The Florida Foreclosure Fraud Weblog

Fighting on two fronts

Imagine getting called up for military duty, torn away from your family, your normal life, and your job. Imagine the stress of going off to war, and then imagine coming back having lost your home. I am amazed and saddened to learn that for too many of our soldiers, sailors, and airmen, this is not a drill - it’s their reality.

Foreclosures against deployed military violate federal law

NPR reports that many active-duty military are falling prey to banks hungry for foreclosures. Not only does this lender practice shock the conscience, it’s against the law. The Servicemembers Civil Relief Act, passed by Congress during World War II, is supposed to protect active-duty servicemembers from exactly this situation. If you’re on active duty - and that includes any time in basic training, as well as time actually spent overseas - the law provides important protections against foreclosures and other financial hardships that sometimes affect our men and women in uniform.

Relief from Foreclosure

The SCRA includes several provisions to provide active military with relief from foreclosure - before, during, and even after the foreclosure case. Some of those powers include preventing entry of default judgments, postponing court cases, and setting aside judgments that the court has already entered. Because these foreclosures violate federal law, victims might also find relief under other laws, such as those preventing unfair or deceptive debt collection practices. Members of the military, and their families, facing foreclosure while on active duty should consult with an attorney right away to plan for quick action to save their family home.

Don Saxon, chief regulator overseeing Florida’s licensed mortgage brokers, resigned at yesterday’s meeting of Florida’s Cabinet. Saxon resigned rather than try to defend his job after a surprising move by Governor Charlie Crist supporting a motion to fire Saxon.

Saxon has come under heavy fire for failing to protect Florida homeowners from convicted felons working as mortgage brokers, both when they applied for licenses, and even when they continued to steal money from borrowers while acting as brokers.

The Cabinet also passed new emergency rules restricting the issuance of licenses to criminals in the future, but Attorney General Bill McCollum expressed some doubt if the emergency rules were within the Commission’s legal authority: “‘I think we ought to try it,’ the attorney general said. ‘It may be legal, it may not be legal.’” The Cabinet did not act to revoke the licenses of felons currently brokering loans.

The last part of the Miami Herald exposé has run, and the findings are damning.  Not only did Florida’s Office of Financial Regulation fail to keep felons from entering the mortgage brokering industry, but once they were in and began stealing money from homeowners, the OFR didn’t pull their licenses.

Complaints to the Office of Financial Regulation — the state agency created to police the industry — were routinely ignored, leaving consumers to fend for themselves, according to public records and interviews.

Among those dismissed: 10 complaints against a notorious Broward brokerage whose president eventually pleaded guilty to $21 million worth of mortgage fraud.

During an eight-month investigation, The Miami Herald analyzed more than 1,400 final orders issued by the agency between 2000 and 2007 and posted on the OFR website, reviewed quarterly reports the agency presented to the Florida Cabinet and scrutinized the agency’s annual industry newsletters.

The article blames Saxon for failing to effectively lobby for more staff to enforce existing regulations.

President Bush this morning signed into law new federal legislation aimed at addressing the nation’s current foreclosure crisis. Some of the provisions of this new law, which takes effect October 1, 2008, may offer relief to certain homeowners in foreclosure. Here’s how.

FHA-backed Refinancing

The Federal Housing Authority now has the ability to insure up to $300 billion dollars in loans to allow troubled homeowners to refinance their home loans. Banks would be more willing to extend loans to qualified homeowners because the loans are backed by the federal government.

Who Qualifies

In order to qualify for a new FHA-backed loan, the homeowners must meet certain criteria.

• They must live in the home - no landlords allowed.
• They must currently have home loans issued between January 2005 and June 2007.
• They must be spending at least 31% of their gross monthly income on mortgage debt.
• A borrower may either be current or behind on their existing loans, but they will have to prove that they cannot continue to make their current payments.
• Borrowers must first pay off any other debt on the home (such as home equity loans) and may not get a new one for five years, except to pay for maintaining the home.
• The new loans are subject to FHA approval.
• The original lender would have to agree to take a substantial loss on the original loan, but gets to avoid filing foreclosure - which might cost them more in the long run.

