Foreclosure investigation growing, state official says

Plantation firm asks judge to toss subpoenas
By Diane Lade, Sun Sentinel

A lawyer with the Florida Attorney General's Office urged a Broward County judge Tuesday to allow the state to continue its investigation of a giant South Florida foreclosure law firm, saying regulators were uncovering "substantial, egregious activity."

Jeffrey Tew, representing the law offices of David J. Stern in Plantation, argued the state had no right to subpoena documents from the firm under the state's Deceptive and Unfair Trade Practices Act because the company did not advertise to or directly deal with borrowers. Stern's operation, one of four being investigated by the attorney general, prepares foreclosure paperwork for lenders and loan servicers.

"I think it's laughable to contend that any of [Stern's] lawyers engaged in trade or commerce with anyone who was being foreclosed on," Tew told Judge Eileen O'Connor.

But Theresa B. Edwards, assistant attorney general, said the state has the right to investigate after receiving 200 complaints. "It is a broadening investigation," said Edwards, noting regulators have taken 100 sworn affidavits and looked at complaints going back as far as five years.

One claim being examined was that the foreclosure firms were giving kickbacks to the loan servicers, Edwards said. Tew called the allegation "totally untrue."

O'Connor is expected to issue a ruling in several days.

Three of the four firms under investigation, which are believed to handle most of Florida's foreclosures, are fighting their state's subpoenas. Attorney General Bill McCollum lost the first round last week when a Palm Beach County judge denied the action against Shapiro  & Fishman of Boca Raton, saying, among other things, that regulating attorneys' actions was the responsibility of The Florida Bar or the court system.

Tew made the same claim Tuesday, although he focused on the deceptive trade statute. McCollum has asked for another hearing in the Palm Beach County case.

The state also is taking a hard look at lenders and servicing companies handling foreclosures and home loans. Complaints continue to mount about sloppy paperwork and "robosigners," the nickname for employees who have testified they signed documents — sometimes thousands a month — without verifying they were true or the figures accurate.

McCollum sent letters Tuesday to five major lenders and loan servicers: Bank of America, JPMorgan Chase, Ally Financial's GMAC mortgage unit, PNC Financial Group and Litton Loan Servicing. He asked them to meet with him in Tallahassee "as soon as possible."

The partial or complete halt some of these companies have placed on their foreclosures, evictions or sales over the past several weeks is "counterproductive to obtaining the swift solution necessary," McCollum said. Reopening the foreclosure cases "may take many months, even years, given the state of our overburdened court system," he said, stalling the state's economic recovery.

Banking officials earlier this week were predicting the foreclosure reviews could be finished within two weeks to a month.

Peter Zalewski, a principal at the Bal Harbour-based CondoVultures consulting firm, said the lenders' foreclosure moratoriums could seriously slow real estate sales in South Florida. A third of the listings here are foreclosures or short sales.

GMAC spokesman James Olecki did not comment on McCollum's request but said the company has hired independent consultants to review its foreclosure process nationwide. Representatives of Chase and Bank of America said they would work with state attorneys general nationwide. State regulators, led by the Iowa attorney general, are launching a foreclosure task force this week.

PNC Financial did not comment on McCollum's request but said the company was reviewing its foreclosure procedures. Litton could not be reached for comment after several attempts to reach the company by telephone.

Deerfield Beach foreclosure defense attorney Peter Ticktin said state or federal agencies were welcome to examine 150 depositions from cases his firm had handled over the past year and a half, each involving robosigners. Ticktin piled the files, forming a small mountain, on top of a glossy marble table before calling a news conference in his office Tuesday.

Ticktin said the employees mostly were unaware they were committing perjury when verifying documents they never had seen were true, in part because some were so poorly trained. One signing agent was a beauty school graduate, he said, another a truck driver.

The servicers "were looking for [employees] with little or no secondary education who wouldn't question the banks," Ticktin said. "What we are looking at is nothing less than a conspiracy."

Reprinted courtesy of Florida Sun Sentinel: http://www.sun-sentinel.com/business/fl-foreclosure-stern-20101012,0,6231808.story

Broward Law Firm Faked Foreclosure Documents?

Lawsuit claims that Florida's largest foreclosure firm faked documents

By Kimberly Miller, Palm Beach Post Staff Writer

Florida's purported largest foreclosure law firm filed thousands of documents to take people's homes that contained deceptive and intentionally ambiguous information, according to a proposed class action lawsuit.

