FACTS
Effective immediately, FHA-approved supervised lenders that are regulated by the Federal Deposit Insurance Corp., Office of Thrift Supervision, or National Credit Union Administration whose consolidated assets do not meet the threshold required by those agencies for submitting audited financial statements (delineated at 12 C.F.R. § 363.1(a), 12 C.F.R. § 562.4(b)(2) and 12 C.F.R. § 715.4(c)) are not required to submit audited financial statements to FHA, nor an audited computation of net worth. These new directions apply at the time of approval and at recertification, but will expire on April 7, 2012.
Supervised lenders that are not required to submit audited financial statements to FHA, as provided above, must submit a copy of their unaudited regulatory report (i.e., Report of Condition and Income, also known as the “Call Report” and submitted on the Federal Financial Institutions Examination Council forms 031 and 041; a consolidated or fourth quarter Thrift Financial Report; or a consolidated or fourth quarter NCUA Call Report, submitted on NCUA Form 5300 or 5310) that aligns with their fiscal year end.
In addition, these lenders are required to submit an independent auditor's (1) report on internal control as it relates to administering HUD-assisted programs, and (2) report on compliance with specific requirements applicable to major and non-major HUD programs (as prescribed by chapters one, two and seven of HUD OIG Handbook 2000.04). These audited reports must be prepared by an independent auditor licensed by a regulatory authority of a state or other political subdivision of the United States or by a certified public accountant.
Until the Lender Assessment Subsystem (LASS) is updated to permit the submission of unaudited regulatory reports through a separate attachment section, supervised lenders must submit their unaudited regulatory reports by uploading them with the auditor's footnote in LASS regardless of the manner of the lender's financial reporting.
MORAL
There is more for small banks as defined in the mortgagee letter and also for parent = subsidiary arrangements. If you are a small bank or if you are not certain READ THE MORTGAGEE LETTER CAREFULLY. If we represent you, then give us a call if there are any questions.
A REMINDER ABOUT ‘DUAL TRACKING' OR THE LENDER/SERVICER CANNOT FORECLOSE AT THE SAME TIME IT IS DOING A LOAN MODIFICATION FOR THE BORROWER
FACTS
The OFFICE OF COMPTROLLER OF THE CURRENCY took enforcement action against eight servicers for unsafe and unsound foreclosure practices.
The Office of the Comptroller of the Currency on April 11 announced formal enforcement actions against eight national bank mortgage servicers and two third-party servicer providers for unsafe and unsound practices related to residential mortgage loan servicing and foreclosure processing.
The eight servicers are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank and Wells Fargo. The two service providers are Lender Processing Services and its subsidiaries DocX LLC and LPD Default Solutions Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems Inc.
The actions require the servicers to make significant improvements in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and dual tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process.
THE ENFORCEMENT ACTIONS REQUIRE THE SERVICERS TO ENSURE THAT FORECLOSURES ARE NOT PURSUED ONCE A MORTGAGE HAS BEEN APPROVED FOR MODIFICATION AND TO ESTABLISH A SINGLE POINT OF CONTACT FOR BORROWERS THROUGHOUT THE LOAN MODIFICATION AND FORECLOSURE PROCESSES. A summary of the findings of the interagency reviews is available in the
MORAL
The question is: If you are approved for a trial modification is this a loan modification that requires the lender/servicer to STOP FORECLOSURE proceedings while the modification is in progress? Does it require the lender/servicer to start the foreclosure proceeding over from the beginning if the modification does not work out? Check with your attorney if you were given a trial loan modification and at the same time the lender/servicer continued with the foreclosure.
THE VA STATES MORTGAGE ELECTRONIC RECOVERY SYSTEM CANNOT FORECLOSE ON MICHIGAN REAL PROPERTY BECAUSE MICHIGAN COURT OF APPEALS DECLARES VOID ALL NON-JUDICIAL FORECLOSURES IN THE NAM OF MERS
FACTS
The Department of Veterans Affairs policy on foreclosures following a decision by the MICHIGAN COURT OF APPEALS THAT DECLARED VOID ALL NON-JUDICIAL FORECLOSURES IN THE NAME OF MORTGAGE ELECTRONIC REGISTRATION SYSTEM HAS NOW CHANGED.
Michigan Foreclosures. In Michigan, the prevalent method of foreclosure is a non-judicial process involving advertisement of a scheduled sale by the owner of the indebtedness, the owner of an interest in the indebtedness, or the servicing agent of the mortgage. The Michigan Court of Appeals, in an April split decision, determined that MERS lacked an ownership interest in the indebtedness, and therefore foreclosure by advertisement in the name of MERS was invalid. VA has been advised that the decision is on appeal, but until that opinion is reversed, VA must accept the position that non-judicial foreclosures in the name of MERS in Michigan are invalid.
