Fraud and Forgery browsing by tag


Equal Rights

Saturday, January 7th, 2012

Fraud victims compete for priority.

SOUTH GATE, CA–On Thursday, August 28, 2008, Ms. Kyung Ha Chung gave a deed of trust against her property on Roosevelt Avenue. It all went so smoothly she repeated the process that day, eventually signing six deeds of trust against the same property, in favor of six different lenders and witnessed by six different notaries.

The property in question, or 'modus operandi'

The next day, August 29, Ms. Chung signed a seventh deed of trust. Each lender believed it had a first mortgage. All told, the seven deeds of trust secured loans totalling $1,827,500. The property was worth maybe $300,000.

Of the seven deeds of trust, the first three submitted for recording were received by the Los Angeles County Recorder’s office in batches from different title companies around 6:00 a.m. on September 4, 2008. One was in favor of First Bank, another in favor of East West Bank, and another in favor of Flagstar Bank.

The L.A. County Recorder’s office processes thousands of documents each business day. Once received, each document is referred to an examiner to make sure it’s suitable for recording, and then to a cashier to collect applicable fees. If accepted the document is stamped with a recording date and time, and an instrument number. It is later indexed and becomes part of the official land records.

All three deeds of trust were accepted and stamped as recorded on September 4, 2008. As is done in most California counties, the Recorder gave the documents an 8:00 a.m. time stamp because they were deposited before office hours. The East West deed of trust was indexed before the others, at 11:26 a.m. that day.

Los Angeles County Registrar-Recorder/County Clerk's building at Norwalk, California. This is the Recorder's main office; there are five branch offices

It should come as no surprise that all seven loans defaulted, and the lenders discovered they’d been scammed. Some commenced foreclosure, and a dispute arose as to which lender had priority.

Eventually, First Bank filed suit for a court order that the three deeds of trust should have equal priority because they share the earliest recording date and time. But East West opposed the suit, claiming it alone should have priority because its deed of trust was indexed before the others.

The trial court ruled in favor of First Bank, and East West appealed.

The Court of Appeals affirmed the trial court, based on California’s “law of priorities.”

The Court explained that, under state recording laws, priority of interests in land depends on a combination of factors. One gains priority by (a) acquiring an interest as a bona fide purchaser, for valuable consideration, without actual or constructive notice of (b) a previously created competing interest of another party, and (c) being first to record his interest in the land records. This is commonly known as a “race-notice” system, to be distinguished from “pure race” rule giving priority to the first to record.

In this case the Court deferred to the Recorder’s administrative system of assigning recording dates and times, and said the First Bank and East West deeds of trust were recorded “simultaneously” at 8:00 a.m. on September 4. Indexing, the Court said, is a separate function done not to affect recording times but instead to impart constructive notice. Since “both trust deeds were executed on the same day and are deemed recorded simultaneously,” and neither lender had notice of a competing interest, the Court concluded the deeds of trust have “equal priority.”

Moral: This decision gives a good explanation of California’s race-notice recording laws, and is a case study of how the rules apply. Flagstar Bank did not participate in the appeal, due to some procedural issue, but it should benefit by this decision.

What’s curious is how the scammer was able to pull this off. Most lenders and title companies now have systems to detect redundant loan applications and open title orders involving a single property. This plot should have been foiled before the loans funded.

And what do we know of Kyung Ha Chung? It’s possible she was an impostor, using an alias or stolen identity–although the Court seems to believe otherwise.

The case is First Bank v. East West Bank, 199 Cal.App.4th 1309 (Cal. App. 2011).

Mortgages and Deeds / A Contested Deed

Saturday, April 2nd, 2011

It comes to this: Is the deed void, or merely voidable?

LOS ANGELES, CA–Back in the day this two unit income property in South Los Angeles was owned by David and Florence Sims. The couple lived next door.

Back in the day: The Simses' income property

David and Florence did some estate planning and, in September 1991, they created the Sims Family Trust to hold title to their residence and income property. With the trust agreement, the Simses directed that upon their deaths the residence would be gifted to Florence’s daughter, Shirley, and the income property would go to David’s daughter, Yvonne.

