Oakland Fraud Destroys Endangered Species


If you think the Oakland Police Department scandal is unique, and that other parts of Oakland government operate without similar corruption you are sadly wrong. The Planning Department has hit a new low with the production of a fraudulent document designed to obfuscate the fact that Planning screwed up on the approval of a project that could impact an endangered species. This is not the first time the City of Oakland has shortchanged the State and federal endangered species acts (ESA) and the California Environmental Quality Act (CEQA).

Presidio clarkia

Presidio clarkia

Presidio clarkia (Clarkia franciscana) is a diminutive annual flowering plant that occupies about five acres on the planet and is found in only two areas. One is the namesake Presidio in San Francisco where the plant was first found in 1956. Years later, in 1980 the species was first described in the Oakland hills in the Crestmont area on the Serpentine Prairie that is part of Redwood Regional Park. Due to its limited distribution and the threats to the species, Presidio clarkia was listed as endangered by the State of California in 1978 and by the U.S. Fish and Wildlife Service in 1995. Presidio clarkia is the only clarkia species that grows on serpentine soils. The Oakland population has been highly fragmented by development, much of which took place before ESA’s and CEQA. For more on Presidio clarkia the US Fish and Wildlife Service 5-year review of the species is available here.

A big feature of the ESA’s and CEQA is the philosophy that the impacts of a project should be mitigated to ensure the continued existence of the species even if take of the species occurs during development. The intent of mitigation measures is to insure the long-term survival of a species; projects should not lead to declines in the viability of a species.

I have gone through the City’s files for all of the developments that have taken place in the Oakland Hills that impacted Presidio clarkia and what I found is frustrating and unconscionable. The City has never enforced the mitigation measures for any project that has impacted Presidio clarkia. Never. Ever. The 1988 Oakland Hills Tennis Club expansion proposal led to the discovery of a population of Presidio clarkia on the site, at the time only the third known population of the species. The California Department of Fish and Wildlife, then the Department of Fish and Game, made recommendations that caused the project to be redesigned so as to reduce the potential for impacts to the species. As the documents for the project show, one of the requirements in the City’s approvals states, “[t]he project sponsor shall develop a management plan for the ongoing protection of the plant population and its potential habitat. The plan shall be reviewed by the State Department of Fish and Game and shall be approved by the Director of City PIanning prior to issuance a certificate of occupancy.” After multiple requests to the City no record of the Plan can be found, and in the years since the 1998 project was completed, the Tennis Club has added a deck to the end of the building that impinges on the Presidio clarkia population.

Next door to the Tennis Club is the Sunrise Assisted Living Care Facility. In 1997 during biological surveys for the project Presidio clarkia was found on the site. The City’s approval of the project included a mitigation measure providing a “plan shall be submitted to the California Department of Fish and Game (CDFG) and the Zoning Manager for review prior to the issuance of any grading or building permit and no such grading or building permits shall be issued until both the CDFG and the Zoning Manager have approved the plan.” No plan can be found in the City files, and there is no evidence any of the required Presidio clarkia mitigation measures were implemented.

On September 3, 2015 while driving up Redwood Road I observed a notice for a project application posted at the corner of Old Redwood Road. Old Redwood Road has a population of Presidio clarkia that was first documented in 1991. The project site at 5150 Redwood Road has in the past had Presidio clarkia present on the property. When I got home I emailed the planner for the project, Aubrey Rose, about the presence of Presidio clarkia on the site and the need for environmental review to insure appropriate mitigation measures would be implemented to protect the species. Mr. Rose responded on September 4, 2015, “[t]his is a second story addition to an existing single story home – upper story additions are posted on site and closest property owners are notified by mail – the posting contains a preliminary determination, although the zoning approval did rely on this exemption – however, the building permit has not been issued; therefore, a HOLD has been placed on it while we investigate this matter further – talk to you soon.” When I contacted Mr. Rose on July 1, 2016 and asked to inspect the file for the project, I found no record of a HOLD from the City.

There was nothing further from the City, and on April 20, 2016 when I passed the project site, I noticed that construction was underway. I again emailed Mr. Rose to see what mitigation measures had been put in place to protect Presidio clarkia during construction. He responded later in the afternoon “Good to hear from you, thanks for checking in – the zoning approval is attached – condition of approval #23 on pages 9-10 relates to the issue you raise; please take a look and advise, do you feel there is non-compliance with that condition?” I responded back the same day: “To be clear, even though there are endangered species on the site, no CEQA review was complete for this project? Please provide copies of the biologist reports for their surveys. I could not see any fencing in place at the site. What did the biologist find?” Rose responded shortly thereafter, “Thanks for the quick response – this particular project was exempt from CEQA; there was no biologist review or report – is there a breach to a condition of approval you noted? thanks again for your help on this.” My response: “It appears the City under condition 23.b. should have ‘evidence of compliance with these requirements to the City for review and approval.’ If you do not have the evidence, a report from a biologist, then the project is in violation of the COA’s [Conditions of Approval]. Additionally, my understanding of the CEQA Guidelines is that any project site with endangered species requires at minimum a mitigated negative declaration, if not a full EIR. This site has Presidio clarkia present. CEQA review is required. Presidio clarkia have just started blooming, making them identifiable. Any survey would have to have been done in the last week, and prior to the weed eating that took place on the site. Any report on the presence of the species should include mention of a reference site where the species is known to occur. The reference site is next door at what is known as the Old Redwood Road site. The CNDDB [California Natural Diversity Data Base] has all the information on local occurrences of Presidio clarkia. At the Old Redwood Road site today the species was in bloom.” Rose’s response: Thanks for responding, we share your concern for PC as well as any endangered or even threatened species of plant or animal in Oakland – as a 45 year resident of Oakland who grew up in the south hills, hiked Redwood and Joaquin Miller too many times to count, and attended Skyline high, I’m with you – I have a few quick questions that would help a lot:

-what would you consider evidence?

-what as you see it triggers the requirement for a report if a condition is not met?

-what proof do we have to provide to code enforcement staff that a condition was not met?

-have you noted the PC on this property?

-if so, have they recently removed some or all of the PC on site?

Thanks! we’ll get to the bottom of it, talk to you soon.”

On April 21, 2016 the dialog with Rose continued with my response: “In past years Presidio clarkia have been observed on this property and the adjacent property. This site is noted in the CNDDB as having Presidio clarkia present and is called the Old Redwood Road population. The requirements clearly state a qualified biologist was to survey the site. That means there would be a written report with the results of the survey. If the City does not have a copy of that report, the terms have been violated. The COA’s do not address the impacts to habitat for the species, and how habitat should be protected. Because Presidio clarkia is an annual species, the protections put in place have to protect habitat more than individual plants. The CEQA Guidelines make it clear that when a special status species is involved, CEQA review is required. CEQA review still needs to be done on the project.” Rose responded: “That’s good information, so you do feel the applicant is out of compliance – maybe I should make a site visit right away, are you available to meet me?” My response: “If the biologist has not surveyed to site, then they are out of compliance. I am not available today to visit the site. This project requires CEQA review. I was never sent a copy of the approval, or any other information about the project approval, even though I had inquired about the project. When was the project approval issued? The date of the approval is August 11, 2015, but I corresponded with you on September 4, 2015, and the Presidio clarkia conditions were not in the permit at that time.” The response: “Correct, and the approval was amended, your help on that was appreciated – fast forward to now: I communicated with the applicant this morning who put me in touch with the contractor – I put the contractor on notice to respond how they are or are not meeting the condition – sounds like you feel they will not be able to demonstrate, so we’ll be looking at next steps right away such as SWO, etc – talk to you soon.” My response: “What is the latest on this? The conditions of approval, if not followed, should be amended to make sure the habitat for the species on the site is not impacted by the project. Water run-off into the habitat area should be prohibited/limited since it is the time the plants are blooming and setting seed.” Rose Response: “They responded but it was inadequate – I asked for more information and did not receive – so I’ll go see the Inspections Dept for next steps – talk to you soon.”

