What’s a MERS and who came up with this scam
more important how
do we as a nation stop these thieves
mortgage database benefits lenders, not borrowers, legal expert says. The
electronic database, called MERS, holds 60 percent of the nation's residential
Christopher L. Peterson, a consumer-rights
attorney and professor at the University of Utah's law school, was confused
when he first heard about the Mortgage Electronic Registration System, called
MERS, which was created by U.S. bankers to track mortgage loans.
"It didn't add up," he said.
The electronic database, unknown to most
homeowners, holds 60 percent of the nation's residential mortgages.
"At first I thought I didn't understand,
but after studying it for a few years, it became clear there are basic and
quite fundamental problems with MERS," Peterson said.
Those problems have worsened as millions of
foreclosures go through the legal system and MERS' role as the mortgage holder,
invisible in good times, gets scrutinized when homeowners default.
Peterson believes MERS is a shell company
that usurped the traditional role of county clerks to the benefit of lenders
and the detriment of borrowers.
MERS, based in Reston, Va., and owned by
members, defends its work: "MERS has been designed to operate within the
existing legal framework of all 50 states."
Just because something is legal does not make it morally or ethically correct.
Before Peterson testified before the House
Judiciary Committee investigating the foreclosure crisis, he talked about why
he believes the nation's long-standing property-records system was hijacked by
mortgage bankers, creating chaos in foreclosure courts.
Q: What is MERS?
A: People talk about a mortgage loan as if it
is one thing, but it is two different but related rights. The first is the
right to receive payment from a borrower, and that's embodied in the promissory
note. The second is the right to foreclose or take back land pledged as
collateral. The foreclosure right is created in the mortgage document.
The mortgage document and the promissory note
were always inextricably intertwined and transferred at the same time. But
about 12 years ago, this changed with MERS.
It used to be that every time a mortgage loan
changed hands, the new mortgage owner would go into the county clerk's office
and record the document.
But since loans were changing hands five and
six times in the first few months with the securitization of mortgages, the
financial institutions didn't want to record the loan assignments, particularly
since they'd have to pay about $35 each time. So they designed this shell
company that pretends to own all these mortgages.
Q: Who ensures the accuracy of the MERS
A: Think of it as a big Microsoft Excel
spreadsheet that has information entered into it by the MERS members. Loan
originators or servicing companies can enter information about changes in loan
ownership if they want to. But there are no penalties if they don't.
That's unlike the traditional legal system,
where if you don't put information into the county record, you can lose your
priority claim over the land. You don't have those same incentives in the MERS
The result is in many cases the MERS database
is inadequate, and we don't have reliable information about who owns what
MERS says it's as an "innovative process
that simplifies the way mortgage ownership and servicing rights are originated,
sold and tracked."
Q: What's the problem?
A: First, they never got permission from a
democratically elected legislature to do it. Second, it doesn't simplify
anything, but has made it much more complicated.
The new system also makes it much more
difficult for homeowners to negotiate with somebody with authority to modify
their mortgage loan.
It's also inherently deceptive. Since MERS is
a relatively small company, with not enough employees to engage the millions of
mortgage loans it pretends to own, it has to pretend to have employees who
don't work for it.
Employees at service companies and law firms
can go on MERS' Web page, fill in a blank form, press submit, then MERS kicks
back a corporate resolution that purports to make these employees assistant
secretaries or vice presidents of MERS to do business with the courts. It is a
The notion that we have invested 60 percent
of the country's mortgages in a system with such basic untruthfulness seems a
terrible mistake. It's a foundation of sand.
Q: Is MERS being challenged?
A: Rep. Marcy Kaptur, D-Ohio, has introduced
a bill to prohibit Fannie Mae and Freddie Mac from purchasing any more loans
drawn out of MERS. Given that Freddie and Fannie have been receiving massive
taxpayer bailouts, why continue to invest in mortgages that are so risky,
complicated and problematic?
County governments are starting to wise up
that this is a bad deal. There are a lot of arguments as to why they might be
able to sue MERS and the investment banks to recover back fees. What do they
have to lose?
Bank of America saw opportunity in Countrywide but
bought a load of trouble.
That legacy is a burden not only for Bank of America
but also for the entire country. Countrywide's bad mortgages are clogging the
U.S. housing market, dragging down home values and slowing the recovery.
By Steven Mufson
The Washington Post
WASHINGTON — When Bank of America agreed to buy
Countrywide Financial for $4 billion in January 2008, the bank's chief
executive, Ken Lewis, called it a "one-time opportunity."
When this opportunity knocked, however, it blew the
door down. More than two years after the acquisition, Bank of America has taken
write-offs of $5.5 billion because of troubles at Countrywide.
And the losses are still mounting. Now, instead of
celebrating its improved profits and stronger capital base, the bank is trapped
in a "Groundhog Day"-style routine of fending off crisis.
Bank of America has set aside billions of dollars more
to clean up Countrywide's mortgage mess, including an avalanche of new disputes
about faulty paperwork and foreclosures — and some analysts say it won't be
It has thrown 20,000 employees at the job of dealing
with the delinquent mortgages. Most of those are the legacy of Countrywide,
which originated 10 million of the 14 million loans Bank of America is
That legacy is a burden not only for Bank of America
but also for the entire country. Countrywide's bad mortgages are clogging the
U.S. housing market, dragging down home values and slowing the recovery.
Moreover, the Countrywide mess has tarnished Bank of
America's reputation and put it back at the feet of the government not a year
after it repaid its $45 billion federal bailout with interest. No bailout is
needed this time, but federal agencies — as regulators and holders of vast
amounts of mortgage securities — can either ease or ratchet up pressure on the
bank to find a solution.
For the foreseeable future, the morass at Countrywide
has also put an end to the freewheeling acquisition strategy that made the
Charlotte, N.C.-based bank the biggest in the United States.
"Countrywide was a garbage bin," said
Richard Bove, a banking analyst with Rochdale Securities. "All they did
was make all loans they could to whomever they could at whatever rate they
could. If Bank of America hadn't made this acquisition, they would have
problems, but nothing remotely close to what they have now."
