THERE IS NO RESPA VIOLATION WHEN A PROVIDER OVERCHARGES THE BORROWER
FACTS
The Martinezes filed a lawsuit contending that RESPA Section 8(b)'s prohibition against "unearned fees" is violated when Wells Fargo allegedly committed "overcharging." They also argue that Wells Fargo's conduct was "unfair," "fraudulent" and "illegal," all in violation of the California Unfair Competition Law. The case was dismissed and the Martinezes appealed.
The 9th Circuit U. S. Court of Appeals said affirmed. The clear and unambiguous language of RESPA Section 8(b) does not reach the practice of "overcharging." The dismissal of the three UCL state law claims is because the claims alleging "unfair" and "fraudulent" conduct are preempted by the National Bank Act.
The complaint alleges the Martinezes refinanced their California home mortgage loan through Wells Fargo. Wells Fargo charged the Martinezes an underwriting fee of $800 for the refinancing. The Martinezes allege that this fee was excessive and therefore an overcharge because it was not reasonably related to Wells Fargo's actual costs of performing the underwriting, and thus violated RESPA Section 8(b) and California's UCL.
The district court held and the 9th Circuit agreed as to the RESPA claim, that even if Wells Fargo had overcharged the Martinezes for its services, it did not violate RESPA Section 8(b). The Martinezes also contend that the $75 Wells Fargo charged them for tax services provided by its affiliate was more than what the affiliate had charged Wells Fargo, in violation of RESPA Section 8(b) and the UCL. This allegation targets a practice commonly referred to as a "markup."
RESPA Section 8(b) is not violated because Wells Fargo provided a service in exchange for the fee. The language of Section 8(b) prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money. (Martinez vs. Wells Fargo Home Mortgage, No. 07-17277, 9th Cir. 3-9-2010)
MORAL
As I have been saying all along, if you are a bank or subsidiary of a bank, you get away with anything including 4000% APR, but if you are not a bank or subsidiary, you do not get away with overcharges and your charges are controlled by state law. So, be a bank. Just don't use a bank.
HOME EQUITY LOANS AND REFINANCING TRANSACTIONS ARE SUBJECT TO TILA BUT PURCHASE MONEY TRANSACTIONS ARE EXEMPT
FACTS
Homebuyer-borrower purchase home and was assured by lender Prime Equity Lending she had a fixed rate 5% loan. Instead she received an adjustable rate loan at 7.8%, never received a copy of the loan documents prior to closing and never given the opportunity to review them meaningfully before she signed them.
More than one year later she sued PEL in federal court for damages and rescission under TILA after being faced with a Trustees sale. She also sued for violation of the California Fair Debt Collection Practices Act and RESPA, fraudulent misrepresentation, breach of implied covenant and breach of fiduciary duty. The defendant moved for and was granted dismissal of each and every claim.
The TILA claim was barred for damages because more than one year had passed and the statute of limitations to sue for TILA violation is one year. The rescission action was barred because the borrower failed to offer back the proceeds of the loan to the lender. The California Fair Debt Collection Practices Act failed because it does not govern foreclosure proceedings. RESPA was not violated and the fraud was not sufficiently specifically pleaded as to who said what to whom, when. No duty existed to support a negligence claim and there was no implied covenant by the loan agreement to support a duty to put plaintiff's interest above the lenders and the lender had no fiduciary duty to the plaintiff. (Keen v. American Home Mortgage Servicing (10-21-09, E.D. Cal. 2009 U.S. Dist. LEXIS 100893))
MORAL
Plaintiff may have faired better had she brought the action in state court. But then the defendant may have removed it to federal court anyway with the same result.
A NEW FEDERAL MORTGAGE FRAUD TASK FORCE IS BORN
FACTS
Created Nov. 17, 2009 by President Obama. United States Attorney General Eric Holder said incidence of mortgage fraud has spiked sharply in the past year and a half. Mortgage fraud investigations have increased due to the large number of loan defaults and foreclosures. This increase in mortgage fraud prompted the Obama administration to create this new task force aimed at identifying and combating the illegal activity, especially in "suspicious activity" hot spots like California and Florida.
The new Financial Fraud Enforcement Task Force is comprised of representatives from 23 federal agencies including: the departments of Justice, Treasury, Commerce, Housing and Urban Development, Homeland Security, as well as the Securities and Exchange Commission and the Federal Trade Commission. The FFETF aims to combat a broad range of fraudulent activity with its initial primary focus on mortgage fraud. Spokespeople for the FFETF have indicated a strong commitment to prosecuting those who have defrauded mortgage holders. Those being targeted by the FFETF for investigation include individuals who:
* Undertake foreclosure rescue scams by charging a fee for giving advice, negotiating a deal with lenders or processing papers in an attempt to qualify for government relief programs.