My April 25, 2016 communication to Rose: “I drove by the site on Saturday and it appeared some work was being done. What is the current status of the project?” Rose response: “I spoke with the contractor today: there is no work or staging at the unimproved area (upslope beyond a retaining wall)” My response: “Where is the biologist’s report, and where is the fencing around the potential habitat for the special status species?” April 26, 2016 reply from Rose: “There is no report, but I can speak with them about fencing” My reply: “The biologist’s report is how the fence location would be determined. Will you be stopping the project until there is the required CEQA review?” Rose’s reply: ” If we need to; but, wouldn’t the fence encircle all undeveloped area? There is no work or staging in the undeveloped area btw” My reply: “CEQA review is the process by which it is determined what mitigation measures are appropriate to protect a species on a particular project site. Without CEQA review the project is in violation of the law.” I received no response from Rose to this last email.

On May 10, 2016 I received an email from Scott Miller the Zoning Manager for the City stating in part, “I am reviewing the situation at 5150 Redwood Road and hope to have a formal response to you in the next few days.” This was followed by Mr. Miller’s letter of May 19 where he mentions condition of approval #23, but does not explain why a biological survey of the site never occurred.

After more refusals to answer why a biological survey was not performed, even though the COA’s do not make the survey optional, on July 1, 2016 I went to the offices of planning and asked to review the file for the project. There was nothing in the file but my email correspondence with Rose and Miller and the original application and a set of plans. The signed copy of the Approval was nowhere to be seen. There was no communication from the project applicant, no records of phone calls, no record of the September 2015 HOLD, or the May 13, 2016 site visit referred to in the letter. I asked Mr. Rose where a  signed copy of the Approval was and he said he did not have a copy, which I found hard to believe. COA #6 requires a copy of the approval be attached to the submitted plans. As a result I went over to the building department and got a copy of the plans for the project with a copy of the approval attached. The copy of the approval attached to the plans does not have COA 23. As anyone can see when looking at the Approval sent to me by Rose, there is a large blank space on Page 8 of the document after COA #22. COA #23 start on the next page and then the signature line is on Page 10. The Copy of the Approval that  is attached to the plans in the Building Department stops at COA 22 on page 8 with a signature line right below the conclusion of COA #22. Mr. Miller’s signature is on Page 1 of the copy attached to the plans, so it is a signed copy.

The project at 5150 Redwood Road is minor, and the impact to Presidio clarkia during construction could easily be mitigated. COA #23 would be similar to what the mitigation measures for the project would have been had CEQA review taken place. But without the biological survey of the site, it is impossible to know what impacts to Presidio clarkia have occurred. More importantly, and probably the reason the City cut corners, is that CEQA requires biological surveys before project approvals. Because Presidio clarkia is an annual species, and it blooms between April and July, and surveys must take place during the blooming season to ensure proper identification of the plant, the project would have been delayed a year.

Ultimately, what occurred with this simple problem is reflective of the ethical climate in the City of Oakland where we have a police department scandal and a Mayor more concerned with City employees leaking scandalous information than the public’s right to know.

There can be no conclusion other than the document sent to me on April 20, 2016 that purported to be the Approval for the project at 5150 Redwood Road is a FRAUD. What will the City of Oakland do?



DOJ Confirms: Holders of Securitized Loans Cannot Be Traced

In a filing unsealed on June 3, 2016, the Department of Justice (DOJ)  confirms what many of us have known for years. Nobody, not even the government with massive resources can determine who owns your loan has the right to collect on your mortgage.

The information comes from case files unsealed on June 3, 2016 by  federal Judge Yvonne Gonzalez Rogers of the Northern District of California in the case of the United States v. Discovery Sales, Inc. The case involves some 325 fraudulent loans originated by Discovery Sales, Inc. (DSI) between 2006 and 2008, many of which were then sold to Wells Fargo Bank and JP Morgan Chase who eventually sold them into securitized trusts.The Discovery Sentencing document on page 9 states:

The originating lenders who made loans to purchase DSI properties, including Wells Fargo and  J.P. Morgan Chase, generally would not keep the mortgages and thus did not end up losing money as a result of the DSI fraud scheme. Instead, they would sell the mortgages to other banks who would package them in securities that were sold to other investors. These securities failed when the underlying mortgages went into default. It was impossible to trace the majority of the mortgage loans on the over 300 homes sold by DSI that were the subject of the FBI investigation; it would have been harder yet to identify individual victims of the fraud given that the mortgages were securitized and traded. (Emphasis added.)

 To add more outrage to this case, while the government acknowledgedownloads the damages from the fraud scheme resulted in $75 million in damages, the amount being paid by DSI in restitution is $3 million to Fannie Mae and Freddie Mac. That is all, along with an $8.5 million fine that the government will pocket. Once again the government is taking all of the money from a settlement with a fraudulent mortgage lender, and giving nothing to the people who were damaged.The banks were not charged even though it states in the sentencing document:

During the time of the information, DSI worked with two “preferred lenders,” Wells Fargo Bank and J.P. Morgan Chase. Certain employees and managers of those two preferred lenders knew about the incentive programs offered by DSI and the builders, and knew that the incentives were not being disclosed in the loan files.

Even though Wells Fargo and JP Morgan Chase had the information that the loans were fraudulent, as per what has become standard procedure, the DOJ brought no charges against the banks. There is nothing new about banks selling off defective, fraudulent loans to securitized trusts, and once again the DOJ has found no reason to prosecute too big to fail banks for fraud.

There is much more to this story which we will not delve into at the moment, including the history of the Seeno family who owns DSI and their connection to other funny business.

Disorder in the California Courts

We assume when we go to court the judge will be impartial and give equal weight to both sides arguments and make a thoughtful, just decision based on law and precedent. If you go to court in California as a self-represented litigant as we did, you soon learn that justice is a myth. Between judges who assume you do not have an attorney because you do not have a viable case or other reasons, and the corporate law firms that will lie and cheat to win their cases, people in court without attorneys representing them have little chance of success.

Judges have a duty to make disclosures of potential conflicts of interest anytime “a person aware of the facts might reasonably entertain a doubt that the judge would be able to be impartial.” The California Code of Judicial Ethics canon 3.E(2)(a) provides “[a] judge shall disclose information that is reasonably relevant to the question of disqualification under Code of Civil Procedure section 170.1, even if the judge believes there is no actual basis for disqualification.”

Our nightmare began in 2005 when we purchased our home in East Oakland, California.  Unknown to us at the time, the mortgage broker we used forged, backdated and altered figures on the loan application used to obtain the mortgage. We did not learn about this fraudulent document until 2011 when we received the forgery along with other loan related documents. In 2005 when we were going through the loan process I had a feeling that something was not right, but nothing about the process caused us to see a red flag warning of the fraud.

After receiving the forged document we started investigating how to go forward. I spoke with attorneys, none of whom were willing to take on the case because as one told me “you cannot win.” I assumed with such a blatant case of fraud, the case would be winnable. What those attorneys did not explain was that the reason you cannot win. Because of the bias of judges and the court system the system is corrupted. The courts in California have been taken over by the influence of the big law firms that represent the banks and big corporations. Judges rely on clerks and others to do the work for them. Corners are cut by all in the court system, and often judges fail to even read papers, and leave all the work to clerks and research attorneys. Assumptions are made and facts are ignored. Judges and justices take the easy way out based on the parties and the attorneys representing them. Those viewed as the most powerful, win. Underlying this shortcut is the appeal process where the party who is the respondent in the appeal becomes the representative of the court’s decision.  No judge wants a non-attorney defending their decision in an appellate court.

