I oft times say “The oddities are odder with every other day.” This is a case of one of the odder oddities. One, that like the universe unfolding, is expanding in oddness. One that deserves an expansion of outrage.
At the core of the shocking new development is a bill, “State Senate Bill 1259″ proposed by Arizona State Senator Michele Reagan:
“If you foreclose on somebody you should have to tell them who owns the property. People have the right in this country to face their accusers.”
In response to her bill the Arizona Banker’s Association threatened:
“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”
Apparently proving chain of title and that they actually own the homes they foreclose upon must be too onerous a requirement for major banks and servicers foreclosing on Arizona homes!
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Before delving further, let me recap from my own writings. In March of 2010 Arizona State Senator Michele Reagan was sued by her lender, Colonial Savings Bank, simply for asking, who owned her note! I included the video in notes to Episode IV in my “Tale of Greed”.
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Fast forwarding a year we find that Colonial Savings Bank was shuttered by the FDIC, having been wrapped up in fraudulent actions by executives at Taylor, Bean and Whitaker. The notes included under Episode IV: D-I-S-C-O-V-E-R-Y in a Nevada Desert goes into some detail of revelations in the trial of Taylor, Bean CEO Lee Farkas. In only the past week he was found guilty – on all 14 counts – of a $1.9 Billion fraud scheme! All of the other executives plead guilty without going to trial.
According to a statement of facts submitted with his plea agreement, Allen joined TBW in 2003 as its CEO and reported directly to its chairman. He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly owned lending facility called Ocala Funding. Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas, and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.
According to court records, shortly after Ocala Funding was established, Allen learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole” in Ocala Funding. Allen admitted that in an effort to cover up the hole and to mislead investors, he told a co-conspirator to produce reports that concealed the hole. He also admitted that he knew that these misleading reports were sent to Ocala Funding investors and other third parties.
Allen also admitted in court that he kept the chairman of TBW informed of the collateral shortfall, and that in the fall of 2008, Allen was told that the hole had been moved from Ocala Funding to Colonial Bank. At the time that TBW ceased operations, the hole was approximately $1.5 billion. According to court documents, as a result of the Ocala Funding fraud scheme, Freddie Mac, Colonial Bank, and Ocala Funding investors believed they had an undivided ownership interest in thousands of the same mortgage loans.
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Taylor, Bean & Whitaker Mortgage Corp.’s former chairman, Lee Farkas, ordered data sent to Colonial Bank for nonexistent loans in an effort to cover up the company’s growing deficits, a company ex-president said.
Raymond Bowman, 45, testifying yesterday for the government in federal court in Alexandria, Virginia, said Farkas in 2003 explained that the sale of “dummy” loans, known as Plan B, were necessary to prevent Taylor Bean from going out of business.
I told him I didn’t think it was a good idea, said Bowman, who pleaded guilty last month to conspiracy and to making false statements. Bowman said he thought the plan was unethical and possibly illegal.
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By December 2003, Taylor Bean was overdrawing its account by about $150 million a day, the SEC said.
Bowman said “Plan B” was put into place by Farkas and Catherine Kissick, head of Colonial Bank’s Mortgage Warehouse Lending Division.
“Lee said we had two options,” Bowman testified. “Not do it and shut the company down. Cathy would lose her job and probably go to jail. Or, borrow money through Plan B, pay her back, and move forward.”
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Desiree Brown, former treasurer of Taylor, Bean & Whitaker, the mortgage lender allegedly behind the August 2009 collapse of Colonial Bank, pleaded guilty in March to conspiring to commit bank, wire and securities fraud. Federal investigators linked TBW to a $1.9 billion scheme that defrauded the Federal Housing Administration, private investors and the Troubled Asset Relief Program. Montgomery, Ala.-based Colonial Bank ($25 billion in assets) was TBW’s biggest lender.
Brown, 45, of Hernando, Fla., could face up to 30 years in prison when she is sentenced June 10 by a U.S. District Court in Virginia. And more charges are expected from a separate enforcement action filed by the U.S. Securities and Exchange Commission against Brown.
The fate of Lee Farkas, once at the helm of TBW, remains to be determined. Farkas’ criminal trial began April 4 in Virginia. Farkas has pleaded not guilty to the 14 counts of conspiracy, bank fraud, wire fraud and securities fraud brought against him last year for his connection to TBW scheme.
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As the former senior executive officer with Freddie Mac, Paul R. Allen joined the Ocala-based company initially as a consultant, eventually migrating over as the full-time CEO in charge of all company operations in August 2003.