"I think they're just going to rue the day they
bought Countrywide," said the chief strategist of a major asset-management
firm who spoke on the condition of anonymity. "That was just a train
To Bank of America executives, however, Countrywide
was a good investment that will pay off, albeit more slowly than expected. The
acquisition satisfied two key goals, according to Barbara Desoer, president of
Bank of America's home-loan unit. It boosted the bank's share of the U.S.
mortgage market and expanded its offerings for customers. Building that
business from within would have been time-consuming and expensive.
customer base, their needs were broader than what we had to deliver,"
Desoer said. "We had a gap. Countrywide was an opportunity ... to close that
gap by acquiring a large retail network."
The purchase catapulted Bank of America from a distant
sixth place to No. 1 in mortgage originations.
There were two problems with that. First, the bank
expanded into mortgages just as the housing market and economy began to
crumble. Second, Countrywide was built on a different corporate culture — and
looser lending practices. Its book of mortgages was swollen with subprime
loans, those that required no evidence of income and gimmicks that encouraged
people to borrow more than they could afford.
Lewis, who stepped down in late 2009, said he knew he
was getting a distressed price for Countrywide, but later it appeared that he
hadn't realized just how distressed Countrywide was. About 15 percent of the
borrowers inherited from Countrywide are behind on payments, compared with 6
percent for loans originated by Bank of America.
Desoer, once seen as a potential successor to Lewis,
conceded that, in addition to losses, there have been "reputational costs
associated" with the Countrywide purchase. She should know; each week,
usually on Fridays, she listens to recordings of phone calls that customers
have made to service representatives.
But, she says, Bank of America is weeding out the
subprime mortgages; it has modified 725,000 mortgages since January 2008. More
than 1 million customers are still struggling to make loan payments.
"I'm not a believer in the subprime business, and
we have at Bank of America and all the legacy companies shut it down over and
over and over again," Brian Moynihan, the bank's chief executive, said
Nov. 4 at the BancAnalysts Association of Boston Conference. "We will not
be in that business."
Shutting it down isn't easy, though. The discovery of
shoddy paperwork forced Bank of America in October to halt 102,000 foreclosures
in 27 states, pending the filing of new paperwork generated from a new process.
After declaring a nationwide moratorium on foreclosures Oct. 18, Bank of
America did a quick review — too quick, some critics said — and restarted the
filing of affidavits needed for foreclosures in 23 other states.
State attorneys general and housing advocates aren't
satisfied with the bank's assurances about new procedures.
"It's not that other banks are so great, but Bank
of America is particularly striking in its inability to just give us the most
basic information about what's going on," said Lisa Sitkin, a lawyer with
Housing and Economic Rights Advocates, an Oakland, Calif.-based nonprofit
organization. "It often seems like a sort of black hole of
Sitkin said that when the bank modifies loans under a
government program, the process is slow but the standards are clear. But when
Bank of America proposes its own modification terms to borrowers, the method is
opaque. For those cases, which account for 88 percent of its modifications, the
bank has a confidential "foreclosure avoidance budget" that weighs
the value of a modified loan against a foreclosed one.
Bank of America agents working on delinquent loans are
"nice enough," Sitkin said. "They've sort of gotten better, but
that's only because they were so bad. Now they're just bad, I guess."
"It's a day-to-day hand-to-hand combat,"
Moynihan said, answering a question about the Countrywide backlog after a
recent speech. "In end of the day, we'll work through it." He added,
"It's in everybody's interest to get this settled and behind us."
Despite the hassles, Desoer said, Bank of America
likes Countrywide's size and the reach that comes with it. Bank of America's
share of the mortgage origination market has gone from single digits to just
over 20 percent — although the mortgage market this year is barely half the
size it was in 2007. It alternates between No. 1 and 2 in loan production with
When Bank of America bought Countrywide, it seemed a
natural, albeit somewhat risky, extension of the bank's strategy.
Some financiers smelled trouble. Countrywide's flashy
Bronx-born chief executive, Angelo Mozilo, had quickly expanded the company —
perhaps too quickly.
In early 2007, Lewis Sanders, then the chief executive
of Alliance Bernstein, asked his top lieutenants what they thought of
Countrywide. Alliance was one of its largest shareholders. The group cited
pluses and minuses. But when Sanders couldn't get Countrywide's chief executive
on the phone, he grew suspicious. He traveled across the country to see him in
person, but Mozilo refused to meet him. Sanders flew home and sold his firm's
As 2007 progressed, Countrywide's woes became clearer.
By December, its loan delinquency rate climbed to 7.2 percent, up from 4.6
percent a year earlier. Investors were demanding that it buy back bad loans it
had sold them as part of packages with thousands of mortgages.
Enter Bank of America.
"We recognized that we were buying a company with
a lot of troubles," said one Bank of America senior executive who spoke on
the condition of anonymity. "We got rid of the leadership. We got rid of a
lot of the activities that got them into trouble."
He added, "We're cleaning up, but it's a big
Bigger than expected. The bank now has 1.3 million
customers more than 60 days delinquent; 195,000 haven't paid in two years. Of
those homes, 56,000 are vacant.
The size of the problem is staggering, especially
because only five firms manage the bulk of the country's mortgages, which have
been bundled in packages and sold off to investors.
Moynihan said that all originations from 2004 to 2008
totaled about $1.2 trillion. He said investors have demanded that Bank of
America repurchase $18 billion, alleging that the bank had misled them. Of
those, $11.4 billion have been resolved, with losses totaling $2.5 billion.
About $6.6 billion of claims remain under review,
Moynihan said, although analysts say more could be coming. Moynihan cautioned
that a claim does not necessarily result in a repurchase. Even if the bank
repurchases a loan, it doesn't mean it loses the entire unpaid principal amount
of the loan.
"We will learn our lessons here and make sure
that we protect ourselves," Moynihan said.
