NATIONWIDE MORTGAGE E ALERT©
(7-15-13)
MUST YOU COMPLY WITH THE “RED FLAGS RULE”
READ WHAT THE FEDERAL TRADE COMMISSION (FTC) SAYS
FACTS
Who Must Comply with the Red Flags Rule: A Two-Part Analysis
The Red Flags Rule requires “financial institutions” and some “creditors” to conduct a periodic risk assessment to determine if they have “covered accounts.” The determination isn’t based on the industry or sector, but rather on whether a business’ activities fall within the relevant definitions. A business must implement a written program only if it has covered accounts.
Financial Institution
The Red Flags Rule defines a “financial institution” as a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or a person that, directly or indirectly, holds a transaction account belonging to a consumer.4 While many financial institutions are under the jurisdiction of the federal bank regulatory agencies or other federal agencies, state-chartered credit unions are one category of financial institution under the FTC’s jurisdiction.
Creditor
The .5
To determine if your business is a creditor under the Red Flags Rule, ask these questions:
Does my business or organization regularly:
defer payment for goods and services or bill customers?
grant or arrange credit?
participate in the decision to extend, renew, or set the terms of credit?
If you answer:
No to all, the Rule does not apply.
Yes to one or more, ask:
Does my business or organization regularly and in the ordinary course of business:
get or use consumer reports in connection with a credit transaction?
give information to credit reporting companies in connection with a credit transaction?
advance funds to — or for — someone who must repay them, either with funds or pledged property (excluding incidental expenses in connection with the services you provide to them)?
If you answer:
No to all, the Rule does not apply.
YES TO ONE OR MORE, YOU ARE A CREDITOR COVERED BY THE RULE.
Covered Accounts
If you conclude that your business or organization is a financial institution or a creditor covered by the Rule, you must determine if you have any “covered accounts,” as the Red Flags Rule defines that term. You’ll need to look at existing accounts and new ones6. Two categories of accounts are covered:
A consumer account for your customers for personal, family, or household purposes that involves or allows multiple payments or transactions.7 Examples are credit card accounts, mortgage loans, automobile loans, checking accounts, and savings accounts.
“Any other account that a financial institution or creditor offers or maintains for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the financial institution or creditor from identity theft, including financial, operational, compliance, reputation, or litigation risks.”8 Examples include small business accounts, sole proprietorship accounts, or single transaction consumer accounts that may be vulnerable to identity theft. Unlike consumer accounts designed to allow multiple payments or transactions — always considered “covered accounts” under the Rule — other types of accounts are “covered” only if the risk of identity theft is reasonably foreseeable.
In determining if accounts are covered under the second category, consider how they’re opened and accessed. For example, there may be a reasonably foreseeable risk of identity theft in connection with business accounts that can be accessed remotely — say, through the Internet or the telephone. Your risk analysis must consider any actual incidents of identity theft involving accounts like these.
If you don’t have any covered accounts, you don’t need a written program. But business models and services change. You may acquire covered accounts through changes to your business structure, process, or organization. That’s why it’s good policy and practice to conduct a periodic risk assessment.
MORAL
If you are a mortgage broker, you need a Red Flags Manual and if you are a mortgage lender you definitely need one. In fact the way this reads from FTC even debt collection agencies need to have a “Red Flags Manual.” If you do not have one, you can purchase one from our law firm. This has been around for some time but now the FTC appears to be putting a big “push” on it because of the high increase in identity theft. Get one now or get fined later.