* Guarantee that they can secure a loan modification or stop a foreclosure; no one can legally make such a guarantee.
* Insist that the homeowner deliver his mortgage payment to anyone other than the mortgage lender.
* Falsely pose as a "government-approved" or "official government" entity.
* Borrowers and mortgage industry insiders who committed fraud in obtaining loans.
The formation of a federal task force aimed solely at reducing mortgage fraud is sure to increase the volume of mortgage fraud investigations.
The operating budget for the task force is nearly $250 million a year for 2010 and 2011, which will allow it to devote a great deal of law enforcement's time and energy to investigating and prosecuting mortgage fraud.
MORAL
This has shown up continuously in my Mortgage e-Alerts. I have reminded you continuously of the magnitude of the fraud. This is the second nationwide agency created not including the local ones at the state level. Obviously the primary fraud they can investigate is the fraud that has occurred. Looking at foreclosures is the easiest way to find them. You can see from our publication of not all but quite a few of the mortgage fraud cases, the federal government is quite serious. This is because the recession over the last three years.
A REMINDER THAT THE NEW FORM 1009 IS MANDATORY FOR HUD HECM LOANS EFFECTIVE AUG. 1, 2010
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FACTS
The loan application form (Fannie Mae Form 1009) used for reverse mortgages was revised in July of 2009 to include additional data fields. The use of Form 1009 becomes mandatory on Aug. 1, 2010. Lenders may no longer use the Uniformed Residential Loan Application (Fannie Mae Form 1003). Lenders must continue to complete the HUD/VA Addendum (HUD 92900-A).
The maximum claim amount definition has been revised in the model HECM Loan Agreement. The payment plan section of the HECM Loan Agreement, Exhibit 1 has also been amended. Minor changes were also made to Exhibit 2 of the HECM Loan Agreement. (ml10-07)
MORAL
When completing the 92900-A read it carefully before signing or you could be committing a felony. The signer attests documents are recorded and funds have changed hands before the 92900-A was signed! Did you record and fund before you signed the 92900-A Lender's Certificate? If not watch out for the FHA indemnification of loans squad!
KOREAN IMMIGRANTS SUE LOS ANGELES LAW FIRM FOR LOAN MODIFICATION FRAUD
FACTS
A group of Korean immigrant homeowners is suing a Los Angeles law firm they say charged them thousands of dollars in fees for loan litigation services it never provided. The lawsuit filed on March 10, 2010 in Superior Court alleges Trinity Law Associates targeted immigrant homeowners at risk of foreclosure and falsely claimed it could reduce their mortgage debts.
The suit claims Trinity used a wide network of Korean-speaking employees to advise clients to stop making mortgage payments. The homeowners say the firm collected over $240,000 in fees before abruptly shutting its doors in October 2009. The complaint includes claims for fraud, statutory violations, and breach of contract. (ap31110)
MORAL
Watch out for anyone that makes absolute guarantees. Remember, if it sounds too good to be true, it probably isn't.
UNITED LAW GROUP RAIDED BY FEDERAL AND LOCAL AGENTS DURING LOAN MOD FRAUD INVESTIGATION
FACTS
On March 11, 2010, federal and local authorities using a search warrant raided the office of United Law Group of Irvine, Calif. The search warrant was being executed pursuant to a loan modification fraud investigation. The agencies executing the search warrant were from the U.S. Postal Inspection services, FBI, U.S. Immigrations and Customs Enforcement, Orange County District Attorney's office, the Special Inspector General for the Troubled Asset Relief Program and officers from the Newport Beach and Irvine police departments.
The affidavit in support of the search warrant is quoted as saying investigators believe that the United Law Group is a company "permeated by fraud."
The news article went on to quote that interviews with clients and former employees indicated that the company collected upfront fees of between $1,500 and $12,000 as a retainer before work begins. Investigators are alleged to have stated that they were unaware of any cases where the company completed a successful loan modification, beyond the ones cited in the advertising that United Law Group published.
The California State Bar filed disciplinary charges against Sean Rutledge in July 2009 an attorney with United Law Group allegedly accusing him of taking $1,750 from a homeowner in November 2008 buy never making an effort to get his loan modified. The bar filing allegedly states it took the client months to get his money back and that he had to sign a document releasing Rutledge from all legal liabilities.
