No title can arise from a fraudulent act

“Our position is that the mortgage with IndyMac is toilet paper — it has no legal standing,”

March 8, 2009

Mortgage Fraud Case Poses Federal Quandary

Waver Brickhouse, gray-haired and soft-spoken, has come undone twice during the nation’s housing crisis.

In 2005, she fell behind on her mortgage payments and turned to a so-called rescue firm, which, court papers allege, tricked her into signing away the deed to her Brooklyn home. She says the company, Home Savers Consulting, secretly sold her home, with the help of a mortgage from IndyMac Federal Bank, and ran up huge new debts.

Now broke, deeply embarrassed and facing the loss of her small row house in the Brownsville neighborhood, Ms. Brickhouse, 69, faces a new problem. She must convince the Federal Deposit Insurance Corporation, which last year took control of IndyMac, now insolvent, that her mortgage payments should not include at least $150,000 tacked on by fraud.

To assume these new costs, she says, would break her in two.

“I’m going to drown in debt,” says Ms. Brickhouse, a retired city parks department worker, shaking her head. “I feel like it’s just a matter of time until I’m on the street with my children.”

F.D.I.C. officials say that they have no desire to put Ms. Brickhouse on the street and that they want to work out affordable payment terms. But Ms. Brickhouse’s lawyers say that the F.D.I.C.’s writ cannot extend to holding her responsible for a fraudulently created mortgage, and they have refused to disclose her finances until the agency drops its claim for the $150,000.

“Our position is that the mortgage with IndyMac is toilet paper — it has no legal standing,” said her lawyer Rick Wagner, litigation director with Brooklyn Legal Services Corporation A. “The law for 200 years is that no title can arise from a fraudulent act.”

Ms. Brickhouse has sued Home Savers, and her case underscores the conundrum facing the F.D.I.C. as it wades through thousands of troubled mortgages it has inherited from failed banks, 40,000 from IndyMac alone.

Tasked with renegotiating mortgages and cautious about preserving taxpayers’ dollars, the F.D.I.C. has tried to steer clear of making judgments about whether homeowners have fallen victim to fraud.

“Our position on stated income loans is that a lot of people say that someone else was responsible for the fraud,” Michael H. Krimminger, special adviser for policy in the office of the F.D.I.C. chairman, said in an interview. “It’s much more productive to get people to a position where they can stay in their homes, and to do that we must be able to verify what a borrower can afford.”

But Ms. Brickhouse’s case has a persuasive ring to it, not least because one of those engaged in the alleged fraud returned her deed and swore out an affidavit describing the scheme. In December, Mayor Michael R. Bloomberg invited Ms. Brickhouse to a press conference and vowed to forestall foreclosures in cases like hers.

Her story finds an echo in many working-class corners of New York City. The company accused of victimizing her, Home Savers Consulting, has been sued by homeowners in Brooklyn, Queens and Staten Island, and nearly every case alleges a similar pattern of deception: An owner behind on a mortgage turns in desperation to Home Savers, which secretly transfers the deed to a “straw buyer” with good credit who qualifies for a cash-out refinancing. Then, it is alleged, Home Savers drains the homes of equity.

Jessica Attie, co-director of the South Brooklyn Legal Services Foreclosure Prevention Project, estimates that Home Savers extracted at least $5 million in equity from the homes of people in a handful of her cases. Legal services lawyers have frequently forwarded information on Home Savers to prosecutors, but no criminal cases have been brought.

One of Home Savers’s founders, Garth Celestine, declined to address any detail of Ms. Brickhouse’s case. “We had a plan to help people,” he said on Thursday. “Maybe it did not always work.”

He said he would explain all of it in a book he is writing. Asked its title, he replied, “I’m thinking of calling it ‘No Good Deed Goes Unpunished.’ ”

Hundreds of new fraud claims like Ms. Brickhouse’s emerge every month. The F.B.I.’s most recent Financial Crimes Report estimates that mortgage fraud costs Americans $4 billion to $6 billion annually. The same report identifies New York State as a “Top 10 hot spot” for fraud, and notes that federal law enforcement is overburdened.

Last week, Sheila C. Bair, the F.D.I.C.’s chairwoman, called mortgage fraud “a significant problem” and warned that “scammers are moving into foreclosure prevention.”

Waver Brickhouse does not come by trust easily.

She grew up in the public housing towers of Brownsville, and her mother drilled it in her that survival depended on keeping to herself. She led a largely solitary life, going to work and church, and adopting four foster children.

In 1996, she took her life savings and purchased her first home. Slowly she became friends with a neighbor, Ophelia Fenner. When Ms. Brickhouse fell behind on her mortgage payments in 2005, Ms. Fenner suggested that Home Savers Consulting might help set her finances straight.