LOSS MITIGATION UNDER CONSUMER FINANCIAL PROTECTION BUREAU AND WHAT LENDERS MUST DO TO TREAT THE BORROWER FAIRLY FOR PURPOSES OF LOAN MODIFICATION AS OF JANUARY 14, 2014
FACTS
Loss mitigation process under Regulation X.Effective January 10, 2014, servicers are required to review a borrower’s loss mitigation application WITHIN FIVE DAYS and provide a notice to the borrower acknowledging receipt and informing the borrower whether the application is complete or incomplete. Regulation X Section 1024.41(b)(2). In cases where the servicer determines that the application is incomplete, the servicer’s notice also must list the additional documents and information needed from the borrower to make the loss mitigation application complete.Servicers also are required to exercise reasonable diligence in obtaining the additional documents and information.The proposed amendments would address the process for correcting errors or mistakes that may occur when servicers perform initial completeness evaluations of loss mitigation applications, but later discover the application was incomplete. The proposed amendments also would allow servicers to select a “reasonable date” by which an incomplete application should be completed; and, subject to conditions, allow servicers to offer a borrower the option of a short-term forbearance program (up to two months) even if the application is not complete.(12 cfr §1024.41(b)(2))
MORAL
If you are a borrower then keep track and keep this in front of you when talking to the loan servicer so you can quote to him as necessary. Make sure it has passed and make sure it is January 10, 2014 or later. If you are the loan servicer or mortgage loan originator trying to do this for your client, the same applies to you.
CLOSING ATTORNEY IN ALABAMA GETS TWO YEARS FOR
MORTGAGE FRAUD
FACTS
On June 26, 2013 KELVIN LEONARD DAVIS, 42, a FORMER BIRMINGHAM REAL ESTATE LAWYERafter having pleaded guilty was sentenced to two years in prison for wire fraud in connection with a mortgage fraud scheme that exceeded $1 million. He pleaded guilty to four counts of wire fraud for knowingly submitting false mortgage documents and statements to various lenders in order to obtain approval for mortgage loans. At the time of the fraudulent transactions, from October 2007 to January 2012, Davis served as the closing attorney on each of the fraudulent loan transactions.
As part of Davis’ plea agreement with the government, he agreed to forfeit $269,335 to the government as proceeds of the illegal activity. Judge Bowdre ordered that forfeiture as part of Davis’ sentence.
Davis carried out his fraud as follows:
He submitted false statements with loan documents in order to obtain approval for mortgage loans that would otherwise not have been approved. In many instances, Davis, while serving as closing attorney, would use his trust account to provide money to the borrower when a mortgage loan was closing. Davis would recover the money by subtracting the amount he provided from the proceeds he issued to the seller. Davis also would assess the seller a fee, ranging from $1,000 to $6,000, and make checks for the fee payable to PEACEFUL VALLEY HOMES, a corporation he had formed. Total losses to the various lenders as a result of Davis’ fraud exceeded $1 million. (usatty62613ndalabama)
MORAL
This started seven years ago. Like I have been saying, the government has ten years from when the loan closes to prosecute and slowly but surely the rounds are being made.
CERRITOS, CALIFORNIA ATTORNEY FACES ETHICS CHARGES BEFORE THE CALIFORNIA STATE BAR INVOLVING LOAN MODIFICATIONS
FACTS
PAMELA STACEY GERBER-GRESSIER a Cerritos attorneyfaces disciplinary charges of allegedly collecting illegal advanced fees from homeowners and unlawfully practicing law in several states as part of an alleged loan modification fraud scheme, the State Bar of California announced on July 9, 2013.
Pamela Stacey Gerber-Gressier is also accused of convincing a former client to withdraw his State Bar complaint in exchange for the return of unearned fees he paid her and enticing several clients to sign documents waiving their right to file malpractice claims by offering partial fee refunds, the bar association reported.
Gerber-Gressier, 53, also allegedly failed to inform the clients that they could seek the advice of an independent lawyer. According to the notice of disciplinary charges, Gerber-Gressier ran Orange County law firms under the names PRUDENTIAL LAW GROUP, PRUDENT LAW GROUP AND REMEDY CENTER LAW ASSOCIATES, and used those names to advertise loan modification services to homeowners in Illinois, Florida, Massachusetts, Ohio, North Carolina, New York, Georgia and New Jersey.
