Az Scapegoat Gets 15 Years for Fraud

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Editor’s Comment: 

In this case Countrywide is portrayed as the victim. This comes in handy when BOA, owner of CW, is dodging questions about how anyone didn’t know what was going on in mortgage origination. Of course they knew and CW is no more a victim than any other co-conspirator in a scam.

What should have happened here was that the defendant who is now going to jail should have been flipped to testify against the other participants in this scam. Instead, prosecutors have now made it easier for the investment banks to point the finger at “bad apples” which diverts attention from the real story — bad mortgages and bad foreclosures.

While it appears that this defendant made millions of dollars on her part of the scam, it is far more important that CW and others made far more money than that on the same loans. And even more importantly, the foreclosures on defective loans, which posed no actual risk of loss to the banks, were and remain a blight on our system of title registries. It is still true that the the banks interposed themselves as “creditors” for the purpose of taking bailout money and acquiring title to property and money that at all times was the property and money owned and owed to the investors who put up the money and the homeowners who put up their homes.

This is the essential fact of our present situation: the banks have stepped into the shoes of the investors without putting up one dime. The windfall from bailouts, foreclosures, insurance and hedge products is so large that regulators and prosecutors fear for their jobs in failing to bring the perpetrators and the system to justice. And as long as the risk falls on the homeowner and the investor with the banks taking all the money and property, there will be a Fundamental imbalance in our system that cannot be corrected by any means other than return of the property and money to the victims of this fraud. The fraud is too large. There is not enough money in the world to let the banks get away with this AND bring back prosperity. We can only have bank oligopoly OR a return to normal commerce — we can’t have both.

Former AZ Countrywide Loan Officer Gets 15-Year Sentence For Mortgage Loan Fraud

By Herman Thordsen

FACTS 

On March 7, U.S. District Judge Neil V. Wake sentenced Paige Kinney, aka Jamielee Miller, to 15 years in prison. Kinney had previously pleaded guilty to various charges related to a mortgage fraud scheme and to charges of bankruptcy fraud, wire fraud, mail fraud, and bank fraud in two separate indictments.

Ann Birmingham Scheel, Acting U.S. Attorney for the District of Arizona, highlighted the significance of this sentence by stating, “Mortgage fraud has deflated property values, harmed lending institutions, and ruined entire neighborhoods in our community. This defendant was undaunted by the mortgage fraud indictment and continued to commit fraud crimes while awaiting charges. I commend the IRS and the FBI on a tenacious and thorough investigation that led to this significant sentence.” (As I have been writing, the prosecutors are coming down harder and harder. It behooves the “target” to find competent counsel before indictment.)

Dawn Mertz, special agent in charge of Internal Revenue Service Criminal Investigation said, “Ms. Lawler used her position as a loan officer to carry out a $40 million mortgage fraud scheme. After she was charged in the mortgage fraud case, she continued to commit egregious financial crimes. She used her position and her knowledge to manipulate and erode our financial systems. Ms. Lawler’s sentence reflects the severity of the financial crimes she imposed upon our community.”

Kinney played a leadership role in a $40 million mortgage fraud scheme that targeted Countrywide Home Loans and other lenders. From January 2005 through December 2007, Kinney and others conspired to commit mortgage fraud by using unqualified straw buyers to purchase properties, knowing that the straw buyers did not intend to live in the homes or be responsible for the loan payments. Kinney would obtain mortgage financing to purchase homes in the names of the straw buyers by submitting fraudulent mortgage loan applications and altering documents, such as bank statements, to misrepresent the straw buyers’ assets, income, employment status, liabilities and other debts, sources of earnest money and down payments, and their intent to make the property a primary residence. Based on these misrepresentations regarding the buyers’ ability to qualify for loans, lenders issued loans that exceeded the homes’ sales prices. Once the funds were obtained from the lenders, the extra proceeds, known as cash back, were directed to bank accounts that Kinney controlled. In total, Kinney caused lending institutions to issue $38,745,215 in fraudulent loans. Out of those loan proceeds, $8,754,485.17 was directed as cash back to bank accounts controlled by Kinney and other conspirators. Kinney used the cash back for personal expenses; for the purchase of luxury vehicles, jewelry, and homes in Phoenix and San Diego; to make mortgage payments; and to compensate straw buyers for their involvement in the scheme.

Kinney continued her illicit activities while she was waiting for her trial on the mortgage fraud charges. According to her plea agreement on the second indictment, Kinney declared bankruptcy and then attempted to hide assets and liabilities from the bankruptcy court by falsifying her name and Social Security number. Kinney also committed additional financial fraud by arranging for friends to fraudulently obtain a loan to purchase a Mercedes. In addition, she committed insurance fraud by staging a phony burglary of her residence and then collecting $130,000 from Allstate Insurance Co.