We made the decision to go forward on our own and filed a case in Alameda County Superior Court in February 2012. The case was assigned to Judge Marshall Ivan Whitley. I can now say that I doubt Judge Whitley read a single document in the case. Because Judge Whitley never disclosed his connection to defendants in the case I assume all the work was done by clerks and research attorneys and the judge never reviewed any of the papers in the action.

Judge Marshall Whitley

Judge Marshall Whitley

Judge Whitley had connections to three defendants in our case that required disclosure on the record. Two of those defendants, Najarian Loans, Inc (now NL, Inc.) and RPM Mortgage (RPM) are effectively the same company, alter egos in legal terms, because they have the same board of directors and operate from the same address. Wells Fargo Bank was named as a party because in October 2011 Bank of America told us Wells Fargo owned our mortgage. After we filed suit Wells Fargo alleged that a securitized trust they are trustee for, SARM 2005-15, owned the mortgage. To this date no one has been able to provide definitive proof of the identity of the owner of our loan. What we were unaware of at the time was that Judge Whitley had multiple loans with these parties, and in March 2012, the month after he was assigned the case, he signed for a new loan with RPM and Wells Fargo agreed to subrogate the loan they had previously made to Whitley to the new RPM loan. Considering ours was a case involving fraud in the origination of the mortgage for our home purchase, the fact that the judge was involved in originating a new home loan with defendants in the action while handling our case is important. This is exactly why “a person aware of the facts might reasonably entertain a doubt that the judge would be able to be impartial.” Even though Judge Whitley had a duty to disclose this information he was silent. Most of the defendants demurred to our complaint, but three parties did answer. In October 2012 Whitley sustained the demurrers allowing us leave to amend. As a result we filed a first amended complaint (FAC). All of the defendants demurred to the FAC and instead of consolidating the hearings as he had done with the demurrers to the original complaint, Whitley bifurcated the hearing dates. About half the defendants had a hearing in early January 2013 and the others for April 2013. At the January hearing Whitley sustained the demurrers but without leave to amend the complaint. He dismissed our complaint against those defendants. Bifurcating the hearing dates meant we would not be able to appeal all the decisions in a single action because the time limit to appeal is 60 days after the ruling. We filed an appeal to the first dismissals in March 2013. Before the hearing on the second set of demurrers, Whitley retired as a judge. The case was assigned to Judge Ballachey, who immediately disqualified himself and the reason for the recusal was never disclosed.

Judge Lawrence John Appel

Judge Lawrence John Appel

The case was then assigned to Judge Lawrence John Appel. In May 2013 Judge Appel sustained the demurrers without leave to amend, citing in his ruling Judge Whitley’s October rulings as a major part of the basis for his decision. We then appealed Appel’s decision, creating a second case in the appellate court.

The first appellate case was assigned to a three judge panel that included an Alameda County Superior Court judge, Steven Brick, who was serving as a Justice Pro Tem for the appellate court. Unknown to us at the time, Ju[dge]stice Brick was retired from the law firm of Orrick Herrington & Sutcliffe (Orrick). One of Orrick’s long-time and ongoing clients is Wells Fargo. That would not create a conflict, but what does create the conflict is that according to Brick’s Statement of Economic Interests, Form 700, he receives between $10,000 and $100,000 in retirement income from Orrick each year. That does create a conflict because Brick is compensated by Wells Fargo through Orrick. Under the California Code of Judicial Ethics canon 3E(4) appellate justices are charged with disqualifying “himself or herself in any proceeding if for any reason: (a) the justice believes his or her recusal would further the interests of justice; or (b) the justice substantially doubts his or her capacity to be impartial; or (c) the circumstances are such that a reasonable person aware of the facts would doubt the justice’s ability to be impartial.” Brick had more conflicts than the Orrick money. Whitley was Brick’s supervising judge when Brick was first appointed to the bench in Alameda County. Given that Whitley had just retired, it would have been a slight to rule against his former supervising judge in ruling on the appeal. Brick wrote the opinion for the appeal that affirmed Whitley’s ruling with the other two justices agreeing. Unfortunately, in September 2013 when the appellate decision was issued, we did not know about any of these conflicts. We did not research the issue of judicial conflict because a judge has a duty to disclose his conflicts or to recuse him/herself.

Judge Steven Brick

Judge Steven Brick

Further research revealed that Brick has another troubling conflict in his resume. According to his resume he is a founding member, past President, and presently a member of the Board of Governors of the Northern California Chapter of the Association of Business Trial Lawyers (ABTL). Because of his membership in the ABTL and his position as a judge Brick receives “education” from the exact groups of lawyers we were battling in our case. On its website the ABTL declares it is “dedicated to promoting a dialogue between the California bench and bar on business litigation issues.” According to financial disclosures, Brick has regularly attended the annual meeting of the ABTL and ABTL has paid his way to the event, an amount that is near $2000 dollars annually. The Code of Civil Procedure section 170.9 prohibits a judge from accepting “gifts from a single source in a calendar year with a total value of more than two hundred fifty dollars ($250).” Unfortunately, the same code section provides a loophole that allows for unlimited spending on judges when it is for certain purposes, like attending an ABTL event .

Justice Therese Stewart

Justice Therese Stewart

The second appeal in our case went to the same division of the appellate court, but this time two of the justices on the panel hearing the case were not involved in the first appeal. The newest member on the panel was Therese Stewart, the first openly lesbian justice in the State of California who was appointed to the court in 2014 shortly before our case was heard. Shortly before the hearing on our case, the law firm of Bryan Cave which was representing Bank of America, MERS, and Wells Fargo substituted in a new lawyer, Robert Esposito, to handle the oral arguments. Esposito had worked with Stewart in defending gay marriage. Stewart had led the City of San Francisco effort to defend gay marriage, and Esposito was working with attorneys at his law firm Bryan Cave filing briefs in support of the positions Stewart was advocating in representing the San Francisco. Clearly they know each other and have worked together on finally legalizing the emotional issue of gay marriage. There is no doubt gay marriage is very important to Justice Stewart and Mr. Esposito, and that is exactly why Justice Stewart should have recused herself.

We learned of Judge Whitley’s disqualification just before we were to file our reply brief in the second appeal. We raised the issue at that time. In the ruling that affirmed the trial court ruling, the appellate court said we had not brought the issue to them in our opening brief and therefore they would not consider the issue. Case law is very clear, the rulings of a disqualified judge are void or voidable, either way they do not count.

We went back to Judge Appel and asked to have the earlier rulings thrown out because of the disqualifications of Whitley and Brick. After filing the writ proceeding to get the earlier rulings thrown out, we looked into Judge Appel’s economic disclosures. What we found was that he has between $300,000 and $3 million in money market accounts being managed by Bank of America and their subsidiaries. We then filed a verified statement objecting to the hearing before Judge Appel, as provided for in the Code of Civil Procedure section 170.3. The statement set forth the facts constituting the grounds for disqualification of the judge. Under the code a judge has ten days to respond with “a written verified answer admitting or denying any or all of the allegations contained in the party’s statement and setting forth any additional facts material or relevant to the question of disqualification.”  At the last minute on the last day to respond, Judge Appel responded, but did not admit or deny the allegations in our statement, but instead made claims about the evidentiary value of the facts contained in our verified statement. Appel could have asked another judge to rule on the matter, or he could have recused himself, but he did neither. Instead he forced us to go the next step which was to file a writ of mandate with the appellate court to disqualify the judge. The case was again assigned to the First Appellate District, Division Two, where we had been with both of our appeals.

