DO NOT FILE YOUR FHA/HUD AUDIT TOO SOON OR IT MAY BE WRONG
FACTS
Federal Housing Administration commissioner David Stevens is advising mortgage brokers to wait before they get their annual financial audits until they see a final rule that will change the net worth requirements for lenders and brokers. Previously comments made by a top FHA official were incorrectly interpreted as a signal that brokers should file their audits by March 31. Mr. Stevens told National Mortgage News Online that the final rule is coming out very soon and an audit can cost a small broker $8,000 to $10,000. "Before they spend that money," he said, "they should wait until the rule comes out just to make sure they actually need one." But he was able to get the FHA general counsel to grant permission for him to advise brokers on filing financial audits. The original proposed rule eliminates the need for brokers to meet FHA audit and net worth requirements. Going forward, FHA-approved direct endorsement lenders will be responsible for the brokers they work with and policing the quality of their loan. (nmn22310)
MORAL
This may be referring to the elimination of loan correspondents being endorsed and qualified with FHA at all. Instead the Direct Endorsement lenders would be 100% responsible for the actions of the brokers they use to bring them FHA loans.
IN CALIFORNIA DO FORENSIC MORTGAGE LOAN AUDITS
AT YOUR OWN RISK
FACTS
On Feb. 22, 2010, California Attorney General Edmund G. Brown Jr. joined the California Department of Real Estate and the State Bar of California in warning Californians to avoid forensic loan audits, the loan-modification industry's latest "phony foreclosure-relief service," in which homeowners pay up-front fees for a forensic review of their lender's practices, but are provided no actual foreclosure relief.
"Forensic loan audits are yet another phony foreclosure-relief service hawked by loan-modification consultants trying to cash in on the desperation of homeowners facing foreclosure," Brown said. "The foreclosure-relief industry continues to be long on promises, but short on results." Individuals and businesses who offer forensic loan audits use inflated and misleading claims to convince homeowners to pay up-front fees for services that produce no actual foreclosure relief. Homeowners are encouraged to pay for an audit of their mortgage loan file to determine their lender's compliance with state and federal mortgage-lending laws. This audit is pitched to homeowners as a tool they can use to gain leverage and speed up the loan-modification process.
In truth, there is no evidence or statistical data to support claims that forensic loan audits, even if performed by a licensed, legitimate and trained auditor, mortgage professional or lawyer, will help homeowners obtain loan modifications or provide any other foreclosure relief.
"The State Bar is committed to dealing with all aspects of loan foreclosure fraud involving attorneys," said State Bar president Howard Miller. "We will continue to work with all the other government agencies to prevent fraud and to move for disciplinary sanctions against attorneys who violate their obligations to their clients."
By law, all individuals and businesses offering mortgage-foreclosure consulting, loan-modification and foreclosure-assistance services must register with Brown's office and post a $100,000 bond. It is also illegal for loan-modification consultants and businesses to charge up-front fees for their services.
Brown has sought court orders to shut down more than 30 fraudulent foreclosure-relief companies and has brought criminal charges and obtained lengthy prison sentences for dozens of deceptive loan-modification consultants.
In 2009, the DRE investigated more than 2,000 complaints involving loan-modification scams. Nearly 350 individuals and companies received a desist and refrain order to stop illegal activity.
As part of today's consumer alert, Brown offered the following tips to homeowners:
* Don't pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.
* Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
*Don't transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It could also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict you and take your home.
* Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
* Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off their delinquent mortgage. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
In 2009, California accounted for 22% of the nation's foreclosure activity, with 632,573 homes in foreclosure statewide. This is an annual increase of more than 20% in foreclosure activity from 2008 and a 150% increase from 2007. (caagbrown22210)
MORAL
And they have criminally indicted at least one attorney in Orange County for loan modification fraud and set bail at $1.5 million. He may still be in Orange County Jail unless he has arranged bail.