David died and, as alleged in court filings, shortly after his death Florence began to show signs of dementia. She was then 86. As her condition deteriorated, Florence came to rely on her granddaughter, Sheron, to help her with medical decisions.

By December 2001, Florence was diagnosed with paranoia, hallucinations, and dementia. She signed a Power of Attorney giving Sheron authority over her health care decisions.

Florence died April 7, 2003.

Later, in November 2003, there were recorded two grant deeds purportedly signed by Florence conveying the residence and income property to Sheron. The deeds were dated and notarized as of January 2, 2002.

Sheron proceeded to refinance the properties, taking subsantial cash “out.” The income property was last refinanced in 2006, when Sheron gave Washington Mutual a deed of trust for $440,000.

By early 2008 Sheron was in default on her loans, and in April 2008 foreclosure notices were posted on both properties.

By this time David’s daughter, Yvonne, and her husband James had opened separate probates for the estates of David and Florence. They were in possession of the properties, and were surprised by the foreclosure notices. Apparently, Sheron had made payments without anyone knowing, until she ran out of money.

Yvonne and James filed complaints to invalidate the newly-discovered deeds of trust. As to the income property, they claimed the Washington Mutual deed of trust is invalid because (a) Sheron may have forged Florence’s signature on the deed giving the property to Sheron, (b) if Florence did in fact sign the deed, she lacked mental capacity to understand what she was doing, and/or (c) if Florence did sign, she lacked capacity to understand the nature and effect of the deed.

Washington Mutual (now known as J.P. Morgan) defended the deed of trust arguing the lender relied on the Florence-to-Sheron deed in good faith and, therefore, it is entitled to favored status as a bona fide encumbrancer.

The trial court ruled in favor of the lender, and dismissed the complaint. The court reasoned the deed may be voidable, but it could not be void because, at the time its loan was made, the deed appeared in county land records and the lender had no reason to question it. Plaintiffs Yvonne and James appealed.

The Ronald Reagan State Building at Los Angeles, home to the Court of Appeal

The Court of Appeal reversed, holding the deed would be void if any of the three grounds alleged by plaintiffs can be proven. “Generally,” the Court explained, “a deed is void if the grantor’s signature is forged or if the grantor is unaware of the nature of what he or she is signing. A voidable deed, on the other hand, is one where the grantor is aware of what he or she is executing, but has been induced to do so through fraudulent misrepresentations.”

And, said the Court, a deed which is “wholly void” cannot ordinarily provide a foundation for good title even in the hands of a bona fide purchaser or encumbrancer.

With that, the case was remanded for trial of plaintiffs’ allegations.

Moral: This decision will not be published in the official reports, because it’s based on established law, but it shows how land records are viewed (void vs. voidable) in a deed contest.

The outcome here will likely turn on medical opinion and testimony of those around Florence in her final years.

The risk of forgery or a void instrument in the chain of title is commonly covered by title insurance.

The (unpublished) case is reported as Casonhua v. Washington Mutual Bank, 2010 WL 4193214 (Cal. App. 2 Dist.).

Mortgages and Deeds / Larceny, Inc.

Saturday, March 19th, 2011

Can a phony deed pass good title?

BALTIMORE, MD–When she bought this row house in December 2005, Cateania Matthews stepped into legal Adventureland.

The Matthews house, right

The seller was Scotch Bonnett Realty Corporation. Scotch Bonnett was formed in 2003 by Emora Horton and Sandra Denton, then husband and wife, to buy and sell real estate. The business was to be financed with Denton’s earnings as a recording artist. Articles of incorporation were filed, naming Denton as initial sole director.

By the end of 2003 Horton and Denton were divorced, and the incorporation of Scotch Bonnett stalled. There were no by-laws, no minute book, and no officers. The only contact person of record was Richard Hackerman, an attorney who signed the articles of incorporation and was named as “resident agent.”

Following the divorce, Horton and Denton continued to do business as “Scotch Bonnett.”

Through Horton, Denton was introduced to Corey Johnson. Later, in September 2005, there was filed with the state an amendment of Scotch Bonnett’s articles of incorporation. The amendment stated “Corey Johnson is to be added as an officer of the Company.” The amendment was purportedly signed by “Richard Hackerman, President,” but Hackerman would later say this was a forgery and he had never been president of Scotch Bonnett.

