Kenya: High Court Ruling in Mortgage Dispute

(Obiter as per Ogola, J.)

"Really where is justice? Banks cannot just hide behind the contracts they make, regardless of how unjust they are, to literally destroy their customers. Without their customers the banks cannot operate. A time has come for banks in Kenya to look into the eyes of their customers and answer the question: Are banks Kenyans? Or have they just entered Kenya for business? Banks in Kenya reign large.

I am reminded of a predator who after killing the prey is not satisfied to leave the carcass to the vultures, but becomes both the predator and the vulture, killing the prey and gleaning the meat from the carcass to ensure the prey is really dead. I am also reminded of a robber killing his victim and not only attending his funeral, but insisting on carrying the casket to the grave to confirm that his victim is dead and buried."

Captain J N Wafubwa vs Housing Finance Co. of Kenya

High Court at Nairobi - Milimani Commercial Courts

E.K O Ogolla. J

April 26, 2012

Ownership of a home in Kenya is a dream for many Kenyans. That is why many banks have gone into mortgage financing in a quest to fulfill the dream of many citizens of owning a home by taking a mortgage. Usually, the mortgage instrument is a standard contract across the board that gives the Bank the right to sell the mortgaged property in case the borrower is unable to repay the loan as stipulated in the Contract.

In exercising its right of statutory power of sale, the bank may sometimes err and cause serious frustrations to the borrower of the loan similar to what happened in the present case. Captain Wafubwa took a mortgage from the defendant, Housing Finance (HFCK) in 1989 and ran into arrears which gave HFCK the right to sell his mortgaged property to recover the loan.

The facts

The Plaintiff in this case, Captain Wafubwa took a mortgage with Housing Finance Company of Kenya in 1989. He fell into arrears with the repayments. The bank in exercise of its statutory power of sale held a public auction in 1996 and sold off the property for Ksh 4.5M to United Millers Ltd who were supposed to pay 25% of the price at the fall of the hammer.

United Millers paid the 25% but did not follow through the transaction and therefore the house was not transferred to them. They therefore forfeited the deposit of about Kshs. 1,125,000. The bank in its testimony testified that the said deposit of the money went to its profit and loss account and therefore the borrower still owed the bank money.

In 2009, the Bank sold the suit property through a private treaty to a third party for Kshs 4.5M an amount, which it was worth 13 years back. At that point in time, HFCK claimed they were owed Ksh. 11M by Captain Wafubwa. With this amount, the Bank credited Captain Wafubwa's account and still asked him to repay more than Kshs. 6.8M remaining as part of the debt.

Before the bank did the private treaty, the Captain had sought to redeem his house to no avail and had taken his battle to the Court of Appeal. In the Court of Appeal, it was agreed by a majority decision that the right of redemption by Captain Wafubwa had been extinguished at the fall of the hammer but with one Judge of Appeal dissenting.

The dissenting Judge argued that the right to redeem the house had not been extinguished at the fall of the hammer since the sale was never finalized and as such, the owner still had a chance to redeem his house. However, since a decision by the majority of the Judges had been reached, the owner had no recourse but to seek alternative civil remedy, which resulted in this suit. The Captain went to court claiming wrongful eviction and also claiming the deposit paid in 1996 of Kshs. 1,125,000 and the balance of Kshs. 20,000.

The mortgage had been entered into under the Indian Transfer of Property Act 1882 (now repealed) which at section 69 (c) provides for the mechanism of how proceeds of a sale or attempted sale are to be applied when a bank exercises its statutory power of sale. The section provides;

"The money which is received by a mortgagee, arising from a sale by him under the mortgagee's statutory power of sale after discharge of prior encumbrances to which the sale is not made subject, if any, or after payment into court of a sum to meet any prior encumbrances, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise, and secondly in discharge of the mortgage - money, interest, and costs, and other money, if any, due under the mortgage, and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorized to give receipts for the proceeds of the sale thereof."

Court Findings

The court opined that the auction sale which took place on November 8, 1996 was a "sale" or an "attempted sale" and therefore the deposit received from it could only be spent as provided under the Act and the balance thereof after deducting the costs and charges had to be used to reduce the mortgage debt and interest, with the residue, if any, given to Captain Wafubwa.

From the foregoing the court found that Captain Wafubwa was entitled to the said credit balance of Kshs.20, 662.80 immediately the deposit of 25% was made pursuant to the attempted sale on 8th November 1996. This being so, his property ought not to have been sold by private treaty in February 2009 as at that time the Captain did not owe HFCK any money on account of the aforesaid mortgage transaction. Captain Wafubwa was therefore entitled to his property.

However since the property was sold to a purchaser for value without notice of the preceding events, and since title had passed to the said purchaser upon the transfer registered on April 21, 2009, Captain Wafubwa was only entitled to the value of his property as at the time of the transfer to the Purchaser together with the expected appreciation in value since, the court said.

Judgment was hence entered for Captain Wafubwa for (a) Kshs.20,662.80/= with interests at 27.5% p.a. with effect from November 12, 1996 till payment in full, (b) Kshs.4, 500,000/= with interest at 27.5% p.a. with effect from February 9, 2009 till payment in full being the value of the suit premises from date of sale and (c) Cost of the Suit with interests thereon at court rates.

Source: All Africa

Banks Face Suits as States Weigh Libor Losses

The scandal over global interest rates has state officials like Janet Cowell of North Carolina working intensely behind the scenes to build a case for suing the nation’s largest banks. Ms. Cowell, the state’s elected treasurer, and several of her staff members have spent the summer combing through the state’s investments trying to determine how much the state may have lost because of suspected manipulation of the London interbank offered rate, or Libor, which is used as a benchmark for trillions of dollars of financial contracts around the world.

“We think this could be as big as the mortgage crisis settlement, that this could be a really high impact situation and that we should be aggressive on this,” Ms. Cowell said, referring to the $25 billion settlement that the nation’s biggest banks entered with state attorneys general.

The activity provides a glimpse at how widely the Libor scandal has spread through the financial world, and how much damage may still be in store for the banks accused of manipulating Libor. Her work also suggests just how difficult it is, and how long it may take, to get to the bottom of the losses.

The attorneys general in Maryland, Massachusetts, New York and Connecticut have all been examining how much their states may have lost as a result of a lowered Libor. A spokeswoman for Connecticut’s attorney general, George C. Jepsen, said that the state’s work with New York’s attorney general, Eric T. Schneiderman, “has broadened significantly over the last few weeks and we are now coordinating with a much larger group of attorneys general.”

Even before the British bank Barclays admitted in June that its employees had tried to manipulate Libor, there were a number of lawsuits filed by cities and municipal agencies seeking damages from large banks for manipulating Libor. But while those cases were filed by private sector lawyers, the public officials are looking at bringing more wide-ranging lawsuits on behalf of the states. The Justice Department has coordinated with the states and is leading its own investigation.

The government officials are hoping that their cases will be bolstered by new settlements between regulators and individual banks that are suspected of participating in the manipulation. Most of the more than one dozen banks involved in setting Libor have said in official filings that they are in discussions with regulators about their involvement in the Libor process.

