On June 4, a San Francisco judge (U.S. District Court Judge William Alsup) told Securities and Exchange Commission attorneys that the Dodd-Frank Wall Street Reform and Consumer Protection Act will not be applied retroactively and thereupon dismissed a couple of Securities and Exchange Commission claims against former financial executives.
MORAL
Tricky little devils, aren’t they? Pass the law and then say it was illegal because we made it illegal after you did it.
FTC WILL NOT ENFORCE PROVISIONS OF MARS RULE AGAINST REAL ESTATE PROFESSIONALS HELPING CONSUMERS OBTAIN SHORT SALES
FACTS
On July 15, the
The rule covers companies or individuals, among others, who assist consumers in obtaining approval of a short sale from their lender or servicer. Short sales can benefit consumers by allowing them to escape from a mortgage that they cannot afford, while avoiding foreclosure. Many real estate professionals assist distressed homeowners by providing both traditional services associated with selling their homes (e.g., listing the property) and working to seek lender or servicer approval of a short sale.
The MARS Rule requires companies offering mortgage assistance relief services to disclose certain information to consumers about the services they provide, bans collection of advance fees, and prohibits false or misleading claims.
The stay applies only to real estate professionals who: 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing the practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes. The stay exempts real estate professionals who meet these requirements from the obligation to make disclosures and from the bank on collecting advance fees. These professionals, however, remain subject to the rule’s ban on misrepresentations.
The stay does not apply to real estate professionals who provide other types of mortgage assistance relief, such as loan modifications. In addition, the FTC will continue to enforce the Rule and Section 5 of the FTC Act, which prohibits unfair and deceptive practices, against all other providers of mortgage assistance relief services. (ftc71511-FTC File No. R911003)
MORAL
This means real estate brokers and real estate salespersons, properly licensed can assist in short sales without fear of violating the Mortgage Assistance Relief Services rule as it relates to disclosures and advance fees. However, these same people must comply with Department of Real Estate Laws and Regulations. Check with your attorney if you are unsure of what disclosures you do not have to give to the consumer. This will make it a whole lot easier for those engaged in short sales in the entire Untied States and its’ territories.
CFPB OPENS WITHOUT A DIRECTOR AND WITHOUT REAL POWER. SO WHAT GOOD IS IT?
FACTS
With all the “hype” about enforcement to protect the consumer the new agency to protect consumers from financial fraud will not have the authority it needs to go forward. The Consumer Financial Protection Bureau formally will launch without an appointed director that needs to be confirmed by the Senate for five years.
Without the director in place, the agency will not have power to crack down on mortgage brokers. It also won't have authority over other largely unregulated sectors of the financial services industry, such as payday lenders and remittance companies such as Western Union, that it was created to police. Without an appointed director, the agency legally cannot exercise expanded consumer protection powers that Congress granted it.
Besides being unable to use its authority to regulate mortgage brokers and other financial firms outside the conventional banking industry, the agency is initially denied broad authority to prohibit "unfair, deceptive or abusive acts or practices" or to issue rules requiring better disclosures of the terms of financial products, the inspectors general of the Treasury Department and Federal Reserve determined.
The consumer bureau still will be able to function under its de facto acting director Elizabeth Warren, who has been working since last year to hire staff and organize the sprawling agency. It will have other powers to exercise and immediately take over from banking regulators the authority to enforce 18 consumer protection laws that existed before last year's financial overhaul. Those include rules governing credit cards and oversight of mortgage servicers. (lat71611)
MORAL
How to create an agency with little or no power to protect the consumer.
LEHMAN BROTHERS SUES MANY SMALL MORTGAGE WHOLESALERS, MORTGAGE BROKERS AND LOAN OFFICERS THAT SOLD IT BAD LOANS
FACTS
There have been three recent judgments in Los Angeles and Santa Ana, Calif. aside from the “slew of lawsuits" that have resulted in judgments but are mostly noncollectible. The lawsuits are all similar in nature and allege California bankers and brokers misstated borrower identities, borrower income, property values and other information in selling Lehman the residential mortgage loans. The lawsuits for the most part are based on the written contract the bankers and brokers signed with Lehman where the bankers and brokers guaranteed they would buy back all bad loans and Lehman sued after the refusal. Among those sued were Capital Financial Group, a mortgage banking company previously based in Irvine, Calif. Capital was alleged to have sold Lehman over six mortgages between 2006 and 2009 all of which were obtained by an identity thief under a false name according to court records. Lehman received a judgment of $1.2 million. (Lehman Bros Holdings, Inv. v. California Financial Group, Inc. SACV 09-0666.
