I thought I had seen it all but this case must take top prize for the most abhorrent attempt at foreclosure fraud perpetuated by a federal savings bank.
A client hired me to audit his loan documents in preparation for an upcoming motion hearing in Miami-Dade County, Florida. Flagstar Bank is trying to foreclose on a mortgage originated back in 2008. The putative lender on the promissory note and mortgage is “Manhattan Mortgage Services, a Florida Sole Proprietor” and, of course, MERS is named as the lender’s nominee and beneficiary under the mortgage.
The first red flag for me was the assertion that Manhattan Mortgage Services was a “Sole Proprietor” because only a natural person can be a sole proprietor. A business may be a “sole proprietorship” (as opposed to a “sole proprietor”) meaning that an individual is doing business under a fictitious business name provided the name is registered and the true owner is identified to the public. There is no legal distinction between a sole proprietor and his/her business. According to the Florida Department of State Manhattan Mortgage Services had been registered as a business back on 5/20/1998, but the registration had expired on 12/31/2003. I then looked for evidence that this entity had a license to lend money in Florida and learned that a Mortgage Broker’s license had been issued to this entity in June 1998 but revoked only two months later. So at the time this loan was originated, in March 2008, there was no active lending license on record for this entity, nor for the individual who had registered the fictitious business name.
Interestingly, according to the HUD-1, Flagstar Bank was the putative lender, not Manhattan Mortgage Services. And yet another entity, Manhattan Mortgage Corporation, was identified as the mortgage broker, who had received broker fees of approximately $3000 in return for its services in brokering the loan. There was no mention of Manhattan Mortgage Services anywhere on the HUD-1 settlement statement, but incredibly the Truth in Lending disclosure statement had been issued by Manhattan Mortgage Services (the bogus lender), while the Right to Cancel Notice indicated Flagstar was the lender! Are you with me so far?
Finally, to make it all seem legitimate and legal to the court, shortly before the filing of foreclosure proceedings, a Mortgage Assignment was executed and recorded by MERS as nominee for “Manhattan Mortgage Services, a Florida Sole Proprietor”. Not surprisingly, the individual signing the Assignment, Robert Stoudmire, was an employee of Flagstar Bank pretending to be a “vice president” for MERS, who was in turn purporting to be the “nominee” for Manhattan Mortgage Services, a non existent, unlicensed and completely fictitious entity that had allegedly funded the loan and for whose benefit the security instrument had been issued.
So, is this note enforceable? Can Flagstar Bank foreclose a mortgage securing an illegal loan that is payable to a bogus company? Should the borrower profit from this illegal transaction? Florida's law has long held that contracts which are determined to be against public policy and void should not be enforced. "A contract which violates a provision of the constitution or a statute is void and illegal and will not be enforced in our courts." Harris v. Gonzalez, 789 So.2d 405, 409 (Fla. 4th DCA 2001). The Supreme Court of Florida has declared:
The inherent and inalienable right of every man to enter into contracts or refuse so to contract is not only recognized but well established. Competent persons have the utmost liberty of contracting and when these agreements are shown to be voluntarily and freely made and entered into, then the courts usually will uphold and enforce them. The general right to contract is subject to the limitation that the agreement must not violate the Federal or State Constitutions or state statutes or ordinances of a city or town or some rule of the common law. Wechsler v. Novak, 157 Fla. 703, 26 So.2d 884, 887 (1946).
Here, we have a bogus and patently unlicensed entity that had purportedly lent money to a borrower in violation of state law requiring all mortgage brokers and lenders to be licensed prior to conducting any business in the state of Florida. Moreover, we have a federal savings bank whose employee has committed a blatant act of fraud by pretending to be a representative of the fictitious lender for the purpose of illegally conveying the arguably void security instrument to his employer. This note is as void as can be and Flagstar Bank does not have an enforceable right.
Did I mention this was an FHA insured loan?
Mortgage Brokerage License expired on 8/31/98:
TIL Disclosure Statement issued by Manhattan Mortgage Services:
But Right to Cancel Notice shows Flagstar Bank was the lender:
And here is the pre-printed Indorsement Stamp to transfer the note from the bogus lender to Flagstar Bank:
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