Monthly Archives: December 2011

Massive foreclosure fraud’s scope revealed by transcripts

LAS VEGAS (KSNV MyNews3) -- The massive robo-signing scandal that throws into question tens of thousands of Las Vegas foreclosures is unfolding. Newly-released transcripts from last month's Grand Jury hearing shed light on how the foreclosure fraud went down.

View Robo-Signing Scandal Video Here

Trafford Sheppard GJ Trascript Day 1 (5.9MB)

Trafford Sheppard GJ Trascript Day 2 (4.3MB)

The transcripts include last month's testimonies from investigators, homeowners, temp workers and four notaries.

The workers, who were employed at Lender Processing Services (LPS) under Gary Trafford and Geraldine Sheppard, admitted to forging signatures on tens of thousands of notices of default.

Most blamed fear of unemployment for their decision to forge signatures and break the law. One notary said she needed to keep her job while getting through graduate school, another said he had a family to support.

Trafford and Sheppard are accused of running the scam by advising their employees to forge signatures on notices of default between 2005 and 2008. Those documents got the ball rolling on many Las Vegas foreclosures.

Notary Tracy Lawrence struck a plea deal with the state's Attorney General's Office for one count of notary fraud. She admitted to notarizing about 25,000 false documents. Lawrence was found dead in her home the day of her sentencing hearing a few weeks ago. Lawrence said during the Grand Jury hearing that LPS handled notices of default for trustees representing many major lenders, including Washington Mutual, Bank of America, Fannie Mae and Freddie Mac.

A criminal investigator for the Nevada Attorney General’s office said that out of tens of thousands of documents from LPS that his investigation of the fraud examined, an overwhelming majority seemed suspicious.

“It’s hard to find [a document] that you wouldn’t be suspicious of,” the investigator said, adding that legitimate documents from the company seemed to be the exception instead of the rule.

It wasn’t just the signatures that were fraudulent. According to the investigator, some of the forged documents contained information that had not been verified by those signing them. This sometimes led to the wrongful foreclosure of houses because of the innacuracies.

“We’ve had individuals who said ‘I was never late in my payments, but yet my house has been foreclosed on,’” he said.

Former Las Vegas homeowner Romy Ashjian, one of the witnesses who testified at the hearing, said that she was locked out of her own home without ever having been told that a notice of default had been recorded. Ashjian said she was behind on payments, but was working with a lender, Bank of America, to try to set up a short sale. When she returned home one day, however, she found that her home had been sold without her knowledge through a trustee sale.

Ashjian said many of her belongings were still inside the home, including furniture, medical records, collectibles, and her and her daughter's personal information including social security numbers. Many of these items were stolen before Ashjian was able to gain access to her property two weeks later.

AG hits foreclosure processor with fraud allegations

Nevada’s attorney general has sued foreclosure specialist Lender Processing Services Inc., claiming it has been involved in widespread fraud involving robosignings and other problems.

Attorney General Catherine Cortez Masto’s office filed suit on Thursday against LPS, based in Jacksonville, Fla., and a group of subsidiaries that includes DOCX LLC and LPS Default Solutions Inc.

"The lawsuit follows an extensive investigation into LPS’ default servicing of residential mortgages in Nevada, specifically loans in foreclosure. It includes allegations of widespread document execution fraud, deceptive statements made by LPS about efforts to correct document fraud, improper control over foreclosure attorneys and the foreclosure process, misrepresentations about LPS’ fees and services, and evidence of an overall press for speed and volume that prevented the necessary and proper focus on accuracy and integrity in the foreclosure process," Masto’s office said in a statement Friday.

The suit in Clark County District Court in Las Vegas followscriminal robosigning fraud charges filed by Masto’s office against two LPS officers and four notaries.

The criminal cases claim notaries falsely certified the signature of people not in their presence — two LPS officers.

The LPS officers had allegedly directed employees to forge their names on documents and were responsible for the filing of tens of thousands of fraudulent foreclosure papers with the Clark County Recorder’s Office between 2005 and 2008.

"The robosigning crisis in Nevada has been fueled by two main problems: chaos and speed," Masto said in a statement. "We will protect the integrity of the foreclosure process. This lawsuit is the next, logical step in holding the key players in the foreclosure fraud crisis accountable."

LPS, which has been targeted in numerous state and federal probes over its role in the foreclosure process, on Friday said it “strongly disputes” the allegations in Masto’s lawsuit.

“LPS has cooperated with the Attorney General’s office for more than 14 months to resolve its inquiry in a manner which would benefit the citizens of Nevada,” LPS said in a statement. “As the company has previously disclosed, it has discovered, during its own internal reviews, potential issues related to some of its past document execution practices. However, the company is not aware of any person who was wrongfully foreclosed upon as a result of a potential error in the processes used by our employees. LPS will vigorously defend against the complaint filed by the Nevada Attorney General.”

LPS also complained its “efforts to engage in meaningful discussions with the Nevada Attorney General’s office have been frustrated by the Nevada Attorney General’s decision to outsource its investigation to Cohen Milstein Sellers & Toll PLLC, a plaintiff’s law firm located in Washington, D.C., in apparent violation of Nevada law.”