Libor is supposed to represent how much banks are paying for short-term loans from other banks. It is determined by the British Bankers Association after a daily poll of the world’s largest banks. It then serves as a benchmark for rates paid by consumers and businesses on everything from mortgages to derivatives to student loans.

Barclays said in its settlement that it and other banks pushed Libor down artificially during the financial crisis to appear more healthy. Barclays also admitted that its traders tried to manipulate Libor at other points in order to sweeten particular financial deals. Barclays paid $450 million to settle the charges.

The financial products used by states and local governments are especially vulnerable to an artificially lowered rate.

Ms. Cowell, a 44-year-old Democrat and former business consultant who is running for another four-year term, was aware of the potential implications of the Libor case for North Carolina almost as soon as the Barclays settlement was announced on June 27. The next Monday, at her weekly staff meeting, she asked her office’s lawyers and investment officers to begin looking into it.

The inquiry has focused primarily on two areas of the state’s finances.

One was the state’s public pension plans, which in North Carolina are overseen by the treasurer. A state money manager began identifying bonds held by the state pension fund and money market fund investments that derived their value from Libor.

In July, lawyers from the treasurer’s office took part in a conference call on the topic with pension funds in other states. Ms. Cowell and members of her staff have found a few investments held by the $76 billion pension fund that were tied to Libor, but they have now determined that the losses were most likely “pretty small.”

The other, more significant area where Ms. Cowell began looking for losses was in a kind of financial contract that many states use, known as an interest rate swap. States use swaps when they want to issue a bond at a floating interest rate but protect themselves from future swings in rates. In a standard swap, a state makes a regular payment to its bank and gets a payment back that is determined by the level of Libor. If Libor was lower, the payments will be, too.

North Carolina had two major swaps at the time the benchmark was suspected of being rigged. Together, the two swaps were tied to $1.3 billion of bonds that were issued in 2002 and 2005. The banks on the other side of these contracts included Bank of America, of Charlotte, N.C., and JPMorgan Chase & Company based in New York, both of which are involved in setting Libor.

The challenge facing North Carolina and other states is that there is no agreement yet on how much the banks actually manipulated Libor, and for how long. The lawsuits that have already been filed have estimated that the banks held Libor down by at least 30 basis points, or 0.30 percent, for three years. By one method of calculation, that could have meant losses for North Carolina of around $10 million on their swaps.

Ms. Cowell said she assumed that as more banks settled with regulators, those numbers would become clearer. In the meantime, the treasurer’s office is working out formulas for losses that they can plug numbers into if and when new settlements are made public. At that point, Ms. Cowell also plans to share her work with other municipal agencies in North Carolina that held about 40 swaps during the period in question.

“This is an unprecedented level of analysis, and an unprecedented wide spectrum of financial impact,” Ms. Cowell said.

The inquiry could provide a political bump for Ms. Cowell, who is seeking another term as anti-Wall Street sentiment is running high. A graduate of the Wharton School of Business, she served on the Raleigh, N.C., City Council and then the state Senate before taking office in 2008. She cites among her accomplishments the state’s maintaining its status as one of eight with a AAA rating from the major credit rating agencies.

North Carolina’s attorney general will make the final determination on whether the state will join existing lawsuits, proceed with its own case or take no action at all. The attorney general’s office did not respond to requests for comment.

But the office has been involved in many of the discussions with the treasurer’s staff, people involved in the meetings said.

Source: New York Times

Cash-strapped home owners on the rise

Cash-strapped homeowners in Kwa-Zulu-Natal are opting to let their properties go through bank-approved forced sales, rather than their being repossessed.

Estate agency Chas Everitt said sales of this type accounted for 30 percent of its sales between June last year and July this year.

Another estate agency reported selling at least 30 “distressed” properties in the past three months as desperate homeowners battled under the strain of a global economic recession, job losses and high debt levels.

In a recent judgment involving applications by Absa against three defaulting homeowners, Durban High Court Acting Judge Peter Olsen noted that national statistics provided by Absa “indicate the extent of the problem with which the bank is confronted”.

The figures showed that more than 5 000 section 129 notices – notifying consumers they were in default – had been sent out between December and May. The average amount of debt involved in each month was R532 million.

Nedbank said the number of homes being repossessed had decreased as clients took up other options, including reduced instalments. Those who could not pay had taken advantage of the bank’s assisted sales programme which entailed marketing and selling their homes through estate agents.

Standard Bank spokesman Erik Larsen said while the number of repossessions had decreased, they remained at historically high levels and consumers were under pressure.

Durban estate agents said areas such as Kloof, Hillcrest, Queensburgh and Pinetown and the North and South Coasts were particularly hard-hit, with dozens of home-owners having to sell through bank-assisted sales or risk repossession.

Clint Ellice, principal of the Chas Everitt International Upper Highway office, said he had been taken aback by the volume of distressed sales, and expected the number to increase.

“The average prices are between R800 000 and R1 million. The highest was R3.6m.”

Annatjie Angelo, owner and principal of Harcourt Tops, based in Pinetown, agreed that distressed sales were becoming prevalent. In the past three months, the agency had sold 30 such homes.

Greg Wilson, of Claudine Hickman Properties, said 20 percent of sales by the group’s Queensburgh office were distressed sales.

“It is more widespread than that and is occurring in a lot of areas.”

An employee at auction company Peter Maskell Auctioneers said many people were selling their second homes or holiday properties, especially on the South Coast.

The company had carried out several valuations in Kloof, which was the first step when a bank intends to take legal action against the homeowner.

Pam Golding Properties’ national general manager, Richard Day, said distressed sales were occurring across the province and high-value properties in the traditional greater Durban North and Highway areas were not immune to lifestyle changes.

Ecomomist Mike Schussler, of economists.co.za, said the property industry was expected to remain a buyer’s market for five years.

The judgment by Acting Judge Olsen puts more barriers in place for banks to overcome before they may apply for a default judgment against homeowners.

He suggested that the practice of sending Section 129 notices by registered mail was not enough. Ordinary post could also be used, with multiple letters being sent to the owner’s home address, work address and any other provided.

Greg Allen, of law firm Easton-Berry Inc, which acted for Absa, said the three cases had been adjourned indefinitely and the judge had asked that the section 129 notices be sent again by registered mail and by fax, e-mail or in person.

Allen said the acting judge had also ordered that in similar cases where summons had been issued, the banks would be required to bring applications so the court could give a directive setting out the steps that needed to be followed to conform to National Credit Act requirements.

Source: IoL

Foreclosures rise after bank settlement

Foreclosure notifications increased for the second consecutive month in June, as lenders rushed to foreclose homes in the wake of the Obama administration's settlement with the largest banks on mortgage fraud.

RealtyTrac, the online foreclosure marketplace, said that 311,010 properties started foreclosure during the second quarter of the year, a 9 percent increase from the previous quarter and a 6 percent increase from the second quarter of 2011. The company said in its 2012 midyear report that this was the first year-over-year increase in quarterly foreclosure starts since the fourth quarter of 2009.

