As discussed in part one of this topic, I have started to see disturbing new types of mortgage fraud. I spoke of fraud against borrowers by hiding refinance transactions as loan modifications in part one. Today I want to look at another alarming new fraud. Lenders are often perpetuating mortgage fraud against borrowers by hiding mortgage assumption transactions as loan modifications.

While this is less common than the mortgage fraud I talked about in Part I: The Hidden Refinance, the damages to a borrower are typically far higher.

In this type of mortgage fraud, a lender accepts a new co-borrower, most often the spouse, to an existing mortgage without proper disclosure of risks, annual percentage rates, and costs. The benefits to the lender are immense. The lender knows in advance that most loan modifications fail. By adding the spouse to the likely failed mortgage, the lender can then sue both spouses for a default judgment after the mortgage foreclosures. This prevents one spouse from hiding assets in the other’s name, and provides another party whose wages can be garnished in the default judgment.

Because the spouse is becoming a new borrower, the spouse is required to be provided with appropriate disclosures of risks and costs, and the transaction is regulated by both TILA and RESPA.

The lender is required to provide TILA and RESPA disclosures. In addition, if payments are not being reduced, it should provide a disclosure from the lender that it has special knowledge that this mortgage payment is not affordable to the household and will likely foreclose.

Instead of providing required disclosures, the lender provides the spouse with an inevitable foreclosure because no terms have changed. Adding insult to injury they also provide a summons to court when trying for a default judgment to garnish the spouse’s wages and attempt to seize the spouse’s assets it learned about in the ‘modification’ request.

Mortgage fraud by lenders in the execution of a mortgage loan modification is one of the things I look for in my mortgage forensic audits. I carefully read every document. Not everything is what it is labeled, and the purpose of mislabeling documents is often more complex than a simple mistake when the documents and situation is viewed as a whole.

When I find mortgage fraud by lenders, it provides lawyers I work with yet another tool to provide relief to a troubled home. If you are a lawyer in need of mortgage litigation support or mortgage forensic audits to help your clients, contact me here.

I have seen a lot of property flipping fraud, both perpetrated by and against buyers of new homes. The common thread among these cases is a fraudulent appraisal with inflation of the condition and value of a home. While perpetrators of the property flipping fraud may have a copy of the fraudulent appraisal, recruited straw borrowers and victims of property flipping fraud seldom do.

The question then remains how to detect appraisal fraud and property flipping scheme in your mortgage audit without having the actual appraisal in hand; and trying to identify parties involved in the fraud. This is extremely important so that when you are suing to recover losses, you properly identify who was responsible and who was not.

One common sign of property flipping within mortgage audits is a loan amount that is ‘maxed-out’ for that type of loan. This would indicate that a loan originator or other knowledgeable party with lending experience probably had a hand in the fraud. While Fannie Mae and other Government loan limits are widely published, subprime loan limits and pay option arm loan limits are programs that are no longer available and are much more difficult to find, unless one was a loan originator at the time and generally remembers them, or knows specific places to look. Loan to values also play a role in detecting property flipping, but require an auditor with mortgage experience to typically detect in their mortgage audit.

A second common sign of property flipping within mortgage audits is a huge down payment, above and beyond the capabilities of a ‘typical’ borrower for that type of loan. This is an indication that the escrow company was involved as such large amounts of money may never have changed hands. Other indications are amended title reports and title policies, which may have altered or removed relevant information such as past property transfers. The huge down payment means that the new purchase price is huge as well, which is likely identical to the unknown and inflated appraised value. It typically is easier to spot this evidence of property flipping in your mortgage audit if you have read hundreds of title reports.

A third common sign of property flipping within mortgage audits is online listing information and databases. A property listing describing the home as ‘unfinished’ or ‘needing extensive repairs’ with a mortgage to a lender that did not typically provide construction loans is another strong indication of appraisal fraud in the property flip, with the appraiser likely hiding both the condition and value of the property. Other sources may reveal more about the parties involved.

The role of appraisals within mortgage audits is to complete an overall picture of what happened. While an experienced mortgage auditor may be able to determine likely appraisal fraud without even seeing the appraisal, it is still highly beneficial to confirm the specificity of the appraisal fraud when the mortgage audit is designed around being the basis for a lawsuit.

The overall mortgage documents and borrower story often paints a picture of what happened, however in cases of inflated sales prices, the appraisal provides both a timeline, a duty, and specific evidence as to how the inflated sales price was justified. The appraisal is the glue that holds everyone else’s plan to sell the home at an inflated price together, and as such, must reflect each party to the plans exact requirements.

The appraisal is used multiple different ways in a purchase transaction.  Such as…

• To justify the purchase price
• To value and asses loan risk
• To double check chain of title from the title company
• To assess the value of the property by the lender to set the loan limits

When you understand how it is used, you then realize that the appraisal does not stand alone. Our mortgage audit process reflects this and we review the appraisal multiple times with other loan documents.

