Mortgage lenders and financial institutions are battling a barrage of lawsuits — with many filed by state or federal government agencies. Several of the actions are tied to mortgage fraud.
The Federal Deposit Insurance Corporation was criticized by Capital West Securities Inc. for ordering Frontier State Bank to change its policies even though the Oklahoma City-based institution is healthy and profitable, an announcement this week said. The FDIC began an examination of Frontier in April 2008 and filed a complaint the following October. A “rare” administrative hearing was held on Monday (Capital West claims no FDIC hearing has gotten this far into the process in 20 years). A decision will be issued within 45 days, and an FDIC panel has 45 days to overturn it. The losing side can appeal the decision to the U.S. 10th Circuit Court of Appeals in Denver.
Capmark Finance Inc. lied on applications for federal mortgage insurance on loans for residential nursing homes, according to a press release from the U.S. Department of Justice — which filed a lawsuit Tuesday against Capmark. The property tied to the mortgage fraud was the Canoga Care Center in Southern California. When the loan defaulted, the Department of Housing and Urban Development was forced to pay $26 million.”
“Pursuant to the False Claims Act, the United States is seeking treble damages and penalties,” the DOJ said.
Capmark warned in April about its ability to continue as a going concern.
A lawsuit filed last week by the Securities and Exchange Commission against Countrywide Financial Corp. founder Angelo Mozilo, former president David Sambol and former chief financial officer Eric Sieracki accuses the three of failing to advise investors about the company’s risky subprime second lien portfolio.
Mozilo’s attorney, David Siegel, issued a statement indicating that the lawsuit doesn’t “reflect a balanced or fair consideration of the facts or the law” and called the SEC’s allegations baseless.
“Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide,” the statement said. “The complaint does not tell the whole story of either internal communications or the public disclosures.”
A statement from Sambol’s attorney also dismissed the allegations and suggested the media, investors and other interested parties were fully aware of the loosening of underwriting at the time. Sambol blamed political pressure on the SEC for its attack.
A motion to dismiss a class action complaint against Countrywide was denied by U.S. Judge Dana M. Sabraw, according to a May 28 statement from the law firm of Whatley Drake & Kallas LLC. The case was consolidated from several. Countrywide is accused of ignoring suitability and steering borrowers into risky and inappropriate subprime mortgages. The plaintiffs claim the company violated the Racketeer Influenced and Corrupt Organizations Act.
“Judge Sabraw rejected Countrywide’s argument that the RICO enterprise the plaintiffs had alleged among independent mortgage brokers and Countrywide was not valid because the plaintiffs had not alleged connections between the independent mortgage brokers,” Whatley Drake stated. “Judge Sabraw also denied Countrywide’s motion to strike an allegation of unfair conduct under California state law, pursuant to Federal Rule of Civil Procedure 12(f).”
In a Memorandum and Order filed last month in U.S. District Court for the District of Massachusetts, federal Judge William G. Young suggested lawyers for Ameriquest Mortgage Co. committed “egregious misrepresentations” and are “scrambling to pass the blame on to others” because they were sanctioned for such misconduct. At issue are sanctions by a bankruptcy court against loan servicer Ameriquest for $250,000, its attorneys for $125,000 and trustee Wells Fargo Bank, N.A. — previously known as Norwest Bank Minnesota, N.A. — for $250,000.
A November 1997 loan to Jacalyn Nosek was included in the Amresco Residential Securities Corporation Mortgage Loan Trust, Series 1998-2, Young’s order explained. Nosek filed for bankruptcy protection in October 2002 — disputing her debt owed to Wells Fargo as trustee. Ameriquest allegedly filed a proof of claim even though it had relinquished interest in the loan in 1997. The bankruptcy court only learned that Ameriquest’s actual role was only servicer after it decided on a $750,000 emotional distress and punitive damage award in favor of Nosek.
Sanctions against Wells Fargo were vacated.
Fremont Reorganizing Corp., formerly known as Fremont Investment & Loan, has agreed to a $10 million settlement with Massachussetts Attorney General Martha Coakley, a statement Tuesday said. Fremont also agreed to take special steps in foreclosing on unfair loans. The settlement makes permanent provisons of a 2008 injunction Coakley obtained.
“As a result of the lawsuit, up to 2,200 Fremont-originated loans have been protected from unrestricted foreclosures, because the preliminary injunction allowed foreclosures to proceed only after the underlying loan was analyzed for unfair, ultra-risky loan criteria,” the state said. “Although Fremont originated about 15,000 loans in Massachusetts from 2004 through 2007, only 2,200 of those loans remained ‘live’ when the lawsuit commenced.”
New Mexico’s Office of Attorney General filed a lawsuit last month against Deutsche Bank, US Bancorp, Saxon Mortgage Brokerage, North American Specialty Insurance Co., Orlinda Martinez, Angelica Duran and Mountain View Mortgage, a news release said. The state, which filed the litigation on behalf of the Financial Institutions Division of the New Mexico Regulation and Licensing Department, said a 78-year-old borrower claims her signature was forged and the mortgage application was fraudulent. The state seeks to halt the foreclosure.
A second lawsuit by New Mexico against Zia Trust Co, Discount Mortgage Co., Hartford Ins Co., Wendy and Mike Montoya and Robert L.Garretson alleges a $42,000 fraudulent loan transaction, misappropriation of more than $10,000 and excessive mortgage broker fees.
Coakley, the Massachusetts attorney general, announced a consent judgement against attorney Valerie Hanserd over alleged mortgage fraud on a Freddie Mac loan and alleged participation in an illegal foreclosure rescue scheme. Trial commenced a last week in Suffolk Superior Court against co-defendants Primary Mortgage and Leo Desire. Under the terms of the judgment, Hanserd must pay restitution of $80,000, pay $35,000 in fees and penalties and cannot act a real estate closing attorney or title agent for seven years from April 27, 2007.
A U.S. Bankruptcy Court judge has ruled that the Mortgage Electronic Registration System, or MERS, cannot represent lenders seeking to foreclose on delinquent borrowers already in bankruptcy unless it could produce the actual loan note, the Las Vegas Business Press reported last month.
Mark Turkcan, who was convicted of hiding losses of $35 million during his 10 years at First bank Mortgage, was sentenced today to more than a year in prison, the St. Louis Business Journal reported.
In Re Countrywide Financial Corp Mortgage Marketing and Sales Practices Litigation.
Case number 08-md-01988 (U.S. District Court for the Southern District of California in San Diego)
IN RE: JACALYN S. NOSEK, Debtor, AMERIQUEST MORTGAGE CO.; ABLITT & CHARLTON, P.C.; BUCHALTER NEMER, A PROFESSIONAL CORPORATION; WELLS FARGO BANK, N.A.; and WELLS FARGO BANK, N.A. AS TRUSTEE FOR AMRESCO RESIDENTIAL SECURITIES CORP. MORTGAGE LOAN TRUST, SERIES1988-2, Appellants, v. UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS and JACALYN S. NOSEK, Potentially Interested Parties
CIVIL ACTION NO. 08-40095-WGY, May 26, 2009 (U.S. District Court for the District of Massachusetts).
COMMONWEALTH OF MASSACHUSETTS, Plaintiff, v. FREMONT INVESTMENT & LOAN, and FREMONT GENERAL CORPORATION, Defendants.
Civil Action No. 07-4373-BLS 1 (Commonwealth of Massachusetts Superior Court Trial Court Department).