A review of the State Bar website indicates that Rutledge had a notice of disciplinary charges filed on July 7, 2009, that on Nov. 9, 2009 his license to practice law was rendered inactive and that on Nov. 30, 2009 he voluntarily went inactive with charges pending filed with the State Bar of California and is not eligible to practice law at this time. (ocreg31410rep2)
MORAL
Since you can no longer collect advance fees for any loan modifications in California this is somewhat moot. However, it warns you what greed can do if you do not think things out fully before you do them.
FOUR MEMBERS OF CALIFORNIA FAMILY CHARGED WITH MORTGAGE FRAUD AND FACE UP TO 40 YEARS IN STATE PRISON
FACTS
Four members of an Orange County family have been charged with conspiracy to commit more than $16 million in real estate fraud by forging documents and buying homes using "straw buyers," pursuant to the Orange County District Attorney's Office.
The defendants are:
Sushama Devi Lohia of Newport Beach. Felony charges include 13 counts of conspiracy to commit a crime, 19 counts of forgery, six counts of identity theft and four counts of recording false and forged instrument and other charges. She is the mother of defendants Supriti Soni and Suniti Shah.
Supriti Soni of Corona del Mar. Felony charges include eight counts of conspiracy to commit a crime, 10 counts of forgery and other charges. In addition, prosecutors are seeking a stiffer sentence for her, if she's convicted, because she was imprisoned in 2003 for perjury.
Suniti Shah of Newport Beach. Felony charges include five counts of conspiracy to commit a crime, nine counts of forgery, six felony counts of identity theft, four counts of recording a false and forged instrument, and other charges.
Dinesh Valjeebhai Shah of Newport Beach. Felony charges include two counts of conspiracy to commit a crime, four counts of forgery, four counts of identity theft, four counts of recording a false and forged instrument, and other charges. He is Suniti Shah's husband.
The companies operated by Dinesh and Suniti Shah were New Age Realty, First Property Escrow, City First Realty and Associates Investments Group, all of Tustin, according to the district attorney.
Soni owned and operated Vason Development in Santa Ana, a business that processed home loan applications. Lohia, a licensed real estate agent, worked out of both offices, the district attorney says.
Between June 2006 and October 2009, Lohia, Soni, Suniti Shah and Dinesh Shah are accused of obtaining 54 fraudulent loans on 29 properties in Orange County through the use of straw buyers' credit.
The four defendants are accused of fabricating loan applications to reflect significantly higher incomes for the straw buyers, supplying altered bank statements to reflect the higher incomes, falsifying employer information on loan documents and forging the names and signatures of straw buyers on various deeds and loan documents. They are accused of using the personal and credit information of the straw buyers to complete the fraudulent documents used in obtaining loans. The four defendants are accused of taking out fraudulent loans under their own names.
The 54 loans were all approved by Washington Mutual Bank.
Lohia, Soni and Suniti Shah were arrested. An arrest warrant has been issued for Dinesh Shah, who is believed to be in India. (ocreg31110)
SENIOR LOAN OFFICER WITH METROPOLITAN MONEY STORE IN MARYLAND INDICTED FOR MORTGAGE FRAUD
FACTS
On March 8, 2010, a federal grand jury indicted Rolando Alonzo "Junior" Cousins of Bowie, Md., for conspiracy to commit mail fraud, mail fraud, and money laundering, in connection with a massive mortgage fraud scheme which promised to help homeowners facing foreclosure keep their homes and repair their damaged credit, but left them homeless and with no equity. Cousins was arrested on March 9, 2010.
According to the 11-count indictment, Cousins was a senior loan officer with Metropolitan Money Store, located in Lanham, Md., which offered foreclosure consultation and credit services to financially distressed homeowners. Cousins also owned and operated Prosper Investments LLC. In 2005, Joy Jackson and Jennifer McCall incorporated MMS. Also at that time, Jackson, Jennifer McCall, Jackson's husband, Kurt Fordham, McCall's husband, Clifford McCall, and others incorporated Fordham & Fordham Investment Group Ltd., and Burroughs & Smythe Financial Services Inc., based in Lanham and Greenbelt, Md., to assist MMS in its foreclosure consulting and credit servicing business.
The indictment alleges that from September 2004 through June, 2007, Cousins, Jackson, McCall, and others, operating through several companies, including MMS, fraudulently promised to help homeowners avoid foreclosure, keep their homes, and repair their damaged credit by directing the homeowners to allow title to their homes to be put in the names of third party purchasers (the straw buyers) for a one-year period, during which time the defendants would help the homeowners obtain more favorable mortgages, improve their credit rating and eventually return title to their homes to them. Cousins, Jackson, McCall, and others told the homeowners that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit.
