Massachusetts Attorney General, Martha Coakley, has filed a regulation with her state’s Secretary of State’s Office that permanently bans for-profit foreclosure rescue transactions in the state of Massachusetts. The Massachusetts Consumer Protection Act authorizes the Attorney General to promote regulations to identify unfair or deceptive conduct that violates the act. The new regulation, which goes into effect immediately, prohibits predatory, for-profit foreclosure rescue transactions.

Foreclosure rescue transactions between family members or arranged by a non-profit community or housing organization are not banned under the new regulation.

The new regulation also makes it an unfair or deceptive act to market foreclosure-related services without a precise description of exactly how the company will assist homeowners in avoiding or delaying foreclosure. (The regulations define a “Foreclosure Rescue Transaction” as a transaction designed to avoid foreclosure and where the homeowner transferring the property maintains an option to reacquire the home by maintaining a legal interest in the home.)

On June 1 of this year, Massachusetts’ Attorney announced emergency regulations that placed a temporary ban on these types of unfair and deceptive foreclosure rescue schemes as part of her multi-faceted plan to address the foreclosure rescue crisis in Massachusetts. The regulations went into effect immediately and were valid for 90-days. After a public hearing held last Thursday in Boston, the regulations were promoted as final.

As everyone who reads Flipping Frenzy should know by now, foreclosure rescue schemes are typically initiated when businesses or professionals claim to assist homeowners who are facing foreclosure by convincing them to convey their property to straw purchasers. The straw purchasers then obtain mortgage loans, permitting the individuals facing foreclosure to continue living in their property for a limited time, and promising the individuals that they will be able to later reacquire their homes. Far too often, the promises of maintaining home ownership are illusory and homeowners lose their home to the so-called “rescuer.”

In addition to permanently banning foreclosure rescue transactions, Attorney General Coakley announced earlier this month regulations to address unfair and deceptive tactics used in the mortgage industry. Hearings will be held across the state on the proposed regulations throughout the month of September. The Attorney General’s Office anticipates that promotion of new mortgage regulations will occur by the end of September 2007.

As a part of a comprehensive plan to prevent predatory lending and protect families facing foreclosures, the Governor of Massachusetts has filed legislation to criminalize mortgage fraud. Governor Deval Patrick’s bill follows several regulatory changes already put in place to address the rising tide of foreclosures in Massachusetts. In April, the state established a hotline for consumers and began assisting homeowners in crisis.

The proposed legislation, “An Act Implementing the Division of Banks Mortgage Summit Recommendations,” implements recommendations from the the state’s Mortgage Summit Working Group (convened in response to rising foreclosure rates). The Working Group included nearly 50 participants from government agencies, non-profit organizations, and the mortgage lending industries who convened to develop a comprehensive foreclosure prevention strategy.

The bill as proposed includes the following provisions:

• Criminalizing mortgage fraud. In response to rising instances of mortgage fraud, the bill defines mortgage fraud in statute and create criminal penalties for violations.
• Prohibiting abusive foreclosure rescue schemes. With many people facing the threat of foreclosures, unscrupulous individuals and groups have preyed upon consumers’ fears of losing their homes by promising to allow homeowners to stay in their home in exchange for signing over the property. Many people who fall victim to this scheme think that they are making mortgage payments when in fact they are paying rent. This bill would prohibit such agreements unless the purchaser is a direct relative.
• Requiring a Notice of Intent to Foreclose and Right to Cure. The bill sets out a right to cure for a consumer that is in default and requires the holder of a mortgage to inform the consumer of this right in addition to the intent to foreclose if the consumer does not cure the default.
• Prohibiting a lender from making an adjustable rate subprime loan unless the borrower opts-out. In reviewing default rates and foreclosure information, subprime fixed rate loans have performed well and allowed consumers with impaired credit to reestablish their credit history. Subprime adjustable rate mortgages (ARMs), on the other hand, have very high default rates and higher foreclosure rates. The Massachusetts bill would prohibit any lender from making a subprime ARM unless the consumer affirmatively opts-out of the fixed rate product and presents a certificate indicating that they have received homebuyer counseling.
• Establishing a central repository of foreclosure information at the Massachusetts Division of Banks. The bill would require lenders and servicers to send a copy of the Notice of Intent to Foreclose and Right to Cure to the Division of Banks as well as the details of any final foreclosure. In addition, the bill requires the Division of banks to establish a database of foreclosure information to track geographic and industry trends relative to foreclosures.

Since April, when Governor Patrick first instructed the Division of Banks to seek case-by-case foreclosure delays for homeowners who filed complaints, more than 400 people have reached out to the Division. Just under half of those individuals were already in foreclosure and needed immediate relief. The Division was able to secure 30- to 60-day stays in the foreclosure process in most of those cases. Due to these stays, many individuals and families were able to refinance or are in the process of refinancing their loans, were able to modify their loan terms, have received credit counseling, or were able to sell their homes. In addition, homeowners who contacted the Division and were in financial distress but not yet in foreclosure were partnered with counseling agencies that offer comprehensive services that can help them change direction and hopefully prevent foreclosure from occurring.

