A Guide to California Homeowners Defending Post-Foreclosure Evictions

24 Saturday Aug 2013

Posted by BNG in Affirmative Defenses, Federal Court, Foreclosure Defense, Judicial States, Landlord and Tenant, Non-Judicial States, Pro Se Litigation, State Court, Your Legal Rights

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Eviction, Foreclosure, HAP, Leasehold estate, Los Angeles, PTFA, Real estate, Sacramento

Elements of a Post-foreclosure Eviction
– Notice Requirements
– Compliance with CC 2924
– Present Right to Possession
Unlawful Detainer Litigation

Notice Requirements

Former Borrowers v. Tenants

– Former borrowers
3 days’ notice
– Tenants
90 days’ notice (in most cases)

Protecting Tenants at Foreclosure Act (Section 702)

– All bona fide tenants
Must be given at least 90 days’ notice
– Bona fide tenants with more than 90 days remaining on lease
Entitled to stay until the end of the lease, if lease entered into before “notice of foreclosure”

– EXCEPTION: lease may be terminated with a 90-day notice if purchaser will occupy unit as primary residence or if lease terminable at will under state law

Bona Fide Tenancy (PTFA)

A lease or tenancy is bona fide only if:
– Tenant is not the mortgagor or the mortgagor’s child, spouse, or parent; and
– Lease was the result of an arms length transaction; and
– Rent is not substantially less than fair market rent (unless the reduction is due to governmental subsidy)

HCV (Section 8) Tenants

– Section 8 tenants are deemed to be bona fide tenants. 74 Fed. Reg. 30108
– New owner takes title subject to both the Section 8 lease and the HAP contract

– EXCEPTION: Lease may be terminated with a 90 day notice if new owner will occupy unit as primary residence
– Any eviction notices must also be sent to the Housing Authority. 24 CFR 982.310(e)(2)(ii).

State Law Notice Requirements

CCP 1161b
– 60-day notice requirement for all tenants
– AB 2610 (effective 1/1/13):
– 90-day notice requirement for all tenants
– lease protections
– CCP 1161c
– Cover sheet requirement for post-foreclosure eviction notices

Service of Notice

Cal. law (CCP 1162):
– Personal service;
– Substitute service; or
– Posting and mail
– Does actual receipt cure service defects?
– Compare Valov v. Tank (1985) 168 CA3d 867 with Culver Ctr. Partners E #1 LP v. Baja Fresh Westlake Village, Inc. (2010) 185 CA4th 744

3/60/90 Day Notices

– Invalid? Alta Cmty. Invs. III v. Ottoboni, No. 1370195 (Cal. Super. Ct. July 29, 2010) (holding that 3/30/60/90 day notice is fatally ambiguous)

Post-FC Evictions in Just-Cause Jurisdictions

Just cause for eviction required
– Nonpayment of Rent
– 90-day notice required? PNMAC Mortg. v. Stanko, No. 11U04495, 2012 WL 845508 (Los Angeles, Cal. Super. Ct. Mar. 7, 2012) (yes)
– AB 1953 (effective 1/1/13):
– Cannot demand rent accrued before compliance with CC 1962
– Breach of Lease
– 90-day notice required?

Compliance with CC 2924

CCP 1161a

A person who holds over . . . may be removed therefrom as prescribed in this chapter:
– (3) Where the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.
“Title” issues may be litigated in post-foreclosure UDs
– Malkoskie v. Option One Mortg. Corp., 188 Cal. App. 4th 968 (2010)

Properly Conducted Sale

Trustee must have authority to conduct sale
– Wells Fargo Bank, N.A. v. Detelder-Collins, No. APP10000325 (Riverside Super. Ct. App. Div. Mar. 28, 2012) (UD judgment reversed because plaintiff failed to provide substitution of trustee to show that trustee had authority to conduct sale)
Sale void if conducted in breach of loan mod.
– Barroso v. Ocwen Loan Servicing, LLC, 208 Cal. App. 4th 1001 (2012) (permanent modification)

Failure to provide proper foreclosure notices
– JP Morgan Chase v. Callandra, No. 1371026 (Cal. Super. Ct., Santa Barbara Co. Oct. 21, 2010) (tenant may challenge foreclosure based on failure to post NTS)
– But tender/prejudice requirement for former homeowners

Right to Possession – Present Right to Possession

Expiration of Notice Period?
– Expiration of Bona Fide Lease?
– Must still satisfy 90-day notice requirement

UD Litigation – Unlawful Detainer Process

Service of Summons and Complaint
– Personal;
– Substitute; or
– Nail and mail with court approval (after reasonable diligence)
– Five days to answer
– Pre-answer motions:
– Delta motion to quash (prejudgment claimant?)
– Demurrer (defect must appear on face of complaint)
– Answer
– Summary Judgment
– Trial

60-Day “Curtain” (CCP 1161.2)

Limited civil UDs are masked for the first 60 days
– Unmasked after 60 days unless tenant prevails within the 60 days

Except for post-foreclosure cases
– Permanently masked unless plaintiff prevails against all defendants after trial within 60 days

Unnamed Occupants

“Doe” occupants
– Must intervene in case by filing prejudgment claim of right to possession within 10 days of service
– BUT see AB 2610 (effective 1/1/13):
– PJCRTP form may be filled out and presented at any time, even after judgment

Appeal

Notice of appeal – 30 days after notice of entry of judgment
– No automatic stay of the writ of possession
– Ask for stay
– Trial court
– Writ proceeding in appellate division
– Appeal bond
– Little case law for post-foreclosure UD issues
21

Hypo

Tom Tenant’s 3-BR home in Sacramento, CA was sold at foreclosure sale on October 1. Tom’s existing lease expires on November 1, 2013. Under this lease, he pays $1,600 in rent each month under the lease, but the surrounding homes rent for about $2,300 per month. On October 5, Ivan Investor, who purchased the property at the trustee sale, served Tom with a 60-day notice to quit. Is the notice correct?

– What if Tom was a Section 8 HCV tenant?
– Or if Tom lived in Oakland instead of Sacramento?

Homeowners who finds themselves in a situation where their lender is fraudulently trying to use cooked up documents to steal their most prized possessions “their homes”, needs to do whatever is necessary to stop these interlopers from stealing their homes. To do this, homeowners need to fight them to the finish in order to avoid the situation of change of status from “borrowers to tenants” as described above. Homeowners in wrongful foreclosures should do their best to reclaim what is rightfully theirs even if the lenders initially succeeded in foreclosing using fraudulent documents. It can reversed and dismissed by the courts through vigorous litigation, that’s where http://www.fightforeclosure.net comes in.

To learn how you can effectively use well structured (Pro Se “Self Representation”) litigation pleadings to effectively challenge and reclaim your status as a homeowner instead of a tenant, visit http://www.fightforeclosure.net

How Attorney Mistakes Can Result to Homeowners Losing their Homes in Wrongful Foreclosure Litigation.

23 Friday Aug 2013

Posted by BNG in Banks and Lenders, Case Laws, Case Study, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Law, Lawsuit, Medical malpractice, North Carolina, Services, Statute of Limitations, Tennessee, United States

One of the biggest mistakes we see in various court cases especially in wrongful foreclosure cases where homeowners who are represented by counsel is the failure by plaintiffs’ attorneys to file the complaint within the statutes of limitation period. Attorneys fail to file a claim within the appropriate statutes of limitation for numerous reasons. For example, lawyers often fail to determine the correct statute of limitation applicable to the claim. For instance to effectively bring a TILA lawsuit against your lender, it must be filed within “One Year”, of your mortgage closing otherwise the courts can only allow the cause of action based on whether your motion for equitable tolling is granted or not.

For wrongful foreclosure homeowners who hired Attorneys to represent them, do not assume that your Attorney knows the statutes of limitation period for every cause of action you intend to bring against your lender to save your home, because if your Attorney miss all major causes of action that would have disqualified your lender from stealing your home as a result of fraud, you may end up losing your home even if your lender is liable for other violations which may entitle you to a couple of thousands of dollars in compensation. Your goal is to save your home, so it is not a matter to be taken for granted because you paid your Attorneys big bucks to represent you.

Litigation attorneys are at a greater risk of malpractice claims than all other types of attorneys. Typically, errors arising out of litigation accounted for 35% to 40% of all claims reported. Clients who lose suits often point to a
perceived error by their attorney as the reason their suit was unsuccessful and seek a remedy against the attorney. The main causes of malpractice stem from missing deadlines, failing to calendar, failing to file, failing to
meet discovery obligations, inadequate trial preparation, inappropriate post-trial actions and improper withdrawal. The use of good docketing and tickler systems and the development of good client relations can significantly reduce malpractice risk

While Attorneys obviously need to be knowledgeable about the substantive issues in any lawsuit, some Attorneys does not take care to learn and follow the procedural rules of court.

Even experienced Attorneys do not know every procedural rule for every court in which they practice. Rather, they know where to find the particular procedural rules governing the litigation and make sure they follow them,
thereby reducing their exposure to malpractice actions.

This post, while not exhaustive, provides important tips to help homeowners who are being represented by Attorneys ensure that they are getting their money’s worth thereby avoid common pitfalls that usually
result in malpractice liability when Attorneys fails their clients. After all when you pay someone $5000-$10000 to save your home, you expect them to put their best foot forward. However, always remember that (YOU ARE YOUR OWN BEST ADVOCATED), as a Pro Se Litigant with http://www.fightforeclosure.net

The post highlights ten prominent points during the course of litigation where attorneys are prone to make mistakes, emphasizing specific
types of rules and procedures that are often overlooked. Armed with the information contained in this post, homeowners can help reduce the possibility of losing the homes as a result of negligence conduct of their hired lawyers which could possibly exposure the lawyers to malpractice liability.

THESE FOLLOWING AREAS ARE WHERE THE HOMEOWNERS SHOULD PAY CLOSE ATTENTION TO – THESE ARE WHERE ATTORNEYS USUALLY MAKE MISTAKES.

A GOOD DOCKETING SYSTEM

Attorneys risk malpractice claims when they correctly identify the expiration date of a claim but fail to file the complaint in a timely manner, allowing the claim to expire. One common pitfall is that the attorney or staff person
calendars the deadline in the attorney’s calendar, but the attorney fails to check the calendar, thus missing the date.

Homeowners should ensure that their lawyers can reduce their malpractice risk by diligently calendaring statutes of limitation deadlines and other deadlines that arise within their case. Everything that involves a time limit should be entered into the docket system and the system should generate several advance warnings of each deadline to be given to the attorney and support persons involved.

Although it is ultimately the lawyer’s responsibility to meet deadlines, unforeseen circumstances may prevent the lawyer from meeting a deadline. Homeowners should ensure that their case is assigned a backup lawyer or staff member who is responsible for bringing the deadline to the attention of the main attorney on the matter; or who is able to meet a filing deadline in the lawyer’s absence.

AVOID FILING AT THE LAST MINUTE

Malpractice suits for missing the statutes of limitation also arise when the lawyer and/or his office staff simply neglect to follow through and make sure the complaint is filed with the proper court on or before the deadline. A
variety of unforeseen problems may delay filings. For example, lawyers may sometimes assume that complaints sent by overnight mail will arrive in time and be processed by the court the next day. Similarly, office staff or third
parties hired to assist with the filing may make errors, such as filing the complaint with the wrong court, or missing a last minute deadline.

Such errors can be avoided by routinely filing complaints, motions and other documents in advance of the deadline. Filing at the last minute is a risky practice. Unexpected glitches are bound to occur from time to time. Filing ahead of time will give you breathing room to resolve the unforeseeable problems that might get in the way of filing before the limitation period expires.

KNOWING THE APPLICABLE LAW

DETERMINE THE CORRECT STATUTES OF LIMITATION FOR YOUR JURISDICTION

Attorneys often miss statutes of limitation deadlines when they incorrectly assume that the statutes of limitation runs after the same amount of time in different jurisdictions. For example, the statutes of limitation for a wrongful death claim in Tennessee runs in one-year. However, a North Carolina plaintiff ’s attorney handling a wrongful death suit arising in Tennessee might assume that North Carolina’s two-year statutes of limitation for a wrongful death claim applies in the situation. If the attorney files a claim after Tennessee’s expiration date but before North Carolina’s expiration date, the attorney missed the appropriate state’s deadline and could face a claim for malpractice.

PERFORM ADEQUATE RESEARCH AND INVESTIGATION

Nearly half of all malpractice claims arise from substantive errors. Examples include failure to learn or properly apply the law, and inadequate discovery or investigation. In addition to ascertaining all relevant statutes of limitation deadlines, it is important that homeowners ensure that their attorneys are familiar and comply with the law and standards of care in each applicable state.

One common type of malpractice claim resulting from inadequate knowledge of substantive law is in the area of personal injury claims arising out of automobile accidents. Such a claim arises, for example, where the client suffers personal injury in a wreck and there is a $25,000 limit on the defendant’s auto insurance. Since the client has $100,000 worth of damages, the defendant’s carrier readily issues a check for the policy limit of $25,000. The lawyer neglects to investigate whether any other coverage
exists. The client later learns he could have recovered an additional $75,000 from his own insurance policy that included uninsured/underinsured “UM/UIM” coverage. By then, however, it is too late because the client has
already signed a release of all claims against the tortfeasor. Since “[a]n underinsured [UIM] motorist carrier’s liability is derivative of the tortfeasor’s liability,” the UIM carrier may decline to provide any coverage. Liberty Mut. Ins. Co. v. Pennington, 141 N.C. App. 495, 499, 541 S.E.2d 503, 506
(2000), cert. granted, 353 N.C. 451, 548 S.E.2d 526 (2001); see also Spivey v. Lowery, 116 N.C. App. 124, 446 S.E.2d 835 (1994) (UIM carrier was not liable after plaintiff executed general release).

Experience lawyers in these areas and situations usually require have the client execute a limited release that protects the client’s right to recover UIM or UM benefi ts. For an example of a limited release that was upheld by the courts, review North Carolina Farm Bureau, Mut. Ins. Co. v. Bost, 126 N.C. App. 42, 483 S.E.2d 452, review denied, 347 N.C. 138, 492 S.E.2d 25 (1997). In other cases, the lawyer may fail to notify the UIM carrier of the
claim in a timely manner. If the client is unable to recover from his UIM carrier because of his lawyer’s neglect, he may have a claim for damages against the attorney.

In these cases that pertains to personal injury, the law requires the plaintiff to timely serve the summons and complaint on both the tortfeasor and the UM carrier prior to the expiration of the statutes of limitation. See N.C. Gen. Stat. § 20-279.21(b)(3); Thomas v. Washington, 136 N.C. App. 750, 525 S.E.2d 839, review denied, 352 N.C. 598, 545 S.E.2d 223 (2000). Failure to properly serve either the tortfeasor or the UM carrier may result in lost benefi ts for the client and a malpractice claim against the attorney.

These types of errors usually can be prevented through careful research and methodical procedures.

When dealing with wrongful foreclosure case, homeowners should stay abreast of new legal developments. Experts should be consulted, where needed.

PROVIDE ADEQUATE SUPERVISION OVER ASSIGNED TASKS

Malpractice concerns arise when lawyers fail to adequately supervise non-lawyers or junior associates. Lawyers can be held responsible for mistakes made by their employees. See e.g., Pincay v. Andrews, 367 F.3d 1087 (9th Cir. 2004) (Judge Kozinski’s dissent; holding attorney liable for a paralegal’s miscalculation). Such malpractice risk can be minimized
by providing adequate supervision and fostering an environment where questions and concerns can be freely raised. Staff should be carefully supervised as the attorney is ultimately the responsible party.

FILING THE COMPLAINT AND SERVICE OF PROCESS

After the proper statutes of limitation period has been properly identified and the complaint properly filed, other pitfalls await the unwary attorney. Attorneys commonly make mistakes in naming and serving the proper parties. Such defects can often be corrected. However, when a lawsuit is commenced at the eleventh hour (just before the statutes of limitation expires), as in most wrongful foreclosure cases, the attorney may not
have time to correct such flaws, and the client may suffer prejudicial harm as a result.

IDENTIFY AND NAME THE PROPER DEFENDANT

One of the most common mistakes attorneys make is that they fail to discover and identify the proper name of the corporate defendant whom the plaintiff seeks to sue. In a wrongful foreclosure case that involved securitization of mortgage loans, sometimes defendants mights be more than one. To avoid such errors, homeowners should ensure that their attorneys should make every effort to ascertain the defendant’s proper
corporate name either before filing the complaint or as soon as possible thereafter through discovery. A diligent effort should be made to determine all possible entities and persons who should be named as parties in the lawsuit. If situation involves foreign defendants, take special care in correctly naming and serving foreign defendants. Foreign service requirements, including Hague Convention requirements, may need to be followed.

SERVE ALL DEFENDANTS WITHIN STATUTORILY PRESCRIBED TIME LIMITATIONS.

Attorneys who commit errors in timely serving a complaint and summons on a defendant may also face malpractice liability.

Attorneys must serve a defendant with a complaint and summons within the statutorily required time limitations. These limitations vary according
to jurisdiction. For instance, an attorney must serve a defendant to a lawsuit in federal court within 120 days of the fi ling of the complaint. Fed. R. Civ. P. 4(m). However, a defendant in a lawsuit in North Carolina State court must be served in most cases within 60 days after the date of the
issuance of the summons. N.C. Gen. Stat. § 1A-1, Rule 4(c).

Attorneys who fail to perfect service upon a defendant within the statutory expiration period may request an extension of time for service of process. A federal court will grant an extension only if the attorney provides good
cause for the delay in service. Fed. R. Civ. P. 4(m). On the other hand, a North Carolina court will issue an alias or pluries summons to extend the time period for service upon request, provided certain guidelines are met. N.C. Gen. Stat. § 1A-1, Rule 4(d)(2). Thus, an attorney may be vulnerable to malpractice claims for failing to follow the rules of the particular court in which the case is being litigated. For instance, attorneys may request an alias or pluries summons “at any time within 90 days after the date of issue of the last preceding summons in the chain of summonses.” Id. Provided that the request is not made in “violations of the letter or spirit of the rules for the purpose of delay or obtaining an unfair advantage,” an attorney may request numerous alias or pluries summonses and extend the service deadline for a lengthy period of time without committing malpractice. Smith v. Quinn, 324 N.C. 316, 319, 378 S.E.2d 28 (1989). However, an attorney who does not request an alias or pluries summons within the 90 day time period invalidates the old summons and begins a new action. See CBP Resources v. Ingredient Resource Corp., 954 F. Supp. 1106, 1110 (M.D.N.C. 1996). An attorney risks malpractice liability if the statutes of limitation runs before the alias or pluries summons is issued in such a situation.

In addition, an attorney must refer to the original summons in an alias or pluries summons or else the alias or pluries summons is invalid. Integon Gen. Ins. Co. v. Martin, 127 N.C. App. 440, 441, 490 S.E.2d 242 (1997).

In addition, the attorney may encounter the situation where he is unable to serve the defendant with the summons and complaint because the defendant has died. To complicate matters further, the statutes of limitation
has expired. Homeowners should ensure that their Attorneys consult the statutes for their respective Jurisdictions. This statute will help the lawyer resolve the issue and save the homeowners cause of action.

KEEP THE SUMMONS ALIVE OR ENTER INTO ENFORCEABLE TOLLING AGREEMENTS WITHIN THE STATUTES OF LIMITATION WHILE ENGAGING IN SETTLEMENT DISCUSSIONS.

It is often in the client’s best interest to pursue settlement before spending the time and money involved to file or serve a complaint. However, in the instants where the Banks are not willing to work with homeowners, but where rather interested in stealing the homes through wrongful foreclosure, homeowners are left with little options but to pursue the litigation with their Attorneys or Pro Se, in order to save their homes.

In such cases, it is important that the homeowner let their Counsels know that it is crucial to keep the required summons alive and/or enter into an enforceable tolling agreement with the opposing party. Such tolling agreements must be executed before the statutes of limitation passes. Regardless of how close the parties may be to settlement, the Attorneys should not let the statutes of limitation pass without invoking proper protections for the homeowners.

For More Information How You Can Aggressively Defend Your Wrongful Foreclosure on Your Own “Pro Se”, thereby Avoiding These Costly Attorney Mistakes That Can Potentially Cost You the Most Valuable Investment You Have Ever Made which is “Your Home – The American Dream” Visit http://www.fightforeclosure.net (You Are Your Own Best Advocate!)

California Broker Receives 10-Year Prison Sentence for Mortgage Fraud

18 Sunday Aug 2013

Posted by BNG in Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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California, Federal Bureau of Investigation, Foreclosure, Justice Department, Mortgage fraud, Real estate, Special agent, United States Department of Justice

In California, a real estate broker out of Elk Grove was sentenced to 10 years in prison for her role in a mortgage fraud scheme that led to more than $5.5 million in losses, the Justice Department announced in a statement.

Hoda Samuel, 62, owned and operated Liberty Real Estate & Investment Company and Liberty Mortgage Company.

Out of 30 fraudulent sales transactions that occurred between April 2006 and February 2007, Samuel serve as the real estate agent for the buyer in 29 of the home sales, according to the statement. All the properties involved in the transactions went into foreclosure.

The transactions included false statements pertaining to income, employment, and rental history. To back the fabricated information, false documents were created and presented to lenders, and people were paid to answer calls from lenders and affirm the false statements.

Samuel also exaggerated the value of the collateral securing the loans, often exceeding the actual asking prices by $15,000 to $40,000. Repairs and costs for disability access modifications were also included in the prices, but were rarely done. According to the statement, at times, children of buyers were named as building contractors so money could go to the buyers.

“Greed-based crimes such as these can undermine the stability of our financial institutions and the economy, resulting in devastating consequences for homeowners, businesses and the communities in which the properties are located,” said special agent in charge Monica M. Miller of the Sacramento division of the FBI.

For More Information How to Save Your Home From Foreclosure as a Result of Mortgage Fraud Like this Visit http://www.fightforeclosure.net

What Homeowners in Foreclosure Defense Needs to Know About the Issues of “Standing vs. Capacity to Sue”

18 Sunday Aug 2013

Posted by BNG in Affirmative Defenses, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Court, Lawsuit, Mastropaolo, Motion (legal), New York, Plaintiff, Wells Fargo, Wells Fargo Bank

Homeowners in Judicial foreclosure states need to realize that Banks claim of ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove

The term “standing” has been applied by the courts to two legally distinct concepts. The first is legal capacity, or authority to sue. The second is whether a party has asserted a sufficient interest in the outcome of a dispute.

Standing and capacity to sue are related, but distinguishable legal concepts. Capacity requires an inquiry into the litigant’s status, i.e., its “power to appear and bring its grievance before the court”, while standing requires an inquiry into whether the litigant has “an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue.”

Wells Fargo Bank Minnesota, Nat. Ass’n v Mastropaolo, 42 AD3d239, 242 (2d Dept 2007) (internal citations omitted). Both concepts can result in dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner.

In some Jurisdictions such as New York, an action may be dismissed based on the grounds that the Plaintiff lacks the legal capacity to sue. CPLR 3211(a)(3) It governs no other basis for dismissal. CPLR 3211(e) provides that a motion to dismiss pursuant to CPLR 3211(a)(3) is waived if not raised in a pre-answer motion or a responsive pleading.

Many decisions treat the question of whether the Plaintiff in a foreclosure action owns the note and mortgage as if it were a question of standing and governed by CPLR 3211(e).