VA has decided that, based on the Appellate Court decision and reports of difficulties in obtaining title insurance on such cases, all Michigan properties in inventory that were foreclosed in the name of MERS will be returned to the former servicer for proper termination.
MORAL
Watch that next foreclosure, you may not own the property you just thought you purchased.
WHEN BORROWERS FILE BANKRUPTCY AND FAIL TO LIST A POTENTIAL LAWSUIT AS AN ASSET, THEY CANNOT SUE THE CREDITOR
FACTS
The Hamiltons bought a home in January 2007. They defaulted on the loan in September 2007. They then entered into a forbearance agreement with the lender, Select Portfolio Servicing Inc. SPS agreed to the agreement. Later SPS notified the Hamiltons the loan was transferred to Greenwich Investors XXVI. In March 2008, Greenwich contacted the Hamiltons and the Hamiltons informed Greenwich about the forbearance agreement. Greenwich refused to honor the agreement and demanded the total amount of the arrearages on the mortgage. The husband, Henry Hamilton, filed for bankruptcy but failed to list any claim against Greenwich in the bankruptcy schedules. The bankruptcy plan called for monthly payments to Greenwich Investors. The Hamiltons defaulted on the plan. The Hamiltons then sued Greenwich alleging breach of contract following the foreclosure and sale of the home.
Greenwich filed a demurrer which the trial court granted finding the failure of the Hamiltons to list the existence of their claim in the bankruptcy proceeding barred the action.
The 2nd District Courts of Appeal said...
Affirmed. One seeking benefits under the bankruptcy law must satisfy a companion duty to schedule all his interests and property rights for the benefit of creditors. Failure to disclose any litigation that might arise in a non-bankruptcy context triggers application of the doctrine of equitable estoppel operating against a subsequent attempt to prosecute the actions. Since Henry failed to list any claim against Greenwich, one of his listed principal creditors, even in answer to an express question about counterclaims and setoffs, his lawsuit is not allowed.
MORAL
List all potential lawsuits you may have in your bankruptcy schedule of assets whether you intend to sue at that time or not. That way you preserve the right. I had such a case once, where we sued the second holder of the deed of trust and unbeknownst to me the plaintiff our client had previously filed bankruptcy and not listed the potential lawsuit and the defense attorney moved for dismissal. He was right. HOWEVER, I informed the attorney that I would ask the court to dismiss without prejudice and then request the Bankruptcy be reopened to list the potential claim so I could refile. This was not necessary because the defense settled shortly thereafter rather than go through that hassle I presume. In this case the major and important difference is the Hamiltons appear to have EXPRESSLY DENIED ANY RIGHTS TO COUNTERCLAIMS AND SETOFFS. Be careful when you file bankruptcy to list all potential lawsuits you may have against others.
GEORGIA MAN PLEADS GUILTY TO MORTGAGE FRAUD IN ALABAMA FEDERAL COURT
FACTS
On Aug. 23, 2011 LANCE A. COLLINS OF ATLANTA entered a guilty plea to conspiracy to commit bank fraud, wire fraud and mail fraud. Collins faces a maximum possible sentence of twenty years and a fine of $250,000.00. Restitution is mandatory.
Collins admitted participating in a scheme to defraud mortgage lenders by submitting false loan applications to obtain mortgage loans for the purchase of condominiums in the Southern District of Alabama. To carry out the scheme, commonly known as a “SILENT SECOND” OR “EQUITY SKIMMING” scheme, documents required for closing the loans were sent by a commercial interstate carrier or faxed from the Southern District of Alabama to mortgage lenders in Birmingham, Ala., and out-of-state. Collins and other members of the conspiracy would provide the funds for the down payments of the properties purchased. The buyers would receive a check at closing, in approximately twice the amount of the down payment, which they then gave to Collins or the co-conspirator who had provided the down payment. Members of the conspiracy acting as buyers were not paying anything down on the purchase of the properties and had no equity in the property from the date of closing.
MORAL
Here we go again. The federal prosecutors follow the money to the man and arrest the man at the end of the money trail.
CALIFORNIA INCREASE IN BORROWERS MISSING LOAN PAYMENTS
FACTS
The rate of mortgage delinquencies has increased for the second quarter in a row where the percentage of homeowners of single-family one-to-four residential units have missed at least one payment.
MORAL
More foreclosures starting sooner than later. However, there may be a bright side in short sales for the borrowers. There can be decided benefits to a short sale as opposed to a foreclosure that the borrower might like to consider.
IF THE SELLER OF A CALIFORNIA HOME HAS AN HOA OR PUD A NEW LAW THAT MAY BE EFFECTIVE JAN. 1, 2012 MAY MAKE IT HARDER TO SELL THE HOME
FACTS
Assembly Bill 771 has been sent to Gov. Jerry Brown and will take effect Jan. 1 if he signs it. The bill applies to any unit in a common-interest development governed by an association, including condos, stock cooperatives and planned-unit developments.