CALIFORNIA LAW FIRM FILED BANKRUPTCY DUE TO LOAN MODIFICATION LAWSUITS
FACTS
The Bander Law Firm, a four attorney civil litigation practice that has been chased by its clients recently for allegedly running a mortgage modification scam has filed for Chapter 7 Bankruptcy. The bankruptcy trustee is David A, Gil. The Creditors Meeting is set for March 18, 2010. According to Gil, the court papers indicate 900 creditors, of which about 800 were clients. The firm was also sued in a class action law suit filed by attorney Mark Geragos. Geragos is quoted as saying the State Bar, federal authorities and the bankruptcy trustee are all investigating the firm. Further that he has seen in excess of 70 complaints and or declarations from clients. Joel Bander, a principal of the firm is quoted as saying in an e-mail that the media outlets were firing "flames of hysteria with little to no concern for the homeowner affected by the mortgage crisis . . . or for complete truth."
News reports allegedly state homeowners complained they paid huge sums to the firm, lured by the promise to save their homes, but they alleged the Bander firm did not do anything about their cases, leaving them to lose their homes. (ladlyjl p.4,2-16-10)
IF AG BROWN CHASING YOU IS NOT ENOUGH THEN TRY HAVING ORANGE COUNTY DISTRICT ATTORNEY TONY RACKAUCKAS CHASING YOU FOR MORTGAGE FRAUD
FACTS
At least 1,000 victims have lost more than $100 million in cases of real estate fraud -- including loan modification scams -- referred to a special unit of the Orange County District Attorney's office, according to a new report. "The number of referrals has been overwhelming, with more than 346 referrals to date," says a report issued by the DA's office. (The unit that investigates RE fraud was launched in 2009) The report's findings were first published by The Orange County Register. The DA says a "vast majority" of referrals have come directly from victims of real estate fraud directly to its office. A "significant number" of cases involve loan modification schemes, it said. Several cases were cited, including one in which three men were charged with 101 counts of fraud in a loan modification scheme. (nmn22510)
CALIFORNIA BUSINESSMAN THAT PLEADED GUILTY TO $150 MILLION MORTGAGE FRAUD COMMITS SUICIDE
FACTS
On Feb. 15, 2010, Christopher Oetting, 47, a Palm Desert businessman who pleaded guilty to participating in a $150 million mortgage scheme killed himself before possibly being sent to federal prison.
Oetting pleaded guilty to his role in a scheme prosecutors say was led by James "Cash King" Benjamin Duncan and six suspected co-conspirators. Investigators say Duncan and the suspected co-conspirators created several false companies, including Murrieta-based Pacific Wealth Management and Stonewood Investments, to advertise a "quick return" on an investment through a suspected Ponzi scheme.
More than 249 homes were involved, with 200 already lost to foreclosure. Duncan operated similar investment scams in Iowa, Wisconsin and Washington, officials said. (dessun22610)
FLORIDA APPRAISER DRAWS FOUR YEARS IN FEDERAL PRISON FOR FRAUDULENT INFLATED MORTGAGE APPRAISALS
FACTS
On Feb. 24, 2010, U.S. District Judge Henry Lee Adams, Jr. sentenced Barry C. Westergom to four years in federal prison for conspiracy to commit wire and bank fraud. The court also ordered restitution in the amount of $866,141.62 and entered a money judgment for $100,000, the amount that Westergom had obtained from the fraud. Westergom had pleaded guilty on Oct. 8, 2009.
During 2004 and 2005, Westergom's co-conspirator, Juan Carlos Gonzalez, contracted to purchase about 55 houses. Gonzalez retained Westergom, who was a licensed real estate appraiser, to appraise most of the properties. Westergom then fraudulently inflated the appraisals, valuing each property at a significantly higher price than the negotiated purchase price. Westergom knew that Gonzalez intended to submit the appraisals to lenders in support of mortgage loan applications in which the inflated appraisal value was listed as the purchase price. Gonzalez also submitted fraudulent financial documents and information, including altered bank statements and payroll records, to the lenders in support of the loan applications.
At each closing, Gonzalez received the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, and Westergom received commissions and fees.