Ms. Fenner, court papers show, received a finder’s fee for guiding her friend to Home Savers, a fact that she did not disclose to Ms. Brickhouse.

Home Savers Consulting, and its principals — Mr. Celestine and Phillip Simon — are neither real estate agents nor mortgage brokers. They offered to refinance Ms. Brickhouse’s $213,000 home mortgage with the help of a “sponsor,” and to use the proceeds to pay her mortgage for a year. The breathing space would give Ms. Brickhouse time to pay off her debts. At year’s end, Ms. Brickhouse would resume her mortgage payments and Home Savers would take a small fee.

Recounting the arrangement, Ms. Brickhouse shakes her head. “I thought this would save me,” she said.

In May 2007, Ms. Brickhouse attended a meeting, according to court papers and a sworn affidavit. There was a representative from IndyMac Bank; Yolanda Millett, the straw buyer; Ms. Millett’s lawyer; and a Home Savers representative.

Ms. Brickhouse assumed everyone was there to help her; they were in fact selling off her house.

Ms. Millett received $8,000 to serve as the straw buyer, according to the court papers. On the spot, IndyMac gave Ms. Millett a $380,000 mortgage, allowing Home Savers to strip the home of $150,000 worth of equity.

Ms. Millett could not reached for comment.

A year later, Ms. Millett apparently had second thoughts. In August 2008, she swore out an affidavit that accused Home Savers of misleading Ms. Brickhouse at every turn. “She did not at any time believe that ownership of the subject property passed to me,” Ms. Millett stated in the affidavit, “and her intent was never to relinquish ownership.”

Ms. Millett returned the deed to Ms. Brickhouse. But Ms. Brickhouse’s travails had not ended.

About the same time, the F.D.I.C. took over IndyMac Bank. The agency now has responsibility for its assets, including its large mortgage portfolio.

F.D.I.C. officials asked Ms. Brickhouse to forward financial information so they could work out arrangements for her to pay some portion of the $380,000 mortgage. Ms. Brickhouse acknowledges that she is responsible for the $213,000 on her original mortgage. But she refuses to pay any part of the mortgage that she said was obtained through fraud.

Federal officials say they have no way of determining whether Home Savers Consulting committed fraud. And in any case, they add, IndyMac was not involved.

But court papers show that an IndyMac representative sat at the table as Home Savers orchestrated the secret sale.

“They knew that Home Savers had no legal standing whatsoever and yet said nothing,” said Mr. Wagner, Ms. Brickhouse’s lawyer. “IndyMac was writing out bad paper and they knew it.”

For now, F.D.I.C. officials say they are not looking to foreclose on Ms. Brickhouse’s home. But they have turned to a highly paid corporate lawyer who specializes in defending subprime lenders against class-action lawsuits to pursue the case with Ms. Brickhouse. “As the receiver for the bank and deposit insurer, we must balance our action with our duty to protect the depositors from the bank,” Mr. Krimminger said.

As for Ms. Brickhouse, she sits some nights and examines the documents she signed, and wonders at her naïveté. Recently, Ophelia Fenner apologized, saying she felt very bad.

“I told her, ‘So do I,’ ” Ms. Brickhouse said. “This almost cost me a house and a friendship, and I only had one of each.”

3 Responses

  1. I guess we can not just blame Summers. Summers just as a third party. He’s just a nominee. Waver should read clearly and carefully in advance, before signing something that lay for her. It should be noted, that companies need revenue, so yes, sometimes no problem for them, doing the things that say ‘tricky’ to deceive their own clients, who actually came to ask for help, even stabbed in the back. United States Bankruptcy Court

  2. Economy

    Missing Mortgage Notes Delay Some Foreclosures
    by Greg Allen

    Listen Now [5 min 31 sec] add to playlist

    Joe Raedle

    A foreclosure sign in Florida. Homeowner advocates say foreclosure can be delayed when banks can’t produce the mortgage note. Getty Images

    All Things Considered, March 10, 2009 · Many mortgages are not held by banks, but by securitized trusts — complicated arrangements that involve many investors and byzantine legal documents. Homeowner advocates say they’re finding a surprising number of improper mortgage documents and — in some cases — fraud that can delay foreclosure.

    For years, lawyers defending homeowners against foreclosure had just one option: Convince lenders to re-negotiate the terms of their mortgage. Now they’re taking their cases to court.

    The ‘Rocket Docket’

    In Fort Myers, Fla., it’s been called the “rocket docket” — a special court that hears — and clears — hundreds of foreclosures each day.

