A MERS MORTGAGE MAY NOT BE VALID IN TENNESSEE AND THE ORIGINAL LENDER MAY LOSE ITS RIGHTS UNDER THE MORTGAGE
FACTS
On Jan. 2, the Tennessee Court of Appeals affirmed a Chancery Court decision that Mortgage Electronics Registration Systems Inc. was not entitled to notice of a tax sale of a property on which it held a lien. The case is MERS v. Ditto, No. E2012-02292-COA-R3-CV (Tenn. Ct. App. Jan. 2, 2014).
The taxing authority filed a lawsuit to collect delinquent taxes in 2008, and in 2010 it sent a notice of tax sale to the original lender, but not to MERS. The original lender did not forward the notice to MERS. The property was sold at auction in June 2010.
MERS filed a suit in its own name in January 2012, requesting that the court set aside the tax sale because MERS was deprived of its constitutionally-protected right to notice of proceedings that affected its property interest. In September 2012, the Chancery Court of Hamilton County entered an opinion and order denying the relief requested by MERS. The chancery court held that MERS’ due process rights were not violated because it had no property interest to protect and it suffered no injury. The chancery court stated that MERS was only a nominal beneficiary, without a financial stake in the mortgage, and it could therefore suffer no injury as a result of having not received notice of the tax sale. MERS appealed the decision to the Tennessee Court of Appeals.
The Court of Appeals affirmed, holding that MERS did not have standing to bring the suit to set aside the tax sale because it did not have an independent interest in the property and it did not suffer an injury as a result of the tax sale. The appellate court found that the deed of trust did not grant MERS an independent property interest because MERS was only the nominee of another entity. It also found that MERS did not sustain an injury because it did not discover that the tax sale had taken place until 19 months after the sale, and an injury to MERS’ business model, “which is reliant upon the avoidance of county recording fees,” was not distinct and palpable. MERS says it will be filing a petition seeking a rehearing of the case in the Court of Appeals.
MORAL
If you as a lender have a mortgage where MERS is the nominee, I suggest you run a tax service on your own or at least contact MERS if you have notice of a tax sale, eminent domain or foreclosure senior to your mortgage.
SAN DIEGO WOMAN PLEADS GUILTY TO $6 MILLION MORTGAGE FRAUD
FACTS
On Jan. 16, Kathryn Sylvester pleaded guilty to overseeing a mortgage fraud conspiracy in which she and several accomplices created crooked transactions that caused more than $6 million worth of monetary losses.
She admitted to committing conspiracy and wire fraud during a hearing before Magistrate Judge William Gallo. She faces a maximum of 50 years in prison and fines totaling $1.25 million when sentenced on April 1.
Between June 2005 and May 2008, (remember how I have been reminding everyone that the prosecutors have 10 years to file criminal prosecutions and use the oldest ones first?) Sylvester recruited straw buyers to submit falsified mortgage loan applications to buy property and obtain home equity loans. She personally provided bogus documents to support the purchasers' misrepresentations about their income and employment, and added the co-conspirators to unrelated bank accounts so they could falsely inflate the value of their assets on loan applications.
Sylvester helped convince lending institutions to fund loans for which she and the straw buyers would not otherwise qualify. Though the defendant at times promised to "flip," or quickly resell, a number of the holdings for a profit, she actually drained equity from them for her own benefit.
The straw buyers in the scheme included Claudia Montes, Tad Lent and Roderick Michener. Montes, a former notary public, notarized the signatures of other purchasers on loan applications. Last spring, she pleaded guilty to conspiring with Sylvester to submit false documents to lenders to obtain the properties and transferring proceeds to Sylvester. She is scheduled to be sentenced Feb. 14.
Michener admitted in court nine months ago to conspiring with Sylvester to commit bank fraud, conceding that he permitted co-conspirators to claim ownership interests in his bank account in order to include it as an asset on their mortgage-loan applications. He is slated to be sentenced March 14.
