What Mortgage Fraud?
Posted by: Ed Chernoff
February 12, 2008
Topic: Mortgage Fraud in Houston Texas?

It is part of my routine each day to log onto the Internet and check current mortgage rates. Lately I have been interested in refinancing my house and the federally insured rate has been in free fall, approaching the rates we saw in the early years of this decade, when the Houston home market was in frenzy. I remember it well, especially since I was looking to buy a house back then. Unfortunately, the neighborhood in which I wanted to live was particularly hot and it was deep into 2004 before I was able to pull the trigger. By then, things were already changing.

Fast forward to February 2007. I was three weeks into a bank fraud trial. My client was accused of being part of a group that illegally "flipped" commercial properties in 1999 and 2000. Essentially, it was alleged that shell purchasers were employed to purchase and then immediately sell properties, using bank funds given on the second sale to fund the first purchase. The net proceeds on the second sale were divvied up among the conspirators.

During a break I conversed with one of the FBI agents on the case. He solemnly told me that there would soon be many, many more cases like this one prosecuted at the Federal and State level. He warned me that the fraud on the commercial side would pale in the shadow of what would be uncovered in the residential lending arena. I rarely take what a FBI agent says at face value, no matter how earnest he seems, but this fellow was very soon proven omniscient.

The first mortgage fraud case came into my office barely a month later. She was a real estate agent, accused of setting up a shell buyer scheme. A fee lawyer for a Title Company hired me two weeks later, because she was being looked at for her involvement in a fishy deal. Soon thereafter a mortgage broker hired Stradley, Chernoff and Alford to defend him on a State accusation that he had lied about the income of some of his borrowers on various sub-prime loans. Then an alleged shell borrower on a different scheme hired us. This man was working as a concierge at a downtown high rise and was paid by a resident to buy property with fictitious income information. Various targets and witnesses came to see us after that. So many in fact, that a good number we had to refer out because of conflict.

Our most recently accepted client is a contractor. He is one of two people who came to hire us on a Houston mortgage fraud prosecution that wound up indicting 37 individuals. I was at the DA's office reviewing his file last week. I sat in the waiting area, wading through the voluminous documents and I observed a strange parade of bank fraud investigators approaching the receptionist and announcing their presence for their meeting with a prosecutor in the Special Crimes Bureau. As they waited, I couldn't help but overhear their conversations. It appeared that whatever case they wanted prosecuted on that day was only one of many they were investigating and close to presenting. Clearly, all hell is breaking loose in the residential mortgage banking industry!

I am always wary of prosecutorial waves. As I remember, the war on drugs that preoccupied the minds of prosecutors in the 80's not only captured the guilty, but injured the innocent and ultimately filled the prisons to such an extent that violent criminals found themselves back out on the streets after only 10% of time served. This new wave is focusing on all the people who took advantage of the banks extreme willingness to lend money in even the most tenuous circumstances. It is the mortgage lenders who are crying foul, but who is the real victim here? Why were the banks so eager to lend? Because they made money doing it!

Government entities like Fannie Mae and Freddie Mac insured nearly all of these loans, bundling them into bonds and selling them to mostly foreign investors or larger banks like Citibank. No mortgage lender would have been willing to lend the money had they not been assured that they could sell them on the secondary market. The banks - and more importantly their officers - made money in fees, points and service agreements. When these homes were foreclosed on, these large entities who purchased the mortgages no longer received their interest payments but still had to fork over interest on the bonds. Ergo, the mortgage lending crisis everyone is talking about.

Of course, these lenient lending practices were not limited to mortgages but also home equity loans that were used to pay off other credit. A lot of these loans were tied to the prime rate, which in turn is tied to the short term fed rates. Before this crisis, the Federal Reserve was loathe to reduce rates, because the dollar had tanked and reasonable concern existed that inflation would result from the overheated economy mainly due to the ease of credit. But now, in this election year, fear of recession has overtaken common sense. As of the time of this writing, the fed has reduced its short term rate by 75 basis points and I am looking to refinance my first mortgage.

And so it goes... What's my point? In many of these cases, prosecutors like to tell jurors "to follow the money" in determining culpability. The problem with that is that they want the trail to end with my clients.

I won't forget the local bank officer who testified for the government in my bank fraud trial in 2007. On cross-examination he admitted to doing two deals with one of the co-conspirators in the case. Without his signature, no loan could have been made. He admitted to meeting the co-conspirator each time at Treasures, a local strip club and each time collected a fat manila envelope ostensibly containing "documents". He had no explanation as to why these "documents" couldn't have been delivered to the bank or faxed. He had no explanation as to why he signed off on these clearly suspicious deals or why he expedited them past the underwriter. Since he was the government's witness, they didn't bother to inquire into it. The jury, though, understood the truth. Everybody is culpable here.

