The Florida Foreclosure Fraud Weblog

The Federal Trade Commission has issued an advisory to consumers that identified the red flags that warn you of a possible foreclosure rescue scam:

If you're looking for foreclosure prevention help, avoid any business that:

• guarantees to stop the foreclosure process - no matter what your circumstances


• instructs you not to contact your lender, lawyer, or credit or housing counselor


• collects a fee before providing you with any services


• accepts payment only by cashier's check or wire transfer


• encourages you to lease your home so you can buy it back over time


• tells you to make your mortgage payments directly to it, rather than your lender


• tells you to transfer your property deed or title to it


• offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale


• offers to fill out paperwork for you


• pressures you to sign paperwork you haven't had a chance to read thoroughly or that you don't understand.

If you're having trouble paying your mortgage or you have gotten a foreclosure notice, contact your lender immediately.

The report also identified several types of foreclosure rescue scams:

• Phony Counseling or Phantom Help - where the scammer pockets a fee but performs no services


• Bait-and-Switch - where the scammer asks you to sign "loan documents" that really surrender possession of your home


• Rent-to-Buy Scheme - where the scammer takes legal title to your home, with a promise to sell it back to you, and then makes it difficult or impossible for you to meet all the terms of the repurchase


• Bankruptcy Foreclosure - like the "phantom counselor," this scammer promises to file bankruptcy for the homeowner, but pockets the fee and disappears

If you think you've been a victim of any of these scams, contact the Federal Trade Commission or your state Attorney General's office. You also may want to speak with a lawyer who can act to represent your interests, first.

On May 28, 2008, Florida Governor Charlie Crist signed into law House Bill 643, meant to protect homeowners in foreclosure from falling prey to foreclosure rescue scammers. The law addresses two of the most common type of foreclosure rescue scams in Florida: foreclosure consultant fraud, and foreclosure transaction fraud.

Foreclosure consultant fraud

The typical foreclosure consultant fraud scheme is a simple one: out of the blue, the "consultant" calls up the homeowner in foreclosure, and promises to help negotiate a workout with the lender. This consultant usually has no credentials whatsoever, or possibly fake credentials, but they ask for a fat payment up front and then promise to help. After getting the cash, the scammers disappear, providing no help at all.

The new law imposes two requirements on "foreclosure rescue consultants" - which the law defines as anyone offering to help stop, delay, or avoid foreclosure. First, a disclosure requirement. The consultant must provide a written agreement, give the homeowner a full day to review it before signing it, and then allow the homeowner three days to cancel after signing. The written agreement must fully describe all services to be provided, disclose the right to cancel the arrangement, and also disclose the second restriction, regarding fees.

The second requirement is that the foreclosure consultant cannot ask for or accept any fees for services until the consultant has provided all services listed in the agreement.  This takes aim at the "pocket the cash and run" crowd.

Of course, someone who wants to steal your money by charging false fees probably won't obey the law anyway - and this type of scheme was already illegal as a form of theft - but the new law imposes additional penalties (up to $15,000 in addition to other damages) and gives law enforcement another tool to use against fraudulent consultants.

Foreclosure rescue transaction fraud

The second area the new law aims to fix is the fraudulent foreclosure rescue transaction. Fraudulent foreclosure rescue transactions work in one of two ways: by getting title to the house, or by draining the equity from the house.  In one common form of this fraud, the scammer will offer to make a loan to the homeowner, either as an outright loan, or set up with a different legal structure.  Often, they use "sale-leaseback options" or they set up a "trust" that the homeowner signs their house over to as the new owner.  The scammers use these tools to transfer ownership of the house away from the original homeowner, and set up impossible conditions the homeowner has to meet before getting it back.  When the homeowner can't meet those conditions, they lose the house for good.