If the owners want to sell, they must provide the buyer, before closing, certain documents from the HOA listed in Civil Code Section 1368. These include the articles of incorporation, bylaws, operating rules occupancy limits and other documents. The existing state law provides an HOA must provide these documents within 10 days of the request and charge a fee that does not exceed its reasonable cost to prepare and reproduce them.
HOWEVER, many associations outsource these requests to outside vendors, who are not covered by the law that limits fees to the actual costs. They are allowed to make a profit.
Starting about two years ago Alex Creel a lobbyist for the California Association of Realtors said, "We started getting reports, mostly in the desert area around Palm Springs, that all of a sudden the cost of these documents went up. They used to be $150, $200, maybe less, now they were $1,000."
In some cases, document fees were being bundled with other charges, such as the owner's unpaid HOA dues or fines, says Ron Kingston, a lobbyist for the Community Associations Institute.
Under the new bill, sellers must be given a statement that shows the fee being charged for providing required documents and list each of them.
The bill shall also:
• Require sellers to provide a copy of the HOA's board-meeting minutes for the past 12 months, if requested by a buyer.
• Require an HOA to provide the seller a written or electronic estimate of the fees that will be assessed to provide the specified documents.
• Prohibit HOAs from charging additional fees for electronic delivery of documents.
The bill does not specifically prevent outside companies from making a profit on document delivery, but it could lead to lower fees if sellers do not have to pay for documents they don't want or need. The bill has been ENROLLED and sent to the governor for signature on Aug. 22, 2011. SB 150 is a parallel bill and has already been chaptered and will go into effect on Jan. 1, 2012. If this bill is signed by the governor then Section I of the bill will not apply because SB 150 will override it.
MORAL
The cost in some form will be passed on to the buyer in this attorney's opinion.
THREE MEN IN SACRAMENTO AREA INDICTED FOR MORTGAGE FRAUD
FACTS
On Aug. 25 a federal grand jury returned an 11-COUNT INDICTMENT CHARGING SEAN MCCLENDON, 45, OF WEST SACRAMENTO; ANTHONY SALCEDO, 30, OF EL DORADO HILLS; AND ANTHONY WILLIAMS, 44, OF CARMICHAEL, IN A MORTGAGE FRAUD CONSPIRACY. Williams is also charged with two counts of identity theft.
According to the indictment, between December 2005 and September 2006, McClendon and Williams bought four residential properties from Salcedo or his associates using straw buyers. The properties were in Rocklin, Folsom, Sacramento and El Dorado Hills. Salcedo paid McClendon and Williams a kickback for finding buyers. McClendon was a loan officer and facilitated the loans for each of the properties and in each instance, the buyer's income and assets were falsified in order to qualify for the loans. Generally, the true purchase price of the homes was overstated on the loan documents and payments to the straw buyers and the KICKBACKS WERE NOT DISCLOSED TO THE LENDERS as part of the purchase or sales agreements.
For two of the properties, the buyer of record was a resident of Milwaukee, who was unaware that her personal information was being used to purchase homes in the Sacramento area. Williams is charged with two counts of identity theft in relation to these transactions.
McClendon is separately charged with mail fraud in connection with another residential property by one of the same buyers involved in purchasing one of Salcedo's properties. All properties involved were foreclosed by the lenders, resulting in losses of more than $1 million.
If convicted, the defendants face a maximum statutory penalty for mail fraud and the related conspiracy of 30 years in prison, a $1 million fine, or both. The penalty for identity theft is two years in prison served concurrent to any sentence for the related mail fraud charges.
The charges are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.
MORAL
Now the loans being investigated one by one start at 2005 and coming forward. Remember, the federal government has ten years from the final act in the event to criminally indict. So do not be surprised if loans from 2001 to 2004 pop-up. Although, it appears that most are not in the 2005 and up range.
BID RIGGING AT CALIFORNIA PUBLIC FORECLOSURE SALES CAN LAND YOU IN FEDERAL PRISON
FACTS
On Aug. 12 WALTER DANIEL OLMSTEAD, a real estate investor, pleaded guilty in U.S. District Court in Sacramento to conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions held in San Joaquin County.
Olmstead, 39, of Tracy, Calif., pleaded guilty to conspiring 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 to obtain selected real estate offered at San Joaquin County public foreclosure auctions at noncompetitive prices.
After the conspirators' designated winning bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group's illicit profit, and it was divided among the conspirators in payoffs. According to his plea agreement, Olmstead participated in the scheme beginning in or about November 2008 until in or about July 2009.