So who is the victim? When all this shakes out, it won't be the banks, despite what their hired fraud investigators have to say. In fact, with the drop in interest rates, they will make even more money. Further, the Government won't let Freddie Mac fail, or the PMI providers for that matter. Actually, no entity who encouraged this lending freak show will ultimately suffer. The blame though will fall down on our clients and it looks like I'll be very busy in 2008.

Permalink

Thanksgiving
Posted by: Ed Chernoff
December 06, 2007
Topic: Brownsville, Part Dos

I read a book about 9 months ago that attempted to explain the key to ultimate happiness. It was titled "Stumbling on Happiness", and it provided interesting insight into a number of things that have shown statistically to provide contentment and happiness. Yesterday, I found it on my bookshelf. It was placed, ironically behind a photo of my mother. She smiled expansively in the photo. I'm not sure when it was taken, but I am sure it was during her sober period - the three years before she died.

Most of her life, she searched vainly for that elusive happiness and stumbled instead into alcohol and prescription drugs. Whatever was missing in her life was polished away. The visions I have of my mother flash back and forth in three-second intervals, every other scene showing her slurring and stumbling against the living room wall, making her way to the bedroom.

Inevitably, the drugs failed my mother, and when she reached the jumping off place, she jumped. On the day she took too many sleeping pills, the guests were just beginning to arrive for my sister's 11^th Birthday party. Because my father was desperately occupied in trying to keep my mother awake, my duty was to herd the guests away from the front door. They didn't believe me when I told them the party was cancelled, until the paramedics rushed in. They watched them pull her out on the gurney, a mask loosely attached to her face. My mom survived my sister's birthday, but my sister was irrevocably broken.

My father left soon after the suicide attempt, starting a new family without the burden of an irrational, dangerous wife and three children trained to enable. I had to hang on for four more years, immersing myself in the deterioration. But when I got the chance, I ran. I was seventeen. I was admitted to the only college to which I applied, and evaporated into a world where the future seemed immeasurably vast and light. I never looked back, and selfishly allowed my brother and sister to try to put the puzzle together. It was sixteen years before I spoke to my mother again. She called from Atlanta, Georgia. She wanted to make amends.

I tell this story, because I want you to know I understand. Last week, one of our clients committed suicide. He was 22. His mom and dad hired us a year ago because he was charged with a drug case out of the 248^th District Court. Bill got him on probation and into a drug treatment facility. He seemed to be doing fine and graduated from treatment, but just recently he picked up another case in Ft. Bend County. We had been expecting a Motion to Adjudicate from the District Court in Harris County and religiously checked for warrants. When it arrived, Bill called and instructed him to come in the next day for surrender. That night he killed himself.

Being Bill, he worried that perhaps he had been too pessimistic with the boy about his chances. I assured him that, as the messenger, he had no guilt in the boy's decision. The stark reality is that this is not our first suicide and there's no reason to believe it will be our last. Nothing that happens in court is inconsequential to our clients. Some see nothing but blackness. Sometimes we can't bring them to the light. There is no lawyer alive with purer intentions than Bill Stradley. You simply can't fix everything.

I often say that if it weren't for drugs, alcohol and love we wouldn't have anything to do at the firm. Perhaps that's being too glib. The legal problems that result from drugs and alcohol cannot compare with the damage addiction causes to families. We can heal the criminal pain, but oft times we can only watch as the addiction takes its worst toll.

No one in the firm expected our 22 year old client to kill himself. His desperation was hidden from us and his family. If we had known, I'm not sure what we could have done to prevent it, but you can't help but second guess yourself in these circumstances. As a child, I didn't know what was so wrong in my mom's life that she felt it important to take her own life. Today, as I look at her photo, I can still only surmise. The thing I know for sure is that even sober and despite the radiant smile, I can see the pain in her eyes. It is to my everlasting shame that I didn't do enough to help her when I had the chance.

Permalink

DWI, The good, bad and ugly.
Posted by: Ed Chernoff
November 09, 2007
Topic: Business is Good, Memorial Park is Bad

I would like to take a short break from the Brownsville report to discuss other matters. I just got back from a conference in Las Vegas, where I was able to study the newest techniques in DWI defense. I wasn't much impressed. Generally speaking, the entirety of the DWI bar seems shocked - shocked - to find out that juries on a national scale are becoming much less likely to acquit in Driving While Intoxicated prosecutions.

