State Attorneys General have forced five giant mortgage firms to shell out $25 billion to settle claims of “robo-signing” and other foreclosure abuses — but putting anyone in jail has proven to be a much more difficult proposition.

In one of only two robo-signing prosecutions nationwide, a judge last week threw out the entire case, including more than 100 felony counts each against Gary Trafford and Geraldine Sheppard of Orange County.

The Californians had worked as title officers for Lender Processing Services, a giant firm that helps banks and mortgage servicers generate legal documents.
A mortgage task force assembled by Nevada Atty. Gen. Catherine Cortez Masto had accused Trafford and Sheppard of directing the fraudulent notarization and filing of notices of default, the paperwork used to start foreclosures, on delinquent Las Vegas-area borrowers.

But Clark County District Court Judge Carolyn Ellsworth ruled last week that prosecutors committed misconduct in their presentations to the grand jury that indicted Trafford and Sheppard in November 2011. The missteps included providing “irrelevant and highly inflammatory evidence” about how the evictions affected the homeowners, the judge said.

The dismissal stands in contrast to the outcome of the second robo-signing prosecution. In that case, Lorraine Brown, founder of DocX, a former Lender Processing Services subsidiary, pleaded guilty to a federal conspiracy charge in Jacksonville and to Missouri state charges of forgery and falsifying documents.

Brown faces a federal sentence of up to five years in prison and a Missouri sentence of at least two years, a spokeswoman for the Missouri attorney general said.

The sentences, to be imposed next month, would run concurrently.

Lender Processing Services Inc. (LPS) agreed to pay $35 million to resolve criminal fraud violations involving fraudulently signed and notarized mortgage documents, the Justice Department announced last week.

LPS entered into a non-prosecution agreement with the department and the U.S. Attorney’s Office for the Middle District of Florida. Through the settlement, LPS announced it will pay $20 million to the United States Marshals Service and $15 million to Treasury.

The agreement also requires the company to meet a series of other conditions.

The department stated LPS has already taken a number of remedial actions to address the misconduct at DocX, a wholly owned subsidiary of LPS, and has wound down all the subsidiary’s operations and re-executed and re-filed mortgage assignments as necessary.

The settlement also follows guilty pleas from Lorraine Brown, the former CEO/president of DocX. In November, Brown pled guilty to conspiracy to commit mail and wire fraud in federal court in Florida and entered a plea deal in Missouri. Michigan attorney general Bill Schuette also brought charges against Brown and recently announced the former CEO pled guilty to racketeering.

The Justice Department statement explained that over a 6-year period ending in 2009, employees of DocX falsified signatures on mortgage-related documents. Brown and others at DocX were accused of directing authorized signers to allow unauthorized staff to sign and have documents notarized in order to increase profits.

The announcement follows a $127 million multistate settlement in January to resolve “robo-signing” allegations.

Three people face charges for their role in an alleged fraud scheme by using the Internet to target struggling homeowners in Northern California.

Ronald Cupp, 58, of Santa Rosa, Randall Heyden, 69, of San Rafael and Angelle Wertz, 38, also of Santa Rosa were arrested on 57 charges including theft, forgery, notary fraud and recording of false documents, Attorney General Kamala Harris announced on Monday.

The three are accused of luring the homeowners through six websites, including “wekillyourmortgage.com” and collected thousands of dollars in upfront fees ranging from $1,000 to $10,000.

The scam ran through Cupp’s mortgage company—North Bay Trust Services—the three created fraudulent documents that only delayed a homeowner’s foreclosure, but did not satisfy the preexisting mortgage debt to the original lender.

“Vulnerable California homeowners thought they were working to save their homes but were actually the victims of a fraudulent scheme,” Harris said in a statement. “Today, it’s not enough to dismantle the brick-and-mortar aspect of a criminal operation; we need to shut down criminal operations in cyberspace as well.”

Prosecutors in Marin and Sonoma counties received a tip about the scam, said Nick Pacillo, a spokesman at the AG’s office. It is not known how many people have been victimized as state prosecutors are hoping more will come forward.

Cupp, Heyden and Wertz did not enter pleas during their appearance in Sonoma County Superior Court on Monday. Cupp and Heyden are being held in the Sonoma County jail on $500,000 and $75,000 bail, respectively.

A federal jury found Hoda Samuel, 60, of Elk Grove, CA guilty of a conspiracy to commit mortgage fraud.

After a 10-day trial in Sacramento, Samuel was found guilty on 30 individual counts of mail fraud.