The new law restricts these foreclosure rescue transactions in a several ways.  First, the written agreement requirements.  Any foreclosure rescue transaction must come with a written agreement disclosing specific details of the transaction, such as the identity of the purchaser and the legal description of the property; a clear notice stating "I UNDERSTAND THAT UNDER THIS AGREEMENT I AM SELLING MY HOME TO THE OTHER UNDERSIGNED PARTY;" and details of the right ot repurchase the property.  The law also requires that the homeowner receive a notice of their right to cancel the deal within three days, and provides the specific language and form of that notice.  The homeowner also has a 30-day right to cure any default of the agreement, to give them a better chance of meeting the terms of the deal, and that must be disclosed as well.

Assumption or discharge of prior liens

There are two additional rights which are very important for the homeowner.  First, the the purchaser of the property must assume (take over) or discharge (pay off) the lien in foreclosure, along with any prior liens on the property.  This prevents one common scam, in which the homeowner effectively sells his house to the supposed rescuer, but gets left holding the bag on all the debt.  Also, this ensures that the transaction actually helps the homeowner get out of the debt that was in default when the foreclosure happens.  Of course, this debt will almost certainly get rolled up in the cost of the transaction, but at least the purchaser can no longer double-dip on the homeowner's equity.

Rebuttable presumption of mortgage

A second important right created in the statute is the way the law effectively defines mortgages.  It creates a "rebuttable presumption" that any foreclosure rescue transaction involving a lease option or repurchase is really a mortgage in substance, and gives the homeowner all the rights they would have in a foreclosure if they default on the lease or repurchase.  Effectively, this means the purchaser cannot evict the homeowner without first filing a brand new foreclosure proceeding, which the homeowner would have the right to defend.  Because of the substantial additional rights this law gives homeowners elsewhere, a homeowner defending a foreclosure in this situation would almost certainly be able to raise multiple defenses unless the transaction was performed exactly to the letter of the law, and even then, might have other ways to beat the foreclosure suit in court.  This "rebuttable presumption" - effectively, it means the court assumes it's a mortgage unless the purchaser proves otherwise - may actually be one of the most important beneifts to homeowners in this new law because it gives them such powerful defenses if the foreclosure rescue scammer tries to throw them out of their home.

Penalty for violation

Anyone violating the provisions of the new law commits an "unfair and deceptive trade practice," and could be sued by victims or by the state for those violations.  Violators could be liable for damages, attorney's fees, and civil penalties of up to $15,000 per violation.  This could be a significant deterrent, especially for serial violators.

Concerns and potential drawbacks for homeowners

I've written elsewhere about my concerns with the new law, mainly that it defines "foreclosure rescue consultants" in such a broad way, that it may encompass lawyers who represent homeowners in foreclosure lawsuits or bankruptcy cases, and bring with it restrictions on those services that could severely limit the ability of lawyers to represent homeowners in foreclosure cases.  I don't think this was the intent of the law, but until the state clarifies how the law applies to homeowners' lawyers in bankruptcy and foreclosure defense cases, we may see a temporary shortage of lawyers willing to work in this field.  I hope that clarification will come soon.

Important steps forward for homeowners

Even with those concerns, Florida has passed a law that ought to take a real bite out of this state's foreclosure rescue fraud crisis.  It will make the scammers easier to identify and prosecute .  It provides additional penalties to deter scammers and additional tools for law enforcement to bring the scammers to justice and obtain compensation for vicitms.  Even with the potential drawbacks - which may include fewer legitimate operations willing to help in foreclosure cases - this bill may go a long way to curbing Florida's foreclosure rescue fraud crisis.

Foreclosure plaintiff submits faked assignment documents in Pasco case

Imagine you've been sued for foreclosure. Now, imagine the plaintiff submits, as evidence, a bunch of falsified documents to establish its right to foreclose.

That could never happen, right?

Wrong. It did, and Pasco Judge Lynn Tepper found out and would not stand for it, in U.S. Bank, N.A. v. Harpster (51-2007-CA-6684ES) [PDF]

In the Harpster case, the plaintiff, represented by the Law Office of David J. Stern, submitted to the court an "assignment of mortgage" which supposedly gave the plaintiff, U.S. Bank, the right to proceed with the foreclosure. Cheryl Samons (actually an employee of David Stern) signed the affidavit as the "Assistant Secretary" of MERS, and Terry Rice, a Florida Notary Public, notarized it.

