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Mortgage Fraud Litigation Forecast for the New Economic Technological Climate

Fraud Forecast for the New Climate. Overview. Fundamentals of Fraud LitigationFraud on OwnersHome Equity Sales Act (CA)Foreclosure Consultant Regulations (CA)Electronic Recording Delivery Act (CA). Fraud Forecast for the New Climate. ID type of fraudID size

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Mortgage Fraud Litigation Forecast for the New Economic Technological Climate

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    1. Mortgage Fraud Litigation Forecast for the New Economic & Technological Climate Stuart B. Wolfe Wolfe & Wyman LLP

    2. Fraud Forecast for the New Climate

    3. Fraud Forecast for the New Climate ID type of fraud ID size & scope of fraud ID target defendants Asset & income stream investigations Insurance and bond info ID litigation forum Location ADR? Determine causes of action Breach of contract – easiest Consider effect of pleading intentional torts on possible insurance

    4. Fraud Forecast for the New Climate Special Litigation Considerations Consider need for pre-judgment writs against thinly capitalized target defendants Consider lis pendens issues Consider fraudulent conveyance issues

    5. Fraud Forecast for the New Climate Other Special Considerations Title insurance company target defendants Malicious prosecution issues Criminal referrals

    6. Fraud Forecast for the New Climate CA Civ C. §§ 1695 et seq. Enacted: 1979 Designed to protect and inform homeowners in foreclosure from “fraud, deception, and unfair dealing by home equity purchasers…[who] are vulnerable to the importunities of equity purchasers who induce owners to sell their homes for a fraction of their fair market values through the use of schemes which involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.”

    7. Fraud Forecast for the New Economic & Technological Climate Included Transactions & Definitions: Act regulates sales and transfers of a “residence in foreclosure” (RIF) to an “equity purchaser” (EP) RIFs - O/O, 1-4 units Act calls any contract for sale of a RIF as a “home equity sales contract” (HESC) Persons Regulated: EPs - Any person who acquires title to a RIF Exceptions include: o/o purchasers, spouse, certain relatives Representatives of EPs

    8. Fraud Forecast for the New Economic & Technological Climate Requires written HESC with certain specifics Establishes Right to Cancel (and requires notice) Restricts Deed to EP prior to expiration of cancellation period Provides for EP property alienation restrictions during: Cancellation period Repurchase option period Establishes heightened duties owed by EPs to Sellers Other miscellaneous prohibitions and restrictions

    9. Fraud Forecast for the New Climate Establishes regulations on representatives of Equity Purchasers Broad definition of “representative” and involvement DRE License Bond Requirements Declaration of Same Failures make HESC “void” (c.f. “voidable”) Establishes Limited Protections for Bona Fide Purchasers and Encumbrancers

    10. Fraud Forecast for the New Climate Remedies Equitable: Rescission – Rescission period does not commence until notice provided (no limitation) EP representative's failures make HESC “void” (c.f. voidable; c.f. BFE protections) Monetary Damages: 4 year SOL Atty fees Punitive damages Criminal Sanctions

    11. Fraud Forecast for the New Climate CA Civ C §§2945 et seq. Enacted: 1979 Designed to protect homeowners who are in foreclosure from “fraud, deception, harassment, and unfair dealing by foreclosure consultants … [who] charge high fees, the payment of which is often secured by a deed of trust on the residence to be saved, and perform no service or essentially a worthless service.” [Emphasis added.]

    12. Fraud Forecast for the New Climate Included Transactions & Definitions Foreclosure Consultant (FC) defined as one who, for compensation, solicits to, offers to, or does in fact represent an owner of a Residence in Foreclosure (RIF), or otherwise to perform services for a RIF owner, relating to f/c avoidance / postponement, loan modification, new loan to avoid f/c, repairing credit due to f/c and much more (very broad) Certain types of professionals excepted from definition of FC: Attorneys CPAs Many types of lenders (but limits on CA DRE licensees) Others Regulated Activities – very expansive

    13. Fraud Forecast for the New Climate Requires written FC Contracts (FCCs) with certain specifics Prohibitions & Regulations: No payments until completion of services No security permitted to repay fees for services 10% interest cap on direct loans No compensation from third parties without disclosures FC can not receive an interest in the PIQ Severe limits on POAs from RIF owner No arbitration provisions Others Liens and interests obtained by FCC in violation of Act are “Voidable” Establishes Right to Cancel (and requires notice)

    14. Fraud Forecast for the New Climate Establishes Regulations on Representatives of FCs Broad definition of “representative” and involvement DRE license Bonded requirements Declaration of same (written) Failures “shall, at the option of the [RIF] owner, render the FCC void.” Establishes limited protections for Bona Fide Purchasers and Encumbrancers

    15. Fraud Forecast for the New Climate Remedies Equitable Rescission – Rescission Period does not commence until notice provided (no limitation) Monetary Damages 4 year SOL Atty fees Punitive damages Criminal Sanctions

    16. Fraud Forecast for the New Climate

    17. Fraud Forecast for the New Climate Potentially Eligible “Authorized Submitters” Title Insurers UTCs Govt. Entities “Institutional Lenders” per Fin. C. §50003(j) Not CFLs or DREs

    18. Fraud Forecast for the New Climate Prerequisites AG promulgates regs County’s “Electronic Recording Delivery System” certified by AG Approval of ERDS by county bd. of sups. Contract between county recorder and potentially eligible Authorized Submitter

    19. Fraud Forecast for the New Climate

    20. Fraud Forecast for the New Climate

    21. Fraud Forecast for the New Climate

    22. Fraud Forecast for the New Climate

    23. Fraud Forecast for the New Climate

    24. Fraud Forecast for the New Climate § 27391(e): “When a signature is required to be accompanied by a notary’s seal or stamp, that requirement is satisfied if the electronic signature of the notary contains…[notary’s name, title, commissioned county & no. and seal ID no.]” All required notary info public Security dependent on technological standards for “electronic signatures”

    25. Fraud Forecast for the New Climate No restriction that “Authorized Submitter” can only submit docs in a transaction in which it is involved OC Pilot Project: no auto-log off? Consider requirement that a bio-ID be required and recorded for each recordation/transaction Solutions: AG regs?

    26. Fraud Forecast for the New Climate Mortgage lending now anonymous Notary bond only $15k Digital recordation of recons: possibility of eliminating notary requirement? Recording date vs. Index date DRE & CFL lenders? Technology key to success: bio-ID, secure lines, careful security of individual access holders, passwords, encryption, etc. (AG regs?)

    27. Fraud Forecast for the New Climate Stuart B. Wolfe, Esq. 5 Park Plaza, Suite 1100 Irvine, California 92614 (949) 475-9200 SBWolfe@WolfeWyman.com WolfeWyman.com

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