One other unexpected cost this year: In October, Bank
of America paid $43.5 million of the $67.5 million settlement Mozilo reached
with the Securities and Exchange Commission over charges that he committed fraud
and insider trading while concealing from investors what the SEC called "a
Even if Bank of America ultimately gets through the
mortgage mess, the episode has damaged its relationships with big investors,
including federal agencies, which bought the bulk of those mortgages.
A group of investors — including the Federal Reserve
Bank of New York, the government-owned Fannie Mae and Freddie Mac housing
finance firms, pension funds, and the big investment firms Pimco and BlackRock
— sent a letter threatening to force the bank to repurchase the mortgage
packages by late December. The group accuses Bank of America of renegotiating
mortgages owned by investors, while avoiding a hit on the home equity or credit
card debt owed directly to the bank.
Moynihan said the letter "was a surprise to me,
and I think it was a surprise to a lot of people, quite frankly."
Many Bank of America executives blame the economic
slump for aggravating Countrywide's problems, but the bank gets little sympathy
from the public or lawmakers.
"Over the course of the crisis, we as an industry
caused a lot of damage," Moynihan acknowledged in January testimony before
the Financial Crisis Inquiry Commission. "And it has been clear how poor
business judgments we have made have affected Main Street."
THE WRONG OWNERS.
Dec 12, 2010
Byline: Michelle Conlin; The
Christopher Marconi was in the shower when he heard a loud banging on his door.
By the time he grabbed a towel and hustled to his front step, a U.S. marshal's
sedan was peeling out of his driveway. Nailed to Marconi's front door was a
foreclosure summons from Wells Fargo, naming him as a defendant.
But the notice was for a house Marconi had never seen -- on a mortgage he never
Tom Williams Tom Williams can refer to:
Tom Williams (Australian
Tom Williams (presenter),
Australian television presenter
Tom Williams (Irish
Republican) (1924–1942), IRA member who was hanged
Tom Williams (ice hockey b.
in his kitchen thumbing through the mail when he opened a letter from GMAC GMAC General Motors Acceptance Corporation
GMAC Graduate Management Admission Council
GMAC Give Me A Call
GMAC Genetic Manipulation Advisory Committee
GMAC Genetic Modification Advisory Committee (Singapore)
GMAC Give Me A Chance . It informed him that the bank would confiscate To expropriate private property for public use without
compensating the owner under the authority of the Police Power of the
government. To seize property.
When property is confiscated it is transferred from private to public
use, usually for reasons such as his house unless he immediately paid off his
mortgage balance of $276,000.
But Williams had never missed a mortgage payment. And his loan wasn't due to
mature until 2032.
Warren Nyerges opened his front door to find a scraggly scrag·gly
adj. scrag·gli·er, scrag·gli·est
Adj. 1. scraggly - lacking neatness or order;
"the old man's scraggly beard"; "a scraggly little path to the
summons server standing on his stoop. He plopped a foreclosure notice from Bank of America in Nyerges' hands. But
Nyerges had paid for his house in cash.
And he'd never had a checking account, much less a mortgage, with Bank of
By now, you may have heard the stories of bank robo-signers powering through
hundreds of foreclosure affidavits a day without verifying a single fact. But
most of those involved homeowners who had stopped paying their mortgage. They
were genuine defaulters.
Now a new species of homeowner is getting pushed into foreclosure hell.
People have always loved to complain about their banks. The push-button (electronics) push-button - A roughly fingertip-sized
plastic cover attached to a spring-loaded, normally-open switch, which, when
pressed, closes the switch. Typical examples are the keys on a computer or
calculator keyboard and mouse buttons. circus that passes for customer service. The
larding on of fees. But the false foreclosure cases are hardly the usual
complaints. These homeowners paid their mortgages -- or loan modifications --
on time. Some even paid off their loans. Worse, those on the receiving end of a
bad foreclosure claim tell similar stories of getting bounced from one bank
official to the next with no resolution while the foreclosure process continues
Many have to resort to paying a lawyer, even after presenting documentation.
They say they have to sue not only to stop the wrongful foreclosure but also to
attempt to win back their costs.
There are no official statistics for these homeowners, but lawyers, real-estate
agents and consumer advocates say their ranks are growing. In November, during
foreclosure hearings on Capitol Hill, senator after senator scolded the banks
about wrongful foreclosures. They said their offices were deluged with
complaints from people who had done everything right but were being treated by
banks as if they had done everything wrong. And the Florida attorney general's
office is also investigating the issue as part of its foreclosure probe.
"This is the worst I've ever seen it," says Ira Rheingold, an
attorney and executive director of the National Association of Consumer Advocates.
Diane Thompson, a lawyer with the National Consumer Law Center, has defended
hundreds of foreclosure cases. "In virtually every case, I believe the
homeowner was not in default when you looked at the surrounding facts. It is a
widespread problem throughout the country."
Homeowners in Florida, Nevada, Texas and Pennsylvania have filed lawsuits
alleging that they were victims of mistaken foreclosure. In many of those
cases, the bank went so far as to haul away Verb 1. haul away - take away by means of a
vehicle; "They carted off the old furniture"
cart away, cart off, haul off
take away, take out - take out or remove; "take out the chicken
after adding the vegetables" belongings and change the locks on the wrong
One such suit was filed in March by Pennsylvania homeowner Angela Iannelli. She
was up to date on her payments when, she says, she arrived home in October 2009
to find that Bank of America had ransacked her belongings, cut off her
utilities, poured antifreeze antifreeze, substance added to a solvent to lower its
freezing point. The solution formed is called an antifreeze mixture. Antifreeze
is typically added to water in the cooling system of an internal-combustion
engine so that it may be cooled below the freezing point down her drains,
padlocked her doors and confiscated Luke, her pet parrot of 10 years. It took
her six weeks to get the bank to clean up the house.
Iannelli's lawyer says the parties are in the process of "mutually
resolving the issues" and the lawsuit is "in the process of being
discontinued." Bank of America did not immediately respond to a request
for comment on her case.