All this supposedly happened on December 5, 2007. Only one problem - the notary's stamp said Terry Rice's commission expired on May 19, 2012. That stamp could not have been lawfully issued any time before May 19, 2008. So that assignment document wasn't really signed on December 5 of 2007 - unless our notary has discovered a way to travel in time.

Judge Tepper was none too pleased about the fraud. When informed by Tampa attorney Ralph Fisher, she not only threw out the fraudulent assignment documents, she dismissed the case "with prejudice" - meaning that U.S. Bank can never again file a foreclosure action against this defendant. It seems pretty likely, now, that the Harpsters are going to get to keep their house as long as they like.

Faked foreclosure filings by plaintiffs are all too common

Our firm has discovered that foreclosure plaintiffs file false documents all the time. Just last week, I was in a hearing before another judge, who told me a bout a case he had just discovered where two different banks tried to foreclose on the same note against the same defendant. Each plaintiff submitted a sworn affidavit claiming that it owned the note.

Who signed the affidavits for those two banks? The same person - an employee of the plaintiff's law firm, the Law Office of David J. Stern, P.A. Obviously, this judge was none too pleased, either. Surely, he's wondering how many forged documents have slid through in cases that he wasn't able to spot.

As my colleague Matt Weidner points out, these cases underscore a very important lesson for both defendants and their attorneys alike:

• Believe nothing.
• Challenge everything.
• And don't give up hope.

Congrats to attorney Fisher for a job well done.

Foreclosure lawyers may have a duty to set aside foreclosures that were based on robo-signed affidavits, under an ethics opinion recently approved by the Florida Bar. The opinion (below), produced by bar staff in January of this year, responds to a hypothetical question from an unknown lawyer.

The Surrogate Signer Hypothetical

Under the hypothetical fact-pattern presented to the Bar, foreclosure judgements would have been entered based on affidavits signed by one person, who relied on a "highly experienced and conscientious assistant" to verify that the facts in the affidavit were true. Alerting the court to the procedural defects in preparing the affidavits—they surely are defective—might "raise red flags" that could "lead to complicated and expensive litigation" for the bank; but in the opinion of the bank's lawyer, would not change the outcome of the foreclosure case. What, the lawyer asked, did he need to do to comply with his ethical obligation both to his client and to the court?

The Bar Responds: Confess Your Surrogate Signing Sins

The Bar opinion bluntly states:

The answer is the same regardless of whether the action is pending or judgment has been entered, whether there has been a sale or no sale as of yetâ... In the pending cases, if the client will consent to the affidavits being replaced, then the attorney may do so. The disclosure needs to be made to the court that the affidavit was improperly verified and notarized.

For cases that have already concluded, by judgment or sale, the lawyer has a continuing obligation to correct false evidence presented to the Court:

[W]hether the case is currently pending or already closed, if the client refuses to give consent to the attorney to disclose, then the attorney must make these disclosures him/herself, preferably in an in camera proceeding if possible. Disclosure should be made to the presiding judge that the affidavits were improperly verified and notarized, and guidance should be requested from the court.

What happens when a lawyer tells the court that his client has been manufacturing false evidence? It seems to me that the court has an obligation, if a foreclosure has been granted and a sale occurred, to at least re-open the case to determine whether the foreclosure judgment and sale should be set aside. In cases where judgments were entered on false evidence, I think every judge has, at a minimum, a duty to set aside the judgment, sanction the party who submitted the false evidence, and then allow borrowers to raise any defenses they might have, including those that arise from fraud on the court and unclean hands. (The latter defense means that a plaintiff who asks the court to foreclose—an equitable remedy—must come to the court free of trickery or deceit. Using false evidence to obtain a foreclosure by trickery or deceit may be a complete defense to foreclosure.