Citigroup Global Markets Realty Corp. v. Randolph Bowling , 25 Misc 3d 1244(A), 906 N.Y.S.2d 778 (Sup. Ct. Kings Cty 2009); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d546, 546—547 (2d Dept 2003);
Nat’l Mtge. Consultants v. Elizaitis, 23 AD3d 630, 631 (2dDept 2005);
Wells Fargo Bank, N.A. v. Marchione, 2009 NY Slip Op 7624, (2d Dept 2009)

There is a difference between the capacity to sue which gives the right to come into court, and possession of a cause of action which gives the right to relief. Kittinger v Churchill Evangelistic Assn Inc., 239 AD 253, 267 NYS 719 (4th Dept 1933). Incapacity to sue is not the same as insufficiency of facts to sue upon. Ward v Petri, 157 NY3d 301 (1898)

In the case of Ohlstein v Hillcrest, a defendant moved to dismiss a complaint in part based on lack of legal capacity to sue where plaintiff had assigned her stock. The Court denied that branch of the motion holding that even if plaintiff had assigned her stock, “the defect to be urged is that the complaint does not estate [sic] a cause of action in favor of the one who is suing, the alleged assignor – not that the plaintiff does not have the legal capacityto sue. Legal incapacity, as properly understood, generally envisages a defect in legal status,not lack of a cause of action in one who is sui juris.” Ohlstein v Hillcrest, 24 Misc 2d 212,214, 195 NYS2d 920, 922 (Sup Ct NY Co 1959).

The difference was articulated by the Court in the case of Hebrew Home for Orphans v Freund, 208 Misc. 658, 144 N.Y.S.2d 608 (Sup Ct Bx 1955). The plaintiff in that case sought a judgment declaring that an assignment of a mortgage it held was valid. The defendants moved to dismiss the complaint on the grounds that since the assignment was not accompanied by delivery of the bond and mortgage to plaintiff, plaintiff did not own the bond and mortgage and thus had no legal capacity to sue or standing to maintain the action. The Court denied the motion, stating:

The application to dismiss the complaint on the alleged ground that the plaintiff lacks legal capacity to sue rests upon a misapprehension of the meaning of the term. See Gargiulo v.Gargiulo, 207 Misc. 427, 137 N.Y.S.2d 886. Rule 107(2) of the Rules of Civil Practice relates to a plaintiff’s right to come into Court, and not to his possessing a cause of action. Idat 660-661, 610.

The Court then quotes Kittinger v Churchill for the principle that,

“The provision for dismissal of the complaint where the plaintiff has not the capacity to sue (Rules of Civil Practice, rules 106, 107) has reference to some legal disability, such as infancy, or lunacy, or want of title in the plaintiff to the character in which he sues. There is a difference between capacity to sue, which gives the right to come into court, and possession of a cause of action, which gives the right to relief in court.
Ward v. Petrie, 157 NY 301, 51 N.E. 1002; Bank of Havana v. Magee,
20 NY 355; Ullman v. Cameron, 186 NY 339, 78 N.E.1074. The plaintiff is an individual suing as such. He is under no disability, and sues in norepresentative capacity. He is entitled to bring his suits before the court, and to cause a summons to be issued, the service of which upon the defendants brings the defendants in to court. There is no lack of capacity to sue.

The other meaning of standing involves whether the party bringing the suit has a sufficient interest in the dispute. Some cases have held that in this context, standing is jurisdictional, reasoning that where there is no aggrieved party, there is no genuine controversy, and where there is no genuine controversy, there is no subject matter jurisdiction.
Stark v Goldberg, 297 AD2d 203, 204(1st Dept 2002); xelrod v New York StateTeachers’ Retirement Sys., 154 AD2d 827, 828 (3rd Dept 1989).

Some courts have held that the jurisdiction of the court to hear the controversy is not affected by whether the party pursuing the action is, in fact, a proper party.They have held that if not raised in the answer or pre-answer motion to dismiss, the defense that the a party lacks standing is waived. Wells Fargo Bank Minnesota, Nat. Ass’n v. Perez,70 AD3d 817, 818, 894 N.Y.S.2d 509, 510 (2nd Dept 2010), Countrywide Home Loans, Inc.v. Delphonse, 64 AD3d 624, 625, 883 N.Y.S.2d 135 (2nd Dept 2009),
HSBC Bank, USA v. Dammond, 59 AD3d 679, 680, 875 N.Y.S.2d 490 (2nd Dept 2009)

The issue of whether a Plaintiff owns the mortgage and note is a different question from whether it has an interest in the dispute. Whether a party has a sufficient interest in the dispute is determined by the facts alleged in the complaint, not whether Plaintiff can prove the allegations.
Wall St. Associates v. Brodsky, 257 AD2d 526, 684 N.Y.S.2d 244 (1st Dept1999), Kempf v. Magida, 37 AD3d 763, 764, 832 N.Y.S.2d 47, 49 (2nd Dept 2007). For the purpose of determining whether a party has sufficient interest in the case the allegations areassumed to be true.

It is important to note that This issue is not analogous to the issue of whether citizens have standing to seek judicial intervention in response to what they believe to be governmental actions which would impair the rights of members of society, or a particular group of citizens, (e.g. Schulz v. State, 81 NY2d 336, 343, 615 N.E.2d 953, 954 (1993), or whether registered voters have standing to challenge the denial of the right to vote in a referendum pursuant to Section 11 of Article VII of the State Constitution, or whether commercial fishermen have standing to complain of the pollution of the waters from which they derive their living, see also Leo v. Gen. Elec. Co., 145 AD2d 291, 294, 538 N.Y.S.2d 844, 847 (2nd Dept 1989). The issue of standing in these types of cases turn on whether the claimants have an interest sufficiently distinct from societyin general.

Foreclosure actions implicate a concrete interest specific to a plaintiff, and the determination must be made as to whether it has been aggrieved and is therefore entitled to receive monetary damages for the alleged breach of the law.

Therefore homeowners needs to realize that when Banks pled that it owns the note and mortgage and asserts the right to foreclose on the mortgage which it asserts is in default. If it is successful in proving its claims, then usually it is entitled to receive the proceeds of the sale of the mortgaged property. Homeowners should understand that the objection that the Plaintiff in fact does not own the note and mortgage is not a defense based on a lack of standing. Courts will usually claim homeowners “does not say” (insufficient facts were alleged). But that the homeowner’s argument is that the facts alleged are not true. It is not a question of whether the Bank has alleged a sufficient interest in the dispute, but of whether the Bank can prove its prima facie case.

In Judicial States where the Banks are the plaintiff; unlike standing, denial of the Plaintiff’s claim that it owns the note and mortgage is not an affirmative defense because it is usually a denial of an allegation in the complaint that is an element of the Plaintiff’s cause of action.

In a Judicial foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., 80AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba , 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).

However, it is usually not enough for the Defendant (Homeowner) to filed a pro se “answer” containing a “general denial”, which is a denial of all of “Plaintiff’s allegations”.

In Hoffstaedter v. Lichtenstein , 203 App.Div. 494, 496, 196 N.Y.S. 577 (1st Dept 1922),the First Department held that the general denial put the allegations in the plaintiff’scomplaint in issue. In that case, the defendant executed a note in favor of the plaintiff as a promise to pay for certain goods. When plaintiff brought an action to recover on the note, the defendant answered with a general denial. It went on to state that “[i]t is elementary that under a general denial a defendant may disprove any fact which the plaintiff is required to prove to establish a prima facie cause of action.” Id., at 578.

The Court of Appeals cited Hoffstaedter v. Lichtenstein in holding that a general denial puts in issue those matters already pled.
Munson v. New York Seed Imp. Co-op., Inc., 64 NY2d 985, 987, 478 N.E.2d 180, 181 (1985).The general denials contained in the answer enable defendant to controvert the facts upon which the plaintiff bases her right to recover. Strook Plush Company v. Talcott, 129 AD 14, 113 NYS 214 (2nd Dept 1908). A generaldenial is sufficient to challenge all of the allegations in a complaint. Bodine v. White , 98 NYS232, 233 (App. Term 1906).The Second Department in Gulati v. Gulati, 60 AD3d 810, 811-12, 876 N.Y.S.2d 430, 432-33 (2nd Dept 2009), held it was that where a claim would not take the plaintiff by surprise and “does not raise issues of fact not appearing on the face of the complaint”, a denial of the allegations in the plaintiff’s complaint was sufficient. It heldthat where the plaintiff alleged as an element of her prima facie case that the defendant abandoned the marital residence without cause or provocation, and the defendant denied these allegations in his answer, defendant did not need to further allege abandonment as an affirmative defense

The Fourth Department in Stevens v. N. Lights Associates, 229 AD2d 1001, 645 N.Y.S.2d 193, 194 (4th Dept 1996), found that a denial by defendant that it was in control of the premises where plaintiff fell did not need to be separately pled as a defense, as the denialof control did not raise any issue of fact which had not already been pled in the complaint.See also
Scully v. Wolff, 56 Misc. 468, 107 N.Y.S. 181 (App. Term 1907), Bodine v. White,98 N.Y.S. 232 (App. Term 1906).

In this case, Defendant’s contesting Plaintiff’s claim in the complaint that it owns the note and mortgage could not take the Plaintiff by surprise as a general denial contests Plaintiff’s factual allegations in the complaint itself, and does not rely upon extrinsic facts. Since ownership of the note was pled in the complaint and is an element of the Plaintiff’s cause of action, Defendant did not waive the defense that Plaintiff did not own the note, because he made a general denial to the factual allegations contained in the complaint.

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer.

In jurisdictions such as New York, CPLR 3018(b) provides that an affirmative defense is any matter “which if not pleaded would be likely to take the adverse party by surprise” or “would raise issues of fact not appearing on the face of a prior pleading”.

CPLR 3018(b) also lists some common affirmative defenses, although the list is not exhaustive. The list of affirmative defenses in CPLR 3018(b) are those which raise issues such as res judicata or statute of limitations which are based on facts not previously alleged in the pleadings.

“The defendant has the burden of proof of affirmative defenses, which in effect assume the truth of the allegations of the complaint and present new matter in avoidance thereof.” 57 NY Jur. 2d Evidence and Witnesses 165″.

To survive motion to dismiss or Summary Judgement, it is important that Pro Se Homeowners using “Standing” as a foreclosure defense also review their PSA in order to include missing or lack of assignments.

This defense will be based on “Conveyance from the Depositor to the Trust”.

Homeowners arguments under these defense will be based that the Trustee violated the terms of the trust by acquiring the note directly from the sponsor’s successor in interest rather than from the Depositor, for instance ABC, as required by the PSA.

In Article II, section 2.01 Conveyance of Mortgage Loans, the PSA requires that the Depositor deliver and deposit with the Trustee the original note, the original mortgage and an original assignment . The Trustee is then obligated to provide to the Depositor an acknowledgment of receipt of the assets before the closing date. PSA Article II, Section 2.01.

The rationale behind this requirement is to provide at least two intermediate levels of transfer to ensure the assets are protected from the possible bankruptcy by the originator which permits the security to be provided with the rating required for the securitization to be saleable.
Deconstructing the Black Magic of Securitized Trusts, Roy D. Oppenheim Jacquelyn K. Trask-Rahn 41 Stetson L. Rev. 745 Stetson Law Review (Spring 2012).

So to further the arguement, homeowners should argue that the assignment of the note and mortgage from original lender to Trustee which is called (A-D), rather than from the Depositor ABC violates section 2.01 of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.

In most cases, “if homeowner’s pleadings are in order”, meaning (The evidence submitted by homeowner that the note was acquired after the closing date and that assignment was not made by the Depositor), is sufficient to raise questions of fact in the court as to whether the Bank owns the note and mortgage, and usually will Deny motion to Dismiss(in non-juidical States) or preclude granting Bank’s summary judgment (in Judicial States).

The courts will usually find and conclude that the assignment of the homeowner’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.

For More Info How You Can Use Well Structured Pleadings Containing Facts and Case Laws Necessary To Win Your Foreclosure Defense Visit: http://www.fightforeclosure.net

How Homeowners in Wrongful Foreclosure Can Identify Faulty Documents or If They Have Been Victims of Foreclosure Fraud

17 Saturday Aug 2013

Posted by BNG in Affirmative Defenses, Federal Court, Foreclosure Defense, Fraud, Judicial States, Loan Modification, MERS, Non-Judicial States, Note - Deed of Trust - Mortgage, Your Legal Rights

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1. Any document signed by an officer of MERS. MERS states at http://www.mersinc.org that:
Employees of the servicer will be certifying officers of MERS. This means they are authorized to sign any necessary documents as an officer of MERS. The certifying officer is granted this power by a corporate resolution from MERS. In other words, the same individual that signs the documents for the servicer will continue to sign the documents, but now as an officer of MERS. MERS Consent to Cease and Desist Order by the Comptroller of the Currency (OCC)

3. The signor of the document states that they are acting “solely as nominee” for some other party.
4. The document was notarized in Dakota County, Minnesota
5. The document was notarized in Hinnepin County, Minnesota
6. The document was notarized in Duval County, Florida
7. The document was notarized in Palm Beach County, Florida
8. The document was notarized in Pinellas CountyFlorida
9. The document was notarized in San Diego County, CA
10. The document was notarized in Fulton County, GA
11. The document was notarized in Polk County, IA
12. The document was notarized in Travis County, Texas
13. The document was notarized in Harris County, Texas
14. The document was notarized in Salt Lake County, Utah
15. The document was execute the same day it was filed with the Court
16. The party who signed the document executed it as “an authorized agent” for the servicer or the Plaintiff.
17. The party who signed the document executed it as “an attorney in fact” for the servicer or the Plaintiff.
18. The name of the signing party is stamped on the documents in block letters.
19. The name of the servicer or Plaintiff is stamped on the document in block letters.
20. The document appears to be a standard form with “fill-in-the-blanks” for the names of the signors and entities.
21. The paragraph numbers are not consistent (for example the first page may end with paragraph 7 and the second page may start with paragraph 10)
22. The party who signed the document and the notary are the same person.
23. You cannot read the signature of the signor and the name is not printed out on the document. (some people refer to these a “squiggle marks”) The bottom line is you cannot decipher any name or word on the document.
24. The signature on the document consists of one loop in the shape of an “S” or something that looks like an “8”.
25. The date of the signature and the date of the notarization are not the same.
26. The same “officer” or Vice President” of a mortgage company or lender is also the “Vice President” or “officer” of many other entities or lenders in the chain of assignments or endorsements.
27. The same “officer” or “ Vice President” of a lender signing the documents is located in various cities throughout the United States.
28. The document includes numerous pre-stamped names and signatures.
29. The document includes a second page or last page notarization that does not conform in type font, style, format, texture, age, from the primary pages of the document.
30. Backdating effective dates on assignments.
31. Signatures of officers are dated years after an entity has been out of business, merged with another company or filed for bankruptcy.
32. The party who signed the document executed it as a representative of the servicer.
33. The notary failed to attach a notarial seal.
34. The notary failed to sign the notarization.
35. The name of the party appearing before the notary is blank.
36. The name of the party appearing before the notary is block stamped.
37. The endorsement is not at the foot of the note, but on a separate page or allonge to the note. (if there is room at the foot of the note, the endorsement must appear there. An allonge may only be used if there is insufficient room at the foot of the note for the endorsement)
38. The document purports to assign the mortgage or the deed of trust from the originator directly to the trust.
39. The document that purports to assign the mortgage of deed of trust to the Trust is dated BEFORE the Trust was registered with the SEC.
40. The document that purports to assign the mortgage of deed of trust to the Trust was signed AFTER the cut-off date for the transfer of all such to the Trust pursuant to the Pooling and Servicing Agreement.
41. The origination date on the mortgage note is not within the origination and cut-off dates provided for by the terms of the Pooling and Servicing Agreement.
42. The mortgage note is assigned rather than endorsed from Party “A” to Party “B” or from any party to another party or entity.
43. The mortgage note is endorsed from the originator to the securitized Trust.
44. The mortgage note is endorsed from the originator to the current mortgage servicer.
45. The mortgage note is endorsed from the originator to the depositor for the securitized trust.
46. The affidavit is a “Lost Note Affidavit” filed by the mortgage servicer.
47. The affidavit is a “Lost Note Affidavit” filed by the Trustee for the securitized Trust and claims they never received the original Note. ( You can only file a lost note affidavit under the UCC if you possessed the Note before it was lost)
48. The assignment of mortgage or deed of trust was filed or signed after the filing of the bankruptcy case.
49. The assignment of mortgage or deed of trust was filed or signed after the foreclosure proceeding began/was filed.
50. The assignment of mortgage or deed of trust was filed or signed after the filing of the Motion for Relief from Stay in Bankruptcy Court.
51. The affidavit was signed by an employee MR Default Servicers or has the MR Default Servicers information on the document as an identification number.
52. The affidavit was signed by an employee Promiss Solutions or has the Promiss Solutions information on the document as an identification number.
53. The affidavit was signed by an employee NDEx Technologies, LLC or has the NDEx information on the document as an identification number.
54. The affidavit was signed by the same attorney that signed the foreclosure complaint.
55. The affidavit was filed by an employee of the attorney that filed the foreclosure complaint.
63. The return address on the Assignment or affidavit is to a third party provider, such as Financial Dimensions, Inc, FANDO or FNFS.
64. The transferor and the transferee have the exact same physical address including the same street and/or P.O. box numbers.
65. The document bears the image: “This is not a certified copy”
66. The document refers to a Power of Attorney, but no such document is attached or filed and recorded.

Why Homeowners In Foreclosure Proceedings May Need To Remove Their Cases To Federal Courts

15 Thursday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, Trial Strategies

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California, Federal Rules of Civil Procedure, Lawsuit, State Courts, Supreme Court of United States, United States, United States district court, United States federal courts

A Guide To Removing Cases To Federal Courts

REMOVING CASES TO FEDERAL COURT – A CHECKLIST

Defendants in consumer foreclosure or finance cases regularly “remove” cases filed against them in state court to federal court. This post discusses the process of removal, including the factors defendants should consider before deciding to remove a case to federal court. It sets forth a step by step “checklist” for defendants who decide they would prefer federal court to state court.

What is removal?
Removal is the process of transferring a case from state court to federal court. It is provided for by federal statute. 28 U.S.C. §§ 1441-1453; Fed. R. Civ. Pro. 81(c). State courts have no role to play in determining whether a case is removed or not – a defendant can remove a case if it elects to do so and the case could have been filed in federal court in the first place (with
some exceptions).

Once a case has been removed from state to federal court, the state court no longer has jurisdiction over the matter, though a federal court can remand a case to state court. A federal judge can remand a case without any request by the plaintiff if the judge does not believe federal
jurisdiction has been properly established by the defendant. A plaintiff can also move to have the case remanded to state court if the plaintiff does not believe federal jurisdiction exists. In some cases, where the basis for removal is “federal question” jurisdiction (where a claim is based
on federal law) and that claim is later dismissed, leaving only state law claims, a judge may decline to exercise jurisdiction over the remaining state law claims, and they can be re-filed in state court. However, in general once case has been removed to federal court it stays there until fully resolved.
Note that only a defendant can remove a case to federal court. The theory is that if a plaintiff files a case in state court, he, she, or it selected that forum and cannot change to federal court. In the context of mortgage servicing litigation, this can prevent removal of a borrower’s claims raised as counterclaims in a foreclosure initiated by the servicer in state court.

Why remove cases to federal court?

There are a number of reasons mortgage servicers frequently remove cases to federal court.
• Federal judges are generally more experienced with the types of cases servicers typically face (i.e., consumer finance-related matters)

• Better developed case law (a federal district court is bound by the decisions of the circuit court of appeals in which the district court is located, and the opinions of other district court judges are published – state court judges are not bound by federal court decisions and state trial court opinions are generally not published)

• More consistent – and thus predictable – treatment in federal court

• Generally better judges in federal court. This is highly variable, however. There are many, many very fine judges in state court, and there are some terrible judges in federal court. Every situation must be evaluated based on the particular judge assigned to the case in state court and the possible judge assignments in federal court.

• Usually cases move faster in federal court than in state court. The amount of time that passes between the initiation of a case and its resolution is one of the biggest factors in the overall cost of litigation – both in terms of the direct expenses of litigation and the cost of business interruption – so resolving cases quicker will generally result in lower overall litigation cost.

• Familiarity with the Federal Rules of Civil Procedure and certainty regarding expectations and obligations, which can vary in state court

• In cases that may go to trial, the jury pool may be more favorable in federal court than in state court. Usually a federal district is broader and covers a wider demographic than a state court jury pool. This can be beneficial or detrimental depending on the particular circumstances.

• In class action litigation, the availability of interlocutory review of class
certification orders.

Step 1:
Do you really want to remove?

Although we typically advise clients to remove cases from state to federal court whenever possible, the particular circumstances of each case must be considered before making a final decision. There are situations in which a defendant will be better off in state court than federal court.

For example, your case may be assigned to a particularly favorable state court judge. If you or your counsel know that judge to be fair or to have rendered favorable decisions on key issues in the past, you will likely want to remain in that forum rather than taking your chances with an unknown federal judge. If you do not have prior experience with the judge to whom the case has been assigned in state court, obtain input from attorneys who have experience with that judge. You or your counsel should also research the state court judge’s track record. Are there published appellate opinions related to that judge’s decisions? Does that judge have any experience with the type of case you have assigned to the judge, and if so, how has he or she handled those kinds of cases in the past?

You should always get basic biographical information for the state court judge to whom you have been assigned before making a decision to remove a case from that judge’s courtroom.
There are many sources for such information, including bar association surveys, local legal newspaper guides (for example, the California Daily Journal volume of “Judicial Profiles” is an excellent resource for information about California judges) and third-party websites such as “The
Robing Room” (www.therobingroom.com).

When a case is removed to federal court, it is randomly assigned to a federal district court judge and/or magistrate judge. There is no way to know in advance what judge the case will be assigned to upon removal. Therefore, a removing defendant is always taking a risk that the
federal judge assigned to the case will be less favorable than the state court judge it was assigned to. However, the risk can be calculated to a degree. Certain federal judicial districts have judges with better reputations than others. If you are in a district that only has a couple of judges and
they have poor reputations in the kind of case you are facing, you are less likely to remove. If you are in a jurisdiction with more judges, or a very high ratio of favorable to unfavorable federal judges, you are more likely to remove. There are no jurisdictions, however, in which the federal judges are all excellent nor are there any where the judges are all poor. Every jurisdiction has some judges that are very good and every jurisdiction has judges that are not so good.

Ultimately, whether you should remove the case to federal court requires the exercise of judgment and a balancing of the risks, but ultimately whether you get a “better” judge in federal court than state court will come down to a certain degree of luck.

If the case you are considering removing arguably relates to another case or cases pending in the same jurisdiction you are removing to, you may be able to seek to have the case you are removing transferred to that judge or consolidated with those cases. Similarly, if the case is a re-filed action (or an action that is related in some way to an earlier case), you may be
able to have the case assigned to the judge who heard the earlier case. Forum or “judge” shopping is frowned upon, but if there are efficiencies to be gained by having a particular case assigned to a particular judge, judges are amenable to such transfers.

Finally, you need to take into account the published decisions involving the issues you are facing in the case. If the federal court has a number of negative opinions, or there is negative authority from the U.S. Court of Appeals that includes the district court you would remove your case to, you will probably prefer to stay in state court. Conversely, if the state court authority is negative (or non-existent) and the federal court authority is more positive, you will likely want to get your case into the federal court if you can.

Step 2:
Determine whether there is federal jurisdiction.

In order to remove a case to federal court, the federal court must have subject matter jurisdiction over the matter. If there is no federal jurisdiction, the case cannot be removed.

