California Real Estate Fraud Report

The office of California Attorney General Kamala Harris has served subpoenas to Bank of America regarding the sale of mortgage-backed securities (MBS) to institutions done by Countrywide Financial, which BofA purchased in 2008.

California’s AG, which was in talks with the attorneys general of all 50 states to negotiate settlements with all the large banks (BofA, Wells Fargo, JP Morgan Chase, et. al.) with respect to the banks’ foreclosure practices, left those talks when Harris determined the settlement amounts were insufficient.

Harris’ pursuit of BofA could be costly to the banking giant: under California’s False Claims Act, defrauding the state via any of its institutional investors such as pension or other funds, could result in awards of three times the amount of the claim. If any employees of Bank of America step forward with solid evidence, they could be entitled to a percentage of those damages as a whistleblower.

Read the original article in the Los Angeles Times.

As if the major banking institutions didn’t already have enough problems, they’ve now been hit with a whistleblower lawsuit by two mortgage brokers in the Atlanta area for massive fraud against our nation’s veterans and the federal government.

The lawsuit, which was just unsealed by the federal Court in Atlanta, contains stunning accusations that the banks circumvented the “unallowable fees” portion of the Interest Rate Reduction Refinancing Loans program for veterans. This program helps current or retired veterans to refinance their homes at lower interest rates or to refinance at a shorter term than their current mortgages.

The banks are alleged to have shifted their normal fees from unallowable fees (attorney’s fees and settlement closing costs) to the “allowable fees” column, which would include credit reports, taxes and recording costs, often padding the latter with fees from the former. In one of the exhibits proffered by the plaintiffs, Wells Fargo reported a $950 title examination instead of the more customary fee ranging from $125 to $200.

The nexus for this lawsuit is that not only were more than 1 million of the refinanced loans with the alleged excessive and illegal fees charged to veterans, but that the Department of Veterans Affairs, which guaranteed the loans, will bear the losses of the homes which subsequently went into foreclosure.

The plaintiffs are Victor E. Bibby, the president and chief executive of U.S. Financial Services and Brian J. Donnelly, the firm’s vice-president of operations. They are represented by James E. Butler Jr.,  of Butler, Wooten and Fryhofer and Mary Louise Cohen, of Phillips and Cohen.

The banks targeted by the whistleblowers’ lawsuit are Wells Fargo, Bank of America (Countrywide Home Loans), J.P. Morgan Chase (Washington Mutual Bank) and Ally Bank (GMAC Mortgage), SunTrust Mortgage, CitiMortgage, PNC Bank (National City Mortgage), Mortgage Investors, First Tennessee Bank (First Horizon Home Loan), Irwin Mortgage and New Freedom Mortgage.

Read the original article in the Washington Post and National Mortgage News.

Dear Readers,

Below is a timely exerpt from my upcoming book on short sale fraud:

Bank of America, which acquired subprime lender Countrywide Financial Corp., has been ordered by the U.S. Department of Labor to reinstate a Countrywide internal investigator it had fired and to pay her $930,000. Eileen Foster had found “egregious fraud spread throughout the entire region” when she was auditing Boston-area branches, which resulted in the closing of most of those branches. An article in the Wall Street Journal reveals that the Department of Labor had concluded that Foster’s investigation found “forgery of loan documents, manipulation of borrowers’ assets and income, manipulation of the company’s automated underwriting system and destruction of valid documents.”

Several Bank of America employees said the whistleblowing Foster had been targeted and that the bank’s own investigators had a “profoundly biased view” against her.

iWatchNews, the publishing arm of the Center for Public Integrity, quotes Assistant Secretary of Labor David Michaels as saying “This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same.”

Bank of America, which says it will appeal the order by Labor, said Foster, who filed for whistleblower protection under the 2002 Sarbanes-Oxley corporate reform act, had shown “inappropriate and unprofessional conduct with your staff and displaying poor judgment as a leader.”

The San Mateo County Investment Pool has filed a civil lawsuit against executives for Lehman Brothers Holdings Inc., accusing them of concealing information from investors about the firm’s losses in the real estate market while taking home lucrative bonuses.

