To all the Mothers out there who make this day possible in the first place, we say…

Happy Mother’s Day!

P.S.: You won’t need a magic cape to spot, report, and stop real estate and mortgage fraud! Just do it!

Defying veto threats from the Bush administration, the U.S. House of Representatives yesterday passed a comprehensive measure in response to the mortgage crisis. The American Housing Rescue and Foreclosure Prevention Act (H.R. 3221) appears to respond directly to the current crisis facing middle class Americans while providing many of the tools necessary to prevent a repeat of these problems. President Bush has threatened to veto the roughly $300 billion package, arguing it would “reward speculators and lenders.”

The legislation combines a number of bipartisan bills including measures to modernize the FHA and reform the GSEs, which will provide crucial liquidity to our mortgage markets now, and also strengthen regulation and oversight for the future. In addition, the package could help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.

Amendment 1: FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830)

• Provides mortgage refinancing assistance to keep families from losing their homes, protect neighboring home values, and help stabilize the housing market.
• Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government -insured mortgages they can afford to repay. This legislation will help troubled borrowers avoid foreclosure while minimizing taxpayer exposure.
• Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
• Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
• Contains important protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.
• Provides $230 million for financial counseling to help families stay in their homes.

FHA Modernization (H.R. 1852)

• Expands affordable mortgage loan opportunities for families (many of whom would otherwise turn to subprime lenders) and for seniors through expanded access to reverse mortgages through Federal Housing Administration reform.
• This measure passed the House in September. (Expanding American Homeownership Act of 2007, H.R.1852)

GSE Reform (H.R. 1427)

• Strengthens regulation of Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system.
• Raises the GSE loan limits for single family homes in high cost areas, so that these entities can purchase more loans in higher cost areas (thereby lowering interest rates for new homes and refinancings in those areas).
• Expands liquidity in the mortgage markets by buying loans already made, freeing up money for new mortgages and refinances.
• Creates a new Fund to boost the nation’s stock of affordable rental housing.

Encouraging Mortgage Modifications/Castle Bill (H.R. 5579)

• Mortgage servicers are concerned about the threat of investor lawsuits if they help families in danger of losing their homes with loan modifications that reduce monthly mortgage payments through lower interest rates, reduced principal amounts or other changes in loan terms.
• To speed loan modifications and keep more families in their homes, this package includes HR 5579 to provide mortgage servicers with clarity and certainty for their actions, and protection from such lawsuits for specified loan modifications.

Preserving the American Dream for Our Nation’s Veterans

• Increases VA Home Loan limit, as was done in the stimulus package, for high-cost housing areas so that veterans have more homeownership opportunities.

Amendment 2– Tax Provisions to Expand Refinancing Opportunities and Spur Home Buying (H.R. 5720): This amendment provides $11 billion in tax benefits, including tax credits to first-time homebuyers, a real property tax deduction for non-itemizers, an additional $10 billion in mortgage revenue bonds for states, and improves access to low-income housing.

• Gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market. The credit will begin to phase out for taxpayers with adjusted gross income in excess of $70,000 ($140,000 in the case of a joint return).
• Provides taxpayers that claim the standard deduction with up to an additional $350 ($700for a joint return) standard deduction for property taxes in 2008.
• Temporary increase in mortgage revenue bond authority to allow for the issuance of an additional $10 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.
• Temporary increase in low-income housing tax credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.
• Helps returning soldiers avoid foreclosure by lengthening the time a lender must wait before starting foreclosure, from three months to one year after a soldier returns from service.
• Would not add to the national debt. The cost of this bill is offset with a tax compliance provision included in the President’s Budget and by delaying the effective date of a tax benefit for multinational companies that has not yet taken effect.