Generally speaking, a case can be removed to federal court if it could have been filed in federal court by the plaintiff. In many cases both state and federal courts may have subject matter jurisdiction over a particular matter, and the plaintiff has his or her choice of which court to present the claim to. Plaintiffs generally prefer state courts for all the same reasons defendants
generally prefer federal courts. They believe the state court forum offers them leverage in settlement discussions and a more favorable forum for resolution of their claims.

Federal subject matter jurisdiction generally comes in two different varieties: Federal Question Jurisdiction and Diversity Jurisdiction. Diversity jurisdiction is now broken into two subsets – “standard” diversity jurisdiction and “CAFA” jurisdiction in putative class action
cases.

Federal Question Jurisdiction

Federal question jurisdiction exists when a claim arises pursuant to a federal law. For example, if a plaintiff alleges a claim pursuant to the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, etc., the case presents a “federal question” and can be removed to federal court. In addition,
certain state claims that present a “substantial federal question” can also be removed on the basis of federal question jurisdiction. For example, a state consumer fraud claim that contends that a defendant violated the state statute by acting “unlawfully,” where the “unlawful” conduct is
alleged to be a violation of a federal statute, may present a federal question even though the claim is actually brought pursuant to state law. Also, certain state court claims are pre-empted by federal law, and thus present federal questions.

28 U.S.C. § 1331
The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.

Supplemental Jurisdiction

When a case containing claims that present federal questions and claims that do not present federal questions, the federal court has what is called “supplemental jurisdiction” to hear the non-federal claims. However, if the court dismisses the federal claims, it has discretion to either retain the state claims or remand them to state court. You should beware that in some
courts, judges regularly refuse to exercise supplemental jurisdiction over state claims if the federal claims are dismissed. This results in the state claims being dismissed without prejudice – i.e., the plaintiff can simply re-file them in state court. Thus, in cases where there is a significant likelihood that the claims presenting federal questions will be dismissed but it is less certain whether the state claims will be dismissed, you should anticipate that the state claims may wind up back in state court notwithstanding the removal. Your overall goals for the litigation should be considered when deciding whether to remove if there are both federal and non-federal claims
presented. If you believe the case will be settled quickly or your goal is to resolve the litigation by way of a motion as quickly as possible, you may elect not to remove a case if there is a chance that the federal court will refuse to consider the state claims.

This is also a good reason to raise both federal question and diversity jurisdiction as the basis for removal if there is a good faith basis to assert both in the notice of removal. While a federal court has discretion to decline to exercise supplemental jurisdiction to consider the state claims if it dismisses the federal claims, the same is not true if diversity jurisdiction exists. For this reason, you should always include diversity jurisdiction as a basis for removal if possible.

28 U.S.C. § 1367

(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if—

(1) the claim raises a novel or complex issue of State law,

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

(d) The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period.

(e) As used in this section, the term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States

The Two Flavors of Diversity Jurisdiction

In order to avoid bias in state courts against a state’s own citizens and against citizens of other states, Congress enacted a statute that provides for federal court jurisdiction over disputes between citizens of different states. However, the rule is subject to certain conditions and limitations. Recently Congress passed the Class Action Fairness Act, or “CAFA”, which makes it easier for defendants in class action cases to remove such cases to federal court on the basis of diversity jurisdiction.

As pointed out in the previous section, diversity jurisdiction offers a defendant more certainty that the case will be fully adjudicated in federal court, as a court has discretion to refuse to exercise supplemental jurisdiction over state law claims if it dismisses claims presenting federal questions. However, if diversity jurisdiction exists, it will cover all of the claims.

“Standard” Diversity Jurisdiction

Diversity jurisdiction exists when there is complete diversity of citizenship among the parties and the amount in controversy exceeds $75,000.00 exclusive of interest and costs.

For “complete diversity” to exist, no plaintiff can be a citizen of the same state of any defendant. So if there are five plaintiffs, only one of whom is a citizen of California, and there are five defendants, and one of them is also a citizen of California, complete diversity is lacking and the case cannot be removed on the basis of diversity jurisdiction (though it still might be
removed if a federal question is presented in one or more claim). If all five plaintiffs are citizens of California but none of the defendants are California citizens, then complete diversity exists.

Individual Citizenship
An individual is typically a citizen of the state in which he or she resides.

Corporate Citizenship

Corporations are citizens of the state where it was incorporated as well as the state in which it maintains its principal place of business. Often this will be the same state, but a corporation may also often be a citizen of two states. A corporation organized pursuant to the laws of the State of Delaware whose principal place of business is located in New York is a
citizen of both Delaware and New York. Determining where a corporation’s principal place of business is located can be tricky. Different courts apply different tests, so it is possible that in some courts a corporation is considered a citizen of state A and state B where another court will
consider it to be a citizen of state A and state C.

National Bank Citizenship
National banks – banks organized pursuant to the laws of the United States rather than the laws of any particular state – are citizens of the state of their “main office” as specified in their articles of association. There are some wrongly decided district court opinions that hold that a national bank is a citizen of both the state specified as the location of its main office in its
articles of association and the state of its principal place of business. The majority of decisions, however, hold that a national bank is a citizen of only one state – the state specified in its articles of association as the location of its main office.

LLC/Partnership Citizenship
Limited liability companies and partnerships are problematic because they are considered citizens of the states in which their members or partners are citizens. In larger LLCs or partnerships, this can be a large number of states, which often precludes removal on the basis of diversity jurisdiction. Fortunately, few mortgage servicers are organized as LLCs or partnerships.

Trust/Trustee Citizenship
Unfortunately, trusts and trustees are frequently defendants in mortgage servicing litigation, and the analysis of the citizenship of a trust is problematic. If a trustee is a “real party in interest,” then only the trustee’s citizenship is considered for purposes of diversity jurisdiction.
However, it would be a rare case in which the servicer would want to take the position that the trustee of the typical RMBS trust is the “real party in interest.” In most cases, the plaintiff is seeking relief against the trust, not the trustee individually. The trustee will want to avoid
individual liability and limit liability to the trust for which the trustee serves as trustee. For example, if the plaintiff is suing for consumer fraud and includes “XYZ Mortgage Servicing, Inc., a Delaware corporation and ABC Bank, N.A., as Trustee for the 2006-1 Series 6 Certificates” as defendants, ABC Bank, N.A. will want to avoid individual liability – in other words, if plaintiff successfully obtains a $1,000,000 judgment, the ABC Bank will want
satisfaction of that judgment to come exclusively from the Trust, not from the Bank’s assets.

Note that state law can vary on the ability of a trustee to avoid individual liability in this way – a topic beyond the scope of this pamphlet. For purposes of citizenship, the salient point is that if the servicer plans to take the position that the trustee is not the “real party in interest” and that
the trust itself is the “real party in interest,” then the citizenship of the beneficiaries of the trust must be considered. That is, the servicer will need to know who all the investors in the trust are (as well as their citizenship) in order to use diversity as a basis for removal.

Beware of cutting corners here. If the servicer takes the position that only the citizenship of the trustee matters, the trustee could be estopped from later contending that it is not the real party in interest. Since it is very unlikely that a servicer would ever take the position that the trustee is the real party in interest, if you are removing a case in which a trust or trustee is a defendant, you will need to determine who the beneficiaries are and their citizenship, and lay those facts out in the notice of removal.

Nominal or “Fraudulently Joined” Defendants In determining whether diversity of citizenship exists, you do not consider the citizenship
of “nominal” or “fraudulently joined” defendants. “Nominal” or “fraudulently joined” defendants are defendants who do not have any real interest in the outcome of the litigation and are added simply to avoid diversity jurisdiction. For example, a mortgage servicing company organized in Delaware with its principal place of business in California may have an office and
operations in Texas. If it is sued in Texas state court by a Texas citizen, diversity of citizenship would exist unless the plaintiff names a co-defendant that is a Texas citizen. If the plaintiff adds one of the mortgage servicing company’s employees who happens to live in Texas, the presence
of that individual defendant would break the diversity unless the employee is a “nominal” or “fraudulently joined” defendant. In other words, if the claim is for rescission pursuant to TILA, there is no way the individual defendant could possibly have liability and thus the individual defendant’s citizenship would not be considered by the court in determining whether diversity jurisdiction exists.

You should also beware of improperly joined claims. Often a plaintiff’s lawyer will join dozens of individual claims against dozens of unrelated mortgage servicers in a single action.

The loans have no relationship to each other, and other than a common issue of law, the claims are completely unrelated. Sometimes these claims are joined by a common argument that MERS is the beneficiary of the mortgages involved, and that MERS is somehow unlawful or mortgages
for which MERS serves as beneficiary are unenforceable. These cases can result in loss of diversity if one of the unrelated defendants is a citizen of the same state as one of the plaintiffs.

In this case, you should seek to sever the claims and remove. In order to avoid the removal deadline, this may need to be done on an expedited basis, or you may need to remove first and seek severance in the federal court. Which course to take in a case like this is highly dependent
upon the particular circumstances presented.

Amount in Controversy
When asserting “standard” diversity as the basis for federal jurisdiction, the removing party must allege and be prepared to support an argument that the “amount in controversy” is in excess of $75,000 exclusive of interest and costs. Note that “amount in controversy” is not necessarily the same thing as “damages.” Consequential expenses – such as the expenses
incurred as a result of complying with an injunction – can be considered when determining whether more than $75,000 is “in controversy.” Also, in any case where the borrower is contending that the loan is null and void or unenforceable, so long as the principal balance due exceeds $75,000 the amount in controversy standard will be satisfied.

Cases where the amount in controversy standard is hard to satisfy typically involve challenges to various fees or charges imposed by a mortgage servicer. Typically these cases are pled as class actions and may be removable pursuant to CAFA (see discussion infra). However, if a number of plaintiffs join together to seek recovery of relatively small amounts, it can be difficult or impossible to meet the amount in controversy threshold. Defendants cannot “aggregate” damages of multiple plaintiffs to meet the amount in controversy standard.

28 U.S.C. § 1332(a)

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—

(1) citizens of different States;

(2) citizens of a State and citizens or subjects of a foreign state;

(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and

(4) a foreign state, defined in section 1603 (a) of this title, as plaintiff and citizens of a State or of different States.

For the purposes of this section, section 1335, and
section 1441, an alien admitted to the United States
for permanent residence shall be deemed a citizen of
the State in which such alien is domiciled.

CAFA Jurisdiction

In 2005, Congress enacted the Class Action Fairness Act, which, among other things, made it easier for defendants to remove putative class action cases to federal court. CAFA can be a complicated statute to apply, but for purposes of this discussion, you need to be aware of two key differences between “standard” diversity jurisdiction and removal pursuant to CAFA.

First, only “minimal” diversity is required (not “complete” diversity). That is, only one plaintiff and one defendant need be citizens of different states – the presence of a defendant who is a citizen of the same state as one of the plaintiffs will not necessarily destroy diversity.

Second, the amount in controversy standard is raised to $5,000,000, but the claims of prospective class members can be aggregated (unlike “standard” diversity). Thus, if there are over 1,000,000 people in the class, the “amount in controversy” standard is satisfied even if each of them suffered damages of only $5.

There are several exceptions to these rules. For example, if more than 2/3 of the prospective class are citizens of the state in which the case was filed and at least one defendant is also a citizen of that state, the court will not take the case pursuant to CAFA. In other situations the court may have discretion to exercise jurisdiction depending on how many prospective class
members are citizens of the forum state.

28 U.S.C. § 1332(d)
(d)

(1) In this subsection—

(A) the term “class” means all of the class members in a class action;

(B) the term “class action” means any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action;

(C) the term “class certification order” means an order issued by a court approving the treatment of some or all aspects of a civil action as a class action; and

(D) the term “class members” means the persons (named or unnamed) who fall within the definition of the proposed or certified class in a class action.

(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which—

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or

(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

(3) A district court may, in the interests of justice and looking at the totality of the circumstances, decline to exercise jurisdiction under paragraph (2) over a class action in which greater than one-third but less than two thirds of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the State in which the action was originally filed based on consideration of—

(A) whether the claims asserted involve matters of national or interstate interest;

(B) whether the claims asserted will be governed by laws of the State in which the action was originally filed or by the laws of other States;

(C) whether the class action has been pleaded in a manner that seeks to avoid Federal jurisdiction;

(D) whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants;

(E) whether the number of citizens of the State in which the action was originally filed in all proposed plaintiff classes in the aggregate is substantially larger than the number of citizens from any other State, and the citizenship of the other members of the proposed class is dispersed among a substantial number of States; and

(F) whether, during the 3-year period preceding the filing
of that class action, 1 or more other class actions asserting
the same or similar claims on behalf of the same or other
persons have been filed.

(4) A district court shall decline to exercise jurisdiction under paragraph (2)—

(A)
(i) over a class action in which—

(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by members of
the plaintiff class;

(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

(cc) who is a citizen of the State in which the action was originally filed; and

(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the
State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

(5) Paragraphs (2) through (4) shall not apply to any class action in which—

(A) the primary defendants are States, State officials, or other governmental entities against whom the district court may be foreclosed from ordering relief; or

(B) the number of members of all proposed plaintiff classes
in the aggregate is less than 100.

(6) In any class action, the claims of the individual
class members shall be aggregated to determine whether
the matter in controversy exceeds the sum or value of
$5,000,000, exclusive of interest and costs.

(7) Citizenship of the members of the proposed plaintiff classes shall be determined for purposes of paragraphs (2) through (6) as of the date of filing of the complaint or amended complaint, or, if the case stated by the initial pleading is not subject to Federal jurisdiction, as of the date of service by plaintiffs of an amended pleading, motion, or other paper, indicating the existence of Federal jurisdiction.

(8) This subsection shall apply to any class action before or after the entry of a class certification order by the court with respect to that action.

(9) Paragraph (2) shall not apply to any class action that solely involves a claim—

(A) concerning a covered security as defined under 16(f)(3) [1] of the Securities Act of 1933 (15 U.S.C. 78p (f)(3) [2]) and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. 78bb (f)(5)(E));

(B) that relates to the internal affairs or governance of a
corporation or other form of business enterprise and that
arises under or by virtue of the laws of the State in which
such corporation or business enterprise is incorporated or
organized; or

(C) that relates to the rights, duties (including fiduciary
duties), and obligations relating to or created by or
pursuant to any security (as defined under section 2(a)(1)
of the Securities Act of 1933 (15 U.S.C. 77b (a)(1)) and
the regulations issued thereunder).

(10) For purposes of this subsection and section 1453, an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized. (11)

(A) For purposes of this subsection and section 1453, a
mass action shall be deemed to be a class action
removable under paragraphs (2) through (10) if it
otherwise meets the provisions of those paragraphs.

(B)

(i) As used in subparagraph (A), the term “mass action”
means any civil action (except a civil action within the
scope of section 1711 (2)) in which monetary relief claims
of 100 or more persons are proposed to be tried jointly on
the ground that the plaintiffs’ claims involve common
questions of law or fact, except that jurisdiction shall exist
only over those plaintiffs whose claims in a mass action
satisfy the jurisdictional amount requirements under
subsection (a).

(ii) As used in subparagraph (A), the term “mass action”
shall not include any civil action in which—

(I) all of the claims in the action arise from an event or
occurrence in the State in which the action was filed, and
that allegedly resulted in injuries in that State or in States
contiguous to that State;

(II) the claims are joined upon motion of a defendant;

(III) all of the claims in the action are asserted on behalf
of the general public (and not on behalf of individual
claimants or members of a purported class) pursuant to a
State statute specifically authorizing such action; or

(IV) the claims have been consolidated or coordinated
solely for pretrial proceedings.

(C)

(i) Any action(s) removed to Federal court pursuant to this
subsection shall not thereafter be transferred to any other
court pursuant to section 1407, or the rules promulgated
thereunder, unless a majority of the plaintiffs in the action
request transfer pursuant to section 1407.

(ii) This sub-paragraph will not apply—

(I) to cases certified pursuant to rule 23 of the Federal
Rules of Civil Procedure; or

(II) if plaintiffs propose that the action proceed as a class
action pursuant to rule 23 of the Federal Rules of Civil
Procedure.

(D) The limitations periods on any claims asserted in a
mass action that is removed to Federal court pursuant to
this subsection shall be deemed tolled during the period
that the action is pending in Federal court.

Step 3:
Is removal timely?
Watch the deadline carefully!

A defendant must remove within 30 days of receiving summons and complaint. There is a split of authority regarding the impact of an “earlier served” defendant on a “later served” defendant’s ability to remove. In jurisdictions known as “first served” jurisdictions, the deadline runs from the date of service on the first defendant served. It is important to know whether you are in such a jurisdiction. If a co-defendant was served 29 days ago and you were just served today, your removal may be due tomorrow! Other jurisdictions follow a “last served” defendant
rule, meaning each defendant gets a full 30 days to decide whether to remove the case. While an earlier served defendant may be time-barred from removing a case, a later served defendant could still remove in such a jurisdiction.

If a case cannot be removed immediately but becomes removable later, the defendant has 30 days from the receipt of the amended complaint or pleading that makes the case removable. For example, a complaint may be amended and add a federal claim or a claim that increases the amount in controversy, or a plaintiff may settle with a non-diverse defendant, removing that party from the case. In no event can a case be removed more than one year after filing, however, unless it is a class action removable pursuant to CAFA.

Deadlines for removal cannot be extended by agreement of the parties or even by order of court. The deadlines are jurisdictional. That is, if they are not satisfied, the court does not have jurisdiction to hear the case.

Step 4:
Obtain Consent of Co-Defendants

All co-defendants who have been served with summons and complaint must consent to removal of a case before it can be removed. This can impose a significant hurdle, particularly if you are under significant time pressure to get a case removed. For one thing, you may not know for sure whether the co-defendants have been served or not. If there is no evidence of service of
process on the docket and you have no reason to believe the co-defendants have been served, we typically allege in our notice of removal that “on information and belief” no other co-defendants
have been served, and that on further “information and belief” any other co-defendants would consent to removal. However, the best practice is to contact the co-defendants and obtain their consent. If a co-defendant is a frequent defendant in litigation, it may be possible to identify its
usual outside counsel and contact that attorney to obtain the consent. Otherwise, a call to a General Counsel or a law department might yield results. However, if you know that a co-defendant has been served (for example, there is a proof of service on the docket indicating
service) you must have consent from that co-defendant before you can remove the case. Consenting co-defendants should file written consents with the court to ensure that the court does not remand the case to state court on a sua sponte basis due to lack of proof of consent.

We generally counsel clients to remove cases within 30 days of the date they are filed even if they have not yet been served. This avoids any issues over timeliness of the removal (a case removed within 30 days of filing is per se timely). It also helps avoid the need to obtain consent of co-defendants since there is not likely going to be any evidence of service of process on the docket this early in a case.

If a co-defendant has already removed a case, you should file a written consent to that removal (assuming you consent) and you should also file your own notice of removal if there are any additional grounds that support federal jurisdiction and/or the removal that were not stated in the co-defendant’s notice of removal. You need to do this within the same 30 day deadline for filing the notice of removal itself.

Step 5:
Prepare & File Documents in Federal Court
Several documents need to be prepared and filed in both federal and state court in order to effectuate the removal, including a notice of removal, a certificate of interested parties, a civil cover sheet, appearance forms and a notice of filing of notice of removal.

Document No. 1:

Notice of Removal

The key document is the notice of removal itself. This document should be prepared as if it were a motion seeking to establish federal jurisdiction. It consists of numbered paragraphs in which the removing defendant alleges all of the facts pertinent to a determination that federal jurisdiction exists. The notice of removal should be supported by evidence. Some federal judges review cases that have been removed from state court and assigned to them even without any motion to remand being filed. These judges will sua sponte remand a case to state court if they are not convinced that federal jurisdiction exists. Because you don’t know how active the judge assigned to your case will be, best practices call for the submission of the evidence necessary to support your allegations with the notice of removal. This can include an affidavit or affidavits of
knowledgeable witnesses about those facts, and will likely include documents supporting the factual allegations. The notice of removal should cite the complaint to the extent the complaint contains allegations that bear on federal jurisdiction. All of the pleadings filed in the state court
must be attached to the notice of removal.

This is another place where you may be tempted to cut corners – particularly given the time pressure you may be under to get the removal accomplished. Resist that temptation. A remand will mean that you have wasted your time and incurred expenses with nothing to show for them.

Document No. 2:
Certificate of Related Parties

Another document that must be filed when you remove a case is a certificate of related parties. The specific requirements vary from court to court, but most if not all federal courts require a statement to be filed identifying any affiliates of a corporate defendant. The certificate
may not need to be filed when the removal is filed, but it is a good practice to file it together with the other removal papers so that it has been taken care of and does not get overlooked later. The requirements are usually set forth in the court’s local rules and typically require disclosure of theidentity of any entity or person owning more than 5% of a corporation, the identities of the members of an LLC, the identities of the partners of a partnership, etc. as well as the affiliates of each of those (i.e., tracing ownership up the “corporate family tree”). As mentioned elsewhere,
you need to be careful of how you treat trustees of trusts who may be named defendants, and consider whether you need to disclose the identity of the beneficiaries of the trusts in order to avoid an argument later that the bank or entity serving as trustee has individual liability.

Document No. 3:
Civil Cover Sheet
This is a form most district courts require to be completed and filed when the notice of removal is filed. Although it is perfunctory, it contains information the court looks at in determining whether diversity or federal question jurisdiction has been properly invoked. An error here can result in greater scrutiny of the allegations of the notice of removal.

Document No. 4:
Appearance Forms
Many, but not all, district courts will also require the attorneys appearing for the removing defendant to file separate appearance forms.

28 U.S.C. § 1446

(a) A defendant or defendants desiring to remove any civil action or criminal prosecution from a State court shall file in the district court of the United States for the district and division within which such action is pending a notice of removal signed pursuant to Rule 11 of the Federal Rules of Civil Procedure and containing a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served upon such defendant or defendants in such action.

(b) The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.

(c) If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action.

****

(d) Promptly after the filing of such notice of removal of a civil action the defendant or defendants shall give written notice thereof to all adverse parties and shall file a copy of the notice with the clerk of such State court, which shall effect the removal and the State court shall proceed no further unless and until the case is remanded

Step 6:
Prepare & File Documents for State Court

Once the notice of removal has been filed in federal court, you must apprise the state court of the fact that the case has been transferred. This is accomplished by filing a “Notice of Filing of Notice of Removal” in state court.

It is the filing of this document that officially divests the state court of jurisdiction. For this reason, timing can be important. Generally speaking orders entered in state court prior to removal remain in effect after the case has been removed unless vacated or modified by the federal court. Temporary restraining orders entered in the state court will remain in effect until they expire by their terms or applicable federal rules. Preliminary injunctions, however, will continue until they have been vacated, modified or expire by their own terms. Thus, if the Plaintiff is seeking a temporary restraining order or other relief in the state court and you would
prefer not to have the state court consider the issues raised in such a proceeding, you will want to not only file the notice of removal in the federal court prior to the hearing on any such matter, but also the notice of filing of notice of removal in the state court prior to that hearing. Once the
notice of filing of notice of removal is filed, the state court is deprived of jurisdiction to act unless and until the federal court remands the case to state court.

Copies of all of these documents must be promptly served upon the plaintiff’s counsel.

Step 7:
Defend Against Motion to Remand
A motion to remand is a plaintiff’s request that the federal court return the case to state court. A motion to remand can be based upon an argument that the federal court lacks jurisdiction (e.g., the amount in controversy is less than $75,000, the citizenship allegations are incorrect in the notice of removal and the parties are not diverse, the complaint does not state a
federal claim, etc.) or an argument that the removal procedure was flawed in some way (e.g., a served defendant does not consent, removal was untimely, etc.).