“The complaint highlights misconceptions about LPS and seeks to sensationalize a variety of false allegations in a misleading manner,” the company said.

In the Nevada robosigning cases, the publicly traded company insists there have been no wrongful foreclosures in which someone current on their mortgage has been foreclosed on.

Masto's office, however, has said the fraudulent foreclosure filings in Nevada have potentially called into question the validity of foreclosures associated with the documents.

A spokeswoman for the attorney general's office said it hadn't been determined how many foreclosures were affected by the alleged LPS robosigning practices, and that the full scope of the problem would be determined during the fact-finding portion of the lawsuit.

"We suspect thousands of potential foreclosures have been affected,'' spokeswoman Jennifer López said.

Nevada's Dec. 15 lawsuit against LPS alleges, among other things, that the company:

• Schemed to forge signatures on key documents to ensure that volume and speed quotas were met.

• Required employees to process up to 4,000 foreclosure-related documents every day.

• Fraudulently notarized documents by certifying them without ensuring that the notary did so in the presence of the person signing the documents.

• Misrepresented that its document problems were limited to clerical errors.

• Improperly directed or controlled the work of foreclosure attorneys by imposing inappropriate and arbitrary deadlines that forced attorneys to churn through foreclosures at a rate that sacrificed accuracy for speed.

• Demanded a "kickback/referral fee" from foreclosure firms for each case referred to the firm by LPS and allowed the fee to be misrepresented as “attorney’s fees” on invoices either passed on to Nevada consumers, submitted to Nevada courts or both.


Allegations of Fraud Continue to Surround JP Morgan Chase’s Foreclosure Processes

Chase is one of the major banks that announced a suspension of its foreclosure efforts in the fall of 2010 amid revelations of industry-wide mortgage document fraud according tomedia reportsat the time. In the rush to process hundreds of thousands of foreclosures, Chase allegedly employed people to supply the necessary signatures for the documents that allowed the foreclosures to go forward. This practice, common among the major banks, came to be known as “robo-signing” and has been the target of lawsuits ever since.

Despite supposedly having put a stop to these practices last year, Chase has continued to face allegations of wrongful foreclosure. TheUnited Foreclosure Attorney Networkhas filed suit against JP Morgan Chase recently in Superior Court in Martinez (case # C-11-02390) alleging, among other things, that JP Morgan Chase has not followed proper endorsement and transfer procedure before it has attempted to enforce Plaintiffs’ mortgage notes.

UFAN’s suit is just one instance of many such examples of alleged wrongful foreclosure. Spotlighted as one of the more egregious cases of mortgage and foreclosure fraud in recent memory, JPMorgan Chase wasrecently foundto have presented false assignments of mortgages in court in order to foreclose on properties (case # 16-2008-CA-3989, 4th Judicial Circuit, Florida). A motion to dismiss JP Morgan Chase’s foreclosure action argued that the bank presented itself as the holder of the note and mortgage when it was actually only the servicer of the loan. The Bank’s attorneys had allegedly prepared false assignment documents that they attempted to use in court to justify the action.

Court documents reveal that while the Bank blamed the episode on a clerical error, the Court found "clear and convincing evidence" that Chase had engaged in a "knowing deception intended to prevent the defendants from discovery essential to defending the claim.”

Instances continue to occur that suggest such wrongful foreclosure practices are ongoing. An examination of more than 5000 mortgages assigned to Washington Mutual Trusts revealed that the assignments were actually signed by JP Morgan Chase employees in order to foreclose, according tomedia reports. The employees allegedly signed on behalf of mortgage companies, and purported to assign mortgages and notes to Washington Mutual investment trusts that had actually closed years earlier. Washington Mutual was purchased by JP Morgan Chase after the assignments were supposed to have taken place. The false assignments where then used to initiate foreclosure proceedings on behalf of JP Morgan Chase.

UFAN is currently investigating instances of wrongful foreclosures such as these as part of its representation of JP Morgan Chase borrowers.


UFAN Legal Group, PCdba United Foreclosure Attorney Network (UFAN) is a Roseville, California-based law firm providing mortgage litigation and other debt related legal services. The dedicated attorneys and staff at UFAN work tirelessly to seek justice and fight for the rights of its clients. For more information call toll free 1-866-400-4242.

This release may constitute attorney advertisement. The information in this release and on the UFAN website ( is for general information purposes only. Nothing in this release or on the UFAN website should be taken as legal advice. Prior successes are no guarantee of future performance. Litigation is inherently uncertain and results in litigation are never assured.


The Internal Revenue Service has launched a review of the tax-exempt status of a widely-held form of mortgage-backed securities called REMICs.

By Scot J. Paltrow

The IRS confirmed to Reuters that the review comes in response to mounting evidence that banks violated tax requirements by mishandling the transfer of mortgages to REMICs, short for Real Estate Mortgage Conduits.

Should the IRS find reason to take tough action, the financial impact could be enormous. REMIC investments are held by pension funds, in individual retirement plans such as 401(k)s and by state and local government entities.

As of the end of 2010, investments in REMICs totaled more than $3 trillion, according to data supplied by the Securities Industry and Financial Markets Association.