Lent admitted conspiring with Sylvester to submit falsified loan applications to mortgage lenders by misrepresenting the amount of his assets. He entered his guilty plea early last year and was scheduled to be sentenced Jan. 21, 2014. (ctynwssev11614)
MORAL
The one that sees the prosecutor first gets the best deal as the norm for cooperation. I wonder which of the three was first at bat. Do remember the following: If you are accused of anything by anyone, criminal, administrative or licensing agencies, or civil, seeing the attorney first is better than trying to handle it yourself is the rule, not the exception. We have had cases where clients were requested to buyback or reimburse loans where investors suffered a loss and in many cases because of the work of the legal work of our attorneys, the mortgage broker paid nothing. This does not incur in all cases depending on the facts but does the person having the demand placed upon them want to take the risk?
THREE LAWSUITS BROUGHT BY FTC AGAINST 28 DEFENDANTS FOR FALSELY PROMISING MORTGAGE RELIEF SETTLE
FACTS
On Jan. 14, the Federal Trade Commission settled three cases resulting in the South Florida-based defendants surrendering their assets and being banned permanently from providing mortgage relief and debt relief services.
In 2012, in a multi-agency federal enforcement crackdown, the FTC charged 11 companies and five individuals with running an illegal mortgage relief scheme, which operated under various names, including Prime Legal Plans and Using Reaching U Network, a sham non-profit front, and a maze of other companies. The scheme reeled in consumers with false promises that enrollment would save their homes from foreclosure or result in lower mortgage payments. The FTC obtained a court order shutting down the operation and freezing the defendants’ corporate and personal assets pending settlement of the case.
The FTC charged that the defendants promised consumers that they would prevent foreclosure or significantly lower their mortgage payments by conducting audits of consumers' loans and providing access to full-service, expert legal representation to fight their lenders. The defendants, who marketed their programs in English and Spanish through a national outbound telemarketing campaign, allegedly told consumers that "80% of mortgages contain some fraud" and, in some cases, that even a small error in their loan documents could nullify the mortgage.
The defendants also allegedly told consumers that they would be assigned an expert mortgage foreclosure defense attorney in their state who would "halt the foreclosure process" and save their homes. But instead of helping consumers, the defendants charged them illegal advance fees ranging from $595 to $750 per month, while delivering little or no help and driving them deeper into debt. In addition to alleging that the defendants deceived consumers, the FTC charged that the scheme violated a ban on advance fees for mortgage relief. The FTC also asserted that the defendants placed numerous calls to numbers listed on the national Do Not Call Registry.
Under the settlements, the defendants are banned from participating in the mortgage relief and debt relief industries, and are prohibited from misrepresenting various features of any product or service or making advertising claims that are unsupported by competent and reliable evidence. They also are prohibited from placing unsolicited calls both to numbers listed on the Do Not Call Registry and to any number in an area code for which they have not paid the fee to access the list of numbers on the Do Not Call Registry.
The settlements require the defendants to pay nearly $3.6 million to redress consumer victims. There is also a $25.1 million judgment against Derek Radzikowski, Jason Desmond and six corporate defendants. But this judgment will be suspended when the defendants surrender their assets.
There is an additional $2 million in judgments entered against other defendants. (FTC-1-14-14)
MORAL
Judgment for millions, but in one case it is just hundreds of dollars and in others thousands. Does this seem reasonable to you?
71-YEAR OLD OHIO MAN SENTENCED TO OVER 11 YEARS IN PRISON FOR MORTGAGE FRAUD
FACTS
On Jan. 13, David Sharrock was sentenced to over 11 years in a federal prison for his part in a $1.3 million mortgage fraud scheme. He had already pleaded no contest to 26 counts of bank fraud, conspiracy, making false statements, bankruptcy fraud, wire fraud and other charges. In addition to the 11-year prison sentence, Sharrock was ordered to pay $767,000 in restitution. Because it is a federal conviction he is not eligible for parole.
Prosecutors say that his daughter Rhonda McElroy also participated in the scheme. She was sentenced to six months in prison and six months of home confinement.
Sharrock owned hundreds of rental units in Ohio. Prosecutors said that at least 35 of those properties were involved in the scam, in which Sharrock would submit fraudulent information to lenders. Sharrock also tried to hide properties through a trust fund in his wife's name.
Defense attorney Brian Halligan, meanwhile said the 11-year sentence was inappropriate for a man of Sharrock’s age. "We think (the sentence) is out of line," he told a newspaper in Ohio. "We anticipated some jail time, but not to that extent." (mpajl11314)
MORAL
Sounds like the U.S. Attorney did not want to deal and make a recommendation. May be the case should have been tried? How much worse could he have done?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