The plaintiff has 30 days to file a motion to remand based on a defect in the removal procedure.
A claim based on lack of subject matter jurisdiction can be raised at any time! One of the dangers of removal is a faulty assertion of subject matter jurisdiction. A plaintiff who does not believe that federal jurisdiction exists can “lie in the weeds” on that issue and see if he or she can settle the case or obtain a favorable result without seeking remand or arguing a lack of
jurisdiction. If the case does not go as the plaintiff hoped, he or she can claim that the court lacked subject matter jurisdiction and that he or she gets to start all over in state court. For this reason, you must be absolutely certain that subject matter jurisdiction exists before removing a case.

Federal courts are said to “jealously guard” their jurisdiction. This means they strictly construe the removal statute in favor of remand and against removal.

Beware that the statute contains a fee shifting provision. If the court finds that there was no “objectively reasonable basis” for the removal, it can award the plaintiff its fees and costs in seeking remand.
28 U.S.C. § 1447(c)
(c) A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446 (a). If at any time before court lacks subject matter jurisdiction, the case shall
be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal. A certified copy of the order of remand shall be mailed by the clerk to the clerk of the State court. The State court may thereupon proceed with such case.

Step 8:
Consider Options if Remand is Ordered
Consider your options if remand is ordered, but in point of fact they are limited. An order remanding a case to state court is generally not reviewable on appeal.

There are exceptions to this rule, but they are so rare and unlikely to apply in the typical case against a mortgage loan servicer that they are not worth discussing here. Under certain circumstances you can seek a writ of mandamus from a court of appeals if remand is ordered, but this is also very rare and there is a high standard that must be satisfied to obtain it.
There is an exception for cases removed pursuant to CAFA. An order remanding a case removed pursuant to CAFA can be appealed. See 28 U.S.C. § 1453(c)(1) (notwithstanding 28 U.S.C. § 1447(d), court of appeals may review remand order where case was removed under CAFA).
Basically, if remand is ordered, you are going back to state court and will litigate there. Most state court judges will not hold your attempt to take the case away from them against you, but it is something to keep in mind.
28 U.S.C. § 1447(d)
(d) An order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise, except that an order remanding a case to the State court from which it was removed pursuant to section 1443 of this title shall be reviewable by appeal or otherwise.

Step 9:
Impact of Removal on Deadline to Respond

Once the case is removed, you have the longer of:

i. 21 days from the date you receive the summons and complaint; or

ii. 5 days from the date of removal

to respond to the complaint with a motion to dismiss, answer and affirmative defenses, or some other pleading. Typically we take a conservative approach and contact the plaintiff’s counsel immediately upon removal to agree to a stipulated deadline for a response to the complaint.
Normally 5 days is insufficient, but in some cases if a motion to dismiss is ready to go there is no reason to delay further.

If the case is remanded to state court, the state court rules of procedure will apply. These can vary. The best practice is once again to seek a stipulation with the plaintiff’s lawyer for a deadline for the response in state court following remand

Federal Rule of Civil Procedure 81(c)

(c) Removed Actions.

(1) Applicability.
These rules apply to a civil action after it is removed
from a state court.

(2) Further Pleading.

After removal, repleading is unnecessary unless the
court orders it. A defendant who did not answer
before removal must answer or present other
defenses or objections under these rules within the
longest of these periods:

(A) 21 days after receiving — through service or
otherwise — a copy of the initial pleading stating the
claim for relief;

(B) 21 days after being served with the summons for
an initial pleading on file at the time of service; or

(C) 7 days after the notice of removal is filed.

(3) Demand for a Jury Trial.

(A) As Affected by State Law. A party who, before
removal, expressly demanded a jury trial in
accordance with state law need not renew the
demand after removal. If the state law did not
require an express demand for a jury trial, a party
need not make one after removal unless the court
orders the parties to do so within a specified time.
The court must so order at a party’s request and
may so order on its own. A party who fails to make a
demand when so ordered waives a jury trial.

(B) Under Rule 38. If all necessary pleadings have
been served at the time of removal, a party entitled
to a jury trial under Rule 38 must be given one if the
party serves a demand within 14 days after:

(i) it files a notice of removal; or

(ii) it is served with a notice of removal filed by
another party.

Conclusion
In most cases you will prefer to have your cases proceed in federal court rather than state court. On the surface, removing a case from state court to federal court is not difficult. However, there are many contours to federal jurisdiction, and various issues that may not be apparent at first glance that can significantly impact the litigation that must all be accounted for.
Removal should not be taken lightly – it should be carefully considered, planned for and implemented.

For More Information Why Removal of Your Wrongful Foreclosure Case to the Federal Court Might Be the Best Option to Save Your Home Visit: http://www.fightforeclosure.net

Quiet Title Action ~ What Florida Home Owners Need to Know

14 Wednesday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Loan Modification, MERS, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Center for Housing Policy, Florida, Foreclosure, MER, Mortgage Electronic Registration System, RealtyTrac, Securitization, United States

Quiet Title Actions: How to Force the Banks To Prove Up

The Foreclosure Crisis

I. THE FORECLOSURE CRISIS

• ISSUE ONE: Who Owns Your Note?

1. The Securitization Process:
– A. Originator Sells To Nominee (First Sale)
– B. The Nominee Sells To Depositor (Second Sale)
– C. The Depositor Sells to the REMIC Trust
• The REMIC Trust created to hold “pool” of mortgages and sell “shares” in
the REMIC Trust to investors.
• A Trustee is designated to operate the trust (typically a bank).
• The REMIC Trust operates through “Bylaws” and “Pooling and Servicing
Agreements”.
• The Pooling and Servicing Agreement outlines how the income from the
mortgages will be managed and the Servicing Agent who will collect income
and foreclose in the event of default.

The Foreclosure Crisis

• One in every 365 housing units in the United States was branded with a foreclosure notice recorded in December 2011, according to RealtyTrac.com. That means 850,000 Americans got a big lump of coal in their stocking from Uncle Scrooge.
• Over 2,076,764 American homes are now in foreclosure.
• One in every 165 housing units in California (more that twice the national average) received a foreclosure notice in December, for a total of 80,488 properties. In Nevada, the figure was one in every 93 houses.
• USA Today reports that almost 1 in 5 children in Nevada lived or live in owneroccupied homes that were lost to foreclosure or are at risk of being lost. The percentages are 15% in Florida, 14% for Arizona, and 12% for California. That’s about one in eight children in California. Five years into the foreclosure crisis, an estimated 2.3 million children have lived in homes lost to foreclosure.
• RealtyTrac reports that foreclosure and REO (real estate-owned) homes accounted for 24 percent of all residential sales during the fourth quarter of 2011.
• Here in relatively affluent Palm Beach County, homeowners are No. 1 in the state for the average number of loans in foreclosure that are delinquent. It has the fourth highest number of foreclosures, 45,829 with an average delinquency of 623 days.

Florida’s Foreclosure Statistics

• Florida is leading the country in foreclosure rates.
• Florida metro areas dominate the top 25 list for cities with the worst foreclosure rates — including the eight highest in the nation, according to a report released Tuesday.#
• In all, 17 of the top 25 cities with the highest foreclosure rates as of March are Florida cities, according to the Center for Housing Policy, the research arm of the Washington, D.C.-based National Housing Conference. #
• With a 10.9 percent foreclosure rate, Jacksonville is ranked 18th overall, but 14 other Florida cities had higher rates. Miami topped the list with the nation’s highest rate of 18.2 percent. #
• Miami’s conventional mortgage foreclosure rate in March was 14.2 percent, while its subprime rate was 39.1 percent. Jacksonville’s conventional foreclosure rate was 7.8 percent while its subprime rate was 29 percent.
• But given the fact that Florida cities made up 15 of the 25 cities with the highest “serious” mortgage delinquency rates — either behind by 90 days behind or more or now in foreclosure, there could be more foreclosures in the state’s future. And just like on the foreclosure list, Miami was also first, with a delinquency rate of 23.6 percent; and Jacksonville was 18th, with a rate of 15.6 percent.

Who Owns Your House?

• ISSUE ONE: WHO OWNS YOUR HOUSE?
– Promissory Note (the “Note”): Loan Agreement
– Mortgage/Deed of Trust: Power of Sale Document
– Grant Deed: You own until you breach the Promissory Note and
your Lender (or Others) use the Power of Sale Document to
Foreclose
– Before Securitization: Your Lender held your Note was always
the Foreclosing Entity.
– After Securitization: No One Knows Who Owns Your Note

Who Owns Your Note?

ISSUE TWO: Who Owns Your Note?
1. The Securitization Process:
– A. Originator Sells To Nominee (First Sale)
– B. The Nominee Sells To Depositor (Second Sale)
– C. The Depositor Sells to the REMIC Trust
• The REMIC Trust created to hold “pool” of mortgages and sell “shares” in
the REMIC Trust to investors.
• A Trustee is designated to operate the trust (typically a bank).
• The REMIC Trust operates through “Bylaws” and “Pooling and Servicing
Agreements”.
• The Pooling and Servicing Agreement outlines how the income from the
mortgages will be managed and the Servicing Agent who will collect income
and foreclose in the event of default.

• Why Is There a Question?
1. The Securitization Process: No One Knows Who Owns Your
Note
– The Original Lenders Failed to Properly Assign Your Note to
Subsequent Purchasers
– Incompetent Personnel
– No Training: No One Trained to Sell Notes Properly
– Never Occurred Before: Prior to Securitization Didn’t
Transfer or Sell Notes
– Thousands of Assignments Left Blank
– Remic Trusts Never Receive Assignments or Possession of
Notes: Current litigation

2. Mortgage Electronic Registration System, Inc
1. Created by over 44 Financial Institutions in 1998 to Avoid the
Registration of Securitized Mortgages : Saves Millions of
Dollars in Recordation fees;
2. Presently Being Sued in (5) States for Unlawfully failing to pay
Recording Fees on Securitized Mortgage Transactions
• WHAT IS MERS FUNCTION?
– TO CAMOUFLAGE THE SALE OF YOUR LOAN TO MULTIPLE
ENTITIES IN THE SECURITIZATION PROCESS;
– AVOID RECORDING FEES ON EVERY SALE OF YOUR LOAN
TO SUBSEQUENT PURCHASERS.
– ACT AS “BENEFICIARY” OF YOUR DEED OF TRUST OR
“NOMINEE” OF YOUR MORTGAGE

What is MERS?

• “MERS is a mortgage banking ‘utility’ that registers
mortgage loans in a book entry system so that … real
estate loans can be bought, sold and securitized (Similar
to Wall Street’s book entry utility for stocks and bonds is
the Depository Trust and Clearinghouse.”
• MERS is enormous. It originates thousands of loans
daily and is the mortgagee of record for at least 40
million mortgages and other security documents.
• MERS acts as agent for the owner of the note. Its
authority to act should be shown by an agency
agreement. Of course, if the owner is unknown, MERS
cannot show that it is an authorized agent of the owner.

Result: BANKS CAN’T PROVE THEY OWN YOUR LOAN

• The Wall Street Journal Picks Up the Scent
• An article by Nick Timiraos appeared in The Wall Street Journal on June 1, 2011 – “Banks Hit Hurdle to Foreclosures.”
• “Banks trying to foreclose on homeowners are hitting another roadblock,” Timiraos writes, “as some delinquent borrowers are successfully arguing that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.”
• If you (or I) try to boot a homeowner into the street without any proof that we’re entitled to the property, the cops will lock us up. Stealing is stealing, whether it is somebody’s wallet or their 3-bedroom 2-bath in the suburbs with two dogs and a kid. When a bank tries to steal the bungalow without proof that they have a right to foreclose, it’s a “hurdle” or “another roadblock.”
• Semantics aside, this is good news for all people holding grant deeds. This year, the Journal reports, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and other states have raised questions about whether banks properly demonstrated ownership.
• In some cases, borrowers are showing courts that banks failed to properly assign ownership of mortgages after they were pooled into mortgage-backed securities. In other cases, borrowers say that lenders backdated or fabricated documents to fix those errors.
• “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages against these operations could be significant and take years to materialize,” said Sheila Bair, chairman of
the Federal Deposit Insurance Corp., in testimony to a Senate committee last month.
• In March, an Alabama court said J.P. Morgan Chase & Co. couldn’t foreclose on Phyllis Horace, a delinquent homeowner in Phenix City, Ala., because her loan hadn’t been properly assigned to its owners
– a trust that represents investors – when it was securitized by Bear Stearns Cos. The mortgage assignment showed that the loan hadn’t been transferred to the trust from the subprime lender that originated it.

The Problem With MERS

• Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.
• The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
• Not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.
• “We would never rely on it to find ownership,” says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.
• Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.
• The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in
MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership.
They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”
• The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-lessstriking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
• And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
• But this, Judge Robert E Grossman said, was not his fault.
• “This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,” he wrote, “that is reason enough for this court to turn a blind eye to
the fact that this process does not comply with the law.”

Legal Issues

1. SEPARATION OF THE NOTE AND THE DEED
• In the case of MERS, the Note and the Deed of Trust are held by separate entities. This can pose a unique problem dependent upon the court. The prevailing case law illustrates the issue:
• “The Deed of Trust is a mere incident of the debt it secures and an assignment of the debt carries with it the security instrument. Therefore, a Deed Of Trust is inseparable from the debt and always abides with the debt. It has no market or ascertainable value apart from the obligation it secures.
• A Deed of Trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the Deed Of Trust without a transfer of the debt is without effect. “
• This very “simple” statement poses major issues. To easily understand, if the Deed of Trust and the Note are not together with the same entity, then there can be no enforcement of the Note. The Deed of Trust enforces the Note. It provides the capability for the lender to foreclose on a property. If the Deed is separate from the Note, then enforcement, i.e. foreclosure cannot occur.
The following ruling summarizes this nicely.
• In Saxon vs Hillery, CA, Dec 2008, Contra Costa County Superior Court, an action by Saxon to foreclose on a property by lawsuit was dismissed due to lack of legal standing. This was because the Note and the Deed of Trust were “owned” by separate entities. The Court ruled that when the Note and Deed of Trust were separated, the enforceability of the Note was negated until rejoined.

2. MERS IS A NOMINEE AND NOT THE HOLDER OF THE NOTE
• The question now becomes as to whether a Note Endorsed in Blank and transferred to different entities does allow for foreclosure. If MERS is the foreclosing authority but has no entitlement to payment of the money, how could they foreclose? This is especially true if the true beneficiary
is not known. Why do I raise the question of who the true beneficiary is?
• THE MERS WEBSITE STATES…..
• “On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS.
Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans. Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow
a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.”

3. MERS IS THE NOMINEE AND NOT THE BENEFICIARY
• To further reinforce that MERS is not the true beneficiary of the loan, one need only look at the following Nevada Bankruptcy case, Hawkins, Case No. BK-S-07-13593-LBR (Bankr.Nev. 3/31/2009) (Bankr.Nev., 2009) – “A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment . . . or to receive something as a result of
a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8th ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack like a duck, then it’s not a duck.”
• When the initial Deed of Trust is made out in the name of MERS as Nominee for the Beneficiary and the Note is made to AB Lender, there should be no issues with MERS acting as an Agent for AB Lender. Hawkins even recognizes this as fact.
• The issue does arise when the Note transfers possession. Though the Deed of Trust states “beneficiary and/or successors”, the question can arise as to who the successor is, and whether Agency is any longer in effect. MERS makes the argument that the successor Trustee is a MERS
member and therefore Agency is still effective, and there does appear to be merit to the argument on the face of it.The original Note Holder, AB Lender, no longer holds the note, nor is entitled to payment. Therefore, that Agency relationship is terminated. However, the Note is endorsed in blank, and no Assignment has been made to any other entity, so who is the true
beneficiary? And without the Assignment of the Note, is the Agency relationship intact?

4. MERS FORECLOSURE PROCEDURES
• There, you have it. Direct from the MERS website. They admit that they
name people to sign documents in the name of MERS. Often, these are
Title Company employees or others that have no knowledge of the actual
loan and whether it is in default or not.
• Even worse, MERS admits that they are not the true beneficiary of the loan.
In fact, it is likely that MERS has no knowledge of the true beneficiary of the
loan for whom they are representing in an “Agency” relationship. They
admit to this when they say “Your title company or MERS officer can
easily determine the true beneficiary.
• Why are the Courts Accepting MERS as a Nominee or Agent of the
“Lenders”? The “beneficiary” term is erroneous. Even MERS states it
is not a “beneficiary”.
• If so, MERS cannot assign deeds of trust or mortgages to third parties
legally.

• ISSUE THREE: Does MERS have the Right to Participate in Your
Foreclosure?
– NO. According to the Majority of Federal Court Opinions and Every State Supreme Court decision which has addressed this Issue: Oregon and Washington Supreme Ct Decisions Pending
– Every Attorney General who has examined the legality of MERS has determined it is illegal business enterprise: New York; Delaware; Oregon, Washington, Idaho; with more to come.
_ Declared Unlawful Business Organization : ( In re: Agard, No. 10-77338, 2011 Bankr. LEXIS 488, at 58-59 (Bankr. E.D.N.Y. Feb 10, 2011)
_ In California, the federal court determined that MERS has to have a written contract with the new noteholder in order to have the authority to appoint or assign the beneficial interest in the note sufficient to foreclose (In re: Vargas: US Dist Ct, Central Dist of Calif; Case No LA 08-107036-SB).
– Judge Michael Simon of the Oregon Federal Court has found that MERS cannot assign its beneficiary status in a deed of trust to a third party for foreclosure purposes due to the fact that MERS does not under Oregon law have the legal authority to do so (James, et al v Reconstruct Trust, et al: US Dist Ct. Case No: 3:11-cv-00324-ST).

Solutions

QUIET TITLE ACTIONS: Definition
• quiet title action n. a lawsuit to establish a party’s title to real property
against anyone and everyone, and thus “quiet” any challenges or claims to
the title. Such a suit usually arises when there is some question about clear
title, there exists some recorded problem (such as an old lease or failure to
clear title after payment of a mortgage), an error in description which casts
doubt on the amount of property owned, or an easement used for years
without a recorded description. An action for quiet title requires description
of the property to be “quieted,” naming as defendants anyone who might
have an interest (including descendants—known or unknown—of prior
owners), and the factual and legal basis for the claim of title. Notice
must be given to all potentially interested parties, including known and
unknown, by publication. If the court is convinced title is in the plaintiff (the
plaintiff owns the title), a quiet title judgment will be granted which can be
recorded and thus provide legal “good title.“

• QUIET TITLE ACTIONS:
– Purpose: Require All Adverse Claims to Title to Prove to the Court the
Worthiness of Their Claim:
– Mortgages/Deeds Of Trust:
• Who is the Owner of Your Note? Prove It
• Who is the Beneficiary of Your Deed of Trust/Mortgage? The Owner of the
Note
• Who has the Legal Right to Foreclose?
– ONLY THE OWNER OF THE NOTE IS A TRUE BENEFICIARY
– ONLY THE BENEFICIARY OF THE MORTGAGE OR DEED OF
TRUST OR ITS LEGAL REPRESENTATIVE CAN FORECLOSE
– MERS IS NOT A BENEFICIARY-According to its own Website
– MERS IS NOT A LEGAL REPRESENTATIVE OF ANY REMIC TRUST
» No Contract
» At Best MERS has a Contractual Relationship with Original Lender

• FLORIDA QUIET TITLE STATUTES-Civil Practice and Procedure
• 65.061 Quieting title; additional remedy.—
• (1) JURISDICTION.–Chancery courts have jurisdiction of actions by any person or corporation claiming legal or equitable title to any land…. and shall determine the title of plaintiff and may enter judgment quieting the title and awarding possession to the party entitled thereto….
• (2) GROUNDS.–When a person or corporation not the rightful owner of land has any conveyance or other evidence of title thereto, or asserts any claim, or pretends to have any right or title thereto, any person or corporation is the true and equitable owner of land the record title to which is not in the person or corporation because of the defective execution of any deed or mortgage because of the omission of a seal thereon, the lack of witnesses, or any defect or omission in the wording of the acknowledgment of a party or parties thereto, when the person or corporation claims title thereto by the defective instrument and the defective instrument was apparently made and delivered by the grantor to convey or mortgage the real estate and was recorded in the county where the land lies which may cast a cloud on the title of the real owner….
• (4) JUDGMENT.–If it appears that plaintiff has legal title to the land or is the equitable owner thereof based on one or more of the grounds mentioned in subsection (2), or if a default is entered against defendant (in which case no evidence need be taken), the court shall enter judgment removing the alleged cloud from the title to the land and forever quieting the title in plaintiff and those claiming under him or her since the commencement of the action and adjudging plaintiff to have a good fee simple title to said land or the interest thereby cleared of cloud.

DECLARATORY RELIEF
• WHO OWNS THE NOTE? WHO IS ENTITLED TO FORECLOSE?
• FEDERAL RULES OF CIVIL PROCEDURE: RULE 57. DECLARATORY JUDGMENT
• 28 U.S.C. §2201. Rules 38 and 39 govern a demand for a jury trial. The existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate. The court may order a speedy hearing of a declaratory-judgment action.
• The fact that a declaratory judgment may be granted “whether or not further relief is or could be prayed” indicates that declaratory relief is alternative or cumulative and not exclusive or extraordinary. A declaratory judgment is appropriate when it will “terminate the controversy” giving rise to the proceeding. Inasmuch as it often involves only an issue of law
on undisputed or relatively undisputed facts, it operates frequently as a summary proceeding, justifying docketing the case for early hearing as on a motion, as provided for in California (Code Civ.Proc. (Deering, 1937) §1062a), Michigan (3 Comp.Laws (1929) §13904), and Kentucky
(Codes (Carroll, 1932) Civ.Pract. §639a–3).
• The “controversy” must necessarily be “of a justiciable nature, thus excluding an advisory decree upon a hypothetical state of facts.” Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 325, 56 S.Ct. 466, 473, 80 L.Ed. 688, 699 (1936). The existence or nonexistence of any right, duty, power, liability, privilege, disability, or immunity or of any fact upon which such legal relations depend, or of a status, may be declared.

• WRONGFUL FORECLOSURE:
• What is a Wrongful Foreclosure Action?
• A wrongful foreclosure action typically occurs when the lender starts a
judicial foreclosure action when it simply has no legal cause. Wrongful
foreclosure actions are also brought when the service providers accept
partial payments after initiation of the wrongful foreclosure process, and
then continue on w i t h the f o r e c l o s u r e process. These
predatory lending strategies, as well as other forms of misleading
homeowners, are illegal.
• The borrower is the one that files a wrongful disclosure action with the court against the service provider, the holder of the note and if it is a non-judicial foreclosure, against the trustee complaining that there was an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed or court judicial proceeding. The borrower can also allege emotional distress and ask for punitive damages in a wrongful foreclosure action.

• FRAUD CLAIMS
• Mortgage Payments: Have you been paying mortgage payments to the
wrong financial institution?
• JP Morgan Chase: Bought “Assets” of WAMU from FDIC in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What Did Chase Bank Buy? Servicing Contracts?
– Can Chase Bank Foreclose on Notes It Does Not Own?
• One West Bank: Bought “Assets” of IndyMac from FDIC in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What did One West Bank Buy? Servicing Contracts?
– Can One West Foreclose on Notes It Does Not Own?
• Bank of America: Bought “Servicing Contracts” from Countrywide in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What Did Bank of America Buy? Servicing Contracts
– Can Bank of America Foreclose on Notes It Does Not Own?

