This article from today’s Arizona Republic really speaks for itself: [Hat tip to our source! You are always appreciated!]
Big lenders and Wall Street investors are going after Arizona mortgage brokers, appraisers, real estate agents, title firms and home buyers for fraud.
Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months.
Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley. Cash-back scams involve getting a mortgage for more than a home is worth and pocketing the extra money. The deals inflate home values and leave lenders with losses from loans worth far more than the house itself.
Here’s some of the lawsuits:
• Phoenix-based Biltmore Bank is suing Security Title of Arizona and a group of others over a cash-back deal. The suit alleges the group worked together to get Biltmore to fund a $1.3 million loan for a home valued at $800,000 and then pocketed the extra cash. Also named in the suit are Valley appraiser Kittelmann & Associates and Tucson resident Frank Padilla, who was indicted and pleaded guilty last year to fraud and money laundering as part of a $13 million property-flipping scheme."It was a creative and imaginative scheme these guys engaged in, but how anyone could figure the title firm was at fault as opposed to the lender or the appraiser picked by the lender doesn’t make sense," Security Title’s attorney Michael Rusing said.
• A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank misrepresented the values of properties, and the income, debt and employment of some of the borrowers. Lehman and Aurora bought the loans as investments and want the bank to buy them back.
• San Francisco-based Transnational Financial Network is suing Phoenix-based Lending House Financial and a Scottsdale investor who purchased 22 Valley homes within days of each other last spring. Transnational funded loans worth nearly $2 million on seven of the homes but says it wasn’t notified the investor was buying multiple properties and his real debt level wasn’t disclosed on mortgage documents.
The investor never made a payment on the houses, which were foreclosed on last year. Most of the homes sold at foreclosure auctions for tens of thousands of dollars less than the mortgages the investor took out on them. The suit was filed last year in San Francisco.
Jeff Matura, the attorney for Lending House Financial, said his client is regulated by Arizona’s Department of Financial Institutions and complies with its guidelines and met all of those rules when it handled the mortgages involved in the Transnational suit.
• Tucson-based mortgage lender First Magnus is suing its former Valley loan officer, Tyson Rondeau, for fraud and negligence. First Magnus claims bad loans are costing it nearly $1 million. Separately, the lender agreed last fall to pay a $200,000 fine after the Arizona Department of Financial Institutions found several violations, including a branch manager making false promises or concealing facts in 10 fraudulent loan transactions.
"Mortgage fraud, particularly cash-back deals, is a big problem," said Felecia Rotellini, superintendent of the Department of Financial Institutions, which regulates mortgage lenders, brokers and escrow firms. "Civil actions are a great source of information for us and often confirm something we are already looking into."
This should put increased downward pressure on prices, as lending standards tighten and spooked buyers worry that current market prices remain artificially inflated. Those of us who live in Phoenix have front row seats for what is shaping up to be quite a fight.
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I wish these guys would start investigating the flipper clown in Bakersfield.
Crispy-
It ought to be apparent to everyone real soon that Phoenix isn’t the only one with a sleazy side to its housing market.
Anyone thinking of contacted a RE attorney better do it now- they are all about to get REAL busy.
Can you imagine what must be happening in the board rooms of lenders across the nation? I can see CEOs saying:
“Here’s the problem folks. Revenue is down, and if we don’t pass out loans to anyone who can scrawl an ‘X’ on a dotted line- we’re hosed.
On the other hand, we are started to see that those guys that have trouble making an ‘X’ don’t pay their bills, and we are having to buy back the loans. If we don’t tighten our standards, we’re hosed.”
What do they do?
Crispy -
A couple of weeks ago we had a commenter who claimed to be a lawyer in his firm’s boardroom with a dozen peers just wrapping up a 3-day marathon strategy session on how they would respond to this billable-hours opportunity. Perhaps he wasn’t making that story up.
John-
I believed the attorney. He’s probably too busy to post now!
Did you guys see the news on FMT shutting down their lending division effective immediately.
“It ought to be apparent to everyone real soon that Phoenix isn’t the only one with a sleazy side to its housing market.”
We have a lot of left-overs from the “grapes of wrath” around here. Just give them American Idol and some Buck Owens and they are happy.
I have seen examples of this as well as mortgage brokers being deceptive in their advertising as cited in this article. http://www.registerguard.com/news/2007/02/07/b1.bz.loans.0207.p1.php?ref=patrick.net
Wonder how many of the banks are going to pass the buck onto the mortgage broker now that the lawsuits are coming?
– ROpenHouse
I have seen this in the midwest too. I have also seen how banks are passing the buck on the Mortage broker for “deceptive” practices in advertising. The register guard (Washington D.C area), about how Chevey Chase bank was in a class action lawsuit regarding their loans. CC blames the mortgage broker.
Seems like no one wants to take the blame for bad loans
– ROpenHouse