Now back to Ms. Matthews. When she bought the house (December 2005) she got a deed from Scotch Bonnett signed by “Corey Johnson (Officer).” But none of the sale proceeds found their way into a Scotch Bonnett bank account, and Denton later denied Johnson’s authority to sell the property.

Scotch Bonnett filed suit against Matthews and her purchase money mortgage lender, to quiet title. When Matthews filed a Chapter 13 bankruptcy, the quiet title suit was re-filed in the bankruptcy court.

The settlement officer who handled the Matthews purchase testified in bankruptcy court. She said she relied on state filings to confirm Johnson’s authority to act on behalf of the corporation, and had no reason to suspect the amendment to articles of incorporation was a forgery. There was no suggestion that Matthews or her lender were anything other than innocent victims.

The bankruptcy court framed the question as follows: “Does the use of a deed that is neither a forged document, nor signed with a forged signature, but which derives its transactional validity from forged corporate articles of amendment, render a conveyance of land void ab initio, or, is good title transferred to bona fide purchasers for value without notice (of the fraud)?”

The bankruptcy court certified the question to the Maryland Court of Appeals (the state’s highest court), for an advisory opinion.

The Robert C. Murphy Courts of Appeal Building, home to Maryland's high court, at Annapolis

The Court of Appeals answered that the fraudulent deed could convey good title to a bona fide purchaser, because the deed itself was not a forgery.

The Court explained that a deed bearing a false signature is a forgery, and under the common law “forgery rule” a forged deed is null and void, at inception. On the other hand, a deed with a genuine signature but based on false authority is merely voidable, by court action. Just as any deed tainted by fraud, duress or undue influence may be voidable, but not void.

In declining to follow the forgery rule here, the Court cited “strong public policy favoring bona fide purchasers.” An expansion of the rule, the Court said, “would turn into a jury question whether fraud in the inducement voided a deed ab initio and destabilize predictability of result for bona fide purchasers for value.”

Moral: The distinction between a deed that is void, as opposed to one that’s voidable, is crucial to maintaining the legal protection for a bona fide purchaser. This protection promotes predictable outcomes for real estate transactions, and certainty in land records.

Still, the result here is stunning. A stranger to title (signing as Corey Johnson), without authority to act on behalf of Scotch Bonnett, has deeded away its property.

Title insurance typically covers many types of fraud risk, other than fraud by the insured.

The case is reported as Scotch Bonnett Realty Corporation v. Matthews, 417 Md. 570, 11 A.3d 801 (2011).

Land Records / Sham Recordings

Monday, December 13th, 2010

Who’s responsible for public records?

Amador County lies west of the Sierra Nevada mountains, in California’s historic Gold Rush territory.

Here in the small town of Ione, Jewel Jackson owned two rental homes.

One of Ms. Jackson's rentals

In March 2007, while she was living in Texas, Ms. Jackson’s brother Willie B. Norton determined to take control of her properties without her knowledge. To this end, Norton crafted a power of attorney purporting to appoint himself as Ms. Jackson’s attorney in fact to conduct real estate transactions on her behalf.

This was amateur hour. Norton alone signed the power of attorney form, before getting it notarized and recorded. Then he signed two quitclaim deeds transfering the properties to himself, and likewise had them notarized and recorded. When the paperwork was done, he evicted Ms. Jackson’s tenants.

Crime as inartful as this did not fool the authorities. Norton was prosecuted, and he pleaded guilty.

In the meantime, Ms. Jackson’s loss of rental income caused her to miss mortgage payments and the properties were lost to foreclosure.

Amador County Courthouse, at Jackson, California

So it happened that Ms. Jackson sued the County for negligently recording the sham documents. She argued the power of attorney was obviously bogus, since it wasn’t signed by the person supposedly granting the power. As such, it should not have been accepted by the recorder’s office and should not have appeared in the land records.

In its defense, the County said the documents were “recordable,” since they were on required sized paper (81/2 x 11), were legible, and were notarized.

The trial court agreed with the County, and Ms. Jackson appealed.