Westergom's plea agreement details one transaction in which Westergom, acting as a buyer's agent for Gonzalez, negotiated with a seller to purchase a house for $490,000. Westergom then fraudulently appraised the house for $625,000. Gonzalez submitted first and second mortgage loan applications for the house reflecting a sales price of $625,000. Gonzalez also submitted altered bank account statements showing significantly larger cash balances in the account than actually existed. The lender approved the loans and, at the closing, Gonzalez received $134,000, which was listed on closing documents as an "Assignment of Contract Fee." Westergom received $12,250 as a broker's fee and $550 as an appraisal fee.
The conspirators' fraudulent acts resulted in lenders extending more than $29,272,000 in first and second mortgage loans.
Westergom received a total of about $100,000 in commissions and fees. Gonzalez received $6,296,303.65 from the scheme.
Gonzalez pleaded guilty to a conspiracy charge and was sentenced to seven years in federal prison on Nov. 5, 2009. (usattymdfl22510)
MORAL
Gonzalez getting over $6 million might have been worth seven years in prison but four years in prison for $100,000 seems a lot of stupidity. Remember, they both pleaded guilty and still drew four and seven years respectively.
ILLINOIS AG SUES TWO REVERSE MORTGAGE BROKERS FOR TAKING ADVANTAGE OF SENIOR CITIZENS
FACTS
Illinois Attorney General Lisa Madigan has filed lawsuits against two mortgage brokers (one lawsuit in Circuit Court of Cook County against Woodridge, Ill.-based Hartland Mortgage Centers Inc. The second one was filed in Circuit Court of Sangamon County against Irvine, Calif.-based American Advisors Group Inc. and its president Reza Jahangirifor for allegedly using unfair and deceptive marketing practices to solicit seniors for reverse mortgages.
In each of the lawsuits, the AG alleges that the defendants targeted seniors to take out Home Equity Conversion Mortgages. In both lawsuits, Ms. Madigan alleges that the defendants employ a wide range of deceptive marketing tactics to attract senior borrowers. For example, in direct-mail solicitations, the defendants make a series of claims that falsely imply that seniors could be eligible for lifetime monthly income or lump-sum payments that are part of government benefit programs offered to all seniors. In fact, the defendants are offering loans that must eventually be repaid.
Ms. Madigan alleges that the defendants' solicitations included false claims such as "President Obama's Economic Stimulus Plan Helps Seniors. If you are 62 years of age or older, you may be eligible to take advantage of an important U.S. government-insured program" and "the United States Congress has authorized a reverse lending program you do not have to pay back as long as you live in your home." In addition to those deceptive claims, the defendants allegedly misled consumers into believing that the reverse mortgages would only be offered for a short time, with many of the defendants' mailers including "expiration dates."
The complaint against Hartland Mortgage Centers also alleges that the defendant unfairly implied that borrowers who opted to receive their payments as lump sums would earn considerably more. In fact, lenders actually collect more money in interest from borrowers who have a larger upfront loan balance.
Further, the suits also claim that the defendants' deceptive marketing gave consumers the false impression that they would maintain ownership of their property. In reality, consumers who take out reverse mortgages can lose their property to foreclosure if they fail to meet the conditions and terms of the loan, including paying property taxes and properly maintaining the home.
In each suit, the attorney general is asking the court to enter a permanent injunction banning the defendants from engaging in deceptive advertising and marketing in violation of Illinois law.
The AG is also asking the courts to award restitution to consumers and to order each defendant to pay a civil penalty of $50,000, additional penalties of $50,000 for each act committed with intent to defraud, an additional $10,000 penalty for each act committed against a person 65 years or older, and the costs of the investigation and prosecution of the cases. (nmn22510)
MORAL
Watch how you advertise. It would have been less expensive had both companies used an attorney to review the ads first.