The appellate court summarily denied the writ. This meant there was no written ruling explaining why Judge Appel was not disqualified. The justice who signed the order? Therese Stewart who has a conflict through her connection to Mr. Esposito.

After four years in the court system, we did not have a single ruling issued that did not involve a judge or justice who did not have some reason to disqualify themselves. I have filed complaints with the California Commission on Judicial Performance. I wrote three letters to the presiding judge of the Alameda County Superior Court. No one has done anything about these abuses. As the Commission on Judicial Performance (CJP) admitted in its June 2012 report, over a 20 year period the CJP dismissed over 90 percent of the complaints it received but even worse the CJP dismissed over 98 percent of complaints received from litigant/family/friend were dismissed. The CJP does not provide explanation for dismissals.

The Center for Judicial Excellence put out a report last month using the CJP’s own data showing how few complaints are investigated. This report followed up on a a report by Joseph Sweeney of Court Reform LLC that compared the prosecution of judges in California by the CJP to prosecutions of judges in Arizona, Texas, and New York. California has by far the lowest rate of judicial discipline.

The California Supreme Court explained the purpose of the CJP: “In making our independent determination of the appropriate disciplinary sanction, we consider the purpose of a Commission disciplinary proceeding-which is not punishment, but rather the protection of the public, the enforcement of rigorous standards of judicial conduct, and the maintenance of public confidence in the integrity and independence of the judicial system. (Adams v. Commission on Judicial Performance (1995) 10 Cal.4th 866.)

The checks and balances built into the Code of Civil Procedure and the Code of Judicial Ethics are not working. It is time to change the laws to restore public confidence in the judicial system.  It is time for the legislature to clean up this mess and bring justice to the so-called system of justice we have in this state.


Nancy O’Malley Spent Trust Fund Monies In Violation of State Law

In response to our continuing efforts to determine what Alameda County has done with the money in the Real Estate Fraud Prosecution Trust Fund (Trust Fund), County officials continue to stonewall, lie and obfuscate the truth. Since April 2014 we have made multiple requests and had extensive communication with the Auditor, District Attorney and the Board of Supervisors trying to get a full accounting for the Trust Fund. To date, we have received only a partial accounting of the Trust Fund that was implemented in 1996 and over the years has probably accrued $12 million all told. Because the County cannot account for the monies in the Trust Fund since its inception, it is impossible to know how much money is, or currently should be, in the account.

As a result of our questions about the Trust Fund, for the first time since becoming District Attorney, Nancy O’Malley submitted the annual report to the Alameda County Board of Supervisors (Board) that is required by Government Code section 27388 (27388). The Report by the Alameda County District Attorney on Real Estate Fraud Prosecution Trust Fund July 1, 2013-June 30, 2014 (Report) details the use of the Trust Fund monies as required by  27388. Beginning with her cover letter, and continuing throughout, O’Malley’s Report contains misinformation and paints a false picture of what in reality is a pathetic effort at prosecuting real estate fraud. In spite of the problems that were pointed out in the letter we submitted, the Board accepted the deceptive and flawed Report.

The Report was submitted with a cover letter bringing a different meaning to the word “recent.” O’Malley’s letter states, “[r]ecent amendments to Government Codes section 27388 now require the District Attorney to submit an annual report…” Senate Bill 537 was passed by the State legislature in 1995 codifying Government Code section 27388 and our letter detailed included the language requiring an annual report by the district attorney  in subdivision (d):

The county board of supervisors shall annually review the effectiveness of the district attorney in deterring, investigating, and prosecuting real estate fraud crimes based upon information provided by the district attorney in an annual report submitted to
the board detailing both:
(1) Facts, based upon, but not limited to, (A) the number of real estate fraud cases filed in the prior year; (B) the number of real estate fraud cases investigated in the prior year; (C) the number of victims involved in the cases filed; (D) the number of convictions obtained in the prior year; and (E) the total aggregated monetary loss suffered by victims, including individuals, associations, institutions, corporations, and other relevant public entities,
according to the number of cases filed, investigations, prosecutions, and convictions obtained.
(2) An accounting of funds received and expended in the prior year, which shall include (A) the amount of funds received and expended; (B) the uses to which those funds were put, including payment of salaries and expenses, purchase of equipment and supplies, and other expenditures by type; (C) the number of filed complaints, investigations, prosecutions, and convictions that resulted from the expenditure of funds; and (D) other relevant information provided at the discretion of the district attorney.

While 27388 was amended in 2000, 2003, 2005, 2008, and 2012, the requirement that the district attorney provide an annual report to the board of supervisors has never changed. What did change in 2012, as it had in 2008 was the increase in the fee that could be charged by a county for adding to the Trust Fund. O’Malley and Auditor Patrick O’Connell had no problem submitting a request to the Board of Supervisors on November 20, 2012 asking to increase recording fees collected for the Trust Fund. The 2012 Report states, “[p]ursuant to Government Code section 27388(d), the District Attorney submits annual reports to the Board of Supervisors describing the District Attorney’s efforts investigating and prosecuting real estate fraud which include an accounting of funds received and expended from the Real Estate Trust Fund during the previous year.” Further on the 2012 Report says, “[t]he District Attorney’s office shall administer the funds and submit the necessary reports as required by law.” Unfortunately, the DA’s office has been, at best, negligent in adhering to this requirement.

In neither report to the Board did O’Malley mention that in 2012, when the legislature passed SB 1342, it added the additional requirement in 27388 subdivision (e) that “[a] county shall not expend funds held in that county’s Real Estate Fraud Prosecution Trust Fund until the county’s auditor-controller verifies that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year pursuant to the requirements of subdivision (d).” Because O’Malley never submitted a report in 2013, it was impossible for the Auditor to verify that a report was submitted; therefore Alameda County could not expend the $953,482 in Trust Fund monies in fiscal year 2013-14 that the Report details. As the video (from 25:25 to 31:39) of the September 9, 2014 Board meeting clearly shows, O’Malley’s representative does not understand this part of the law and contends the DA’s office did not have to report to the Board last year. The 2012 amendments to 27388 made it mandatory for a report to be submitted to the Board by O’Malley if Alameda County wanted to utilize Trust Fund monies. Because the County did not follow the law the money must be replaced.

Page 1 of the Report states, “[t]his report also serves as a reapplication for funds from the Real Estate Fraud Prosecution Trust Fund for FY 2014-15 pursuant to Government Code §27388(c)(4).” Unfortunately that subdivision of 27388 does not apply to the district attorney of a county, only to a law enforcement agency, and the law clearly distinguishes between the two. Further on the Report mentions “predatory practices” without the caveat that, as we explained in an earlier post,  O’Malley’s office, along with other law enforcement agencies, has a policy to not prosecute predatory lending.

The facts behind the cases cited in the Report show how little O’Malley is doing about real estate fraud. The first case mentioned in the Report is that of William Hogarty. O’Malley’s office first received a fraud complaint against Hogarty in July 2010, but did not bring charges until after he was charged with “assault with a deadly weapon and threatening to kill someone.” Not mentioned in the Report is that on August 6, 2014 O’Malley’s office reached a settlement with Hogarty where the 16 felonies he was charge with were reduced to a single misdemeanor in return for a “no contest” plea.

The second case mentioned in the Report, that of Damon Williams, leaves out some key facts. I have spoken with Williams, and according to him, the person who convinced him to sign the allegedly fraudulent documents was given a non-prosecution agreement by O’Malley’s office in return for testifying against Williams. Also not mentioned is there has been a plea bargain offered that would reduce the charges.