Lehman. Also took judgments against Household Financial and Nationsfirst for $980,371 and $631,435 respectively. Both of these are apparently suspended by the Secretary of State’s office. Other lawsuits by Lehman against Colony Mortgage Lenders Inc. of Glendale, Calif., First Guaranty Financial Corp. of Santa Ana, and the bankrupt National Bankers Group, Inc. are either pending or were recently settled.
This is in addition to lawsuits filed by others including the trustee in bankruptcy for First Magnus and more recently the Federal Deposit Insurance Corporation is issuing subpoenas and filing lawsuits as receiver of failed banks that have bad loans purchased or brokered to it by wholesale lenders and mortgage brokers. (ladlyjl42911)
MORAL
We have been defending some of the lawsuits but I must caution you. If the company is being sued for fraud and allows a default judgment to be entered against it, the designated officer risks losing both the license for that corporation, all other corporations for which the broker has a designated officer license and the brokers’ individual license. The Department of Real Estate has done exactly that in the past. So I do not recommend allowing a fraud judgment being entered against the corporation for a licensed activity or you to may lose your own license. (See California Real Estate Loans, Inc. v. Wallace (1993) 18 Cal. App. 4th 1575 [23 Cal.Rptr.2d 462]).
WASHINGTON STATE MAN GETS 25 YEARS IN FEDERAL PRISON FOR FORECLOSURE RESCUE SCAM
FACTS
On July 14, Jeff McGrue of Tacoma, Wash. was sentenced to 25 years in federal prison for running a scheme that defrauded owners of distressed Southern California homes by promising to prevent foreclosure through the paying off of their mortgages.
A federal jury found him guilty in January 2011 of four counts of mail fraud and four counts of passing fictitious government instruments to lenders and loan servicers faced a statutory maximum sentence of 180 years in custody. At the sentencing hearing, United States District Judge Otis D. Wright, III, stated that the defendant intended to “bilk the financial institutions out of at least $55 million,” and he described defendant’s defrauding of the homeowners as “heartless.”
Evidence presented during a four-day trial in United States District Court showed that McGrue orchestrated the foreclosure-rescue scheme from the fall of 2007 through the fall of 2008 through a company he called Gateway International. McGrue worked with two others—Gerald Guidry and Ronald Morgan—to defraud 250 Southern California homeowners by promising to delay or prevent foreclosures and to pay-off delinquent mortgages in exchange for the homeowners making payments and transferring title to Gateway International.
McGrue and the others identified homeowners who were facing foreclosure or who were “upside-down” on their mortgages. Relying on a network of "consultants," many of who were real estate agents McGrue recruited these homeowners into his “Gateway Program.” Through the Gateway Program, McGrue and the others falsely told homeowners that, if they paid an enrollment fee and monthly rent and signed over title of their homes to Gateway, McGrue would use “bonded promissory notes” purportedly drawn on a U.S. Treasury Department account to pay off their mortgages, thereby stopping foreclosure proceedings. The homeowners were falsely told that lenders were legally required to accept the notes, that they would be able to buy their homes back from Gateway International at a discount, and that they would receive up to $25,000, even if they chose not to re-purchase their houses.
McGrue and his co-schemers enrolled more than 250 victims in the “Gateway Program,” but McGrue did not save a single home. McGrue collected approximately $1 million in the form of enrollment fees and rent from these victims. The evidence at trial showed that McGrue signed bogus documents to make it appear the victims’ outstanding mortgages had been paid off so he could re-sell the victims’ properties, which had been re-titled in Gateway’s name, to unsuspecting buyers.
Guidry pleaded guilty last year to conspiracy and making false statements. He faces a statutory maximum sentence of 10 years in federal prison when Judge Wright sentences him on Oct. 17.
Morgan pleaded guilty last year to conspiracy. He faces a statutory maximum sentence of five years when Judge Wright sentences him on Nov. 7.