We have found that inflated appraisal value aside, appraisals in fraudulent transactions are often constructed specifically and exactly as needed to justify other sections the loan application and loan file.

Before I go on, let me emphasize these are my thoughts on the “Produce the Note Strategy”, and should not be construed as legal advice. This is purely food for thought! Many different people have heard of the “Produce the Note Strategy” to stop your foreclosure.  Your lawyer attacks the foreclosure rights of whoever is foreclosing on you in this legal strategy.

MERS and its Assigns typically have the right to enforce the mortgage and foreclose regardless of ownership of the note due to clauses in the Deed of Trust and Note that states MERS and its assigns has that authority to enforce the note. (MERS and assigns are effectively Trustees/Attorney in Fact of Note Holder). If MERS or its Assigns are foreclosing, you can still ask MERS to produce the note giving MERS the authority clause to foreclose.

You can then ask MERS and its Assigns where it obtained its information that the loan is in default. They will respond with the Note Holder in due course. You can then challenge the legitimacy of the Note Holder in due course’s right to claim loan is in default as they have to prove they are a holder in due course.

This typically results in them having to produce the mortgage note or chain of evidence that they are the note holder in due course. Some jurisdictions have required all foreclosing parties to provide the original note and transfer documentation at the start of any foreclosure proceeding.

Now if the holder in due course (typically your loan servicer or bank) chooses to foreclose then they need to produce a note and proof the note was assigned/indorsed to them as a chain of ownership. This is where they have a problem as many times the notes were never indorsed and were tossed for electronic storage, or tossed by previous holders after transferring ownership via MERS recording system of securities, but not transferred as per state statute (this gets into securities transfers and note transfer law).

In either situation, the note holder in due course must prove they are the note holder to have standing to foreclose, or standing to declare the loan is in default so that the trustee (MERS/its assigns) may foreclose.

Basically, in discovery, a lawyer may ask the foreclosing party to prove they have the standing to foreclose, and the standing of the party who declared the loan in default.

For further reading, please see:
http://mattweidnerlaw.com/blog/wp-content/uploads/2010/02/ordercancellingvacatingsale.pdf
http://www.5dca.org/Opinions/Opin2010/080210/5D09-4035.op.pdf

The documentation list we ask for is far more complete than I see at other forensic loan audit companies. The reason is simple; you want all theammunition you can get when preparing for a lawsuit. When it comes to performing a forensic loan audit, no detail is too trivial.

Lenders are often equally diligent in defending against these lawsuits and claims. The Mortgage Bankers Association training seminar ‘Defending Your Company Against Individual Cases’ outlines documentation lenders are suggested to gather for review.

Our forensic loan audits are more extensive, not only out of professional pride and choice, but also because they need to be to give you the best chance of winning a mortgage lawsuit.

The Mortgage Bankers Association list is linked below. We do not ask for all of these documents from you as you are not in possession of them all and some we gather ourselves.

Forensic Loan Audit Documentation list from Mortgage Bankers Association

To learn more, feel free to contact us.

Over the last year, I have been working on litigation support for mortgage lawsuits and forensic loan audits for mortgage lawsuits. With a great deal of thanks to Matthew our webmaster, we have finished updating this site to show how we help victims of predatory lending and that help is available.

This site is dedicated to empower victims of predatory lending. Cry havoc, and let us let slip the dogs of war!

I have had the oppurtunity to experience a lot of different events the last few months!

In November, I set up a loan modification shop for a lawyer. Setting up policies and proceedures, forms, tracking, and education. When my borrower resource is completed I may release a version of this information for public interest.

In October and December, we worked on behalf of several financial institutions to recover foreclosure losses on a construction loan portfolio and other REOs. This involved a wide variety of cross platform of skills and some litigation support.

In December through June I worked on a variety of residential mortgage  and real estate related litigation support cases on behalf of borrowers. I am pleased to announce that judgements in favor of clients are in the multi-millions in multiple states! I did the majority of this work out of state and am now adopting and formatting proceedures work within Washington State for clients around the US.

I also am close to finishing a modification education resource to help people understand where they are and how to present themselves in their modification requests. I am planning on releasing this within the month.

Steve

Now that I am back in town I am putting up my encyclopedia. Well, to be honest it is up I’m just formatting it and adding notes and graphics where appropriate.

So starting at the beginning here is a very basic topic: What is a mortgage! You can find this at the learning center tab above or the link directly below!

http://rateswire.com/what-is-a-mortgage/

Steve

Thank you for stopping by rateswire.com!  Here we are depositing articles, news, and information about mortgages.  This is our growing mortgage university with the eventual goal to cover all relevant mortgage topics to refinancing or buying residential real estate. 

We would like to welcome mortgage professionals to join us in adding to our database of topics.  Please contact the webmaster if you are looking for a home to share your passion and wisdom!

This is the parent site to Seattle.rateswire.com which links to local rates and information for Seattle and the surrounding area.