The Court of Appeals also sided with the County, saying the recorder was, in fact, legally required to record these documents because they were in proper format. Likewise, the Court said, the recorder is not responsible for legal sufficiency of recorded documents, and to hold otherwise “would place a county recorder’s office in the untenable position of requiring its employees to in effect practice law.”

Moral: Aside from the limited protection of notary laws, no one really vouches for validity of what gets into public land records.

Title insurance covers a multitude of risks for owners and lenders, and policies offered in some markets may in fact cover post-policy forgery. It’s a good idea to know your insurance coverage, before and after investing in real property.

The case is Jackson v. County of Amador, 186 Cal.App.4th 514 (Cal. App. 2010).

Mortgage Fraud / Gaming the System

Saturday, November 20th, 2010

Little lies with big consequences.

MIAMI, FL–Yvette Valdes was a mortgage broker, doing business as “Best Mortgage Choice” in Homestead, Florida.

Like other mortgage brokers Valdes relied on large financial institutions, so-called “warehouse lenders,” to finance her loans. Typically, a warehouse lender wires funds direct to an escrow or loan closer, acquires the loan through closing, and re-sells the loan in the secondary mortgage market where it is packaged, or “securitized,” for investment offerings (mainly bonds).

10802 SW 244th Terrace

This business model relies on guidelines and ratings to assure investment quality. Among the critical guidelines, for a prime quality loan, is a requirement that the borrower have equity in the real property security. Thus, a loan equal to 90% of property value is rated more secure than a 100% loan. Likewise, a buyer making a 10% down payment is deemed a better risk than one with no “earnest money.”

Which explains why faking this stuff is a big deal.

Two weeks ago, Yvette Valdes pleaded guilty to federal criminal charges related to mortgages she originated against two residential properties in Miami. Also pleading guilty were her daughter Jeannine Valdes-Perez, her brother Joseph Gonzalez, son-in-law Victor Perez, and a hapless escrow officer named Catherine Maiz. All five pled to one count of conspiracy to commit wire fraud, while Valdez-Perez also pled to an additional count of wire fraud.

According to court filings, Valdes conspired with the other defendants to acquire properties at 10802 SW 244th Terrace (the “10802 Property”) and 21012 SW 122nd Court (the “21012 Property”), under false pretenses.

Prosecutors dubbed this the "21012 Property"

For the 10802 Property, Valdes arranged for her son-in-law, Perez, to submit a loan application falsifying his employment, income, and cash on hand for a down payment. Valdes then enlisted the escrow officer, Maiz, to send a letter to the warehouse lender, Argent Mortgage, saying the title company was holding $17,000 received from Perez. The statement was false. Relying on false information Argent approved the loan and wired $337,808 to fund the closing. The loan defaulted, causing “substantial loss” to Argent.

For the 21012 Property, Valdes again arranged for Perez to submit a loan application with false information, including a statement he would occupy the property as his residence. This time, Valdes instructed Maiz to create a false settlement statement (HUD-1 form) misrepresenting the source and amount of funds handled through escrow. Mainly, the HUD-1 showed $26,321 as deposited by Perez toward closing. In fact, Maiz held only a “fake” check which, following instructions from Valdes, she did not attempt to deposit. Relying on phony documentation, JPMorgan Chase wired $246,646 to fund the closing. Unbeknownst to JPMorgan Chase, some $15,000 was diverted from loan proceeds to pay Perez for his cooperation as the “straw borrower.” This loan also defaulted, and JPMorgan Chase took a loss.

The Wilkie D. Ferguson, Jr., Federal Courthouse, Miami, Florida

Sentencing for all defendants is set for January 21, 2011. Each faces a maximum 30 years in federal prison.

Moral: As mortgage fraud goes, these are small cases. It appears the main motive was to create bad loans so Valdes, and others, could “earn” routine commissions and fees.

And this isn’t Valdes’s first brush with notoriety. In 2008, in a series titled “Borrowers Betrayed,” the Miami Herald named Yvette Valdes as a local mortgage broker who originated $22 million in loans approved by Orson Benn, a former executive with Argent Mortgage. According to the Herald, “nearly all of the (Valdes) mortgages contained false or misleading information.” Benn was charged with racketeering by Florida state prosecutors in 2008, and is serving an 18-year prison sentence.