Amendment 3–Miller/LaTourette

• This amendment protects the right of states and cities to regulate the foreclosure process and the treatment of foreclosed property — by clarifying that this act, the National Bank Act, and the Home Owner’s Loan Act do not preempt State foreclosure laws for national banks or federally chartered thrifts.
• Exempting national banks and thrifts from foreclosure law would deprive the states and cities of the right to require that foreclosures must follow certain procedures, including notice to the people foreclosed, and that foreclosed property be safely maintained.
• Many in the industry and in the Bush administration argue that national banks should be exempted from these rules. There is no reason that national banks and federal thrifts should be treated differently from all other mortgage holders when it comes to how to foreclose and how to maintain foreclosed property.

The U.S. Attorney for the District of Colorado–along with the FBI’s Denver Division and the IRS’ Criminal Investigation Field Office in Denver–late last week announced that 72-year-old Norman Schmidt of Denver, Colorado, was sentenced by a U.S. District Court Judge to serve 330 years in federal prison and ordered to forfeit more than $38 Million for his role in a fraudulent high yield investment scheme involving more than 1,000 victims.

While Schmidt’s case did not significantly involve real estate-related investments, his unusually long sentence–especially given his advanced age–may serve as a deterrence to the scumbags who violently interrupt the American Dream of Homeownership with their acts of real estate and mortgage fraud.

Schmidt was found guilty on in late-May of 2007, following an eight week jury trial, of conspiracy to commit mail fraud, wire fraud and securities fraud, as well as substantive counts of mail fraud, wire fraud and securities fraud, and separately the crime of money laundering. Schmidt, his wife, and five others were indicted by a federal grand jury in Denver in March of 2004. The wife, Jannice Schmidt, was previously sentenced to serve nine (9) years in federal prison. Three other co-defendants in the case–George Alan Weed of Benton, Illinois; Charles Lewis of Littleton, Colorado; and Michael Smith of Colbert, Washington–are all awaiting sentencing. George BerosPeter A.W. Moss of London, England, remains a fugitive.

According to the evidence presented during the trial, Schmidt obtained tens of millions of dollars from hundreds of investors, and used the money for his and his co-conspirators own personal gain. From April 1999 through April 2003, Schmidt and the others engaged in a conspiracy to commit mail, wire and securities fraud by executing a scheme to defraud investors by implementing a high-yield investment program.

Schmidt, with assistance from others, falsely stated that they would invest victims’ money, promising rates of return from 2-400% per month. To perpetuate the scheme, the defendants sent investors fraudulent monthly statements which falsely reflected the growth of and earnings on their invested funds. The defendants would encourage victim investors to make additional investments, defer disbursements, and refer new investors to the program.

To lure and reassure investors, Schmidt and his friends made false representations that the investments were safe because invested funds could not be moved, and that the investments were insured from loss by various high profile insurance companies. They also misled investors by using false legal opinion letters concerning the status of insurance on investor funds. To further their scheme, they created corporate alter egos through which the investment program was offered. Entities involved in the scheme include the Reserve Foundation Trust, Smitty’s Investments, Capital Holdings, Monarch Capital Holdings, and Fast Track.

The defendants then used investor funds for purposes other than those represented to investors, including for loans or payments to the defendants, personal expenses, acquisition of unrelated businesses and assets, payments to other investors, and the payments of monthly commissions or overrides to members of a network of individuals, acquaintances, and insurance agents recruited by the defendants to obtain new investors in the fraudulent program. Some of the investors’ money was used to purchase the Redstone Castle, which was built around the turn of the 20th century by coal magnate John Osgood. The castle was sold by the IRS at auction in 2005 for $4 million to someone who reopened it for public tours last year.

Also seized during the course of the investigation, was money in approximately 60 bank accounts, and 8 NASCAR race cars, 1 race truck, as well as other race related vehicles and items. In all, federal agents seized assets, including cash and property, worth approximately $24,000,000, which have since been distributed to the victims of this fraudulent scheme through a separate court process. To date over $18,000,000 in forfeited funds have been returned to the victims of the crime.

