SHORT SALE REAL ESTATE BROKER HAS A DUTY TO THE BUYERS TO TELL THEM THE SALE MIGHT NOT GO THROUGH OR THE BROKER CAN BE PERSONALLY LIABLE
FACTS
The California 4th District Court of Appeal held that brokers for home sellers have a legal duty to tell buyers about mortgage problems such as a short sale where existing lender may not accept less than what is owed and that might prevent sales from closing. Brokers are "obligated to disclose to the buyers" when there is "a substantial risk that the seller [can] not transfer title free and clear of monetary liens and encumbrances." Holmes v. Summer, G041906 (Cal. App. 4th, filed Oct. 6, 2010)
The liens and encumbrances in this case totaled about $1.14 million, but real estate broker SIEGLINDE SUMMER sold the home to Phil Holmes and his wife for $749,000 without telling them about the three mortgages on the house. For the sale to have gone through, either the seller would have had to come up with the extra $392,000 or the various lenders would have agreed to write it off.
"$392,000 is not exactly 'chump change,'" Justice Eileen Moore wrote, joined by Justices William Bedsworth and Kathleen O'Leary.
By the time the couple found out about the liens during escrow, they had sold their previous home.
The broker argued that she had a duty not to disclose the seller's confidential financial information. However, the appellate court held that the existence of the three deeds of trust was public record and could be disclosed. In fact, they should have been disclosed before the buyers signed the purchase agreement. Waiting until after escrow began, "failed to protect them in this context."
Further, the broker should have gotten the seller's permission to disclose the shortfall involved. If the seller won't agree and the broker goes ahead with the sale, Moore wrote, "he or she does so at the peril of liability in the event the transaction goes awry due to the undisclosed risks involved."
The court said transactions like this one hurt the marketplace. "In the presently downtrodden economy, it behooves us all for business transactions to come to fruition and for the members of the public to have confidence in real estate agents and brokers," Moore wrote. (ladlyjl10810)
MORAL
You all know the rule, LOCATION! LOCATION! LOCATION! Well for years you also know I have told you to DISCLOSE! DISCLOSE! DISCLOSE! This is what happens when you do not disclose. The written and signed off disclosure protects you. Failure to disclose makes you spend money for attorney fees. Hopefully, this broker had errors and omissions insurance, which I have also told you for years to get. You will sleep better at night with it, especially if you get sued.
CALIFORNIA MAN INDICTED FOR WIRE FRAUD INVOLVING INFLATED PRICES OF HOMES
FACTS
On Oct. 7, Gerald L. Wolfe of Corona Del Mar, Calif., an Orange County attorney, has been indicted on charges related to a mortgage fraud scheme in which 30 homes were purchased at inflated prices, with the excess proceeds going to the lawyer and other members of the conspiracy. The indictment charges Wolfe with conspiracy to commit wire fraud, a charge that carries a statutory maximum penalty of 20 years in federal prison.
The indictment alleges that Wolfe and others conspired to make fraudulent purchases of 30 properties in Orange and Riverside counties between the summer of 2005 and January 2006. The mortgages for the properties allegedly were fraudulent because the LOAN APPLICATIONS, AMONG OTHER THINGS, MISLED LENDERS INTO BELIEVING THAT WOLFE OR STRAW BUYERS WOULD BE LIVING IN THOSE PROPERTIES, contained fictitious personal information about straw buyers recruited by the conspiracy, and sought mortgages for inflated sale prices with agreements that sellers would return the inflated portion of the sale price to the conspiracy.
Most of the 30 homes involved in the scheme went into foreclosure. Investigators believe that the lose amount in relation to the scheme is more than $2 million. Two of Wolfe’s co-conspirators previously pleaded guilty to conspiracy and are pending sentencing. (usattyprcdca107100
CALIFORNIA HIGH SCHOOL TEACHER AND HIS WIFE ARRESTED FOR MORTGAGE FRAUD
FACTS
On Oct. 1, JUSTIN DEE LINDER, a Great Oak High School teacher, and his wife KELLY JO LINDER, both of Murrieta, Calif. were arrested on a Fresno County warrant and charged with 133 counts of real estate fraud in a $9 million loan scheme.