Samuel, a licensed real estate broker and owner of Liberty Real Estate & Investment Co., served as a real estate broker for 30 transactions which defrauded lending institutions, according to court documents.

Court records showed Samuel’s conspirators and employees at Liberty Mortgage prepared loan applications with false financial information. When lenders called to verify information, they got Liberty employees who verified the false information.

In about half of the transactions, Samuel also served as the seller’s representative. In all but one of the transactions, she secured financing for the buyer.

At least 28 of the properties went into foreclosure, representing a loss to lenders of more than $5.5 million, according to court records.

Samuel is scheduled to be sentenced April 30.

Editor’s Note: It has come to RE-Insider’s attention that this lawsuit was originally filed in June of 2012 and dismissed in September of last year. RE-Insider apologizes for the confusion. We do, however, still feel that this lawsuit is an important discussion topic for agents and brokers and we will continue to seek clarification on the issue of liability.

Just as RE-Insider predicted when the HUD settlement came out earlier this month, angry homeowners have filed a federal consumer fraud class action lawsuit against Fidelity National Title Insurance and other major title insurers alleging the companies kicked back fees to real estate agents for real estate settlement services.

This class action suit comes on the heels of Fidelity agreeing to pay a $1.25M settlement to the state of California for alleged RESPA kickbacks violations after a previous case that led to a 2011 settlement where Fidelity agreed to pay the federal government $4.5M for the same violations.

According to the lawsuit, lead plaintiff Matthias Hildebrandt claims Fidelity National Financial Inc. settled with the U.S. government in 2011 for violating the Real Estate Settlement Procedures Act (RESPA). RESPA protects homebuyers by prohibiting kickbacks and fees for real estate settlement services in federal backed mortgage loans.

Fidelity paid predetermined fees for each referral, but real estate agents and brokers “performed no bona fide work for the fees,” according to the lawsuit. “In short, the scheme allowed defendants and participating real estate agents and brokers to camouflage illegal kickbacks and referral fees as sub-license payments.”

The new lawsuit alleges that Fidelity ran the scheme through their web-based platform TransactionPoint, which “allowed kickbacks and referral fees to be disguised as ‘sublicense fees’ or ‘access fees.’”

The class alleges Fidelity paid millions of dollars in kickbacks and referral fees, to “hundreds, if not thousands” of real estate agents and brokers.

Also named as defendants are Commonwealth Land Title Co., Chicago Title Co., Ticor Title Co. of California, Lawyers Title Co., Fidelity National Disclosure Source LLC, and Fidelity National Home Warranty Co. The class is seeking restitution and damages for RESPA violations.

Agents should be concerned – will the liability end with Fidelity?

Re-Insider would love to hear your thoughts.

The CFPB recently released two new amendments to further protect consumers under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). These new rules will take effect in 2014, but it’s never too early to know what’s coming.

The new rules include:

1. Restrictions on dual tracking: Under the new rules, servicers cannot begin foreclosure proceedings against until payments are 120 days behind.

2. Pursuing modifications and other loss mitigation: The dual tracking restrictions give borrowers time to assess their situation and apply for a modification or other option that may be available to help. If a borrower applies within the 120-day window, the servicer cannot begin foreclosure until the application has been addressed. If the borrower and servicer come to an agreement on an option, the servicer cannot start foreclosure proceedings unless the buyer fails to uphold their end of the agreement.

3. A periodic statement for homeowners: This statement must come every billing cycle and covers basics including an explanation of the amount due, payment and transaction history, account information, and contact information for the servicer.

4. Early outreach when a borrower falls behind: If a borrower becomes delinquent, the servicer has to make a good faith effort to reach out. The servicer also has to assign people to each case and make those people available by phone as a clear and consistent point of contact.

5. Warnings before interest rate adjustments: The servicer must notify each borrower about the first interest rate adjustment at least seven months in advance of the first payment at the adjusted interest rate. The servicer has to provide an estimate of the new interest rate and payment amount, available alternatives and instructions on how to access a HUD-approved mortgage counselor.

6. Good information and good records: Servicers must provide correct information about mortgage loans, whether to a borrower, an investor, or a court during foreclosure.

7. Crediting payments in a timely manner: The servicer must credit full payments to each account on the day they are received.

8. Error resolution: The servicer must reply to all borrower-notified errors in a timely manner. The new rules set timelines and procedures for servicers to investigate and correct errors.

9. Force-placed insurance: Servicers are prohibited from charging a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices.