Part of Iowa FED statute unconstitutional

A part of the Iowa Forcible Entry and Detainer (FED) statute has been declared unconstitutional by the Iowa Supreme Court. The FED statute is that part of the Iowa Code which sets forth the procedures for eviction. The code section at issue states that residential tenants can be informed of their eviction hearing by certified or restricted certified mail, whether or not the tenant signs a receipt for the notice.

Somehow Iowa legislators decided that just putting something in the mailbox was sufficient to give someone notice that there was going to be a hearing which would determine whether or not someone would be thrown out of their home. The Iowa Supreme Court determined that this is not notice at all. A tenant might not even get notice that the certified mail is waiting for them until after the hearing date. I have never understood why, in Illinois, the sheriff needs to put the documents in someone's hand, but in Iowa landlords were allowed just drop a note in the mail.

Here is the opinion.

Blue Seal Staffing Scam

Wow, it looks real. We see a lot of certified checks here, and this thing looks REAL. It even does that "VOID" thing in the background when you copy it. Kudos scammers. Except next time, it should say DOLLARS and CENTS, not DOLLAR and CENT. But other than that, top notch, really.

It came in this morning's mail accompanied by a letter from my new bestest friends at Blue Seal Staffing in North Carolina. But strangely the letter came from Canada. Good day, eh? I have been selected to be a mystery shopper! So, here is what I am supposed to do:

1. Deposit the $3,480.

2. Keep $300 for my first week's pay!

3. "Evaluate" Money Gram or Western Union by sending $2,900 to one of Blue Seal Staffing's training agents. Why we couldn't evaluate them for $29 is indeed a good question, and one that will be answered in a moment.

4. Pay the transfer fees of $180.

5. Go buy $100 worth of merchandise at one of several retailers, ostensibly evaluating their service. And I get to keep the merchandise!

That sounds just great, eh? They even did their math correctly. If I do good, I might even get a raise!

Here is what is really going to happen if I went along with this scam. I would deposit the check in my account. Since it is a cashier's check, the funds will probably be available in three days or less. I "keep" my $300.00. I send their "training agent" $2,900. I pay Western Union $180 (does it really cost that much to send money via Western Union? Yowza.) I spend the other $100 on trinkets at Sears. Since I want that big raise they promised me, I will send Blue Seal Staffing the forms with all of my personal information. By the time that cashier's check wends through the byzantine maze of banks, I will have spent $3,180. Then my bank will tell me that the check was a forgery, and I get to cover that money I sent.

Well, I thought I would try something different and contact the local authorities to see if they would like to have fun with these folks.

Remember, if it sounds too good to be true........

Georgia Attorney Disbarred for Mortgage Fraud

The Georgia Supreme Court has disbarred a Georgia attorney for mortgage fraud. According to the opinion:

"The complaint in S09Y0485 is based upon Moore’s service in June 2006 as the closing attorney for a real estate transaction. At closing, the HUD-1 settlement statement listed a sales price $9000 higher than the price listed on the sales contract. The settlement statement also listed “cash to seller” of $16,329.84. Of this amount, the seller received $8,079.84 through a wire transfer and Moore wrote a check to the seller for the balance, but gave the check to the buyer’s loan officer. The check has two endorsements, the first from the seller, which the seller’s wife contends is a forgery, and the second from a third person who purportedly loaned money to the buyer to cover the buyer’s down payment."

Sound familiar? You might think, well heck, maybe this poor guy had no idea that the money wasn't going to the seller, but there are enough red flags here to start a Chinese marching band. Why didn't the purchase price match the purchase agreement? He wired part of the money directly to the seller. Shouldn't he question why he wasn't wiring the full amount to the seller? Why did he give the check to the buyer's loan officer. Wouldn't it be more appropriate to give it to a representative of the seller, if not the seller himself? When these kind of things come up at closing, the closing agent and the attorneys have a duty to ask questions.

(More) Something local

Two more players have been indicted along with Mary Pat Harper. The buyers who were working with Ms. Harper, Darryl Hanneken and Robert Herdrich, have been indicted on eighteen counts of wire fraud and five counts of bank fraud. Yowza. I have a feeling the US Attorney is not done yet either. According to the indictment, the above-referenced frauds were perpetrated by Mssrs. Hanneken and Herdrich (H&H) "and others." Note: that's "others," plural. Particularly interesting is Paragraph 7 of the that part of the indictment entitled "The Scheme" which says:
"It was further part of the scheme
that HANNEKEN and HERDRICH,
along with the real estate agents,
mortgage brokers, and attorneys,
intentionally concealed from each
financial institution or mortgage
lender the existence of the lower
actual price and the kickback."

In case you haven't read the previous blog, this is the old dual contract scam. There would be a contract presented to the seller which showed a price well in excess of what the seller actually wanted for the property. A page tacked onto the back of the contract would say that extra money was to be given to the buyer after closing. This extra page was "somehow" removed from the contract when it was presented to the lender. This is bad because the lender doesn't know how much the purchase price actually is.