The indictment alleges that Cousins, Jackson, McCall, and others paid approximately $10,000 to each of the straw buyers to participate in the scheme; fraudulently bolstered the credit of the straw buyers so they could qualify for more favorable mortgages; obtained fraudulently inflated loans on the properties in the straw buyers names; served as straw buyers themselves; stripped away the bulk of the homeowners equity proceeds and converted that money to their own personal use; and stopped making the mortgage payments on the homes, resulting in the homes being foreclosed upon.
The indictment also seeks the forfeiture of $1.5 million, alleged to be Cousins' proceeds from the scheme. Cousins faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy and each of the two mail fraud counts; and 10 years in prison and a $250,000 fine on each of eight counts of money laundering.
Joy Jackson and Jennifer McCall pleaded guilty to their role in the scheme and were sentenced to 151 months in prison and 135 months in prison, respectively. Nine other co-conspirators also pleaded guilty and were sentenced. (usattymd3910)
MORAL
Notice how there are 12 people involved? Notice how two of them drew over 12 years in prison and over 11 years in prison respectively? Notice how the events occurred over the last three to six years?
MICHIGAN REAL ESTATE INVESTOR PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On March 11, 2010, Paul Bashi of Royal Oak, Mich., pleaded guilty to a federal information that charges him with conspiracy to commit wire fraud.
Bashi admitted that, from September 2006 to March 2008, he recruited straw borrowers and assisted them in applying for loans to purchase residential property based on false information and fraudulent documentation with regard to employment, income, and/or assets, among other things. Bashi, who was mostly doing business as JP Land Development Inc., was responsible for completing the loan applications and gathering the necessary supporting documentation. Mortgages totaling almost $6 million were issued on 10 properties by various financial institutions. All of the loans resulted in foreclosure.
In addition, Bashi facilitated several individuals in obtaining other types of loans including vehicle, personal line of credit, and installment loans based on similarly false information. Loans totaling $480,000 were issued by area banks and credit unions, which were never paid back.
Under the terms the plea agreement, Mr. Bashi is facing a sentence ranging from 92 months to 115 months. (usattyedmi31110)
MORAL
Prosecutors took loans from four years ago. Bashi pleads guilty and faces over nine years in federal prison.
OWNER AND EMPLOYEES OF FORMER NEVADA INVESTMENT COMPANIES INDICTED FOR MORTGAGE FRAUD
FACTS
On March 10, 2010, Brett Depue, formerly of Las Vegas and now a resident of Gilbert, Ariz., who owned and operated numerous now-defunct Nevada investment companies, and two of his former employees, were indicted by a federal grand jury on mortgage fraud charges.
Also indicted were Brian Barney of Fairfield, Calif., and Maria Ornelas of Las Vegas, charged with conspiracy to commit bank fraud, mail fraud, and wire fraud, 11 counts of wire fraud, and criminal forfeiture
Warrants have been issued for the arrests of Depue and Barney. Ornelas was summoned, and is scheduled for an initial appearance before a United States Magistrate Judge in Las Vegas on Friday, March 26, 2010, at 8:30 a.m.
The indictment alleges that from about Feb. 1, 2005, to May 31, 2007, in Nevada and elsewhere, the defendants participated in a mortgage fraud conspiracy in which they used "third party disbursements" and "double escrow" methods to fraudulently obtain monies from the financial institutions. A third party disbursement is the issuance of money at the closing of a mortgage loan to a person or entity that is not typically entitled to the money. Typically, the property is sold to a middleman, who then sells the property to a straw buyer at a substantially inflated price. The difference between the first sale price and second price is distributed to a conspirator as seller proceeds. The paperwork on the second sale is concealed from the seller, and the paperwork on the first sale is concealed from the lender.
Brett Depue operated a number of Nevada businesses including, ABS Investments Group LLC, Liberty Group Investments LLC, and a number of other companies registered with the Nevada Secretary of State. Depue employed Brian Barney, Maria Ornelas and a number of others who allegedly assisted in the mortgage fraud conspiracy. The defendants' recruited homeowners in the Las Vegas area and elsewhere who agreed to sell their property at a price substantially above the asking price. The homeowners were told that the difference would go to Depue for improvements. The defendants then recruited straw buyers to apply for mortgage loans to purchase the homes using false and fraudulent information concerning the straw buyers' income, assets, employment, and intent to occupy the homes. In some instances, the defendants had the straw buyers apply for mortgages for more than one house at a time and concealed from the lenders that they were purchasing more than one property.
The indictment specifically discusses 17 homes in Las Vegas and Henderson which were purchased fraudulently between April 2005 and April 2007 at the direction of and for the benefit of the defendants.