The suit, filed last month in U.S. District Court, Southern District of Florida, says David J. Stern and his Plantation-based legal team violated the Racketeer Influenced and Corrupt Organizations Act by generating fraudulent mortgage assignments when pursuing foreclosures.

An assignment is held by the entity that has the right to receive mortgage payments.

Stern's practice, which the lawsuit claims filed up to 7,000 new foreclosure cases in Florida every month last year, also is alleged to have pursued foreclosures for lenders that didn't own the debt on the homes.

"There really is no proper plaintiff to sue and foreclose and that's what this charade is designed to cover," said Fort Lauderdale attorney Kenneth Eric Trent, who is seeking class action status and filed the suit on behalf of Oakland Park resident Ignacio Damian Figueroa. "There is no real holder of the note and the mortgage anymore because they broke it up and sold it to 10, 12, 20 people."

During the real estate boom, loans traded hands often, sometimes being bundled or split up and sold to investors.

Tracking the true owner of the debt sometimes can be a challenge. When pressed for proof of debt ownership, Trent said Stern's office would create an assignment signed by a Stern employee instead of a representative of the lender attempting to foreclose.

"The assignments were meaningless shells designed to pull the wool over the eyes of the judiciary and ease the burden upon the unknown real parties of interest," the lawsuit states.

Miami attorney Jeffrey Tew, of Tew Cardenas law firm, is representing Stern. He said Stern and his company have done nothing wrong, and that it is accepted practice for a firm employee to be given power to approve assignments.

"This foreclosure crisis was not created by David Stern, but it is so huge and a lot of people are in very bad shape, so some of the finger-pointing goes to him," Tew said.

Trent also named the Mortgage Electronic Registration Service Corp. as a defendant. The private entity, known as MERS, was created by banks in 1995 to track mortgage ownership electronically and reduce paper documents.

Trent says MERS helps hide the identity of loan ownership and that it conspired with Stern to "confuse everyone as to who owned what."

Tew called that claim "fantastical." He did acknowledge, however, that errors can happen.

West Palm Beach foreclosure defense attorney Thomas Ice found 21 examples last year of assignments from Stern's office that had been executed with a date before the notary's commission was issued.

In a deposition, a Stern employee agreed with Ice that "sloppiness" was to blame for the irregularity.

Palm Beach County Circuit Judge Meenu Sasser, who handles the county's foreclosures, said she's dismissed cases when she found problems with assignments. She wasn't speaking directly about cases filed by Stern, and said it's only happened a few times.

"I haven't seen any widespread problem," Sasser said.

Reprinted courtesy of The Palm Beach Post, original article appears here: http://www.palmbeachpost.com/money/lawsuit-claims-that-floridas-largest-foreclosure-firm-faked-839393.html

What Happens When You Stop Paying Your Mortgage?

What happens if you don’t pay the mortgage?

FORT LAUDERDALE, Fla. – Oct. 29, 2009 – We all talk about what if's. One big “what if” that many homeowners have today has to do with mortgages.

About one-third of South Florida mortgages are underwater, meaning the homeowners owe more than the home is worth at today’s depressed prices, according to First American CoreLogic. Some homeowners are certainly wondering why they’re sending in the payment on, say, a $300,000 mortgage, when the house today would sell for only $210,000.

Your options: Keep paying or try to change your loan’s terms.

But some people wonder, what if I just stop paying the mortgage? It may be a tempting idea, but it quickly leads to trouble.

Here’s what could happen if you don’t pay the mortgage.

Report to the credit bureau

If your payment does not arrive, your lender or servicer will report this late payment to the credit bureau by the first day of the next month. This can happen in as little as two weeks from due date and put a negative mark on your credit report. Your credit score drops.

The late payment report whacks your credit rating. Your credit score starts to drop, by up to 200 points, if this is your only late or missed payment.

Cards are closed, rates rise

In the next 30 days, you can expect your other creditors to take note of the late payment and to take action. They can raise your interest rates, shut off your credit card entirely, or lower your credit limit. You also could face other changes in your financial life, because auto insurance, student loans and other forms of credit are pegged to your credit score.