Federal investigators last week identified the majority development partner in a troubled condominium project as the central figure in a mortgage fraud scheme involving about one-quarter of the units sold in a downtown Minneapolis, Minnesota, building. In an affidavit filed in U.S. District Court in St. Paul, MN, IRS agents say Brett ThielenJJT Development, owns 50% of Sexton Lofts, LLC, which developed the project.

The Sexton has 123 units, but fewer than 50 were ever sold, according to local property records.

The affidavit says Thielen laundered proceeds from the scheme by having his lawyer, Ben Houge, wire money to an attorney in Australia, who then wired the money back to Thielen and others taking part in the scheme. The Australian attorney also wired money on Thielen’s behalf to buy $700,000 worth of stock in two U.S. companies:

• Digital Town, Inc.: a Burnsville, MN-based company that is attempting to develop a nationwide network of online communities for high school alumni, boosters, students and local citizens.
• ESPRE Solutions: a Plano, TX-based videoconferencing company.

The IRS filed its affidavit to seek a warrant to seize the stock and other assets that it says were proceeds of the scheme. And while court documents do not specify a total amount of fraudulent proceeds, it is alleged that attorney Houge sent more than $2 million to his counterpart down under.

The U.S. Attorney in charge of the case declined to comment on whether Thielen, Houge or anyone else will be charged in connection with the scheme outlined in the court documents.

According to the affidavit, the fraudulent transactions began with Thielen providing cash to buyers, who would then hold purchase agreements for specific units. The titles would be transferred to Thielen, who then re-sold the units at inflated prices to new buyers on the same day or soon after the original sales. The higher resale prices were based on false appraisals and income information for the new buyers. Thielen would then get the fraudulent proceeds from the re-sales, splitting the money with others taking part in the scheme, the affidavit said.

One person already has been convicted of mail fraud and conspiracy for their role in the scheme outlined in the affidavit. As part of a guilty plea, Joseph Huebl, 28, agreed to cooperate with an investigation by the U.S. attorney’s office.

The charges of mortgage fraud are the latest of several financial and legal troubles to surface at the Sexton condo project, which went into foreclosure last fall. Condo owners have sued the developers for failing to complete the project, including building a parking ramp whose cost was included in the price of some units. An unpaid contractor has placed a $5 million lien against all the units in the building.

The Financial Crimes Enforcement Network (FinCEN)–which safeguards the U.S. financial system from the abuses of financial crime, including terrorist financing, money laundering, and other illicit activity–last week released “Suspected Money Laundering in the Residential Real Estate Industry: An Assessment Based Upon Suspicious Activity Report Filing Analysis,” a new report that identifies several transactional typologies and associated illicit activities that may be perpetrated by individuals or groups seeking to launder funds via residential property transactions.

The study appears to confirm an increase in the number of suspicious activity reports (SARs), indicating suspected money laundering in the real estate industry which tracks closely with the past expansion of the real estate market, especially in 2004 and 2005. Previous FinCEN studies concerning mortgage loan fraud and money laundering in the commercial real estate industry confirmed similar trends. However, in contrast to criminals seeking to profit by committing mortgage fraud, those who seek to launder money through residential real estate generally intend to make timely payments and seek to make their transactions appear as unremarkable as possible in order to disguise the source of their funds.

Laundering money through residential real estate involves turning the proceeds of crime into the use or ownership of real property assets. For example, a criminal may use illicit funds to outright purchase or to make monthly rental payments on real property. Internationally, these laundering techniques are well known. FinCEN’s report shows that U.S. financial institutions have been able to identify some possible instances of money laundering through residential real estate. The report is intended to help raise awareness of the vulnerability and assist financial institutions to better recognize risk and thus provide better information to law enforcement in order to combat criminal activity.

In some cases, according to the new report, laundering money through residential real estate was found to support tax evasion, fraud and identity theft.

