Today at SCOTUS – [Insert Bad Fish Pun Here]

by: Peter J. Gallagher (@pjsgallagher) 

 In an interesting case this morning at the US Supreme Court, the Justices will be asked to determine whether a fish is a “tangible object.” No. Really. That is the issue in Yates v. United States.

The Sarbanes-Oxley Act, which was passed in the wake of the Enron scandal, makes it a crime to “destroy, mutilate, conceal, or cover up any record, document, or tangible object” with the intent to obstruct a federal investigation. It is unlikely that Congress had fish in mind when it passed the Act, but this is nonetheless the federal law that was used to convict John Yates — captain of the Miss Katie, a commercial fishing boat out of Cortex, Florida — for throwing 72 red grouper that were allegedly below the legal limit back into the ocean.  

 

Continue reading “Today at SCOTUS – [Insert Bad Fish Pun Here]”

Burt Reynolds Seeks Deliverance From The Evils Of The Foreclosure Crisis

by:  Peter J. Gallagher

 
Is no one safe from the foreclosure crisis?  Various news outlets are reporting that Burt Reynolds is on the verge of losing, not the Best Little Whorehouse In Texas, but his Florida mansion to the bank (click here, here, here, and here for stories).  Apparently, the bank is looking to pull down the Evening Shade on the actor because he has not made a mortgage payment since September 2010 and owes approximately $1.2 million on a home valued at $2.4 million.  (For those of you who are curious, the house has a swimming pool, private beach, boat dock, cinema and, of course, its own hair salon.)  Reynolds has enjoyed many Boogie Nights in the property and on its Longest Yard since he purchased it for $1.5 million in 1994.  However, Smokey now appears to have caught up with the Bandit and Reynolds finds himself in the Sharkey's Machine like so many other residents navigating through foreclosure in Florida.  Unless there is another Cannonball Run sequel in the works, it looks like Reynolds may find himself Starting Over in a new home.

As Real Estate Market Continues To Struggle, A Ray Of Sunshine Emerges From, Of All Places, Florida

by:  Peter J. Gallagher

The most recent Case-Shiller index suggests that home prices ticked up in May ("U.S. Housing Prices Rise Slightly, But Remain Weak").  While this might sound like good news, experts were hardly celebrating.  Most attributed the rise in the composite index to "seasonal factors" (i.e., demand is typically strongest in the Spring) and pointed to other negative signs – "contract cancellations, tightened lending standards and sales of new homes in June" — as better examples of the overall health of the market. 

Against this grim news comes surpisingly good news from the usually bad news rich housing market of Florida.  In "Affluent Buyers Reviving Market For Miami Homes," the New York Times notes that sales in Miami, particularly on higher end properties, are up more than 16%, with more than two-thirds of those sales being all cash deals.  While this revival is obviously limited to the wealthy, it is at the very least a small ray of hope in an otherwise downtrodden real estate market.

Surprise! You Don’t Have To Pay As Much As You Thought On That Mortgage

by:  Peter J. Gallagher

Last week, Bank of America agreed to a multi-billion dollar settlement with upset investors who had purchased securities comprised of subprime mortgages originated by Countrywide Financial (which Bank of America acquired in 2008) and serviced by Bank of America ("Bank Of America Settles Claims Stemming From Mortgage Crisis").  Among other things, the investors claim that that Countrywide "created securities from mortgages originated with little, if any, proof of assets or income," and that Bank of America then "failed to heed pleas for help from homeowners teetering on the brink of foreclosure."  While the settlement still needs to be approved by a judge, and has already run into some opposition ("Investors Challenge Bank Of America Settlement" and "Bank Of America's Proposed Mortgage Debt Settlement Criticized"), it was generally seen as the first major concession by a bank in connection with its role in the mortgage meltdown

On the heels of this settlement comes news that Bank of America (along with JPMorgan and a few other lenders) is also taking a more proactive approach with homeowners who are not even in default.  As the New York Times reports in its article, "Big Banks Easing Terms On Loans Deemed As Risks," the banks are "quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk."  The article tells the story of Rula Diosmas, a Florida (of course) woman who had $150,000 shaved off of the mortgage of her Miami condominium by JPMorgan even though she did not request a modification and was not in default.  The bank explained its reasoning as follows:

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

. . .

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

. . .

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm [a spokesman for Bank of America] said.

The banks' efforts have not come without some critism, however, including the claim that the banks are behaving in "contradictory and often maddening ways" — showing concern for those who might get in trouble while at the same time being punished by regulators for doing a poor job modifying mortgages that are already in default.