Why should anyone be surprised? For the last 25 years there has been an information onslaught from MADD and other organizations, and frankly, much of the information has been misleading. Oft time potential jurors come to court believing that an accused person is guilty if there is evidence that the person consumed any amount of alcohol prior to driving. That isn't the law, of course, but its no wonder jurors are confused considering the contrary information they receive.

During jury selection, I usually discuss the highway signs that inevitably pop up around Christmas time. They read, in the boldest print possible: "Drink. Drive. Go to Jail." I ask the people in the jury pool if they see anything wrong with that particular warning. Despite the clear mischaracterization of the law, very rarely will someone raise his hand.

Unfortunately, many of our clients are arrested based on that one misguided premise. The art of DWI traffic arrests has been "elevated" to a science with the acceptance of Standardized Field Sobriety Testing, but the reality on the street is that an arrest is still only based on the opinion of the officer who makes the stop. How someone performs on one leg is necessarily a subjective evaluation and if the officer's job is to make drunken driving arrests, as is typical with members of the DWI task force, he will err on the side of probable cause.

Money and politics have fueled increased arrests and prosecutions for "drunk" drivers. Politicos like easy issues, and who could argue against poor mothers who have lost children in automobile accidents? Federal money is given to a municipality who is willing to create a task force designed to arrest intoxicated drivers, and what city is going to forego federal funds? Conversely, why would the feds continue to fund such a force unless it produced stats to justify its existence? And so it goes.

One outgrowth of this increased prosecution is the enormous defense industry created to combat the government. This was abundantly evident in Vegas. For every session devoted to defense techniques, another was offered regarding the business and marketing of DWI defense. In fact, the largest contributor to the seminar appeared to be a DWI internet business, whose moniker was plastered everywhere in the auditorium.

Heaven knows I am not opposed to marketing for lawyers! It is absolutely vital in this day, both for the lawyer and the accused citizen. Most citizens arrested for DWI have never been arrested for anything in their lives and have no idea whom to hire. Without some means for them to obtain information about the lawyers in their community, it would be nearly impossible for them to make a reasonable selection. Most individuals in that position still hire based on referrals, but the Internet is catching up, mainly because of its unique ability to disseminate large amounts of information.

However, there is a danger in print media, whether in the phone book, direct mail or the Internet. It pains me to say this, but not everything written is the absolute truth. DWI defense is a good business in that many accused of that crime have money and are more agreeable to work with than those charged with more egregious crimes. Many lawyers, who claim to "specialize" in DWI law, have in reality only "decided" to limit their practice to DWI defense and have marketed accordingly.

If you log on to the marketing site that sponsored the Vegas seminar, it states in its legal disclaimer that it markets only one lawyer in any particular county. It further makes clear that the marketing site is only a paid advertisement and makes no endorsement or claim with regard to any of the attorneys listed. So what criteria does the site go by in determining what lawyers to advertise? Is the decision on who to advertise based solely on financial considerations?

Lord, I hope not! People need help out there. Normally, when someone calls the firm asking for help on a DWI case, I tell him or her the same thing. Treat your search for a lawyer with the same care you would use in searching for a job or a spouse. Hopefully that would involve an interview with more than one prospective! Don't hire on the phone. Don't be afraid to ask specific questions regarding experience and expertise. And trust your instincts. A flashy website - even our flashy website - should be the start of your inquiry, not the finale. Get it right the first time. Switching lawyers later can result in one heck of a messy and costly divorce.

Permalink

Trece
Posted by: Ed Chernoff
October 11, 2007
Topic: Brownsville, Part Dos

Ok, so maybe I was joking. The last blog entry was mostly fiction, and I apologize to anyone who got too terribly wrapped up in it. Matt wasn't holding. I didn't get pistol whipped. I just fell into my novelist persona and couldn't get myself out. So back to reality.

The deputies were following protocal. I knew it well. Most of my highway stop cases fit the same mold. They separate the passengers. Come up with some reason to have a conversation. See if the stories diverge in some way, and then ask permission to search. Somewhere along the way, they report extreme nervousness in the driver or "strange" movements from the passenger. Of course, none of that applied to Matt and I. The only thing strange about Matt was his complete detachment. I suppose they could have mistaken my curiosity for nervousness. In any case, there was nothing to discuss. I hadn't broken any traffic rules.

