SOME NEW RULES FOR USING THIRD PARTY ORIGINATORS IN FHA LOANS
FACTS
Mortgagees will be able to view sponsored originator performance information in Neighborhood Watch. On a monthly basis, FHA will aggregate sponsored originator performance for a rolling two year period. A link to the sponsored originator performance will be added under the Early Warnings menu selection. Mortgagees will be able to search for a sponsored originator by inserting the entity’s legal name or the NMLS number of the entity into the selection field.
On the Universal Residential Loan Application, the actual interviewer’s name, signature and telephone number must appear on page 4, regardless of who employs the interviewer (e.g., a sponsored originator). While common practice in the industry is for the interviewer to also sign page 1 of the 92900-A, if a sponsored originator is involved, it is now required that the sponsoring mortgagee must sign and date page 1 of this form. (ml10-33)
MORAL
Based upon the HUD audits we have performed, I fully expect to see errors where the sponsoring mortgagee does not sign page 1 of the 92900-A. I expect I will see the loan officer from the sponsored originator. A word to the wise—be careful because this is part of your quality control and you will be asked to indemnify the loan if the wrong signature appears.
CALIFORNIA SENATE BILL 931 PROVIDES NO DEFICIENCY ALLOWED IN FIRST TRUST DEED SHORT SALES
FACTS
On Oct. 1, Gov. Schwarzenegger signed Senate Bill 931 into law to PROTECT CALIFORNIA HOMEOWNERS WHO SELL THEIR HOMES FOR LESS THAN THEY OWE ON THE FIRST TRUST DEED.
Previously, first deed of trust mortgage holders who accepted short sales of real property and received less than the full amount of debt owing could pursue their borrowers for the deficiency. The issue is resolved by NEW CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 580e: if the mortgage holder CONSENTS IN WRITING TO A SHORT SALE, the mortgage holder is required to accept the sale proceeds as full payment and to discharge any remaining claims against the borrower. (casb931)
MORAL
Make sure the lender consents to the short sale in writing. This sounds like a big deal until you realize that if the holder of the first deed of trust does a nonjudicial foreclosure it cannot collect a deficiency anyway. The only one this is good for is the brokers doing the short sales where there is no junior deed of trust.
ADDITIONAL AFFIRMATIVE DEFENSES FOR CALIFORNIA UNLAWFUL DETAINER ACTIONS
FACTS
Two additional affirmative defenses are alleging the foreclosure sale was invalid due to: (1) improper notice and (2) unspecified “irregularities in the sale.“ (See Malkoskie v. Option One Mortgage Corp., ___ Cal. Rptr. 3d ___ (2010) (WL 3703797, Cal. App. 2 Dist., September 23, 2010)),
MORAL
Considering the “robosigners, this is definitely one to use if they are trying to evict the owner post foreclosure sale.
CALIFORNIA GRAND JURY INDICTS THREE FOR HARD MONEY LENDING SCAM
FACTS
On Oct. 6, a federal grand jury in San Jose indicted BARBRA ALEXANDER, OF MONTEREY, CALIF., BETH PINA, OF FAIRFIELD, IDAHO, AND MICHAEL SWANSON, OF SEASIDE, CALIF., for mail fraud, wire fraud, securities fraud, money laundering, and conspiracy to commit mail and wire fraud.
According to the indictment, Alexander, Pina and Swanson are alleged to have been partners in the management of an investment company called APS FUNDING, INC. APS engaged in the business of offering short-term, high-interest loans, also known as hard money lending, for business and real estate development purposes. The three partners established several investment funds under the APS umbrella, including GCF LLC and the Greenlight Fund. The partners recruited investors to purchase shares in these funds. The partners assured investors that their investments would be used to fund the loans. Instead, according to the indictment, the partners attracted few borrowers and made few hard money loans with the invested funds, but instead diverted investor money to pay for the partners’ personal expenses. The indictment alleges that between 2006 and 2009, APS received more than $7 million from investors, yet between the end of 2008 and 2009, more than 90 percent of all of the invested funds were diverted to the partners for their personal use.
Alexander and Swanson were arrested today in Monterey County and made their initial appearances in federal court in San Jose. Pina was arrested in Fairfield, Idaho, and will make made initial appearance in federal court in Boise, Idaho.
The maximum penalty for each count of Conspiracy to Commit Mail and Wire Fraud in violation of Title 18, United States Code, Section 1349, and for the substantive Mail and Wire Fraud counts, is 20 years imprisonment and a fine of $250,000, or twice the gross gain or gross loss from the offense, plus restitution. The maximum penalty for each count of Securities Fraud in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Sections 240.10b-5 and 240.10b5-2, is 20 years imprisonment and a fine of $5 million, plus restitution. The maximum penalty for each count of Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity, in violation of Title 18, United States Code, Section 1957(a), is 10 years imprisonment and a fine of $250,000, or twice the amount of the criminally derived property involved in the transaction, plus restitution. (usattyndca101710)
CONNECTICUT MAN IS SENTENCED FOR HIS PART IN A MORTGAGE FRAUD SCHEME
FACTS
On Oct. 15, JOHN JACKSON of Hamden, was sentenced to six months of home confinement and two years of probation for participating in a mortgage fraud scheme. Mr. Jackson was also ordered to pay restitution in the amount of $100,000.