Tightening of credit lowers your score

Credit scores feed on themselves. If your credit card limits are lowered and you are carrying a balance, you are then using more of your available credit, something known as your utilization rate. When that goes up, it lowers your score some more.

The negative mark stays on your credit report for seven years. But the impact on your credit score lessens over time. The biggest impact is for the first two years.

Lender response

The phone will start ringing. Your lender will try to contact you, try to persuade you to go into a loan modification of some kind.

But after 90 days, you cannot just start making payments again. The lender may actually send your payment back, if you send it this late and have not been in contact.

What happens next

After four months of not paying your mortgage, you will likely be served with a foreclosure notice.

If you don’t respond within 20 days, then the lender, in the following 60 days, will ask a court to issue a judgment against you.

A county sale will be arranged 50 to 120 days after the judgment. Next, 120 days after the sale, the sheriff will be at the door. Ten days after that, you’ll be thrown out of your home.

(Tip: This schedule is a general one. Courts are facing a backlog of foreclosure cases and could take longer to go through these steps. If you hire a lawyer and fight the foreclosure, you may be able to delay the sale for many months or avoid it altogether.)

Sources used for this column included: John Ulzheimer, president of consumer education for Credit.com; Barry Paperno, consumer operations manager at FICO; Attorney Roy Oppenheim of Weston, whose practice centers on foreclosure defense; and Jessica Cecere, president of the Consumer Credit Counseling Service of Palm Beach.
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=225965
© 2009 Sun Sentinel Distributed by McClatchy-Tribune News Service, Harriet Johnson Brackey.

Strategic Foreclosure - Knowing When to Fold

Florida homeowners walking away from underwater mortgages

MIAMI – Oct. 26, 2009 – Andres Duque thought he got a real steal when he paid $125,000 for his Little Haiti condo. But four years later, similar units are selling for $35,000 and even less.

And so, faced with the prospect of being underwater on his mortgage – owing more than the unit is worth – for the next 20 years, Duque, 33, made what seemed to him like a rational choice: to cut and run.

He stopped paying the mortgage, basically forcing the lender to take the condo off his hands through foreclosure.

“I was able to pay off all my credit cards,” said Duque, who is biding his time in the condo, waiting until they come and evict him. “In a way, it was the best thing that happened to me because all my income is not being consumed by this freaking monster of a debt.”

Duque’s game plan is known as a strategic default – when borrowers walk away from loans, even if they can afford the payments. Here is a look at the benefits, the risks and the ethics of such a move.

As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida’s foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.

That’s up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.

With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.

“People are saying, ‘Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,’” said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.

South Florida is already a veritable Atlantis of underwater borrowers. In September, homeowners here collectively owed $62.7 billion more than their homes were worth, according to an analysis by First American CoreLogic. The analysis found that about half of all outstanding mortgages in Miami-Dade and Broward are underwater.

Among those who bought in Broward in 2006, the median negative equity was $75,000 as of March. In Miami-Dade, the figure was $63,000, the Web-based real-estate service firm Zillow.com reports. Negative equity refers to the difference between a loan balance and the market value of a home.

“I wouldn’t blame borrowers who knew they were facing significant losses even if they could afford to stay,” said Andrea Heuson, a finance professor at the University of Miami. “Every day you wake up, you are reminded how much you paid for something, and then you read every day in the newspaper how much prices have fallen.”

The many consequences

Walking away, however, is fraught with financial, legal and ethical dilemmas. Lenders, government and the credit industry are starting to pay more attention to how strategic defaulters think and behave – in an effort to convince them to tough it out.

“It’s a huge problem, and it doesn’t get addressed in the process right now,” said Ron Kaniuk, a Boca Raton foreclosure and bankruptcy attorney. He said lenders are encouraging the trend by primarily offering loan modifications only to those who have fallen behind or are seriously at risk of foreclosure.

Duque, in fact, said he shunned a modification because it didn’t reduce his balance.

“It’s really a social change in the way debtors think, and it’s taking creditors some time to absorb that,” said Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures. Commercial property owners also have started walking away.

William Hardin, a real-estate professor at Florida International University, said people have a moral obligation to honor their mortgages when they can.

“The vast majority knew what they were doing and were taking a risk, and the fact of the matter is [the mortgage] is a contract. We live in a world where contracts have to be honored. It’s the way our economy works.”