If convicted, the defendants face up to 30 years in prison and a $1,000,000 fine on each count, and may be required to forfeit up to $8.5 million in properties or proceeds. (usattynv31010)
NEW JERSEY POLICE OFFICER ARRESTED FOR LOAN HE OBTAINED THROUGH MORTGAGE FRAUD
FACTS
On March 10, 2010, Jersey City, N.J., police officer, Brian Ragauckas was arrested based on a complaint charging him with bank fraud in connection with a $529,777 mortgage loan that he obtained through false representations to the former Countrywide Bank FSB, U.S. Attorney Paul J. Fishman announced.
According to the complaint, Ragauckas and his wife own property located in Secaucus, which they purchased in June 2000 and which is subject to a 30-year mortgage for $513,700. In or about March 2008, in order to facilitate the purchase of a multi-family dwelling in Jersey City, Ragauckas applied for a loan with Countrywide Bank, FSB. During an interview with an employee of Countrywide Bank FSB, Ragauckas: (1) failed to declare his outstanding mortgage liability on the Secaucus property; (2) falsely reported that he rented, rather than owned, the Secaucus property; and (3) falsely stated that he had not had an ownership interest in any property in the last three years. The complaint further alleges that Ragauckas thereafter represented in a signed Uniform Residential Loan Application for the Jersey City property that these statements were "true and accurate." The complaint also alleges that Ragauckas signed and submitted documents in which he falsely stated that he was a first-time homebuyer.
According to the complaint, Ragauckas admitted to special agents of the FBI that he deliberately did not list the Secaucus property on his application to obtain the mortgage for the Jersey City property because he believed he would not qualify for the new mortgage if he did so. The complaint states that the mortgage obtained from Countrywide Bank, which has since merged with Bank of America, is currently in default and in the process of foreclosure.
The bank fraud charge carries a maximum penalty of 30 years in prison and a $1,000,000 fine. (usattynj31010)
MORAL
If found guilty he "blew" his whole career for one piece of property. He ruined his family and reputation for the same reason.
MARYLAND MAN SENTENCED TO NINE YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On March 12, 2010 in Virginia, Michael Milan of Bethesda, Md., was sentenced to 108 months in prison, followed by three years of supervised release, for his role in carrying out a multi-million-dollar mortgage fraud scheme. Milan was also ordered to pay restitution of $3,141,409 and to forfeit $1,061,890 in proceeds he obtained.
Milan was a consultant to various mortgage brokerage companies and conspired with others to defraud mortgage lenders into lending funds for the purchase and refinance of residential properties. Milan caused his associates to prepare false mortgage applications which contained false information about the income and assets of the borrowers. Some of the mortgage applications falsely claimed that the borrowers earned hundreds of thousands of dollars from a company, Collid LLC, which Milan controlled. Milan's conspiracy submitted fraudulent loan applications for the purchase or refinance of 11 different properties and caused losses of more than $2.5 million but less than $7 million.
Milan is the sixth defendant convicted by the investigation, which remains ongoing. Others convicted include a settlement agent, a loan officer who worked with Milan, and Milan's son, Dustin Milan. (usattyedva31210)
MORAL
Remember, nine years is a lot of time out of a person's life.
TEXAS MAN TO PLEAD GUILTY TO MORTGAGE FRAUD
FACTS
Troy Bossert, a San Antonio man, plans to plead guilty in late March 2010 in a $4.2 million mortgage fraud scam in Florida that also involved Cape Coral police officers, lawyers and others.
Bossert, formerly of Florida, was one of the five main targets of the investigation of "cash-out deals," schemes in which the suspects fraudulently obtained money from real estate transactions by falsifying loan applications and U.S. Department of Housing and Urban Development settlement statements, court records show.
The scheme occurred during 2007 and 2008 as the housing market in Fort Myers, Fla., declined and involved inflating home-sales prices and using limited liability companies controlled by the defendants to funnel loan proceeds. Bossert's plea deal said he agrees to plead guilty to money laundering and conspiracy to commit mortgage and wire fraud. His deal said he would admit he orchestrated a cash-out deal with a home whose inflated price was $763,000. (sanews31310)
MORAL
If he does plead guilty, it will reduce his sentence in all likelihood. But as I have been saying the ones I write on are just the tip of the iceberg compared to the ones still under investigation.
WASHINGTON STATE REQUIRES MORTGAGE BROKER ANNUAL REPORTS BY MARCH 31, 2010 OR PREPARE TO BE DISCIPLINED
FACTS
All 2009 Mortgage Broker Annual Reports must be delivered to Department of Financial Institutions no later than March 31, 2010. Please visit the Washington State website
MORAL
If you have not already filed and want to give away your money, all you have to do is not file by March 31 and the state will happily fine you and make you file anyway.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
