HUD ISSUES FINAL RULE THAT ELIMINATES THE FHA APPROVAL PROCESS FOR MORTGAGE BROKERS
FACTS
The Department of Housing and Urban Development has issued the final rule that eliminates the Federal Housing Administration's approval process for mortgage brokers starting Jan. 1, 2011. The final rule increases the net worth requirement for FHA-approved lenders and requires those lenders to be fully accountable for the loans they purchase from brokers. The final rule creates a new category of FHA-approved lenders that requires a minimum net worth requirement of $500,000. The final rule raises the net worth requirement from $250,000 to $1 million for other FHA-direct endorsement lenders starting a full year after the final rule goes into effect meaning Jan. 1, 2012. (bkrun411510)
MORAL
Are you ready as a lender? In eight months you will need a $500,000 net worth.
GFE IS SO CLEAR THAT HUD HAS UPDATED THE FAQ'S AGAIN THIS MONTH (APRIL 2010)
FACTS
Again HUD on, April 5, 2010, posted an updated version of its FAQs to its RESPA website which now consists of 62 pages of questions and answers. HUD has again changed its interpretation of certain requirements and issued new FAQs. What does this mean? Re-read the FAQ's as of the April 2010 update.
As a refresher, preapprovals can never be used in a refinance since you necessarily know the address of the property.
The loan officer is presumed to know the property address in a loan application if the broker/lender issues the consumer a Good Faith Estimate. If a broker/lender gives the consumer the GFE without knowing the property address, the HUD FAQ's state that subsequent identification of a property will not constitute a "changed circumstance" to allow the broker or lender to revise the GFE. So if it is a purchase and you do not know the property address use a pre-approval.
HUD has issued some new FAQs:
1. If a consumer has chosen a specific property and the lender is willing to qualify the consumer for a specific loan amount, then issue a GFE.
2. As stated above a preapproval may never be used in a refinance transaction since the broker/lender knows the address. Use the GFE.
3. A loan officer may verify qualifying information for which the consumer voluntarily provides documentation in with a preapproval. But, if a consumer seeks a preapproval and provides enough information to qualify as an application, the loan originator must issue a GFE and is prohibited from requiring the consumer to provide verifying information as a condition to receiving the GFE.
4. Worksheets must not look like a GFE.
5. If a loan officer has received a loan application from a consumer, it must provide the GFE. (klg41410)
MORAL
Read the FAQ's again. HUD is so clear that they take 62 pages to make you understand and revise that numerous times. I wonder if HUD ever heard of the expression "Clear as Mud."
CA DRE SENDS OUT WARNING OF FRAUDULENT SHORT SALES
FACTS
The California Department of Real Estate is issuing warnings about fraudulent short sales.
Examples:
Short sale flipping by unlicensed people using straw buyers: "In some cases, unlicensed short sale 'facilitators' hone in on homes that are on the verge of foreclosure and persuade the lenders to accept lowball purchase offers, often times by using straw buyers, questionable or self-interested broker price opinions or appraisals, and by failing to disclose that a sale at a higher price has previously been put on the table or negotiated."
Multiple lenders and lien holders, and payments outside of escrow: "Where more than one lender or lien holder is involved, the negotiations are complicated. Second and other subordinate lien holders often hold up the short sale transaction, and seek to extract the largest possible payment in consideration for releasing their lien. Often times in short sales there are monies secretly paid outside of escrow, without the knowledge of the senior lien holder. This is a sure sign of fraud. Such undisclosed payments are likely illegal. The economic substance of and all payments in the short sale transaction should be disclosed on the HUD-1 statement. There should never be dual or multiple contracts, only one of which shows the true purchase price."