Daren Blomquist, Vice President of Realtytrac, told the WSWS in a telephone interview that the growth in foreclosure starts is largely attributed to the bank fraud settlement. “We expected that the settlement to loosen up the logjam of delayed foreclosures; that's what happened in April as it was finalized and in May and June we saw two months of increasing starts.”

“The settlement involves the nation’s five biggest lenders; but others are looking at it as something to live by,” he added. “It is freeing up lenders to move forward more confidently; as long as they abide by those guidelines they won’t be accused of improperly foreclosing.”

In the fall of 2010 it emerged that the largest banks were engaged in a practice known as “robo-signing,” in which employees would fraudulently claim to have seen foreclosure documents in order to speed along foreclosures with missing paperwork.

This prompted a coordinated investigation by the 50 state attorney generals into the practice. In January 2012, the Obama administration worked out a settlement with the five biggest banks that put an end to the states’ investigations in exchange for a pitiful cash settlement.

Under the terms of the deal, 750,000 foreclosed homeowners might receive a check for $1,500 to $2,000, if they can show that they were improperly evicted.

Banks started foreclosures on 12 percent of delinquent loans in June, the highest level since early 2009, according to separate data from Fitch ratings.

California, which was the center of the real estate bubble and subsequent collapse, saw the biggest increase in foreclosure starts, which increased 18 percent over the previous year, according to Realtytrac. This boosted California’s foreclosure rate to the highest in the nation.

The midyear report from Realtytrac report showed that one in 126 housing units had at least one foreclosure filing in the first six months of the year.

May was the first time in 28 months that there was a year-over-year increase in foreclosure starts, and June continued the trend. Some 109,999 properties started the foreclosure process in May. That was up 12 percent from the previous month and 16 percent from May of 2011. This was the highest number of foreclosure starts since October 2011.

In May, New Jersey had a 64 percent increase in foreclosure activity. Indiana had a 45 percent increase, and Pennsylvania had a 32 percent increase compared to the previous six months.

Blomquist said that the wave of delayed foreclosures would have a negative effect on the housing market: “In the short term it will continue to weigh down housing prices as these properties are listed.”

The continuing impact of home foreclosures was amply demonstrated when the city of San Bernardino, California, filed for bankruptcy Tuesday, becoming the second-largest US city to do so. San Bernardino has been devastated by the collapse of the housing bubble, and has consistently had among the highest foreclosure rates in the country.

The city had 2,527 properties in foreclosure this month, amounting to 3.5 percent of all housing units, according to Realtytrac. This is over triple the national average of 1.02 percent.

Source: World Socialist Web Site

Deutsche bank pays $202M in New York mortgage fraud deal

Deutsche Bank agreed to pay $202 million to settle civil fraud charges brought by the federal government over the practices of a subsidiary it acquired five years ago, authorities announced.

A federal judge in Manhattan approved the deal reached by representatives of the Frankfurt, Germany-based bank and the government.

Under the agreement, Deutsche Bank AG admitted that it didn't follow all federal housing regulations when it made substantial profits between 2007 and 2009 from the resale of risky mortgages through its subsidiary MortgageIT.

According to the agreement, Deutsche Bank admitted that it was in a position to know that MortgageIT's operations did not conform fully to all of the government's regulations, policies and handbooks. The subsidiary employed more than 2,000 people at branches in all 50 states. The bank agreed to pay $202.3 million to the U.S. Department of Justice within a month.

Deutsche Bank said in a statement Thursday that it was pleased to put the issue behind it.

"This marks a significant step in resolving our mortgage-related exposures," the bank said.

The government said in its lawsuit the bank's failures caused the government to foot the bill for loans that defaulted.

MortgageIT had been a Federal Housing Administration lender operating with government oversight for almost a decade. The mortgage insurance is issued by the FHA.

The lawsuit against Deutsche Bank sought to recover more than $386 million that the Department of Housing and Urban Development has paid out in FHA insurance claims and related costs arising out of MortgageIT's approval of more than 3,100 mortgages, including 1,400 loans that have defaulted so far. It said HUD had paid more than $97 million in FHA claims and related costs arising out of more than 600 mortgages that defaulted within six months.

HUD sets the rules for the FHA mortgage insurance program, including requirements relating to the adequacy of the borrower's income to meet mortgage payments, the borrower's creditworthiness and the appropriateness of the valuation of the property being purchased.

The lawsuit said Deutsche Bank and MortgageIT failed to comply with HUD rules and regulations regarding required quality control procedures, and then lied about their purported compliance.

In a release Thursday, U.S. Attorney Preet Bharara said Deutsche Bank and the subsidiary "treated FHA insurance as free government money to backstop lending practices that did not follow the rules."

He said the compensation agreed to by Deutsche Bank will significantly compensate HUD for the losses it incurred.

Source: Sowetan

Major Financial Crime Using Intelligence and Partnerships to Fight Fraud Smarter

Homeowners tricked into signing away the deeds to their own homes. The elderly and vulnerable used to make a fast and illegal buck, even by very people who take care of them. Billions in hard-earned investor dollars vanishing in a seeming flash, sometimes through a single scam.

Financial crime is a real and insidious threat—one that takes a significant toll on the economy and its many victims. 

Today, Director Robert S. Mueller talked about the impact of financial crime and the Bureau’s longstanding role in combating it in a keynote speech before the Miami Chamber of Commerce.

The Director explained that even in the post 9/11 world—with its needed focus on terrorism and other national security threats—the FBI continues to take its criminal responsibilities seriously. “What has changed,” he said, “is that we make greater use of intelligence and partnerships to better focus our limited resources where we can have the greatest impact—for example, on combating large-scale financial fraud.”

It’s all about working smarter, using new information-sharing efforts, intelligence-driven investigations, and task force-based approaches to leverage the talents and resources within and among agencies to get a bigger bang for the buck, so to speak, in fighting financial fraud.

Among the innovations and initiatives outlined by the Director:

Three years ago, we established the Financial Intelligence Center to strengthen our financial intelligence collection and analysis. “This center helps us to see the entire picture of financial crimes. It provides tactical analysis of financial intelligence data, identifies potential criminal enterprises, and enhances investigations. It also coordinates with FBI field offices to complement their resources and to identify emerging economic threats.”

Today, we have more than 500 agents and analysts using intelligence to identify emerging health care fraud schemes, and field offices target fraud through coordinated initiatives, task forces and strike teams, and undercover operations.

The Miami office has led the way by creating the first Health Care Fraud Strike Force, which is now a national initiative. Through the strike force, the Bureau works closely with federal, state, local, and private sector partners to uncover fraud and recover taxpayer funds. “Last year, our combined efforts returned $4.1 billion dollars to the U.S. Treasury, to Medicare, and to other victims of fraud.”
As the result of a new forensic accountant program, we now have 250 forensic accountants “trained to catch financial criminals” and “ready to respond quickly to high-profile financial investigations across the country.”

In the last four years, we have nearly tripled the number of special agents investigating mortgage fraud. “Our agents and analysts are using intelligence, surveillance, computer analysis, and undercover operations to identify emerging trends and to find the key players behind large-scale mortgage fraud.”