In addition, Massachusetts’ Division of Banks is also continuing work on the other Working Group recommendations. These include implementing regulatory changes that increase licensing and education requirements for mortgage lenders and brokers to eliminate disreputable firms and practices, and building on the partnerships between government, non-profit organizations, and the mortgage industry to improve the support for homeowners and monitoring of the industry.

Earlier this week, the Massachusetts Attorney General’s Office obtained a preliminary injunction against fifteen individuals and companies that are said to be involved in mortgage fraud and a foreclosure rescue scheme. As a result, the defendants in the case have been instructed to cease acting as mortgage brokers, real estate brokers, and closing attorneys, and have been ordered not to transfer any assets while the case is pending.

The individuals listed below were named in two separate lawsuits that the Attorney General’s Office filed as part of a continued effort to uncover predatory conduct in mortgage brokering and lending in Massachusetts:

• Leo Desire, Sr., a salesperson who works on behalf of Primary Mortgage Resource, Inc.
• Primary Mortgage Resource, Inc., Mortgage Broker and where Desire Sr. worked.
• Valerie Hanserd, a closing attorney.
• Home Pride Management, a company that took fees for un-rendered services.
• Leo Desire Jr., President and Treasurer of Home Pride Management.
• Dr. Joel Charles (d/b/a Sourie Corp.)
• Louis R. Joseph, Pierre N. Joseph and his wife Daphne Mompoint, Robens Joseph, Paul A. Joseph, Jean Joseph, Advie Charles, Neville Francis and Marie Betey Mereus, all property buyers.

The first of the two suits filed alleges that the defendants participated in a foreclosure rescue scheme targeted at desperate homeowners facing foreclosure. Each of the defendants allegedly conspired through their respective roles to deceive homeowners into selling their homes under the false promise avoiding foreclosure and maintaining their homes.

The defendants not only obtained the title to the homeowner’ residences but also stripped most of the homes’ equity though inflated mortgages, false fees for fictitious services, and false certifications by closing attorneys. In some cases, the defendants resold the homes amongst themselves, thereby extracting any remaining equity.

Homeowners victimized by the foreclosure rescue scheme include:

• A Roxbury, Mass. pastor who lives with his wife and two children
• A Natick, Mass. patent attorney
• A Brighton, Mass. nurse who lives with her teenage son
• A Mattapan, Mass. woman who lives with her two teenage children
• A Methuen, Mass. woman who lives with her four children
• A disabled Dorchester, Mass. nurse who lives with her husband

According to the complaint, the defendants misled homeowners about the nature of the transactions, defrauded them out of their equity, absconded with the homeowners’ money, and forged homeowners’ signatures on checks payable to homeowners. Because of the defendants’ foreclosure rescue scheme, homeowners were ultimately left destitute, facing foreclosure and eviction.

In a companion case, the Attorney General’s Office says that Leo Desire Sr., Primary Mortgage Resource, Inc., and Valerie F. Hanserd, together altered a deed from the Federal Home Loan Mortgage Corporation (a.k.a. “Freddie Mac”). Freddie Mac intended to transfer a residential two-family house to Leo Desire for $305,000, and prepared a deed to such effect. The defendants, however, altered the deed by changing the purchase price of the property from $305,000 to $475,000, and by changing the name of the grantee from Leo Desire to a “straw buyer,” Gloria Avila.

The defendants made these changes over the existing signature of Freddie Mac, and without Freddie Mac’s knowledge or approval. The defendants also provided an inflated appraised value of the real property, thereby obtaining a mortgage loan from a third party, Argent Mortgage Company, in a sum which was greater than the property value supports. They also fabricated a HUD Settlement Statement to reflect the fictitious purchase price and fictitious disbursements, and shared in the proceeds of the larger mortgage loan.

Anyone who believes they may have been victimized by any of the above named individuals or companies should contact the Massachusetts Attorney General’s Consumer Protection Hotline at (617) 727-8400.

Less than two weeks after a State Senator indicated that he would introduce legislation aimed at curbing real estate and mortgage fraud in Massachusetts, the state’s Division of Banks last Friday announced the implementation of a plan designed to address abuses by rogue mortgage lenders and brokers. Several recent investigations have produced evidence that some Massachusetts mortgage lenders and brokers have purposely steered customers–often those with low incomes or with limited English language ability–into loans they cannot afford by using misleading tactics and, in some cases, committing fraud.

