Tag Archives: Wells Fargo

Wachovia Sued for Millions in 1031 Exchange Fraud

Wachovia Corp., the troubled banking and financial services company that was the subject of a bidding war between Citigroup Inc. and Wells Fargo & Co., the target of a $60 billion lawsuit from Citigroup, and that has also been linked to money laundering by Mexican and Columbian drug cartels, has now been sued by the victims of  a fraudulent scheme to steal millions of dollars in client funds held by The 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Ed Okun.

Okun was indicted, along with Lara Coleman, on July 10, 2008, by a federal grand jury in Richmond, Va., and charged with conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, wire fraud, mail fraud, money laundering, bulk cash smuggling and forfeiture. Okun is also charged with one count of making false statements.

The new lawsuit by the 1031TG Trustee alleges that Wachovia aided and abetted breaches of fiduciary duty by Edward Okun and Lara Coleman against the 1031 Tax Group Debtors, and seeks to recover more than $140 million of damages arising from such actions.

According to a lawsuit filed in the Southern District of New York on October 2, 2008, by the Trustee for the bankrupt tax-deferral company, “Wachovia was entwined in all aspects of the 1031 debtors’ operations, Okun’s personal finances and Okun’s other businesses” and assisted in the fraud by transferring $240 million to “inappropriate” accounts before the tax firm collapsed and Okun was arrested.

The lawsuit seeks recovery of more than $43 million of conveyances allegedly made to Wachovia in the form of cash and mortgage liens, and the imposition of equitable liens and constructive trusts on several properties in which Wachovia continues to hold liens.

The complaint also asserts that Wachovia housed more than 250 bank accounts for the 1031 Tax Group Debtors as well as other Okun Entities; provided several personal loans to Okun; and made commercial loans to Okun-related entities, such as IPofA affiliates. 

The lawsuit further alleges that during the course of this relationship, Wachovia learned that Okun and others were misappropriating funds of the 1031 Tax Group Debtors, but did nothing to stop the misappropriations, and in fact took steps that furthered the misconduct.

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Judicial Nullification of Foreclosures Spreads to Bankruptcy Court

Back in March, we posted a blog on “judicial nullification” in mortgage cases. 

We titled it “Are “Deadbeat” Home Owners Beating the Banks Through “Judicial Nullification“?

Recent judicial decisions have proven us to be correct — and that “judicial nullification” in mortgage cases has expanded into federal bankruptcy proceedings.

When a jury refuses to follow the law or the instructions of the judge, and instead renders a verdict counter to the law but based on their sympathies or their sense of fairness, it is called “jury nulllification.” 

Judges too can refuse to follow the law when they believe it is unfair, or they can interpret the law so that the outcome favors the side that the judge believes to be morally right — even if that side would be legally in the wrong according to previous interpretations of the law.

We call that “judicial nullification.”

Now we hear that in an increasing number of cases, federal bankruptcy judges are refusing to stay bankruptcy proceedings to permit lenders to move forward with foreclosure actions, and even sanctioning lenders whose conduct seem to them to be abusive or improper.

According to the New York Times, “Slowly but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers.”

The cases cited by the Times are from bankruptcy courts in Delaware, Louisiana and New York, and “each one shows how improper, undisclosed or questionable fees unfairly penalize borrowers already struggling with mortgage debt or bankruptcy.”

In a case in Louisiana, Judge Elizabeth W. Magner found that Wells Fargo was guilty of “abusive imposition of unwarranted fees and charges,” and improper calculation of escrow payments, among other things.  She found Wells Fargo negligent and assessed damages, sanctions and legal fees of $27,350.

The Times wrote that “The heart of the case is that Wells Fargo failed to notify the borrower when it assessed fees or charges on her account. This deepened her default and placed her on a downward spiral that was hard to escape. And Wells Fargo’s practice of not notifying borrowers that they were being charged fees ‘is not peculiar to loans involved in a bankruptcy,’ the court said. During a 12-month period beginning in 2001, for example, Well Fargo assessed 13 late fees totaling $360.23 without telling Ms. Stewart or her late husband, whose name was on the loan before he died. Even though the terms of the mortgage required that Wells Fargo apply any funds it received from the Stewarts to principal and interest charges first, the late fees were deducted first. This meant that the Stewarts’ mortgage payments were insufficient, making them fall further behind — and keeping them subject to more late fees.”

“Then there were the multiple inspection fees Wells Fargo charged the borrowers. Because its computer system automatically generates a request for property inspections when a borrower becomes delinquent — to make sure the property is being kept up — the $15 cost of the inspections piled up. The court noted that the total cost to the borrower for one missed $554.11 mortgage payment was $465.36 in late fees and property inspection charges.”

“From late 2000 and 2007, Wells Fargo inspected the property on average every 54 days, the court found. But the court also determined that inspections charged to Ms. Stewart had often been performed on other people’s properties. Of the nine broker appraisals charged to Ms. Stewart from 2002 to 2007, two were said to have been conducted on the same September day in 2005 when Jefferson Parish, where the Stewart home was located, was under an evacuation order because of Hurricane Katrina.”