The investment pool, which represents public agencies that invested in Lehman, lost more than $150 million when Lehman Brothers went bankrupt. They are suing the executives and the firm’s auditor, Ernst & Young, alleging fraud, negligent misrepresentation and violations of California law and the federal Securities Act.

According to Supervisor Mark Church:

“The theory here is the top management fraudulently represented that the company was financially strong at a time when they were about to declare bankruptcy. What makes this case so outrageous is all the while, they were siphoning off millions of dollars for their personal benefit, leaving good-faith investors holding the bag. It hurts our schoolchildren, our transit projects, and other essential services that we provide.”

Lehman Brothers was also in the news as the source of tens of millions of dollars lent to the Beverly Hills real estate fraud, appraisal fraud and mortgage fraud ring, whose accused members include Mark Alan Abrams, Charles Elliott Fitzgerald, Joseph Babajian and Kyle Grasso. Read earlier articles in the California Real Estate Fraud Report and another in Mortgage Law Central.

Read the Full Article in the San Jose Mercury News.

The troubles that resulted in WaMu being acquired for $1.9 billion by JPMorgan Chase seem to be 100% of its own making. They are being investigated by Andrew Cuomo, Attorney General for the State of New York, for pressuring appraisers at e-AppraiseIT to increase the value of properties so that their profits on subprime loans could be higher. Other attorneys general are investigating WaMu in their respective states.

WaMu and some of its executive officers are also the subject of civil lawsuits, one of which was filled by Chad Johnson, a partner at Bernstein, Litowitz Berger & Grossmann, on behalf of the Ontario Teachers’ Pension Plan board, a large shareholder. Says Johnson: “(CEO) Kerry Killinger pocketed tens of millions of dollars from WaMu, while investors were left with worthless stock.” With WaMu gone, he added, “it is all the more important that Killinger and his co-defendants are held accountable.”

Keysha Cooper, one of WaMu’s senior mortgage underwriters, describes a work environment in which approving loans, no matter how risky or dubious, was her job. To paraphrase the old Chiller films of the 1950s: “Volume was the order of the day”. This included strong-arming underwriters to “re-structure” loan applications until the numbers worked. Loan officers with high sales volume were rewarded with Hawaiian vacations, whereas those that balked, such as Ms. Cooper, found themselves being written-up and, in her case, being put on probation before ultimately being fired. One of the loans she ad objected to defaulted immediately; the borrower never made a single payment.

Read the Full Article in the New York Times.

Although many jilted investors have cheered at the recent arrests of the mother-and-son leaders of the bankrupt Paso Robles-based Estate Financial, they are only one group of a growing number of investors in the Central Coast who have had troubles with mortgage and lending firms.

Besides Estate Financial, other hard money lenders who are biting the dust are:

- Atascadero-based Hurst Financial, which had at least $86 million in investments last year, has had its license revoked by the California Department of Corporations and has been accused of fraud in September in filings by the Department of Real Estate. Hurst Financial has been the subject of several posts in the California Real Estate Fraud Report.

- Real Property Lenders of Paso Robles had its license revoked by the Department of Corporations in May. It had about $55 million in loans as of 2007,

- 21st Century Mortgage, also of Paso Robles, closed down abruptly about a year ago with no notice to its investors. Other firms eventually bought most of the loans.

Estate Financial is still the king of fraud allegations at the time of this writing. Their $170-million in loans were frozen and put under court control after the state revoked its license to sell real estate investments. On October 16, Estate Financial’s President, Karen Guth, and her son Joshua Yaguda were arrested at their Paso Robles ranch by investigators from the SLO County District Attorney’s Office.

Read the Full Article in the San Luis Obispo New Times.

Todd R. Lackner became an appraiser in 1989.  Since March of 2007 he’s also become a mortgage fraud investigator of sorts and has reported more than 400 cases of inflated-sale and-crash schemes, a scam in which a buyer purchases property for more than its market price, receives cash at the closing of escrow and then lets the property fall into foreclosure. Of course, said fraud requires the help of dishonest real estate agents and appraisers.