Though SAR narratives reporting suspicious activity associated with the residential real estate industry are relatively common, only about 20% of such filings reportedly describe suspected structuring and/or money
laundering, and of those, only about 11% described any other suspected illicit activity including tax evasion, fraud, or identity theft. Specifically, illicit activity related to tax evasion included:

• cashing checks payable to businesses and the diversion of cash business receipts in a manner possibly designed to evade taxes.
• misusing the tax exempt status of organizations to conduct real estate-related businesses and disguise the profits as contributions.

Various types of fraud and identity theft were reported, including:

• check kiting on real estate investment accounts
• real estate investment accounts used to promote a potential pyramid scheme
• fraudulently acquired state and federal tax refunds laundered through mortgage trust accounts
• mortgage loans granted on the basis of fraudulent appraisals
• identity theft employed to drain the balances of home equity line of credit accounts and to layer illicit proceeds from money laundering activities

Over 75% of the entities suspected to be involved in residential real estate-related money laundering were identified as individuals unaffiliated with residential real estate-related businesses. For example, launderers may use multiple nominees or straw buyers to secure numerous mortgages on various residential properties, thereby creating a means for the conversion of illicit cash into real property while projecting the appearance of many unrelated mortgages paid on a regular and timely basis.

The FBI, along with the U.S. Attorney’s Office for the Southern District of New York, announced today the filing of an indictment charging Dominick Devito and Robert Didonato with participating in a broad scheme to commit mortgage fraud, and Devito and Didonato, along with John Liscio and Louis Cordasco, Jr., with participating in an associated insurance fraud scheme. Devito was also also charged with obstruction of justice.

According to the indictment filed in Manhattan federal court:

From January 2002 through November 2004, Devito was the leader of a fraudulent real estate investment scheme, which had as its primary objective the purchase of multimillion-dollar residential properties in various communities in Westchester County–including Purchase, New York–with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were for amounts equal to or more than 100% percent of the property’s actual sale price, so that the defendants and their co-conspirators did not have to put any of their own money at risk in the transaction.

Devito identified properties for sale, orchestrated the purchase of the properties and performed construction work at the properties. Didonato was a residential real estate broker for Devito and other co-conspirators in their purchase of the properties, which were the subject of the scheme.

In order to further their scam, the defendants submitted to various federally-insured banks loan applications, contracts of sale, deeds, real estate transfer documents, title reports, and other documents which contained materially false or misleading information about the income, assets, existing debt and credit-worthiness of the borrower, the chain of title to the property, and the sale price of the home. They also indicated the borrower’s intent to reside in the property as a primary residence, when the properties were typically purchased for investment purposes.

Devito and Didonato cashed out on certain properties by taking additional private loans against the already fraudulently-inflated sale price of the properties. The proceeds of these loans–which were never repaid in full–were deposited in a bank account used for the benefit of Devito.

As a result of the their scheme to defraud, Devito and Didonato obtained millions of dollars in loan proceeds, enabling them to control certain properties that they otherwise would not have been able to purchase and finance. In addition, Devito and Didonato earned money from fees and commissions on the sale or re-financing of the properties. The banks, on the other hand, lost millions of dollars when the Devito and Didonato and their co-conspirators defaulted on mortgage payments and caused several of the properties to go into foreclosure.

In addition, from January 2003 through February 2005, Devito, Didonato, along with John Liscio and Louis Cordasco, Jr., engaged in a scheme to defraud insurance companies by submitting false and misleading insurance claims and supporting documents for water damage caused by broken pipes at several of the homes purchased as part of the mortgage fraud scheme.

John Liscio was a licensed insurance agent who sold insurance policies to the owners of the homes purchased in the scheme and helped Devito submit insurance claims for water damage. Louis Cordasco, Jr., working for a company that specializes in emergency clean-up services for water damage to residential homes, was responsible for performing emergency clean-up services for some of the homes that were damaged as part of the insurance fraud scheme.

In February 2005, Cordasco and Liscio also planned to break pipes at a home in Purchase, NY, in order to submit a false insurance claim for water damage.

