MORTGAGE LENDERS AND MORTGAGE BROKERS WILL SOON HAVE TO FILE SUSPICIOUS ACTIVITY REPORTS JUST LIKE THE BANKS
FACTS
The Financial Crimes Enforcement Network has now proposed a requirement that NONBANK RESIDENTIAL MORTGAGE LENDERS AND ORIGINATORS, LIKE OTHER TYPES OF FINANCIAL INSTITUTIONS, ESTABLISH ANTI-MONEY LAUNDERING PROGRAMS AND COMPLY WITH SUSPICIOUS ACTIVITY REPORTS REGULATIONS.
Currently FinCen regulations only require banks that originate mortgage loans to file SARs and insured depository institutions. This new proposal will require other originators, such as mortgage brokers and mortgage lenders not affiliated with banks to file AML and SAR reports. SARs are a critical source of information for law enforcement in investigating and prosecuting mortgage fraud related crimes. FinCen believes that new regulations requiring nonbank residential mortgage lenders and originators to adopt AML programs and report suspicious transactions would be consistent with those business’s due diligence and information collection processes to assess creditworthiness in lending. Additionally, the effectiveness of these proposed AML/SAR regulations may be enhanced by new rules imposed under the SAFE Act that require development of a nationwide licensing system and registry for certain mortgage professionals.
As important mortgage finance providers they are ideally positioned to assess and identify money laundering risks and possible mortgage fraud. This protects both their business interests and their customers from the abuses of fraud and financial crime. Analysis of SARs, periodically published in FinCen’s mortgage fraud reports, shows that nonbank mortgage lenders and originators initiated many of the mortgages that were associated with SAR filings.
If you are in need of a written program contact us. Because you see: Financial institutions are required to establish anti-money laundering programs that include, at a minimum: (1) The development of internal policies, procedures and controls; (2) the designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test programs. When prescribing minimum standards for AML programs, FinCen must ‘‘consider the extent to which the requirements imposed under [the AML program requirement] are commensurate with the size, location, and activities of the financial institutions to which such regulations apply.
MORAL
You will have six months from when the new rule becomes effective to put the Anti-Money Laundering program in place and the Suspicious Activity Report program as well. New companies will have six months from when they start business. As of right now FinCen is seeking comments for 30 days and then will change from proposed rule to rule after reviewing the comments in this attorney’s opinion.
FEDERAL RESERVE BOARD TO REVISE REGULATION Z OF TILA—AGAIN
FACTS
What follows is a summary only and is a request for comments. Read it very carefully. It does not appear to affect conforming loans that are fully amortized.
SUMMARY: The Board is publishing for comment an interim rule amending Regulation Z, which implements the Truth in Lending Act. This interim rule revises the Board’s interim rule published on Sept. 24, 2010, which implemented certain requirements of the Mortgage Disclosure Improvement Act of 2008. The September 2010 interim rule requires creditors who extend consumer credit secured by real property or a dwelling to disclose summary information about interest rates and payment changes in a tabular format. The Board is issuing this interim rule to clarify certain provisions of the September 2010 interim rule. Specifically, this rule clarifies the requirements for adjustable-rate transactions that are “5/1 ARM” loans. It corrects the requirements for interest-only loans to clarify that the disclosures should reflect the date of the interest rate change rather than the date the first payment is due under the new rate. This interim rule also revises the definition of “negative amortization loans” to clarify which transactions are covered by the special disclosure requirements for such loans.
DATES: This interim rule is effective Jan. 30, 2011. Compliance with its provisions is optional, however, for transactions for which an application for credit is received by the creditor before Oct. 1, 2011.
MORAL
To read it fully, go to the docket number listed above. However, your software supplier should be called to be sure they implement it for you for these loans. To read the full rule as proposed go to
FEDERAL JUDGE IN CALIFORNIA RULES THAT BORROWERS CANNOT RESCIND LOAN IF THE MORTGAGE BROKER DID NOT GIVE THEM A TRANSLATION OF THE CONTRACT IN THEIR OWN LANGUAGE
FACTS
On Dec. 20, 2010, U.S. District Court Judge Thelton Henderson ruled that despite the California Statute, requiring some loan documents to be translated into the borrower’s native language (Spanish, Korean, Tagalog, Chinese, Vietnamese), ING Bank is not responsible for the failure of a third-party broker that is not its agent that failed to give the translated documents in the Korean language to the borrowers on a mortgage loan. Section 1632 requires that speakers of Spanish, Chinese, Tagalog, Vietnamese and Korean receive translated copies of loans and other contracts if they conducted negotiations in that language. The section was violated in this case. However, the court found that ING Bank was not responsible for the oversight because the loan broker, Bona Financial Group Inc., was not acting as the bank’s agent.