(Source: CNNMoney )

Depending on each homeowner’s particular circumstances, this might be a viable way to get out of a bad loan and into a more affordable one - after October 1. Officials in the Bush administration, though, are already bad-mouthing the new law, saying that other laws already in place will help more homeowners than this one, and noting that Congress failed to provide funding for the new loan guarantees. Steve Preston, Secretary of Housing and Urban Development, said: “I think it may be helpful on the margin but ultimately what we need is new homebuyers to come into this market and buy up the inventory of homes.”

UPDATE: The New York Times thinks the new law is better than Santa Claus.

The Florida Bar News reports on Florida AG Bill McCollum’s action exempting Florida attorneys from portions of the Foreclosure Rescue Act. Florida Bar News editor Gary Blankenship has been following this story for some time, and has written a nice piece explaining both the problem and the solution. As an added bonus, he quotes me at some length on the AG’s action.

In the wake of last week’s Miami Herald investigation on this state’s willingness to let convicted fraudsters work as mortgage brokers, the state’s top mortgage lending regulator Don Saxon meets today with the Governor’s Cabinet who will consider, among other things, whether Saxon should keep his job.

State Chief Financial Officer Alex Sink last week called for Saxon’s resignation. On Monday, Sink said she was not ready to make such a motion at today’s meeting - though she continued to talk tough about Saxon, saying she had not changed her mind about replacing him.

Sink is one of four members of Florida’s Cabinet.

The St. Pete Times thinks Saxon ought to go:

If the Herald’s findings are not enough to take action, Crist and the Cabinet should read a scathing report issued in March by the statewide grand jury about the office’s regulation of check cashers. Here’s a snippet: “We conclude that the agency most responsible for insuring compliance by check cashers has failed to aggressively root out fraud and money laundering from the check cashing industry.”

Well, and there’s more. in the course of representing victims of foreclosure fraud, I have learned that high-level officials in Saxon’s office directly interfered with active investigations, modifying final reports and watering down actions against obvious foreclosure rescue scam - even when the main perpetrators were already convicted of felony fraud. I can’t quote sources, and I can’t name specifics, but when it breaks, I’ll confirm what I know to you.

After the recent Miami Herald exposé on Florida’s mortgage broker industry, you’re probably wondering how in the world you can find a mortgage broker who won’t rob you blind. I’ve put together a list of steps that any prospective borrower can take that will be highly effective in weeding out the con artists and the fee-padders.

Look for a broker before you start looking for a house.

If you’ve already got your heart set on a house and need to put in a bid, then you’re setting yourself up for a huge time-pressure crunch that can lead you to make some very bad decisions. Pick your broker and get your loan before you start shopping for a house, so you have time to fix any problems that might come up or even back out of the deal if you have to.

Look for someone who’s been in business for a while.

Whenever the market booms, all kinds of shady operators come out of the woodwork and set up shop as mortgage brokers. When the market tanks, the brokers of ill repute will be the first ones to fold up their tents and walk away. Look for someone who’s been around a while - someone who has ridden the ups and downs of the market, and has survived tough times because they have a good reputation in the community.

Look for someone who’s not trying to push the latest fad loan on you.

Mortgage brokers push fad loans for a reason - they make more money on them because you pay more money over the life of the loan. Certain types of adjustable-rate mortgages, interest-only loans, and other creative arrangements are popular with lenders because they’re popular with brokers, but they end up costing more in the long run. Do your research before picking a broker, know what type of loan you’re looking for, and reject any broker who tried to push the latest thing on you just because it’s popular or looks like a great deal - at first.

Get references from people who know the good ones from the bad.