The Indictment also charges Devito with obstruction of justice in connection with a 2003 proceeding in Manhattan federal court. Specifically, Devito submitted false and misleading information regarding the value of his assets and his personal net worth following his sale of a property in Purchase, New York.

All four are expected to be arraigned before a U.S. District Court Judge next Monday (May 5, 2008).

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

Back at the beginning of February, Arizona Attorney General Terry Goddard said the mortgage industry “needed to reach out to more homeowners at risk of foreclosure if the nation’s housing crisis is to be brought under control.” Now, just three months later, Goddard isn’t letting up. Citing a new national report on subprime mortgages, Goddard last week said efforts of servicers and government officials to prevent foreclosures have increased but still fall short of the need to effectively respond to the foreclosure crisis and prevent millions of unnecessary foreclosures. The report, “Analysis of Subprime Mortgage Servicing Performance,” was issued last Tuesday by the State Foreclosure Prevention Working Group, a group of state Attorneys General and banking regulators working to prevent home foreclosures.

Major findings of the report include:

1. Seven out of 10 seriously delinquent borrowers are still not on track for any loss-mitigation outcome. The number of borrowers in loss mitigation has increased, but it has been matched by an increasing number of delinquent loans.
2. Data suggest that servicers’ loss-mitigation departments are severely strained in managing the current workload. The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month.
3. Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification. The Working Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.

The State Working Group said it believes “more robust approaches to avoid preventable foreclosures are necessary.” The Working Group said servicers, investors and state officials should work together on:

• Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. The Group says it continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.
  

• Slowing down the foreclosure process to allow for more work-outs. Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure, the report says. Many states have enacted or are considering such measures, according to the report.

The State Foreclosure Prevention Working Group began as a cooperative dialogue of state officials and mortgage servicers in September of 2007. Since October of 2007, the Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60% of subprime mortgage loans serviced. The Group is led by representatives of the Attorneys General of 11 states, including Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas); two state banking departments (New York and North Carolina); and the Conference of State Bank Supervisors.

For more info, read Analysis of Subprime Mortgage Servicing Performance (Warning: clicking on the preceding link will download a 30-page PDF file).

Three real estate industry insiders have been sentenced in Florida for their roles in a humongous real estate fraud conspiracy. Richard Crowder, II, a former licensed mortgage broker and owner of America’s Best Mortgage Services, along with former title attorney Gary Mills (who owned Four Star Title) and a former Wachovia Bank loan officer (Karen Sullivan), all received stiff sentences on Wednesday from U.S. District Judge Jose Martinez. Crowder received nine (9) years’, while Mill and Sullivan received three years’ and eight months and four years’ and one month imprisonment, respectively. All three are scheduled to appear again in court on May 29 for a hearing to determine the amount of restitution they must pay to the victims in this case.

To carry out their scheme, mortgage broker Crowder identified residential properties, including luxury condominiums on South Beach in Miami, Florida, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia Bank. To induce Wachovia to issue the equity lines of credit, Crowder and title attorney Mills prepared fraudulent HUD-1 settlement forms stating the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Wachovia Bank loan officer Sullivan, who used the forms to facilitate the issuance of equity lines of credit from the bank.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Wachovia Bank loan officer Karen Sullivan. To further induce the lenders to issue the loans, title attorney Gary Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by mortgage broker Richard Crowder.

At the end of the day, Crowder, Mills and Sullivan caused the fraudulent purchase of 17 different luxury condominiums at The Continuum on South Beach and at The Point of Aventura using more than $37,000,000 in fraudulently obtained mortgage loans.

Online loan referral service LendingTree has informed customers that some of their confidential data may have been leaked to a handful of lenders by company insiders. From LendingTree by way of Luke Mullins of U.S. News & World Report:

April 21, 2008

Dear LendingTree Customer:

We want you to know that some loan request forms our customers sent to LendingTree may have been seen by lenders without our consent. These lenders then used the forms to market their own mortgage loans to our customers. While we don’t believe that the forms were used for any other purpose, we want you to know what happened and what we did to correct this situation, as well as what you can do to monitor your credit records.