MORAL
If you negotiate in one of the five languages for a mortgage loan and the mortgage loan originator is an employee of the lender be certain they get the translations or you may find yourself with a rescission.
REAL ESTATE ATTORNEY IN SAN DIEGO COUNTY CALIFORNIA ALLEGEDLY TOLD CLIENTS TO BREAK INTO THEIR HOMES AFTER FORECLOSURE-NOW FACES STATE BAR PROCEEDINGS
FACTS
The real estate attorney who recommended that families break into homes they'd lost to foreclosure will be meeting with investigators from the state bar association in January, the attorney's assistant confirmed. Encinitas lawyer Michael T. Pines made news in October when he allegedly advised four Southern California families, including two in Escondido, to hire locksmiths and break into their homes, which banks had repossessed. He argued that their lenders had granted the families mortgage loans under fraudulent conditions and had no right to foreclose.
Local legal experts found his theories dubious, and judges agreed. Pines himself is in a complicated bankruptcy liquidation proceeding and may soon lose his office building.
Of the original four homeowners, three got back into their houses initially, but the people who bought the houses from the banks acted swiftly, and within two weeks, all three families had been evicted again. Police intercepted and arrested Pines at the fourth house in Irvine when he and the family tried to enter.
Pines was in court Dec. 22, 2010 in Ventura County to defend himself in a contempt proceeding initiated by Conejo Capital Partners, the owners of one of the houses, according to a story in the Ventura County Star. Pines said in court that the Ventura County district attorney had filed a complaint against him before the bar association, according to the Star. He later told the Star that bar investigators wanted his assistance with complaints about other attorneys.
Giovanna Maimone, his assistant, confirmed that a complaint had been filed against Pines before the state bar, and that he would be meeting with investigators in January. She wouldn't confirm any other details. If sanctioned, Pines could potentially lose his legal license.
Pines filed for bankruptcy in January. He has subsequently sued the trustee working his case, and faces a possible contempt finding. Last week, the bankruptcy judge awarded Pines trustee ownership of his office building at 732 N. Coast Highway 101 in Encinitas. He can be evicted on or after Jan. 14.
MORAL
I suppose that is one way to get back your home temporarily, but I would not recommend it.
FBI RAIDS INVESTORS FINANCE IN SAN DIEGO WITH SEARCH WARRANT
FACTS
Federal agents have RAIDED THE RANCHO BERNARDO OFFICES OF INVESTORS FINANCE, collecting case files, computer records and other materials. The FBI said little about the action, beyond confirming that agents were at the first-floor West Bernardo Drive offices on Dec. 15, 2010 to execute a search warrant.
Investors Finance is the latest company formed by San Diego-area real estate broker Michael Monaco.
The Watchdog and its media partner 10News reported last month that hundreds of distressed homeowners paid Monaco and Investors Finance up to $1,400 upfront but didn't receive promised mortgage help. The report noted that Monaco has been ordered to pay millions of dollars in civil judgments as a result of repeated breach-of-contract and fraud lawsuits. For that report, Monaco insisted he did nothing wrong and continued working to help his clients.
After The Watchdog report, the state Department of Real Estate filed an official accusation against Monaco, the first regulatory step toward revoking a broker's license.
The document accused Monaco of repeated instances of taking tens of thousands of dollars from people who thought they were investing in home mortgages, then not making payments to them as promised. Monaco told The Watchdog at that time that he didn't even recognize the names cited in the accusation.