But the incidents haven't stopped. Homeowners Maria and Jose Perez, of Seguin, Texas Seguin (pronounced IPA: /səˈgiːn/) is a city in Guadalupe County, Texas, in the United States.
As of the 2000 census, the city population was 22,011. , filed suit in October
after Bank of America sent them a notice that their house was scheduled for a foreclosure sale foreclosure sale n. the actual forced sale of real property
at a public auction (often on the court house steps following public notice
posted at the court house and published in a local newspaper) after foreclosure
on that property as security under a mortgage or Nov. 2. The couple say they are current
on their mortgage payment and they have no loan with Bank of America. A trial
is set for June 13.
Now the class-action lawsuits are coming. In Kentucky and California, class
actions have been filed against major lenders on behalf of homeowners in loan-
modification programs who allege that they made all of their payments but got
foreclosed on anyway.
"It is mind-boggling that these large banks accepted billions and billions
of TARP money from the government, and they are just committing a fraud on the
American people," says Jack Gaitlin, who filed the Kentucky suit on Oct.
4. He was referring to the 2008 government bailout of the banks, the Troubled
Asset Relief Program.
To understand the banks' back-office dysfunction, you have to travel back to
the credit bubble of the early 2000s. Rising home prices were turning real
estate into the new national casino. Lending standards evaporated. No job or
down payment necessary! Banks, meanwhile, stopped holding on to mortgage loans
and pooled them into securities that were sold to investors.
The banks charged fees for servicing the mortgages -- tasks such as collecting
monthly payments. The banks slap on the biggest fees when a borrower can't make
payments and the bank forecloses. Says Rheingold, "They created a
servicing model where they made the most money by foreclosing on people as
quickly and cheaply as possible." When a foreclosed house is put back on
the market and sold, the proceeds are used to pay creditors, like mortgage
Now it's becoming clear just how chaotic the whole system became.
Depositions from employees working for the banks or their law firms This list of the world's largest law firms by revenue is taken
from The Lawyer and The American Lawyer and is ordered by 2006
Clifford Chance, £1,030.2m
– International law firm (headquartered in the UK);
a foreclosure process in which it was standard practice for employees with
virtually no training to masquerade as vice presidents, sometimes signing
documents on behalf of as many as 15 different banks. Together, the banks and
their law firms created a quick-and-dirty foreclosure machine that was designed
to rush through foreclosures as fast as possible.
Former employees at banks and foreclosure law firms have testified that they
also knowingly pushed through foreclosures on the wrong people.
Tammie Lou Kapusta is a former paralegal with the law offices of David Stern, a Florida firm that works for all the major banks and handles up to 70,000
foreclosure cases a year. Kapusta testified in September that she received as
many as 50 calls a day from homeowners who said they were the victims of
mistakes. But she was told, she testified, to ignore the callers and push
through the foreclosures anyway.
The law firm is under investigation by the Florida attorney
general The Florida Attorney General is
an elected official in the U.S. state of Florida. The position has a four year
term of office with a two term limit.
Attorney General Term of Service
Joseph Branch 1845 - 1846
Augustus E. Maxwell 1846 - 1848
James T. .
The banks say they are reviewing their mortgage and foreclosure procedures and
most of the people involved in foreclosure deals were behind on their payments.
As for people wrongly caught in the foreclosure net, they say they are
reviewing those cases, too.
No way out
But what emerges from court filings, depositions, and interviews is that once
the bank places you on its foreclosure assembly line, it becomes nearly
impossible to get off.
The minute Marconi ripped the foreclosure notice from the door of his house in Garrison in the condition of a garrison; doing duty in a fort or as one
of a garrison.
See also: Garrison , N.Y., on Oct. 20, he saw he was named as a defendant along
with a woman who had run a red light and smashed into Marconi's car four years
earlier. Marconi had received a payment from her insurance company. It was her
house, in Rye, N.Y., that Wells Fargo was foreclosing on.
Marconi explained the bizarre mix-up to Wells Fargo's customer-service
department, its ethics complaint department, its law firm and the office of
Chief Executive Officer John Stumpf John Stumpf was named President and Chief Operating
Officer of Wells Fargo & Company in August 2005. He was elected to Wells
Fargo’s Board of Directors in June 2006 and became Chief Executive Officer in
June 2007. .
Marconi says they all told him that they could not help him and that he needed
to get a lawyer.
Wells Fargo spokeswoman Vickee Adams says Marconi was named in the foreclosure
suit because he filed a judgment against the woman in the car accident. It is
common for lien holders to be mentioned in foreclosure documents. But Marconi
says the judgment against the woman was satisfied in April 2009.
"Now I have to pay a $3,500 retainer for a lawyer to get my name pulled
off some lawsuit by Wells Fargo," Marconi says.
Equally puzzling is the case of Williams, the chief executive of a
food-distribution business in Kansas City, Kan. Williams lives in a
3,000-square-foot house with a luxurious patio and pool out back. Before his
GMAC nightmare began, he says his credit score was 794 out of 800. "I've
never been any days late on anything, ever," Williams says.
But when Williams, 52, tried to pay his $2,500 monthly mortgage payment online
on Aug. 5, he found out that GMAC had put a "stop" on his mortgage
Since that day last August, Williams has found himself trapped in an
alternative banking world worthy of the Twilight Zone. The trouble couldn't
come at a worse time for Williams and his wife, Carol. She was in the process
of buying the upholstery business where she has worked for 10 years. Bank of
America lowered Carol's credit limit, citing "serious delinquency on other
accounts." And the couple's credit score is sinking by the day.
During the past four months, Williams says he has talked with 25 GMAC
representatives. He has twice contacted the offices of the CEO (1) (Chief Executive Officer) The
highest individual in command of an organization. Typically the president of
the company, the CEO reports to the Chairman of the Board. and the chief
financial officer. He has sent packages of paperwork documenting and verifying
And, he says, various GMAC employees have promised to straighten it out
immediately. All the while, GMAC has repeatedly refused to take his mortgage
payments, going so far as to mail them back to him. It is routine for banks to
refuse payments once they start foreclosure proceedings.