MASSACHUSETTS NOW REQUIRES BUSINESS TO HAVE A WRITTEN INFORMATION SECURITY PLAN
FACTS
The Massachusetts Office of Consumer Affairs and Business Regulation retroactively promulgated 201 CMR 17:00, a law requiring all financial organizations to have a written plan to protect personal consumer information. On Feb. 1, 2010, Bulletin No. 2010-02 was issued by the Office of Consumer Affairs and Business Regulation setting forth the regulation effective March 1, 2010.
The plan is referred to as the Written Information Security Program and applies to any business entity that has access to confidential consumer information of any resident of the Commonwealth of Massachusetts.
WISP is a comprehensive program that defines security standards for computers and handling of consumer information. The law applies to all business entities that own, license, store or maintain certain personal information.
Personal Information consists of a Massachusetts resident's first name and last name (or) first initial and last name in combination with any of the following:
Social Security Number
Driver's License Number / or State-issued Identification Card Number
Financial Account Number
Debit or Credit Card Number (with or without security/access codes/passwords/pins)
Not Applicable Personal Information includes government records or information that is lawfully obtained and made available to the general public.
The Written Information Security Program must provide administrative, technical and physical safeguards for personal information under 201 CMR 17.00. This states that all businesses have a duty to protect the information of a Massachusetts resident that has been received by the company in connection with employment or the provision of goods or services - this would apply to the origination, processing, approval, funding, settlement or servicing of a consumer's mortgage.
If personal information of a consumer is electronically stored or transmitted, the security program must cover computers and portable and/or wireless devices. The WISP must be appropriate to the size, scope and type of business, available resources, the amount of stored data and the need for security and confidentiality of consumer and employee information.
The WISP program should address a wide range of matters that include, but are not limited to:
* Analysis of the reasonably foreseeable risks to the security, confidentiality and integrity of records, in any form, that contain personal information, of the effectiveness of any current safeguards for limiting those risks, and of the need to develop improved safeguards.
* Policies and procedures relating to employee training on the importance of the WISP, its specific requirements, the consequences of failure to comply with those requirements, and prevention of access by former employees.
* For paper records, provisions for secure storage of materials containing personal information, including restrictions on physical access to such records and, for electronic records, control measures that restrict access and include secure user authentication protocols.
* Encryption of personal information that is stored on computers, laptops or other portable devices or is transmitted across public networks or transmitted wirelessly. Provisions to ensure that any electronic records system that is connected to the Internet includes firewall protection and operating system security patches, that security software includes malware protections and virus definitions, and that all these programs are reasonably current as of March 1, 2010 and will be updated on a regular basis thereafter.
* Oversight of third-party service providers who have access to personal information, including a process to select and retain service providers that are able to maintain appropriate security measures consistent with 201 CMR 17.00.
* Regular monitoring to ensure that the WISP operates effectively to protect both paper and electronic records, to detect any unauthorized use of or access to personal information, and to identify any areas where upgraded safeguards are needed.
* Review of the WISP's scope at least annually, and whenever there is a material change in business practices that may reasonably implicate the protection of personal information.
* Documentation of responses to any breach of security and of any actions taken thereafter to change practices relating to the protection of personal information. (allregs21810)
MORAL
Are you licensed to do loans in Massachusetts? Do you have a security manual? Make certain you had one by Monday, March 1, 2010 because Massachusetts is not known for its leniency in violating mortgage laws.
LOS ANGELES MAN CONVICTED OF MORTGAGE FRAUD BY LAS VEGAS JURY
FACTS
On Feb. 19, 2010 a Las Vegas jury convicted Calway William Cauley, the operator of United Technologists, for his role in a mortgage fraud scheme involving straw buyers and fraudulent loan applications in Nevada and California.
Cauley, a resident of the Los Angeles area, was convicted of conspiracy to commit mail fraud, mail fraud, conspiracy to commit wire and bank fraud, and two counts of bank fraud.
Since the formation of the Southern Nevada Mortgage Fraud Task Force in 2008, Cauley is the first defendant charged with federal mortgage fraud crimes in Nevada who was convicted following trial by a jury. Cauley is scheduled to be sentenced on May 17 by U.S. District Judge Philip M. Pro.