MORAL
I trust Monaco has a good criminal attorney experienced in mortgage fraud. He is not under indictment but a search warrant by the FBI is not a good thing. It takes about two years based on my historical data to investigate a case before an indictment or information is filed by the U.S. attorney in any case due to the large amount of paperwork that has to be reviewed. Especially loan files and bank accounts. Remember though the search warrant does not make Monaco guilty or suspect at this time but a good criminal attorney for him would be a good idea in this one person’s opinion.
TWO BROTHERS FROM SYLMAR, CALIFORNIA, ARRESTED FOR MORTGAGE FRAUD HAVING COLLECTED $5 MILLION IN 8 MONTHS
FACTS
On Dec. 21, 2010 HENRIK SARDARIANI and his broker HAMLET SARDARIANI of SYLMAR were taken into federal custody on charges that they bilked private lenders out of more than $5 million by pledging as collateral properties they did not own and fabricating numerous documents to support their false claims.
A federal grand jury indicted the Sardarianis on Dec. 17, 2010, charging them with conspiracy, three counts of wire fraud, six counts of unlawful monetary transactions and five counts of identity theft. According to the indictment, which was unsealed after their arrests the Sardarianis used their fraudulent scheme to obtain well over $5 million from the victim lenders in under eight months.
The indictment alleges that, to obtain the loans on several properties, the Sardarianis created fraudulent deeds of trust, corporate records and other documents to make it appear that they held title to the properties. The brothers allegedly fabricated fraudulent reconveyances to create the false impression that the other loans on the properties had been paid off and that there was sufficient equity to secure the loans. The fraudulent reconveyances bore forged signatures and fraudulent stamps of notaries public, according to the indictment which further alleges that the Sardariani brothers and a co-conspirator presented these fraudulent reconveyances to title companies and victim lenders.
In order to obtain one of the loans, Henrik Sardariani allegedly falsely represented that the loan was needed for less than one month so he could extend a pre-existing escrow and that the money would be returned to the lender at the close of the pre-existing escrow. Sardariani allegedly promised that the money would never leave escrow and that the victim would receive a substantial payment when the loan proceeds were deposited into the pre-existing escrow. However, according to the indictment, after the victim wired $2.5 million to the escrow account, Henrik Sardariani arranged for $1.9 million of the money to be wired to an account in Hong Kong.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.
However, if convicted of all of the charges in the indictment, each of the Sardariani brothers would face a maximum statutory penalty of 115 years in federal prison, plus at least two additional years for the aggravated identity theft charges.
MORAL
If the deeds of trust and reconveyances were forged nothing changed except the lenders do not have security and are out the money. Forged documents do not convey title and forged notary seals have the same type of problem depending on circumstances. Problem here is the stolen money, if it is proven stolen cannot be used to hire legal counsel. The money for counsel has to come from a legal source.
TAMPA MAN INDICTED FOR MORTGAGE FRAUD
FACTS
On Dec. 21, 2010 a grand jury indictment charged DIOGENES AGUASVIVAS (age 38, of Tampa) with two counts of wire fraud. If convicted, Aguasvivas faces a maximum penalty of 20 years in federal prison on each count. According to the indictment, Aguasvivas participated in a mortgage fraud scheme in complicity with a purported financial services company, 4SOLUTIONS INC. The scheme to defraud involved Aguasvivas applying for mortgage loans and entering into undisclosed inside side agreements that relieved him of his obligation to make mortgage loan payments.
The indictment alleges that Aguasvivas received incentive payments of $5,000 for each mortgage loan he obtained and concealed those payments and other material information from the mortgage lenders. Aguasvivas allegedly made other false and fraudulent representations to the lenders, including with respect to the source of his equity contributions, his assets, and his liabilities.
MORAL
You could get tired of reading these, but they become very very interesting when you discover you know some of the players named herein. Do you know any of the players?
FOUR CHARGED WITH MORTGAGE FRAUD IN NEW YORK
FACTS
On Dec. 14, 2010 SARFRAZ TARIQ and MOHAMMED AZAM CHOUDRY were arrested in New Jersey. SALEEM ALI and SHAHID RASHEED surrendered to authorities the same day.