In 2006, JACKSON conspired with a New Haven-based real estate attorney and an East Hartford-based mortgage broker to defraud Mortgage Lender Network USA, Inc., a Florida corporation through the purchase of Meriden residential property. Working with the attorney and mortgage broker, JACKSON signed a loan application provided by the mortgage broker for a loan in the amount of $280,000. Both JACKSON and the mortgage broker knew that application contained several material misrepresentations, including Jackson's true financial condition. The application also falsely represented the purchase price of the property, which was substantially less than reflected on the loan application; that the property was to be Jackson's primary residence, when it was not; Jackson's total liabilities, which were much higher than represented on the application, and that JACKSON would provide approximately $60,000 in cash at the loan closing.
On approximately July 21, 2006, as part of the scheduled loan closing, MLN wired approximately $283,000 into the attorney’s trust account. At the closing, JACKSON signed a HUD settlement statement, which was prepared by the attorney, that overstated the actual purchase price of the property by more than $150,000, and that stated that JACKSON had made an earnest payment toward the purchase. In fact, JACKSON had not made a payment. Instead, the attorney had made a payout to JACKSON. On July 29, 2010, JACKSON pleaded guilty to one count of conspiracy to commit wire fraud. (usattyct101510)
MORAL
An attorney, a mortgage broker and a straw buyer. Now the buyer only gets home detention. BUT the buyer is convicted of a felony, cannot vote, cannot get certain types of licenses and probably cannot get a decent job. Seems a tough way to go for only one loan. Seems like he should have known better.
FORMER B OF A MANAGER CHARGED WITH MORTGAGE FRAUD
FACTS
On Oct. 14, ARTHUR SAMUELS of Mattapan, Mass., a former Bank of America branch manager was charged in federal court with wire fraud and bank fraud for his role in connection with a multi-year, multiproperty mortgage fraud scheme in Dorchester and Roxbury.
He was indicted on six counts of wire fraud and one count of bank fraud. The Indictment alleges that from September 2006 to July 2008, SAMUELS and others committed fraud in connection with the purported sale of condominium units in Dorchester. According to the charges, developer MICHAEL DAVID SCOTT arranged to purchase multi-family dwellings and then sold individual units in the buildings to straw buyers recruited by Scott, SAMUELS, and others. The straw buyers' financing for the purchases was obtained by submitting mortgage loan applications that falsely represented key information, such as the buyers' assets, down payment and intention to reside in the condominiums. SAMUELS also caused false verifications of deposit to be created in support of loan applications submitted to lenders in the names of straw buyers, and acted as a straw buyer himself on three property transactions. In most instances the lenders were led to believe that the straw buyers had made substantial down payments and paid substantial sums at closings.
If convicted, SAMUELS faces up to 20 years’ imprisonment to be followed by three years of supervised release and a $250,000 fine for each count of wire fraud, and up to 30 years imprisonment to be followed by five years of supervised release and a fine of $1 million for bank fraud. (usattyma101310)
MORAL
Did you notice in the very greater majority of the fraud cases, the fraud dates back a minimum of two years without fail? Only in one or two instances is the mortgage fraud in 2009 or 2010. This is because it takes about two years to gather the evidence. The point? On average the mortgage fraud indicted today relates to mortgage fraud that occurred generally 2 to 6 years ago.
NEW JERSEY CEO PLEADS GUILTY TO $11 MILLION MORTGAGE FRAUD
FACTS
On Oct. 14, 2010, DAVID FINDEL, former CEO of WORLDWIDE FINANCIAL RESOURCES, a New Jersey-based mortgage origination firm, pled guilty to wire fraud in connection with an $11 million fraudulent loan scheme.
Worldwide worked with borrowers to prepare mortgage applications and qualify the borrowers for home mortgages. Although Worldwide would originate the mortgage loans, after origination, Worldwide would re-sell the loans to another financial institution in the secondary mortgage marketplace.
Findel admitted that he prepared and sold fake mortgage loans from 2008 through September 2009. After Worldwide had originated a mortgage loan and sold that loan to a third-party lender, Findel would create a second set of fraudulent loan documents for the same property. He would then sell the second set of fraudulent loan documents to another third-party lender, even though the actual mortgage loan for that property already had been sold. As a result of these fake mortgage loans, Findel received more than $11 million in illicit proceeds, which he used, in part, to maintain his lavish lifestyle—including his multi-million-dollar home in Colts Neck, N.J., exotic travel and exclusive seating at a major New Jersey professional sports arena.