The Bar Ignores the Rights of Defendants in Foreclosure Cases

The final paragraphs of the opinion involve quite a bit of backpedaling when it comes to full disclosure. The lawyer must take steps to protect the confidential information received from the client, apparently even to the extent of not telling the defendant. (That's what in camera means—the judge reviews the information in chambers, outside the public view, and perhaps the defendant's.) So if you lost a home to foreclosure based on a false affidavit, the banks and their lawyers have no duty to inform you, unless the judge thinks it's proper to do so. The only way to know whether you've got a robo-signer is to figure out who signed or produced the affidavit in your case, and see if they're one of the well-known sources of false documents. If you have one of these, no matter how old, you might have grounds to fight your foreclosure even today.

PS: Robo-signing continues, anyway

And just in case you missed it, here's this week's news report that robo-signing is still going on, even today. Think the banks need more incentive to learn their lesson?

The Ethics Opinion

Florida Bar Ethics Opinion Jan. 11, 2011 Approved by the Fla. Bar's Professional Ethic's Committee June 24,...

If there was any doubt in your mind that banks have been forging evidence, put it to rest. According to the New York Post, an internal Wells Fargo manual has now leaked confirming the exact procedures Wells and its attorneys use to fabricate evidence in foreclosure cases—down to the computer codes they use to order production of falsified documents.

The manual itself is now spreading like wildfire, and I've got a copy of it here. [PDF]

The 150-plus-page document describes how Wells Fargo expects its attorneys to prepare and handle files in foreclosure cases. When Wells begins a foreclosure case, page 14 tells us what is supposed to happen:

Documents include the original note, recorded mortgage, title policy, and recorded and unrecorded assignments. Documents are sent to imaging so that at the time of referral they can be uploaded via VendorScape or Desktop to the Foreclosure Attorney.

In other words, the attorney should have a complete copy of the original note, as it exists at the time the foreclosure begins, before filing the foreclosure lawsuit. But not all cases go so smoothly. Sometimes the original note is missing. Sometimes the original note lacks an endorsement—the signature or stamp, like the signature on the back of a check, that transfers the note from one party to another. Sometimes the lawyers need to create an "allonge" to add a missing endorsement. Wells Fargo has a policy and procedure for each of these cases, and that's where the trouble starts.

Robo-Signing Lost Note Affidavits

The real meat begins on page 15. What happens if the original note never makes it to the attorney? They communicate that fact back to Wells Fargo through the "VendorScape" or "Desktop" system—basically, a fancy kind of instant-message and tracking system between the lawyers and their supposed clients:

Attorney: If after the third business day of the referral date you have not received the note, add log code NOTRRP in VendorScape or add the Note Not Received in Referral Package Issue in Desktop. This can be done by selecting Issues from the Tool Menu and selecting Add Issue.

Wells Fargo's document team then swings into action:

WFHM Default Docs Team: Research missing note:

• If note is found: complete the K64 step with the actual date the note was provided/sent to the Attorney. If the state does not require the original note, the document will be uploaded to LIV. Otherwise, send the note via mail and track for delivery.

• If note is not found: complete the K64 step, delete the N82 step, and add step N83, LOST NOTE AFFIDAVIT NEEDED. Only the Default Doc Team should be adding the N83 step to FOR3.

Wait: shouldn't they know if they have the original note before they begin foreclosure proceedings? (Hush friend, that's just a technicality.)

But again, there's more paperwork to be done. The attorney prepares a form affidavit, and then send it to Wells Fargo for signature. And then someone at Wells Fargo just signs the affidavit:

Attorney: Once the N83 step is placed on the loan, this will authorize your office to create and forward a lost note affidavit as described in the Lost Note Affidavits (LNA) process in this manual.

WFHM Default Docs Team: Once you receive, execute, and return the LNA to the Attorney, close the N83 step.

By the way, did you catch what doesn't happen in this loop? At After the attorney prepares the cookie-cutter affidavit using this form, Wells Fargo just signs it without making any investigation into whether the affidavit correctly states the facts of how the note was supposedly lost or what search for the note was done. In other words, more robo-signing. Haven't we been here before?