• QUIET TITLE LITIGATION:
– Potential Outcomes:
• Actual Quiet Title: Removal of All Liens, Encumbrances,
Mortgages:
• Principal Reduction: Mediation or Arbitration Resulting in
Substantial Reduction in Your Mortgage Balance
• Damage Claims against Financial Institutions: Punitive Damages?
• TROS and Injunctions: Stopping the Foreclosure Process
• Did Default Insurance Pay Off My Mortgage
• Declaratory Relief:
– Who Do I Pay My Mortgage To?
– Who Can Foreclose on My House?

Credit Rehabilitation
• Credit Rehabilitation
• The Fair Credit Reporting Act (FCRA) gives you the right to contact credit bureaus directly and dispute items on your credit reports. You can dispute any and all items that are inaccurate, untimely, misleading, biased, incomplete or unverifiable (questionable items). If the bureaus cannot verify that the information on their reports is indeed correct, then those items must be deleted.
• PeabodyLaw has created the “Mortgage Audit Plan”:
– Obtain a Securitization Audit from Audit Pros, Inc.
– Peabody Law will utilize the results of your Securitization Audit to file a
court action seeking a court order removing all negative credit reporting
items from your credit history based upon the findings of the audit.
– Upon receipt of Court Judgment rendering the nullification of unlawful
and erroneous credit references, Peabody Law will send a Demand
Letter with the Judgment attachment to each Credit Reporting Agency
demanding retraction and removal of all negative credit references
relating to mortgage payments, foreclosures, short sales, etc.

For a Complete Pro Se “Do It Yourself” Foreclosure Defense Kit With Well Drafted Pleadings and Step By Step Guide For Saving Your Home Visit: http://www.fightforeclosure.net

What Homeowners Need to Know About Judicial Foreclosure Process

13 Tuesday Aug 2013

Posted by BNG in Appeal, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

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Foreclosure is the process by which the lender takes control of the property and sells it to raise money to pay the debt. The process varies depending on if your state is a judicial or nonjudicial state.

This post is designed to guide homeowners in Judicial foreclosure States as to how foreclosure process works.

1. The Foreclosure Process

Foreclosure is the process by which the lender takes control of the property which was pledged as collateral for the mortgage debt and sells the property to raise money to pay on the debt created by the Note. The sale extinguishes the borrower’s interest in the property although some states have redemption period after the sale. Other interests are also extinguished if the foreclosure is done properly, including the rights of other owners, spouses, junior mortgages, lienholders, and some taxes. The foreclosure process is very different depending on whether it is judicial or non-judicial. In the US, approximately half of the states permit non-judicial foreclosure. The rest of the states require judicial foreclosure. A few states allow both. However, the process is different in each state; accordingly the material here is intended as a general guide. It is for educational purposes only, and is not legal advice.

2. Interested Parties

In order for the interests of all parties who may have a claim to the property be extinguished, the foreclosure must be done properly, and all interested parties must be given proper notice as detailed by state law. The typical interested parties are other owners of the property, spouses, junior mortgages, lienholders, and some taxes. If the borrower is deceased, his or her heirs and estate are interested parties.

3. Judicial Foreclosure

Judicial foreclosure is a lawsuit, similar to other kinds of lawsuits. It is formal and much more complex, and generally takes longer than non-judicial foreclosure, although this varies by jurisdiction. The point of a judicial foreclosure is for the lender to obtain from the court a judgment in foreclosure, and the right to hold a sale of the mortgaged property. The court is involved in the foreclosure process all the way through. So, if a borrower feels there is something wrong or improper occurring, he or she can raise those issues within the judicial foreclosure proceeding.

4. Notice of Default and Acceleration

Most mortgage and most states’ laws require the lender to give a borrower advance notice that a foreclosure is about to start, and an opportunity to cure the default. The cure period is typically between 20 and 60 days, depending on the mortgage document and state law.

5. Service of Process

Lawsuits are begun by service of process. All states have laws that govern exactly how this has to work to be valid. In most states, it means that the Summons and Complaint (see below) must be handed directly to you or to an adult member of your household. However, all states have laws to cover situations where you avoid service of process or cannot be served personally. Service of process must be done properly in accordance with the law of the state in question to be valid. These days we see many examples of improper service of process. If process is not served properly, this issue MUST be raised before any other defensive pleadings or it is waived.

6. Summons and Complaint

This is usually the first evidence that a borrower in a judicial state sees that his or her property is being subjected to foreclosure. A Complaint is filed by the lender or its agent, the loan servicer, with the Clerk of the court having jurisdiction over foreclosures in that county. The Clerk issues a Summons, and that, with the Complaint, is then delivered personally to the borrower and any other interested parties (other property owners, spouses, junior mortgages and liens, condominium and homeowners’ associations). Service of the Summons and Complaint starts the clock ticking for the party served to defend if he, she or it is going to do so. The party suing is the Plaintiff, the parties being sued are Defendants. The Complaint asks that the court accelerate the obligation to pay the entire mortgage debt in full, with all accrued costs, fees, advances and expenses.

7. Response

If a borrower or other interested party has any reason to contest a foreclosure, he she or it needs to file a Response to the Complaint unless there is a defective process service issue (see above). There are many different kinds of responses, and it is critical that the right one be utilized at the right time. Motions and other objections normally deal with preliminary matters of some kind, including technical defects in the Complaint, technical defects in service of process, etc. There are various kinds of preliminary motions. Most applicable usually to foreclosure, depending on the facts, are Motions to Quash Service, Motions to Dismiss, Motions to Strike, and often there are others, depending on the specific law and procedure of the state in question.

8. Response – Answer

Answers fully address the allegations of the Complaint. In most cases, if issues exist which can be raised by Motion or Objection, this is waived if an Answer is filed first. Answers raise legal issues which are defenses to foreclosure (See Guide – Defenses to Foreclosure). The amount of time allowed for a Response is governed by state law, usually 20 or 30 days. Many people try to file their own “Answer”. This is normally a very dangerous move. The filing of an Answer generally extinguishes the right to file preliminary motions, which can be critical to the correct handling of a defense case. The only things which should be contained in an Answer are legal defenses to foreclosure. These are rarely what you would expect. Typically, the sorts of things people file talk about their financial difficulties, about the fact that they are trying to get the mortgage company to work with them, or trying to get a better job, and that they need more time.

9. Default

If a Defendant does not file a response within the time allowed by law, the Plaintiff can cause default to be entered against that Defendant, which precludes his or her being able to raise defenses. In some states, it also allows the foreclosure to proceed without any further notice to defaulting defendants.

10. Counterclaim

If a borrower has been wronged by the mortgage lender or servicer, he or she may file a counterclaim. A counterclaim is just that – a suit within a suit, where the Borrower is suing the Lender or Servicer.

11. Discovery

Interrogatories, Requests for Production, Requests for Admission, Depositions – These are tools which can be used by any party to a lawsuit to obtain more information to prove or disprove his, her or its case. Interrogatories are written questions which one party serves on the other, demanding information. Requests for Production are requests for tangible things, such as documents, files, objects, etc. Requests for Admissions are used by attorneys to attempt to compel the other side to admit or deny issues. Depositions are in-person testimony, under oath, all of which is taken down by a court reporter. Cases may involve all or any combination of these, however each jurisdiction has specific rules as to when discovery can be propounded, how long the other side has to respond, and how to handle a failure to respond or to respond properly. Properly done discovery is usually the key to a successful outcome in a lawsuit.

12. Burden of Proof

Normally, whichever party raises an issue has the burden of proving it. This means that if I say you owe me money, I have to be able to prove it. If I say I own the mortgage on your home, I have to be able to prove it. As mentioned above, well-done discovery will allow your attorney to find out whether I can prove it or not. As an example, if you claim that the mortgage company did not apply payments correctly, you have to be able to prove it. You may be able to do this with your records, but it would also be of tremendous use to get the mortgage company’s records of what payments they applied to see if their records are right. So, in a Judicial Foreclosure, the Plaintiff has the burden of proving its right to foreclose, the amount of the debt and the existence and details of default. The defendant has the burden of proving any affirmative defenses he she or it raises.

13. Summary Judgment

Either party has the right to ask the court to grant summary judgment in its favor. Normally, the Motion for Summary Judgment is supported by affidavits from potential witnesses supporting their claims. If granted, that ends the case – it means the moving party wins. Summary judgment is the goal of foreclosure plaintiffs. Technically, it means that the court is convinced that there is no reason for a trial, that the pleadings and issues raised in the case by the parties demonstrate that the party requesting summary judgment does not have to do any more to prove its case. If a defendant does not raise issues which constitute defenses to foreclosure, and does not establish that there are issues that need to be sorted out at trial, the court is likely to grant summary judgment, since that removes one more case from the court’s swollen caseload.

14. Summary Judgement (Cont.)

If a defendant has been defaulted, the way to summary judgment for the Plaintiff is wide open. If a defendant has filed a homemade “answer” telling the court that he, she or it can’t pay right now, is trying to get a modification, is trying to get a better job, needs more time, likewise the way to summary judgment for the Plaintiff is wide open. If the defendant has properly raised legitimate issues, there is a chance of surviving summary judgment and if a summary judgment is improperly granted anyway, that may be a basis for appeal. The Order granting Summary Judgment normally itemizes the entire amount claimed to be due at that point – the entire mortgage debt in full, with all accrued costs, fees, advances and expenses. Once Summary Judgment is granted, the next step normally is the scheduling of a foreclosure sale.

15. Trial

If neither party is able to obtain Summary Judgment, and unless the dispute is settled by agreement, the next step is trial. Trial is a full scale proceeding. Some states allow for trial by jury, others do not, but most mortgage documents contain a jury trial waiver which the borrower consented to at closing. At trial a judge with or without a jury hears and rules on all the evidence presented, hears the arguments of counsel and makes a decision. If a Counterclaim has been filed and has not been disposed of via Summary Judgment, the counterclaim may allow for trial by jury. At the conclusion of the trial, if the Plaintiff wins, then it proceeds to set a sale (see below). If it loses, it will be unable to proceed any further with the foreclosure process. If it did lose, depending on the reason why, it may be possible for another Plaintiff to bring an action for foreclosure.

16. Foreclosure Sale

In order for a foreclosure sale to be held in a judicial foreclosure, the actual lawsuit must be over, either through Summary Judgment or after trial, and all that remains are the final details of getting the property sold. Again the process and details vary by state, but all entail setting a date for sale. Notice of the date is given to all interested parties and in many states also provided publicly in the newspaper and often now by posting on the web sites of Courts, Clerks of Court or other similar locations. The foreclosure sale is handled by a judicial officer – in some states it is the Sheriff, in some states it is the Clerk of Courts, in some states a referral is made to a court-appointed master. The date is set, notice is given, and then the actual sale occurs. It is generally in the form of an auction.

17. Foreclosure Sale (cont.)

The foreclosing lender sends a representative to bid. Its bid is usually the total amount due it, although sometimes if the property is underwater, the lender will reduce its bid in the hope that it will be outbid by a third party. If a junior lienholder or third party is the high bidder, it is the successful purchaser. However, in many places now, when the mortgage debt equals or exceeds the current value of the property, there are no other bidders, and so the mortgage company wind up as the high bidder. Normally the entire bid amount must be paid right away in full. There is some time period after the sale before the sale is confirmed. This varies by state. Once the sale is confirmed, a document is issued to the buyer conveying title. Depending on the state, it might be a Sheriff’s Deed, a Certificate of Title or some other instrument, but the practical effect is to convey title. Once the new buyer owns the property, they can do what they want, subject to right of redemption.

18. Deficiency Judgments

Many states provide a mechanism for a foreclosing Plaintiff to recover a deficiency judgment, usually consisting of the shortfall between the total owed by the borrower and the value of the property it recovers if it buys it at the foreclosure sale. In those states that permit this, a borrower is not done with the obligation simply because he she or it allows a foreclosure to be completed. It is very important to understand whether or not you may be exposed for a deficiency judgment before you decide whether to oppose foreclosure or to consider bankruptcy. For details of how deficiency judgments work in Florida, check my Legal Guide on deficiency judgments. While the guide is geared to Florida, the concept is similar in other states that permit it, although the details and time-frames vary. Some states do not allow deficiency judgments under some circumstances.

For Your Complete Judicial Foreclosure Kit With Well Structured Pleadings and Step by Step Guide For Your Wrongful Foreclosure Defense Visit:http://www.fightforeclosure.net

How Homeoweners Can Use Various Forms of Mortgage Fraud Schemes For Wrongful Foreclosure Defense

12 Monday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Loan Modification, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Scam Artists, Title Companies, Your Legal Rights

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Over the past few years, mortgage fraud continues to result in significant losses for both financial institutions and homeowners.

Mortgage fraud has continued to increase over the past few years. Declining economic conditions, liberal underwriting standards, and declining housing values contributed to the increased level of fraud. Market participants are perpetrating mortgage fraud by modifying old schemes, such as property flip, builder-bailout, and short sale fraud, as well as employing newer schemes, such as buy and bail, reverse mortgage fraud, loan modification and refinance fraud, and mortgage servicing fraud.

It is imperative that homeowners understand the nature of the various schemes involving mortgage frauds as this will help you to build rock solid defense when fighting your wrongful foreclosure to save your home.

Various individuals participate in mortgage fraud schemes. The following list consists of common participants in such schemes.

Appraiser                                Processor
Borrower                              Real Estate Agent
Buyer                                       Seller
Closing/Settlement Agent    Title Agent
Loan Servicer Underwriter
Originator    Warehouse Lender

BASIC MORTGAGE TRANSACTIONS

Basic mortgage transactions are generally the same whether the purpose of the loan is to purchase a property, refinance an existing loan, or obtain a loan against a property that is unencumbered and may be offered through one of the channels described below:

Retail

In retail transactions, the borrower makes an application directly with a financial institution loan officer. These mortgage transactions are the most basic and involve the fewest number of third parties, which may include appraisers and closing agents. Usually, the application package consisting of financial information, credit report, a collateral valuation report such as an appraisal or evaluation, title information, and various other credit-related documents, is compiled and forwarded to an underwriter for a credit decision. Upon approval, the financial institution then releases funds to a closing agent, who disburses funds to the various parties. The loan package is returned to the financial institution and reviewed for quality and accuracy. The loan is either held on the financial institution’s books or sold into the secondary market. Retail originations only include loans closed in the financial institution’s name.

Broker Origination

A broker-originated loan is similar to the retail transaction, except that the borrower makes an application with a mortgage broker. A broker is a firm or individual, acting on behalf of either the financial institution or the borrower, who matches a borrower’s financing needs with an institution’s mortgage origination programs. Brokers are compensated by receiving a commission expressed as a percentage of the total loan amount (e.g., 1 percent origination fee) from the borrower or through a yield-spread premium from the lender when the loan closes.

Brokers have played a critical role in the wholesale loan origination process and have significant influence on the total loan transaction. Brokers have served as the point of contact for the borrower and the lender, and coordinated the involvement of other parties to complete the transaction. A broker can perform some or most of the loan processing functions including, but not limited to, taking loan applications; ordering credit and title reports; verifying a borrower’s income and employment; etc.

Once the broker has gathered the necessary information, the application is submitted along with supporting documentation to one or more financial institutions for underwriting. The financial institution’s underwriter reviews the information and makes a credit decision. The financial institution also may perform pre-funding quality assurance activities, such as re-verification of income and employment.

A copy of the loan approval package, with documents prepared in the name of the financial institution, is then returned to the broker. Once the loan has closed, the completed package should be returned directly to the financial institution. Again, the financial institution may review the loan for quality and either retain the loan in its own portfolio or sell it.

Mortgage Loan Purchased from a Correspondent

In this transaction, the borrower applies for and closes a loan with a correspondent of the financial institution, which can be a mortgage company, another depository institution, finance company, or credit union service organization. The correspondent can close the loan with internally-generated funds in its own name or with funds borrowed from a warehouse lender. Without the capacity or desire to hold the loan in its own portfolio, the correspondent sells the loan to a financial institution. The purchasing financial institution is frequently not involved in the origination aspects of the transaction, and relies upon the correspondent to comply with the financial institution’s approved underwriting, documentation, and loan delivery standards. The purchasing financial institution may perform a quality control review prior to purchase. Also, the purchasing financial institution must review the appraisal or evaluation report and determine conformity with the Agencies’ appraisal standards, regulations, and supervisory guidance, as well as the financial institution’s requirements.

The loan can be booked in the financial institution’s own portfolio or sold.

In “delegated underwriting” relationships, the financial institution grants approval to the correspondent to process, underwrite, and close loans according to the financial institution’s processing and underwriting requirements. Proper due diligence, internal controls, approvals, quality control audits, and ongoing monitoring are warranted for these higher-risk relationships.

Each of the Agencies has issued detailed guidance on a financial institution’s management of its arrangements with third parties, including brokers, and associated risk. Examiners are encouraged to review and consider the guidance issued by their Agency in evaluating broker arrangements. Additionally, the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act) requires licensing and/or registration for all residential mortgage loan originators. The system is also used for state-licensed mortgage companies. More information is available at the website at http://www.stateregulatoryregistry.org and contains comprehensive licensing, registration, enforcement action that is expected to be made available to the public through the website in the near future.

COMMON MORTGAGE FRAUD SCHEMES

This post defines schemes as the big picture or secret plan of action used to perpetrate a fraud. There are a variety of “schemes” by which mortgage fraud can take place. These schemes can involve individuals inside the financial institution or third parties. Various combinations of these schemes may be implemented in a single fraud. The descriptions provided below are examples of traditional and emerging schemes that are used to facilitate mortgage fraud. Click on the link for each fraud scheme to learn more about that particular scheme.

Builder Bailout

This scheme is used when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties.

Buy and Bail

Chunking

Chunking occurs when a third party convinces an uninformed borrower to invest in a property (or properties), with no money down and with the third party acting as the borrower’s agent. The third party is also typically the owner of the property or part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications to multiple financial institutions for various properties. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties.

Double Selling

Double selling occurs when a mortgage loan originator accepts a legitimate application and documentation from a buyer, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the loan.

Equity Skimming

Equity skimming is the use of a fraudulent appraisal that over-values a property, creating phantom equity, which is subsequently stripped out through various schemes.

Fictitious Loan

A fictitious loan is the fabrication of loan documents or use of a real person’s information to apply for a loan which the applicant typically has no intention of paying. A fictitious loan can be perpetrated by an insider of the financial institution or by external parties such as loan originators, real estate agents, title companies, and/or appraisers.

Loan Modification and Refinance Fraud

This scheme occurs when a borrower submits false income information and/or false credit reports to persuade the financial institution to modify or refinance the loan on more favorable terms.

Mortgage Servicing Fraud

This fraud is perpetrated by the loan servicer and generally involves the diversion or misuse of loan payments, proceeds from loan prepayments, and/or escrow funds for the benefit of the service provider.

Phantom Sale

This scheme generally involves an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Property Flip Fraud

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers, buy and sell properties among themselves to artificially inflate the value of the property.

Reverse Mortgage Fraud

Reverse Mortgage Fraud involves a scheme using a reverse mortgage loan to defraud a financial institution by stripping legitimate or fictitious equity from the collateral property.

Short Sale Fraud

Fraud occurs in a short sale when a borrower purposely withholds mortgage payments, forcing the loan into default, so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer, when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Two additional fraud schemes, which are briefly addressed below, are debt elimination and foreclosure rescue schemes. While these schemes are typically not perpetrated directly on financial institutions, and therefore not expanded upon to the same degree as the above-mentioned schemes, the end result of the scheme can have a negative impact on the financial institution.

DEBT ELIMINATION SCHEME

Debt elimination schemes are illegal schemes that offer to eliminate a borrower’s debt for an up-front fee. The organizers of these schemes create phony legal documents based on the borrower’s loan(s) for presentment to the borrower’s financial institution or other lending institution in an attempt to falsely satisfy the loans.

The threat this fraud scheme presents to a financial institution is the borrower’s cessation of loan payments. Financial institutions may find that the use of the false documents complicates the collection process and may temporarily prevent any final action against the borrower.

FORECLOSURE RESCUE SCHEME

Foreclosure rescue schemes prey upon homeowners in financial distress or facing foreclosure, with the promise to help save their home. There are multiple variations of this scheme, often charging up-front fees and/or convincing the homeowner to deed the property to the fraudster, with the premise that the homeowner can rent or buy the property back once the individual’s credit has improved. The goal of the fraudster is to collect fees or mortgage payments that are intended for the lender, but are not delivered, usually resulting in the loan going into default and ultimately foreclosure, causing loss to the financial institution.

COMMON MECHANISMS OF MORTGAGE FRAUD SCHEMES

This post defines mechanism as the process by which fraud is perpetrated. A single mortgage fraud scheme can often include one or more mechanisms and may involve collusion between two or more individuals working in unison to implement a fraud. Click on the links to learn more about that particular mechanism. The following is a list of common mechanisms used to perpetrate mortgage fraud schemes:

Asset Rental: Cash or other assets are temporarily placed in the borrower’s account/possession in order to qualify for a mortgage loan. The borrower usually pays a “rental” fee for the temporary “use” of the assets.

Fake Down Payment: In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender.

Fraudulent Appraisal: Appraisal fraud can occur when an appraiser, for various reasons, falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party.

Fraudulent Documentation: Fraudulent documentation consists of any forged, falsified, incomplete, or altered document that the financial institution relied upon in making a credit decision.

Fraudulent Use of Shell Company: A business entity that typically has no physical presence, has nominal assets, and generates little or no income is a shell company. Shell companies in themselves are not illegal and may be formed by individuals or business for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Identify Theft: Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit.

Straw/Nominee Borrower: An individual used to serve as a cover for a questionable loan transaction.

EXAMPLES OF MORTGAGE FRAUD SCHEMES

– – – – Builder Bailout – – – –

A builder bailout occurs when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties. In stressed economic or financial conditions, a builder may be pressured to liquidate remaining inventory to cover financial obligations. To sell the remaining properties, the builder may use a variety of tools including, but not limited to, hidden down payment assistance or excessive seller concessions to elevate the sales price. As a result of the scheme, the unsuspecting financial institution is often left with a loan secured by inflated collateral value and the “real” loan-to-value is greater than 100 percent.

Examples:

– A builder convinces buyers to purchase property by offering to pay excessive incentives that are undisclosed to the lender, including down payments, “no money down promotions”, and/or closing cost assistance.

– In an effort to attract participants, a builder promises to manage properties as rentals and absorb any negative cash flow for the first 12 to 18 months.

– A builder forms one or more companies to purchase the builder’s inventory at inflated market values. The affiliated company finances 100 percent of the purchase amount and funnels the excess cash back to the builder. This scheme falsely inflates the property value, clouds the builder’s true ability to move the inventory, and disguises the fact that the builder is ultimately responsible for repayment of the loan.

– A builder forms a mortgage origination affiliate to originate fraudulent loans. The loan files contain credit discrepancies, fraudulent appraisals, and/or erroneous certificates of occupancy and completion.

– When the builder can no longer lure investors/speculators, the builder may employ straw buyers to purchase the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Excessive or unsubstantiated down payment.
• Unexplained large or multiple deposits reflected on deposit account statements.
• Borrower states that the property will be owner-occupied, but the property is located in a market dominated by investment properties or second homes (beach properties, duplexes, apartment buildings).
• Use of gift funds or grant funds.
• The HUD-1 shows disbursements from the builder’s (as seller) funds to persons or entities not reflected as lien-holders or vendors on the title commitment.
• Robust condominium sales in a slow market.
• All comparable properties are from the same project.
• Many loans to one applicant (credit report).
• No-money-down sales pitch (noted in marketing brochures or website).
• Reference to secondary financing on purchase contract, but not on the loan application.