The Linders owned the Fresno County-based SUMMIT MORTGAGE SERVICES FROM 2004 TO 2007. The business was at the center of a series of illegal real estate transactions in Fresno, Madera and Riverside counties, according to the Fresno County District Attorney's office.
The charges against the couple include embezzlement, grand theft, identity theft and illegally obtaining funds from a mortgage. The couple has been UNDER INVESTIGATION FOR THE PAST THREE YEARS, according to a criminal complaint.
The business would earn fees for loans brokered, but neither of the Linders was a licensed broker, according to the complaint. The couple bought in with a licensed broker to work under his license. In one case, Justin Linder is accused of telling a customer to sign over four properties to him because the customer could not afford the payments. The loans remained in the customer's name and continued to receive bills. Two of the homes went into foreclosure and were sold at a trustee sale under the customer's name. Several months later, several checks were deposited into Linder's account, according to the complaint.
Another customer said Linder asked him to "piggyback on his good credit" and sign over all of his personal information. The customer said he never gave Linder permission to use the information to purchase properties.
Other loans were filed regarding properties and loans to at least one owner in Mira Loma. Also charged in the case are GREGG BORCHARDT AND HECTOR SECCO. Borchardt worked as real estate agent for the Linders, and Secco worked as a notary public, officials say.
The Linders each face anywhere from probation to 100 years in prison if convicted (rivprent10110)
CALIFORNIA ATTORNEY GENERAL FILES CRIMINAL CHARGES AGAINST TWO PEOPLE FOR DEFRAUDING EAST BAY HOMEOWNERS
FACTS
On Oct. 8, Attorney General Edmund G. Brown Jr. announced charges against two "callous con artists" who took thousands of dollars from dozens of struggling Northern California homeowners for foreclosure services never delivered.
ANGELINE LISA LIZARRAGO, 68, OF FREMONT AND MICHAEL DOUGLAS YOUNG, 67, OF LOS GATOS were scheduled to be arraigned on a 23 count complaint for felony fraud and theft they committed at their business, AVEMOS FINANCIAL GROUP, OF FREMONT.
If convicted, Lizarrago could face more than 15 years in prison. Young, a licensed real estate broker, faces up to 12 years
From June 2008 to October 2009, Lizarrago and Young targeted Spanish-speaking homeowners as well as Southeast Asian immigrants, all desperate to save their homes.
People stood in line for hours to get into Avemos's waiting room, which was decorated with shrines to the Virgin Mary. Clients seeking help typically paid $1,500 initially. Lizarrago, the owner of Avenos, and Young, Avemos's general manager, promised they would take steps to stop banks from immediately foreclosing on their homes and renegotiate clients' loans to reflect their home's current market value. Lizarrago and Young guaranteed a refund if they were unsuccessful. Many lost their homes in foreclosure and did not receive a refund.
Lizarrago also took advantage of the foreclosure crisis in another way. She told an 89-year-old man and his wife, who wanted to move away from Stockton, that she owned 51 properties, many of which had been foreclosed upon, and she could find them a home in Fremont. She asked for an up-front fee, which she promised to return with interest once the purchase was made. In a series of payments, the couple gave Lizarrago $25,000. She never found them a home, nor returned their money.
The criminal charges against Lizarrago and Young are based on 11 cases of fraud and theft, and prosecutors believe there are 50 more victims who haven't been identified yet.
The CALIFORNIA DEPARTMENT OF REAL ESTATE and the Fremont Police Department ASSISTED IN THE INVESTIGATION. (agjerrubrown10810)
MORAL
I would like you to note that the Department of Real Estate took part in the investigation. In this attorney's opinion if you are in the process of an audit or investigation by DRE, I would strongly suggest you consult an attorney first and talk later.
CALIFORNIA AG FILES $60 MILLION LAWSUIT AGAINST ALLEGED FRAUDULENT FORENSIC AUDIT LOAN MODIFICATION SCAM
FACTS
On Oct. 6, AG Brown filed a $60 million lawsuit against a pair of Sacramento companies that lured desperate homeowners with a deceptive marketing scheme that promised to obtain mortgage modifications through the use of computer-generated "forensic loan audits."