A fourth defendant charged as a result of the investigation, John-Pierre Rivera pleaded guilty last year to tax evasion. Rivera is scheduled to be sentenced by Judge Wright on Nov. 28, at which time he faces a statutory maximum sentence of five years in federal prison. (usattycdca71411)
EX-INDIANAPOLIS REALTOR INDICTED FOR MORTGAGE FRAUD
FACTS
On July 12, Roger McKuhen was charged in an indictment with conspiracy to commit wire fraud. The indictment alleges that between April 2006 and January 2007, McKuhen and his co-conspirators conspired to defraud various mortgage lenders by creating false, fraudulent, and bogus second mortgages and false estimates and fake invoices for repairs, which allowed them to use funds provided by the lenders at closing to settle the false second mortgages and repair bills as down payments on the properties, all without the lenders’ knowledge.
The indictment charges that McKuhen affected the scheme at the closings of at least seven separate properties located on Indianapolis' south side. At the closings, the buyer (who was recruited by McKuhen to be a part of the scheme) did not bring the funds required for the down payment on the properties, but instead, the title agent (also recruited by McKuhen to participate in the scheme) allowed the sale to close without a down payment, even though a down payment was required by the lenders in order to initiate the loan.
For each property, McKuhen created either: (1) a false second mortgage payable to a company owned by McKuhen; or (2) a fraudulent invoice or estimate (payable to a co-conspirator) for repair work allegedly done or to be done to the property, even though McKuhen knew that the repair work would never be done. These false mortgages and/or repair invoices or estimates were presented at closing as genuine, and the title agent initiated payments to settle the bogus mortgages and repair invoices/estimates to McKuhen’s company and/or McKuhen’s co-conspirators.
Once these funds were paid by the title company, McKuhen caused at least a portion of these funds to belatedly be used to make the down payment that was required at closing. Often, the down payments were not made to the title agent until days after the sale closed on the properties. The lenders providing funds for these transactions had no knowledge that the second mortgages and repair bills were fraudulent, nor did they know that funds were not being provided by the purported purchaser of the properties at closing.
For the seven properties identified in the indictment, the scheme was used to obtain loans totaling approximately $429,000. The lenders who provided financing for the properties would not have agreed to provide financing if they were aware of McKuhen’s scheme. Ultimately, all of the properties alleged in the indictment went into foreclosure. Even after foreclosure sales, the lenders were unable to recoup all the funds invested in the properties. McKuhen, however, earned a profit in real estate commissions as a result of the scheme. If convicted McKuhen faces a maximum of 20 years in prison and a $250,000 fine.
MORAL
Notice the period of time. The alleged frauds occurred during the MBS and stated income years. The federal prosecutors are still hot and heavy after everyone from six years ago and counting.
VIRGINIA REAL ESTATE BUSINESSMAN PLEADS GUILT Y TO $12 MILLION MORTGAGE FRAUD DATING BACK TO NOVEMBER 2005
FACTS
On July 15, Alexander Otis Matthews pleaded guilty to fraud charges in connection with mortgage and investment schemes to obtain more than $12 million in fraudulent loans. He pleaded guilty to one count of bank fraud and one count of wire fraud. Matthews’ sentencing is scheduled for Sept. 30.
Matthews admitted that between November 2005 and May 2011, he orchestrated at least three mortgage fraud schemes in which he used straw borrowers with good credit scores to apply for and obtain nearly $11.5 million in fraudulent loans relating to three Northern Virginia residential properties. Matthews did so by causing lenders to receive false and inflated income information about the straw borrowers, and Matthews submitted forged and fraudulent documentation to lenders purporting to verify that false information. Matthews ultimately defaulted on the loans for each of the three properties.
Between June 2008 and October 2010, he engaged in a fourth, related scheme to obtain more than $800,000 in fraudulent loans from at least eight residents of Maryland and Virginia. Matthews obtained the loans by promising those individuals high rates of return over short periods of time in exchange for money that Matthews claimed he would invest in various property ventures. Matthews later defaulted on each of those loans, generally paying back no more than 10% of the borrowed amounts. He perpetrated his schemes through various purported real estate entities.
At sentencing, Matthews faces a maximum penalty of 30 years in prison on the bank fraud count and 20 years in prison on the wire fraud count. For each count, Matthews also faces a fine of the greater of $250,000 or twice the value gained or lost from the scheme. In his plea, Matthews agreed to forfeiture of $7.9 million and restitution of approximately $5.3 million. (usattyedva71511)
MORAL
Mortgage fraud from five years ago (2006) to two months ago (May 2011).
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