Johnson Su, the third case mentioned in the Report is a complex matter that has involved ongoing civil litigation between himself and the complainant Cindy Chen since the 1990’s. If this is a case worth highlighting in the Report then how insignificant and meaningless are the cases that are not reported. The final case mentioned is another of the “Your Black Muslim Bakery” cases and is not a new case but in fact a rehashing of an old case that has taken some  time to be charged. The total damages involved in this case is $76,649, far less financial loss that would be involved in a single case of predatory lending. Overall the Report cites a total of 252 victims in charged cases over the last years with a total losses of $4,930,133. This works out to less than $20,000 per victim, which in real estate fraud is the small fish. As we have reported previously O’Malley has a well documented history of not prosecuting locals and going after out of town hucksters. Since federal prosecutors will not handle cases worth less that $1 million, and O’Malley’s office rarely if ever charges locals, any local fraudster that can take someone for less than $1 million has nothing to fear from the Alameda County DA. The facts support our contention that the Alameda County District Attorney’s office does not go after significant cases of real estate fraud, they go after the easy cases that do not involve members of the community who look like the District Attorney.

Alameda County has spent Trust Fund monies in violation of the law and is unable to account for the monies in the Trust Fund. O’Malley’s most recent Report confirms once again the misuse and non-use of the Trust Fund. If O’Malley’s figures are correct, and given the history we cannot assume they are correct, Alameda County has over $4 million in the Trust Fund, and if spent at the rate it was in Fiscal Year 2013-14 there will be over $5.7 million in the account at the end of the 2014-15 fiscal year. Given the impact of predatory lending and mortgage fraud on the economy of Alameda County and the country, not using these funds for their intended purpose is an abuse of prosecutorial resources.

Nancy O’Malley Cut Real Estate Fraud Prosecution Funding by 85%

As we reported previously, Alameda County District Attorney Nancy O’Malley has proclaimed that her office will aggressively pursue cases of mortgage fraud. The previous post noted that in 2011 when the video below was recorded, O’Malley held a press conference and said, “we will aggressively prosecute those individuals who commit loan fraud, who commit real estate fraud.”

What O’Malley failed to mention is that under her “leadership” the Alameda County District Attorney’s office had cut funding for real estate fraud prosecution by 85 percent.

Passed in 1995, SB 537, codified California Government Code section 27388 (27388) which allows each county the option of assessing a fee on recorded real estate documents to fund a Real Estate Fraud Prosecution Trust Fund (Trust Fund). According to the 2010 report from the Legislative Analyst’s Office (LAO), as many as 27 counties in California might be participating, but in a 2012 report, the LAO was only able to document the participation of 22 counties. The original version of the law allowed up to two dollars per recorded document to be collected. SB 1396, passed in 2008 increased the fee limit to three dollars, and in 2012, SB 1342 amended the law again allowing up to a ten dollar fee per recorded real estate document. The 2009 increase was intended to be a cost of living increase, while the 2012 increase was expected to increase the amount of funding for the program by three to four times the previous amount. Alameda County passed a resolution assessing the two dollar fee on December 5, 1995 and increased the fee to three dollars on January 13, 2009. On November 20, 2012, at the request of O’Malley and County Auditor Patrick O’Connell, the Alameda County Board of Supervisors passed a resolution increasing the fee to ten dollars.

Our first public records request on this issues went to the Alameda County Board of Supervisors asking for information on, and an accounting for, the Trust Fund. 27388 subdivision (d) requires that “the county board of supervisors shall annually review the effectiveness of he district attorney in deterring, investigating, and prosecuting real estate fraud crimes based upon information provided by the district attorney in an annual report. The district attorney shall submit the annual report to the board on or before September 1 of each year.” We requested all of the annual reports, which we expected to include accounting for the Trust Fund. The only annual report to the Board of Supervisors that we received was dated April 4, 1999. We also received an undated 2004 report, but we cannot verify that it was ever presented to the Board.

27388 subdivision (e) says “[a] county shall not expend funds held in that county’s Real Estate Fraud Prosecution Trust Fund until the county’s auditor-controller verifies that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year pursuant to the requirements of subdivision (d).” Our second records request was submitted to the Auditor, Patrick O’Connell, “for copies of reports showing the county’s auditor-controller verified that the District Attorney ‘has submitted an annual report for the county’s most recent full fiscal year.'” The request to the Auditor also said, we “would expect this would also include the most recent accounting for the Trust Fund.” O’Connell’s office immediately sent the request to District Attorney O’Malley’s office. O’Malley’s office then replied several day later with some records, but no annual reports to the Board of Supervisors.

The response from O’Malley’s office included a table of expenses for the Real Estate Fraud Program for the fiscal years 2006/2007 through 2011/2012.  For the years 2006/2007 through 2008/2009 the Alameda County DA’s office spent $4,802,343 on mortgage fraud prosecutions. O’Malley was appointed District Attorney in September 2009, just after the start of the fiscal year, and for the first three years she ran the office, (2009/2010 through 2011/2012) the office spent $724,649 on mortgage fraud prosecutions, a decline of 85 percent from the previous three years. The question is whether O’Malley was responsible, or was this a result of the 2008 agreement amongst prosecutors to not prosecute predatory lending. Either way, O’Malley’s statements made in 2011 are directly contradicted by the numbers provided by her office.

27388 restricts the use of Trust Fund monies “for the exclusive purpose of deterring, investigating, and prosecuting real estate fraud crimes.” The response from O’Malley’s office shows that in fiscal year 2007/2008 the District Attorney’s office spent $103,622 of Trust Fund monies for a Rehab Counselor II and $77,372 for a Mental Health Specialist III. The following fiscal year, 2008/2009, the District Attorney’s office again spent Trust Fund monies on a Mental Health Specialist III in the amount of $84,036. All of this information confirms that in Alameda County Trust Fund monies are being expended without the county’s auditor verifying “that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year” and they are being spent for purposes other than “deterring, investigating, and prosecuting real estate fraud crimes.”

After our inquiry we still do not know how much money is in the Alameda County Trust Fund to fight real estate fraud. With the increase in the fees on recording of real estate documents in 2013, Alameda County is probably collecting more than $2 million per year for prosecuting this fraud.  The even bigger question will be if the Trust Fund was not used legally for the last almost 15 years, does Alameda County owe the Trust Fund for all the money that was spent without the required approvals? If so the Real Estate Fraud Prosecution Trust Fund should be able to fund a robust program to prosecute predatory lending and other real estate frauds.

Nancy O’Malley: Broken Promises and Funny Money

Nancy O’Malley has been the Alameda County District Attorney for just over four years and has a track record of being soft on white-collar crime. Local, in-county white collar criminals are even less likely to be prosecuted that those from out of town. The record speaks for itself, and to add to her legacy is the accepting of a campaign contribution from a local nonprofit her office was asked to investigate. It is illegal for nonprofits to contribute to politicians’ campaigns. More than two years later she has not returned the contribution. A local developer with ties to mortgage fraud and an FBI investigation has also made significant  contributions to her re-election campaign and so far there are no signs of O’Malley investigating the case.

Nancy O’Malley has made the Alameda County District Attorney’s office her career, having started as a Deputy District Attorney in 1984. In 2009 O’Malley was appointed to fill the seat of her predecessor Tom Orloff, who resigned less than a year before the June 2010 election. O’Malley was Orloff’s chosen replacement and the Board of Supervisors appointed her to the position. She then ran unopposed for re-election.

As with all the other prosecutors we have discussed in previous posts, O’Malley has claimed that she will prosecute all crimes, not just select ones. Prior to being appointed by the Board of Supervisors she said, “I feel very strongly about living my life as an ethical woman who is honest and straightforward. What you see is what you get with me.”

In the video below, O’Malley declares that “In Alameda County victims of crime will be treated with dignity, with respect, and with fairness because your voice matters.”