Brown filed the $60 million lawsuit against US LOAN AUDITORS, MY US LEGAL SERVICES, AND FIVE INDIVIDUALS, INCLUDING TWO ATTORNEYS, who allegedly operated a fraudulent mortgage audit scheme that preys on desperate homeowners anxious to save their homes. The suit demands civil penalties, restitution for victims, and permanent injunctions to keep the companies and other defendants from fraudulently marketing forensic loan audits and legal services of little value.
The companies, based in Rancho Cordova, allegedly work together to market and sell "forensic loan audits" to homeowners, who pay thousands of dollars in up-front fees for a dubious computer-generated review of their mortgages. The audits purport to show violations of law by lenders, which sales agents cite to convince homeowners they have a strong legal case. Sales agents use these findings to encourage homeowners to stop making their mortgage payments and instead pay additional fees to bring "predatory lending" lawsuits against their lenders.
Both companies deceive homeowners by assuring them that filing these lawsuits will give them "legal leverage" to obtain a loan modification and prevent lenders from foreclosing or collecting monthly mortgage payments. Homeowners who filed these lawsuits have lost thousands of dollars and placed themselves in greater danger of losing their homes.
My US Legal Services bilks clients for months, filing cookie-cutter complaints with little or no merit, billing unjustified monthly fees, and then dodging clients' phone calls or stringing them along with false assurances that a settlement is in progress.
Hundreds of California homeowners, many of them facing possible loss of their homes, have been duped into paying thousands of dollars to the two companies—one homeowner paid more than $55,000—but received little or no relief.
Meanwhile, the litigation mill run by My US Legal Services has littered courts with hundreds of lawsuits that have scant chance of success. Two federal judges have expressed concern about the legitimacy of these lawsuits and have several times sanctioned attorneys involved.
In addition to the companies, Brown is suing the three owners: attorney and real estate broker JAMES SANDISON, JEFFREY PULVINO, AND SHANE BARKER, as well as two California attorneys, SHARON L. LAPIN AND JONATHAN G. STEIN.
The State Bar allegedly filed disciplinary charges on Oct. 5 against Sandison for alleged misappropriation of clients' funds and aiding the unauthorized practice of law.
The Attorney General's investigation, assisted by the State Bar and the DEPARTMENT OF REAL ESTATE, located victims throughout California cities hit hard by the foreclosure crisis: Corning, Fresno, Hayward, Irvine, Manteca, Richmond, Sacramento, Salinas, Sanger, Santa Ana, Stockton, Tracy, Vacaville and West Sacramento. (caagbwn10610)
MORAL
These are allegations to be proven in court. But note the seriousness of the charges. The attorney general has filed civil suits against over 33 individuals for loan modifications and mortgage fraud including attorneys as well as criminal charges against 22 other individuals. If you would like to see the list go to
COLORADO GETS GRANT TO ADD SIX MORE POSITIONS IN ITS MORTGAGE FRAUD INVESTIGATION DEPARTMENT
FACTS
The Colorado Bureau of Investigation plans to add six new fraud unit positions to pursue mortgage fraud in Colorado with a new $1.7 million grant that was awarded October 2010 from the Bureau of Justice Assistance of the U.S. Department of Justice, CBI Director Ronald C. Sloan announced.
Colorado ranked tenth among the 50 states in mortgage fraud in 2008, according to the Mortgage Asset Research Institute. Colorado was first among the states in mortgage fraud in 2006.
“Despite a more stabilized, although weak, economy recently, Colorado continues to be plagued by a high incidence of mortgage fraud,” noted Director Sloan. “Colorado remains among the top states for mortgage fraud during the past four years. CBI intends to pursue aggressively those who perpetrate fraud with these new resources,” he said.
The grant provides for six new positions to supplement CBI’s fraud unit’s one and one-half positions currently dedicated to mortgage fraud investigation, explained Sloan. Joining the CBI mortgage fraud effort are the Denver office of the FBI and several state and local agencies.
During the past four years, CBI concluded a number of mortgage fraud prosecutions, including one investigation that resulted in ten indictments involving 162 properties, with losses of $34.9 million (fbicoprrel10510)
CONNECTICUT MAN PLEADS GUILTY TO MORTGAGE FRAUD
FACTS
On Oct. 1, KENNETH PERKINS of Groton pled guilty to one count of conspiracy to commit wire fraud stemming from his participation in a mortgage fraud scheme.
