William A. Miller, Esq.

Mortgages bundled into securities were a favorite trick of Wall Street at the height of the big bubble. The securities changed hands frequently, the French bought billions, and the investment banks profiting from mortgage payments were often not the same parties that made the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing mortgage pools to transfer without the necessity of recording. The point was investment banker fees without responsibility or accountability to the home owner!

MERS was made for the banks, but courts are now slamming down the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. As MERS has acknowledged that MERS is a “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

The latest decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERSbecause it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

Since no evidence of MERS’ ownership of the underlying note has been offered, and
other courts have concluded that MERS does not own the underlying notes, this
court is convinced that MERS had no interest it could transfer to Citibank.
Since MERS did not own the underlying note, it could not transfer the
beneficial interest of the Deed of Trust to another. Any attempt to transfer
the beneficial interest of a trust deed without ownership of the underlying
note is void under California law.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue. Call Bill Miller at 480-948-3095 a long standing Arizona Trial and Real Estate Lawyer located in Scottsdale.

Following on the heels of the federal class-action lawsuit filed against two nation­al law firms and national accounting firms last week in Phoenix, Greenberg Traurig and Mayer Hoffman McCann and its affiliates find themselves on the wrong end of another inves­tor lawsuit to recover some $52.3 million that the investors claim the lawyers and audi­tors helped Mortgages Ltd (MLtd) and its wholly-owned subsidiary Mortgages Ltd. Secur­i­ties (MLS) defraud investors to the tune of $900-plus million between 2004 and 2008.

The latest lawsuit was filed on June 1st in Maricopa County Superior Court in Phoenix by Scotts­dale attorney William A. Miller on behalf of the Plaintiff, Victims Recovery, LLC (VR), a group that represents 18 high net-worth investors who, according to the complaint, as the result of the defendants’ misrepresentations, bought into Mortgages Ltd.’s promise of high-interest income and relatively quick payback of principal from its “secured” investments.

In addition to Greenberg Traurig and Mayer Hoffman, the complaint names as defendants May­er Hoffman affil­i­ates, CBIZ, Inc., and CBIZ-MHM, LLC, as well as two Greenberg attor­neys, Robert Kant and Jeffrey Verbin, two Mayer Hoff­man accountants and auditors, Charles McLane and Joel Kramer, and three former MLtd executives, former president Michael Den­ning, former CFO Chris­to­pher Olson and former vice president Jeffrey Newman, who was also the for­mer president of MLS, which was used to sell MLtd’s invest­ments to investors.

Kant, Verbin and Greenberg Traurig were MLtd’s and MLS’s attorneys from 2006, while McLane, Kramer and Mayer Hoffman reviewed and audited the company’s 2004-08 financial statements, which Olson prepared. According to the complaint, these defendants participated in or facilitated MLtd’s fraud by preparing false offering memoranda, other legal documents and indepen­dent auditors’ reports, which mis­led investors by misstating the real risks of MLtd’s loan programs, and the fact that MLS was selling securities illegally and that MLtd was actually insolvent but for creative accounting and undisclosed bor­row­ing from related and third parties.

In the complaint VR says, “the Company’s lawyers, accountants and auditors made sure that “MLtd would fall [like Humpty Dumpty], leaving investors ‘holding the bag’ of worth­less paper.” After detailing how all of that happened, VR alleges claims of fraud, negligence, aiding and abetting breaches of con­tract, bad faith and fiduciary duty, and civil conspiracy against Greenberg Traurig, Mayer Hoffman and the other defendants.

By way of background, MLtd was founded in 1963 and licensed as an Arizona mortgage bank­er. It opera­ted as a private real estate mort­gage len­der in Arizona until 2008 when Scott Coles took over the compa­ny as CEO from his father who founded the company. Coles moved the compa­ny’s business from making traditional residential mortgage loans to making short-term multi-million dollar bridge loans to commercial real estate developers and buil­ders for pro­jects in Arizo­na such as mul­ti­family residential complex­es, office buildings and unde­vel­op­ed mixed-use prop­erties.

MLtd packa­ged these loans into “pro­grams” and sold invest­ments in the pro­grams as unreg­i­s­tered securities through its MLS subsi­di­ary to investors, such as those represented by VR, to raise the money it used to make the loans. Accor­ding to VR’s complaint, MLtd made its money by col­lec­ting “a virtual airline-like laundry list” of fees from both its borrowers and its inves­tors in addition to receiving the “interest spread,” the dif­fer­ence between the interest received from bor­rowers and the inter­est it paid to inves­tors, on the loans.

One of MLtd’s loan investment programs, its “Revolving Opportunity” (RevOp) program, was differ­ent from its other programs in that it was geared towards high net-worth investors, like the VR investors, and required higher minimum investment amounts (initially $500,000.00 and later increased to $1 million). According to VR’s complaint, RevOp, the program that the VR investors lost their money in, was touted as offering investors preferred posi­tions, higher rates of return, better security, and more liquidity than the company’s other loan programs.

VR’s complaint goes on to say that MLtd increasingly originated significantly larger but few­er loans, many of which had delayed-funding terms that obligated the company to fund sub­stan­tial portions of the loans in stages rather than the entire amounts upfront. This magnified the adverse effects of the deteriorating real estate market conditions in Arizona in late 2006 and through­out 2007, all of which began to severely impact MLtd’s cash flow.

For example, as VR’s complaint states, in late 2006 through late 2007, MLtd made com­mit­ments to developers to loan them more than $670 million for a multitude of projects with­out the resources to fund those loans. Moreover, many of MLtd’s borrowers began defaul­ting on their large multi-million dollar loans and by January 2008, developers had defaulted on more than $100 million in loans.

