By Alan Steven Wolf of The Wolf Firm (USFN Network News, Fall 1992)
By Alan Steven Wolf of The Wolf Firm HIGHLIGHTS
From Bankruptcy Fraud to Cramdowns, bankruptcy issues continue to be one of the hottest
topics in the mortgage servicing industry. With this in mind, we have devoted most of this
newsletter to providing updates on various court decisions affecting bankruptcy issues,
and, in some cases, what the U.S. Foreclosure Network is doing to help solve problems in
these areas. Our own Bankruptcy committee
contains members from each of the various circuits who help keep our membership and
clients current on new decisions and legislation. Through our online program on Prodigy,
USFN Connection, we are able to provide news articles and news flashes every week on these
and other important issues facing today's servicers.
In addition to providing the best foreclosure and bankruptcy services in the industry through our 81 member firms, the U.S. Foreclosure Network is also committed to providing information that will help our clients and spearheading efforts to bring about change within the industry.
We will be devoting subsequent issues of this newsletter to other topics. If there is a particular subject on which you would like us to focus, we welcome your suggestions. We would also like to encourage you to join our online communications tool, USFN Connection, so that you can benefit from the information and discussions taking place on current issues between more than 150 attorneys, mortgage bankers, and other industry professionals. Call us at (800) 635-6128.
BANKRUPTCY FRAUD
With a weakened economy, sluggish home sales, and several major natural disasters, the number of bankruptcy filings has and continues to dramatically increase. This year alone, it is estimated that over one million new bankruptcy cases will be filed. While servicers have always had to deal with bankruptcy filings, the dramatic increase has placed great strain on already overworked staff.
Adding to this problem is bankruptcy fraud. The types of fraud resulting in direct loss to the mortgage servicing industry constitute a broad spectrum of acts including: multiple bankruptcy filings affecting the same real property, rent skimming schemes, transfers of title to entities already in bankruptcy or who file bankruptcy soon after the transfer, creation of junior liens and the filing of bankruptcy by the junior lienholder, and the creation of fractionalized interests in property and the filing of bankruptcy by one fractionalized owner after another.
While fraudulent filings now only constitute a small part of all bankruptcy filings,
they are growing dramatically and have caused and will continue to cause a great loss in
our industry. First, the fraudulent schemes place a heavy administrative burden on
servicers who must literally attempt to stay one step ahead of a polished criminal mind
intent on delaying the foreclosure sale in any way possible. Second,
the fraudulent bankruptcy filing results in significantly greater attorneys' fees as
counsel attempt to uncover the fraud, provide proof to the court, and obtain broad orders
to undermine the fraudulent scheme in what can amount to a multitude of cases all
affecting the same real property. Third, fraudulent bankruptcy schemes result in undue
delay in foreclosure resulting in loss to investors and insurers alike.
Despite the fact that bankruptcy fraud is and continues to be a problem for our
industry, there has not yet been a concerted effort to fight it. Until recently, the
mortgage servicing industry's response to bankruptcy fraud has been to treat it like any
other relief from stay matter: relief from stay is sought, eventually achieved and the
matter is closed and forgotten. Few, if any, servicers seek further civil remedies;
there is virtually no push for criminal prosecution, nor has there been a strong push for
legislative change. Accordingly, bankruptcy fraud continues to grow as the word spreads
that there is no downside risk to these fraudulent schemes.
As an industry, we must work together in a coordinated and sophisticated manner to provide a real downside risk to this behavior. To do so, we must first quantify the problem and then educate mortgage servicers, the courts and those in power regarding the problem. Then, we must push for action on the legislative, criminal and civil fronts.
To achieve these goals, the U.S. Foreclosure Network has established a Bankruptcy Fraud Committee. The committee meets by telephone conference on the last Thursday of every month at 12:00 p.m. Pacific Time. The committee is co-chaired by Alan Wolf (Gordon & Wolf) and Ron Pisapia (Home Savings of America).
At its first meeting held September 24, 1992, the committee members heard from George Griffith, head of the special fraud investigation unit of the U.S. Trustee's office. Mr. Griffith indicated that due to lack of resources, the FBI did not have the ability to investigate most bankruptcy fraud cases and the U.S. Attorney's office was limited in the number of cases it could prosecute. He suggested that the U.S. Trustee's and the FBI's investigations could be facilitated by mortgage bankers collecting fraud information in a standardized format (loan information, copies of title transfers, affidavits regarding the harm caused by the prior homeowner) and providing this information to the U.S. Trustee's office.
Mr. Griffith also mentioned that as a practical matter, the FBI was only interested in
helping industries who were cooperative and already fully exercising their civil remedies.
It was his belief that, as opposed to other industries, the Mortgage Banking industry was
not fully pursuing its rights and was far from cooperative. He cited several examples
where he had asked for help from mortgage bankers in
prosecuting a case and had been let down.
Mr. Griffith suggested that we look to the actions taken by the credit card industry to prevent bankruptcy abuse. He mentioned that the credit card industry a central organization dedicated to this task and employs retired FBI agents to work up cases to present to the U.S. Attorney for prosecution. The credit card industry also fully exercises its civil remedies.
Due to Mr. Griffith's suggestions, Kenneth Crone, Vice President of Visa International, will be our speaker at the next Bankruptcy Fraud Committee meeting. Mr. Crone established the organization which fights bankruptcy fraud on behalf of the credit card industry. At the meeting, the committee will also receive reports from its subcommittees.
The Bankruptcy Fraud committee is open to the industry and is actively seeking individuals willing to devote time and energy to solving the bankruptcy fraud dilemma. The committee's next meeting will be Thursday, October 29, 1992 at 12:00 p.m. Pacific Time. Please contact Dave Nielsen, Executive Director of the U.S. Foreclosure Network, at (800)635-6128 if you are interested in serving on the committee.
For further information please contact:
The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
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The Wolf Firm
A Professional Law Corporation
18 Corporate Plaza Drive
Newport Beach, California 92660
(949) 720-9200 Phone
(949) 720-9250 Fax
E-Mail us at Alan_Wolf@wolffirm.com
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