PERKINS was a participant in a conspiracy to obtain residential real estate loans, including loans insured by the Federal Housing Administration, through the use of sham sales contracts, false loan applications and fraudulent property appraisals. As part of the scheme, individuals are alleged to have entered into sales contracts with straw purchasers to sell homes for a price higher than the actual price that the sellers would receive. Participants in the conspiracy submitted false documentation in connection with loan applications that were submitted, including fraudulent appraisals of the properties being purchased in order to justify the inflated sales price and the loan amount being sought to fund each purchase.
In pleading guilty, PERKINS ADMITTED THAT HE AGREED TO SERVE AS A BUYER in approximately eight residential property sales that closed between about March 2007 and September 2007. PERKINS admitted that the sales prices on the sales contracts and closing documents were fraudulently inflated, and that they were typically supported by a fraudulent appraisal, in order to secure a loan at an amount higher than the price actually agreed to by the seller. All but one of these properties is in Connecticut.
PERKINS also admitted that false information was provided on his loan applications to the lenders in order to secure the loans needed to fund the property purchases. The false information included information about his income, his assets and liabilities, his intention to occupy the home as his primary residence, and his ownership interest in property in the prior three years. PERKINS received as much as $20,000 each time he agreed to act as a buyer.
PERKINS also assisted the conspiracy by helping to obtain residential real estate loans in the names of other straw buyers. This assistance included creating false documentation in support of loan applications, including false employment records, false wage records and false bank records. It also included utilizing a bank account into which some of the fraudulent proceeds were funneled, and working with an appraiser to generate fraudulent appraisals that would be sent to lenders in support of loan applications. In total, PERKINS’ fraudulent conduct caused a loss of approximately $1.5 million to lending institutions.
Judge Thompson has scheduled sentencing for Dec. 20, 2011, at which time PERKINS faces a maximum term of imprisonment of five years and a fine of up to $250,000. U.S. Attorney Fein stated that the investigation is ongoing. (usattyct10110)
MORAL
You noticed how the “investigation is ongoing?” One down. More to follow!
REAL ESTATE BROKER FROM ILLINOIS CONVICTED OF MORTGAGE FRAUD
FACTS
On Oct. 1, 2010 a federal jury returned guilty verdicts on all nine counts of fraud charged against Decatur real estate broker TERRY HART for his participation in a real estate “flipping” scheme. Hart’s sentencing is scheduled on Jan. 20, 2011.
Hart was a licensed real estate broker who operated HART REALTY in Decatur when he was indicted in March 2008 with two co-defendants, DIANE SHELTON, FORMERLY A LOAN OFFICER AT STALEY CREDIT UNION IN DECATUR, AND MARK BROWN, A FORMER LICENSED REAL ESTATE APPRAISER WHO OPERATED A REAL ESTATE APPRAISAL BUSINESS IN DECATUR. The three were each charged with nine counts of mail fraud related to their participation in a scheme to defraud Staley Credit Union and various buyers of real estate in Decatur from 2002 to July 2005.
On June 22, 2009, Brown entered pleas of guilty to the nine counts of fraud. Shelton pled guilty to the nine counts on Oct. 1, 2009. Sentencing for both Brown and Shelton is scheduled on Nov. 12, 2010.
Evidence presented at trial showed the three participated in as many as 40 fraudulent real estate sale and financing transactions totaling more than $3 million in gross proceeds which generated profits to Hart of more than $600,000 and a potential loss to Staley Credit Union of more than $1 million. The defendants made false representations, including fraudulent appraisals prepared by Brown and used by Hart and Shelton, to cause buyers to purchase and Staley Credit Union to finance residential real estate properties, some of which were owned by Hart and were financed at amounts substantially higher than their reasonable value. Hart and Shelton received payment of loan proceeds and paid appraisal fees and kickbacks to Brown.
Each offense of mail fraud carries a maximum statutory penalty of up to 30 years imprisonment and a fine of $1,000,000. Final sentences are determined by the court. (usattycdil10110)
MORAL
Notice the government went back to loans that occurred eight years ago. As I have been stating in all the eAlerts for over the past year, because of the meltdown, the government is checking and indicting. The lenders and investors are reviewing the mortgages they have been unable to sell or that are doing poorly and if they can find the smallest problem in the file they demand a buyback and sue if you do not. Some of you are experiencing that right now as you read this.
MINNESOTA MAN SENTENCED TO 34 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On Oct. 6, DALE CHARLES DODGE JR., of Alexandria was sentenced in federal court in Minneapolis on charges connected to a scheme to defraud mortgage lenders and others out of more than $800,000. He received 34 months in prison on one count of wire fraud and one count of engaging in a monetary transaction with property derived from unlawful activity, commonly referred to as money laundering.
Dodge admitted that from 2002 through 2005, he operated a title closing company under the names PREMIER TITLE & ABSTRACT INC., and VERITY TITLE & ABSTRACT. As part of that operation, he maintained an escrow account, into which mortgage lenders regularly deposited loan proceeds for distribution at closings pursuant to the terms of the real estate agreements. He also contracted the services of a title insurer, who underwrote most of the real estate transactions closed through his company.
Between 2002 and 2005, Dodge executed a scheme to defraud mortgage lenders and others out of large sums of money by diverting loan proceeds from the escrow account at his title company. The money was used for his personal benefit as well as the benefit of his company and others involved in the scheme. Specifically, Dodge fraudulently removed the funds or caused the funds to be removed from the escrow account to pay his salary and the salaries of company employees in addition to other non-escrow business expenses. Frequently, those expenses were paid through wire transfers from the escrow account to other accounts under Dodge’s control. Furthermore, Dodge admitted concealing those actions from his title insurer and mortgage lenders as well as from property sellers and purchasers.
Dodge’s fraud scheme caused losses of more than $800,000. Approximately $844.561.60 is owed to one specific mortgage lender, who mistakenly deposited money into Dodge’s escrow account. An additional amount is owed to First American Title Insurance Co., Dodge’s title insurer, which was required under law to pay certain outstanding escrow obligations for which Dodge was unable to pay. (usattymn19610)
MORAL
Note how the government went back eight years to get to Mr. Dodge. For those of you that do not know, the federal government can go back to acts that took place 10 years ago on mortgage fraud using the mail fraud and wire fraud statutes let alone others such as bank fraud. So the usual word to the wise, if you have questionable “stated income” loans and they are foreclosed or foreclosing see your lawyer now. Quite a few of you are seeing us on lender buyback demands for loans that funded over five years ago. Remember, the contract reads the lender can seek you out for the “LIFE OF THE LOAN.” Read the contract. There are defenses, but we would have to read the contract and know the circumstances of the loan.
FOUR INDICTED IN PENNSYLVANIA FOR MORTGAGE FRAUD
FACTS
On Oct. 6, an indictment was unsealed charging ALLIE SPEIGHT, MAURICE THOMAS, JEROME MANKER, AND ANDRE MCCREA with various counts of conspiracy to commit wire fraud, wire fraud, bank fraud, conspiracy to commit money laundering, making false statements on loan applications, bribery of bank employees, and identity theft. The indictment alleges that Allie Speight, a/k/a “Allie Speights,” a/k/a “Ah Speights,” and Maurice Thomas, a/k/a “Sabir Thomas,” orchestrated a scheme to induce others to obtain loans as straw borrowers in return for receiving a percentage of the loans. Jerome Manker allegedly received funds from the loans for construction and rehabilitation work that he never performed.
According to the indictment, Speight and Thomas would act as brokers, scouting for depressed properties and enticing others to purchase the properties by obtaining loans that were far in excess of the properties’ values. Speight and Thomas used a mortgage broker in Pittsburgh to prepare and submit loan applications that contained false W-2 statements and pay stubs, mostly from the fictitious company of “ALLIED CONSTRUCTION AND DEVELOPMENT CORP.,” owned by Allie Speight. The mortgage broker, JOHN POLOSKY, charged elsewhere, received payments from the loan proceeds outside of the payments identified in the HUD-1 settlement sheets for the loans. Speight and Thomas received at least 10% of the loan proceeds that they helped to broker. In many cases, Speight and Thomas allegedly created forged letters from the straw borrowers that directed title companies to send the proceeds to FRED A. JOHNSON JR., charged elsewhere, an accountant based in West Philadelphia. Johnson then laundered the loan proceeds by disbursing the monies to various bank accounts according to Speight’s and Thomas’ directions. By misdirecting the funds to Johnson, the lenders were not aware that the loan monies were ultimately disbursed to individuals not entitled to receive the funds, including Speight, Thomas, and members of Speight’s family. According to the indictment, over $3 million in loans were obtained during the course of the charged wire fraud conspiracy.
The indictment also charges another scheme to obtain loans from Wachovia Bank using straw borrowers. According to the indictment, Jerome Manker and Andre McCrea, a former Wachovia employee, submitted loan applications that contained false documents. Over the course of three loans, Manker and McCrae obtained from Wachovia over $300,000 in loan proceeds. In July 2007, after McCrea was no longer working for Wachovia, McCrea bribed another Wachovia employee to push a third Manker loan using a straw borrower.
If convicted, defendant Allie Speight faces a maximum possible sentence of 152 years imprisonment, five years of supervised release, a fine of at least $3.5 million, and a $1,000 special assessment; defendant Maurice Thomas faces a maximum possible sentence of 100 years imprisonment, five years of supervised release, a fine of at least $2.5 million, and a $600 special assessment; defendant Jerome Manker faces a maximum possible sentence of 160 years imprisonment, five years of supervised release, a fine of at least $5.5 million, and a $700 special assessment; defendant Andrea McCrea faces a maximum possible sentence of 160 years imprisonment, five years of supervised release, a fine of at least $5.75 million, and a $700 special assessment. (usattedpa10610)
THREE CHARGED IN PHILADELPHIA WITH MORTGAGE FRAUD
FACTS
On Sept. 28, an indictment was filed against BERNADETTE NICHOLAS, KEVIN D. MCALLISTER AND WAYNE ROSEN for engaging in schemes to defraud Wilmington Trust Federal Savings Bank and Malvern Federal Savings Bank involving properties valued at more than $35.5 million.
According to the indictment, Nicholas, who was a mortgage broker, intentionally misrepresented material facts to Wilmington Trust about borrowers’ income and assets, the potential rental income and accurate appraisals of properties. It further alleges that Nicholas falsified borrowers’ tax returns and documents relating to the true source and amount of the down payments being made by borrowers, and forged borrowers’ signatures on loan documents. McAllister worked as a loan officer with Wilmington Trust and allegedly worked in conjunction with Nicholas to approve mortgage loans for borrowers who did not meet Wilmington Trust’s criteria for income, assets, and credit scores, in return for bribes and kickbacks from Nicholas. As a result, Nicholas and McAllister caused the approval of loans totaling more than $30 million.
Nicholas allegedly did not report the monies obtained from the Wilmington Trust fraud scheme to the Internal Revenue Service. McAllister also allegedly failed to report the illegally obtained monies that he received as bribes and kickbacks from his approval of the Wilmington Trust loans for Nicholas’ clients.
Nicholas and Rosen are charged with engaging in a scheme to defraud Malvern Federal. According to the indictment, Nicholas brokered the sale of an apartment building between Rosen and mortgage clients and sought a $1.6 million loan from Malvern Federal for her clients. Nicholas allegedly altered the borrowers’ income tax returns prior to submitting them to Malvern Federal and falsely represented the borrowers’ income, the amount of the borrowers’ down payment, and the details of a subordination agreement between Rosen and the borrowers on the borrowers’ loan application and supporting documents. Second, Nicholas and Rosen applied for a $3.5 million loan to refinance an existing loan that they had on a medical building. In order to influence Malvern Federal’s actions, it is alleged that Nicholas and Rosen prepared and caused to be prepared fraudulent leases which misrepresented the potential rental flow income of their medical building and caused these leases to be submitted to Malvern Federal.
If convicted, the defendants face the following: Bernadette Nicholas faces a guideline sentencing range of 70 to 87 months in prison, a fine of up to $59.2 million, five years' supervised release, and a $6,100 special assessment; Kevin McAllister faces a guideline sentencing range of 70 to 87 months in prison, a fine of up to $56.3 million, five years' supervised release, and a $ 5,900 special assessment; and Wayne Rosen faces a guideline sentencing range of 46 to 57 months in prison, a fine of up to $3 million, five years' supervised release, and a $300 special assessment. (usattyedpa92810)
MORAL
Hardly seems worth it considering the prison time and the fine.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