The Division of Banks’ plan combines enforcement and regulatory initiatives along with community and industry partnerships and outreach. On the enforcement side of the equation, the Division’s examiners have launched multiple surprise examinations of mortgage lenders and brokers, focusing on stated income loans and looking for any evidence that borrowers’ incomes are being inflated. Connected to this effort, the Division of Banks issued an industry letter to all licensed mortgage lenders and brokers and financial institutions threatening immediate and severe action should any evidence of inflating borrower income be found. (Click here for a copy of the letter.)

On the regulatory side of things, last Friday the Division of Banks issued emergency amendments to regulations that govern the supervision of mortgage lenders and brokers. These changes significantly expand the number of existing prohibited acts and practices that constitute grounds for the issuance of cease and desist orders and license suspension or revocation.

Effective immediately, in the state of Massachusetts, it is against the law for a mortgage broker or mortgage lender to:

• have a consumer sign a blank or incomplete mortgage loan application or mortgage loan documents.
• sign a mortgage loan application or mortgage loan documents on behalf of a consumer.
• falsify income or asset information on a mortgage loan application or mortgage loan documents.
• make false promises to influence, persuade or induce a consumer to sign a mortgage loan application or mortgage loan documents.
• pressure or coerce a consumer to sign a mortgage loan application or mortgage loan documents by misrepresenting or omitting crucial information about the terms of the mortgage.
• discourage a consumer in a mortgage loan transaction from seeking or obtaining independent legal counsel or legal advice.
• engage in a pattern or practice of failing to make any disclosure to a consumer required by and at the time specified by any applicable state or federal law, regulation or directive.
• fail to disclose the type and number of its license in an advertisement.
• advertise mortgage services without naming the licensee and disclosing the license number of the mortgage broker or mortgage lender under whose license the individual is acting.
• require a consumer to use the real estate services of a particular entity, agent or broker

The Division is also continuing to dedicate significant resources to the development of a nationwide mortgage database of mortgage professionals. The implementation of the database is essential to fill cracks in the existing regulatory framework and reduce fraud. Specifically, the nationwide database would eliminate real estate fraudsters’ ability of to move from state to state by providing a comprehensive listing of enforcement actions taken by all state regulatory agencies.

Massachusetts Attorney General Tom Reilly has obtained emergency orders to stop unfair and deceptive practices by individuals and businesses he claims are involved with mortgage fraud and foreclosure rescue schemes. As part of Massachusetts’ continued effort to tackle predatory conduct in mortgage brokering and lending, temporary restraining orders were issued against five individuals and four businesses engaged in what Rily calls unfair and deceptive practices.

In each of the three lawsuits filed this past Wednesday, judges issued emergency orders to stop the illegal practices, and ordered the defendants not to evict any homeowners or sell any of their homes.

In a complaint filed in Suffolk Superior Court, Reilly alleges that Brockton, MA, attorney Alec G. Sohmer, and his wife Jennifer, participated in a bogus foreclosure rescue scheme targeted at desperate homeowners. The complaint also names Timeless Funding Inc., a Nevada company the Sohmers allegedly used in their fraudulent activities.

According to Reilly’s complaint, Sohmer has preyed on homeowners facing foreclosure since 2004 by promising them they could avoid foreclosure with refinancing through Timeless Funding. Instead, Sohmer deceived the homeowners into conveying their property to himself or to his wife. The complaint alleges that Sohmer concealed his fraud by deceiving the homeowners into signing documents purporting to allow them to stay in their homes by making monthly payments to Sohmer, and then to “repurchase” their homes from Sohmer by obtaining new financing. The complaint alleges that Sohmer knew that, because of the homeowners’ financial distress and the onerous “repurchase” terms, the homeowners would never be able to afford the monthly payments, or obtain the required financing to get their homes back.

After homeowners were unable to make their monthly payments, Sohmer sought to evict them from their homes, and to sell their homes to new buyers. Reilly alleges that, as a result of Sohmer’s scheme, at least three homeowners have already lost, or face losing, their homes and their life savings. The Sohmers also allegedly took for themselves the equity that the homeowners had built up in their homes, as well as additional fees, commissions and other payments directly from the homeowners.

The complaint identifies homeowners in Centerville, Wareham, and Brockton, MA, who have been victimized by Sohmer’s practices. According to AG Reilly’s complaint, Sohmer misled consumers about the nature of the transactions, misrepresented and omitted crucial terms, pressured homeowners into signing documents without reading them, and then refused to give them copies of the signed documents. Sohmer also capitalized on his position as an attorney, and in one case victimized a homeowner who he was representing in bankruptcy.

In another case involving a bogus foreclosure rescue scheme, Reilly filed a complaint Wednesday in Middlesex Superior Court against Walter Ribeck of Newburyport, MA.