As prosecutors began laying out his direct examination testimony for the jury Monday afternoon, Allen, 55, touched on the often grand promises extended by Lee Farkas, the company’s chairman, during his six-year run with the residential mortgage lender until it ceased all lending operations in August 2009 and eventually filed for bankruptcy.
For instance, when Farkas was leading a $300 million capital raise for Colonial BancGroup Inc. in 2009 so the bank could meet conditional approval for $550 million in TARP bailout funds, Allen said Farkas offered him a $5 million equity bonus that he could use to buy Colonial stock.
That figure stood out because in an average year, a typical bonus for him was about $100,000, said the former CEO. The TARP deal never went through and Allen never received that promised $5 million bonus.
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On his part, Allen said he concealed the existence of this collateral shortfall on the monthly reports sent to credit rating agencies like Moody’s Investors. Established in April 2005, Ocala Funding sold commercial paper to investors to generate additional funding for Taylor Bean to originate and service residential mortgage loans.
By 2007, Ocala Funding restructured and brought in two new investors, Deutsche Bank and BNP Paribas. This helped funnel in $1.75 billion to the entity and pay off the old investors.
“Is that how you were supposed to use the money?” Assistant U.S. Attorney Charles Connolly asked Allen.
“No, sir,” the witness replied.
A former senior executive at Freddie Mac, Allen described Farkas as “a micromanager” who reached “far down the organizational level to have one-on-one conversations with people.”
Following one such unapproved discussion with a Colonial official, Allen said Farkas fired off a single-line missive to his email inbox, which read, “I am going to KILL you,” an exhibit that was published for the jury.
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“There was that hole and if we were caught between a rock and a hard place, we would go to them and say, we need Plan B [loans],” Brown testified.
“We were stealing money,” she added.
Speaking in a deep, almost flat tone, the 45-year-old Hernando resident told the jury that Farkas’ residence, complete with a cabana and swimming pool, was “beautiful” — “kind of like walking through Silver Springs attraction,” she said, which she described for the courtroom, as “like a garden.”
“I used to say, if he wanted to drive a different car to work each day, he could — for a month at least,” the witness said, adding that her boss did use company funds to pay housekeeping staff.
“All Arizona homeowners should be interested in these changes to the Arizona foreclosure statute. It would require the recording of a certification regarding the complete chain of title prior to any non-judicial foreclosure not conducted by an originating lender, or the sale would be voidable. Attorney’s fees would be awarded if a homeowner had to sue to enforce this.”
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Not surprisingly MERSCorp hired professional lobbyists to fight the bill.
“The bill passed through the Senate Republican caucus yesterday. MERS has reportedly retained Tri-Advocates, via Squire Sanders law firm (thought they used Quarles Brady law firm in Arizona?) to kill our bill, SB 1259, on Monday. Why are they so afraid of truth telling? A foreclosing party should be legally authorized. It should be easy to come up with a summary of transfers that must have already occurred at foreclosure, for the conveyances of real property interests in the deeds of trust to be legal. I’m glad that we’ve had an opportunity to create new jobs for lobbyists in Arizona but SB 1259 should pass. It’s a no brainer for Arizona citizens who oppose the theft of houses, and support transparency.
The bill should get a vote on Tuesday or Wednesday by the full Senate.”
Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:
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You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.
According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:
“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”
“I love that reruns of the Sopranos are back on. Remember Tony Soprano and the guys and the dark humor of the mafia? If they didn’t like someone, they were whacked….disappeared. But as I woke up this morning, I read on 4Closurefraud something that really blew my mind. It was an absolutely disturbing post from Mandelman Matters where he suggested that the banksters were able to make an entire piece of filed legislation….DISAPPEAR.“
Arizona State Senator Michele Reagan, was first elected to serve in the Arizona House of Representatives in 2002. In 2010, she was elected to the Arizona State Senate. She is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation.
Well, as you might remember from the article I posted on February 23rd of this year, she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA.
Apparently, Senator Reagan found herself having a dickens of a time finding out who exactly owned her note, and she wasn’t at all happy about it. So, in response, and working with Arizona attorney, Beth Findsen, she sponsored Senate Bill 1259.
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But that’s nothing more than just the industry’s standard scary bedtime story, nothing to get too excited about… at least that’s what I thought at the time.
So, I posted my article on Senator Reagan’s S.B. 1259 this past February and waiting anxiously to hear about its passage by the House. The governor, smart money was already saying, would sign the bill upon its passage. This was going to be good… don’t you just love Arizona, was all I could think to myself.
It was perhaps a little over a month later when I found myself packing my suitcase, about to leave for the greater Phoenix area on my second annual pilgrimage to watch Major League Baseball’s Cactus League during Spring Training.