It is alleged that beginning in 2006, the defendants and their coconspirators recruited straw buyers to purchase homes belonging to one or more of the co-conspirators. The defendants and their co-conspirators agreed to pay any down payments, the first three months of mortgage payments, and a kickback of $20,000 per mortgage to the straw buyers. On at least two occasions, the coconspirators arranged for a straw buyer to purchase properties belonging to the co-conspirators using mortgages that were based on applications that contained false information, including false bank accounts, false personal information, and other false statements. In total, the investigation has uncovered at least nine fraudulently obtained loans totaling more than $3 million.
The defendants are charged with conspiring to commit wire fraud, which carries a maximum sentence of 20 years.
The charges contained in the Indictment discussed above are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
MORAL
Mortgage fraud always leaves a paper trail very easy to follow. Then the prosecutors follow the money to the people that received it. Then the straw buyers tell everything. So with that in mind, why do it. We are delighted to defend you as attorneys but it is better not to have done it at all.
NORTH CAROLINA DEMANDS DETAILS ON FEE ITEMIZATION FOR THE GOOD FAITH ESTIMATE
FACTS
The North Carolina Office of the Commissioner of Banks has sent out a clarification letter on the itemization of fees in conjunction with disclosure of the good-faith estimate. Lenders are instructed to separately itemize third-party charges and retain the itemization of the charges within the loan file. The itemization should identify the nature, amount, and recipient of the fee. Lenders can elect (although not required) to provide the itemization to the borrower but would remain responsible for compliance with federal law.
MORAL
North Carolina is a very strict state as most of you are aware so if I were you, do it now. And as long as you are doing it you might consider doing it for all states so you do not have to worry about it unless some states have specific forms such as the California Department of Real Estate Mortgage Loan Disclosure Statement. Isn’t life wonderful? The same information in two different formats and you get disciplined if you do not keep it in the format the state wants notwithstanding all the information is there.
THREE IN CLEVELAND INDICTED FOR $6 MILLION MORTGAGE FRAUD
FACTS
Three area residents have been charged in the Northern District of Ohio with a $6.7 million mortgage fraud scheme. United States attorney for the Northern District of Ohio Steven Dettelbach recently announced the federal grand jury in Cleveland returned a 29-count indictment against three people related to a $6.7 million mortgage fraud conspiracy.
GATES MILLS RESIDENT LOUIS AMIR, 36, was charged with one count of conspiracy, six counts of wire fraud, 13 counts of money laundering and one count of perjury.
BEACHWOOD RESIDENT DEIRDRE FERGUSON, 46, was charged with one count of conspiracy, six counts of aiding and abetting wire fraud and two counts of aiding and abetting money laundering.
CLEVELAND RESIDENT DAPHNE STOKES, 45, was charged with one count of conspiracy, six counts of aiding and abetting wire fraud, three counts of aiding and abetting money laundering, three counts of making false statements in bankruptcy, one count of theft of government funds, three counts of making false statements and one count for misuse of a Social Security number.
According to the indictment, during December 2006 and January 2007, Amir, aided and abetted by Stokes and Ferguson, fraudulently applied for and obtained six mortgage loans totaling approximately $6.7 million to finance the purchase of a residence in Gates Mills.
Amir allegedly purchased that residence for approximately $2 million. The indictment states the defendants delayed filing the warranty deed relating to the purchase to avoid detection. They caused four mortgage lenders to issue loans in excess of the true market value of the Gates Mills property. As a result, the lenders sustained approximately $6.7 million in losses.
Amir was also indicted for his engagement in 13 financial transactions with the proceeds of the fraudulent mortgage loan scheme. Some of those financial transactions included using an official check for approximately $103,000 to purchase a Bentley vehicle in 2006, leasing a Rolls Royce in 2007 for $164,000 and purchasing plasma televisions, speakers and accessories for $96,000 in 2007.
Amir was also charged with committing perjury in 2008 in connection with the United States Bankruptcy Court for the Northern District of Ohio.
Stokes was charged with theft of government funds and false statements in connection with receiving $57,300 in assistance payments from the Department of Housing and Urban Development. She also provided a false Social Security number to Huntington National Bank in 2005 to obtain a $20,800 loan to purchase a Mercedes-Benz.
Sammon said all three had their arraignments in Akron.
MORAL
Notice how I said the prosecutors are working their way forward in time? They are now in 2006. They started with 2004 loans. So if anyone has done creative financing since 2006 I would suggest they see their attorney.