The count of wire fraud to which Findel pleaded guilty carries a maximum penalty of 20 years in prison and a fine of $250,000, or twice the aggregate loss to the victims or gain to Findel. Sentencing is scheduled for Jan. 18, 2011. (usattynj101410)
MORAL
The paper trail is so easy to follow.
NEW YORKER PLEADS GUILTY TO $90 MILLION DOLLAR MORTGAGE FRAUD CONSPIRACY
FACTS
On Oct. 15, THOMAS KONTOGIANNIS, a New York real estate developer who led a mortgage fraud conspiracy resulting in MORE THAN $90 MILLION LOSSES, PLEADED GUILTY to conspiracy to commit bank and wire fraud in federal court in Brooklyn. Kontogiannis admitted defrauding Washington Mutual Bank and DLJ Mortgage Capital, Inc.
The indictment alleges that FROM 2001 TO 2003, Kontogiannis purchased and subdivided Loring Estates, located in East New York, Brooklyn, and Edgewater Development, located in College Point, Queens. After the conspirators obtained permits to construct multi-unit housing, Kontogiannis staged sales of the properties financed by mortgage loans. He then directed others to prepare false loan files to create the appearance that the properties were being purchased by creditworthy homeowners, when, in fact, Kontogiannis sold the properties to family members and employees who acted as straw buyers. The mortgages were supported by fraudulent appraisals depicting finished homes when the buildings had yet to be built or had fictional addresses, and the mortgage files contained fraudulent title abstract reports and other documentation designed to indicate that the seller, a Kontogiannis-controlled entity, had clear title to convey and that the lender's interest was protected by title insurance. The loans were financed by lenders controlled by Kontogiannis, including INTERAMERICAN MORTGAGE CORP., later known as CIP MORTGAGE CORP. AND COASTAL CAPITAL CORP. After the loans were closed, Kontogiannis ensured that the mortgages and deeds were not recorded, thereby permitting him to "sell" the same property repeatedly. Kontogiannis eventually sold the loans to WAMU or DLJ.
In an effort to conceal the multiple sales of the same properties, Kontogiannis changed the addresses of properties located in East New York, Brooklyn, to addresses in neighboring Howard Beach, Queens. In addition, he directed others to make monthly payments on the mortgages, ensuring that none of the mortgages became delinquent. The payments ceased in 2007, with approximately $92 million in principal outstanding on the fraudulent mortgages.
Kontogiannis, along with eight other defendants, were indicted on conspiracy and bank and wire fraud charges in June 2009. Four other defendants have pleaded guilty to date. He thought he had the system figured out and now faces adding even more time to his sentence.
Kontogiannis faces up to 30 years’ imprisonment on the conspiracy count to which he pleaded guilty. Kontogiannis also consented to forfeiture of the proceeds of his fraudulent activity, including a criminal forfeiture money judgment and money traceable to four commercial properties he controlled worth at least $50 million. (usattyedny101510)
MORAL
Did you notice the prosecutors went back nine years to get to these people and if you ran account there were 12 people indicted?
PENNSYLVANIA MAN GETS 15 MONTHS PRISON FOR MORTGAGE FRAUD
FACTS
On Oct. 14, FRANK J. DATTILO of Holland, Pa., was sentenced to 15 months in prison for a scheme to defraud mortgage lenders in an effort to obtain money and property. Dattilo was the owner and operator of the mortgage brokerage firm PROVIDENT FINANCIAL GROUP, located in Bensalem, Pa. He employed MICHAEL GIELLO as a mortgage broker and loan officer, and JASON MEGOW as a loan processor. Dattilo marketed to people with poor credit or low incomes. Between January 2004 and February 2007, Dattilo, Giello, and Megos created false documents for use in mortgage applications. The falsified forms, among other things, overstated borrowers’ income, falsely showed that borrowers had rental histories, and showed that a property was an income-producing rental property when, in fact, it was not. These fraudulent documents made borrowers appear more creditworthy than they were, thereby misleading the banks into funding the mortgage loans.
All three defendants pleaded guilty to two counts, each, of mail fraud. Giello was sentenced to one year and one day; Megow was sentenced to one day in prison and five years of supervised release. In addition to the prison term, U.S. District Court Judge Norma Shapiro ordered the three defendants to pay total restitution in the amount of $117,673. (usattyedpa101410)
MORAL
Note the government went back six years to get them. Now all three have felony convictions and the liabilities that accompany them. As I have said many times before, see your attorney first. It may mitigate the trouble that can follow if you were involved in a created (stated?) income loan. In fact, many of you are now receiving FDIC issued subpoenas that appear innocuous on their fact, BUT did you notice they all ask for one or two loans and at the same time ask for your books, records and tax returns? If it were so simple and easy, why do they want your tax returns? To see if there is enough money to make it worthwhile to sue you for bad loans?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