Shortly after her appointment O’Malley began the proclamations of how tough she would be on mortgage fraud. She produced press releases espousing how important it is for her office to pursue these cases. In 2011 when the video below was recorded, she held a press conference and said, “we will aggressively prosecute those individuals who commit loan fraud, who commit real estate fraud.”

The problem: just like Eric Holder nationally, and Kamala Harris in California, there is almost nothing in the record to support O’Malley’s claims of aggressively pursuing mortgage fraud prosecutions. I can find only one case where O’Malley was remotely involved in prosecuting a case for defrauding a borrower during mortgage origination. In that case, the original action was brought by a State agency, and O’Malley’s office merely piled on. The case was settled without anyone going to jail.

O’Malley’s July 2010 newsletter talks about Deputy DA David Lim’s article titled Local Prosecution of Real-Estate Fraud as a Means to Achieving Social and Economic Justice for Low-Income Victims and Communities: A Case Study.” Lim’s article points out that federal prosecutors have an unwritten policy of not prosecuting cases where the damages are less than $1 million and  that local prosecutors were in a position to act quickly. In the article Lim said:

“While the Federal Bureau of Investigation (FBI) does not formally acknowledge that it has a “minimum-loss” threshold, the threshold is well known in the law enforcement community. The FBI Miami field office is the only office known to have acknowledged that such a threshold exists (see Glenn Theobald, Attacking Mortgage Fraud in Florida, Community Policing Dispatch (Office of Community Oriented Policing Services, U.S. Department of Justice), June 2009, http://bit.ly/cops_usdoj_enews).”

Our case includes a clear forgery of the loan application that we had no knowledge of until Bank of America provided us a copy in 2011. We did not even know the forged loan application existed prior to June 2011. I have written three letters to Nancy O’Malley’s office in the last year trying to get  action on our case. Each inquiry to O’Malley’s office has received a different response. The first came from Inspector Pat Johnson who stated the office would take action if we could identify the forger. No explanation as to why investigators in O’Malley’s office could not do the investigating. He acknowledge that a crime had occurred but the office would do nothing unless we did the investigation. We know the probable date and location of the forgery, and it would not take much of an investigation to determine who was guilty, but Inspector Johnson suggested it’s self service justice or nothing. The second letter was brushed off, and the third received the incredible response, documented in our last post, where Deputy DA David Lim revealed that in 2008 prosecutors agreed to not prosecute mortgage origination fraud, and for that reason the Alameda County DA’s office would not pursue a prosecution in our case. No matter how egregious a case of mortgage origination fraud might be, O’Malley’s office will not prosecute because of the agreement made in 2008. And since the case is worth less than $1 million the feds will not prosecute and Kamala Harris no record of prosecuting such cases.

The mortgage fraud cases O’Malley has prosecuted seem to share common themes: they involve businesses and individuals from outside the county, they are relatively small time players in the industry who are a bit sketchy to begin with, and they are often minorities. I cannot find a single case of O’Malley’s office prosecuting a local mortgage broker for defrauding borrowers during mortgage origination. The only case we can find involving prosecution of a local suspect was the bringing of a case against William Hogarty who was charged with attempted murder before being prosecuted for mortgage modification scams. Again is was not a case of mortgage origination or predatory lending, but it was the prosecution of a resident of Alameda County, a true rarity.

O’Malley has her own biases as to which crimes are most important to prosecute. Her biases are shown in her July 22, 2013 presentation to the Alameda Planning Board. She is very afraid of the crime that might overflow into her hometown of Alameda. Steven Tavares’ report in the East Bay Citizen includes the video proof of O’Malley’s concerns that certain elements from Oakland might come into her city. In the video she clearly states her fears and concerns about crime in Oakland. Unfortunately, as Matt Artz of the Oakland Tribune reported, O’Malley “dramatically overstated the robbery crisis gripping Oakland.”

One of the biggest donors to O’Malley’s re-election campaign is Discovery Builders, a company owned by the Seeno family. This is that same company that has been implicated in mortgage fraud and has apparently been investigated by the FBI.

Discovery Builders has made two contributions to O’Malley’s 2014 re-election campaign: $2,500 on August 23, 2012 and $1,000 on August 25, 2011. There is no word of O’Malley’s office investigating Seeno or Discovery even though there are allegations of wrongdoing in Alameda County.

The January 31, 2012 filing by O’Malley’s 2014 re-election committee shows that on August 22, 2011 she received a $1,000 contribution from the 501(c)(3) nonprofit Tri-Valley Community Foundation (TVCF). IRS regulations prohibit nonprofits from donating to political candidates. More troubling is that, as was reported, the TVCF Board asked the Alameda County DA’s office to investigate when the President of TVCF had been found to have made questionable expenditures of Foundation monies. TVCF also donated to one of O’Malley’s pet projects, the Alameda County District Attorney’s Justice Academy, before the alleged wrongdoing by the former President was discovered.

In October 2013, the Oakland Tribune reported: “In a phone interview, Teresa Drenick, spokeswoman for O’Malley, pointed to a host of initiatives coming from the DA’s office, including the “at school” program focusing on keeping children in school and out of the criminal justice system, getting unprocessed rape kits tested, and fighting against real estate and mortgage fraud.” O’Malley’s campaign website never mentions mortgage fraud or addresses white collar crime in any significant way.

From Nancy O’Malley’s campaign website: “I have been committed to continually fight crime on behalf of citizens and victims for over 25 years. As the District Attorney, it is my role as chief law enforcement officer in the county to be ethical, honest, and above reproach in my decision making. I have a history of being fair and impartial and am committed to serving the people of this county for many years to come.” Too bad she fails to mention she does not prosecute white collar criminals who live in Alameda County that might make contributions to her campaign or vote for her.

Nancy: when will you prosecute the people that look like you and were the real cause of the mortgage and financial disasters? The people who hold licenses to operate and should be put out of business for their wrongdoing. The same people you hope will give you campaign contributions and vote to keep you in office. It is time for Nancy O’Malley to be ethical, honest and straightforward with the people of Alameda County.

In 2008 Prosecutors Agreed to Not Prosecute Mortgage Origination Fraud, and They Have Kept Their Promise

Do an internet search on mortgage fraud and try to find even a single case of a prosecutor going after a mortgage broker or lender for defrauding a borrower. I dare you. If you find a case please let me know. There are plenty of cases involving straw buyers and others who have defrauded the lenders but no prosecutions where the borrower was defrauded. There have been no significant prosecutions for mortgage origination fraud, yet that is the precise crime that precipitated the Great Recession and the near total collapse of the economy. The prosecutors who claim to be so tough on mortgage fraud will not touch mortgage origination fraud including predatory lending. The only explanation has to be that there were agreements orchestrated by federal prosecutors all across the country, with the concurrence of state and local prosecutors, not to prosecute mortgage origination fraud and predatory lending.

On May 20, 2009 at the signing into law of both the Helping Families Save Their Homes Act and the Fraud Enforcement and Recovery Act, President Obama said, “[a]nd that’s why this bill nearly doubles the FBI’s mortgage and financial fraud program, allowing it to better target fraud in hard-hit areas.  That’s why it provides the resources necessary for other law enforcement and federal agencies, from the Department of Justice to the SEC to the Secret Service, to pursue these criminals, bring them to justice, and protect hardworking Americans affected most by these crimes.  It’s also why it expands DOJ’s authority to prosecute fraud that takes place in many of the private institutions not covered under current federal bank fraud criminal statutes — institutions where more than half of all subprime mortgages came from as recently as four years ago.”

So what has Attorney General Eric Holder, the President’s point person on mortgage fraud prosecutions, done to implement these laws? He has lied about how many prosecutions have taken place. In August 2013 reporters from Bloomberg wrote that the 2012 Holder press release fudged the number of mortgage fraud prosecutions brought by the Department of Justice by 400 percent. As Rolling Stone contributor Matt Taibbi pointed out, after the revelations in the Bloomberg piece, the DOJ went so far as to edit the press release to reflect the correct numbers.