In 2010, the FBI began embedding agents at the Securities and Exchange Commission (SEC). “This allows us to see tips about securities fraud as they come into the SEC’s complaint center…to identify fraud trends more quickly and to push intelligence to our field offices.”

Everyone has a role in fighting fraud, including business and community leaders. “You can learn to recognize financial fraud and unscrupulous business practices, to better protect yourself and your companies,” Mueller said. “And you can alert us when you see these activities take place.”

Please do

 To report fraud, visit our tips page or contact your nearest FBI office.

Resources: Read the Director’s Speech

Source: Federal Bureau of Investigation

Foreclosure rescue scheme is a scam

A foreclosure rescue scheme is a scam that targets those whose house is facing potential foreclosure. The scheme preys on desperate homeowners whose mortgages are in default by offering to prevent the foreclosure.  There are various ways in which foreclosure rescue schemes work, causing different types of harm to the homeowners, but all ultimately with the likely end result of the owner being forced out of his/her home and losing even more money.

Source: http://en.wikipedia.org/wiki/Foreclosure_rescue_scheme

Borrowers, Beware of Mortgage Relief Fraud

Mortgage relief fraud schemes are still around, according to the Federal Trade Commission.

Acting on a complaint by the F.T.C., a federal court has halted a mortgage relief operation that the commission accused of taking in more than $1 million by offering troubled homeowners “bogus” help in staving off foreclosure.

The F.T.C. filed a complaint March 5 in the Federal District Court for the Central District of California in Santa Ana against Sameer Lakhany and five businesses that he controlled. The complaint alleged that he and the companies victimized hundreds of borrowers with two related mortgage-assistance frauds. Last week, the court issued orders halting operation of the businesses, freezing their assets and appointing a permanent receiver to oversee the firms while the F.T.C. pursues the case. The agency said it would seek funds for possible refunds for consumers.

Jerry Werksman, Mr. Lakhany’s attorney, said in a brief telephone interview that his client “didn’t go into this business to cheat people. It’s unfortunate the F.T.C. put an end to it because he was trying to help.”

In the first fraud, according to the F.T.C., representatives of the companies pretended to be a law firm and offered to represent consumers in group lawsuits against their lenders, for an upfront fee as high as $10,000. The company hired lawyers briefly to file the suits, the F.T.C. said, but then abandoned the cases and “failed to get the results they promised.”

In the second version, the F.T.C. alleged, the companies promised to negotiate loan modifications, like a lower payment or principal balance, in exchange for upfront fees as high as $1,595. (Federal rules that took effect last year prohibit firms from taking upfront fees for negotiating mortgage modifications in most cases.)

Consumer advocates say borrowers seeking help with a troubled mortgage should seek out counselors certified by the federal Department of Housing and Urban Development. The Homeownership Preservation Foundation, for instance, an umbrella group that works with seven major nonprofit groups across the country that advise strapped homeowners free. The foundation operates a toll free number, 1-888-995-HOPE.

“That number will get you to a legitimate, HUD-certified mortgage counselor,” said Colleen Hernandez, president and chief executive of the foundation. “It’s a very confusing environment for consumers to wade through. They ask, ‘How do I know whom to trust?’”

The foundation’s Web site includes tips for avoiding fraud schemes. The counselors at the foundation and its affiliates are knowledgeable about the various mortgage assistance programs, she said, and can assist borrowers in evaluating their options and in dealing with their lenders on the phone.

A government Web site established to communicate information about the recent national mortgage settlement also warns borrowers about fraud and offers tips to help make sure you are dealing with a legitimate lender or mortgage help firm.

Source: New York Times

2 Arrested for Foreclosure Rescue Fraud

Gloria Becerra, 46, Oxnard, California, and Hector Menendez, 55, Los Angeles, California, are the subject of a felony complaint for grand theft and foreclosure consultant fraud. Becerra and Menendez are both charged with 4 counts of grand theft, 11 counts of foreclosure consultant fraud, and one count of attempted grand theft.

The charges arise out of a fraudulent home loan modification and foreclosure rescue program run primarily under the business names of "Sunset Beach Management," "Financial Wellness for Homeowners L.A." and "California Sky Premiers." Becerra and Menendez collected thousands of dollars in upfront fees promising to reduce the victim's mortgage loan amount, and to "save" her home from foreclosure.

The victim received no actual services from the charged defendants and, in addition to losing thousands of dollars, also lost her home in foreclosure.

The court set bail at $100,000 for both Becerra and Menendez. An early disposition conference is scheduled for April 16, 2012, at 1:30 p.m. in courtroom 12. If convicted of all charges, the defendants each face a maximum sentence of 12 years and 8 months. District Attorney Gregory D. Totten announced the Ventura County District Attorney's Real Estate Fraud Unit's felony complaint.

The arrests followed a seven-month investigation by the District Attorney's Real Estate Fraud Unit. Individuals who believe they have been victimized by Becerra or Menendez, or others working with either defendant, are encouraged to contact the Ventura County District Attorney's Office Real Estate Fraud Unit at (805) 662-1750 to file a complaint.

Source: Mortgage Fraud Blog

Nationwide Foreclosure Rescue Company Shut Down

Bella Homes LLC was sued in a civil action for orchestrating a foreclosure rescue scheme, which has ended in a Consent Judgment and signals the end of a national foreclosure rescue scheme. The perpetrators, operating through Bella Homes LLC, had promised hundreds of distressed homeowners that Bella Homes would help homeowners avoid foreclosure. Instead of helping homeowners, the perpetrators helped themselves to a lavish lifestyle replete with fancy cars, vacations, and even gold coins.

The Civil Action, brought jointly by the United States Attorney's Office for the District of Colorado and the State Attorney General of Colorado, put an end to a scheme that started in March 2010, in the basement of a convicted felon in Georgia, and went national, affecting homeowners in Colorado, and other states all across the country. The Civil Action that put an end to the scheme was filed in the United States District Court for the District of Colorado on February 14, 2012, and resulted in a Consent Judgment, in which Bella Homes "admits the allegations in the Complaint and acknowledges its role in defrauding homeowners who signed over title to their homes to Bella Homes." Bella Homes further admitted that all deed transactions in which it entered should be deemed void.

The Scheme:

As alleged in the Complaint, the Defendants, through Bella Homes, engaged in a fraudulent scheme in which they solicited homeowners to convey title to their homes to Bella Homes for no consideration and to enter into purported lease agreements under which the homeowners, instead of making their mortgage payments, paid Bella Homes monthly "rent." To entice homeowners into this arrangement, Defendants made or caused to be made numerous material misrepresentations to homeowners to convey the false and fraudulent impression that:

• Bella Homes would stop any foreclosure on the home;
• Bella Homes would purchase or otherwise settle the existing mortgage on the home from the lender;
• Federal law provided the homeowner the right to remain in the home for the duration of the lease with Bella Homes; and
• The homeowner would have an option to repurchase the home in three years from Bella Homes for significantly less than the amount currently owed on the mortgage.

Defendants made these false representations on a website and in solicitations and documents sent to interested homeowners across the country. Contrary to Bella Homes' representations and promises, Bella Homes admitted in response to a subpoena that it had not purchased any mortgages as of October 2011, and that it lacked the financial capacity to purchase mortgages. In all, more than 560 homeowners were victimized by Bella Homes. Throughout the life of the scheme, the company only acquired one mortgage just before the Complaint was filed. As part of the Consent Judgment, the single mortgage may be sold and the proceeds returned to victims.