The DRE website has a case showing how an unnamed company has violated California law by practicing real estate without a license, collecting advance fees in violation of the law and profiting through false pretenses at the expense of a federally insured institution by misrepresenting the value of the home to the lender. "This may constitute federal loan fraud, which is a serious felony offense which is punishable by imprisonment and fines." (ocr41110)
MORAL
The ingenuity of people to commit fraud could be put to better use. One is where the buyer or straw buyer is buying the property for a licensee and putting it through a double escrow to a second bidder that was not disclosed to the seller. Since it is a short sale this is a breach of fiduciary obligation to the seller by the licensee because the sale to the ultimate buyer reduces the exposure of the seller to a debt relief tax or being sued by the junior lien holder.
18 PEOPLE ARRESTED IN NORTHERN CA FOR MORTGAGE FRAUD
FACTS
On April 14, 2010, federal agents in Northern California arrested 18 people for defrauding banks and lenders with bogus mortgage loan applications. The total loss is estimated as greater than $10 million. The fraudulent loans are alleged to have occurred from 2005 to 2009.
The people arrested include a mortgage broker, eight real estate agents and three former employees of financial institutions. The defendants are accused of misrepresenting buyers' incomes, identities and other information to obtain or arrange loans, which later defaulted. It is alleged that some of the defendants knew each other and worked together on the loan applications. It is believed that all 18 were loosely affiliated.
The grand jury indictments charge the defendants with bank fraud, mail fraud and conspiracy. The arrests occurred after a seven-month investigation by multiple agencies under the government's Financial Fraud Enforcement Task Force, prosecutors said.
The indicted mortgage broker is Wazhma Rahimi of Antioch. The real estate agents are Vangeline Broyles of Redwood City; Maria Comfort of Daly City; Jeanie Cusing of San Mateo; Ginger Daniels, of Oakland; Wilfredo Pascual of Daly City; Leonora Pomar of Colma; Gina Tchikovani of Redwood City; and Roy Cervantes of Lincoln Placer County.
The ex-financial institution employees are Ciu Du and Marilyn Infante both of San Francisco, who used to work at Washington Mutual; and Joseph Pugliese of Novato, formerly with Countrywide Home Loans. If convicted Pugliese faces up to 30 years in federal prison depending on the outcome, number of loans involved and the total loss.
The other defendants are Noriberto Agustin of Daly City; John Bernabe of Redwood City; Sam Bowley of Vallejo; Cleofe Nogavich of Sunnyvale; Clarin Tambot-Quermit of Daly City; and Ricardo Tang of San Francisco. (sfch41510)
MORAL
Remember all the warnings I have been giving you? These loans are alleged to have occurred between 2005 and 2009 part of which is the "stated income" era. I suggest you see an attorney now if anyone reading this assisted a borrower with overly creative income.
PARTS OF SAN DIEGO AND RIVERSIDE COUNTIES FORECLOSURES UP OVER 65% SINCE FEBRUARY 2010
FACTS
In March 2010 foreclosure notices in San Diego County increased 69% higher than February 2010. In Riverside county foreclosures increased 67% over February 2010. In Santa Clara County foreclosures increased 72% in March 2010 when compared with March 2009. For the entire state of California the foreclosures have increased 92% in March 2010 when compared to March 2009. This will keep on increasing as the "step up" mortgages and option ARMS and other exotic mortgages increase their variable interest rates so that the borrowers can no longer afford to keep up the payments.
This is especially true when many of the homes have mortgages that far exceed the value of the properties.
MORAL
How do you help people that are in homes with exotic mortgages they cannot keep up with? Answer: You educate them on the foreclosure process and what laws the lenders have to follow but remember unless you are exempt you have to comply with the foreclosure consultant's law.
SANTA CLARA COUNTY GRAND JURY INDICTS THREE PEOPLE FOR LOAN MODIFICATION PRINCIPAL REDUCTION ON LOANS SCAM
FACTS
Rene Alvarez and Mariano Ortega both of San Jose, and Cydney Sanchez of Los Angeles, have been indicted by a Santa Clara County criminal grand jury on 83 counts of defrauding 45 homeowners in Northern California in a wide-ranging loan modification scam.
The Santa Clara County District Attorney's Office alleges the three stole more than $2 million from more than 400 homeowners most of them Latino in seven states, most of them from California.