• Parties to the transaction appear affiliated based on file documentation (personally/professionally).
• Incentives that include pre-paid condominium fees, principal and interest payments for a year, buy-down, free furniture, automobiles, parking spaces, boat slips, etc.

Companion Frauds

• Straw/Nominee Borrower

• Documentation Fraud (associated with income and assets)

• Fraudulent Appraisal

– – – – Buy and Bail – – – –

This scheme typically involves a borrower who is current on a mortgage loan, but the value of the house has fallen below the amount owed. The borrower continues to make loan payments, while applying for a purchase money mortgage loan on a similar but less expensive house because its value has declined. Alternatively, the borrower currently has good credit, but pending events are such that the borrower will soon be unable to afford monthly payments on the existing loan (e.g. loan term adjustments, job loss, debt accumulation, etc.) or qualify for a new loan. In either case, after the new property has been obtained, the borrower “walks” or “bails” on the first loan.

Examples:

A self-employed child-care service provider is living in a house purchased for $500,000 two years ago that is now worth approximately $350,000. Monthly payments on the adjustable rate mortgage loan are $3,000. In a few months the payments will adjust upward, as a result of the rate change, to $3,700, an amount the homeowner cannot afford. The homeowner finds a home selling for $200,000 and obtains a loan on that property by falsely claiming to rent the existing property. After moving into the second house, the borrower defaults on the initial mortgage loan.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Second home is substantially less in value and/or loan amount than the existing home.
• Borrower has minimal or no equity.
• Borrower is a first-time landlord (renting out the original property).
• Limited documentation is available to validate lease terms with the purported tenant.
• Purported tenant has a pre-existing relationship with the homeowner.

• Rental agreement appears suspect or projected rental cash flows appear unreasonable.
• Borrower defaults on the original mortgage loan shortly after purchasing a second property (only likely to be detected if the same lender holds both mortgages and loans).

Companion Fraud

• Fraudulent Documentation

– – – – Chunking – – – –

A third party convinces an uninformed borrower to invest in a property (or properties), with no money down, with the third party acting as the borrower’s agent. The third party is also typically the owner of the property, or is part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications on the borrower’s behalf to multiple financial institutions for various properties. These applications are submitted as owner-occupied or as an investment property with a falsified lease. The scheme usually requires the assistance of an appraiser, broker, and/or title company representative to ensure that the third party, as agent for the borrower, does not have to bring any money to the multiple closings. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties and suffer sizable losses.

Examples:

A borrower attended a seminar that outlined how to get rich by investing in real estate with no money down. A third party, a presenter at the seminar, encouraged the borrower to invest in three real estate properties. Under the third party’s guidance, the borrower completed the required application and provided documentation for the loans. The borrower was unaware that the third party owned numerous properties in the name of a Limited Liability Company and submitted applications on not just the three properties known to the borrower, but on a total of 15 different properties. Each application was sent to a different lender, and all were scheduled to close within a one-week timeframe. The borrower attended three of the closings with a different representative of the LLC as the seller. The third party then acted as an agent for the borrower, with power of attorney, at the other 12 closings. The borrower ended up with 15 mortgage loans instead of the three for which he had knowledge, and the lenders were stuck with loans to a borrower without the ability to repay the debts and were forced to foreclose on the properties.

Fraudsters approached nominees (straw borrowers) and enticed the nominees into allowing the fraudsters to apply for mortgage loans in the nominees’ names in order to buy houses. The fraudsters paid the nominees a small amount for allowing the fraudsters to use the nominees’ names to apply for the mortgage loans. The fraudsters completed the loan application paperwork with falsified information in order for the nominees to qualify for the loans. The fraudsters then received inflated property appraisals and obtained two mortgages on each home, one for the purchase price and another for the balance of the appraisal value.

According to the fraudster, the nominee will have no involvement beyond the mortgage application and the fraudster will manage the properties, find tenants, collect monthly payments, and pay the mortgage loans. The tenants, with insufficient credit, are placed in the homes under proposed lease/option-to-buy contracts. The fraudster fails to make a majority of the nominee’s mortgage loan payments, causing many of the mortgage loans to go into default. In some instances, the fraudster steals the tenants’ deposit money. Ultimately, lenders foreclose on the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Multiple mortgage applications by one borrower.
• Credit report that reflects numerous mortgage inquiries.
• Out-of-state borrower.
• Seller that is a corporation or LLC.
• Seller that owns property for a short period of time.
• Previous transfer price that is much lower than current contract price.
• Incomplete lease agreements.
• Payoffs from seller’s funds to non-lien holders and vendors on the title commitment.

Companion Frauds

• Fraudulent Documentation

• Fraudulent Appraisal
• Identity Theft
• Property Flip Fraud
• Double Selling

– – – – Double Selling – – – –

A mortgage loan originator accepts a legitimate application and related documentation from a borrower, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the same loan. In some instances, double selling is self-perpetuating because, to keep the scheme going, different loans must be substituted for the ones on which documents cannot be provided. Under this scheme, the broker has to make payments to the investor who received the copied documents or first payment default occurs.

Examples:

– A borrower colluded with a mortgage broker to use the borrower’s property as collateral for numerous home equity lines of credit (HELOCs) at different financial institutions. The scheme was executed by closing on multiple HELOCs in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower’s financial information in order to increase the borrower’s debt capacity. The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions.

– A mortgage company used a group of financial institutions (referred to as warehouse lenders) to temporarily fund mortgage loans, which were then sold to another group of financial institutions as long-term investments. The scheme was accomplished by reselling the same loans to multiple investors. Accumulated losses associated with this scheme were in the millions of dollars.

Red Flags

• Discrepancies between underwriting and closing instructions.
• Outstanding trailing documents (e.g., executed note, deed, truth-in-lending, settlement statement, etc.)
• Missing or illegible insured closing letter in the name of the originator from the title company.
• Recent and numerous changes in the wiring instructions.
• Incorrectly named insured and loss payee on the hazard insurance policy.
• Missing mortgage insurance or guaranty, certificate of eligibility.
• Missing purchase commitment from investor – investor lock.

Companion Frauds

• Fraudulent Documentation
• Identity Theft

– – – – Equity Skimming – – – –

The use of a fraudulent appraisal, unrecorded liens or other means to create phantom equity, which is subsequently stripped out through either of the following methods:

Purchase Money Transaction

An inflated appraisal and sales contract allows the purchaser to obtain property with little or no down payment. The parties agree to raise the selling price to cover the buyer’s closing costs and/or down payment, or to obtain cash back at closing. As a result, the loan amount is higher than what the house is worth, effectively skimming all of the phantom equity out of the property.

Cash-Out Refinance Transaction

In the case of a refinance, the inflated appraisal or lack of recordation allows the borrower to extract cash in an amount greater than the actual value of the property.

Examples:

– A good example of an equity skimming scheme required a two-step process. In the first step, a loan officer and real estate agent colluded to purchase houses using false information on applications to qualify for loans. The second stage required the collusion of an appraiser to overstate the value allowing equity to be skimmed through the cash-out refinance process. Once no more equity could be extracted, the houses were allowed to go into foreclosure.

– A skimmer/purchaser convinces a property seller to provide a second mortgage loan with payments to begin later, perhaps in 6-12 months. During this period, the skimmer makes no payments on either the first or the second mortgage loan. In situations where the second mortgage is unrecorded, the skimmer will obtain a home equity or closed-end second mortgage, causing a loss to the issuing financial institution. By the time the seller realizes that they will not receive payments, the first mortgagee has begun foreclosure proceedings.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower receiving cash back at closing in a purchase transaction.
• Title to property recently transferred.
• Cash-out refinance shortly after the property has been purchased (reference application, appraisal, and title commitment).
• Purpose for cash-out is not well documented.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation (employment and income)

– – – – Fictitious Loan – – – –

Examples:

A mortgage broker created loan applications by using names, addresses, and phone numbers out of the telephone book. These loans were subsequently funded by various financial institutions. As the loans were fabricated and no properties existed, the loans went into default and were charged off.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Signatures are not consistent throughout the file.
• No real estate agent is employed.
• SSN was recently issued, or there is a death claim filed under SSN.
• Format of the passport number is not consistent with country of issuance.
• Employment and/or address on credit report do not match borrower’s application or there is an absence of credit history.
• Credit history is inconsistent with the borrower’s age.
• Returned mortgage loan payment coupons and/or monthly statements.
• Early payment default.

Companion Frauds
• Straw/Nominee Borrower
• Fraudulent Documentation
• Fraudulent Appraisal

– – – – Loan Modification and Refinance Fraud – – – –

Borrower submits false income information and/or false credit reports to persuade a financial institution to modify or refinance a loan on more favorable terms.

With respect to any mortgage loan, a loan modification is a revision to the contractual payment terms of the related of the related mortgage note, agreed to by the servicer and borrower, including, without limitation, the following:

1. Capitalization of any amounts owed by adding such amount to the outstanding principal balance.
2. Extension of the maturity.
3. Change in amortization schedule.
4. Reduction or other revision to the mortgage note interest rate.
5. Extension of the fixed-rate payment period of any adjustable rate mortgage loan.
6. Reduction or other revision to the note interest rate index, gross margin, initial or periodic interest rate cap, or maximum or minimum rate of any adjustable rate mortgage loan.
7. Forgiveness of any amount of interest and/or principal owed by the related borrower.
8. Forgiveness of any principal and/or interest advances that are reimbursed to the servicer from the securitization trust.

9. Forgiveness of any escrow advances of taxes and insurance and/or any other servicing advances that are reimbursed to the servicer from the securitization trust.
10. Forbearance of principal whereby the servicer “moves” a certain interest free portion of the principal to the “back-end” of the loan, lowering the amortizing balance and the monthly payment.

Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security. A homeowner may refinance for the following legitimate reasons:
• In a declining interest rate environment a refinance generally will lower monthly payments.
• In a rising interest rate environment a refinance to a fixed rate loan from an adjustable rate loan will generally allow the borrower to lock in the lower rate for the life of the loan.
• In a period of rising home prices the refinance allows the borrower to withdraw equity.

Examples:

– Two years after the origination of a mortgage loan, a borrower contacted the lender, claiming a need to modify the loan. In an attempt to deceive the lender into modifying the loan, the borrower stopped making loan payments. The borrower’s original loan application indicated that the borrower earned $7,500 per month; however, the borrower subsequently claimed income of only $1,200 per month. While evaluating the need for the modification, the bank reviewed the borrower’s credit report and determined that the customer’s supposed annual income of $14,400, was insufficient in comparison to the reported $40,000 per year servicing other debt, which was current. The bank stopped the modification process, as the borrower had intentionally understated income in an attempt to defraud the financial institution.

– A borrower contacted the lender claiming a reduction in income and trouble with making loan payments. The borrower provided the lender with a copy of his most recent tax return, which showed an adjusted gross income (AGI) of $45,000, down from the previous year’s $96,897. The borrower signed Form 4506-T, authorizing the lender to access tax returns filed with the IRS. In reviewing the tax information obtained from the IRS, the lender found that the borrower had recently amended the most recent return, lowering the AGI from $105,670 to $45,000. In this scenario, the borrower had purposely amended the return to reflect a lower AGI, possibly with the intent of amending it a second time to reflect the true amount of income.

– A borrower requests a loan modification for a property that he claims to occupy. Based on the various facts provided to the lender, it appears that the borrower is eligible for a modification. When underwriting the modification, the lender verifies the borrower’s income with the IRS. During the verification process, the lender recognizes two potential problems with the information provided. The address on the tax return is different than the address of the house collateralizing the loan, and the return reflects rental income from real property. After additional investigation, the lender concludes that the customer was trying to modify the loan on rental property and not on the primary residence.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower states that the property is his primary residence and is therefore owner-occupied but the mailing address and telephone number are not for the subject property (e.g., property is located in North Carolina; mailing address and telephone number are in New York).
• Vague and/or unrealistic hardship (“the national economy”).
• No documented resolution of hardship.
• No or limited financial analysis in file.
• No employment/income verification.
• Credit Report inconsistent with borrower’s stated hardship.

• Financial reports that reflect low delinquencies that are inconsistent with local economic conditions or the bank’s loan portfolio composition.

Companion Frauds

• Fraudulent Documentation
• Fraudulent Appraisal (refinance)

– – – – Mortgage Servicing Fraud – – – –

Mortgage servicing typically includes, but is not limited to, billing the borrower; collecting principal, interest, and escrow payments; management of escrow accounts; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an owner or investor (if the loan has been sold in the secondary market). A mortgage service provider is typically paid on a fee basis. Mortgage servicing can be performed by a financial institution or outsourced to a third party servicer or sub-servicer.

Mortgage servicing fraud generally involves the diversion or misuse of principal and interest payments, loan prepayments, and/or escrow funds for the benefit of the service provider. Mortgage servicing fraud can take many forms, including the following:

• A mortgage servicer sells a loan it services, but fails to forward funds to the owner of the loan following the sale. The servicer continues to make principal and interest payments on the loan so the owner is not aware that the loan had been sold.

• A mortgage servicer diverts escrow payments for taxes and insurance for its own use. This action would jeopardize a financial institution’s collateral protection.

• A mortgage servicer that fails to forward principal and interest payments to an institution that holds the note and mortgage, could report that loan as past due for a short period of time, and then use proceeds from other loans to bring that loan current. This would be similar to a lapping scheme involving accounts receivable. Deliberately failing to post payments in a timely manner causes late fees to increase which directly elevates the servicers’ income.

• A mortgage servicer makes payments on loans originated for or on behalf of a financial institution as a means to avoid repurchase pursuant to first payment default provisions.

Examples:

– Several insiders of a mortgage company fraudulently sold serviced loans belonging to other financial institutions and kept the proceeds. An insider modified data in the servicing system to make it appear the loans were still being serviced and were current.

– Two executive officers of a mortgage company took out personal mortgage loans in their names which were subsequently sold to an investor, with servicing retained by the mortgage company. The executives did not make any payments on their loans and suppressed delinquency reporting to the investor, allowing them to “live free” for a period of time until the investor performed a servicing audit and discovered the fraud.

Red Flags

• Failure of the financial institution to perform an on-site review of the servicer (loan documents, servicing records, etc.)
• A review of remittance reports provided to the financial institution by servicer finds a:
o Lack of detail within the remittance reports (principal reduction, interest paid, late fees charged and paid).
o Remittance reports that fail to reconcile with bank records.
• A review of delinquency reports provided to the financial institution by the servicer finds a:
o Lack of detail within delinquency reports.
o High volume of delinquent loans.
• A review of portfolio reports provided to the financial institution by the servicer finds a:
o Lack of detail within portfolio reports (listing of loans owned by the financial institution being serviced by the servicer including current balance).
o Portfolio reports that fail to reconcile with bank records.
• Annual review reveals detrimental information or deteriorating financial condition of the servicer.
• County records indicating lien holders are unknown to the financial institution.
• Excessive delay in a servicer’s remittance of principal and interest payments, escrow payments, or prepayments.
• Cancellation or reductions in coverage on servicer’s insurance policies, including errors and omissions policies.
• Failure of the servicer to maintain copies of original payment documents (e.g., loan payment checks) verifying borrower as the source of payments.
• Excessive errors related to payment calculations on adjustable rate loans or escrow calculations.

Companion Fraud
• Fraudulent Documentation

– – – – Phantom Sale – – – –

Phantom sales typically involve an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Examples:

– The perpetrator identifies an apparently abandoned or vacant property and records a fictitious quit claim deed to transfer the property into the perpetrator’s name. Once the perpetrator has recorded the necessary document, he has several options:

• Apply for and execute a loan secured by the property. He pockets the loan proceeds and disappears.
• Transfer the property to a co-conspirator. The new owner applies for a loan, splits the proceeds with the original perpetrator, and both disappear with the money.
• Transfer the property to a false name, apply for a loan in the false name, pocket the proceeds and disappear.
• Sell the property to an uninvolved third party, pocket the proceeds, and disappear.

In the first three scenarios the financial institution is left with a mortgage loan that has no payment source and is collateralized by fraudulently obtained property. This results in a 100 percent loss to the financial institution once the fraud is exposed. In the last example, both the purchaser and financial institution are defrauded.

Red Flags

• Title search reveals a recent ownership transfer via quit claim deed.
• Ownership transfers via quit claim deeds in an area where such is not normal.
• Quit claim deed owner is not from subject area.
• Quit claim deed owner is unrelated to former owner.

• Quick sale to third party after quit claim deed owner acquires property.

Companion Frauds

• Fraudulent Appraisal
• Identity Theft
• Straw/Nominee Borrower

– – – – Property Flip Fraud – – – –

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers buy and sell properties amongst themselves, normally within a short time frame, to artificially inflate the value of the properties. This scheme is designed to extract as much cash as possible from the property, and the loan proceeds are often used for purposes not stated on the application.

There are a number of variations of the fraudulent property flip, some of which are more prevalent than others depending on the current economic conditions. Some schemes occur in geographic areas experiencing significant property value appreciation or in stagnant markets, where properties have been on the market for extended periods of time. An essential party in this scheme is a complicit appraiser, who fraudulently provides an inflated opinion of the property’s market value. The following are two variations of fraudulent property flips:

• A buyer purchases a property at market value and on the same day sells the property, at an inflated price in excess of the true market value to a straw buyer who has been paid to act as a buyer. The financial institution lending to the straw buyer typically is unaware of the prior purchase by the fraudster earlier that same day.

• A seller, whose property has been on the market for an extended period of time, is approached by a buyer/borrower who makes an offer on the property that is substantially higher than the market value. A financial institution funds the loan based on a fraudulent appraisal that inflates the value of the property. In some cases, the inflated value is supported by non-existent home improvements that were to be made. For example, a seller lists a property for $250,000 and a buyer/borrower offers $299,000. At closing, the seller receives the net proceeds of $250,000 on the original asking price of the home and the surplus of $49,000 is disbursed to the fraudsters through a payoff from the seller’s funds on the HUD-1 Settlement Statement at closing.

Examples:

– A group of individuals was organized by a real estate agent to flip properties. Each participant acquired a property with 100 percent financing, prior to the real estate market peak. The properties were then sold repeatedly amongst the individuals and /or their spouses to increase the market value. Title to some of the properties is held in trusts, obscuring ownership.

However, once the group obtained the requisite amount of cash, the loans were allowed to go into default. The participants split the loan proceeds in excess of the true market value for perpetrating the scheme.

Red Flags

• Property listed for extended period of time and sells for higher than list price.

• Property has been transferred or sold within the last six months.
• The property is advertised as “For Sale by Owner”.
• Value of the property has notably increased with no improvements or improvements are insufficient to justify the increase.
• Borrower has limited capacity to repay (e.g., high debt-to-income ratio)
• The property seller is not the owner of record.
• Purchase is disguised as refinances to circumvent down payment.
• Seller is an entity/corporation.
• Power of attorney used without explanation.
• Borrower owns excessive amount of real estate.
• Similarities on multiple applications received from a specific seller or broker.
• Notes in loan file suggest borrower pushed for a quick closing.
• Appraiser is not on list of approved appraisers.
• Appraisal was ordered by a party to the transaction or before the sales contract, or appraisal is a fax.
• Borrower named on the appraisal is different from applicant.
• Appreciation is noted in an area with stable or declining real estate prices.

• Comparables on the appraisal are unusual.
• Inconsistencies in VOE or VOD.
• Violation of the lender’s closing instructions.
• Same individuals involved as buyers and/or sellers in multiple transactions, which may be noted on the deed, title abstract, or other real estate documents found in file.
• Unusual credits or disbursements on settlement statements or discrepancies between the HUD-1 and escrow instructions.
• First payment default on loan.

Companion Frauds
• Fraudulent Appraisal
• Fraudulent Documentation
• Identity Theft
• Straw/Nominee Borrower

– – – – Reverse Mortgage Fraud – – – –

The rapid growth in and changes to the reverse mortgage market have created a lucrative environment for fraudulent activities. The vast majority of reverse mortgage loans are offered through HUD and are FHA-insured; the products are commonly referred to as Home Equity Conversion Mortgages (HECMs). According to data maintained by HUD and other sources, the reverse mortgage loan market increased over the last 5 years from approximately “$5.4 billion a year to more than $17.3 billion in 2008.”4
In addition, recent legislation increased the dollar amount of HECMs to $625,000, and purchase money transactions became effective in 2009. The primary requirements imposed by HUD are that the borrower has attained age 62 and that the collateral value supports the loan amount. There is no requirement to have owned the property for any minimum amount of time, and the loans do not require monthly repayment. Therefore, the loans are primarily underwritten based on the age of the youngest borrower and value of the home being used as collateral.

Reverse mortgage fraud is a scheme where legitimate or fictitious equity is stripped from the collateral. The lump-sum cash-out option will yield the greatest amount of loan proceeds, and likely will be where most fraud occurs. However, fraud may occur in other reverse mortgage loan products. For example, under the term program, where a borrower receives equal monthly payments for a fixed period of time, older borrowers will receive higher payments due to a shorter payment stream, creating a direct incentive to falsify age. Due to the structure of the HECMs, there are no warnings, such as past-due status or default, to raise suspicions, and possibly limit losses, as repayment is only required upon the borrower moving out of the property; upon death; default of property taxes or hazard insurance; or the property is in unreasonable disrepair.

Examples:

Property title is transferred into the perpetrator’s name and quickly re-titled into a straw buyer’s name. A lump-sum cash-out reverse mortgage loan is obtained and is premised on collusion of an appraiser who provides an “as if” renovated appraised value to fraudulently increase the market value. The perpetrator also places fictitious liens on the property to divert loan proceeds to himself.

Red Flags
A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.

• No notes in loan file pertaining to how the proceeds will be used, or notes indicate that proceeds will be used for unspecified monthly living expenses, but the loan is a lump-sum cash-out option.
• File notes indicate that the borrower does not exhibit any knowledge of the property, such as location, number of rooms, etc.
• The property title may have been “abandoned” by the local government and then transferred into the perpetrator’s name. The property may then be re-titled into the borrower’s name via either a warranty deed or a quit claim deed.
• Files contain notices that property taxes are delinquent, indicating default under the terms.
• Files contain notices that property insurance has lapsed, indicating default under the terms.
• Loan file information shows mail as returned to sender, possibly indicating the “owner” is no longer occupying the property and did not provide a forwarding address. An event of default occurs, when the owner no longer lives in the property.
• The title search (if performed) showed that the property title recently transferred to the borrower’s name, following a very short ownership by the seller, indicating the possibility of a flip transaction.
• Lender search of public records for either assessed value or sales prices show that the neighborhood is valued at substantially less than the subject property.
• Problems with the appraisal report may include:

– The report was prepared for a third party and not ordered by the financial institution.

– Comparable properties are not in the same neighborhood.

– Prior sales history is inconsistent with title search results.

• Refer to Fraudulent Appraisal for further details on potential appraisal fraud red flags.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation
• Property Flip Fraud

– – – – Short Sale Fraud – – – –

A short sale is a sale of real estate in which the proceeds from the sale are less than the balance owed on the loan. The borrower may claim to have financial hardship and offers to sell the property so the financial institution will not have to foreclose. The financial institution and all interested parties, including other lien holders and any mortgage insurer, must approve the transaction. Some institutions may be motivated to approve a short sale because it is faster, results in a smaller loss than the prospect of a foreclosure, and does not increase the level of Other Real Estate Owned. Depending on the settlement and the state where the property is located, the deficiency balance may be forgiven by the financial institution.