According to AG Reilly’s complaint, Ribeck targeted financially distressed homeowners facing foreclosure on their homes. Ribeck, promoting himself as a “loan specialist” with Powderhouse Mortgage Company, promised to arrange replacement financing to allow homeowners to keep their homes and any home equity they may have accumulated. Then, when foreclosure was imminent, Ribeck instead arranged for the homeowners to deed their homes to him, while purportedly maintaining a right to lease the residence and buy it back at a future date. This repurchase terms, however, were at inflated prices that far exceeded the homeowners’ original mortgage obligations. The ultimate result of these transactions, AG Reilly alleges, is that Ribeck evicted the homeowner so he could sell the home on the open market, for far more than he paid to acquire it.

In 1991, Ribeck, then a real estate broker, was convicted of bank fraud and making false statements to a federally insured bank and was incarcerated for two years. Reilly has obtained an emergency court order to prevent Ribeck from evicting homeowners or selling their property, and is also seeking restitution for homeowners harmed by Ribeck’s conduct, civil penalties, and reimbursement of the costs of investigating and litigating this case.

Since he took office, Reilly has made it a priority to protect Massachusetts homeowners and homebuyers from predatory practices by mortgage brokers and lenders, and more recently, from bogus foreclosure rescue scams. From 2003 through mid-2006, the state of Massachusetts has brought lawsuits or obtained settlements against fraudsters that together will return over $25 million to over 20,000 Massachusetts homeowners.

A Massachusetts State Senator says he will reintroduce a bill next year that would require all loan officers–not just the owners of mortgage companies–to register with the state and take and pass state-enforced exams and background checks. State Senator Brian Joyce says the State of Massachusetts should license all individual brokers. Under the current state rules, while mortgage companies are required to register with the state, only the owners of the brokerages are required to undergo criminal background checks.

From the Boston Globe:

The state’s Division of Banks, which had opposed Joyce’s bill, yesterday said it would be open to changes to the law, provided that companies that hire loan officers maintain responsibility for their actions, according to an agency spokesman.

“Should we be looking at the system?,” said Joseph A. Leonard Jr., general counsel for the Division. “The division continues to consider the merits of licensing individual loan originators just as some other states do.”

Leonard described the problem of licensing for individual brokers as a “nationwide issue.”
“The current framework in Massachusetts is that the company gets licensed and anybody who works for them as an employee is exempted,” he said, adding that under the current system, “we expect a licensee to put anybody who works under their license and reputation through extensive scrutiny.”

Victim advocates say that the current system allows for loan officers who show little understanding of the state laws against predatory lending. Also, brokers sometimes present in English sensitive information, such as the Truth in Lending Statement, which tells buyers exactly how much they will pay per month for mortgages, without providing translation to clients who do not understand financial terms in English — a violation of state regulations.

A recent Boston Globe report revealed a wide variety of abuses by mortgage brokers servicing Lawrence, MA, including overstating incomes so borrowers could qualify for loans, arranging loans that cost hundreds of dollars more per month than borrowers could afford, and, in one case, identity theft, reported the Globe.

If you need further proof that you must do your due diligence before entering into a real estate transaction, look no further than to the three-year prison sentence a Springfield, Massachusetts, pastor (yes, I said ‘pastor’ as in ‘religious minister’) received late last week for his role in a real estate fraud scam. From WCVB-TV, Boston’s Channel 5 News:

A Springfield pastor who admitted defrauding his own parishioners in a $600,000 real estate scam was sentenced to three years in prison. The Rev. Paul Starnes was also sentenced Friday to five years probation and ordered to repay $137,000 to two banks defrauded in the scheme.

In January, Starnes pleaded guilty to two counts of wire fraud and one count of conspiracy to launder money. Federal prosecutors said Starnes and two others from Trinity Mortgage Brokerage Co. were involved in a land-flip scheme that involved buying depressed properties and paying off appraisers to inflate their values. They then recruited poor, first-time buyers and drafted phony financial documents to obtain mortgages.

Assistant U.S. Attorney William M. Welch told U.S. District Judge Michael Ponsor that the minister targeted four of his own parishioners at the Morning Star Church. “I can’t figure out what’s worse: Defrauding a total stranger. Or a family member. Or one of your parishioners,” Welch said.

Starnes’ attorney, Peter Ettenberg, argued his client should be given credit for helping prosecutors win convictions against two of his employees. He told Ponsor that Starnes’ resorted to unethical practices while arranging loans when his company struggled in the late 1990s.

This is not the first time–nor do I suspect it’ll be the last–that religion has found its way into a real estate fraud scam. So-called ‘mortgage elimination’ companies will sometimes use biblical references to lure susceptible homeowners into their web of deceit and trickery (if you’re not familiar with these scams, mortgage elimination schemes work because they resonate with the most vulnerable of homeowners–namely, those who are facing bankruptcy or foreclosure and believe God can and will bail them out).

If you suspect that you’re being taken advantage of inside the confines of a real estate-related transaction, seek help immediately. Click here for further details on who to turn to for help.