Finally, on Nov. 9, a GMAC employee who said she worked in the executive
offices contacted Williams and told him that an audit had revealed the bank had
lost his loan's paperwork. But she couldn't explain why the stop had been put
on Williams' account, why the bank was rejecting his payments or why the bank
was assessing him for late fees every month. She said she would send letters to
his credit agencies to correct the misinformation mis·in·form
tr.v. mis·in·formed, mis·in·form·ing, mis·in·forms
To provide with incorrect information.
On Nov. 15, she sent Williams a package of documents for a loan modification
and stressed that it was urgent that Williams "immediately" sign and
return them, "prior to the Nov. 24 regulatory deadline."
If Williams didn't do so, the GMAC employee said in an e-mail, the loan
modification "would no longer be valid."
Williams e-mailed the woman with several concerns and questions about the
documents but he never heard back from her. He felt the only option he had left
was to hire a lawyer. "It's really a bite -- and I can't tell you how it
chafes me -- to have to pay hundreds of dollars an hour just to get to make my
house payment because the mortgage company can't find their loan
documentation," says Williams.
GMAC spokesman James Olecki says the bank is looking into Williams' situation.
Even those who have managed to clear up their misunderstanding say the fight
was a full-time job.
After going to court and serving as his own lawyer, Nyerges got Bank of America
to drop its foreclosure action. In September, the court awarded Nyerges $2,500,
plus 6 percent interest, for his costs.Says Bank of America spokeswoman Jumana
Bauwens, "This was an unfortunate error that was corrected when it was
brought to our attention."
Copyright (c) 2010 Seattle Times Company, All Rights Reserved.
In this next article Emiel Kandi referrers to himself
as a Wolf; I would characterize him as a PIG except that is an insult to pigs;
HE is nothing more than a chicken-shit jerk (editors opinion scaryreality.com)
Lender seizes desperate borrowers' homes
A Seattle Times examination of numerous Emiel
Kandi loan deals shows that they are set up so he can quickly take borrowers'
homes and in some cases flip them for a profit. And he gets away with it.
Times staff reporter
Emiel Kandi forever changed the lives of a
pregnant hairdresser, a jobless mechanic and a single mom when he loaned them
These unsophisticated, desperate borrowers
thought a short-term loan from the well-dressed professional could save them
from financial collapse or foreclosure. But
the very asset they were trying to hold on to — their home — was what Kandi was
determined to take.
Kandi is the lender of last resort for some
people who've been turned down by banks because of poor credit or limited income.
He says his requirement for a borrower is merely "a pulse and a legal
ability to sign."
He admits he charges borrowers as much as he
can get away with — 45 percent interest in one case — and makes it clear to
them that if they fail to comply with the loan agreements, he will take their
"I am a wolf," he explained.
A Seattle Times examination of numerous Kandi
loan deals shows that they are set up so he can quickly take borrowers' homes
and in some cases flip them for a profit. And he gets away with it.
"He's in the business of taking people's
property," said Martin Burns, a lawyer who sued Kandi on behalf of the
mechanic. "He finds vulnerable people and exploits them."
Kandi, 34, of University Place, Pierce
County, is part of the hard-money lending industry. It provides short-term
commercial loans to people with businesses or real-estate investments who can't
get conventional bank loans or have poor credit. Lenders charge high interest
rates, typically 10 to 14 percent, and require real estate as collateral.
Hard-money lending has quietly served
knowledgeable commercial borrowers for centuries, providing quick capital or
solving cash-flow problems.
When the recession hit and conventional
lenders tightened their standards, some people desperate to keep their homes
turned to hard-money lenders such as Kandi for salvation.
But in this lending world there is little
protection for a consumer, and Kandi, a former mortgage originator, knows it.
Kandi skirts mortgage requirements and
disclosures by writing up his loans as "commercial." Mortgages have
interest-rate caps, consumer protections and full disclosure of all costs.
Commercial loans do not.
State authorities do not regulate commercial
loans and the hard-money industry. There are no registrations, licenses or
education requirements for the lenders.
Regardless of what Kandi is calling his
loans, Burns and others say they were really mortgages, and the borrowers
should have been protected by state regulations.
"They borrowed money at an exorbitant
rate and cried foul when they couldn't pay it back," he said. "Everyone who borrows from me is
desperate — that doesn't change the fact they knew the terms of the deal prior
In this Wild West of lending, Kandi has been
able to make hundreds of thousands of dollars.
And so far, he has been untouchable.
borrower signs away his longtime home
Jefferson Marsh, a 56-year-old car mechanic,
owned his Puyallup home free and clear for a decade. After he lost his job
several years ago, he struggled to pay the bills, picking up an occasional
repair job and recycling scrap metal and cans.
By October 2007, he was desperate. He owed
$13,400 in property taxes and was about to lose his home in a sheriff's sale if
he didn't act fast.
He turned to the bank where he had a checking
account. He had never taken out a loan for a car or house, and he didn't even
have a credit card. With no credit history or job, he was turned down.
contacted Kandi, who had been recommended by an acquaintance. Kandi agreed to
help. There was no application, no proof of employment required and no credit
In November 2007, Marsh, Kandi and his
notary, who also had worked as Kandi's bodyguard, met at The Keg, in University
Place, to sign paperwork for a $17,000 loan.
Following Kandi's instructions, Marsh signed
a promissory note for $170,000, even though
he was getting only $17,000. Kandi later said he inserted the tenfold figure to
protect himself financially and to pay for any future legal costs.
Kandi also had Marsh sign over his rights to the
property using what is known as a quitclaim deed. According to the terms of the loan, if Marsh
missed repaying any amount, Kandi could take possession of the house
immediately, using the deed. This maneuver enabled Kandi to take the home without
going through foreclosure, which includes a 190-day waiting period and several
Deb Bortner is director of Consumer Services
for the state Department of Financial Institutions, which regulates banking and
mortgage lending. She said making a borrower sign a quitclaim deed for a loan
to save his house is a red flag. "That's a scam," she said.