What Happened and What We Did

Recently, LendingTree learned that several former employees may have helped a handful of mortgage lenders gain access to LendingTree’s customer information by sharing confidential passwords with the lenders. When we learned of this situation, we quickly contacted the authorities, and LendingTree is helping with their investigation. We promptly made several system security changes. We also brought lawsuits against those involved.

Based on our investigation, we understand that these mortgage lenders used the passwords to access LendingTree’s customer loan request forms, normally available only to LendingTree-approved lenders, to market loans to those customers. The loan request forms contained data such as name, address, email address, telephone number, Social Security number, income and employment information. We believe these lenders accessed LendingTree’s loan request forms between October 2006 and early 2008.

What You Can Do

Again, we don’t believe any identity theft or fraudulent financial activity resulted from this situation. However, we suggest you get a free credit report. Look for any accounts you didn’t open and/or inquiries from creditors that you didn’t initiate. If you see anything you don’t understand, contact the credit bureau. If you see anything suspicious, you may want to file a fraud alert with the bureaus. For more information on how to do this, please refer to LendingTree’s Guide to Protecting Your Credit and Identity.

Where to Get More Information

We regret any inconvenience and apologize for any unwanted mortgage calls you may have received. For more information about this situation, and for more information on what you can do, please refer to the attached Questions & Answers.

Sincerely,

R.L. Harris

What do you think? Is this a simple case of old fashioned corporate espionage, idenity theft, or real estate fraud?

Approximately 200 Washington homeowners who paid for a service they thought would help save their homes from foreclosure will receive partial refunds under a settlement announced yesterday by the Washington Attorney General’s Office. The homeowners each paid between $1,200.00 and $1,500.oo to Foreclosure Assistance Solutions LLC, of Clearwater, Florida. More than 70% of homeowners who signed up with Foreclosure Assistance Solutions ended up losing their homes anyway. The company went out of business in fall 2007.

From Washington State’s Attorney General, Rob McKenna:

“We believe Foreclosure Assistance Solutions used coercive tactics to pressure consumers into paying for a service they really couldn’t afford and then doing little or nothing to actually help those consumers save their homes,” Attorney General Rob McKenna said. “Today’s settlement puts some money back into the pockets of those who bought into the company’s false promise of hope.”

The Attorney General’s Office accused Foreclosure Assistance Solutions of violating the state’s Consumer Protection Act, Credit Services Organization Act, and Commercial Telephone Solicitation Act. According to the state’s complaint filed with the settlement yesterday, Foreclosure Assistance Solutions sent letters and postcards to consumers whose homes were in foreclosure. Some of the solicitations mimicked official government notices. The messages instructed the consumers to call the company for help.

More from the Attorney General’s Office:

“Foreclosure Assistance Solutions employees delivered a deceptive sales pitch to frighten consumers into believing they needed to act quickly. Homeowners who paid for the service were then presented with a contract that prohibited them from contacting the mortgage lender that initiated the foreclosure for any reason. And for consumers who paid Foreclosure Assistance Solutions with a credit card, the contract prohibited them from trying to dispute the charges by contacting their credit card provider before Foreclosure Assistance Solutions. Consumers who did would not receive a refund.”

Foreclosure Assistance Solutions did not admit to any wrongdoing in the settlement but agreed to pay $78,125 in restitution to Washington consumers, as well as $20,000 in attorneys’ fees. The settlement also includes injunctive provisions limiting how the company does business, should it offer services again in the future, as well as an additional $100,000 in civil penalties for failure to comply with the agreement.