Who was involved, and what they did:

The Complaint alleged that Mark Stephen Diamond, Daniel David Delpiano, David Delpiano and Michael Terrell were involved in running Bella Homes. Through the Consent Judgment, these individual Defendants confess liability to Counts Six and Seven of the Complaint, which allege violations of the Mortgage Assistance Relief Services Rule (MARS Rule).

Specifically, the individual Defendants confess liability to: - violating Section 322.3(c) of the MARS Rule by making a representation, expressly or by implication, about the benefits, performance, or efficacy of any mortgage assistance relief service without competent and reliable evidence that substantiates that the representation is true. - violating Section 322.5(a) of the MARS Rule, which makes it a violation of the MARS Rule to: Request or receive payment of any fee or other consideration until the consumer has executed a written agreement between the consumer and the consumer's dwelling loan holder or servicer incorporating the offer of mortgage assistance relief the provider obtained from the consumer's dwelling loan holder or servicer.

What Happens Now:

As part of the Consent Judgment, the Defendants have permanent restrictions on their ability to work in the mortgage industry and residential real estate related businesses. In addition, the Defendants must return any vehicles in their possession that were leased by Bella Homes, Mark Diamond, Diamond and Associates, or Diamond Corporation. Finally, money previously frozen in Defendants' bank accounts, as well as cash in a safe deposit box, and the proceeds of gold coins obtained by Bella Homes, will all be made available to the Department of Law at the State of Colorado to be returned to homeowner victims. To this amount, Defendant Mark Stephen Diamond will add an additional $300,000 within the next 90 days. After that time, the Defendants will make additional payments of approximately $200,000 over the next five years, for a total anticipated recovery of approximately $1.2 million.

Homeowner Victims:

If you are a victim of Bella Homes, visit the website set up by the Colorado Department of Law, at:https://www.coloradoattorneygeneral.gov/departments/consumer_protection/consumer_protection_cases/bella_homes. This law enforcement action is part of President Barack Obama's Financial Fraud Enforcement Task Force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. For more information on the task force, visit: http://www.stopfraud.gov

The United States Attorney for the District of Colorado, John F. Walsh, and the Colorado Attorney General, John W. Suthers, announced the consent judgment. "Today brings an end to a scheme that harmed distressed homeowners across the country," announced United States Attorney, John F. Walsh.

"With false promises, the perpetrators of this scheme convinced hundreds of homeowners to hand over the last of their life savings and turn over the deed to their homes. Together with our partners in the State Attorney General's Office, we stopped this fraud from harming additional victims within our State, and across the nation. This agreement not only will help Bella Homes' victims, but it also will bar the defendants from engaging in any kind of mortgage or foreclosure activity ever again," Suthers said.

"Foreclosure-rescue scams prey on distressed homeowners' desire to save their homes and to find any means to help fix their dire financial situations.  Our work in cooperation with the U.S. Attorney's Office quickly shut down this scam and should send a message that we and our partners in law enforcement will vigorously pursue any foreclosure or mortgage scam preying on Colorado homeowners."

Source: Mortgage Fraud Blog

Obama administration brokers pro-bank mortgage fraud settlement

The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.

Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks.

Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone.

In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.

Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal.

Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program.

Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.

Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures.

About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets.

The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.”

An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.

The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.

Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets.

“I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”

Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.

In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.”

In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.

Source: World Socialist Web Site

Foreclosures (2012 Robosigning and Foreclosure Abuse Settlement)

The end of the housing boom in 2006 set in motion a vicious circle that led to disaster for millions of homeowners whose property has been seized or threatened, and for the lenders themselves, who have had to write off tens of billions in losses. Foreclosures helped accelerate the fall of property values, helping to spur more foreclosures. The losses they created brought the financial system to the brink of collapse in the fall of 2008. The steep recession that followed led to even greater homeowner delinquencies, as homeowners who lost their jobs often lost their homes. Tens of millions of others found themselves in homes worth less than their mortgages, unable to sell or refinance. All told, roughly four million families lost their homes to foreclosure between the beginning of 2007 and early 2012.

In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011. In February 2012, government authorities and five of the nation’s biggest banks agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected. Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. And because of a complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. The aid is to be distributed over three years, but there are incentives for banks to provide the money in the next 12 months. In addition to disagreements over the total amount, negotiations had been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses. In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents.

The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud. Officials will also be able to pursue any allegations of criminal wrongdoing. The banks involved in the settlement in February were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation. The courts have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.

Background

The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.

Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to dealwith the foreclosure process.

The revelations about the sloppy paperwork emboldened homeowners and law enforcement officials in many states to challenge notarizations — including those by so-called robo-signers,’ employees who approved hundreds of documents in a day — and to question whether lenders rightfully hold the notes underlying foreclosed properties. Evictions were expected to slow sharply — good news for many homeowners. But at the same time, the freezes further disrupted an already shaky housing market.

As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.

The swelling outcry over fast-and-loose foreclosures thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public. While Mr. Obama did block a law passed by Congress that was seen as unintentionally making it easier to speed up foreclosures, his aides spoke out against calls from many Democrats for a national freeze on evictions, fearing that a moratorium could hurt still-shaky banks.

The Three Waves

Overall, there have been three distinct waves in foreclosures. The initial spike involved speculators who gave up property because of plunging real estate prices, and the secondary shock centered on borrowers whose introductory interest rates expired and were reset higher. The third wave represents standard mortgages, known as prime, written to people who had decent credit ratings, but who have lost their jobs in the economic downturn and are facing the loss of homes they had considered safe.

Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com said in 2009 that it expected that 60 percent of the mortgage defaults that year would be set off primarily by unemployment, up from 29 percent in 2008.

The slowdown in evictions may give such borrowers time to accumulate some capital or more leverage in settlement talks with their lender. Some analysts said that could conceivably help the housing market get back on its feet, by ending the undermining effect of a steady stream of foreclose houses going up for sale. Others, however, worried that blocking sales in an already weak market would drive prices down even further, continuing a spiral that has been deeply destructive to banks and communities.

A Mess Years in the Making

Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.

Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners.

To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.

And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids,” walk-in hires who often barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

San Francisco Foreclosure Audit

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings released in February 2012 suggest how pervasive foreclosure irregularities may be across the nation.

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.

The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

Source: New York Times

Obama administration brokers pro-bank mortgage fraud settlement

The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.

Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks. Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone. In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.

Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal. Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program. Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.

Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures. About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets. The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.” An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.

The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.

Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets. “I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”

Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.

In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.” In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.

Source: World Socialist Web Site

Push to Avert Foreclosures Hits Court Logjam

New York has been among the most aggressive states in trying to protect homeowners from foreclosure, granting new legal protections and turning courts across the state into teeming negotiation centers working to keep people in their homes. But four years into the foreclosure crisis, the state’s courts are largely at a stalemate, facing an estimated 100,000 foreclosure cases — a record number — with tens of thousands more expected. Courts statewide have been mired in often hopeless cases involving loans that have left bus drivers and grocery clerks, among others, owing $700,000 or more on homes that have fallen in value.

