The Florida Foreclosure Fraud Weblog

Two major lenders, Chase and Wells Fargo, have angered federal judges sitting in two different cases: Chase, because of an apparent fraud on the court, and Wells Fargo, through incompetence and sloppy bookkeeping.

Chase lies to the court

My good friend Jay Fleischman describes the Chase case:

In the case of In re Pawson, Case No. 05-18439 (Bankr. S.D.N.Y.) Chase filed a motion for relief from stay although the debtor had substantial equity in a co-operative apartment valued at $1,000,000. Chase alleged that the debtor was two months in arrears in his mortgage payments, though the debtor showed that Chase had been rejecting the online payments he had made since filing his petition.

Because this is not the first time Chase has been caught with its hand in the cookie jar, it now has to agree to follow special procedural safeguards in that bankruptcy court designed to prevent future fraud, and, if I’m reading the story correctly, must pay to the debtor $50,000 in compensation.

Wells Fargo can’t keep track of its payments

The Wells Fargo case is simply one of extreme incompetence:

The Burriers denied that they had missed payments, but in April, to keep their home, they agreed to make double payments to cover the ones Wells Fargo claimed they had missed. If the borrowers could prove that the mortgage checks were submitted, Wells Fargo said, their account would be credited and they would no longer have to make up the payments. The proof required by Wells Fargo and approved by the court was “valid, accurate and true copies” of the front and back of the checks the borrowers sent in.

Only one problem: Wells Fargo had been recording the payments electronically, so that the borrowers never got any canceled checks, and Wells Fargo knew that.

“The payments have, evidently, been lost in a black hole of the creditor’s organization or through accounting mismanagement,” the judge wrote. “This is a major lender/mortgage loan servicer where the left hand does not know what the right hand is doing — the collection department does not know what the check processing and accounting departments are doing.”

Like Chase, Wells Fargo has been in hot water before with this same judge, and he’s considering whether their conduct in this case deserves some kind of punishment.

MSNBC reports on just how bad the foreclosure fraud problem has become:

Rich Hagar is a former home appraiser based in Seattle who now runs seminars for law enforcement officials and real estate professionals on detecting fraud. He describes the mortgage fraud problem as “monstrous,” noting that bank “Suspicious Activity Reports” for mortgage fraud have jumped nearly 700 percent in the last five years, with 48,000 filed in the first nine months of this year alone. But Hagar said he believes those figures only represent 10 to 15 percent of the total fraud cases – suggesting nearly 1 million more fraudulent mortgages have been closed in the first nine months of this year.

The article also talks about the perils of fraud in short-sale transactions:

Fraudulent short-sale specialists often promise quick resolution for a fee. They can also hide the true value of the sale from parties involved and pocket the difference. For example, the con artist might persuade a buyer to pay $175,000 for a home with a mortgage of $200,000, then tell the bank the price was $150,000. The short-sale facilitator then pockets the $25,000 difference.

“There’s a lot of room for fraud in short sales,” said Wasylik, the Florida attorney.

Just one more reason to avoid fly-by-night foreclosure rescue operators and “short sale consultants.”

Attorney General Bill McCollum is at it again, targeting perpetrators of mortgage fraud. This time, McCollum has sued some twenty-five defendants who allegedly skimmed over $6 million out of approximately 60 home loan transactions. Here’s some of how they did it:

Starting in July 2005 and continuing through at least January 2007, three of the ring’s leaders allegedly defrauded lenders by recruiting “straw buyers” with good credit and using them to create false applications to buy homes throughout Central Florida.

The lawsuit, filed by the Attorney General’s Mortgage Fraud Task Force, claims the ring conspired with Realtors to artificially inflate purchase prices, thus enabling them to obtain larger mortgage loans.

One potential defendant was actually left out, because “real estate agents are exempted from the Deceptive and Unfair Trade Practices Act under which the others are being sued.” However, she and the others may be subject to criminal charges beyond the civil suit.

Of the 60 homes, about 50 are now in foreclosure.

Wondering why our banking system is on the verge of collapse? Baffled at just how a surge in mortgage defaults threatens to pancake our entire economy? Look no further than the power of cartoons:

Some genius, unknown to me, has created this slideshow, “The Subprime Primer,” and it tells you prety much all you need to know about how we got here. (Warning: there’s some salty language here. This is not a cartoon you’ll want to share with the kids.)

For a more serious treatment, check out “The Root Causes of the Financial Crisis,” by Francis Cianfrocca:

THIS IS WHY THE ECONOMY SLOWED DOWN, BEGINNING LATE IN 2007. And I’d been saying that in this space a whole quarter before it even happened. This is also why economic stimulus plans like the one we got this year from George Bush and will get from Obama if he’s elected President, only make the problem worse, not better. And it’s also why the economy can not recover until the bad paper all runs off.

Good, if scary, reading.

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.

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.

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.