Manufactured Endorsements

So what happens when the attorney gets the original note, but it doesn't have an endorsement on it, the mark that legally transfers the note to the foreclosing bank? That's when, on page 17, things really get dicey:

Note Endorsement

**Please Note** This process is only to be used if your office has already received the note. If you have not received the note, follow process for requesting the note listed in the Missing Note Process section of this manual.

That last part is important—this process can only be used when the attorneys already have the original in their custody. Remember that.

Attorney: Enter step Z02 (Endorsed Note Needed) to the FOR3 screen (if a loan is in foreclosure) or the BNK3 screen (if a loan is in Bankruptcy).

WFHM Default Docs Team: Research needed endorsement.

If the blank endorsement is in the file for an original state [a state that requires filing the original note in a foreclosure proceeding, like Florida], execute the endorsement, send the original document to the attorney, and complete the Z02 step.

So once the attorney has the original note, if it's missing an endorsement, Wells Fargo employees "execute the endorsement" and then send it to the attorney—who already has the original note. This means that they aren't applying the endorsement to the note itself, but to a separate document which the attorney must apparently attach to the note later. This is legally insufficient to transfer the note, and creates a huge legal problem for every Wells Fargo foreclosure in Florida and other "original document" states. (For more on why this is a problem, the ambitious reader may want to take a look at Adams v. Madison Realty & Development, Inc., 853 F.2d 163, 164 (3d Cir.1988).)

Fortunately for borrowers, Wells Fargo will completely track this sequence of events in Desktop, on the FOR2 and FOR3 screens. A skilled attorney can obtain and decipher these documents, by paying particular attention for Z02 codes.

Fabricating Allonges

Wells Fargo fabricates allonges in very nearly the same way. (What is an allonge? The Adams case explains, but so do Florida cases Booker, Isaac, and Bohatka: "An allonge is "a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof." Some people joke that "allonge" is simply a French word meaning "fraud.")

Because the allonge is the piece of paper the endorsement is applied to, it has to be attached to the note at the time the endorsement is made. (Again, see Adams.) If not, it fails to transfer the note. So what happens in Wells Fargo's world?

Attorney: If an allonge is still needed after a note has been endorsed, forward the allonge attachment to Wells Fargo Default Docs area via email address Defaultallongemailbox@wellsfargo.com and add step Y44, ATTORNEY REQUESTED ALLONGE, to FOR3.

So what happens if the attorney needs an allonge but still has the original note? No problem! (Actually, big problem.) Wells just executes the allonge and then sends it back to the attorney who then attaches it to the note later.

WFHM Default Docs Team: If property is located in an original doc state and attorney has the original note, review the allonge attachment to determine if we have signing authority to execute internally.

• If WFHM does have signing authority, enter log code FCALGI (ALLONGE SENT FOR INTERNAL SIGNATURE)

• If WFHM does not have signing authority, enter log code FCALGE (ALLONGE SENT OUT FOR EXECUTION) and mail document for 3rd party signature.

• After allonge has been executed, enter log code FCALGA (ALLONGE COMPLETED/RETURNED TO ATTORNEY).

• Complete the Y44 actual date with the date allonge was returned to attorney.

This, simply put, means it is the policy and practice of Wells Fargo to manufacture evidence of standing. The good news for borrowers: a skilled attorney can review the FOR2 and FOR3 screens, and look at the dates of the N82 (NOTE SENT TO ATTY) and the Y44 (ALLONGE COMPLETED/RETURNED TO ATTORNEY) codes. That will tell the whole story.

What To Do If Wells Fargo Sues You

You can tell if you get sued by Wells Fargo. They will either be named as the plaintiff, or the complaint will be verified by a Wells Fargo employee. So if you get a lawsuit with Wells Fargo's filthy fingerprints all over it, find someone who knows how to obtain and read Wells Fargo's records—the very records that will expose the fraud. Give us a call at (888) 830-0830 or contact us online for an appointment.