As the Obama administration works on new mortgage-relief programs, lawyers and officials say New York’s experience shows the limits of a state’s ability to cope with the national foreclosure morass. “We are a shining example of somebody’s best efforts falling short through no fault of our own,” said Paul Lewis, a senior official in the New York court system who has been helping coordinate foreclosure cases since the start of the crisis.

Special funding to provide lawyers for homeowners has largely dried up, with more than 75 percent of New York City residents going into foreclosure court without a lawyer, state data shows. The state’s judges have grown increasingly vocal about what some of them have called “outrageous” conduct, “patently false” statements and “inexcusable” actions by lenders’ lawyers.

The hearings that form the core of New York’s approach — special settlement conferences, which are required to try to modify mortgages to make them affordable — have become comic exercises slowed by endless paperwork, requests for additional information and the mysterious loss of documents. During a day of more than 30 of the conferences in State Supreme Court in Queens last week, homeowners with screaming children and wheelchair-bound grandmothers appeared befuddled by the paper chase. Some of the cases had already been taken up in the settlement conferences as many as nine times, over many months, only to be delayed each time until yet another meeting. “We don’t have the full file,” said a bank’s lawyer during one of the conferences. “Unfortunately, I wasn’t able to review the documents,” said another lender’s lawyer in another case a few minutes later. “We should have received it, but it didn’t get into our system,” said a third. A fourth lawyer conceded that the homeowners had mailed information to the bank, but said that “only fax and e-mail” were acceptable.

On several occasions the court official who conducted the conferences that day, Tracy Catapano-Fox, mentioned to homeowners the system’s Catch-22: as they rush to gather newly demanded tax and bank records, information they supplied earlier to address other questions grows too old to be useful.

Completed applications turn back into incomplete ones, leading to more delays to collect more information while the newest information, in turn, grows stale. Ms. Catapano-Fox told one homeowner after another of the trap that awaited them. “I have psychic powers,” she said with a sympathetic grimace, having conducted hundreds of the conferences. “There’s no question that the next time we come in here, they will claim that the documents are stale.”

In the hallway after the latest of what he said had been a dozen monthly appearances in his yearlong foreclosure case, Juan Adon, a Jamaica homeowner, said he was baffled. “It doesn’t make any sense,” he said. Ms. Catapano-Fox had dryly mentioned during his hearing that there was a notation in his file indicating that the bank’s representative had said in August that it needed no additional information. Yet it seemed that nothing had happened.

Statewide, after some 82,000 of the settlement conferences were held, with many cases taken up multiple times, just 4,253 cases reached settlements during the 11-month period ending in September, according to a recent report by the chief administrator of the state courts. And some of those settlements led to the loss of homes anyway. “We are concerned that the gains we have made are being lost,” the report said. “We’re at a fork in the road,” said Anne Erickson, president of the Empire Justice Center, which represents low-income homeowners. “We can continue leading the way or we can watch the whole thing unravel.”

Lawyers say the difficulties encountered in the New York courts show how complex the task of working through the jumble of subprime mortgages can be, made worse by issues like “robo-signing,” the practice of having foreclosure documents signed by lenders in such high numbers that they could not possibly have been reviewed carefully.

After attention on robo-signing abuses that led to improper foreclosures, the New York courts adopted a rule in 2010 to try to repair what its chief judge, Jonathan Lippman, called “a deeply flawed process.” The rule required lawyers who pursued foreclosure suits to file a certification stating they had personally checked the accuracy of the claims about a homeowner’s loan.

Court officials quickly noticed that, while banks’ lawyers continued to file foreclosure cases at a rapid rate, they adopted a new strategy that seemed to be aimed at evading the new requirement. They filed the cases, causing damage to people’s credit ratings and adding to the fees they paid, but did not push the cases far enough to set off the requirement for the lawyer’s certification.

Around the state, court officials estimate there may be 25,000 or more such “shadow” cases in addition to the 75,000 already moving through the courts. In the cases in which lawyers do file the newly required certification, some judges have ruled that the lawyers had changed the mandated wording or otherwise resisted compliance.

The difficulties posed by the lawyer’s certification requirement are only the latest problem in the foreclosure docket to irritate judges. In a March ruling, a frustrated Queens judge, Anna Culley, described a foreclosure case that was much like many others. In one settlement conference, the bank asked for additional banking records from the homeowner, the judge wrote.

At another session, it demanded pay stubs. In a third, it asked for tax forms. In a fourth, it asked for all the paperwork to be resubmitted. At two meetings, the bank’s representative said a modification of the mortgage had been granted, lowering the required payments. But after two and a half years, the judge wrote, the bank had yet to modify the loan, and the foreclosure case was still pending.

Source: New York Times

Company Faces Forgery Charges in Mortgage Foreclosures

One of the largest companies that provided home foreclosure services to lenders across the nation, DocX, has been indicted on forgery charges by a Missouri grand jury — one of the few criminal actions to follow reports of widespread improprieties against homeowners.

A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges. Employees of DocX, a unit of Lender Processing Services of Jacksonville, Fla., executed and notarized millions of mortgage documents for big banks and loan servicers over the years. Lender Processing closed the company in April 2010, after evidence emerged of apparent forgeries in these documents, a practice now called robo-signing.

Chris Koster, the Missouri attorney general, will prosecute the case. “The grand jury indictment alleges that mass-produced fraudulent signatures on notarized real estate documents constitutes forgery,” Mr. Koster said in a statement. “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.”

Mr. Koster said his office’s investigation was continuing. This suggests he may hope to persuade Ms. Brown to cooperate in his investigation of the parent company. If convicted, Ms. Brown could face up to seven years in prison for each forgery count. DocX could be fined up to $10,000 for each forgery conviction. Scott Rosenblum, a lawyer at Rosenblum, Schwartz, Rogers & Glass who represents DocX said: “We have not had an opportunity to review the indictment at this point. The company intends to enter a plea of not guilty.”

According to the indictment, Ms. Brown acted “knowingly in concert with DocX and its employees” to mislead and defraud the Boone County recorder of deeds. The documents central to the indictments were deeds of release, which eliminate a previous claim on an asset. Such releases are typically issued when a mortgage has been paid off.

A lawyer for Ms. Brown said that she intends to enter a not guilty plea and that she had no criminal intent.

Since evidence of pervasive foreclosure improprieties emerged, state officials have mostly brought civil suits against the institutions and law firms that filed the fraudulent documents. Individuals in Nevada, for example, have been charged with notary fraud, but beyond that matter, criminal cases arising from foreclosure practices have been uncommon.

The Missouri grand jury found that the person whose name appeared on 68 documents executed on behalf of a lender — someone named Linda Green — was not the person who had signed the papers. The documents were submitted to the Boone County recorder of deeds as though they were genuine, Mr. Koster said.