Not all short sales are fraudulent. However, fraud occurs when a borrower withholds mortgage loan payments, forcing the loan into default so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Examples:

– A fraudster uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage loan. The straw buyer makes no payments on the loan and the property goes into default. Prior to foreclosure the fraudster makes an offer to purchase the property from the lender in a short sale agreement below market value. The lender agrees without knowing that the short sale was premeditated.

Red Flags

• Sudden default with no workout discussions and immediate request for short sale.
• Loan file documentation suggests ambiguous or conflicting reasons for default.
• Mortgage loan delinquency is inconsistent with the borrower’s spending, savings, and other credit patterns as indicated in the credit report.
• Short-sale offer is from a related party, which is sometimes not disclosed, or straw buyer.
• Short-sale offering price is less than current market value.
• HUD-1 Settlement statement shows cash-back at closing to the delinquent borrower, or other disbursements that have not been expressly approved by the servicer (sometimes disguised as “repairs” or other payouts).
• Fraudulent appraisal to support below market price.
• Seller intentionally lowers value of property by causing excessive, but cosmetic, damage or hiding dead animals to produce offensive odors. Adjustment to value is exaggerated downward even though costs for rehabilitation are low.
• Seller feigns financial hardship and hides assets – large volume of assets on original loan application have dissipated without explanation.
• County records show that the property was flipped soon after short sale with a higher price.
• County records show ownership is transferred back to the seller after short sale.
• Site visit or registered mail is not returned indicates seller continues to reside in the property.
• Real estate agent is in collusion with seller and withholds competitive/higher offers.
• Unusually high commission is paid to real estate agent.

Companion Fraud
• Fraudulent Documentation

*********** Fraud Mechanisms **********

Asset Rental

Asset rental is the rental of bank deposits or other assets, which are temporarily placed in a borrower’s account, in order for a borrower to qualify for a loan. The borrower usually pays some fee, such as a rental fee, for the temporary “use” of the asset. Asset rental programs have been generally described as tools to help borrowers whose financial condition poses a roadblock to being approved for a loan. Most often, the rental involves deposits or credit histories. Asset rental is a tool that can be used to commit mortgage fraud.

Deposit rental is a means to inflate an individual’s assets. An individual typically pays an origination fee of 5 percent of the amount of the deposit to be rented and a monthly fee of 1 percent to 1¾ percent of the deposit amount. The rented deposit can be owned by a third party that purports to be a financial institution or adds the borrower’s name to a real deposit account without granting access. The third party agrees to verify the deposit to any party authorized by the borrower. Written statements and verifications of deposit are available for an extra fee.

Credit histories are rented in an effort to raise an individual’s credit score. An individual typically pays a fee and is added to another individual’s credit card account as a non-user. The borrower has no access to or use of the credit card but benefits from the actual credit card holder’s timely payments.

In addition to asset rental, some companies also have advertised verification of employment and income services. Individuals fill out a form listing annual and monthly income and sources. Upon receipt of fees, the company verifies income and employment to lenders or others as authorized by the borrower.

Examples:

– A borrower would like to purchase a $450,000 house. Unfortunately, his $71,000 bookkeeper salary and $13,000 in a savings account do not meet the underwriting standards for the amount of the loan. The borrower, however, is certain that his salary will continue to increase at a minimum of 10 percent per year.

The borrower rented a $40,000 deposit account, for a fee of $2,000; the loan application reflected the $40,000 account as an asset. In addition, the borrower expected a raise the following year to $78,000, and enlisted an entity to verify that salary amount. The $78,000 was shown on the loan application as his current income. The loan file contained a verification of deposit for the $40,000 account, a verification of employment form verifying his job as an accountant, and a verification of income form for his $78,000 salary.

Red Flags

• Verification of Deposit (VOD), Verification of Employment (VOE) and Verification of Income (VOI) from a common source that is not the employer or the financial institution where the deposit is held.

• Information on credit report that is not consistent with information on VODs, VOEs and VOIs.
• Even numbers only appearing on the VODs and VOIs. Discrepancies between the deposit account establishment date and the date the borrower says it was established in the loan application process.

Fake Down Payment

In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender. Collusion with a third party, such as a broker, closing agent, appraiser, etc. often exists to raise the purchase price and make it appear that the buyer is making a down payment to cover the difference between the purchase price and proposed loan. A fake down payment reduces the financial institution’s collateral position and in some cases, a financial institution may be financing over 100 percent of the purchase. Without the fake down payment, the financial institution would not have otherwise made the loan.

Examples:

A borrower wants to purchase property but does not have the money for a down payment. He offers the seller more than the asking price to give the appearance that the buyer is putting money down in order to get the loan. The seller agrees to amend the contract to reflect the increased price. The increase in sales price is not disbursed to the seller. Instead, a false payoff from the seller’s funds is reflected on the HUD-1 Settlement Statement when in reality, the seller provides the funds to the borrower for the down payment.

– A third party broker has a borrower interested in a loan to finance the purchase of a home. The borrower does not have sufficient funds available to meet the lender’s LTV requirements. Therefore, the broker loans the borrower $10,000 to use as a down payment, and the funds are represented to be a gift from family. The borrower and broker then enter into a loan agreement. The loan is to be secured by a lien against the house. Approximately ten days after closing of the purchase transaction, the broker records the second lien against the house to secure the down payment loan.

Red Flags

• Source of funds for down payment cannot be verified.
• Down payment appears to be accumulated suddenly instead of over time.
• Deposit is a rented account (refer to asset rental) or has a round dollar balance.
• Down payment source is held in a non-financial institution such as an escrow trust account, title company, etc.
• Market value of property is inflated.
• Property sells above asking price even though on the market for an extended period of time.

Fraudulent Appraisal

Appraisal fraud can occur when an appraiser for various reasons falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party. In addition, appraisal fraud occurs when a person falsely represents himself as a State-licensed or State-certified appraiser or uses the identity of an appraiser as his own.

One common form of appraisal fraud relies on overvalued or undervalued property values, also known as artificial inflation/deflation using one or more valuation approaches. A buyer and a real estate professional will use a willing appraiser to artificially modify the value of a property. The property’s false inflated value can be used to secure a second mortgage, place the property on the market at a greatly inflated price, or secure an initial mortgage loan that will be defaulted upon at a later time. An undervalued appraisal can be used to assist in a short sale or loan modification fraud scheme.

Examples:

– A couple obtains financing for the purchase of their first house, contingent upon the house value. The couple plan to use the $8,000 tax credit for the down payment and closing costs and only have nominal cash available, so there is no possibility that the couple could cover the difference if the house doesn’t appraise. The couple’s loan officer arranges for an appraisal of the property, but sends the appraiser the standardized form with the final market value section completed. The appraiser wants to continue his relationship with the mortgage broker, so he agrees to develop an appraisal report to support the value provided. The property is compared to properties outside of the general area where the subject house is located. Without knowledge of that area, it appears, to anyone reviewing the appraisal report, that the comparable properties provide support for the value. However, no adjustments have been made for the facts that the comparable properties are newer, larger, in better condition, and in a better location than the subject property.

– A house being appraised has materially less square footage than the comparable properties. To boost the square footage of the subject property, the appraiser doubles the square footage of the unheated out-building, that is used for lawn equipment, and adds that square footage to the square footage of the house. No adjustments are made to the comparable properties, since now the subject and comparable properties have similar square footage. A review of the square footage of the house and out-building clearly shows that the appraiser intentionally misrepresented the property value.

Red Flags

There are various red flag indicators that can be used to identify the possibility of appraisal fraud. The identification of red flags could suggest individual fraud activities or more complex fraud schemes. Such red flag indicators for appraisal fraud are subdivided into categories below:

Appraisal Engagement Letter/Appraisal Ordering

• There is no appraisal engagement letter in file or the appraisal does not correspond to the engagement letter.
• The appraisal was ordered or provided by the buyer, seller, or an unidentified third party to the transaction rather than the financial institution or its agent.
• The appraisal was order by the financial institution loan production staff rather than from an independent office within the institution.

The Appraiser/Appraiser Compensation

• Appraiser was not located in reasonable proximity of the subject property and it is unclear that the appraiser has appropriate knowledge of the local market.
• Appraiser licensing/certification information is missing or appraiser information is clouded in some way.
• Appraisal fee is based on market value of subject property.
• Appraiser has had enforcement action taken against him or is not otherwise eligible to perform appraisals for federally related transactions (www.ASC.gov).

Property Comparables

• Comparable properties are materially different from subject property.
• Comparable properties are outside a reasonable radius of the subject property (except for rural properties).
• Comparable property sales are stale without an explanation.
• Appraiser makes large value adjustments to comparable properties without adequate explanation.
• Recent and multiple sales for subject and/or comparables are shown in the appraisal without adequate explanation as to the circumstances.

Appraisal Information and Narrative

• The market value in the appraisal report is lower than purchase price.
• Listing rather than sales information was used to determine value.
• Evidence of appraisal tampering (e.g., different font style, handwritten changes).
• Refinance transaction shows property recently listed “for sale”.
• Market rent is significantly less than rent amounts indicated on lease agreement.
• Income approach is not used on a tenant-occupied, or rented single-family dwelling.
• Significant appreciation or devaluation in short period of time.
• Appraisal indicates transaction is a refinance when it is a purchase.
• Appraised value is contingent upon property improvements or curing of property defects.
• Abnormal capitalization or discount rates without explanation.
• Appraisal dated before loan application date.
• Significant variances in property value among the Cost, Income, and Sales approach.
• Appraisal excludes one or more valuation approaches when such an approach is pivotal to the loan underwriting decision.
• Owner is someone other than seller shown on sales contract.
• Unusual or frequent prior sales are listed for subject and/or comparables without adequate explanation.
• Occupant noted as “tenant” or “unknown” for owner-occupied refinances.

Appraisal Photographs and Mapping (Comparable and Subject)

• Photos missing, non-viewable, or blurry.

• A “For Rent” or “For Sale” sign shows in the photos of the subject property for an owner-occupied refinance.
• Photos do not match property description.
• Photo background image is inconsistent with the date or season of the appraisal.
• Photos of subject property taken from odd angles to mask unfavorable conditions.
• Negative valuation factors are not disclosed in appraisal (e.g., commercial property next door, railroad tracks, or another structure on premises).
• Photos for the subject property and comparables appear to be from different photo source (e.g., internet photos).
• Appraisal maps showing location of subject and comparables is either absent or shows wide geographical separation from subject property.

Other Appraisal Information

• Documentation in loan file suggests a re-appraisal due to appraisal results or the stated value of subject property without an explanation.
• Loan file contains more than one recent appraisal with significant variance in value without an explanation.
• House number of property in photo does not match the subject property address.
• A fax or an electronic version of the appraisal is used in lieu of the original containing signature and certification of appraiser.
• The appraisal was not reviewed prior to loan funding or appraisal was reviewed by loan production rather than an independent office within the institution.

Fraudulent Documentation

Documentation fraud occurs when any document relied upon by the financial institution to make a credit decision, is forged, falsified, or altered. Fraud can also occur if proper due diligence and verification practices are not consistently applied. Similarly, obtaining documents to satisfy a checklist is not the same as having verified the authenticity of the document.

Documentation Types

1. Sales Contract

Sales contracts may be falsified to reflect higher sales prices. These higher sales prices are intended to produce higher comparables for appraisal purposes and result in artificially inflated values. The inflated values result in a higher loan amount than would otherwise be justified. Additionally, falsified seller identity may be used to perpetrate frauds, such as transferring property via falsified deeds or listing property for sale that the seller does not legally own. The identity of the buyer and/or seller may also be falsified in order to disguise a flip transaction or the use of a straw borrower.

Red Flags

• Borrower is not listed as purchaser on the sales contract.
• Seller listed on contract is not the owner listed on title or appraisal.
• All parties did not sign the sales contract and/or addendum.
• Sales contract is not dated or dated after other file documents (unless it is a pre-qualification.)
• Sales contract is received at the last minute or has been changed from the previously submitted contract.

2. Loan Application

Parts of or the entire application may be falsified.

Red Flags

• Application states purpose is for refinance, but the credit report and/or tax records do not indicate the borrower owns the property.
• Purchase amount of the property differs from the sales contract.
• Borrower claims the property will be owner-occupied, when the intent is for investment/rental purposes.
• Application shows all assets, but liabilities are inconsistent with those reported on the credit report.
• Assets are inconsistent with job position and income.
• Omission of some or all properties owned by the borrower in the real estate section of the application.
• Borrower declarations are inconsistent with credit report.
• Debt-to-Income ratios are exactly at maximum approval limits
• Misrepresentation of employment and income.

3. Credit Report

The credit report contains significant information reflective of the borrower’s ability and desire to repay debt obligations. Credit reports are sometimes altered so that a borrower can meet specific loan requirements. For example, credit scores can be changed (increased) through scanning and alteration of information.

Red Flags

• The absence of credit history indicating the possible use of an alias and/or multiple social security numbers.
• Borrower recently pays many or all accounts in full, possibly indicating an undisclosed debt consolidation loan.
• Indebtedness disclosed on the application differs from the credit report.
• The length of time trade lines were opened is inconsistent with the buyer’s age.
• The borrower claims substantial income but only has credit experience with finance companies.
• All trade lines opened at the same time with no explanation.
• Recent inquiries from other mortgage lenders are noted.
• AKA (also known as) or DBA (doing business as) are indicated.

4. Driver’s License

Government issued driver’s licenses can be partially verified through entities that can identify whether the licensing number sequence complies with the state’s system. However, state issued identification cards do not always have the same quality.

Red Flags

• No hologram.
• No photograph.
• Name, address, physical characteristics do not match.
• Expired driver’s license.
• Illegible driver’s license.

5. Social Security Number

The first five digits of a Social Security Number (SSN) signify the state and the date range in which it was issued. SSNs should be compared to numbers associated with deceased taxpayers. Identity alerts are also a useful tool if accessed via the credit reporting system.

Red Flags

• Credit report alert states that SSN has not been issued.
• Credit report alert states that SSN is on the master death index.
• Format and digits are not correct.
• Improper color and weight of the social security card.
• Highly unlikely series of digits (999-99-9999 or 123-45-6789).

• Ink smudges, poorly aligned, and odd fonts.

6. Bank Statement

Deposit account statements may include legitimate financial institution names and addresses, but can be fraudulently modified to include falsified telephone numbers that are answered by a party to the scheme.

Red Flags

• Altered copies.
• Missing pages.
• Application information (name and address) does not match the account holders.
• Inconsistency in the color of original bank statements.

7. Deposit Verification (VOD)

A party to the scheme may verify deposits held at a depository institution, even though no such financial institution, account, or deposits in that name exist.

Red Flags

• The VOD is completed on the same day it is ordered.
• Deletions or cross outs exist on the VOD.
• No date stamp receipt affixed to the VOD by the depository to indicate the date of receipt.
• The buyer has no deposit accounts, but a VOD is in the file.
• The deposit account is not in the borrower’s name or is a joint account with a third party.
• The borrower’s account balance at the financial institution is insufficient to close the transaction.
• The deposit account is new or has a round dollar balance.
• The closing check is drawn on a different financial institution.
• An illegible signature exists with no further identification provided.
• Significant balance changes are noted in depository accounts during the two months prior to the date of verification.
• The checking account’s average two-month balance exactly equals the present balance.
• Funds for the down payment are only on deposit for a short period.
• An IRA is shown as a source of down payment funds.
• Account balances are inconsistent with application information.
• The down payment source is held in a non-depository “depository,” such as an escrow trust account, title company, etc.
• An escrow receipt is used as verification which may have been from a personal check not yet cleared or a check returned due to insufficient funds.
• The VOD is not folded indicating it may have been hand carried.
• The VOD is not on original financial institution letterhead or a recognized form.

8. Employment Verification (VOE)

Fake employment verification can be used by those who collude in mortgage fraud. This is usually associated with an organized scheme.

Red Flags

• The seller and applicant have similar names.
• Borrower’s employer does not know borrower or borrower was terminated from employment prior to the closing date.
• The VOE is not on original letterhead or a standard Federal National Mortgage Association (FNMA)/Federal Home Loan Mortgage Corporation (FHLMC) form.
• The VOE is completed the same day it is ordered, indicating it may have been hand-carried or completed before the initial application date.
• An illegible signature exists with no further identification provided.
• The employer uses only a mail drop or post office box address.
• The business entity is not in good standing with the State or registered with applicable regulatory agencies.
• An overlap exists with current and prior employment.
• Excessive praise is noted in the remarks section of response.
• Round dollar amounts are used in year-to-date or past earnings.
• Income is not commensurate with stated employment, years of experience, or type of employment.
• Income is primarily commission based, although borrower claims he is a salaried employee.
• The borrower’s interest in the property is not reasonable given its distance from the place of employment.
• The borrower has a recent large increase in income or started a new job.
• Faxes are used in lieu of originals documents.
• CPA letter is used to validate employment.
• Leases are used to evidence additional income.

9. W-2 Statement or Paystub

Off-the-shelf software and internet sites make the creation of fake W-2 statements and paystubs relatively easy.

Red Flags

• Borrower income is inconsistent with type of employment.
• Social security number on W2 or paystub is invalid, differs from loan application, or has been recently issued.
• Name misspelled.
• Variances in employment data with other file documentation.
• Commission-type position with “base” salary only (and vice versa).
• Round dollar amounts for year-to-date or prior year’s earnings.
• Numbers that appear to be “squeezed in”.
• Document alterations, such as white-outs or cross-outs or inconsistent fonts.
• Not computer-generated, especially from large employer.
• W-2 is typed, but paystubs are computer-generated.
• Check numbers do not increase chronologically.
• Amounts withheld for Social Security, Medicare and other government programs are inconsistent with the level required.
• Debts reflected as deduction from pay (credit union loans, etc.) not disclosed on application.
• Year-to-date totals do not total accurately from paycheck to paycheck.
• An employer identification number that is not in the XX-XXXXXXX (two digits, hyphen, seven digits) format, or is not all numeric.
• Employer and employee names or addresses are inaccurate.

• Income reflected on W-2 statements is different than income reported on mortgage loan application, VOE, and tax returns.
• Federal Insurance Contribution Act (FICA) and Medicare wages/taxes and local taxes, where applicable, exceed ceilings/set percentages.
• Copy submitted is not “Employee’s Copy” (Copy C).

10. Tax Return/Amended Tax Return

Fake tax returns may be provided to the underwriter as the borrower believes that no verification will occur. In other instances, amendments to tax returns may be made to further the scheme, regardless of whether the income amount increases or decreases.

Red Flags

• Address and/or profession do not agree with other information submitted on the mortgage loan application.
• Type of handwriting varies within return.
• Evidence of “white-out” or other alterations.
• Unemployment compensation reported, but no gap in employment is disclosed.
• Estimated tax payments by self-employed borrower (Schedule SE required); or self-employment tax claimed, but self-employment not disclosed.
• Tax returns are not signed/dated by borrower.
• IRS Form 1040 – Schedule A:

– Real estate taxes and/or mortgage loan interest is paid but no property is owned, or vice versa.

– Tax preparation fee is deducted, yet prior year’s return is prepared by borrower.

– Minimal or no deductions for a high-income borrower.

• IRS Form 1040 – Schedule B:

– Borrower with substantial cash in the bank shows little or no related interest income.

– No dividends are earned on stocks owned.

– Amount or source of income does not agree with the information submitted on the mortgage loan application.

• IRS Form 1040 – Schedule C:

– Business code is inconsistent with type of business.

– Gross income does not agree with total income on Form 1099s.

– No “cost of goods sold” on retail or similar type of business.

– Borrower takes a depreciation deduction for investment real estate not disclosed, or vice versa.

– Borrower shows interest expense but no related loan, such as a business loan with personal liability.

– No deductions for taxes and licenses.

– Wages are paid, but no tax expense is claimed.

– Wages are paid, but there is no employer identification number.

– Salaries paid are inconsistent with the type of business.

– Business expenses are inconsistent with type of business (e.g., truck driver with no vehicle expense).

– Income significantly higher than previous years.

• IRS Form 1040 – Schedule E:

– Additional properties are listed, but not shown on the mortgage loan application.

– Mortgage loan interest is deducted but no mortgage is disclosed.

– Borrower shows partnership income (may be liable as a general partner for partnership’s debts).

11. Deed

Quit Claim and Warranty Deeds may be used by someone who is transferring the property’s title, but is not the owner or the owners’ representative. The purpose of such transactions is to sell the property outright or to refinance the debt in a cash-out transaction to collect loan proceeds. A fake Power of Attorney may be used as authorizing the deed transfer.

Red Flags

• Recent ownership transfer or multiple transfers in a short period of time via quit claim or warranty deed.
• Representative not local or from out of state.
• Deeds involving individuals not party to the transactions.
• Deeds where parties share common names/hyphenated names, suggesting family relationships.
• Obvious errors, such as misspelled names, or other items.

12. Title or Escrow Company/Title Commitment

Fraudulent loan schemes may involve the use of a fake title company or may involve an employee of the title company. The company appears to provide legitimate documentation, which was possibly stolen from a legitimate title company (such as a falsified closing protection letter). Employees of legitimate title companies may be part of a scheme, where they either fabricate title commitments or delete information that would help identify fraudulent activity, such as flipping.

Red Flags

• The seller either is not on the title or is not the same as shown on the appraisal or sales contract.
• The seller owned the property for a short time with cash out on sale.

• The buyer had a pre-existing financial interest in the property.
• The chain of title includes the buyer, real estate agent, or broker.
• The title insurance or opinion was prepared for and/or mailed to a party other than the lender.
• Income tax or similar liens are noted against the borrower on refinances.
• Non-lien holders are shown on HUD-l.
• The title policy is not issued on the property with the lien or on the whole property.
• Faxed documents are used rather than originals or certified copies.
• Title commitment and final title policy reflect two different title insurers.
• Closing instructions are not followed.
• Delinquent property tax exists and does not appear on the title commitment.
• A notice of default is recorded and does not appear on the title commitment.

13. Business License

Business licenses may be fabricated to show that a supposed self-employed borrower owns a business. In this instance, the borrower owns no such business. Others may actually formally incorporate with the state office to conceal the fact that no such business operates.

Red Flags

• No physical address (P.O. Box only) or physical address belongs to mail box rental company. Various search engines can help determine if disclosed physical address belongs to mail box rental.
• No telephone number or email address.
• No state franchise or other required annual filings.

14. Notary stamps

Notary stamps may be stolen and used in fraudulent transactions. In addition, notaries may be participants in furthering a scheme and receive funds for their participation. While e-notary will prevent stealing of physical stamps, it will not necessarily eliminate the coercion of notaries. Also, the fact that e-notary does not require the log to be downloaded daily to an impartial party that maintains a database of transactions, can allow for information to be changed after-the-fact. This would be the equivalent of changing the hand-written log.

Red Flags

• Seal is not embossed.
• Seal appears to be photocopied, rather than original.
• Notary is either related to or has a business relationship with a party to the transaction.

15. Power of Attorney

Powers of Attorney (POA) are legal documents authorizing another party to act on the first party’s behalf. POAs can be Limited, General, or Durable. Durable POAs have the longest duration, as they cease upon the death of the authorizing person, whereas General POAs cease upon a pre-established date, competency, or incapacitation. Limited POAs are identified with a specific timeframe or certain acts. Documents can be easily fabricated to show that one party has a legal right to enter into financial transactions on behalf of another. POAs may or may not be filed with the appropriate governmental office.

Red Flags

• A General or Durable POA is dated at approximately the same date as the transaction.
• Person, who supposedly authorized the Limited or General POA, is unaware of the document.
• In those areas where all POAs are recorded documents, the document is not recorded.
• The POA is not prepared by an attorney, but by using off-the-shelf software.
• POA is used in cash-out refinances or reverse mortgage loans.

