Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months.A few specific suits mentioned:
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 involve getting a mortgage for more than a home is worth and pocketing the extra money. The deals inflate home values and leave lenders with losses from loans worth far more than the house itself.
Phoenix's Biltmore Bank is suing Security Title, appraiser Kittelman & Associates, and Tucson resident and house flipper Frank Padilla (who already was indicted and pleaded guilty to fraud and money laundering) over a $1.3 million loan for $800,000 property.
A Lehman Brothers investment trust and Aurora Loan Services are suing the parent company of First National Bank of Arizona for 38 home loans which misrepresented home values and income, debt, and employment of borrowers. The plaintiffs bought the loans and want the bank to buy them back.
Transnational Financial Network is suing Lending House Financial and a Scottsdale investor "who purchased 22 homes within days of each other last spring" for failure to disclose debt level or the fact that the investor was purchasing multiple homes (which were all foreclosed upon).
Tucson mortgage lender First Magnus is suing its former Phoenix-based loan officer, Tyson Rondeau, for fraud and negligence, saying that bad loans are costing it $1 million. That lender itself has been investigated by the Arizona Department of Financial Institutions for misrepresentations and failure to disclose facts, and has agreed to pay a $200,000 fine.
The article quotes attorney Michael Manning, who is working for some of the above plaintiffs, saying that "This is the tip of the iceberg, but I think regulators got on top of it faster than in the mid-1980s." I'm not sure how fast they got on top of the S&L issues in the eighties, but they're at least three and a half years late to the party this time around--when these fraudulent deals were working, the regulators were uninterested. Now that they're failing and the house of cards is collapsing, suddenly they gain an interest. This is because all of these players--the plaintiffs and the defendants--knew what was going on. They were all profiting from it.
The regulators and lawsuits are just a way for the larger players to cover their asses after the fact and avoid paying the full price for what they must have known was bound to ultimately happen.