Foreclosure Assistance Solutions will be providing the Attorney General’s Office with contact information for Washington consumers who purchased its services. The state will mail checks to eligible recipients within the next three months. The total restitution will be divided among all eligible recipients; individuals will likely receive $300-$500 each. Anyone who has questions about the settlement can contact the State of Washington Attorney General’s Consumer Resource Center at 1-800-551-4636 between 10 a.m. and 3 p.m. weekdays (Pacific Time).

In related news, the Texas Attorney General’s Office reached a settlement with Foreclosure Assistance Solutions and its operators earlier this month. A court agreed in September 2007 to freeze the defendants’ assets on conjunction with Texas’ investigation, and the company subsequently went out of business.

The Washington Attorney General’s Office introduced legislation this past legislative session to help protect homeowners from foreclosure rescue scams where the “rescuer” agrees to purchase a distressed property then sell or lease it back to the original homeowner. Washington House Bill (HB) 2791 takes effect June 12, 2008. The new law will require that the purchaser prove the homeowner is able to make the payments and provide a written contract with clearly disclosed terms. The new law also gives the homeowner the right to cancel the contract within five (5) business days, and also requires that the original homeowner receive at least 82% of the difference between the property’s fair market value and the underlying mortgage should the home be sold to a third party.

A federal judge in Philadelphia, Pennsylvania, has thrown out a lawsuit against lenders who supplied funds to a mortgage broker who previously pled guilty to charges of mortgage fraud, finding that lenders are not obliged to monitor mortgage broker actions. The decision is a major setback for 842 victims of Wesley A. Snyder’s company, Personal Financial Management, who could have used the strategy to recover some of their losses, had it succeeded. The victims are said to have approximately $30 million in the scam.

The claim rejected by U.S. District Judge James Giles started in the fall of 2007, when a Fleetwood, Pennsylvania, couple–Douglas and Andrea Jones–filed a lawsuit, hoping to have it certified as a class action suit. According to paperwork filed with the court, defendants in the complaint included:

• ABN AMRO Mortgage Group, Inc.
• Chase Home Mortgage Corporation
• Citimortgage, Inc.
• Citicorp Home Mortgage Services, Inc.
• Countrywide Home Loans, Inc.
• Fifth Third Mortgage Company
• Florida Capital Bank Mortgages
• GMAC Mortgage Corporation
• GMAC Mortgage Asset Management, Inc.
• GMAC Mortgage Group, Inc.
• HSBC Mortgage Corporation (USA)
• Indymac Financial Services Corporation
• Moorequity, Inc.
• National City Mortgage, Inc.
• nBank, N.A.
• Provident Funding Group, Inc.
• Saxon Home Mortgage
• Saxon Mortgage, Inc.
• Sovereign Bank
• SunTrust Mortgage, Inc.
• U.S. Bank, N.A.
• Wachovia Mortgage Corporation
• Washington Mutual Home Loans, Inc.
• Wells Fargo
• Home Mortgage, Inc.
• John Doe Mortgage Companies

In their suit, Douglas and Andrea Jones alleged that several Pennsylvania companies, owned or controlled by Wesley Snyder, offered them Equity Slide Down Mortgages as part of what they say was a mortgage servicing Ponzi scheme. The Joneses said Snyder failed to monitor and supervise his companies, which did not credit them properly for payments and pre-payments of interest and principal on their mortgages. They further alleged that, following the bankruptcy of Snyder’s companies, the defendants in the case–the companies listed above–failed to notify them properly that they had taken over as servicing agents on the mortgage loans and demanded payments from them in amounts substantially higher than owed on the loans serviced by Snyder’s companies. The Joneses also claimed that each defendant was guilty of having committed numerous RESPA violations.

Specifically,the Joneses alleged that they applied for and closed on two separate Equity Slide Down mortgages through Snyder’s companies–one for each of their two properties–in 2002 and 2005, respectively. They alleged that at all times after closing they remitted their monthly mortgage payments to Snyder’s company and that they were current on all payments owed and had pre-paid a large portion of the principal balance by way of a large principal reduction payment made soon after closing.

