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Lenders Eat Costs on Foreclosure Scam

Mass. attorney accused of stripping equity on 26 properties

June 18, 2008

By MortgageDaily.com staff

Several mortgage lenders and servicers have agreed to a settlement with Massachusetts' attorney general in a case involving a foreclosure rescue scam orchestrated by an attorney.

The case involves foreclosure rescue transactions arranged by attorney Alec G. Sohmer, according to an announcement today from Attorney General Martha Coakley. A complaint was originally filed in Suffolk Superior Court during August 2006.

Sohmer allegedly preyed on delinquent borrowers who were facing foreclosure. He promised them that they could refinance out of delinquency by using Timeless Funding Inc. of Nevada. Then he convinced them to sign over their homes to himself and his wife, which would enable the homeowners to remain in their properties, and indicated they would be able to repurchase their homes using new financing if they made monthly payments to him.

In the process, he charged fees and high settlement costs.

But the state said that Sohmer knew the borrowers would never be able to obtain the new financing to buy back their homes because of their financial distress and onerous repurchase terms. After borrowers were unable to make payments, he would evict them and strip their equity.

In all, 26 properties were involved in the scheme.

In addition to Sohmer, the state is suing Andrew Palmer, the closing attorney in the transactions; attorney Shaun Ellis, who referred distressed borrowers to Sohmer in exchange for a fee; and Carteret Mortgage, a mortgage broker that arranged financing for many of the deals.

The 10 mortgage lenders that funded or serviced the loans have agreed to provide restitution to the victims by reducing the principal balances on the loans to the lower of 80 percent of the current value of the properties or the actual amount paid for prior mortgage loans on the property -- less any beneficial payments to the borrowers. In many cases, borrowers can apply to assume the loans.

About $1.8 in total mortgage obligations were reduced as a result of the settlement, which was approved by the U.S. Bankruptcy court handling Sohmer's Chapter 7 bankruptcy.

"The original homeowners can now reclaim their property by paying a reduced mortgage obligation instead of the inflated mortgage loan arranged by Sohmer, and by refinancing the loans," the state said. "By agreeing to the settlement, these mortgage companies are helping to solve the serious problems caused by Sohmer and his affiliates."

The mortgage lenders and servicers that agreed to the settlement were First Horizon Home Loans; Countrywide Home Loans; EMC Mortgage Corp.; Select Portfolio Services; Aurora Loan Servicing, LLC; American Home Mortgage Corp. doing business as America Brokers Conduit; Option One Mortgage Corp.; America's Servicing Co., a dba of Wells Fargo Bank, N.A.; Ocwen Mortgage; and, Sallie Mae Home Loans Inc.

In addition, Wells Fargo Bank, N.A., has agreed to settle on some of the transactions in which it was involved.

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