That brings us to California Attorney General Kamala Harris. On May 23, 2011 Harris announced the creation of the California Attorney General’s Mortgage Fraud Strike Force. At the press conference shown in the video below she declares  that the Task Force “…is a new, multidivisional division in the Department of Justice, designed to protect innocent homeowners and bring to justice those who would defraud them. This is the first such strike force in the history of the Department of Justice. And as California’s real estate boom set a trend for the rest of the nation, so will our policing of its dark side.”

As Harris said, “First is the Consumer Enforcement Team, which will take on the worst of the scams of the consumer arena, including predatory lending, unfair business practices, deceptive marketing and loan modification, and foreclosure scams.” And she leaves the best for last when she says “As a career prosecutor, I believe there should be accountability and consequences for wrongdoing and crime… and it for that reason we created this unit.”

I still have not seen any evidence of Harris’ office bringing any prosecutions for predatory lending or mortgage origination fraud, and very few of any other type of mortgage fraud. So far, Harris’ policing of the dark side has not even begun to set a trend for the nation.

The same day Harris made her pronouncement about prosecuting mortgage fraud of all types, Alameda County District Attorney Nancy O’Malley put out her own press release beginning with the following:

Alameda County District Attorney Nancy E. O’Malley announces the creation of a new program entitled the Homeowner Education and Loan Protection (H.E.L.P.) Program that is designed to address crimes involving real estate on a multi-disciplinary, multi-system collaborative basis using education, prevention, and prosecution to target real estate fraud. The DA’s program will address fraud within Alameda County and will also work in conjunction with the California Attorney General’s Office to build a comprehensive statewide response to these crimes, an effort unveiled today in Los Angeles by Attorney General Harris.
The Alameda County DA’s new program will serve to protect a victim’s home, prevent large-scale scams, and hold individual criminal accountable. H.E.L.P. will partner with law enforcement agencies, community groups, and financial institutions to provide effective and proven strategies to improve local, regional, and national capacity to identify, intervene in, investigate, and prosecute real estate fraud cases while supporting and educating homeowners against fraud.

We contacted O’Malley’s office in early 2013 with details about our mortgage origination fraud, including forging of a loan application. In response, on April 12,2013, Inspector Pat Johnson of the Consumer and Environmental Affairs in O’Malley’s office called me and stated that if we could identify the forger, the office would prosecute. We know of a handful of likely candidates who potentially committed the forgery, but cannot identify specifically who did it. Given the details we provided it would seem like a simple process for the experienced investigators in O’Malley’s office to determine the identity of the forger.

I contacted O’Malley’s office again in October and ended up talking with Deputy DA David Lim, who handles mortgage fraud cases for her office. I told Lim I had been unable to find any cases of the Alameda County DA’s office prosecuting mortgage origination fraud. Lim then revealed that in 2008 there was a meeting with Joe Russoniello, then the U.S. Attorney for the Northern District of California, along with State and local prosecutors. According to Lim the group agreed it was too hard to prosecute mortgage origination fraud (predatory lending) because it can be difficult to prove whether the lender or the borrower committed the fraud. In other words, federal, State and local prosecutors agreed none of them would prosecute mortgage origination fraud, no matter how egregious. This in spite of the fact that they have all made public proclamations they would vigorously pursue these cases. Per the 2008 agreement the Alameda County DA’s office has not and will not prosecute mortgage origination fraud.

What we still do not know is if the meeting hosted by a federal prosecutor in Northern California was duplicated across the country. The lack of prosecutions nationwide suggests it is very likely the case. Clearly, policies started under the Bush administration have not been changed by Obama, just as the policies begun under the predecessors of AG Harris and DA O’Malley have not changed. More frightening is that the same people who perpetrated fraud on borrowers are still in business. Most mortgage brokers are licensed by the states, yet they have paid no price for their misconduct. Licenses need to be revoked, and some ethics and honesty restored to the business. Without prosecutions of this criminal conduct which has destroyed so many lives, there is no incentive for anyone in the industry to change their ways. It is time for Holder, Harris, O’Malley, and other prosecutors to live up to their words.

Update 12/16/2013: Today in the New York Times Adam Liptak has a piece on Federal Judge Jed S. Rakoff’s essay in the New York Review of Books lambasting federal prosecutors for failing to charge even a single prominent figure in the mortgage debacle. As Mr. Lipotak said:

 Judge Rakoff also has no patience with Attorney General Eric H. Holder Jr.’s statement to Congress that some prosecutions should be approached with caution because they may “have a negative impact on the national economy, perhaps even the world economy.”

Judge Rakoff says that “this excuse — sometimes labeled the ‘too big to jail’ excuse — is disturbing, frankly, in what it says about the department’s apparent disregard for equality under the law.”

Make MERS Records Public

Prior to 1997 it was easy to learn who owned real property and the identity of those with liens or other interests on a particular property. You could go to the county clerk/recorder’s office and look up the history of a property. All of  the information regarding any real property was public and anyone could research it at a county office. This system was designed to protect the interests of everyone, whether they be the owners, lenders, or potential buyers of real property. For hundreds of years this was a system that worked. Everyone had legal notice of any and all past or present claims, and all of the entities, with potential interests that might cloud the title of a property.

This was a great system when mortgages were owned by the local savings and loan, and securitization of loans was unheard of. If the local bank sold the Note, which was a rare event,  the sale was recorded at the county by filing an assignment of the mortgage or deed of trust. When securitization of mortgages came into play, the old system was seen by Wall Street and others as an obstruction to the process that would slow down the selling of mortgages on the secondary market. Mortgage Electronic Registration Systems (“MERS”) was set up and started operating in 1997 to eliminate any impediment to the process of selling notes and their associated mortgages. Unfortunately, MERS real property records are not public. MERS became the place where some, but not all, property ownership records were kept, not the clerk/recorder’s office for the county in which a property is located. MERS was needed to speed the process that often involved several assignments of the mortgage that often occurred within the first couple of months after the mortgage documents were signed.

Our Note and Deed of Trust might be held by a securitized trust set up by Lehman Brothers Holdings, Inc. (“Lehman”) in 2005. The original “lender” (they were really a front for others), still shown in Alameda County files was Najarian Loans, Inc. The MERS Milestones for our Note show Najarian (n/k/a NL, Inc.) was the original lender and they transferred the servicing and beneficial rights to Bank of America (“BOA”) on May 27, 2005, just 15 days after we signed the loan documents were signed and 10 days after the Deed of Trust was recorded at the county. At the time, the note was actually sold to Countrywide, but because BOA purchased them it is now shown on the MERS Milestones as BOA. If our Note is in the Trust, then it was sold to Lehman on June 30, 2005. There should also have been a transfer to Wells Fargo as trustee of the Trust on June 30, 2005. MERS does not show the transfer to Wells Fargo until September 12, 2012. The point to this being that at a minimum, there might have been  three transfers of the note and deed of trust in the first two months after signing. In the old days this would have required three filings of recorded assignments of the deed of trust: Najarian to Countrywide; Countrywide to Lehman; and Lehman to Wells Fargo.With MERS, the banks, servicers, and lenders save not only on filing fees, but on the preparation of needless, pesky paperwork, like assignments. If we assume a cost of $100 to prepare and record each assignment for each mortgage, and the trust that supposedly owns our mortgage has over 3,000 mortgages, that is a savings to the mortgage industry of around $1 million just related to this one trust, because of MERS.