Lengthy Prison Sentence Affirmed For Former Florida Beekeeper Of The Year Turned Mortgage Fraud Kingpin

by: Peter J. Gallagher

A federal appeals court recently affirmed the 28-year prison sentence doled out to Phillip Hill, a Georgia man convicted of mortgage fraud who was once named the beekeeper of the year in the state of Florida (proving once again that all things foreclosure have some connection to the Sunshine State).  The Atlanta Journal Constitution reported on the story in an article entitled "Convictions Upheld In Massive Mortgage Fraud Scheme" (h/t How Appealing).  The government described Hill as the leader and kingpin of a scheme, pursuant to which Hill and his associates "fraudulently obtained 300 mortgage-backed loans for buyers who used the loans to buy properties [from Hill] at more than market value."  Hill and eight of his partners in crime — who were also hit with lengthy prison sentences — pocketed approximately $22 million dollars in ill gotten gains through the scheme from 2000 to 2003.  

The U.S. Court of Appeals for the Eleventh Circuit put an unusually personal spin on Hill and his scheme, when it began its opinion as follows:

When Phillip Hill was a young man growing up the small town of Sumatra, Florida he helped tend his grandfather’s beehives. He would, as his lawyer would later tell the jury, “get the honey out of the hives.” And he was good at what he did, being named “Florida beekeeper of the year” when he was twenty years old.  Three decades later, Hill got involved in the busy hive of Atlanta’s high-end residential real estate market. His goal was still to get out as much honey as he could.

Leaving no pun unturned, the court later noted that almost all of the loans entered into by Hill and his band of thieves went into default, "causing lenders and guarantors to be stung with over $38 million in losses."

The Latest Wave In The Foreclosure Crisis? Another Bank Branch Foreclosed Upon By Borrower

by:  Peter J. Gallagher

Several weeks ago, we brought you the story of a Philadelphia man who foreclosed on his local Wells Fargo branch ("Turning The Tables: Philadelphia Man Forecloses On Wells Fargo Branch") after the bank failed to pay a judgment the man obtained against the bank for violating the Real Estate Settlement Procedures Act.  The bank eventually paid.  Well, now it has happened again. 

In Florida, which should just change its name to the "Foreclosure State" at this point, a couple recently received a foreclosure complaint from Bank of America.  Nothing too strange in this day and age, except that the couple had paid for their home in full and in cash when they purchased it.   As the Naples News reported — in the cleverly titled "Tables Turned, Bank Pays Up In Mistaken Foreclosure Case" — the homeowners were forced to hire a lawyer, who spent weeks on the phone and in court before the case was dismissed, costing the homeowners $2,500 in legal fees.  The court ordered the bank to pay these fees, but after five more months of phone calls, neither the bank nor its local counsel had paid.

This is where the story gets interesting.  The homeowners' lawyer obtained a writ of execution from the local sheriff in connection with the debt and took it with him — along with local media, sheriff's officers, and a moving van — to a local Bank of America branch and demanded payment or the branch would start losing furniture, money in the cash drawers, and any other assets needed to satisfy the debt.  Not surprisingly, the branch manager quickly cut a check to the couple for the outstanding amount.  In a written statement, Bank of America apologized to the homeowners and did the only thing it could do, blame the law firm that had been representing the company, which has since gone out of business, for failing to respond to the homeowners' requests.

The Latest Problem With Foreclosures: Not Enough Lawyers?

 by:  Peter J. Gallagher

It is rare that you hear that the world needs more lawyers, yet this is apparently the case in connection with foreclosure proceedings in some states, at least according to a recent article in the Washington Post, "Foreclosures Trapped By A Lack of Lawyers." In the wake of the recent "robo signer" scandal, many lenders fired any law firm that had been representing them that was allegedly implicated in the scandal.  The problem is that these lenders have been slow to hire new counsel, and even when they have found replacements, it is taking  their new lawyers some time to get up to speed on the files.  These delays have created chaos in the courts because, as one defense lawyer noted, "nobody knows who's representing whom." 

Not surprisingly, the article focuses on Florida, which has been at the center of the foreclosure crisis since the start.  (You may be surprised to learn, however, that Florida is one of only 23 states that requires foreclosures to be processed through the courts.  New Jersey has a similar requirement.)  One firm, which had previously handled nearly 20% of the foreclosures in the entire state, has indicated that it is unable to file the necessary paperwork to withdraw from the 100,000 cases it is handling.  Other firms have refused to release files to their now former bank clients because they allege that they are owed millions of dollars in fees for work already performed.  (See here for an article reporting on a lawsuit between Chase and one of its former law firms over the return of foreclosure files.)  Even when these cases are reassigned, it will no doubt take weeks, if not months, for new counsel to make sense of the files they have inherited.  While this process plays out, borrowers are left in limbo, with nobody to communicate with regarding their lawsuits or any ongoing efforts to resolve them.  The chaos that this situation created led the Chief Judge in Palm Beach County to begin convening special hearings to reassign hundreds of foreclosure cases per day until the backlog is cleared, and to dismiss any cases where nobody appears on behalf of the banks.