A recent civil lawsuit against Lender Processing by the attorney general of Nevada found that former workers at one of its divisions had described their work as “surrogate signers.” One worker who was quoted in the complaint said she had been paid $11 an hour and told that her job was “to sign somebody else’s signature on documents.” The person said she had signed roughly 2,000 documents a day for months, according to the lawsuit.

In addition to deed releases, DocX surrogate signers routinely executed assignments of mortgage, which reflect changes in ownership. The indictment is only the latest legal assault on the company and its parent, Lender Processing. In August 2011, American Home Mortgage Servicing, a large loan servicer, sued Lender Processing contending that more than 30,000 residential mortgages that it had handled across the country contained “improper execution, notarization and recording of assignments of mortgage.” DocX executed such paperwork for American Home from April 2008 through November 2009, the lawsuit said.

Last April, Lender Processing signed a consent order with the nation’s top financial regulators, agreeing to remediate improperly executed mortgage documents and to correct its default business practices. Michelle Kersch, a Lender Processing spokeswoman, said recently that the company now executed documents “with stringent controls in place” to ensure compliance with all rules.

This article has been revised to reflect the following correction:

Correction: February 8, 2012

An article on Tuesday about indictments on forgery charges of the loan processing firm DocX and its founder and former president, Lorraine O. Brown, misstated the given name for the lawyer representing the company. He is Scott Rosenblum, not Chris. (The lawyer defending Ms. Brown is Chris Rosenbloom.)

Source: New York Times

A Mortgage Investigation

In the State of the Union address, President Obama promised a fresh investigation into mortgage abuses that led to the financial meltdown. The goal, he said, is to “hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans.”

Could this be it, finally? An investigation that results in clarity, big fines and maybe even jail time? There is good reason to be skeptical. To date, federal civil suits over mortgage wrongdoing have been narrowly focused and, at best, ended with settlements and fines that are a fraction of the profits made during the bubble. There have been no criminal prosecutions against major players. Justice Department officials say that it reflects the difficulty of proving fraud — and not a lack of prosecutorial zeal. That is hard to swallow, given the scale of the crisis and the evidence of wrongdoing from private litigation, academic research and other sources.

This new investigation could be the real thing. Eric Schneiderman, the New York State attorney general, will be a co-chairman of the group, and he has refused to support a settlement being worked out between big banks most responsible for foreclosure abuses and federal agencies and some state attorneys general. He rightly objected to the fact that in exchange for providing some $20 billion worth of mortgage relief — mainly by reducing the principal on homeowners’ loans — the banks wanted release from legal claims that have never been fully investigated, including those related to potential tax, trust and securities violations in mortgage loans.

In the past year, the Obama administration has pushed back against Mr. Schneiderman, even as other attorneys general also left the settlement talks. By choosing him now to help run the investigation, the president appears to be embracing the call for a much broader inquiry that, properly executed, could result in a far bigger settlement. For now, the administration is saying that the new investigation and the settlement talks will both proceed. It would be better to settle with the banks only after officials have a full picture of any and all violations.

There are reasons to be wary. Some of the federal officials who will also be involved with the investigation — including Eric Holder Jr., the United States attorney general, and Lanny Breuer, the leader of the Justice Department’s criminal division, who will be a co-chairman — have not distinguished themselves in the pursuit of mortgage fraud. To win and retain public trust, both the administration and all the group’s co-chairmen — there are also four other officials from the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service — must agree on several steps immediately.

The administration must ensure that the group has ample resources. The co-chairmen must hire a tough-as-nails prosecutor with a successful track record in financial fraud to drive the investigation forward. And the group must move quickly and vigorously, issuing subpoenas and filing cases. It is not starting from scratch; various agencies have all had separate investigations under way.

President Obama’s credibility is on the line. To restore public faith in the financial system, nothing less than a full investigation and full accountability will do.

Source: New York Times

Regulator Fines Barclays Capital Over Subprime Mortgages

The Financial Industry Regulatory Authority said on Thursday that it had fined Barclays Capital $3 million for misrepresenting information about subprime mortgage securities the bank had sold from 2007 to 2010.

Finra, as the nonprofit self-regulator is known, said in a statement that Barclays Capital had provided inaccurate data about the delinquency rates of mortgages packed into three securities. The misrepresentations “contained errors significant enough to affect an investor’s assessment of subsequent securitizations,” according to the agency.

That data was then referenced for five additional subprime securities, the agency said.

“Barclays did not have a system in place to ensure that delinquency data posted on its Web site was accurate,” J. Bradley Bennett, the agency’s enforcement chief, said in a statement. “Therefore, investors were supplied inaccurate information to assess future performance of RMBS investments.”

Barclays Capital neither admitted nor denied wrongdoing, though it consented to the fine. A spokeswoman for the bank declined comment.

Finra has fined several investment banks in the last two years, including Merrill Lynch and Credit Suisse in May and Deutsche Bank in July 2010.

Source: New York Times

Allied Home Mortgage Is Sued Over Bad Loans

The federal government sued one of the nation’s largest privately held mortgage brokers on Tuesday, saying its decade-long lending practices amounted to fraud and cost the government hundreds of millions of dollars and forced thousands of American homeowners to lose their homes.

The lawsuit in United States District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Allied Home Mortgage Corporation; its founder, Jim Hodge; and Jeanne Stell, the company’s executive vice president and director of compliance.

Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined further comment. At a news conference, Preet Bharara, the United States attorney based in Manhattan, said Allied had carried out its fraud through its authority to originate mortgage loans insured by the Department of Housing and Urban Development, or HUD. “The losers here were American taxpayers, and the thousands of families who faced foreclosure because they were could not ultimately fulfill their obligations on mortgages that were doomed to fail,” he said.

The prosecutor said the investigation continued, and “if and when we have sufficient evidence for a criminal case, we’ll bring it.” Helen Kanovsky, HUD’s general counsel, said the agency had stopped insuring loans for Allied and was seeking to prevent Mr. Hodge from participating in any government programs again after seeing the destruction that the fraud had caused in communities across the country.

According to the lawsuit, nearly 32 percent of the 112,324 home loans originated by Allied from Jan. 1, 2001, to the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD. The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and that HUD could face $363 million more in claims.

Allied, based in Houston, operated 600 or more branches at once but only maintained two quality control employees in its corporate office, requiring branch managers to assume financial responsibility for their branches, the lawsuit said. “Allied thus operated its branches like franchises, collecting revenue while the branches were profitable, then closing them without notice when they were not, leaving the branch managers liable for the branch’s financial obligations,” the lawsuit said.

The government said Allied had failed to impose its internal quality control plan, “effectively allowing its shadow branches to operate independently of any scrutiny whatsoever,” the lawsuit said.

Source: new York Times

Federal Regulators Sue Big Banks Over Mortgages

A bruising legal fight pitting the country’s most powerful banks against the full force of the United States government began Friday, as federal regulators filed suits against 17 financial institutions that sold the mortgage giants Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured.