According to the bar association, Gerber-Gressier was not licensed to practice law in any of those states and did not personally evaluate the clients' cases. She also allegedly did not determine how much in legal fees to charge them, or whether they qualified for loan modifications, leaving those tasks to non-attorney staff members instead.
Gerber-Gressier is also accused of improper solicitation because the mailers she sent to prospective clients did not clearly state that they were advertisements and made it appear as though they were sent by the homeowners' respective mortgage holders, according to the State Bar.
The mailers also contained other misleading statements, including that the sender had already reviewed the terms of the recipients' mortgages, according to the disciplinary charges notice. (citynws7913)
(castatebar# 12 O 13126
MORAL
Some of you reading this may remember a similar situation. Remember the attorney is innocent until the charges are proven and the State Bar Website states there are 108 charges.
MODESTO, CALIFORNIA HAS A FIELD DAY ON CONVICTIONS FOR MORTGAGE AND FORECLOSURE RELATED FRAUDS
FACTS
Chronologically, working backward:
o PHIL SOTELO agreed Tuesday July 9, 2013 to a six-month jail sentence for filing phony documents with the county recorder's office in an effort to avoid foreclosure on his north Modesto home. He had owned REALTY EXECUTIVES SOTELO & ASSOCIATES whenarrested two years ago and had worked with other Modesto firms since 1989. Documents indicate he owed $1.4 million on his Papillon Drive home in a gatedcommunity and posed as a representative of his lender while deeding the propertyto a corporation he owned.Wanted to avoid foreclosure and now has a criminal record. There were other ways to forestall the foreclosure legally. All he had to do was consult a reputable attorney. Living in a gated community he could have afforded one.
o On Monday, July 8, 2013a Los Angeles woman pleaded guilty to bankruptcy fraud in aforeclosure rescue scheme first detected four years ago in Modesto. JEWEL HINKLES, ALSO KNOWN AS CYDNEY SANCHEZ, 63, and others preyed on peopledesperate to keep from losing their homes in foreclosure and collected about $5million from more than 1,000 victims while doing nothing to help them,
authorities say. She will probably get about five years and with luck be out in two.
In late June 2013 BRENT MEDEARIS, 46, OF MODESTO entered an identical plea ALONG WITH JESSE WHEELER, 36, OF ROSEVILLE. The three defendants face five-year termsin federal prison and $250,000 fines when sentenced in September; another DEFENDANT, CYNTHIA CORN, 60, OF OAKLAND, is scheduled for trial Aug. 6. She is innocent until proven guilty in a court of law beyond a reasonable doubt. Problem is she probably cannot afford private counsel.
The scheme was uncovered when the local clerk- recorder's office detectedsuspicious filings in June 2009 and tipped off investigators. They initiallyfound 30 victims in this county, and a subsequent probe involving the FBI andother agencies uncovered hundreds more in other areas.
Victims were lured by promises that investors would purchase their mortgagesat a discounted price or reduce monthly payments by negotiating a reduction withthe lender. Defendants collected fees and transferred property interests to aphony company but did nothing else to save the victims from public auction,authorities say.
Medearis once was listed as CHIEF EXECUTIVE OFFICER OF MODESTO-BASED VIP FINANCIAL SERVICES, an affiliate of Hinkles' company.
o On JULY 2, GERALD JEFFERY, 39, who has lived in Modesto and Oakdale,admitted to changing locks on a vacant home, advertising it for rent onCraigslist, showing the home to victims and collecting rent and a first month'sdeposit in June 2012. The renter got wise when the real owner showed up. Authorities set up a stingand nabbed Jeffery when he returned to collect more rent, Mangar said.
His plea deal encompassed unrelated charges of vehicle theft and drugpossession, and with a prior felony strike conviction, Jeffery was sentenced tosix years in prison. (for collecting rent! Actually that is not true, it was for going back to collect the rent!)
o On June 25, MARK REDDING, 49, OF MODESTO pleaded to a misdemeanor charge of operating a property management company without a state license. He was fined$1,000 and must reimburse clients as determined by probation authorities. The state license he needed was as a broker from the Bureau of Real Estate.