“The broker appraisals were conducted by a division of Wells Fargo that charged more than double its costs for them, the court found. It concluded that the charges were an undisclosed fee disguised as a third-party vendor cost and illegally imposed by Wells Fargo. The bank also levied substantial legal fees and failed to credit back to the borrower $1,800 that had been charged for an eviction action but that had been returned by the sheriff because it never occurred.”

“While Wells Fargo claimed that the borrower owed $35,036, the judge said the actual figure was $24,924.10. The judge ordered Wells Fargo to provide a complete loan history on every case pending with her court after April 13, 2007.”

In a Delaware case, Judge Brendan Linehan Shannon refused to allow a lender to charge fees owing under the mortgage after the borrower had satisfied all obligations under a Chapter 13 bankruptcy.

Mortgage lenders argue that their contracts allow them to recover all the fees and costs they incur when a borrower files a Chapter 13 bankruptcy plan, even after a case is resolved.

“This cannot be,” the judge wrote. “If the court and the Chapter 13 Trustee fully administer a case through completion of a 60-month Chapter 13 plan, only to have the debtor promptly refile on account of accrued, undisclosed fees and charges on her mortgage, it could fairly be said that we have all been on a fool’s errand for five years.”

And in a recent case in New York, Judge Cecilia G. Morris refused to allow a lender to foreclose even though the borrowers had technically failed to make the required payments on their mortgage.

The Times reports that “The case involved Christopher W. and Bobbi Ann Schuessler, borrowers who had $120,000 of equity in their Burlingham, N.Y., home when their bank, Chase Home Finance, a unit of JPMorgan Chase, moved to begin foreclosure proceedings. The couple had filed for personal bankruptcy protection, which automatically prevents any seizure of their home. But the bank moved for a so-called relief from the bankruptcy stay, and claimed the couple had no equity.”

“The Schuesslers got into trouble because Chase had refused a mortgage payment they tried to make at a local branch. Testimony in the case revealed a Chase policy of accepting mortgage payments in branches from borrowers who are current on their loans but rejecting payments from borrowers operating under bankruptcy protection.”

“The Schuesslers did not know this. When Chase rejected their payment, they briefly fell behind on their mortgage, according to the court documents. Then Chase moved to begin foreclosure proceedings.”

“Without informing debtors, Chase Home Finance makes it impossible for JPMorgan Chase Bank branches to accept any payments,” Judge Morris wrote. “It appeared that Chase Home Finance intended to commence an unwarranted foreclosure action, due to ‘arrears’ resulting from Chase Home Finance’s handling of the case in its bankruptcy department, rather than any default of the debtors.”

We predicted in March that “that more judges will engage in ‘judicial nullification’ of mortgages unless Congress and the Executive Branch exercise their responsibilities and turn their attention to the mortgage and credit crisis in a far more comprehensive and meaningful way than they have so far.”

These recent cases are proving us correct.

Freddie Mac to Buy $10-15 Billion in Jumbo Loans — Move Hopes to Jump-Start Liquidity in Home Loan Market

Some relief may be in store for the battered residential real estate markets in California, New York, and other high cost states, as Freddie Mac announced on Thursday that it will buy jumbo mortgages in areas with high real estate prices from four of the largest U.S. mortgage lenders.

Freddie Mac’s purchase of conforming jumbo mortgages is restricted to 224 high cost markets where median home prices exceed Freddie Mac’s $417,000 loan limit.

Qualified borrowers in these states can now apply for an array of fixed-rate or adjustable rate conforming jumbo mortgages that will be less expensive than non-conforming jumbo loans in high cost markets.

Borrowers can use Freddie Mac conforming jumbo mortgages to finance up to 90% of a property’s value.

Freddie Mac said in a press release that it will purchase conforming jumbo loans from Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual. 

It expects to finance between $10 and $15 billion in new jumbo mortgages in 2008.

The press release called the decison Freddie Mac’s “first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act.” 

The Economic Stimulus Act temporarily raised Freddie Mac’s conforming loan limit from $417,000 to as much as $729,750 through December 31, 2008.

The move is another is a series of federal actions that are meant to increase liquidity in the housing finance market.

Congress tried to ease jumbo loan rates in February, when it allowed Fannie Mae and Freddie Mac to guarantee bigger mortgages of up to almost $730,000 dollars.

But, so far, the banks has failed to respond to these new government guarantees by lowering interest rates or increasing liquidty in the home loan market.

The reason, accoprding to the banks, is that they need to sell their loans to investors, but investors aren’t buying.  Freddie Mac’s move is intended to free up the lenders’ balance sheets and allow them to concentrate their efforts on originating these loans.

“Purchasing conforming jumbo mortgages for our portfolio shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis,” said Freddie Mac Chairman and CEO Richard Syron. “We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets.”

While specific product availability may vary by lender, Freddie Mac has said it will buy 15-, 20-, 30- and 40-year fixed-rate, fully amortizing conforming jumbo mortgages; 30-year fixed-rate mortgages with 10-year interest-only periods; fully amortizing 5/1 adjustable-rate mortgages (ARMs) and 5/1 ARMs with 10-year interest-only periods. Qualified borrowers can also obtain cash-out refinance conforming jumbo mortgages that provide a maximum cash-out of $100,000.