appearance of the investor's good credit until the transactions were complete. The indictment further alleges that Osmanson and Protzman enriched themselves with "rebates," "fees" and commissions connected to the fraudulent property purchases, and continued to recruit investors and submit applications for new loans even after the loans to the initial investors began to fail.
During the sentencing hearings, the court heard testimony about the operation of the scheme, including how false documents were created and submitted to lenders to support loan applications and how the "rebate" payments were arranged. The over $12 million in restitution ordered represents the outstanding losses to the lending institutions after foreclosure sales on the involved properties. (usattyvt11210)
MORAL
Note the increase in the length of sentences.
LEADER OF WASHINGTON MORTGAGE FRAUD RING DRAWS FIVE YEARS IN FEDERAL PRISON
FACTS
On Jan. 8, 2010, Viktor Kobzar, a mortgage broker, was sentenced in Seattle to five years in prison and three years of supervised release for conspiring to commit bank fraud, mail fraud, wire fraud and filing a false personal income tax return. Kobzar was a mortgage broker who, with co-defendant Vladislav A. Baydovskiy, operated two brokerage companies, Nationwide Home Lending LLC and Kobay Financial Corporation; and established a third company, Emerald City Escrow, to close transactions involving the fraudulently obtained loans. Kobzar was one of six people arrested March 26, 2009, on a grand jury indictment for a mortgage fraud scheme that defrauded more than a dozen banks and mortgage lenders of more than $47 million.
According to records filed in the case the defendants secured through straw buyers and otherwise unqualified purchasers at least 68 loans, representing at least $46 million in loan proceeds, based on false and fraudulent representations. All of the fraudulently obtained loans were closed at Emerald City Escrow. Employees and principals at Kobay and Nationwide prepared and submitted falsified loan applications and related verification documents to lenders in a scheme to conceal the fact that buyers were otherwise unqualified to obtain purchase money loans. Employees and principals of Emerald City diverted some of the fraudulently obtained loan proceeds to themselves and others associated with the scheme. False settlement documents were prepared to conceal the diversion from lenders.
For sentencing purposes, prosecutors estimated that the amount of loss suffered by banks and lenders was between $2.5 million and $7 million. However, they noted in their sentencing memo that the damage from these mortgage fraud schemes goes far beyond the lenders.
Defendants are forfeiting to the government a 2004 Lamborghini Gallardo, a 2006 BMW 750, a 2007 BMW X5, a 31 foot Bayliner yacht, and several bank and investment accounts totaling approximately $2.4 million.
Last month co-defendant Vladislav A. Baydovskiy was sentenced to five years in prison. Four other defendants in the case were sentenced in December 2009. Camie Byron, a loan officer, was sentenced to two years in prison. Alla Sobol, a mortgage broker, was sentenced to two years in prison, and her husband, David Sobol, a real estate agent, was also sentenced to two years in prison. Sandra Thorpe, an accountant who falsified income statements and employment verification letters, was sentenced to probation and 200 hours of community service. (usattywdwa1810)
MORAL
Notice the personal property that was forfeited by the defendants? This is what is happening now when people are convicted of mortgage fraud.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