For example, if you agree to buy my pen for $100 (hey, I have cool pens--I make them myself), but I am going to give you $50 back when you buy it, how much did you actually pay for it. Fifty bucks, right? The only thing is, the lender didn't know about that money that was given back to the buyer because that page was missing, and the parties to the transaction didn't put it on the HUD-1 Settlement Statement. And no, that wasn't the buyers' money, it was the lender's, and it was provided for the sole purpose of purchasing the property (especially considering they never even made a payment on some of these properties). This money was not provided to line the buyers' pockets.

Go ahead, read that quoted paragraph again. Yes, they said "attorneys." Did the attorneys know about the fraud? Looks like the US Attorney thinks so. Did they attorneys do anything to stop it? It sure doesn't look like it. Why not!? It is our job to explain the law to our clients. Most of the time, they follow our advice. Granted, we do not have a duty to wrestle them to the ground to stop transactions like this, but it is damn easy to refuse to be involved. I have walked away from a few transactions--it is not difficult at all.

I looked up a few of these transactions to see what kinds of prices and price changes were involved. Here are a few:
Purchased by H&H for $110,000, sold after the foreclosure for $52,000
Purchased by H&H for $125,000, sold after the foreclosure for $50,560
Purchased by H&H for $125,000, sold after the foreclosure for $52,000
Purchased by H&H for $110,000, sold after the foreclosure for $40,000
Purchased by H&H for $115,000, sold after the foreclosure for $34,900

There are 23 properties referenced in the indictment.

"So what," you say. "They done bad and they got caught, so all is well." Not really. Imagine the impact on neighbors of these properties. Appraisers use comparisons of similar properties (called comparables) when they appraise properties. Say you purchased a property in the dizzying heights of the H&H buying spree. H&H bought at least 23 properties in what appears to be a fairly small geographic area. So, now the comparables are skewed by these over-inflated prices--remember the pen analogy--they didn't really pay the price which appears in the public records. You paid too much, because you didn't do any kickbacks under the table at closing. Now you want to sell or refinance. Based on these new prices, we have some new information for our comparables. Same houses, but different prices. Based on the examples above, your house might now be worth almost 40% less than it was just a few years ago. Don't forget that these properties probably have been sitting vacant for months during the foreclosure proceedings. Now aren't you glad the FBI and the US Attorneys office are taking this seriously? I know I am.

I will keep my eye on PACER (the Federal Court system's online access portal) to let you know of any new developments. Please send me a comment if you see anything else on this case, or if there is any other subject you would like to see discussed.

Thanks to Joshua for bringing this one to my attention.

Private cause of action for consumer fraud

A new law just took effect in Iowa which allows private causes of action for consumer fraud. Previously, if a consumer was defrauded, only the Attorney General could bring suit. So basically, if you were defrauded, it was at the sole discretion of the Iowa Attorney General if anything would be done about it. Now, any consumer who is defrauded can bring a lawsuit to make things right. Under the new law, the consumer can be awarded attorneys fees as well as damages up to three times the amount of actual damages.

Septic Inspections in Iowa

As of today, if you have a septic system in Iowa, you will need to pump it and have it inspected before you sell the property. There are a few exceptions, but if it is a regular old sale of residential real estate, you are going to need a "time of transfer inspection." And not just any inspector can do these inspections. It has to be a "certified time of transfer inspector who has been certified by the Iowa Department of Natural Resources.

It appears there are fewer than 250 inspectors for the entire state of Iowa. With 99 counties, that's only about 2.5 inspectors per county.

The county recorders will not record your deed without an inspection report from these special certified inspectors attached to your groundwater hazard statement.

Should be lots of fun for a while.

Something local

Mary Pat Harper, formerly Mary Pat Harper was indicted in the U.S. District Court for five counts of wire fraud. Look through my previous posts and see if I do not deserve an award for not saying, "I told you so."

Ms. Harper was a real estate agent in the Quad City area. Her license is "expired" according to licensediniowa.gov. Ms. Harper represented two individuals who purchased numerous properties in the Americana Park subdivision in northwest Davenport. Here is how the scheme worked: The two purchasers would agree to buy a house for a certain price, say for example, $110,000. Ms. Harper, who apparently prepared the purchase agreements, would attach an addendum which stated that the buyers would receive $10,000 back from the seller at closing. Essentially, the seller would be receiving $100,000 for the property ($110,000 minus the $10,000 the seller would give to the buyer at closing). Ms. Harper would fax the purchase agreement to the mortgage broker, but somehow the addendum would not be attached by the time it got to the actual lender. Because of this omission, the lender would be under the impression that the purchase price was $110,000 with no credit back to the buyer. The $10,000 would not appear on the settlement statement, so the lender would have no way of knowing that the buyers were not actually paying the full $110,000 for the property.

She did this at least five times. Then the buyers stopped making their payments. Then the properties were foreclosed. Then likely you and I bailed someone out, the properties sat empty and deteriorated, and property values went down.

So, buyers, sellers, real estate agents, real estate brokers, closing agents, appraisers, and especially attorneys take note: If it is not on the settlement statement, it does not happen. If you do prepare or sign a settlement statement that does not accurately reflect all receipts and disbursements, look for nice folks in dark suits and black SUVs to stop by your office. Soon.

See, I never said, "I told you so."

Thank you FBI and U.S. Attorneys! Keep up the good work.