A client of REDDING PROPERTY MANAGEMENT CO. complained in January, sayingthat poor service cost her $40,000, an arrest warrant affidavit says. Thecompany was not insured as required by the California Bureau of Real Estate, leaving the property owner no recourse for recouping her loss, the documentsays.
o GABRIEL ALBOR, WHO ONCE OWNED FIDELITY FIRST MORTGAGE IN ESCALON, pleadedMay 15 to a felony count of filing a bogus document to postpone losing hiswife's property. He is expected to receive a six-month term when sentenced Aug.7.
Meanwhile, two other former Modesto real estate agents await trial inunrelated cases.
o Federal prosecutors say TONY HUY HAVENS ran a scheme designed tofraudulently obtain more than $14 million in loans that caused Californialenders to lose $7.2 million. He previously was convicted in 2008 in StanislausCounty of swindling $208,000 from victims in another fraud scheme.
o A federal trial for JIM LANKFORD, FORMER OWNER OF CENTURY 21 APOLLO INMODESTO, is scheduled for Nov. 5. He and roommate JON MCDADE are accused ofbilking $10 million from lenders and elderly homeowners in Modesto and Hughsonover 11 years. Authorities say the men gained the trust of elderly homeowners and enrichedthemselves with multiple loans obtained with forgeries and lies. They recentlymoved to Oklahoma, court documents say. (modb71113)
MORAL
That makes ten arrests and/or convictions in about 30 days. I would say the Modesto area has been very busy in real estate related crimes. As a point of curiosity (mine), does anyone reading this e alert know any of the people mentioned above. I would love to hear from you.
ORANGE COUNTY, CALIFORNIA DAN HARKEY OF POINT CENTER FINANCIAL HIT WITH $4.5 MILLION JUDGMENT-PUNITIVE DAMAGES YET TO BE DECIDED
FACTS
On July 11, 2013, a jury ordered loan broker Dan Harkey to pay $4.5million to dozens of investors for breach of fiduciary duty and breach ofcontract.
The jury also found that Harkey and his Aliso Viejo company, Point CenterFinancial Inc., acted with "malice, oppression or fraud." This allows the plaintiffs to seek punitive damages. Thejury also found that Harkey had engaged in elder abuse against several ofhis investors.
The jurors delivered the same verdict for every plaintiff thatHarkey and Point Center engaged in breach of contract and breach of fiduciaryduty. Only the damages changed from plaintiff to plaintiff - a figure calculateddown to the penny.
The total damages could go higher than $4.5 million before punitive damagesare added. The jury awarded the same amount to each plaintiff for breach offiduciary duty and for breach of contract. It was unclear whether thejury meant for the amounts to be treated as a single award or two awards. (ocreg71213)
MORAL
If you are a “hard money investor” or a “hard money broker” you had better have competent legal counsel. When “deals” prove profitable, no one complains. BUT when at least one “deal” goes bad, the investor will sue or complain as a rule. At least that is what I have seen over the last 20 years.
ROCKLIN, CALIFORNIA MAN GETS 20 MONTHS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On July 9, 2013 KEVIN DERRICOTT OF ROCKLIN, CALIFORNIA was sentenced to 20 months in prison for his role in a scheme to defraud lenders out of millions of dollars.
On Feb. 19, 2013, Derricott pleaded guilty to conspiracy to commit wire andbank fraud and bank fraud. From about February 2006 through December 2008, Derricott conspired with others to submit mortgage applications to various lenders that contained materially false information about the borrower-applicants, such as inflated salary figures, inflated assets claims or false employment information, in order to trick the lenders into making loans. Derricott also recruited borrower-applicants, procured false supporting documentation for loan applications and submitted fraudulent loan applications to lenders in exchange for a portion of the fraudulent proceeds.