Cauley faces up to 20 years in prison on each of the mail fraud-related counts and up to 30 years in prison on each of the wire and bank fraud-related counts.
From November 2005 to December 2007, Cauley and co-conspirators intended to obtain money and property by fraudulently obtaining mortgages through straw buyers to purchase houses in Nevada and California. The conspirators recruited persons to be straw buyers and prepared mortgage loan applications and related documents for the straw buyers containing false and fraudulent information pertaining to their assets, employment, income, and intent to live in houses.
The conspiracy also involved false representations that the property sellers owed money to third parties for repairs or improvements, when in fact no repairs or improvements had taken place and the third parties were controlled by the conspirators. These false representations inflated the property sales prices and permitted the conspirators to take cash back from transaction closings. Conspirators also inflated the purchase price of properties by arranging for multiple fraudulent purchases of the same property in a short period of time.
Cauley's role in the conspiracy involved the creation of false bank statements for loan applications to make it appear that the straw buyers had certain assets. Cauley knew that the statements were fraudulent and would be used in the loan packages submitted to financial institutions.
Co-conspirators paid Cauley by depositing money into the bank account of his business, United Technologists.
Four co-defendants were also charged in the scheme -- William Ervin, Ladon McClellan, Joyce Wilturner and Truemeatra Warner -- and all have pleaded guilty. (lasvegassun22210)
MORAL
Judge Pro the sentencing judge scheduled is a fair judge but I think Mr. Cauley may be looking at a lot of time in federal prison depending on the size of the loss.
THREE PEOPLE CHARGED WITH MORTGAGE FRAUD IN NEW YORK
FACTS
On Feb. 23, 2010, three people, Shaheid Bilal, Rhonda Payne and Richard Britt were arrested on charges stemming from a subprime mortgage fraud scheme involving $3 million worth of mortgages on residential properties in and around Orange and East Orange, N.J.
According to the five-count indictment filed in U.S. District Court for the Southern District of New York, from 2005 through 2007, the defendants targeted residential properties in Orange and East Orange. The defendants submitted mortgage loan applications, in the name of straw purchasers, that contained false information regarding, for example, the applicant's creditworthiness and intention to live in the residence. The defendants recruited such straw purchasers by paying them thousands of dollars in fees. The defendants told several of these straw purchasers that they would not have to pay the mortgages because the defendants would make payments for several months, and/or that the defendants would make money to pay the mortgages by renting out the properties. The defendants involved in each transaction distributed the proceeds from the fraudulently obtained home mortgage loans among themselves and their co-conspirators for their personal gain.
The defendants involved in each transaction further profited by renting out the fraudulently mortgaged properties to tenants while failing to make mortgage payments on behalf of the straw purchasers. Certain affected straw purchasers have gone into default on their mortgages, and mortgage lenders have foreclosed on certain properties.
Bilal of Lawrenceville, Ga., supervised and coordinated the recruitment of straw purchasers and the preparation of fraudulent loan applications and other documents for submission to the lenders, among other things.
Payne of Queens, N.Y., recruited straw purchasers to participate in the fraudulent scheme and assisted in the preparation of fraudulent paperwork for submission to the lenders.
Britt of McDonough, Ga., assisted in the preparation of fraudulent paperwork for submission to the lenders.
MORAL
Note the prosecutors went back five years in this case.
