FORECLOSURE RELATED PROSECUTION BEGINNING
The man charged with orchestrating possibly one of the most notorious mortgage fraud schemes in U.S. history has been handed a 30-year prison sentence.
Lee Farkas, founder, chairman, and CEO of Taylor Bean & Whitaker (TBW), was told Thursday by U.S. District Judge Leonie M. Brinkema of Alexandria, Virginia, that his crimes merit three decades behind bars.
“I do not detect one bit of actual remorse,” Judge Brinkema told Farkas when she relayed the judgment. “You regret getting caught.”
Federal prosecutors had petitioned for a sentence of 385 years, 50 years minimum, to ensure Farkas spent the rest of his life behind bars, according to a filing with the Virginia court. They likened Farkas’ crimes to those of Bernie Madoff and former WorldCom Chairman Bernard Ebbers.
Six other co-conspirators of Farkas’, from both TBW and Colonial Bank, have pleaded guilty to federal charges of fraud. They’ve all been jailed by Brinkema, for terms ranging from three months to eight years.
A federal jury convicted Farkas on 14 counts of conspiracy, bank fraud, wire fraud, and securities fraud after two weeks of litigation in April.
Farkas took TBW from a small Florida brokerage in 1991 to one of the nation’s largest independent mortgage companies at the time of its collapse in 2009. From 2002 to 2009, his wheelings and dealings involved manufacturing fraudulent mortgages and securities.
The ripple effects of the $3 billion scheme were widespread. Not only was TBW itself shut down, but its fraudulent activities triggered the collapse of its wholly owned subsidiary Ocala Funding and warehouse lender Colonial Bank, put thousands of mortgage industry professionals out of work, and resulted in several billions of dollars in fraud losses for government-controlled agencies, including Freddie Mac and the Federal Housing Administration.
“During the housing and financial crisis, while many American taxpayers struggled just to keep their heads above water, Farkas lived in the lap of luxury using the more than $38 million that he stole from TBW and Colonial Bank,” said Christy L. Romero, acting special inspector general for the Troubled Asset Relief Program (TARP) in a statement issued Thursday.
“Farkas used the stolen money to buy a jet, expensive antique and collector cars including a Rolls Royce, and multiple vacation homes, all while masterminding a fraud of stunning scope,” Romero continued. “His fraud began to unravel when he tried to obtain TARP funds to fill the billions of dollars of holes at TBW and Colonial Bank.”
U.S. Assistant Attorney General Lanny A. Breuer added, “Lee Farkas’ boundless greed ultimately led not to a life of luxury, but to a prison cell.
Detroit-based Ally, a mortgage and auto lender, said in a Securities and Exchange Commission filing that it made payments of $152 million into a securitization trust during the second quarter to cover any losses related to mortgage insurance rescissions.
Ally said mortgage loan rescissions occur when mortgage insurers rescind a mortgage insurance contract after discovering misrepresentations were made during the securitization process. A rescission by a mortgage insurer essentially “triggers our obligation to repurchase the associated loans, or provide loss reimbursement to the securitization trust,” Ally wrote in a public filing.
The firm said it expects to record a $100 million charge in the second quarter.
In June, the Securities and Exchange Commission asked Ally to submit documents related to some of the bulk settlements it made with loan originators over bad loans packed into securitization trusts. In some of the agreements, Ally said it received compensation in lieu of having the mortgage originators repurchase bad loans.
The Justice Department submitted a separate subpoena. Ally describes their filing as “a broad request for documentation and other information in connection with its investigation of potential fraud related to the origination and/or underwriting of mortgage loans.”
Punish lenders for fraudulent paperwork?
TALLAHASSEE, Fla. – June 14, 2011 – The Florida Supreme Court could decide that lenders deserve punishment if they submit fraudulent paperwork in a foreclosure case. Lawyers filed initial briefs Monday on a closely watched case that could impact thousands of foreclosures in the state.
The core issue focuses on ownership of the mortgage. Thanks to complex financial instruments, the lender servicing the mortgage does not always have paperwork giving it the authority to foreclose; and in some cases, paperwork showing mortgage ownership has been pushed through with questionable signatures and research. Some homeowners question the paperwork as they fight foreclosure in court, saying the foreclosure should not go through because the lender cannot prove it owns the mortgage or has the owner’s permission to litigate.
If paperwork is questioned, however, a lender simply pulls the foreclosure suit. By doing so, it doesn’t have to prove in court whether the documents are valid. The lender then can refile the case later using different paperwork. However, that move essentially allows lenders to commit fraud before the court and get away with it, since lenders then routinely refile the foreclosure suit later using different documents, according to Palm Beach attorney Thomas Ice who represents the Palm Beach homeowner, Roman Pino.
The Florida case involves Pino and the Bank of New York Mellon. According to papers filed, Pino questioned the authenticity of the bank’s mortgage ownership papers and attempted to prove that some had been illegally backdated. As a result, the Bank of New York Mellon cancelled the foreclosure.
Two lower Florida courts sided with the Bank of New York Mellon, saying the point was moot since the foreclosure had been pulled. But appellate court Judge Mark Polen disagreed, and the case moved to the Florida Supreme Court for a final verdict because “many, many mortgage foreclosures appear tainted with suspect documents.”
“Decision-making in our courts depends on genuine, reliable evidence,” Polen wrote in his dissent. “The system cannot tolerate even an attempted use of fraudulent documents.”
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