16. HUD-1 Settlement Statement

The HUD-1 settlement statement is an accounting of the transaction from both the borrower’s and seller’s standpoint. This form is often falsified to withhold information from the lender, or there are often two distinctly different HUD-1 forms in fraudulent transactions.

Red Flags

• Borrower receives cash-back at closing.
• Payoff of non-lien holders typically reflected as marketing fees, payment for repairs, or renovations.
• Existence of multiple, different HUD-1’s.
• Items paid outside of closing (outside of normal appraisal and credit report fees).
• Overpayment of fees and commissions to realtor, broker, etc.
• Signatures on the HUD-1 do not match other signatures throughout the file.

Fraudulent Use of a Shell Company

A shell company is a business entity that typically has no physical presence, has nominal assets, and generates little or no income. Shell companies in themselves are not illegal and may be formed by individuals or businesses for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Both the U.S. Government Accountability Office (GAO) and FinCEN have reported on shell companies and their role in facilitating criminal activity. These reports have focused on limited liability corporations (LLCs) due to their dominance and growth in popularity. However, any type of business entity can be a shell company. To further obscure ownership and activity, there are numerous businesses that can provide a shell company with a registered agent and mail forwarding service, or offer nominee services, such as nominee officers, directors, shareholders, or nominee bank signatory. Other businesses sell established shell companies for the purpose of giving the appearance of longevity of a business, and a history of creditworthiness which may be required when obtaining leases, credit, or bank loans.

Examples:

– Several individuals with the intent of committing fraud formed a shell company as a way of disguising their identities. The individuals purchased properties in the name of the shell company and at the same time recruited straw borrowers to purchase the properties from the shell company at inflated prices. Owners of the shell company provided the straw borrowers with fake documents in order to qualify for the loans. The shell company owners profited from the difference between the original purchase price and the mortgage loan proceeds, less the fee paid to the straw borrower. The straw borrower defaulted on the loan, forcing the financial institutions to foreclose on the houses.

Red Flags

• Entity has no telephone number or email address.
• No physical address (P.O. Box only) or physical address belongs to mail box rental company.
• No company logo.
• No website, if one would be expected.
• No domestic address/contact if a foreign company.
• Newly-formed entity.
• Registered agent recently changed.
• Transacting businesses share the same address; provide only a registered agent’s address; or other address inconsistencies.
• Unusual cash withdrawals from business accounts.

Identity Theft

Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit. Perpetrators commit identity theft to execute schemes using fake documents and false information to obtain mortgage loans. These individuals obtain someone’s legitimate personal information through various means, (e.g., obituaries, mail theft, pretext calling, employment or credit applications, computer hacking, trash retrieval, etc.) With this information, they are able to impersonate homebuyers and sellers using actual, verifiable identities that give the mortgage transactions the appearance of legitimacy.

Examples:

– A university student database, which included social security numbers and other personal identifying information, is compromised by a computer hacker. The investigation revealed that the hacker subsequently sold the personal identification information to a third party, who then proceeds to submit falsified mortgage loan applications to numerous financial institutions which resulted in approximately $5 million in losses to the financial institutions. Law enforcement stated that the third party, in collusion with a notary, appraiser, and other industry insiders, used the student information to purchase homes owned by the third party and other collaborators at highly inflated prices. In addition to identity theft, the loan files also included misrepresentations of employment, falsified down payments, and inflated appraisals.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Credit report contains a fraud alert or consumer-driven freeze on their credit report, which means no credit reports can be pulled until the consumer lifts the freeze.
• Credit report indicates that the social security number was not yet issued.
• Recently-opened accounts.
• Employment and residence history on the credit report and application do not match.
• Copy of driver’s license does not match profile on the application.
• Recently issued SSN.
• Current address on the application does not match other documents in the file (e.g., bank statements, W-2’s, utility bills, etc.)
• Additional red flags may be found in the FCRA under Appendix J of 12 CFR 41 (Subpart J – Identity Red Flags)

Straw Borrower / Nominee Borrower

A straw (nominee) borrower is an individual used to intentionally disguise the true beneficiary of the loan proceeds. Straws can be willing participants in the transaction or victims whose identity is being used without their knowledge. Often a willing straw borrower does not think the transaction is dishonest because they believe the recipient of the loan proceeds will make the payments. Reasons why a beneficiary of the loan proceeds may use a straw borrower are because the beneficiary:

• Does not qualify for the mortgage loan,
• Has no intent to occupy the property as a primary residence, or
• Is not eligible for a particular loan program.

Also straw borrower activities are commonly used with family members who step in for the purchase or refinance when the true home owner (family member) does not qualify for a loan.

Examples:

– A couple wanted to buy a home but did not qualify because their debt ratio was much too high. They also had very little cash to use as a down payment. To “help” them, one of their parents applied for the loan and was approved for a 97 percent LTV product. The couple moved into the house, and could not make the monthly payments. The servicer called the straw borrower, who informed the servicer that he did not live in the home and that his daughter and son-in-law were supposed to be making the payments. Despite, being contractually obligated, the straw borrower parent refused to bring the loan current. The lender was forced to foreclose and took a loss on the sale of the REO.

– A fraud ring acquired 25 properties, all of which were in various stages of disrepair. Some were even uninhabitable and slated for condemnation by the city. The ring then recruited individuals through their church, clubs, and other associations to each buy a property sight unseen. Each borrower was told they would not need to live in the property, and each borrower was also promised payment of $7500. The fraud ring arranged for inflated appraisals to be performed by promising the appraiser the job of appraising all 25 properties. The applications were submitted to several different lenders with numerous misrepresentations surrounding not only the true property values, but occupancy intent, borrower employment, income, and assets as well. The loans closed and resulted in first payment defaults, as the straw borrowers were told that their properties were passive investments that would not require any monthly payments due to tenants already being in the properties. A handful of the straw borrowers did receive their $7500 as promised, but most did not. Upon receiving collection calls, the straw borrowers determined they had been misled. The lenders ultimately foreclosed on the properties, discovered the true condition of the properties, and suffered losses upon the sale of the REO.

Red Flags

• The application is unsigned or undated.
• Borrower’s income is inconsistent with job or position.
• A quit claim deed was used either right before or soon after the loan was closed.
• Investment property is represented as owner-occupied on loan application.
• Loan documents show someone signed on the borrower’s behalf.
• Names were added to the purchase contract.
• Sale involves a relative or related party.
• No sales agent or realtor was involved.
• The name and address of borrower on credit report does not correspond with information on the loan application.
• Appraisal irregularities exist regarding property valuation and documentation. (See Fraudulent Appraisal.)
• Power of attorney was used in place of borrower.
• Good assets, but “gifting” was used as all or part of down payment.
• Repository alerts on credit report.

Glossary:

Appraisal Management Company (AMC): A business entity that administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions and other entities. The company recruits, qualifies, verifies licensing, and negotiates fees and service-level expectations with a network of third-party appraisers. It also provides administrative duties like order entry and assignment, tracking and status updates, pre-delivery quality control, and preliminary and hard copy report delivery. Furthermore, the AMC oversees ongoing quality control, accounts payable and receivable, market value dispute resolution, warranty administration, and record retention.

Appraiser: One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.

Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest. The borrower may be purchasing property, refinancing an existing mortgage loan, or borrowing against the equity of the property for other purposes.

Buyer: A buyer is a person who is acquiring property.

Closing: The culmination of any RE transaction in which the interested parties or their representatives meet to execute documents, exchange funds, and transfer title to a property.

Closing Costs: Moneys expended by a party in completing a RE transaction, over and above the purchase price, including: legal fees, taxes, origination fees, discount points, mortgage insurance premium, interest adjustments, registration fees, appraisal fees, title insurance premium, etc.

Closing/Settlement/Escrow Agent: An individual or company that oversees the consummation of a mortgage transaction at which the note and other legal documents are signed and the loan proceeds are disbursed. Title companies, attorneys, settlement agents, and escrow agents can perform this service. Local RE law may dictate the party conducting the closing.

Concessions: Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, upgrades (also called “build-outs”), and reduced rent for the initial term of the lease.

Collusion: An agreement, usually secretive, which occurs between two or more persons to deceive, mislead, or defraud others of their legal rights, or to obtain an objective forbidden by law, typically involving fraud or gaining an unfair advantage.

Correspondent: A mortgage originator who underwrites and/or sells mortgage loans to other mortgage bankers or financial institutions.

Credit Report Fraud Alert: A notation at the bottom of a credit report indicating that some items of identification, i.e., Social Security number, address, etc., are associated with past fraudulent activities. For example, an address may be flagged because the previous occupant allegedly used the property for financial misbehavior. Each credit reporting agency has different names for these alerts: TransUnion – HAWK Alerts, Experian – Fraud Shield, and Equifax – Safescan.
Deed: The document by which title to real property is transferred or conveyed from one party to another. (See Quitclaim Deed and Warranty Deed.)

Deed of Trust: A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall re convey the title upon the payment of the debt. Conversely, the third party will sell the land and pay the debt in the event of default by the borrower. (See Mortgage.)

Developer: A person or entity, who prepares raw land for building sites, constructs buildings, creates residential subdivisions or commercial centers, rehabilitates existing buildings, or performs similar activities.

eNotary: An electronic notary that may include the use of a digital seal to notarize digital documents. (See also Notary.)

Escrow Instructions: Instructions prepared by a lender and/or underwriter to direct the progression of a mortgage closing transaction from start to finish.

Evaluation: A valuation required by the Agencies’ appraisal regulations for certain transactions that are exempt from the regulations.

Federal Home Loan Mortgage Corporation (Freddie Mac): Commonly used name for the Federal Home Loan Mortgage Corporation (FHLMC), a government sponsored entity that provides a secondary market for conforming conventional residential mortgage loans by purchasing them from primary lenders.

Federal Housing Administration (FHA): A federal agency established to advance homeownership opportunities. The FHA provides mortgage insurance to approved lending institutions.

Federal National Mortgage Association (Fannie Mae): A government sponsored entity that, as a secondary mortgage loan institution, is the largest single holder of residential mortgage loans in the United States. Fannie Mae primarily buys conforming conventional residential loans from primary lenders.

Federally related transaction: Means any real estate-related financial transactions entered into after the effective date hereof that:
(1) The FDIC or any regulated institution engages in or contracts for; and
(2) Requires the services of an appraiser.

Foreclosure: A legal proceeding following a default by a borrower in which real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt. Foreclosure statutes are enacted by state government.

Form 1003: The standardized loan application form used in residential mortgage loan transactions.

Form 4506T: An IRS form that taxpayers execute to authorize the IRS to release past tax returns to a third party. Many lenders require mortgage loan applicants to execute this form in order to verify income.

Fraud: A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to their detriment.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation that provides sources of funds for residential mortgage loans, insured or guaranteed by the FHA or VA.

HUD-l Form: A standardized form prescribed by the Department of Housing and Urban Development that provides an itemization listing of funds paid at closing. Items that appear on the statement include RE commissions, loan fees, points, taxes, initial escrow amounts, and other parties receiving distributions. The HUD-l statement is also known as the “closing statement” or “settlement sheet.”

Lapping: A fraud that involves stealing one customer’s payment and then crediting that customer’s account with a subsequent customer’s payment.

Loan Servicer: A loan servicer is a public or private entity or individual engaged to collect and process payments on mortgage loans.

Loan-to-Value Ratio (LTV): Relationship of loan amount to collateral value, expressed as a percentage.

Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Modification Agreement: A document that evidences a change in the terms of a mortgage loan, without refinancing the loan. Commonly, changes are made to the interest rate, repayment terms, guarantors, or property securing the loan.

Mortgage: A lien on the property that secures a loan. The borrower is the mortgagor; the lender is the mortgagee.

Mortgage Banker: An individual or firm that originates, purchases, sells, and/or services loans secured by mortgages on real property.

Mortgage Broker: An individual or firm that receives a commission for matching borrowers with lenders. Mortgage brokers typically do not fund the loans they help originate.

Mortgage Fraud: A knowing misrepresentation of the truth or concealment of a material fact in a mortgage loan application to induce another to approve the granting of a mortgage loan. For the purpose of this paper, mortgage fraud refers solely to fraudulent schemes pertaining to residential mortgage loans.

Nominee Loan: A loan made to one individual in which the proceeds of the loan benefit another individual without the knowledge of the lender.

Notary: A person who certifies the authenticity of required signatures on a document, by signing and stamping the document. (See also eNotary.)

Originator: The individual or entity that gathers application data from the borrower. Alternatively, a person or entity, such as a loan officer, broker, or correspondent, who assists a borrower with the loan application.

Power-of-Attorney: A legal document that authorizes a person to act on another’s behalf. A power-of-attorney can grant complete authority or can be limited to certain acts (closing on a property) or timeframes (from date granted until a termination date). A durable power-of-attorney continues until the grantor’s death.

Pretext Calling: A scheme associated with identity theft in which a fraudster, pretending to represent a legitimate entity, calls an unsuspecting party seeking personal identification data, such as social security numbers, passwords, or other forms of account information. The fraudster then uses this information to assume the identity of the unsuspecting victim. Among other things, the fraudster can obtain a mortgage loan in the name of the unsuspecting victim.

Processor: The processor is an individual who assembles all the necessary documents to be included in the loan package.

Quitclaim Deed: A deed that transfers without warranty whatever interest or title, if any, a grantor may have at the time the conveyance is made. A grantor need not have an interest in the property to execute a quitclaim deed.

Real Estate Agent: An individual or firm that receives a commission for representing the buyer or seller, in a RE purchase transaction.

Reverse Mortgage: A reverse mortgage loan converts the equity in the home into cash. Unlike a traditional loan, no repayment is required until the borrower no longer uses the house as a principal residence. To be eligible under FHA’s program, Home Equity Conversion Mortgage (HECM), the homeowner must be at least 62 years old, and live in the house. The program was expanded in 2009 so that HECMs can be used to purchase a primary residence.

Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act): Legislation designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry. The S.A.F.E. Act further requires the federal agencies to establish similar requirements for the registration of depository institution loan originators.

Secondary Market: The buying and selling of existing mortgage loans, usually as part of a “pool” of loans.

Seller: Person offering to sell a piece of real estate.

Short Sale: Sale of the mortgaged property at a price that nets less than the total amount due on the mortgage loan. Servicers and borrowers negotiate repayment programs, forbearance, and/or forgiveness for any remaining deficiency on the debt to lessen the adverse impact on borrowers’ credit records.

Straw Buyer/Borrower: A person used to buy property or borrow against property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments and often deeds the property to the other individual immediately after closing. The straw buyer is usually compensated for use of his identity.

Third Party: The parties necessary to execute a residential mortgage transaction other than a financial institution and a legitimate borrower. Third parties include, but are not limited to, mortgage brokers, correspondents, RE appraisers, and settlement agents.

Title Agent: The title agent is a person or firm that is authorized on behalf of a title insurer to conduct a title search and issue a title insurance report or title insurance policy.

Title Company/Abstract Company: Entity that researches recorded ownership of and liens filed against real property and then issues a title insurance policy guaranteeing the lien position of the lender or provides a title opinion. Some states also require an attorney opinion supported by an abstract.

Title Insurance: An insurance policy that indemnifies the lien position of a lender against losses associated with property interests not disclosed in the title opinion. The borrower can also obtain this coverage by purchasing a separate policy.

Title Opinion/Commitment/Binder: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.

Underwriting: The credit decision-making process which can be automated, manual or a combination of both. In an automated process, application information is entered into a decision-making model that makes a credit determination based on pre-determined criteria. In a manual process an individual underwriter, usually an employee of the financial institution, makes the credit decision after evaluating all of the information in the loan package, including the credit report, appraisal, and verifications of deposit, income, and employment. Financial institutions often use a combination of both, with the automated decision representing one element of the overall credit decision. In each case, the decision may include stipulations or conditions that must be met before the loan can close.

Verification of Deposit (VOD): Written document sent to the borrower’s depository institution to confirm the existence of a down payment or cash reserves.

Verification of Employment (VOE): Written document sent to the borrower’s employer to confirm employment/income. Employment is often reconfirmed by calling the employer prior to funding.

Verification of Income (VOI): Written documentation supporting the borrower’s income level and income stream.

Warehouse Lender: A short-term lender for mortgage bankers. Using mortgage loans as collateral, the warehouse lender provides interim financing until the loans are sold to a permanent investor.

Warehouse (Loan): In mortgage lending, warehouse loans are loans that are funded and awaiting sale or delivery to an investor.

Warehouse Financing: Short-term borrowing of funds by a mortgage banker based on the collateral of warehoused loans. This form of interim financing is used until the warehoused loans are sold to a permanent investor.

Warranty Deed: A deed warranting that the grantor has a title free and clear of all encumbrances and will defend the grantee against all claims against the property.

For More Information How Your Can Use Well Structured Litigation Pleadings Designed Around These Fraudulent Schemes In Order To Effectively Challenge Your Wrongful Foreclosure and Successfully Save Your “American Dream” Home Visit: http://www.fightforeclosure.net

A Guide To Borrowers On Laws and Regulations that Govern Mortgage Lending and Servicing

10 Saturday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Mortgage Laws, Pro Se Litigation, Your Legal Rights

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Fannie Mae, Fannie Mae/Freddie Mac, Federal Housing Administration, FHA, Freddie Mac, Mortgage loan, United States, United States Department of Housing and Urban Development

There are nine (9) major laws and regulation pertinent to mortgage lending and servicing.

Office of the Comptroller of Currency’s Guidelines for Residential Mortgage Lending Practices 2005; 12 CFR Part 30 Appendix C

Most importantly, the OCC’s regulations provide for the implementation of standards by lenders to prevent abusive, predatory, unfair and deceptive lending practices. Lenders should avoid certain unfavorable loan terms and sparingly use other terms that are unfriendly to consumers. They should also avoid consumer confusion.

Federal Reserve Board’s Proposed Statement on Subprime Lending 2007; 72 FR 10533

Regulations were proposed by a number of different agencies in order to compel the industry to educate consumers on the ramifications of loan terms (like ARMs and balloon payments), so that consumers will not be shocked by any financial terms or compromised in their ability to pay.

FHA/HUD LAWS AND REGULATIONS ON DEFAULT LOAN SERVICING/LOSS MITIGATION

HUD regulations require mortgage servicers to report all FHA mortgages that go into default within 30 days of default. HUD also has a procedure in place for loss mitigation, a process in which a lender helps a borrower who’s delinquent in loan payments. In an FHA mortgage, the FHA will reimburse the lender for certain costs if the borrower meets the guidelines, such as the length of time that the borrower has owned the home and the like. Loss mitigation plans include receiving a special forbearance (where the borrower pays a lower payment or stops payments for a period of time), a partial claim (where a borrower can get an interest free loan from HUD to bring his payments up to date) and mortgage modification (where the life of the loan is lengthened so that the borrower can make smaller payments each month).

Federally Related Mortgage Loans.

Federally related mortgage loans are loans that are made by federally insured depository lenders (unless for temporary financing), HUD-related loans, and loans intended to be sold on the secondary mortgage market to Fannie Mae or Freddie Mac or to creditors who make or invest over one million dollars a year in residential secured loans.

Veterans Administration -Insured Home Loan Servicing Handbook.

The Handbook is a manual that contains servicing guidelines for loans guaranteed by the Veterans Administration. Regulates access by the borrower to the servicer, the fees that the servicer can charge and caps the amount of the charges, servicing transfers, and procedures for collection actions.

Fannie Mae/Freddie Mac and Private Label Loan Servicing.

Fannie Mae (Federal National Mortgage Association) is a federally-chartered
enterprise owned by private investors. Fannie Mae purchase mortgage-backed securities on the secondary mortgage market with the goal of providing funds so that lenders can afford to offer low cost loans. Freddie Mac (Federal Home Loan Mortgage Corporation) is a federally-chartered corporation that purchases home loans, securitizes them and sells them to investors with the goal of helping to keep the cost of a mortgage low. Fannie Mae and Freddie Mac use private companies to service the loans that they purchase.

Homeownership Counseling Act; 12 U.S.C. §1701x

The Homeownership Counseling Act requires that lenders give information about available counseling resources to qualifying homeowners who fail to pay any amount due. Homeowners who qualify are those whose loan is secured by their primary residence, those whose loan is not assisted by the Farmers Home Administration, and those who are not expected to be able to make up a deficiency in a reasonable amount of time due to an unexpected loss or reduction of employment income by the homeowner or someone who contributes to the household income. The notice must provide information about any of the lender’s counseling services (if any) and a list of HUD-approved non-profit homeownership counseling organizations or HUD’s toll free number where the department will provide a list of such organizations.

Foreclosure Prevention: Comptroller of the Currency Report 2007

The Foreclosure Prevention report details how the lending industry is reacting to the foreclosure epidemic and details why lenders should want to prevent foreclosures, how to contact borrowers, what are the regulatory risks of foreclosure prevention, and the barriers that have impeded foreclosure prevention.

Service Members Civil Relief Act (SCRA); 50 U.S.C. §§ 501-506

Purpose. SCRA provides special protections for active duty military personnel and their dependents.

Scope. The Act applies to active duty members of the Army, Navy, Marine Corps, Air Force and Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration and the Public Health Service, members of the National Guard who have been called to active service by
the President or Defense Secretary for more than thirty consecutive days in order to respond to a national emergency, reservists ordered to report for military service, persons ordered to report under the Military Selective Service Act and United States citizens serving with the allied forces.

Protections. The Act places limitations on foreclosures of the real property owned by active duty service members, protects service members from default judgments, tolling of the statute of limitations, reduces the interest rate on pre-active duty loans to six percent, places restrictions on eviction from rental property and gives the right to terminate vehicle and residential leases.

For More Information on How You Can Use Well Drafted Pleadings With These Set of Laws For Litigation Against Your Lender In order To Save Your Home From Wrongful Foreclosure Visit http://www.fightforeclosure.net

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Monthly Archives: August 2013

A Guide to California Homeowners Defending Post-Foreclosure Evictions

How Attorney Mistakes Can Result to Homeowners Losing their Homes in Wrongful Foreclosure Litigation.

California Broker Receives 10-Year Prison Sentence for Mortgage Fraud

What Homeowners in Foreclosure Defense Needs to Know About the Issues of “Standing vs. Capacity to Sue”

How Homeowners in Wrongful Foreclosure Can Identify Faulty Documents or If They Have Been Victims of Foreclosure Fraud

Why Homeowners In Foreclosure Proceedings May Need To Remove Their Cases To Federal Courts

Quiet Title Action ~ What Florida Home Owners Need to Know

What Homeowners Need to Know About Judicial Foreclosure Process

1. The Foreclosure Process

2. Interested Parties

3. Judicial Foreclosure

4. Notice of Default and Acceleration

7. Response

8. Response – Answer

9. Default

10. Counterclaim

11. Discovery

13. Summary Judgment

16. Foreclosure Sale

17. Foreclosure Sale (cont.)

18. Deficiency Judgments

How Homeoweners Can Use Various Forms of Mortgage Fraud Schemes For Wrongful Foreclosure Defense

A Guide To Borrowers On Laws and Regulations that Govern Mortgage Lending and Servicing

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1. The Foreclosure Process

2. Interested Parties

3. Judicial Foreclosure

4. Notice of Default and Acceleration

7. Response

8. Response – Answer

9. Default

10. Counterclaim

11. Discovery

13. Summary Judgment

16. Foreclosure Sale

17. Foreclosure Sale (cont.)

18. Deficiency Judgments

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