The biggest story of inflated-sale-and-crash involves the Beverly Hills ring of developers and real estate professionals who have been indicted for their activities, which have been profiled extensively in the Los Angeles Times, Forbes Magazine, and The F Word.

Now he’s on a roll:

“I’m trying to nail (them)” Lackner said. “Some of these people made well over a million dollars in a couple months time.” He said he remembers well the day the first case came to light. He was doing an appraisal of a home in San Diego and was checking the sales information on comparable properties, Lackner said.While checking comparable home prices in the same area, he said, he noticed that one of them had sold for $70,000 more than the listed price. So, he did a drive-by to check out the property, he said. There was no one living there, he said, and the house was run-down, with an overgrown lawn.He realized immediately that something was wrong, so he went back to the office and began doing research on the real estate agent who had represented the buyer, Lackner said.It turned out, he said, the man had been involved in the purchase of 17 properties over a period of just a few months. All of the sales were suspicious, because the sales prices were significantly higher than the list prices, Lackner said. Ten of the properties later foreclosed, he said.“Then, I knew I was onto something,” Lackner said. “I said, ‘how can people get away with this?’ ”

Read the Full Story

Following up on the Los Angeles Times’ story of unbridled greed on the part of a pack of real estate professionals operating out of Beverly Hills, Forbes Magazine has written about some of the details that made stealing so easy: lender Lehman Brothers – too busy writing loans without showing the slightest due diligence to its investors by failing to verify loan documents; chronic crooked developers Mark Alan Abrams and his bigamist partner Charles Elliot Fitzgerald; celebrity still-not-rich-enough Realtor Joseph Aram Babajian and his crew of professionally creative appraisers and mortgage brokers.

In a plug for my home team, Christian Stevens, a broker in the Beverly Hills office of Keller Williams Realty, was the good guy that Lehman Brothers wished would go away. Calls by Stevens to Lehman Brothers to report what Stevens thought was fraudulent lending, were brushed off. When the lender finally contacted Abrams about his scam, Abrams’ reply was “What’s the worst that can happen to us?”

Another good guy was appraiser Gary Crabtree, working out of Bakersfield, California. Crabtree called lenders WaMu, SunTrust Bank, Countrywide and others to report up to 207 residential sales he believed were fraudulent. According to Crabtree:

“GreenPoint Mortgage told me it was none of my business,” he recalls. “SunTrust was another I reported numerous frauds to. They just want to write them down and get out of town.” The banks declined comment.

Read the full story

WaMu’s (Washington Mutual) problems with fraudulent appraisals has moved rapidly from New York State, where it is being sued by New York Attorney General Cuomo, to California.

According to Appraisal Scoop, WaMu is being sued by Jennifer Wertz, a California Office of Real Estate Appraisers (OREA) licensed appraiser for fraud, breach of both oral and written contracts and other tortious acts. The 12 count lawsuit also names First American Corp., eAppraiseIT, Lenders Services (LSI), FNIS, Inc, and Susan Richter, a WaMu sales manager.

Wertz’ attorneys wrote the complete article on Appraisal Scoop describing the history of appraiser Wertz’ business relationship with the defendants and the events that transpired, culminating in her legal claims against them. This is a fascinating read, a prelude of the problems washing up at WaMu’s front door.

Here is just a taste of the article:

Jennifer Wertz was considered a preferred real estate vendor which means that Wertz’s worked had previously been used and WaMu was familiar with and considered Plaintiff’s work to be proven.
On or about May 21, 2007, Susan Richter (a Sales Manager employed by WaMu) informed Jennifer Wertz that a loan for which Wertz had prepared an appraisal report had been declined because Wertz had indicated in her report “declining” market conditions. Richter insisted that Wertz change her appraisal report to indicate “stable” market conditions so that the loan could be approved.

Again, click on the above link for the full article.

Click here to read about NY AG Cuomo’s lawsuit against WaMu.

Posted by Monique Bryher at 10:03 AM