It was common practice for Kandi to have
borrowers sign quitclaim deeds.
Marsh knew he was paying about $7,000 in fees
and interest for the loan. But he had no idea he had signed his house away. Nor
did the documents state the true interest rate of the loan, later determined to
be 45 percent.
"I can read and write, but my word
comprehension isn't good," Marsh said during a recent trial in Pierce
County Superior Court. "I didn't understand half of what I was signing.
... I was told that's the way the loan is written up."
Kandi required Marsh to repay him in person,
cash only. Marsh said that after he made the first four payments, Kandi wouldn't
meet with him to accept an April 2008 payment of $1,000.
Kandi denied that, saying Marsh didn't have
Six days after that payment was due, Kandi
used the quitclaim deed to record a new owner of the
— 619 South Howard LLC, a company in his mother's name.
he flipped the property, selling it for $235,000 to a former banker who had
borrowed money from Kandi in the past. The new owner had most of Marsh's
belongings tossed into the yard. Marsh's great-grandmother's hurricane lamp,
his grandfather's banjo and his dad's ukulele were gone, he said.
And the Kandis walked away with more than
homeowner, one who had clashed with Kandi, learned
of Marsh's plight. He referred him to lawyer Burns, who filed suit against
Kandi, alleging mortgage fraud. When the case went to trial in September, Kandi
defended his actions, saying Marsh wanted the money to start a scrap business.
He also argued that it was a commercial loan and therefore not regulated by the
state or subject to the same disclosure requirements that mortgages are.
"This was a business commercial note,
and if I want, I can charge someone a thousand percent a week compounded by the
minute if they sign it and agree to it," Kandi said under oath.
Kandi said his borrowers have signed
paperwork that describes the loans as commercial.
But several borrowers interviewed by The
Times said they were unaware of what that meant and only wanted to get money to
pay outstanding debt. Other borrowers didn't want to talk about their deals
with Kandi, saying they were too upset or feared retaliation.
After a three-day trial in the Marsh case, Pierce County judge pro
tem Clint Johnson determined Marsh had no scrap business and that almost all of
the money paid his delinquent property taxes. "Kandi engaged in a scheme
to misrepresent and defraud the plaintiff in a lending process and also acted
in such a scheme to take plaintiff's property with substantial equity,"
He also determined Kandi had violated the
Washington State Consumer Protection Act by using "unfair and deceptive
practices." The judge ordered Kandi to pay Marsh $211,538. Kandi has yet
Marsh now lives in a rundown 1984 RV next to
the house he lived in for 25 years.
Other homeowners who borrowed from Kandi have
had different outcomes. A single mother of two children took out a loan for
$5,000, missed a payment, and lost her Graham home and $70,000 in equity. In
another case, a Puyallup woman who borrowed from Kandi filed a lawsuit against
him, but lost.
of an entrepreneur
catering to casino to the hard-money world
Kandi was lending money even before he
graduated from Tacoma's Stadium High School in 1995. From early on, he thrived
on being self-employed, starting a catering company and a memorabilia business.
Just a couple of years out of high school,
Kandi became a borrower himself, buying a six-bedroom, four-bath house with a
pool for $575,000. He also bought four duplexes in Gig Harbor with loans from
banks and from the sellers, E.L. and Christa Milton. He rented the units but
stopped repaying the couple.
The Miltons obtained a $184,000 judgment
against Kandi and have tried to collect from him for years.
"He sat there like the arrogant rich
boy," Christa Milton said. "He had the most expensive suits, Rolex
watch and gold jewelry, and he was trying to tell us he had no money."
When Kandi didn't pay the banks either, they
foreclosed on the duplexes and his home.
"I know what it's like — I've been
foreclosed," he said.
In 1999, Kandi, with money from his
grandfather, opened and co-owned the Habana Cafe and Casino in Tacoma. But, he
said, it lost money. Kandi sold the business in 2002 to Silver Dollar Casino
for $840,000, according to state Gambling Commission public records.
That same year, he became a mortgage-loan
originator and branch manager for American Dream Mortgage, which also did
business as Villa Mortgage.
While Kandi was handling residential loans,
he was being pursued by the Internal Revenue Service for failure to pay
employment taxes when he operated the casino. The IRS filed four liens against him,
totaling $948,000, according to the Pierce County auditor's records. He hasn't
paid them off.
When the housing industry collapsed, Kandi
focused on the other end of the lending spectrum — hard-money loans, which gave
He worked both sides of the fence, not only
lending money but buying up troubled promissory notes that had collateral. In
one case, a Lakewood man said Kandi promised him a loan to avoid foreclosure in
2008. Unknown to the man, Kandi
purchased the real-estate note the man owed, refused to lend him any money, and
continued the forfeiture.
While most hard-money lenders have a pool of
investors who provide the cash, Kandi primarily uses his own money and his
mother's. Juanita Kandi, a former real-estate broker, has worked as a judge's
secretary at the Western District bankruptcy court since 1998. Over the past decade, they have set up a
dozen companies, mostly for handling real-estate transactions and hard-money
loans. One company, Diversified Financial, is based out of Belize.
When she and her son were sued over two
hard-money deals, she settled. She could not be reached for comment.
has to wonder about the mother of this sick pig also)
Kandi has done business in at least five
counties, running his operation out of his mother's home and a P.O. Box,
closing deals at bars and restaurants. He networks with loan officers, mortgage
brokers, real-estate agents and lawyers, who refer borrowers to him.
Known for his suits and gold jewelry,
occasionally packing a gun and wearing a bulletproof vest, Kandi comes across
as helpful to some borrowers and intimidating to others. He says he doesn't
care what people think of him.
"I'm not your friend," he said.
"If you step off the tightrope, I'll take your house."
signed in a hurry, then got a shock
Borrower Christine Provost quickly realized
he wasn't her friend, and when she sought help from state agencies, she found
She grew up in Seattle with five siblings in
a three-bedroom house on 32nd Avenue that has been in the family for 50 years.