Judge Wake noted that the defendant engaged in a “breathtakingly aggressive fraud” when sentencing Kinney to 10 years in prison on the mortgage fraud scheme and to five years in prison on the second indictment, to run consecutively with the mortgage fraud sentence. Judge Wake also ordered Kinney to pay $22,000,000 in restitution (usattyaz3812)

MORAL

Busy little beaver, wasn’t she? But to continue doing it while on bail is really “felony stupid” to the point of 15 years in federal prison. Reminds me of “Maggie Cuevas” from years ago in Southern California and in and around San Bernardino.

THREE CALIFORNIA ATTORNEYS ARRESTED FOR LOAN MODIFICATION FRAUD

FACTS

On March 8, Gregory Flahive, his ex-wife Cynthia Flahive and Mike Johnson were arrested on 19 felony counts, including grand theft by false pretense, conspiracy, and false advertising. The arrests of the owners and managing attorney of a law firm are alleged to have taken thousands of dollars in up-front loan modification fees for services that were never performed for homeowners, many of whom ended up losing their homes. Those arrested were booked at the Sacramento County Jail with bail set at $50,000 bail each.

This is a federal arrest. If it were state the odds are (based upon my experience) that the bail would have another zero and be $500,000 per person.

It is alleged they targeted and later deceived homeowners by leading them to believe that, as attorneys, they would advocate on homeowners’ behalf with their lenders and put homeowners in a position to obtain mortgage modifications under TARP’s housing program, HAMP. It is further alleged they took thousands of dollars for their services but did little, if any, legal work and the homeowners lost what little money they had left and, in some cases, lost their homes to foreclosure.

“Homeowners facing foreclosure are being targeted by predators, including those who use their law license to gain credibility and scam innocent Californians,” Attorney General Kamala Harris said. “My office’s Mortgage Fraud Strike Forces is dedicated full-time to cracking down on these deceptive practices and protecting homeowners from fraud like this.”  (More down and more to come. Does anyone need an attorney out there?)

Gregory and Cynthia Flahive, ex-spouses and owners of Flahive Law Corp., and Johnson, its managing attorney, allegedly took up-front fees of up to $2,500 from homeowners in Placer, Sacramento, Butte and Yuba Counties for loan modification services that were never performed. In California, it is illegal for foreclosure consultants to collect money for services before they are performed.

The Folsom-based law firm advertised its services on flyers, radio, and televised infomercials, offering to provide loan modification services and help clients with bankruptcy, IRS tax relief, and credit card modification.

In a 2010 infomercial, the Flahives said that, as a law firm, they had “extra leverage” with the banks. They described one of their unique services as a “mortgage violation audit” in which they reviewed a client’s loan documents to find bank violations that could be used as leverage to modify a client’s home loan. In fact, the investigation revealed that, in some instances, the client’s lender had no record of contact with the Flahive Law Corp.

Former clients of the Flahive Law Corp. filed complaints with the Attorney General’s office, as well as with the Better Business Bureau and the State Bar of California. The State Bar of California launched an investigation, which was turned over to the Attorney General’s Mortgage Fraud Strike Force in summer 2011.

In one example of the firm’s deceptive practices, a victim who sought to lower his mortgage payments was told by Gregory Flahive to reject his lender’s offer of modification. The homeowner was told the Flahive Law Corp. could secure a better interest rate, reduce his principal, and possibly get his second mortgage eliminated. Four months later, the victim lost his home to foreclosure.

Agencies that assisted in serving today’s search and arrest warrants include SIGTARP, the Folsom Police Department, the Rancho Cordova Police Department, and the El Dorado Sheriff’s Department.

In December, SIGTARP, the Consumer Financial Protection Bureau, and the U.S. Department of the Treasury established a taskforce to combat mortgage modification scams exploiting HAMP and to raise public awareness of the scams. (sigtarp3812)

MORAL

This means the SIGTARP in this attorney’s opinion will soon be hitting Southern California with a vengeance on all loan modifications from 20005 forward. If anyone out there was doing loan mods and collecting advance fees from 2005 on and had complaints filed against them, they may want to see a knowledgeable attorney now and get an opinion on “you know what.”

 

IN COLORADO AS WELL AS ELSEWHERE FORECLOSE WITH THE ORIGINAL NOTE OR YOU MAY NOT BE ABLE TO FORECLOSE AT ALL

FACTS

In Miller v. Deutsche Bank National Trust Co., the Tenth Circuit Court of Appeals considered whether the foreclosing plaintiff had submitted sufficient evidence of its right to foreclose. Originally, the foreclosing plaintiff had filed an action against delinquent borrowers in Colorado state court. To support its ability to bring that action, the foreclosing plaintiff submitted a copy of the underlying note endorsed in blank. The state court accepted that copy as sufficient evidence to authorize the foreclosure. The Millers bought their home from IndyMac Bank in 2006. Their deed of trust named MERS as the beneficiary to IndyMac, and provided that the deed and note could be sold more than once without notice to the Millers. The delinquent borrowers then filed a Chapter 13 bankruptcy.

