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Rachel Dollar, the editor of Mortgage Fraud Blog, is an attorney and Certified Mortgage Banker who handles litigation for lending institutions and secondary market investors. She is an author and a nationally recognized speaker on the topic of mortgage fraud. Ms. Dollar is a shareholder with the law firm of Smith Dollar, PC, is licensed to practice law in California and maintains offices in Santa Rosa, California. Email Ms. Dollar
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Title Company Pursues Interest In Criminally Forfeited Property
Stacey Shefton was involved in a mortgage fraud scheme by which she fraudulently obtained $726,856.60 in loan proceeds from Long Beach Mortgage Company (”Long Beach”) by presenting fraudulent documents.
As previously reported by Mortgage Fraud Blog, the scheme began on November 23, 2004, when Lawrence Dillard (the “buyer") agreed to purchase real property at 1254 Greenridge Lane, Lithonia, Georgia (the ”Greenridge Property") from PremierOne Properties (the “seller"). Before that sales transaction, GreenPoint Mortgage Funding, Inc. (”GreenPoint”) already had two security deeds of record (the ”GreenPoint mortgages") on the Greenridge Property.
In order to purchase the property, the buyer obtained two loans, totaling $800,000, from Long Beach. Attorney’s Title Insurance Fund, Inc., ("The Fund”) issued title insurance policies to Long Beach that insured Long Beach‘s security deeds securing the new loans.
Before closing, the seller informed the closing attorney that GreenPoint had sold its existing mortgages on the Greenridge Property and assigned them to Wilshire Mortgage Company (”Wilshire”). The seller gave the attorney statements purportedly from Wilshire that showed the amounts due to Wilshire to pay off the existing mortgages.
At closing, the closing attorney issued two payoff checks, totaling $726,856.60, payable to Wilshire out of the Long Beach loan proceeds. The attorney mailed the checks to the address provided in Wilshire‘s loan payoff statements.
Several months later, Long Beach discovered that the GreenPoint mortgages had never been assigned to Wilshire or anyone else. Moreover, they were in default. Consequently, the first and second GreenPoint mortgages had not and would not be canceled. Long Beach‘s security deeds were subordinate to the existing GreenPoint mortgages, leaving Long Beach with little or no security for its loans.
Long Beach made claims on the two title policies issued by the Fund, and the Fund paid off the total amount due under the GreenPoint mortgages to clear the encumbrances on Long Beach‘s title. On or about October 31, 2005, the Fund paid GreenPoint a total amount of $742,000.
This mortgage fraud scheme that resulted in the Fund‘s $742,000 loss was perpetrated by Stacey Shefton and others. Shefton was affiliated with both Wilshire and the seller PremierOne, and leased the unused office space to which the payoff checks were sent. Shefton obtained for his personal use the entirety of the Long Beach funds which were supposed to be used to pay off the existing mortgages and thus to clear title to the Greenridge Property and give Long Beach its desired security positions. Thus, because Shefton diverted the Long Beach loan proceeds to himself, Long Beach is the direct victim of Shefton‘s fraud.
Shefton was indicted and pled guilty to wire fraud. As part of his plea agreement, Shefton agreed to forfeit to the United States certain property in his possession or control (the “Forfeited Property") that constituted or derived from proceeds Shefton obtained as a result of the wire fraud. The Forfeited Property includes a car; a motorcycle; the funds in six different bank accounts; approximately $300,000.00 in cash seized from a storage facility; and furniture, appliances, and other personal property located at the Greenridge Property. Shefton admitted in his plea agreement that the cash and all the funds in the bank accounts represented proceeds of the mortgage fraud scheme by which Shefton intercepted the Long Beach loan proceeds.
The government sought, and the district court granted, a preliminary order of forfeiture.
Thereafter, the Fund asserted a legal interest in the Forfeited Property that Shefton obtained from the Long Beach loan proceeds. The Fund petitioned the district court for an ancillary hearing, pursuant to 21 U.S.C. § 853(n)(2), to adjudicate the validity of the Fund‘s alleged interest in the property. According to the Fund‘s petition, the Forfeited Property is, or can be traced to, the Long Beach loan proceeds, which Shefton fraudulently obtained, and Shefton‘s fraud was the sole reason the Fund had to pay off the GreenPoint mortgages.
The government moved to dismiss the Fund’s § 853(n)(2) petition. The government recognized Long Beach (and the Fund) as a victim of Shefton‘s fraud. However, the government argued that the Fund, “one of the many victims of the Shefton ... fraud scheme,” was merely an unsecured creditor and lacked standing to contest the forfeiture. Specifically, the government contended that the Fund did not have a “legal interest” in the Forfeited Property, as required by § 853(n)(6).
The Fund responded that it had the requisite legal interest through Long Beach. Shefton fraudulently obtained from Long Beach the proceeds of Long Beach‘s loans and used those proceeds to acquire the Forfeited Property. Long Beach was therefore entitled to a constructive trust on Shefton‘s Forfeited Property bought with Long Beach‘s money. And, pursuant to the terms of the Fund‘s title insurance policies and state law, the Fund was subrogated to the rights and claims of Long Beach against Shefton once it paid off the GreenPoint mortgages on Long Beach‘s behalf. Thus, the Fund succeeded to all of Long Beach‘s rights and disabilities with respect to the Long Beach loan proceeds fraudulently transferred to Shefton. In other words, the Fund stands in the shoes of Long Beach.