ONGOING MORTGAGE FRAUD IN VIRGINIA EX-EMPLOYEES AT WOODBRIDGE REAL ESTATE COMPANY GET 24 MONTHS
FACTS
On Dec. 17, 2010 CARL V. DEUTERMAN, AND CHRISTOPHER E. TONKINSON, two former employees of a Woodridge-based real estate company were each sentenced to 24 months in prison for their roles in a large mortgage fraud conspiracy. A third alleged member of the conspiracy was also recently arrested on related charges.
Cari V. Deuterman, 32, of Raleigh, N.C., and Christopher E. Tonkinson, 32, of Centreville, Va., were employed from 2006 to 2008 by TOTAL REALTY MANAGEMENT, a real estate company that focused on the marketing of undeveloped, subdivided lots located in North Carolina and South Carolina. The company marketed these lots to many purchasers in northern Virginia and assisted the buyers in their efforts to obtain financing. Deuterman and Tonkinson routinely falsified the loan applications of prospective lot purchasers who did not qualify for financing by inflating their income, the value and/or existence of real estate owned, and the value of any liquid assets held by the loan applicant. They also falsified the names of employment titles and positions of applicants.
Deuterman pled guilty on July 15, 2010, to conspiracy to commit bank and mail fraud and was found to be responsible for loans involving seven different properties, which resulted in nearly $2 million in losses to various lending banks. Tonkinson pled guilty on Sept. 22, 2010, to conspiracy to commit bank and mail fraud and was responsible for two property loans resulting in a loss of nearly $630,000. BOTH WERE ORDERED TO FORFEIT PROPERTY AND PAY FULL RESTITUTION TO THE FINANCIAL INSTITUTIONS.
Another former employee at TRM, MICHAEL JOHN MCCRACKEN, 31, OF HERNDON, VA., was arrested on Dec. 7, 2010, on allegations of participating in a similar mortgage fraud conspiracy at the company. According to an affidavit filed with the court, McCracken worked at the company from 2006 to 2008 and directed and assisted TRM employees as they allegedly carried out efforts to falsify loan applications to lending institutions. He was also charged with illegally possessing firearms and ammunition. The affidavit alleges that McCracken has a gun safe at his home, which contained 10-12 rifles, a handgun, and six to eight boxes of ammunition, all of which he is prohibited from possessing due to a previous felony conviction. McCracken has been ordered detained by the court based on a determination that he was a risk of flight.
On Aug. 27, 2010, another former employee of TRM, AARON V. HERNANDEZ, 41, OF MCLEAN, VA., was sentenced to 63 months in prison, followed by four years of supervised release, for his role in running a mortgage fraud scheme he learned first at TRM and then utilized through a mortgage company he formed, which ultimately caused more than $4.5 million in losses.
MORAL
Like I have been saying the federal prosecutors are now working on the 2006 series of fraud mortgage loans. Remember, they have 10 years to prosecute from the time of the last act involved in the fraud which is generally when the loan officer receives the commission. What is interesting in this one is the person arrested this month had a prior felony conviction. Remembering that people are innocent until proven guilty in a court of law, if he had the felony conviction at the time he was hired how come the company did not discover it?
REMINDER TO WASHINGTON STATE MORTGAGE LOAN LICENSEES
FACTS
BEGINNING JAN. 1, 2011, all licensees are required to use their new license number as outlined in the rules. This is your NMLS number proceeded by either MB if you are a mortgage broker licensee, CL if you are a consumer loan licensee or MLO if you are a mortgage loan originator licensee.
MORAL
Only one half of the eligible people have completed the renewal process and have their license numbers. The rest are deficient for one reason or another. Review the MLO Renewal Spreadsheet to ensure you know what items are outstanding:
WASHINGTON STATE NEW MODEL DISCLOSURE FORM
FACTS
As of Nov. 5, 2010 the DFI has a new model disclosure form with a Nov. 5, 2010 revision date. Use it.
MORAL
Failure to use new forms and keep up to date invites audits, fines, license loss and attorney fees. So if you insist on not using them we will of course be happy to represent you in administrative hearings to save your license.
Happy Holidays and a Bright New Year to you all
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