The foreclosing plaintiff attempted to lift the automatic stay which prevented the foreclosure from going forward and used a copy of the note endorsed in blank to support its’ position.  Plaintiff informed the court that it anticipated receiving the original note in the near future.  Based on that representation, the bankruptcy court granted relief from the stay.  The bankruptcy appellate court agreed.  The Tenth Circuit Court of Appeals did not.

The Tenth Circuit reverse the two lower courts ruling that merely possessing a copy of a note endorsed in blank was not sufficient under Colorado law to show that the entity seeking relief from the automatic stay was a “party in interest” that was entitled to such relief. Possession of the original instrument was essential.

A foreclosing party under Colorado law had to submit evidence that:  (1) it possessed the original note endorsed in blank; (2) it had constructive possession of it; or (3) it (or someone previously) had lost the original note, but it still somehow had the right to enforce the note.  A mere copy of the note endorsed in blank was insufficient proof by itself to allow a party to lift the automatic stay and pursue the related foreclosure proceeding.  (Miller v. Deutsche Bank National Trust Co., 10th Cir.)

MORAL

Comply with all foreclosure related procedures—no matter how technical. Otherwise, unnecessary and costly litigation may ensue.

 

LOAN OFFICER IN BALTIMORE GETS 41 MONTHS IN PRISON FOR MORTGAGE FORECLOSURE RESCUE PLAN

FACTS

On March 8, Charles Donaldson was sentenced to 41 months in prison followed by three years of supervised release for conspiracy to commit wire fraud in connection with a mortgage fraud scheme which caused the issuance of over $4.7 million in fraudulent mortgage loans and homeowners to lose over $1.2 million in equity in their homes.

Co-conspirator Mary Dean was a loan originator and operated Sunset Mortgage Co. from her home. Donaldson, who was also a loan originator, steered clients to Dean’s mortgage brokerage franchise.

Beginning in 2005, Donaldson identified homeowners who were in financial distress because they were unable to make the mortgage loan payments and enticed the homeowners to participate in a foreclosure rescue plan. Donaldson told the homeowners that he would locate “investors” to purchase their homes and thereafter, the homeowners would pay rent to the “investors,” who would pay the mortgage and receive a small percentage of the homeowners’ equity; that the remainder of the homeowners’ equity would be transferred to Donaldson, who would hold it in escrow; and that the homeowners would buy back their properties after 12 to 18 months, giving them time to repair their finances and credit while they continued to live in their homes.

Donaldson recruited family members and associates as “investors” to purchase the properties and paid them a small percentage of the seller’s equity at the time of settlement. Prior to the sales of the homes, Donaldson created and recorded second deeds of trust or promissory notes that purported to show debts owed by the homeowners to Donaldson, and which were secured by the existing equity in their home. At the closing of the home sales, the title companies disbursed funds to Donaldson’s bank account to payoff the liens he had created. Donaldson assured the homeowners and “investors” that he would assist them with their rent and mortgage payments, using that equity which he claimed he was holding in his escrow account. In fact, Donaldson and Dean knew that Donaldson was simply putting these funds into his personal checking account, and using them for personal and business purposes, including the purchase of a personal residence with a cashiers check in the amount of $169,132.60.

Donaldson and Dean obtained the new mortgage loans on the properties in the names of the “investors” with higher monthly mortgage payments, and most times, higher interest rates, than that which the homeowners were currently paying. In the loan applications Dean falsely represented that the “investors” intended to live in the homes as primary residents and inflated the incomes of the “investors.” In some instances, Dean submitted fraudulent loan applications for the same “investor” to purchase multiple properties as their “primary residence” in a short period of time. Donaldson assisted Dean by procuring false verification of employment letters.

Based on the false loan applications, lenders funded loans at high interest rates for the “investors,” yielding large transactional fees and premiums for Dean. Donaldson and Dean knew that the homeowners who sold their homes to the “investor” had lost control of their homes, could not afford the new mortgage loan with higher payments and interest, and could not qualify for a refinance.

The homeowners and “investors” were forced to use their personal savings and credit cards to make mortgage and rent payments until they were no longer able to do so. Donaldson only used a small amount of the equity from the sale of the homes to assist with the payments and the loans went into default. Fourteen of the homes have been foreclosed upon and foreclosure proceedings against two other homes are ongoing.

As a result of the scheme, lenders provided over $4.7 million in mortgage loans. Their final loss remains uncertain as some of the homes remain in foreclosure to this day. The homeowners lost over $1.2 million in home equity. More than 20 victims were defrauded by Donaldson and Dean.

Dean has also pleaded guilty and faces a maximum sentence of 20 years in prison and a fine of $250,000. (usattymd3812)

MORAL

The government went back to 2005—over seven years ago to get to the defendants. They are slowly working their way forward in time. Donaldson used some of his money to buy a home. Unfortunately, the government has made reservations for him at a different residence.

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