    An average case takes just two to three minutes. State Circuit Judge James Thompson gets right to the point with homeowner Theresa Weber: “Miss Weber, it appears the bank has done what’s necessary to get a judgment of foreclosure. Can you think of any legal reason why one should not take place?”

    Like nearly all the other defendants, Weber answers, “No” and she gets what appears to be the standard judgment — 60 days to vacate the premises.

    There are few tears in this court, mostly resignation.

    In Miami-Dade County, across the state, Ana Fernandez says she thought that would be her fate as well.

    Fernandez says she made a big mistake a few years ago when she refinanced her home. The new mortgage started with monthly payments of $1,200, but soon ballooned to $2,600 per month. “There was no way that I could afford paying that mortgage,” she says.

    Fernandez’s home is a modest but recently updated three-bedroom house in Miami Gardens. She’s lived here for 24 years.

    When Fernandez contacted her lender, Chevy Chase Bank, she says the bank was no help: “They told me the best I could do was [get my payments] up to date and then start paying again, which would still leave me with the $2,600 [monthly payment].”

    Fernandez learned firsthand how difficult it can be to convince lenders to negotiate terms that allow borrowers to remain in their homes.

    Negotiating To Stay In Homes

    When Fernandez’s lawyer, Ray Garcia, took the case, he found that Chevy Chase Bank had no proof that it, in fact, owned her loan.

    In a hearing, a lawyer representing the bank conceded that he did not have the original mortgage note — something that’s required by law. What he did have was a copy.

    Chevy Chase Bank bought Fernandez’s loan from another institution. And, Garcia says, when he examined the copy, it showed ownership of the loan had never been assigned or transferred to Chevy Chase. In a recent interview in his office, he said: “As we sit here today, they haven’t produced a note. They’ve produced absolutely no record evidence that Chevy Chase has a right to bring this action.”

    Chevy Chase was recently acquired by Capital One Bank. A Capital One spokeswoman maintains the company has filed the original note, but otherwise had no comment.

    Producing The Mortgage Note

    The demand that banks seeking foreclosure “produce the note” is a cry that’s gotten attention from housing activists and real estate attorneys across the country.

    For banks that own and service the loans they originate, finding the original paperwork is rarely a problem. But with loans that have been securitized — parceled with other mortgages and sold to investors — the original mortgage note can be elusive.

    Lawyer April Charney, who works with Jacksonville Legal Services in Florida, has become well-known as an expert on defending homeowners against foreclosures. She says asking the bank to produce the paperwork is just the beginning.

    She says lawyers who take the time to study the mortgage notes and the securitization agreements will almost always find deficiencies, and sometimes, fraud. “These loans are so tricked up by the Ponzi scheme that became the world of securitization and derivatives, that there is no owner to these loans,” she says. “They just totally failed to comply with their contracts.”

    Charney has a full caseload and she’s been working to train a small army of lawyers through seminars across the country.

    The new world of securitized mortgages, she says, is layered and nuanced. Some courts, overwhelmed by a growing backlog of foreclosures, can even be hostile to attorneys who want to slow down the process.

    But in some cases, it’s the judges who are beginning to ask probing questions of plaintiffs seeking foreclosures. In California, federal bankruptcy judge Samuel Bufford has written about some of the new issues courts must consider in foreclosure cases. “One of the problems I see … is I don’t seem to have the right parties before the court,” he says. “I’ve taken testimony … and found out that the owner of the mortgage is somebody else who has not shown up in court at all.”

    A Changing Landscape

    It’s a still-developing area of law and it’s one that could change abruptly with new federal legislation governing foreclosures.

    Still, the growing number of legal challenges troubles Talcott Franklin, an attorney in Dallas and an expert on securitized mortgages.

    He says mortgage-backed securities are an important part of a healthy housing market. If many of the legal challenges being mounted around the country are successful, he worries, that could undermine a vital financial tool.

    “My big fear,” Franklin says, “is that we’ll get a series of decisions, based on not fully understood facts, which will prevent securitization from going forward in the future.”

    Franklin doesn’t blame homeowners or their lawyers for bringing the challenges. He’s more critical of lenders and their attorneys for not doing a better job understanding securitized mortgages and for not taking care of important legal matters before going to court to foreclose on a home.

    Related NPR Stories

    Feb. 18, 2009
    Hard-Hit Boomtown Considers Emergency Measures

    March 5, 2009
    Study: More Home Mortgages Are Upside Down

    March 7, 2009
    Optimism Boosts Florida Housing Market

  3. All of this fraud comes from Mortgage Eolectronic Registration Systems Inc. period!!!!

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