The suits are the latest legal salvo fired at the banks accusing them of misdeeds during the housing boom. Investors fled financial shares Friday amid growing concern that the litigation could last for years and undermine earnings and balance sheets in the process. The complaints were filed just as the stock market closed Friday afternoon, but with word leaking out of the impending legal action during the trading session, shares of Bank of America fell more than 8.3 percent, while JPMorgan Chase dropped 4.6 percent and Goldman fell 4.5 percent. “The suits only add to the uncertainty that dogs the industry,” said Mike Mayo, an analyst with Crédit Agricole. “Banks should pay for what they did wrong, but at the same time they shouldn’t be treated as a big piñata that has the effect of delaying the housing recovery. If banks have to pay for loans they made five years ago, are they going to make new ones?”

After the savings and loan crisis in the late 1980s and early 1990s, years of litigation followed. The mortgage bust and the subsequent financial crisis have spawned a similar legal fight, said Jaret Seiberg, a financial policy analyst with MF Global in Washington. “It’s going to be exceedingly difficult and take years to play out,” he said. “There’s not much incentive for either side to settle.” The litigation represents a more intense effort by the federal government to go after the financial services industry for its supposed mortgage failures. Indeed, the cases were brought on the basis of 64 subpoenas issued a year ago, giving the government an edge in its investigation that private investors suing the banks lack.

The Obama administration as well as regulators like the Federal Reserve have been criticized for going too easy on the banks, which benefited from a $700 billion bailout package shortly after the collapse of Lehman Brothers in the autumn 2008. Much of that money has been repaid by the banks — but the rescue of the mortgage giants Fannie and Freddie has already cost taxpayers $153 billion, and the federal government estimates the effort could cost $363 billion through 2013. Even though the banks already face high legal bills from actions brought by other plaintiffs, including private investors, the suits filed Friday could cost the banks far more. In the case against Bank of America, for example, the suit claims that Fannie and Freddie bought more than $57 billion worth of risky mortgage securities from the bank and two companies it also acquired, Merrill Lynch and Countrywide Financial.

In addition to suing the companies, the complaints also identified individuals at many institutions responsible for the machinery of turning subprime mortgages into securities that somehow earned a AAA grade from the rating agencies. The filing did not cite a figure for the total losses the government wanted to recover, but in a similar case brought in July against UBS, the F.H.F.A. is trying to recover $900 million in losses on $4.5 billion in securities. A similar 20 percent claim against Bank of America could equal a $10 billion hit. In a suit that identifies 23 securities that Bank of America sold for $6 billion, the company “caused hundreds of millions of dollars in damages to Fannie Mae and Freddie Mac in an amount to be determined at trial.”

Within minutes of the filing of the suits, several banks responded with a preview of the legal arguments they will make in the coming months, namely that Fannie and Freddie were sophisticated investors who should have known the securities were not without risk, and that the losses were caused not by fraud or misrepresentation but by underlying difficulties in the housing market. In a statement, Bank of America said Fannie and Freddie “claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so.” In spite of that warning, Bank of America said, the government-controlled mortgage giants “are now seeking to hold other market participants responsible for their losses.”

Other large banks also assembled huge amounts of so-called private label mortgage-backed securities for Fannie and Freddie that declined sharply in value after the housing bubble burst in 2007. JPMorgan Chase sold $33 billion, while Morgan Stanley sold over $10 billion and Goldman Sachs sold more than $11 billion. A who’s who of foreign banks were also big bundlers and sellers of these securities, like Deutsche Bank with $14.2 billion, Royal Bank of Scotland at $30.4 billion, and Credit Suisse selling $14.1 billion. All were sued Friday. “We believe the claims brought by the F.H.F.A. are unfounded,” said Frank Kelly, a spokesman for Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings.“

Buried in the filings themselves, however, is a damning portrait of the excesses of the housing bubble, when borrowers were able to obtain home loans without basic proof of income or creditworthiness, and banks appeared only too happy to mine profits taking the risky loans and assembling them into securities that could be sold to investors. In the complaint against Goldman Sachs, for example, the suit says that “Goldman was not content to simply let poor loans pass into its securitizations.” In addition, the giant investment bank “took the fraud further, affirmatively seeking to profit from this knowledge.”

When an outside analytics firm, Clayton, identified potential problems in the underlying mortgages Goldman was turning into securities, the suit said, “Goldman simply ignored and did not disclose the red flags revealed by Clayton’s review.” Goldman Sachs declined to comment, as did JPMorgan Chase, Morgan Stanley, Credit Suisse and Citigroup.

Similar behavior in terms of warnings provided by Clayton transpired at Bank of America, Citigroup, Deutsche Bank, RBS and UBS, according to the complaints.

Source: New York Times

Foreclosure Fraud Victims Lose Their Shirt and Their Homes

He was their last hope—about 250 Southern California homeowners facing foreclosure and eviction believed him when he said he could save their homes. But in reality, he was their worst nightmare—he ended up fleecing the homeowners for approximately $1 million…and not a single home was saved in the process.

Last week, Jeff McGrue, owner of a Los Angeles-area foreclosure relief business, was sentenced to 25 years in prison for defrauding people who were at the end of their rope. Even the federal judge who sentenced him called him “heartless.”

It all started in late 2007, when McGrue—and several other conspirators who have pled guilty—orchestrated the scheme primarily through his company Gateway International. He paid unwitting real estate agents and others to serve as “consultants” to recruit customers who were facing foreclosure or were “upside-down” on their mortgages—meaning they owed more than their homes were worth. Many of the customers didn’t understand English or the contracts they were signing.

How the scam worked. McGrue and associates told the homeowners that “bonded promissory notes” drawn on a U.S. Treasury Department account would be sent to lenders to pay off mortgage loans and stop foreclosure proceedings; that lenders were required by law to accept the notes; and that homeowners could buy their homes back from Gateway and receive $25,000, regardless of whether they decided to re-purchase.

The payback for McGrue? The homeowners had to fork over an upfront fee ranging from $1,500 to $2,000…sign over the titles of their homes to Gateway…and pay Gateway half of their previous mortgage amount as rent for as long as they lived in the house.

Of course, nothing that McGrue told his victims was true: he didn’t own any bonds or have a U.S. Treasury account, plus the Treasury doesn’t even maintain accounts that can be used to make third-party payments. Lenders weren’t legally obligated to accept bonded promissory notes, which were worthless anyway. And Gateway International had no intention of selling back the properties to the homeowners. Evidence shown at McGrue’s trial revealed that it was his intent to re-sell the homes, once they were titled in Gateway’s name, to unsuspecting buyers.

The FBI began its investigation in 2008, after receiving a complaint from one of the victims.

During these uncertain economic times, there are many unscrupulous people looking to line their pockets at the expense of others’ misfortunes. One of the most effective ways to defend yourself against foreclosure fraud is awareness. According to the Federal Trade Commission, if you or someone you know is looking for a loan modification or other help to save a home, avoid any business that:

• Offers a guarantee to get you a loan modification or stop the foreclosure process;
• Tells you not to contact your lender, lawyer, or a housing counselor;
• Requests upfront fees before providing you with any services;
• Encourages you to transfer your property deed to title to them;
• Accepts payment only by cashier’s check or wire transfer; or
• Pressures you to sign papers you haven’t had the chance to read thoroughly or that you don’t understand.

Contact your local authorities or your state’s attorney general if you think you’ve been a victim of foreclosure fraud.

Source: FBI