I called an Arizona foreclosure defense attorney, Don Loeb, who lives in Phoenix, and who had suggested that we meet for dinner during my stay in the Valley of the Sun, and while I had him on the phone, I asked him about the status of Senator Reagan’s bill, as I had been unable to find anything about its status online. In fact, when I had searched for information on-line, S.B. 1259 seemed to be about something about firefighters… I was sure I was doing something wrong.
What I heard Don say, however, made no sense to me whatsoever and it simply wasn’t sinking in for the first minute or two… Don said S.B. 1259 was gone, replaced by something having to do with firefighting… he said I needed to speak with Beth Findsen to get the details.
You need to link here to follow Mandelman Matter’s conclusions:
Two days ago I posted this article. A very short time after posting it Karl Denninger posted his opinions on the same event in “The Market Ticker”. Today he reports bearing fruit:
CBS 5 News wanted to know what happened so we sent our crew to the source to find out.
“The bill was very simple, this bill was to show people where your note is at,” said state Sen. Michele Reagan.
What started out as a half a page homeowner bill ended up anything but. When Reagan sponsored SB 1259, she never anticipated any problems.
“It sailed through the Senate, 28 I believe to 2, which is a good vote,” Reagan said.
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Oh, and why did it get killed?
“Just to be clear, representative, it was solely your decision to not hear the original bill in committee, right?” asked reporter Elizabeth Erwin.
“That is correct, yes,” McLain answered.
McLain said the bill would have given folks in foreclosure false hope and given those who just don’t want to pay their mortgage a loophole to get out of forking over the cash.
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How did she come to that conclusion?
“I call it the ‘lobbyists employment act’ because I had banker lobbyists, down (at the capitol) like crazy trying to kill this bill in the house,” said Reagan.
“I’ve got to ask, did lobbyists have anything to do with your decision?” Erwin asked McLain.
“Well, there were people that came and talked to me about it,” she responded. ”She said her information on this bill came from the bankers.”
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Comment / Opinion
Pause for thought – was there any “quid pro quo” for Ms McLain or any other party involved ?
Remember Arizona’s Senate Bill 1259 that would have required servicers to produce a declaration that they had the proper chain of title prior to foreclosing on someone’s home? You know… the one that passed the Arizona Senate 28-2 that I wrote about back on February 23rd of this year?
Remember maybe a month ago when I tried to follow up to see how the bill was proceeding in the Arizona House of Representatives… only to find out that on the way to the House… it disappeared… the text replaced by some bill about firefighting with the same number? And no one was saying a word about it? If you missed it, I wrote about ithere.
Okay, well… it appears that the story is not over yet.
“It seems that one Arizona homeowner set out to revive the essence of the bill, drafting an amendment and recruiting Rep. Carl Seel to propose that it be added to Senate Bill 1474, being sponsored by Senator Ron Gould.
His name is Darrell Blomberg, and he’s a Phoenix area Realtor, and a past president of one of the local boards of Realtors… who is now involved in auditing trustee sales for homeowners. Basically, he looks for some basis upon which a sale might be cancelled, or at the very least postponed. He acknowledges that it only represents a temporary solution, but it’s often important to the homeowner nonetheless. He was actually working on one such audit for Rep. Seel, which is how the two came to know each other.
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One thing though… from what Darrell explained to me, Carl Seel must have been in a very good mood the day of his unexpected tardiness, because even though he had been previously turned down twice for his own loan modification, two days before he showed up too late to propose the amendment, Ocwen granted him a PRINCIPAL REDUCTION that reduced his mortgage to $88,000 from roughly $190,000… that’s a reduction of approximately 56% give or take a few points one way or the other.
Now that is lucky, was all I could think to say. Really lucky, considering it was Ocwen, a servicer I’ve been told is among the most difficult when it comes to modifying loans. In fact, it’s almost like being the single-ticket-lottery-winner-three-days-in-a-row kind of lucky, wouldn’t you say?
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The Other Side of the Issue…
From what I can discern from talking to various involved parties, the consensus is that any bill that requires the banks or mortgage servicers to even discuss the issue of proper chain of title as being part of the foreclosure process is unquestionably doomed to failure in Arizona’s House of Representatives and therefore, there is no point in sending such a bill to the House… it is nothing more than an exercise in futility.
The problem with this line of thinking as it pertains to SB 1259 is that it subverts our democratic process. The Arizona state senate voted by a margin of 28-2 to pass SB 1259 into law, and the way our bicameral legislature works… when it works… is that next the House gets to vote.
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Comment / Opinion
Do Arizona House of Representative members represent their constituents or banking lobbies and mortgage servicers? —- Twain Jr
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