But Willacy County Sheriff Deputies were as well trained as Dallas debutantes. Even without a reason to converse, they knew their job was to maintain conversation. It was show time. The short one stared at my license like he was expecting an alien head to pop out. He mustered a perplexed look. "You know", he said, "your license address doesn't match your registriation address." He looked up at me like he expected an answer. I didn't give him one. He continued. "Your registration shows this car out of Atlanta". I had no response for this mystery. "Where you coming from?", he asked. Finally a question I could answer. "Why did you stop me?", I replied. He seemed taken aback by the change in script. He actually stammered. He said, "You changed lanes without signaling".

Maybe it was his change in tone that did it. Maybe it was all the stories my clients had told me about the cohersive stops that had resulted in searches and arrests. Maybe it was the injustice. I knew damn well I hadn't changed lanes. Whatever it was, I lit into the little guy. The initial diatribe went something like this: "You know that's bullshit! You were following me for two miles, and I wasn't about to change lanes. You can lie all you want out here, but up on the stand you had better be prepared to lie under oath. You know...so help you God? Maybe you will get by with it, but you and I will know its a lie. You really want to do that?" At that point, Deputy number two left his position at the back of the Navigator and slipped behind me, but I was on a roll. "I'm not one of those guys who is going to let this go! No, I'm not going to agree to a search! No, I don't give a Goddamn if you get a warrant! Or a dog! I hope you get a dog! I have a video camera in the car and I hope to God you get a dog, because I'm going to videotape every 'alert' your Fido makes!"

I stopped to get my breath. For some reason Deputy Number Two stepped in and he asked the second most interesting thing I had ever heard a cop say, "Who the hell are you?" I didn't know what to say at first. My adreneline was pumping. In fact, I WAS NERVOUS! I said, "I'm a lawyer, heading to Brownsville to try a drug case." The two Deputies turned to each other and the second one, face curiosly transformed, asked the the first most interesting thing I had ever had a cop ask.

Permalink

Part Dos, Dos
Posted by: Ed Chernoff
October 02, 2007
Topic: Brownsville, Part Dos

I was frankly amazed. I don't get stopped by cops. I'm a 44 year old white male, in an appropriate vehicle. And although I sympathize with my clients who are pulled over for no reason at all, I can't honestly say I relate. I have before driven 18 months past the renewal date on my registration tag. Longer than that for inspection. I've gotten lazy, knowing that enforcement policy doesn't include my demographic. I speed. I weave. I drive with one brake light out. Nothing. I can't get a date to that prom.

So to see that Willacy Sheriff vehicle pull out into traffic and stalk my Navigator fascinated me. He had no reason to follow me. The Navigator was new, so it was current on its papers. i wasn't speeding. Matt had made sure of that by lending me his state of the art satelite enabled Jenna Jameson endorsed cop detection device. It checked for laser, infrared, X Band, K Band, XXX band and Rubber Band radar. They weren't shooting me. No reason at all, but the cop car closed in and I hadn't any doubt he was going to stop me. I told Matt, who was as confused as I. "What for?", he asked, craning his neck backward. "I don't know", I replied, "but we are about to find out." It was then the lights went on.

It turned out to be two of them. They followed protocal. After I stopped, one approached my drivers side, just slightly to the back of my shoulder. The other waited at the back passenger side. The one near me asked for my license and insurance. So far, I was amused. With a smile, I asked if it was okay if I reached into my glove box. He agreed. I dipped between Matt's legs to dig for my insurance card. Strangely, Matt seemed tense. His face was unmoved, like a guard dog perked by a sound outside the front door. Later, I found out why. I couldn't find the card, and told the deputy. He asked me out of the car.

It would be incorrect to say I was concerned, but I began to feel a discontent at the operation. They were far too terse considering the occupants they found in the car. It didn't make any sense. I turned to ask the deputy why he had stopped me - really just to break the ice. As I turned he jumped and reached down to his belt, where his semi-automatic rested. Taken aback, I stepped away. I held my hands open to the officer, and said, "Whoa there, there's no problem here!" I said it in a pleading manner. This guy was clearly stressed, and God knows I didn't want to do anything to ramp up his apprehension. Unfortunately, it didn't do any good. I heard a shuffle, and turned to see the deputy at the rear of the Navigator running towards the passenger door. It was then I saw Matt bolt from the car and take off towards the field next to the highway. Alarmed, I took a step forward. That's all I remember.

I had always heard about how it felt to be knocked unconscous, but the descriptions don't really do it justice. I can't say I felt pain, until much later when I woke up in the hospital. I've got to give him credit, he was fast. I think it was a flashlight, but I didn't see it coming, and really it could have been anything. The romantic in me likes to think I was pistol whipped. AllI know is the bright sunshine of the Texas Valley faded to black very, very fast and whatever importance I placed in protecting Matt was buried in the hot concrete of the southernmost part of US 59.

Permalink