Like counterfeit money, bad loans subvert the economy. Creating them is serious crime.

Postscript: In February 2011 each defendant was found guilty of one count of conspiracy to commit wire fraud. Valdes was sentenced to 33 months in prison, followed by three years’ supervised release, and ordered to pay restitution of $386,500; her daughter Valdes-Perez got 27 months, three years’ supervised release, and must pay restitution of $249,500; brother Gonzalez got 33 months, three years’ supervised release, and must pay restitution of $302,000; son-in-law Perez got 21 months, three years’ supervised release, and must pay restitution of $386,500; and, finally, escrow officer Maiz was credited for time served (nine months), plus five years’ supervised release, and must pay restitution of $337,000.

Foreclosure Rescue / Indictable Offenses

Saturday, November 6th, 2010

Suspicious dealings of a foreclosure rescue “expert.”

The first thing was to save her home.

It was 2008, and Karen Tappert was broke. Sometimes self-employed, but mainly unemployed, she couldn’t make the mortgage payment on her home in Bend, Oregon.

The Las Vegas property

Twice that year Tappert filed bankruptcy, but each case was dismissed when she failed to make court appearances and required payments.

In the meantime, Tappert studied debt elimination schemes being touted on the internet. She became convinced that debt, in particular mortgage debt, could legally be avoided using simple procedures and forms offered by the debt elimination “consultants.” The typical rationale behind these schemes was that the U.S. Federal Reserve system is unconstitutional, and loans funded with anything other than gold or silver can be avoided.

Soon Tappert began to offer her own services, and dubious legal forms, on the internet and by word of mouth. One blog boasted, “Karen has over 100 SUCCESSES around the country and WITHOUT having to use the courts!”

But last June the “Karen Tappert Method” came into question, when Tappert was indicted by a federal grand jury in Las Vegas and charged with multiple counts of mail and wire fraud. Here are some highlights from the criminal indictment.

The "rental" in Farmington, New Mexico

Count 3: The owner of property at 1601 Imperial Cup Dr., Las Vegas, NV, was behind in payments and faced foreclosure. Tappert offered to rescue the property for $1,800. The owner declined, but signed a quitclaim deed to an entity controlled by Tappert, known as “Amari Group.” Later, the property was foreclosed and acquired by Federal National Mortgage Association (a/k/a “Fannie Mae”). Tappert caused a fraudulent deed to be recorded, purportedly conveying the property from Fannie Mae to Amari Group. Tappert signed this deed on behalf of Fannie Mae.

Count 5: Property at 612 Diamond St., Farmington, NM, was foreclosed and acquired by Deutsche Bank National Trust Company, as trustee for investors in a mortgage-backed security that included the foreclosed mortgage. Tappert caused a fraudulent deed to be recorded, purportedly conveying the property from Deutsche Bank to an entity controlled by Tappert, known as “Saraland Investments.” Tappert notarized the bogus deed. Then Tappert rented out the property pocketing $4,050.

Corona, California: A million-dollar property "sold" for $490,000

Count 6: Property at 675 Gregory Circle, Corona, CA, was in the midst of non-judicial foreclosure. The foreclosure sale had been postponed, several times, when a fraudulent “Trustee’s Deed Upon Sale” was recorded. This trustee’s deed purportedly evidenced a foreclosure sale to an entity controlled by Tappert, known as “Northwest Properties Associates, Asset-Backed Certificates, Series 2006-FF1.” Days later, the property was sold by Northwest Property Associates for $490,000. The sale deed was signed by Tappert, on behalf of Northwest Property Associates.

Tappert has entered pleas of not guilty, and she awaits trial.

Moral: Karen Tappert is presumed innocent until proved otherwise. But if a defense to these charges will be that the Fed’s unconstitutional, and the money’s no good, she should know that others betting on this defense have gone to prison.

Postscript: In July 2011 Karen Tappert pleaded guilty to two counts of mail fraud and four counts of wire fraud. In January 2012 Tappert was sentenced to 97 months in prison, followed by three years supervised release, and ordered to pay restitution of $3,643,259.