To date, seven individuals, including Olmstead, have pleaded guilty in U.S. District Court for the Eastern District of California in connection with this investigation THE OTHERS BEING ANTHONY B. GHIO, JOHN R. VANZETTI, THEODORE B. HUTZ, RICHARD W. NORTHCUTT, YAMA MARIFAT AND GREGORY L. JACKSON.
Olmstead pleaded guilty to 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 victims of the crime, if either of those amounts is greater than the statutory maximum fine. Olmstead also pleaded guilty to conspiracy to commit mail fraud, which carries a maximum sentence of 30 years in prison and a $1 million fine.
These charges arose from an ongoing federal antitrust investigation of fraud and bid rigging in certain real estate auctions in San Joaquin County.
MORAL
Anyone else considering “bid rigging” at public auctions? By the way, indirectly suggesting someone should not bid under potential threat of harm is bid rigging in this attorneys opinion and the next person that suggests to someone not to bid at the auction may find out he is madding the suggestion to a “wired” FBI undercover agent.
GEORGIA UPDATES FINAL RULES ON LENDERS, BROKERS AND MORTGAGE LOAN ORIGINATORS
FACTS
The Georgia Department of Banking and Finance has updated rules for mortgage loan lenders, originators and brokers including mortgage loan originator sponsorship, continuing education, and remittance and refund of GRMA per loan fee.
MORAL
Go to the Georgia Department of Banking and Finance to get the updated rules. Or risk discipline for noncompliance. If you have problems you can retain us to do it for you.
ILLINOIS ENACTS PROVISIONS ON MOTIONS TO QUASH FORECLOSURE ACTIONS
FACTS
Illinois amended its Civil Code of Procedure related to foreclosure actions. The law now provides that the deadline for filing a motion to dismiss or to quash service is 60 days after the date that the moving party filed an appearance or the date that the moving party participated in a hearing without filing an appearance, and amends provisions related to personal jurisdiction.
MORAL
If you are going to stop a foreclosure in Illinois be sure you are aware of the new limitations period to quash the service.
TWO IOWA MEN DRAW OVER SIX YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On Aug. 25 DARRYL LEE HANNEKEN, AGE 43, AND ROBERT EDWARD HERDRICH, AGE 39, both of Bettendorf, Iowa, were each sentenced by United States District Judge John A. Jarvey TO 40 MONTHS' IMPRISONMENT in connection with their involvement in a scheme to defraud banks and mortgage lenders. Both defendants previously had pleaded guilty to conspiracy, wire, mail and bank fraud. Hanneken and Herdrich were both sentenced to five years' supervised release following imprisonment and ordered to pay restitution in the amount of $869,464.
In an 11-month span from 2005 to 2006, Hanneken and Herdrich purchased some 30 properties, mostly multi-unit rental properties. In cooperation with a real estate agent, MARY PAT HARPER, A MORTGAGE BROKER, WINNIFER ELVIDGE, CERTAIN ATTORNEYS, AND OTHERS, HANNEKEN AND HERDRICH carried out a dual contracts scheme to defraud banks and mortgage lenders.
The defendants would agree to buy property for a given price and then propose to the seller that the transaction paperwork reflect a bogus, higher price. An appraiser would furnish an inflated appraisal targeted to meet the bogus, higher price. After closing of the transaction, the seller would pay a kickback to Herdrich and Hanneken representing the difference between the actual, lower price and the bogus, actual price. The lender, unaware of the actual, lower price and therefore deceived about the true value of the property, would loan Herdrich and Hanneken more money than the property was worth.
Hanneken and Herdrich defaulted on almost all the mortgage loans, in most cases without making one payment. They borrowed over $3.7 million and received almost $900,000 in post-closing kickback payments. Even after banks and lenders sold the properties to recoup the money loaned, they still suffered over $1.2 million in losses.
Others charged in connection with the scheme include MARY LEE REINKING AND NATALIE LONG, BOTH FORMERLY MORTGAGE BROKERS WITH CROW VALLEY MORTGAGE, who pleaded guilty to felony mortgage fraud charges in connection with two of the transactions and were sentenced to probation. PAUL BIEBER, AN ATTORNEY, PLEADED GUILTY TO MISPRISION OF FELONY, a felony offense, and is awaiting sentencing. MARY PAT HARPER, A REAL ESTATE AGENT, pleaded guilty to felony mortgage fraud charges and is awaiting sentencing.
MORAL
Note again how the prosecutors are working on loans that occurred six years ago.
UTAH UPDATES RULES ON RETENTION AND DESTRUCTION OF RECORDS
FACTS
The Utah Division of Real Estate has amended its rules by providing that an entity must safeguard records that it is required to keep, and must destroy all personal information at the end of the retention period.
MORAL
For the new retention and destruction period go to Utah Division of Real Estate website. If you have a problem let us know and you can retain us to do it for you.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