High default rates have already meant higher loan costs and tougher underwriting standards for all borrowers.

Tracking strategic defaults is an inexact science. Experian researchers identified possible strategic defaulters as homeowners who have gone straight from current on their payments to not paying at all, but remained in good standing on other credit obligations. Nationally, Experian estimated 588,000 borrowers defaulted on purpose in 2008.

Also fueling the phenomenon has been a shift from viewing a home as a place to live to an investment, valued insofar as its potential resale price goes up.

Frustration with the tax-funded bailout of banks and Wall Street may have also emboldened depressed borrowers to default out of anger and a desire to stick it to the banks. Duque’s resolve, for example, hardened after watching Michael Moore’s movie Capitalism: A Love Story. In the movie, Moore makes a case that corporations preying on consumers led to the housing crisis and recession.

“In the movie, there were Congress people telling the American public to stay in their homes, to squat and do what you have to do to fight. A lot of it struck home in many, many, many ways, and I am going to stay here until [my bank] comes to get me out,” Duque said.

Aside from the new philosophical justification for stopping his payments, Duque said his decision was fundamentally an economic one. “My mortgage was killing me, even before things went to hell. I was being choked by the property,” said Duque, who works at the Mondrian Hotel in Miami Beach.

Most strategic defaulters find themselves weighing whether the hit to their credit scores is easier to bear than paying underwater mortgages for years to come.

The most optimistic analysts say it could be three years before prices begin to appreciate. Others say prices have another 30 percent-plus to fall before flat-lining.

Prepared for the worst, Duque has been surprised by the seemingly minimal consequences so far. His credit limits on two cards were slashed by a few thousand dollars, but they were not canceled.

“I went to BrandsMart and applied for a card, and they denied me, so my credit score must be pretty low,” he said. “That’s fine with me, as long as I have a couple of credit cards.”

Surprisingly, strategic defaulters with good credit scores who remain current on their other credit lines can quickly rehabilitate their credit scores after foreclosure – faster than many realize, according to Sarah Davies, a senior vice president at VantageScore, a credit scoring and consumer analytics firm owned jointly by the nation’s three major credit reporting agencies. “You can pull yourself out of any major impact from foreclosure in 24 months,” she said.

And five years down the road?

“A foreclosure is going to be very easy to explain, seeing there are thousands of others who have also defaulted. So, there is a safety-in-numbers issue there,” Heuson said, referring to a possible borrower rationale.

Consumers are essentially putting a price on their credit score, said Piyush Tantia, a partner in the retail and business banking practice of Oliver Wyman.

But there are other risks.

Foreclosure defense attorneys warn of the growing threat that lenders will obtain deficiency judgments against borrowers. Such judgments allow them to collect the difference between the loan balance and the market value of the properties. They also allow lenders to garnish wages and seize assets.

While the risk is not great now statistically, Marc Ben Ezra, a Fort Lauderdale attorney who files foreclosures for banks, said it’s possible that lenders may begin pursuing legal rights to collect.

Jim Angleton, senior vice president of Miami-based Republic Federal Bank, estimated lenders are going after borrowers 15 percent of the time. “You know they are not being forthright with you about their assets when they are keeping their credit cards, their very fine cars and other assets current.”

Oppenheim recommends homeowners bulletproof themselves by hiring a lawyer and perhaps an accountant to explore the possible consequences.

Other real-estate experts say walking away may not be worth it in the short term, when you factor in the cost of finding new shelter and the increased consumer interest rates that stem from any foreclosure.

Tactic not for everyone

Defaulting, though, is not for everybody whose mortgage is underwater, and plenty of people stick with their homes out of a sense of financial responsibility, integrity and faith that prices will recover eventually. There are also people who forked over tens of thousands of dollars in down payments and face a real financial loss by walking away.

Analia Vence, who is renting her underwater town house in Homestead to a tenant for less than the monthly mortgage payment, said she has no intention of walking away. She paid $170,000 in 2006, and now nearby foreclosed homes are selling for $80,000.

“We bought the property as an investment, and we never thought to sell it immediately. We’re only paying $200 or $300 for the mortgage, so it doesn’t make sense to hurt our credit for that much,” Vence said.

Copyright © 2009 The Miami Herald, Monica Hatcher. Distributed by McClatchy-Tribune Information Services.
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=225799