In a brief statement in response to questions from Reuters, the agency said: "The IRS is aware of questions in the market regarding REMICs and proper ownership of the underlying mortgages as set out in federal tax law, and is actively reviewing certain aspects of this issue."

The statement said the IRS would not make any further comment. An IRS spokesman declined to say anything about the extent of the review, or whether the agency is likely to take action.

The review, however, is a sign that the widespread bank misdeeds in home foreclosure cases are spilling over to threaten the interests of investors in mortgage-backed securities. The banks originated the mortgages and packaged them into securities.

These banks' transgressions, confirmed in court decisions and through recent action by federal bank regulators, include the failure to formally transfer ownership of mortgages to the trusts that invested in them and the subsequent creation of fraudulent mortgage assignments and other false documents.

These investment trusts already have suffered big drops in income because of vast numbers of mortgage defaults after the housing boom collapse. They have been hurt too because in an increasing number of instances they have been blocked by courts from foreclosing on defaulted mortgages. The courts ruled that because the trusts never received the required documents establishing that they owned the mortgages, they have no standing to foreclose.


For investors, one of the big attractions of REMICs has been that they aren't "double-taxed." While individual investors pay taxes on income they receive from REMICs, the securities themselves are exempt from business income tax.

But if the IRS concludes that the REMIC investments failed to comply with strict requirements in the federal tax code, the REMIC would have to pay a 100 percent tax on the income from those investments.

That means that the IRS could confiscate the full amount. Tax law experts said the REMICs also could be subjected to additional penalties for failing to file tax returns on the income.

James Peaslee, a partner at law firm Cleary Gottlieb who is an expert on taxation of securitized investments, said that even if the IRS finds wrongdoing, it might be loath to act because of the wide financial damage the penalties would cause. He notes that the REMIC investors, who he called "innocent parties," would have to pay rather than the banks that were responsible for any wrongdoing in transferring mortgage ownership.

But Adam Levitin, a Georgetown University Law School professor and expert on taxation, said that if the IRS fails to act, "it would be a backdoor bailout of the financial system."

If the IRS did impose penalties, the REMICs could turn around and sue the banks for causing the problems and not living up to the terms of the agreements establishing each REMIC, thus transferring the costs to the banks. If the IRS finds wrongdoing but fails to act, the IRS would forego "potentially enormous tax revenue that would be passed on to the federal government," Levitin said. "Given the federal budget deficit that's not something to sniff at," he added.

At least for some REMICs, though, prospects for suing the banks may be limited. April Charney, a Florida legal aid attorney and leading expert on mortgage backed securities and foreclosures, said that the agreements establishing the REMICs specify strict time limits for investors to sue the banks for any deficiencies in turning over promised mortgages.

For the IRS, one of the main issues will be whether REMICs actually owned the mortgages from which they received income. If not, for tax purposes they wouldn't qualify as REMICs, and the income would become taxable.

The arcane tax rules governing REMICs tax rules require that all mortgages be transferred to them on the dates that they are formed. There is a 120-day grace period for correcting any errors, and after that the rules strictly forbid acquiring any additional mortgages. Levitin said the reason for this limitation is that REMICs are tax exempt because they are considered vehicles for passive, static investments. If they were to continue buying and selling mortgages they would be acting as ordinary businesses, which are required to pay income taxes.

Peaslee said that to date there haven't been any rulings by the U.S. Tax Court on what is required for REMICs to establish timely ownership of mortgages.

The FDIC Fights Back Against BofA’s Attempt To Put The Taxpayer On The Hook For Trillions Of Dollars Of Derivatives

Eric Platt

Regulators may keep Bank of America from shifting derivatives from its Merrill Lynch unit to its consumer retail division, Bloomberg reports

 The Federal Reserve and Federal Deposit Insurance Corporation are discussing whether to allow further transfers between the two units. Bank of America Corp., the holding company of BofA's retail and institutional services units, had moved the derivatives to take advantage of a higher debt rating in its consumer division, which allowed it to post lower collateral levels.

In a 460 page SEC filing made after it reported earnings this October, Bank of America noted that these derivative moves could be limited by regulators, without naming either agency.

"Our ability to substitute or make changes to these agreements to meet counterparties' requests may be subject to certain limitations, including counter party willingness, regulatory limitations on naming [Bank of America NA] as the new counter party, and the type or amount of collateral required," it wrote. "It is possible that such limitations on our ability to substitute or make changes to these agreements, including naming [Bank of America NA] as the new counterparty, could adversely affect our results of operations."

FDIC officials have objected to the move as it increase the potential risk of collapse, forcing the agency to pay depositors. The Fed, however, believes the additional capital requirements would cripple the bank at a difficult time.

Bank of America held nearly $75 trillion in notional derivative contracts in June. The transfers it has already completed have allowed it to avoid nearly $5 billion in collateral postings. A reversal, or additional downgrade, would add to the banks woes. The bank said it could be forced to post an extra $1.7 billion if it was hit by a second incremental downgrade, based of derivatives held on September 30.

Bonus: The complete guide to why everyone's freaking out over Bank of America >

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