For Love or Money

Monday, March 29th, 2010

A family tragedy; then came forgery.

GREAT FALLS, VA–With savings from their contracting business, Wu-Hung and Yeh-Mei Chen came to America.

The plan was to save their sons, Raymond and Edward, from Taiwan’s mandatory military service, and give them a better life. Once here the family settled in this suburb of Washington, DC.

Coming to America: The Chen family home

The Chens bought an upscale home on two acres, and invested in four other residential properties.  Raymond, the eldest son, went to college and majored in business so he could manage the family holdings.

But the family plan began to unravel when young Edward fell in love with Mandy, a high-school dropout and teenage mom.  His mother objected–this was not the “nice Chinese girl” she wanted for her son.

Yeh-Mei was hurt and angry, and she badgered Edward to stop seeing Mandy.  Edward fought with her, and there were heated family arguments.  Finally, the stress Edward was feeling became unbearable.  He bought a 30-30 Winchester rifle at K-Mart, and shot his mother, father and brother in their beds.

Edward told Mandy they could now be together.  He told neighbors and relatives back in Taiwan that his parents and brother had died in an auto accident.  He locked up the house, with the victims still inside, and moved in with Mandy.

Edward Chen

Edward Chen

Mandy got pregnant and Edward married her.  Soon they had a new baby daughter.

Edward lived off rental incomes for a while, but with expensive tastes and mounting bills decided to start selling the family properties.

All of the Chen properties were held in a family trust, with Raymond Chen appointed as trustee.  Edward got a new driver’s license with his photo and Raymond’s name.

Edward went about selling the properties, impersonating his dead brother.  Edward and Mandy divorced.

The family home was the last to be sold.  It was now more than four years since the killings, and the victims had yet to be removed.  But while it sat vacant, a water pipe had failed and flooded much of the house.  Floors, walls and carpeting were damaged or ruined.  There was mold.

Edward cleaned up the blood stains, and ditched his victims’ bodies in Chesapeake Bay.  He offered the house “as is” at a big discount.

A young couple bought the house, and rehabilitated it from top to bottom.

Wei-Meh Chen

Yeh Mei Chen

Edward got a new girlfriend and they began to live together.  In an unguarded moment, he told the girlfriend that he’d killed his parents and brother.  The girlfriend saw danger, and went to the police.

The police interviewed Mandy, who also knew of the killings, and Edward was arrested.

As reported by the Washington Post, Edward was surprised to be arrested and he made a taped confession.  But when the confession was thrown out, as Edward had not been read his Miranda rights, Fairfax County prosecutors became worried about their case.  They had no murder weapon, and couldn’t find the victims’ remains.  All they had to go on were statements of an ex-wife and former girlfriend.

Edward eventually took a plea bargain.  He was convicted of three counts of first degree murder, and sentenced to 36 years in prison.  He was 27 years old.

But now buyers of the five Chen properties had big problems.  They realized deeds they got from “Raymond Chen,” as trustee of the family trust, were forgeries.  The deeds were void, and ownership of the properties remained in the trust.

The trust, it turned out, had as beneficiaries the father, mother, and their “descendants.”  Upon death of the parents and all descendants, trust assets would be given to a hospital in Taiwan.

So here’s the deal:  After the killings the only “descendant” was Edward–his daughter would be born two years later.  But the law says that a killer can’t benefit from the death of his victim (the so-called “Slayer’s Rule”), so Edward could not inherit the trust assets.  But what about Edward’s daughter, was her inheritance also barred by the Slayer’s Rule? And, if so, were the buyers of the five Chen properties now guests of the hospital in Taiwan?

For these buyers, this was the proverbial riddle wrapped in an enigma….  What to do???

The buyers had title insurance, and title companies paid for lawsuits to quiet title.  A legal guardian was appointed for Edward’s minor daughter.  In time the hospital released its claims.  Title companies contributed to a $1.2 million settlement with the daughter, and five titles were confirmed by court order.  The buyers got to watch new deeds get recorded in Fairfax County land records.

Case(s) closed.

Moral:  The risk of identity theft, impersonation, forgery–whatever you choose to call it–can be covered by title insurance.