"If anyone needed a place to go, you
could go to the house," Provost said. "My mom would take anyone
who lives in Lakewood, Pierce County, tried to support her elderly mom and
disabled brother who lived at the Seattle home by paying the mortgage. But as a
single mom and part-time hairdresser, she couldn't make the payments.
A loan officer told her the best chance of
saving the family home from foreclosure was getting a loan from Kandi of Villa
Mortgage. Kandi later paid that officer a $2,400 referral fee, public records
When she met with Kandi at a title-escrow
company in April 2009 to sign the paperwork, Provost, pregnant with triplets,
felt rushed and scared. She recalls seeing a holstered gun on Kandi, and
another on his attorney.
She said she didn't really understand the
paperwork, and that Kandi assured her the loan documents were standard. She
signed and initialed page after page with Diversified Financial that stated she
was getting a commercial loan.
"He said, 'just go ahead and sign it,
and we can change it if there's a problem,' " she recalled. "I was
two days from losing my house, so I didn't have leeway to say anything."
She believed she was getting a $240,000 loan
with 14 percent interest that would pay off the previous mortgage and provide a
bit of cash to repair the house.
reality, she had a loan with almost a 90 percent interest rate and $26,400 in
When Provost realized the loan had an exorbitant
rate and was due in full in 60 days, she hired lawyer David Leen. Her meeting
with him was cut short when she had to go to the hospital because of trouble
with her pregnancy.
She was in the hospital for three months,
losing two of the triplets during childbirth. When Provost came home, she said,
she found a foreclosure notice on her door.
Leen filed a lawsuit to stop the foreclosure
and lodged a complaint with the Department of Financial Institutions, which
But DFI did little. Based on the wording of
the loan, it appeared to be a commercial loan, which DFI does not regulate. It
dismissed Provost's complaint against Kandi, as well as a similar one from
another borrower, DFI records show.
"We didn't clear him of
wrongdoing," said Bortner, of DFI. "We said we don't have
Leen was disappointed. "I thought the
agency could have seen or dug deeper," he said.
All the agency had to do, Leen said, was
simply read the paperwork to see it was a residential loan. It showed that
almost all of the loan went to paying off Provost's previous mortgage.
In the fine print in her loan papers, Provost
signed away her right to even complain to DFI.
After recently reviewing Provost's complaint
file, Bortner said she was alarmed Kandi had inserted that language, but she
also defended her agency.
"We have 2,000 complaints coming in a
year, and we do the best we can," she said.
DFI mistakenly had licensed Kandi as a loan
officer in 2007, giving him legitimacy that may have helped him with his loan
deals. The agency's background check missed several large liens filed against
Kandi, which should have disqualified him from getting licensed.
The Times raised questions and DFI learned that a judge ruled in Provost's
Bortner said the agency will reopen the case.
In May, the judge, in King County, ruled Kandi's
actions were in "bad faith" and ordered him to pay Provost $110,932
in damages. The judge also awarded her the family house free and clear.
Leen also had sent a complaint about Kandi's
treatment of Provost and others to David Huey, state assistant attorney general
in consumer protection.
That agency did nothing. Huey doesn't recall
why. "We're overworked and
under-resourced," he said.
Huey said it wouldn't surprise him if lenders
were taking advantage of a loophole by writing some loans as commercial to
avoid disclosures and the interest-rate cap. "You can paint stripes on a
horse and call it a zebra, but it's still a horse," he said.
It is difficult to determine the size of
Washington's hard-money industry and how many lenders may have taken advantage
of homeowners, in large part because these transactions are private.
Huey said his agency has not received a lot
Established hard-money lenders, some of whom
handle multimillion-dollar loans, say people like Kandi undermine the
reputation of their industry.
"They are trying to fly under the radar
with these tactics that are embarrassing," said John Odegard, president of
Seattle Funding Group, the Northwest's largest private lending company.
"It isn't at all what our industry represents."
Erik Egger, co-president of WADOT Capital,
one of at least two dozen hard-money lenders that offer loans in the state,
said no reputable lender would use a quitclaim deed to secure a loan.
"It circumvents foreclosure," he
said. "Those borrowers can be put in a bad situation."
vows "bloody and protracted legal war"
Kandi said he is the real victim, having to
temporarily curtail his hard-money lending business and spend money on legal
fees to defend himself in several lawsuits.
two lawyers who filed suit, Leen and Burns, have a vendetta against him, Kandi
said. At one point, Kandi vowed to Leen that he'd seek revenge.
"When I am finished with you I will
remove the last dime from your bank account, foreclose on your home and
personally take the wedding ring from your wife's finger," he wrote in an
e-mail. "I will do so with glee and aplomb that only the inevitable
victory that a bloody and protracted legal war can bring. ... From the gates of
Dante's 9th layer of Hell and with my last breath I shall spit on thee."
Kandi filed a 600-page complaint against Leen
and Burns with the Washington State Bar Association, but it found no unethical
Despite winning in court, Marsh and Provost
are still waiting for Kandi to pay.
But Kandi told The Times he has no plans to
pay them, and he has appealed the Marsh verdict. Marsh and Provost cannot go
after Kandi's assets because he apparently doesn't have any properties under
his name. Even if they could find assets,
they'd have to get in a long line. There are several unpaid judgments against
Kandi, including nearly $1 million to the IRS.
Meanwhile, Kandi has started another
business, one he sees as "a growth industry" — medical marijuana.
Last summer he opened a marijuana-patient cooperative in Tacoma, Cobra Medical
Group, which he says has 800 clients.
He said this venture is about "giving
reporter Sanjay Bhatt contributed to this report. Christine Willmsen:
precautions to take when getting a loan
If you are seeking a loan to avoid foreclosure or pay off personal debts, use
only a licensed loan originator. Verify his or her license at www.dfi.wa.gov
Shop around for the best terms, getting several good-faith estimates of the
Have all fees, the interest rate and true cost of the loan put in writing.