In reply, the government did not contest that the Forfeited Property was, or was purchased with, the Long Beach loan proceeds. Instead, the government noted that Congress has not defined the term “legal interest” in § 853(n)(6)(A), and argued that “it would frustrate the operation and effect of the forfeiture statute” to construe as a § 853(n)(6)(A) “legal interest” a constructive trust that arises “whenever a victim to a fraud voluntarily transfers money to another person.”
The district court granted the government’s motion to dismiss, concluding that the Fund‘s constructive trust claim could not be imposed to defeat the government’s forfeiture claim. The Fund appealed. The appellate court agreed with the majority of circuits that have held that a constructive trust can serve as a superior legal interest under § 853(n)(6)(A) and thus can serve as grounds for invalidating a criminal forfeiture order. The appellate court reverse the district court’s dismissal of the Fund‘s petition and remand for further proceedings consistent with their opinion.
Failed Mortgage Firm Trustee Allowed $50,000 in Fees Union Leader
U.S. Bankruptcy Court Judge J. Michael Deasy will approve $50,000 in legal fees for the trustee of failed mortgage brokerage businesses Financial Resources Mortgage Inc. and CL&M Inc.
Bend Oregon Event to Help Homeowners Prevent Foreclosures Oregon.Gov
As part of an ongoing effort to help homeowners avoid foreclosure, state agencies are organizing a foreclosure-prevention event in Bend on Saturday, March 27, 2010.
Shelbyville Man Gets 2-Year Sentence For Loan Fraud Chattanoogan.Com
Prosecutor Gary Humble said the lost was approximately $2.3 million in the mortgage fraud involving hundreds of homes in the Shelbyville area.
Lend America, VP Ashley Banned from FHA Housing Wire
Michael Ashley, the embattled former vice president of Federal Housing Administration (FHA)-backed mortgage originator Lend America, and the company he worked for, were permanently banned from doing business in the industry last week.
Countrywide Tries to Pin Blame on Insurer Court House News
Countrywide Home Loans demands $111 million from Triad Guaranty Insurance, claiming Triad is trying to blame mortgage lenders for the insurer's role in the housing bubble and collapse.
Investors Say They Were Swindled in Property Scheme Fox 13 Now
Utah Division of Consumer Protection is joining forces with a few investors who claim they have been cheated by an agency called "Utah Mini Ranches.
Greenfield Man Accused of Housing Scam The Republic
A former real estate agent conned at least eight people by renting them properties actually owned by a federal agency and then running off with their deposits, prosecutors said.
Appraisal Institute Opposes Obama Administration's Plan for Homeowner 'Short Sales' PR News Wire
Citing concerns about increased mortgage fraud, four organizations representing more than 35,000 real estate appraisers today voiced their opposition to changes to an Obama administration program that will encourage "short sales" of homes.
Ownership Rights to Get Another Look TBO.Com
State lawmakers may beef up protections of property owners' rights by rewriting a law this spring that is at the center of a case of alleged fraud in Pasco County.
Thursday, February 18, 2010 F. Jeffrey Miller Trial Continued Testimony
As reported by Anne Mitchell, who viewed the trial:
Angela Parenza worked for Jeff Miller as the office manager for 7 or 8 years beginning in 1998. Parenza was indicted along with Miller and pled guilty to conspiracy to commit bank fraud and money laundering. Parenza testified that Miller or his contractors allegedly preferred to build all the...
Wednesday, February 10, 2010 F. Jeffrey Miller Trial Coverage Continued - Witness Testimony
Steve Middleton Testimony - Coverage Provided by Anne Mitchell
The Government continued in its cross examination of Steve Middleton. He was shown several HUD-1 statements involving sales of homes located in Overland Park, KS, and Olathe, KS. The HUD statements each allegedly showed line items of payments to (James) Moser & Associates, LLC's...
Monday, February 01, 2010 F. Jeffrey Miller Trial Coverage - Continued Witness Examination
According to Anne Mitchell, who is present in court for the trial:
Next Witness: Kelly Sanford
Kelly Sanford of the Federal Reserve was a short witness for the Government. Sanford manages electronic payments between banks and member financial institutions. He was shown copies of wire transfers and asked whether they coincided with the counts in...
Wednesday, January 27, 2010 F. Jeffrey Miller Trial - Prosecution Witnesses Continued
According to Anne Mitchell, who is viewing the trial:
January 13, 2010
Witness: Rick Hayes
Rick Hayes testified that on the day that he closed on his Miller Enterprise home, he received a phone call from the Kansas Banking Commission informing him that his loan was fraudulent. After the Hayes responded to a classified ad, they met with John...
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The information and notices contained on Mortgage Fraud Blog are intended to summarize recent developments in mortgage fraud cases and mortgage banking matters nationwide. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about mortgage banking, mortgage fraud matters or who believe they require legal counsel should seek the advice of an attorney. The creators, editors and sponsors of Mortgage Fraud Blog do not intend to create a confidential relationship or an attorney-client relationship by communication via or arising from this site.
Rachel Dollar, the editor of Mortgage Fraud Blog, is an attorney and Certified Mortgage Banker who handles litigation for lending institutions and secondary market investors. She is an author and a nationally recognized speaker on the topic of mortgage fraud. Ms. Dollar is a shareholder with the law firm of 
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