THREE CHARGED IN OHIO WITH MORTGAGE FRAUD
FACTS
On Feb. 23, 2010 an information was filed charging Anthony Capuozzo, Nicholas Myles and Kathryn Clover with two counts of conspiracy. The information alleges that during the period from about June 2005 through April 2006, Capuozzo, Myles, and Clover conspired with previously indicted defendants Uri Gofman, Anthony Viola, Gennadiy Simkhovich, Dave Pirichy, Howard Sieferd Jr., Noah Bloch, and Paul A. Lesniak to purchase 34 properties in the Cleveland area for over $2 million, of which 15 properties were purchased in Clover's name and 19 properties were purchased in Lesniak's name. The information further alleges that as part of their conspiracy, Clover and Lesniak completed and submitted false and fraudulent loan applications with the assistance of Myles and Pirichy, mortgage brokers for Central National Mortgage LLC. The applications falsified employment, overstated income, overstated assets, falsified intent to occupy the property and concealed the source of the down-payment funds, which were in fact provided by Uri Gofman and Gennadiy Simkhovich through their company, Real Asset Fund, LLC, in order to obtain the financing to purchase the properties. The information alleges that Capuozzo, a licensed title agent through the State of Ohio and an owner of Family Title Service, Inc. and Howard Sieferd, Jr., an employee of Family Title, served as the title agency on the properties and conspired with defendants Uri Gofman, Anthony Viola and Gennadiy Simkhovich to allow the mortgage loan proceeds to be fraudulently and improperly distributed. The information alleges that the defendants did all of this in order to deceive and defraud Long Beach Mortgage Co., Argent Mortgage Co. LLC, and MortgageIT Inc. into funding the mortgage loans. (usattyndoh22310)
MORAL
Three plus seven is 10. You have to know someone is cooperating. Notice again how the year 2005 keeps popping up.
OKLAHOMA ADOPTS EMERGENCY RULE UNDER TILA FOR EARLY DISCLOSURE OF TRANSFER OF MORTGAGE LOANS
FACTS
Purchases or assignees of mortgage loans must now provide disclosures in writing to borrowers within 30 days. (alrgs22210)
MORAL
I would say what is the penalty for failing to timely do it other than the borrower arguing he is entitled to a credit for paying the prior holder and then fighting to prove it.
SOUTH CAROLING WOMAN PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On Feb. 23, 2010, Christie J. McGougan, of Bethune, S.C., pled guilty in federal court in Columbia to conspiracy to falsify mortgage loan applications, a violation of Title 18, United States Code, Section 371. Sentencing is set for May 25, 2010.
Between 2004 and 2006, McGougan and a business partner sold modular and existing homes in the Lugoff-Camden area. McCougan marketed the properties to buyers, telling them that they did not have to make down payments to purchases the properties. However, banks required down payments from the buyers to approve mortgage financing, and relied on closing statements prepared for each transaction to determine if the buyer was making a down payment. To deceive the banks to make the mortgage loans, McGougan used business funds to purchase cashier's checks in the names of the buyers, giving the appearance to the banks that the buyers were making the down payments. McGougan knew that the closing statements indicated the buyers were making the down payments, but she signed or approved them anyway. The deceptive closing statements were relied upon by the bank in approving the mortgage loans.
Many of the houses in this case ended up in foreclosure, and most of the buyers ultimately declared bankruptcy. The government and McGougan dispute the amount of loss, which will be determined at sentencing, but it is estimated to be between $400,000 and over $1,000,000.
The maximum penalty she can receive is a fine of $250,000 and/or imprisonment for five years. (usattsc22310)
MORAL
Notice the six year look back by the prosecutors to get to the mortgage fraud? Notice the other fraud cases are about the same?
VIRGINIA MAN DRAWS FIVE YEARS IN FEDERAL PRISON FOR
MORTGAGE FRAUD
FACTS
On Feb. 23, 2010, after having previously pled guilty Wayne Marlon Benedic Lezama of Virginia Beach, Va., was sentenced in Norfolk federal court to five years in prison and ordered to pay $1.1 million in restitution for wire fraud in connection with a scheme to obtain over $4 million with 14 mortgage loans
Lezama participated in a scheme from August 2005 until January 2007 to obtain mortgage financing to purchase homes throughout southeastern Virginia. The property would be purchased in the name of Lezama or a nominee buyer. During the course of the scheme over $4 million in financing was obtained through fraudulent means, including submitting false financial information regarding down payments, monthly income and liquid assets. (usattyedva22310)
MORAL
Did you notice that about all the fraud cases in this e Alert are about loans that occurred between 2005 and 2007? Kinda makes you think about who did loans that were creative during that time.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