They further alleged that in September 2007, after the bankruptcy filing of the Snyder’s company, they learned for the first time that SunTrust and Countrywide claimed to hold their respective mortgages and notes. According to the Joneses, SunTrust and Countrywide demanded payment for amounts that were duplicative and excessive and that failed to credit properly the payments and pre-payments they had made to the Snyder. The Joneses say that the Snyder’s companies were the “servicing agents” of each Defendant, as defined by the Real Estate Settlement Procedures Act (RESPA), and that Snyder’s companies were otherwise the Defendants’ agents under Pennsylvania agency law.

More specifically, the Joneses alleged that:

1. Each defendant employed one or more of the Snyder’s companies to originate, close, and service all the mortgage loans at issue.
2. Each Defendant knew the Joneses were making all mortgage payments to the Snyder Entities.
3. Each Defendant knew it was sending all mortgage statements and federal tax forms to Snyder rather than to the Joneses.

In dismissing the suit, U.S. District Judge Giles said the Joneses’ recollections were trumped by documents they signed stating payments would be made to mortgage bank ABN Amro Mortgage Group, meaning, Snyder was not ABN’s agent and ABN had no duty to oversee him.

One day after warning the U.S. Senate about a tremendous surge in the FBI’s mortgage fraud investigations, FBI Director Robert S. Mueller, III, talked in more detailed terms about the growth in both corporate fraud and public corruption cases–including those involving Real Estate and Mortgage Fraud–at the annual conference of the American Bar Association’s Section of Litigation in Washington, D.C.

Despite limited resources, Mueller told conference attendees that the FBI’s corporate fraud cases have grown more than 80% since 2003. Last year, the FBI had more than 490 corporate and securities fraud convictions.

Mueller predicted that the problem will only worsen because of the “ripple effect of the sub-prime crisis and its impact on the credit market.” As Flipping Frenzy reported last Thursday, the FBI has identified 19 companies involved in corporate fraud matters related to the sub-prime lending crisis. According to Mueller, the Bureau is now actively investigating more than 1,300 mortgage fraud matters.

Mueller believes part of the problem is “rampant conflicts of interest in the corporate suites.” He told conference attendees that FBI investigations “further emphasize the need for independent board members, auditors, and outside counsel. Shareholders rely on the board of directors to serve as the corporate watchdog. …[But] board members are often beholden to the executives they are expected to oversee.”

Acknowledging recent FBI missteps resulting from inadequate internal controls–and a new Office of Integrity and Compliance to identify risks before they become problems–Mueller said, “As we all understand, it is better for a company to self-report and remediate its own wrongdoing before the FBI and the Department of Justice become involved. Executives who let the situation escalate to the point of a sudden restatement—and a resulting loss of shareholder confidence–often do greater harm to the companies they are trying to protect than if they had exercised early intervention.”

Mueller added that in his days as a defense attorney, he met a number of executives who could rationalize every bad decision, and warned that “it is a slippery slope from behavior that skirts ethical or legal boundaries to behavior that crosses the line completely.”

As we all know, the FBI works to combat corruption in the public sector–now its top criminal priority–because, as Mueller pointed out in his remarks, “democracy and corruption cannot co-exist.” As of today, the FBI has more than 2,500 open public corruption cases, an increase of more than 50 percent since 2003. During the past two years alone, more than 18,000 public officials have been convicted, according to the FBI’

“The FBI,” Mueller said, “is uniquely situated to address public corruption. We have the skills to conduct sophisticated investigations. But more than that, we are insulated from political pressure. We are able to go where the evidence leads us, without fear of reprisal or recrimination.”

Mueller wrapped up his remarks by adding, “In the end, it does not matter if the corruption is national or local. It does not matter if it is millions of dollars, or merely hundreds. There is no level of acceptable corruption. The violation of trust is the same. The damage to the taxpayers is the same.“