Questionable Arizona Mortgage Practices Lead to More Lawsuits
Dozens of lawsuits alleging the gamut of home loan fraud, from cash-back deals to lying about income on loan documents, have been filed against Arizona mortgage firms and individuals during the past few months, the Arizona Republic reports.
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 may involve getting a Phoenix home loan for more than a home is worth and pocketing the extra money.
The deals inflate home values and leave the mortgage lender with losses from loans worth far more than the house itself.
“Banks are going to start forcing mortgage brokers to buy back these bad loans, and mortgage brokers don’t have the money so they are going to go under,” said Richard Hagar, a national mortgage and real estate fraud expert with American Home Appraisals based in the Seattle area.
“This is the beginning of the wave of lawsuits, lost licenses and criminal indictments in Arizona.”
Among 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 appraisal company 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 homes 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 then 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 those rules when it handled the Arizona mortgage loans 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 a number of violations, including a branch manager making false promises or concealing facts in 10 fraudulent loan transactions.
“This mortgage fraud, particularly cash-back deals, is a big problem,” said Felecia Rotellini 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.”
Follow the link to continue reading this article in the Arizona Republic …