The grand jury found that in 2008 and 2009, Alvarez and Ortega owned and operated M & R Contemporary Solutions, a Campbell foreclosure consulting firm, according to prosecutors, and Sanchez owned and operated West Coast Mortgage and Horizon Property Holdings of Beverly Hills.
According to prosecutors, M & R lured homeowners who were in various stages of the foreclosure process by pitching a "principal reduction" program. Homeowners were told M & R would save their homes by facilitating the purchase of their existing lender's loan by a third party at a discounted price.
Sanchez was then supposed to provide the investors to purchase the loans. The homeowners were to be offered a new reduced-principal loan that would have significantly lower monthly payments.
According to the homeowners and several ex-employees of M & R who testified before the grand jury, no homeowners were ever helped in this manner. In many cases, homeowners paid $10,000 for the loan-buying scheme even though they had already lost title to their homes through trustee sales. M & R collected thousands of dollars in upfront fees from each homeowner in foreclosure, which is a felony, prosecutors said.
M & R's bank accounts have been frozen via court order for possible payment of restitution and fines pending further court action. A trial date has not yet been set.
In a separate case, Hector Ricardo Esquivel of San Jose, was sentenced March 30 to one year in jail for six felony counts of grand theft for defrauding homeowners in a loan modification scam, according to the district attorney's office.
Esquivel pleaded guilty to charges that he scammed thousands of dollars from homeowners in Santa Clara County and beyond between May 2008 and May 2009, according to the district attorney. Esquivel was arrested in May 2009 following an investigation by San Jose police and pleaded no contest on Feb. 11. Esquivel was working as a Realtor after his license had been revoked. He solicited primarily Spanish-speaking homeowners and offered loan modification services, charging thousands of dollars without providing any services. Several homeowners lost their homes to foreclosure, according to the district attorney's office. Esquivel was also ordered to pay $23,600 in restitution and is prohibited from working in the real estate or financial sector for the next three years. (sjmercnws41610)
CA MAN PLEADS GUILTY TO BID RIGGING AT FORECLOSURE SALES
FACTS
On April 16, 2010, Anthony B. Ghio of Stockton pleaded guilty to conspiring to rig bids at public real estate foreclosure auctions held in San Joaquin County.
These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. Ghio admitted in his guilty plea that he conspired with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County. The primary purpose of the conspiracy was to suppress and restrain competition and obtain selected real estate offered at San Joaquin County public foreclosure auctions at noncompetitive prices.
After the conspirators' designated bidder bought a property at a public auction, they would hold a second private auction. Each participating conspirator would submit bids in the private auction above the public auction price. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the noncompetitive price at the public auction and the winning bid at the second auction was the group's illicit profit, and it was divided among the conspirators in payoffs. Ghio participated in the bid-rigging scheme from April 2009 until October 2009.
Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime, if either of those amounts is greater than the statutory maximum fine. The investigation is continuing. (usattyedca41610)
MORAL
There is a California state law against bid rigging as well. I am surprised they did not know it.
CALIFORNIA RE BROKER PLEADS GUILTY TO ILLEGALLY USING THE FIRST TIME BUYER TAX CREDIT
FACTS
On April 12, 2010, Kashawn Monique Savery, a real estate broker from Tarzana, Calif., pleaded guilty to federal tax charges, admitting that she filed more than 200 false tax returns with the Internal Revenue Service that sought over $1.3 million in refunds based on fraudulently claimed First-Time Homebuyer Credits and Earned Income Tax Credits. Savery pleaded guilty to all of the charges in criminal information that charged her with 10 counts of making false claims to the United States.
IRS-Criminal Investigation began investigating this matter when an IRS Fraud Detection Center observed suspicious activity, including a group of 231 tax returns for the 2008 tax year that sought more than $1.3 million in refunds. The vast majority of the suspicious tax returns were filed from a computer that IRS investigators determined was located at Savery's condominium in Reseda. Other suspicious tax returns linked to the same computer have been filed in recent months for the 2009 tax year.
Savery pleaded guilty to fraudulently filing or causing to be filed 10 tax returns, five of which sought refunds based on the Earned Income Tax Credit, and five of which sought refunds based on the First-Time Homebuyer Credit. The criminal information alleges that the 10 tax returns fraudulently sought nearly $68,000 in refunds. During the hearing, Savery admitted being involved in the filing of more fraudulent tax returns, over 200 that sought more than $1.3 million in fraudulent refunds.
Judge Fischer is scheduled to sentence Savery on Oct. 18. As a result of the guilty pleas, Savery faces a maximum statutory sentence of 50 years in federal prison and a $2.5 million fine. (usattycdca41210)
MORAL
The IRS has computers that look for anomalies automatically. I do not know what made her think she could get away with it.
THREE INDICTED IN FLORIDA FOR MORTGAGE FRAUD
FACTS
On April 16, 2010, attorney Michael Samuda, who operated Attorney Title Center, a title escrow company in Pembroke Pines and Weston, along with Monique Mitchell of Pembroke Pines, and Sheldon Martin of Plantation, were charged in an indictment that alleged in January 2008, Samuda's company allegedly closed on the purchase of real estate at 4010 Bayview Dr. in Fort Lauderdale. The indictment alleges that Samuda, along with his employee Mitchell and the seller, Martin, engaged in a scheme to defraud Regions Bank, the mortgage lender, by preparing and submitting false closing documents on the $1,250,000 property sale. Mitchell and Martin appeared in federal court in West Palm Beach on Friday. Samuda is set to appear on April 21, 2010. (soflbusjl41610)
MORAL
I have never understood why an attorney having spent four years in college and then three years in law school and then three days to take a bar exam to pass and get licensed would do this.
IOWA NO LONGER REQUIRES THE MORTGAGE LOAN DISCLOSURES TO BE SUBMITTED TO THE IOWA FINANCIAL AUTHORITY
FACTS
Iowa has repealed the law that requires reporting financial institutions to submit the Mortgage Loan Disclosure Statements to the Iowa Financial Authority. Effective July 1, 2011, all closing agents in Iowa will have to be licensed. (alrgs41610)
OWNER OF GUARANTY TITLE PLEADS GUILTY TO STEALING $2.7 MILLION OF ESCROW FUNDS WIRED TO HIS COMPANY
FACTS
On April 13, 2010, Richard G. Burton, the owner of Guaranty Title, formerly headquartered in Nixa, Mo., pleaded guilty in federal court to his role in a $2.7 million wire fraud conspiracy and money laundering. Burton admitted that he participated in a scheme to defraud financial institutions of more than $2.7 million through a series of illegal financial transfers related to stolen escrow payments. Burton attempted to conceal his criminal activities through a substantial check-kiting scheme.
Burton was the president and majority owner of Guaranty Title Co. of Southwest Missouri, Guaranty Title Co. d/b/a Guaranty Title and Closing Co., and Guaranty Properties, Inc. The companies, referred to collectively as Guaranty, provided real estate title and closing services. Guaranty's main office was located in Nixa, with at least 10 branch offices located in Aurora, Branson, Mount Vernon, Ozark, Springfield, and Republic, Mo.
Burton admitted that from May 12, 2005, to June 18, 2007, he defrauded mortgage companies and individual customers of escrow money which had been wired to Guaranty to pay real estate closing costs. When real estate buyers and sellers hired Guaranty to facilitate the closing of real estate contracts, Guaranty agreed to hold buyers' money for closing costs in an escrow funds account separate from funds that Guaranty owned. Guaranty was prohibited from commingling that escrow money with the firm's business operations money, because it did not own the escrow money it received.
In violation of Guaranty's promise not to do so, Burton caused $2,040,937 of stolen escrow funds to be diverted into the firm's business operations account and used the money for the day-to-day business operations of Guaranty. Burton instructed Guaranty's in-house bookkeeper to record deposits of stolen escrow money into Guaranty's business operations account as loans, including loans from a fictitious company called "K & S Investments," which was created to help conceal the source of the deposits.
By April 2007, deposits into Guaranty's main escrow account no longer covered shortages caused by the theft of escrow funds. Burton assisted in concealing this shortage by causing checks to be written and deposited between various accounts held by Guaranty at Great Southern Bank and Ozark Mountain Bank that did not contain sufficient funds to cover the checks. This check-kiting scheme continued until June 18, 2007, when Old Missouri Bank discovered the fraud and closed the bank account. As a result of this check kiting, Burton caused Ozark Mountain Bank to lose approximately $682,954. (usattwdmo41310)
MORAL
Use a very well known title company to hold escrow funds. You may pay a little more in escrow fees but your money is safer?
FORMER HEAD OF RE FIRM GETS 12 YEARS IN PRISON AND ORDERED TO PAY $86.9 MILLION IN RESTITUTION TO OVER 1,000 VICTIMS
FACTS
On April 9, 2010, Joseph D. Milanowski, former officer of the real estate development investment company USA Capital, was sentenced to 12 years in prison and ordered to pay $86.9 million in restitution to over 1,000 victims for his guilty plea to one count of wire fraud.
Milanowski's sentence included enhancements because the loss was greater than $50 million, and because the defendant abused a position of private trust to facilitate the commission of the offense. Milanowski was allowed to self-report to federal prison by August 6, 2010, at noon, but must continue to cooperate with the government and U.S. Bankruptcy trustees during that period of release.
Milanowski was the president and de facto chief operating officer of USA Commercial Mortgage Co., which did business as USA Capital from 1998 through April 2006. USA Capital raised money from investors to loan to developers for the construction of real estate. In May 2000, USA Capital created the Diversified Fund to make secured loans to the developers and to pay the investors interest on the loans. Milanowski and others represented to investors that all of the loans made by the Diversified Fund would be secured by first deeds of trust. Investors were also advised that no loans would be made to company insiders, that no loans larger than $20 million would be made once the Diversified Fund reached a certain value, that no loan would exceed 15 percent of the value of the Fund, and that the Fund would not loan more than 25 percent of its funds to a single borrower.
On about April 15, 2002, Milanowski created a loan known as the "10-90 Loan" which he used to fund private developments and investment projects for himself and other company insiders and affiliates. From about March 27, 2003, to about Nov. 12, 2004, Milanowski transferred approximately $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects. Milanowski and others concealed the existence of the 10-90 Loan from investors until Sept. 30, 2005, when Milanowski included the 10-90 Loan on a list of the Diversified Fund's loan portfolio in which he claimed that the 10-90 Loan was secured by three master-planned communities in Southern California when he knew that the loan was not secured by three communities. When USA Capital Mortgage and the Diversified Fund filed for bankruptcy on April 13, 2006, Milanowski had caused the Diversified Fund to attribute $55.9 million of its principal to the 10-90 Loan. The investigation of USA Capital is ongoing. (usattnv4910)
HERE IS THE EXCEPTION I HAVE BEEN TELLING YOU ABOUT -
ALBANY, NY BROKER INDICTED OVER ONE MORTGAGE WITH NO LOSS
FACTS
On April 12, 2010, Michael J. Pallozzi, a Saratoga County mortgage broker for the Waterford branch of Advantage mortgage pleaded guilty to one count of wire fraud involving mortgage fraud concerning one single residence. Previously he went to prison for selling drugs at his prior mortgage company.
Pallozzi falsified loan documents related to the refinancing application for a residence at 191 Maxwell Road. The guilty plea is Pallozzi's second felony conviction. In 2003 he pleaded guilty to felony drug charges stemming from allegations he and four others sold cocaine and marijuana from their offices at First Guarantee Mortgage on Broadway, Saratoga Springs. Pallozzi was sentenced to 3 to 9 years in state prison but served a reduced sentence after enrolling in a shock incarceration program, an alternative to prison based on an intense boot camp experience followed by more supervised parole.
Pallozzi is scheduled to be sentenced Aug. 10 at U.S. District Court in Albany.