Jon Stewart recently explained how MERS operates:


Beaufort County, South Carolina recently sued MERS over the problems in the system. “At the end of day,” county attorney Josh Gruber said, “a Beaufort County citizen cannot walk into the Register of Deeds Office and know without a shadow of doubt who owns or services their mortgage.” (See the article here, and the lawsuit here.)

The MERS system leads to the clouding of the title to property. There is an easy fix to this problem. Make MERS records publicly available just as land records have been for centuries. There should be no doubt as to who has an interest in real property. Congress and the states should pass laws requiring MERS data be made available to anyone needing to research the ownership of property.

Force MERS to provide borrowers with the information regarding who owns the note, thereby revealing who should ultimately receive the mortgage payments for their homes. The current situation is absurd. Many borrowers are left with a contract requiring them to pay on a note, but not knowing who they owe the money to.

I am sure the banks and servicers will claim making MERS records public will cause some great harm to the process. Unless the MERS records are publicly accessible, the transparency and accuracy of real property records will remain in question. No one should be left not knowing if there is a cloud on the title to their home.

Cheat the Borrowers, Cheat the Investors. The Middle Man Profits.

Imagine a lending system where you can manipulate the system so neither the borrower nor the actual lender know they have been cheated. The perfect setup for a crime, but when nobody goes to jail for the conduct, what’s the danger? If you do not participate as the middle man you are only missing out on profits. Foreclosed borrowers and worthless investments are just collateral damage that do not affect the middle man who has no skin in the game. As soon as the borrowers and the real lenders have signed and paid, the middle man has no more liability, just money in the bank for brokering the deal. Because these “pretender lenders” can sell off their defective loans immediately after origination, the mortgage industry no longer has financial accountability for its conduct.

When we “purchased” our home in 2005, the original lender on the note was Najarian Loans, Inc. (who since changed its name NL, Inc.). Najarian Loans (NL) is also listed as the Lender on the Deed of Trust we signed. At the time, RPM Mortgage, Inc. (RPM) was a wholly owned subsidiary of NL. RPM and NL are apparently owned and operated by the same people: Rob and Tracey Hirt. NL was a correspondent lender for Countrywide, or had another contractual relationship, meaning they had a contract with Countrywide to provide loans of a particular quality. Not until we filed suit did we learn that the note and mortgage might have been purchased by a securitized trust put together by Lehman Brothers Holdings, Inc. (LBHI) called Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15 (Trust). The Standard Underwriting guidelines for the Trust (as detailed in the Prospectus for the Trust) permitted a monthly debt to income ratio based upon the borrower’s total monthly housing expenses (mortgage plus taxes and insurance) of 33%, but they also had expanded guidelines that allowed a maximum of 36%. Any loan that came to the Trust that did not show conformance with these guidelines would be considered defective and the “lender” (like NL) would be obligated to buy the note back from the Trust.

Most likely it was someone in the NL/RPM family who forged and backdated the loan application used to obtain our loan. What we did not know at the time was how the numbers on the loan application were tweaked to make the loan look good to the investors. Just a small tweak up in income, small enough we did not notice when we were shown the loan application after signing the note, combined with understating the monthly property taxes by $100 were all that was needed to make the numbers work. As explained in this earlier post, we still do not know who holds the note; in other words who actually now owns a note that is defective and does not meet the underwriting guidelines. As others have detailed in the past, Countrywide has a well known history with the “Hustle” and other questionable acts.

“Investors,” like the Trust that might have our note, still do not know how many defective loans they purchased. If someone forged, altered and backdated our loan application, then redacted the application presented to us for signing, you can safely assume it happened with other loans. The investors do know how many bad loans they purchased because of the sleight of hand played on both ends of the system. Defective loans like ours, which has not gone into default, help to mask how great the fraud actually was. But some lenders have brought suit over bad loans.

In July 2012 LBHI filed a lawsuit against RPM and NL for selling LBHI defective loans. Among other things the complaint alleges that NL sold LBHI loans that became “Early Payment Defaults.” NL agreed with LBHI to make payments for defective loans, but never made any payments and that led directly to the lawsuit. CitiMortgage previously brought an action in 2009 against the NL/RPM group alleging violations of the agreement between them. The LBHI suit settled in  September 2012, and the CitiMortgage litigation settled in February 2013. Terms of the settlements are not available to the public.

Both lawsuits were based upon obvious flaws in the loans. In the case of the LBHI litigation, the loans in question went into default almost immediately after origination and sale to LBHI. The CitiMortgage lawsuit involved more loans and a demand for more extensive damages. Both of these involve our “lender” but there are many more out there. Just in the last month MBIA and Bank of America settled their longstanding litigation over this issue.

MBIA will not get back all that they lost, but they will be able to continue on in business, barely. There are still thousands of defective loans in the hands of unknowing investors and they do not know it, just as many of the borrowers who took out the loans do not understand how they were manipulated into agreeing to loans that exceeded their capacity to repay.




Will they ever know “Who owns the Note?”

As this previous post explained, our mortgage servicer, Bank of America has been having a hard time determining just who holds the Note for our mortgage. The answers have been inconsistent and convinced us they do not really know who owns the Note. We just received  a copy of the “Milestones” for our note that was generated by the MERS system.

As the document clearly shows, the Note was sold by Najarian Loans, Inc.(now NL, Inc.) to Bank of America (BAC) on May 27, 2005. At the time it was actually sold to Countrywide and we assume the records were later changed to reflect BAC’s purchase of the rotting corpse of what had been Countrywide.BAC then sold the Note to Lehman Brothers Holdings, Inc. (LBHI) on June 30, 2005. And the final sale was from LBHI to Wells Fargo as Trustee. This information is all consistent with what the MERS system has shown over the years we have been checking.

We filed our lawsuit in February 2012 and named Wells Fargo N.A. (WF) as a party because BAC sent us a letter in October 2011 saying WF was the investor on the Note. BAC, WF, and MERS all demurred together to our complaint on March 22, 2012, and in that demurrer alleged for the first time that the investor on our Note is “Wells Fargo Bank, as trustee on behalf of Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15 (erroneously sued as ‘WELLS FARGO BANK. N.A.’).” After all the different answers we had been provided over the years, we now had another answer. The problem now is that the MERS system did not show Wells Fargo as Trustee as the investor on the Note until September 12, 2012. And BAC is still claiming Wells Fargo Bank, N.A. is the investor. If the investor is Structured Adjustable Rate Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-15, then the MERS system is wrong, because Wells Fargo as Trustee is not the Trust that is the true investor on the Note.

In 2009 Congress passed legislation that included Title 15 United States Code section 1641 (g) requiring that after May 20, 2009 “In addition to other disclosures required by this subchapter, not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer, including—

(A) the identity, address, telephone number of the new creditor;

(B) the date of transfer;

(C) how to reach an agent or party having authority to act on behalf of the new creditor;

(D) the location of the place where transfer of ownership of the debt is recorded; and

(E) any other relevant information regarding the new creditor.”

We have not received this required disclosure that was generated by the September 2012 transfer of the Note from LBHI to Wells Fargo.

So here we are again, right where we were before. No one knows and no one cares who you owe all that money to.

To finish today, one of the worst examples of what banks can do to a borrower. A Southern California man died in the courtroom while fighting Wells Fargo and now Larry Delassus’ friends and family have sued Wells Fargo for wrongful death. “Wells Fargo placed Delassus into default after the bank incorrectly charged Delassus for back property taxes. Wells Fargo made the mistake after its tax-monitoring subcontractor First American Real Estate Tax Services, otherwise known as CoreLogic, used a wrong assessor’s parcel number to identify Delassus’s home. The parcel number was for the home of Delassus’s neighbor, who had not paid his property taxes. The bank then billed Delassus for more than $13,000 in back taxes after the bank paid the neighbor’s delinquent property taxes.” The full story here.