Determine if there are prepayment penalties and late fees.
Get an immediate copy of all loan documents.
Take time for a careful review of the documents. If possible, have a lawyer go
Do not sign a quitclaim deed or statutory warranty deed to get a personal or
Insist on receipts for your payments.
the state's help
concerns or to file a complaint: 877-RING-DFI (746-4334) or www.dfi.wa.gov/consumers/complaint.htm
800-551-4636 or www.atg.wa.gov/FileAComplaint.aspx
interviews with lawyers, lenders and the Department of Financial Institutions
This story was built from dozens of
interviews and thousands of pages of public records obtained from numerous
state and county agencies and courts. Among them are Washington state's
Department of Financial Institutions, Gambling Commission, Secretary of State's
Office, Liquor Control Board, Department of Revenue and Department of
Licensing; U.S. Bankruptcy Court and U.S. District Court for the Western
District of Washington; superior courts in King, Pierce, Thurston and Cowlitz
counties; as well as the assessor, auditor and recorder offices for King,
Pierce, Snohomish, Cowlitz and Spokane counties.
figure has lesson for UW business students
group of budding finance experts at the University of Washington got a powerful
lesson recently from a man whose career trajectory goes...
Rami Grunbaum, deputy business editor
A group of budding finance experts at the
University of Washington got a powerful lesson recently from a man whose career
trajectory goes from the top floor of Two Union Square to federal prison.
Jeffrey Greenstein, the former CEO of Quellos
Group, pleaded guilty in September to arranging an elaborate tax fraud so his
clients could avoid paying what they owed on $1.3 billion in income.
He agreed to a recommended prison term of two
to six years. He also agreed that before sentencing early next year, he would
"speak publicly" at UW's business school, where he served on the
investment committee until right before his guilty plea.
It turns out the talk wasn't very public; it
slipped by last month without advance notice from the school or the U.S.
But it left an impression on the 46 graduate
students in the tax-research class taught by Bill Resler.
"One of the things that struck everybody
was he said this is the second-hardest speech he made — the first being having
to tell his kids about 'the mistakes I made,' "says Resler.
The students also were
"incredulous" that Greenstein, his colleagues at Quellos and their
squads of well-paid outside CPAs and attorneys could have vouched for the
legitimacy of the tax-shelter scheme they marketed as POINT.
"The nature of the tax shelter was
ridiculous; and even though they'd only been in graduate school for six weeks,
they could tell that it stunk," says Resler. "They could see that
this so-called sophisticated tax shelter was a house of cards."
Greenstein, who also agreed to forfeit $6.4
million in profits from the scheme and pay $400,000 in prosecution costs, is
scheduled to be sentenced Feb. 4 by U.S. District Court Judge Ricardo Martinez.
Prosecutors say the $240 million in taxes due from Quellos tax-shelter clients
have been recovered by the IRS.
Federal prosecutors and Greenstein's defense
team were represented at the UW talk, but neither side has much to say about it
before a transcript is presented in court.
Greenstein attorney Jeffery Patton Robinson
says only that "it was a great speech and it went very well."
Resler, a longtime senior lecturer in the UW
business school's Master of Professional Accounting program, agrees Greenstein
gave "a darned fine speech" and answered questions without evasion.
"He never said 'I cheated or lied,' but
he did say that he did wrong and that greed did get in his way, and he did
things he never should have done."
hasn't always been so forthright.
He told the Senate Permanent Subcommittee on
Investigations in 2006 that in the POINT tax shelters, "We believed these
were real portfolios with real opportunities for profit and loss."
In his September plea agreement, however,
Greenstein acknowledged the shelters' supposed portfolios of securities were
designed to create "fictitious losses" to offset clients' capital
gains income: "In truth there was no actual stock; no purchase and sale of
actual stock; no payment for actual stock; and no basis in stock."
Quellos tax attorney Charles Wilk pleaded
guilty along with Greenstein and agreed to speak at his alma mater, New York
University School of Law. But that school declined, saying the talk wouldn't be
"voluntary and unfettered" because of the pending sentencing.
John Colvin, an attorney for Wilk, said the
required appearance was then dropped.
The courts have required some sort of public
declaration in white-collar crime cases before. In pleading guilty in 2002 to
obstructing a federal investigation into medical overbilling, Dr. H. Richard
Winn, former chairman of the UW Medical Center's Department of Neurological
Surgery, agreed to write an article in a professional journal about the
hospital's "errors in compliance."
Quellos has said it stopped selling the POINT
tax shelters in 2001, although Greenstein's plea bargain says he, Wilk and
others provided false information and documentation about the shelters as late
The company, headquartered on the 56th floor
of Two Union Square, later focused on channeling clients' money into hedge
funds. In 2007 it was sold to Wall Street powerhouse BlackRock for up to $1.72
Greenstein's legal troubles aren't over; a
new front just opened this month, providing a window into the illegitimate tax
shelter's effects on Quellos clients such as Texas businessman Michael Zhilka.
Zhilka sued Quellos, Greenstein and Wilk on
Dec. 6 in federal court in Seattle, alleging fraud and other wrongdoing. The
suit says his POINT tax shelter supposedly generated $121.8 million in losses
so he could avoid taxes of $23.7 million.
When the IRS audited his return, Quellos
provided "false information and documentation" to justify the tax
shelter, Zhilka claims.
Eventually he had to pay the taxes plus
almost $2.8 million in penalties. On top of that, he paid Quellos $3 million to
create and execute the tax shelter, and another $150,000 in legal fees for
dealing with the IRS, says the suit.
Attorneys for Quellos and its former
executives have not responded to the lawsuit yet.
Back at UW, Resler says he and his grad
students "spend a lot of time talking about the sniff test and the idea
that anything that is too good to be true, isn't."
By next fall, Greenstein will likely be at
the federal prison in Sheridan, Ore.
Still, says Resler, "I'd like to have
him back for next year. It was a real-world look at ethics."