According to a plea agreement Pallozzi falsely inflated the income of the owners of the Maxwell Road property and concealed their indebtedness for a $124,000 secondary mortgage on the home, which they purchased for $375,000 in February 2006. The falsified documents were filed in connection with the property owners' application to refinance their mortgage. Pallozzi is alleged to have created a 'pension award letter' that purported to be proof of pension income from Verizon to make it appear that one of the new owners earned more than he/she, in truth and fact, earned." Pallozzi transmitted the falsified documents to a North Carolina lending company, Equifirst Corp., in March 2008. (timesunion.com41710)
MORAL
Here is a person who actually got a second chance based upon the drug conviction and blew it." He is looking at doing time in this one lawyer's opinion.
CLEVELAND EX-MORTGAGE BROKER PLEADS GUILTY TO FRAUD
FACTS
Mark Kellogg, a former mortgage broker, has pleaded guilty to mortgage-fraud related offenses in Cleveland's Slavic Village neighborhood. The neighborhood on Cleveland's southeastern side became an international face of the subprime crisis because of its sky-high foreclosure rate.
In 2006, Slavic Village residents suspected something was wrong with all the quick purchases and overpriced resales of homes in their neighborhood, so neighbors organized to find the culprits. The councilman built lists of suspicious sales from the Sunday papers. College kids home for summer break combed through dusty piles of files from the city's Department of Building and Housing. Finally one name emerged, that of Mark Kellogg, who owned a Slavic Village hot dog stand and was a licensed mortgage broker. Cuyahoga County's Mortgage Fraud Task Force announced an indictment against Kellogg and two associates in October 2008. More charges against more buyers and sellers came six months later. All told, Kellogg convinced subprime lenders to cough up $5.8 million dollars in loans to help investors buy and sell 78 houses. Nearly all of them have gone into foreclosure.
Kellogg faces a maximum sentence of 106 years in prison and $6.6 million in fines. Sentencing is scheduled for mid-May 2010. (idestrm41610).
MORAL
Get the neighborhood riled up and this is what can happen.
VA LAWYER GETS 30 YEARS IN PRISON FOR $10 MILLION FRAUD
FACTS
On April 15, 2010, Troy A. Titus of Virginia Beach, Va., was sentenced to 30 years in prison for operating multiple fraud schemes to steal and misappropriate almost $10 million from clients and investors. On Dec. 18, 2009, a federal jury in Norfolk found Titus guilty of 33 fraud-related charges after a four-week trial. Titus was a lawyer practicing in Virginia who also conducted investment seminars focusing primarily on real estate and estate planning. Titus approached clients or seminar participants and induced them into investing money with him to purchase and rehabilitate real estate, promising to return the money at a later date with a high rate of interest. However, Titus obtained many of the real properties involved through fraud or transferring the properties into trusts controlled by him. Instead of using the funds as promised, Titus directed the investment income toward paying business or personal expenses, backfill investment losses, and at times to make token payments or repay previous investors.
In addition, Titus misappropriated funds given to him by elderly or incapacitated clients who provided him with income intended to be held in trust and took steps to conceal those uses from those who inquired about the management of the trust. Trial evidence showed that Titus failed to make payments for the trust clients' basic medical and housing needs. Titus engaged in a similar scheme to defraud involving real estate closing funds he held in trust.
The loss and intended loss amount attributed to Titus's activities totaled almost $10 million and affected approximately 30 victims. The Virginia State Bar revoked his law license in 2005. (usattyedva41610)
MORAL
Check before you invest in anything. Better to spend a couple of thousand dollars to verify the truth then ultimately lose $10 million as the people did here.
VIRGINIA NOW TELLS YOU HOW TO HANDLE THE EARNEST MONEY WHERE PARTY BIDS ON FORECLOSURE SALE
FACTS
The state of Virginia has passed House Bill 231. This sets forth guidelines concerning the status and handling of earnest money or other escrowed funds held for a sales transaction on a property that is in foreclosure (alrgs41410)
MORAL
I guess we do not have enough regulations already.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