People find mortgage brokers in many different ways. But with a transaction this size - for most people, the largest deal they’ll ever sign - it makes sense to be extremely careful about who you pick. It’s not enough to use the guy your next-door neighbor used, unless your neighbor has the relevant knowledge to be able to judge what kind of job the broker did for him. Who might know good, honest brokers with a long and proven track record? Anyone who’s in the financial field or handles those types of deals for a living is a good choice. But make sure that the referral is coming from someone you know well enough to trust, and someone who doesn’t have anything to gain from the recommendation. A banker, a lawyer, a real estate agent who’s not part of the deal - all those people in your community might have good names for you to check out.

Check the broker out with the state licensing board.

In Florida, the Office of Financial Regulation is responsible for overseeing the licensing and regulation of mortgage brokers. Certainly, they’re not foolproof, but if a mortgage broker has some pending disciplinary action or a criminal record, you’ll want to know. It sure can’t hurt to ask.

These steps aren’t foolproof, but they will go a long way to making sure you don’t get ripped off by an unscrupulous broker next time you get a home loan.

About to enter foreclosure and not sure what to do?  The Florida Bar has announced a new program designed to divert people homeowners from foreclosure and help them negotiate a work-out with their lenders.

The Statewide effort called FLASH (Florida Attorneys Saving Homes) has launched a toll-free hot line (866-607-2187) and will take calls from 8 a.m. through 4 p.m. Monday through Friday. Callers who fear that they soon won’t be able to make their mortgage payments or who have already missed payments but are not yet in foreclosure are urged to call. Hot line callers will answer a few initial questions to ensure accurate placement with pro bono attorneys, who will then negotiate with lenders on behalf of homeowners.

The full announcement can be found on the Florida Bar website.

Bill McCollum, Florida’s attorney general, as been very active lately, going after a number of companies he has accused of foreclosure rescue scams and unfair mortgage-related practices, according to the Tampa Bay Business Journal.

…McCollum has filed five cases against companies he believes have conducted questionable, if not illegal, acts in regard to mortgage and foreclosure fraud since assembling his Mortgage Fraud Task Force last September.

The defendants include:

• the highly-publicized Countrywide Financial;
• A Realty Rx LLC;
• Florida Housing Council LLP;
• Equity Investment Capital Management Inc.;
• Star Enterprises LLC.

Countrywide stands accused of defrauding its investors by making asset-based loans to individuals who couldn’t possibly support those payments, but telling investors that all borrowers were thoroughly vetted for ability to pay.  A Realty RX has been sued for selling realty without a license and other fraudulent practices - including possible foreclosure rescue fraud.

The others? Foreclosure rescue scammers.

Willie Sutton, one of the FBI’s most-wanted bank robbers back in the 30’s, once answered the question of why he robbed banks by saying, “That’s where the money is.”

Over the last several years in this state, as home prices surged and the family home became the single largest asset most Florida families owned, more and more modern-day Willie Suttons took notice.  Where was the money?  In homes and home loans.  And so that’s where the criminals went.

Mortgage brokers - the people who introduce borrowers and lenders to each other - must be licensed by the state of Florida.  In theory, felons should not to be able to get mortgage broker licenses.  But as the Miami Herald found out, in far too many cases, they do.

When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking.

Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot.

Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room.

…Over the next three years, in a crime spree that stretched from Tampa to Miami, Almeida arranged nearly $3 million in fraudulent loans and fleeced 30 people — many of them elderly and disabled.

Mortgage brokers with history of criminal activity are a serious threat to borrowers because of the size on the complexity of most home loan transactions.  It is far too easy for an unscupulous mortage broker to slip in unfair or illegal fees and kickbacks, or use bait-and-switch tactics that unsophistcated borrowers have trouble detecting.  The character of a mortgage broker is probably the greatest safegaurd against consumer rip-offs, and it may be difficult to police, but when people with proven character flaws get licenses on the flimsiest of character investigations, the state just isn’t trying hard enough.

The lesson for consumers?  Choose very carefully when picking a mortgage broker.  Make sure their background checks out, and make sure it’s someone you can trust completely.  If you don’t, you could lose everything.  I’ll give some specific tips in a future post on how to pick a mortgage broker.