According to the complaint, that coupled with the impact of having to meet delayed-funding obligations resulted in the company’s not having the money or ability to raise more money to pay the VR Investors their monthly interest or to honor their investment-redemption requests as required under RevOp. The complaint continues that with the assistance of the defendants, “[a]s a result of being so grossly overextended, MLtd and MLS pursued vari­ous Ponzi schemes of sell­ing even more loan programs to existing and new investors, including the VR Investors, to raise the money … needed to pay the interest due investors on earlier investments and to keep the com­pany afloat.”

As a result, the complaint alleges, “MLtd’s house of cards came crashing down” when Coles, who also ran MLS, committed suicide on June 2, 2008, and just three weeks later, MLtd was forced into bankruptcy by its creditors. Short­ly after that the SEC and the Arizona Depart­ment of Financial Institutions (ADFI) began investi­ga­ting the com­pa­ny’s business, and the SEC shut MLS down for violating federal securities laws and the ADFI yanked MLtd’s license based on its improper finan­cial practices and accounting, which violated Arizona law.

The complaint explains that the VR RevOp investors first became aware of the fact that Greenberg Traurig and Mayer Hoffman may have been involved in MLtd’s fraud during MLtd’s bankruptcy proceedings. That then led these 18 investors to join together to set up VR to investigate the situation and that resulted in the lawsuit that VR filed on June 1st. A copy of VR’s complaint is available under the “Mortgages Ltd. Case” tab at the top of this website.

In 1988, one of my first legal projects was to get a bank from Colorado off the back of a local developer who had built a shopping center. It turns out the bank was fearful that Arizona was about to enter a bad season in commercial real estate, the only problem was the developer was really not in default. The judge slammed the bank & by the time we cut a settlement deal with them, the market had really corrected. They should have waited and played fair. Declaring bogus defaults hurt them.

Now, the next shoe is about to drop because of commercial loan resets. Commercial landlords continue to lose office & retail tenants at an accelerating pace, indicating that the industry’s troubles are worsening.

The amount of occupied space in U.S. shopping centers and malls declined a net 8.7 million square feet in the first quarter of 2009, according to real-estate-research company Reis Inc. The amount of occupied space lost in that one quarter was more than the total amount of space retailers gave back to landlords in all of 2008 and any other year in recent history, according to Reis. It makes 1988 look like a cake walk. If you need help dealing with the ever changing real estate market give the Scottsdale law firm of William A. Miller a call at 602-319-6899.

Why are all the con men now “going green”? Pretty simple. These are the same type of idiots and narcissistic jerks who polluted our rivers in the 1940-50’s. It is where the money is. It is easy money because there are no rules. It is a brand new industry and language and the best B.S. gets the contract and hustles the rest.

Remember money is green. Add that to the fact that our President, who only recently was well versed enough in economics & finance to buy his first home at the age of 43, gave a few hundred billion to going green and you have a perfect storm. My due diligence first question to the potential green investment guru on a client’s behalf is… How long have you been a member of Green Peace or the Sierra Club? Rhetorical indeed. Call the Law Firm of William Miller with further questions about any investment in stocks, real estate or the ‘go green’ tsunami. 602-319-6899.

I just sent in my annual money for registration of a vintage car I own to the great State of California. I drive it too much, yet I cannot bear to drop the California plates. The car is classic, just like my memories of California. It is where I was born, but I was raised in Arizona. Back then in the 60’s and 70’s, we did things right in Arizona. Self made men. No excuses for failure. No social climbing needed. You fight, you win. You quit, you lose. That is it! “Buckle down kid”, that is what my dad said. Yet, California went French on me over the last few years.

California is now in a French-like bind: unable to afford a welfare-type state, and unable to overhaul it. “The people say they want all these programs, then there’s nothing they want to pay for,” says Hector De La Torre, a Democratic assemblyman. “The schizophrenia in the legislature reflects the peoples’.” Let us pray that Arizona stays true to Goldwater type freedom and self reliance.

We do not take wimpy cases at the law firm of William A. Miller in Scottsdale. No coffee burn scams. No the-teacher-was-mean-to-my-kid nonsense. But, if you really have been injured by a real estate or stock scam, give us a call at 480-948-3095. We will strive to make things right the old fashion way. The Arizona way.

At the law firm of William A. Miller in Phoenix Arizona, we take Arizona-granted licenses as a privilege. You cannot build a house without a contractor’s license. You cannot give legal advice without a law degree and license to practice law. Good luck suing in this State if you do not possess one. If you build a house without proper authority, good luck suing the homeowner, our Courts will toss you out.

The same goes for trying to sell beers at a burger joint, no license, no beers.

We just filed a multi-million dollar suit against a group of entrepreneurs who bought bank loans with unused lines of credit for pennies on the dollar. Now they are trying to foreclose. The law does not allow such and over the next few weeks, we will be reminding the Court and the entrepreneurs that acting like a bank requires a license! We’ll keep you posted on the results.

I know I am aging myself but like Bob Hope used to say in the “Road Show” flicks, “no ticky, no laundry.”

If some non-licensed group has hampered you, be it selling you worthless stock without a securities license or giving you liposuction without a medical license, give us a call to discuss your rights. Our number is 480.948.3095.

No one wants to even think about the F-word — “Foreclosure.” It is so sad to see so many good folks losing their homes in foreclosure. It is also good to see some banks playing “fair” and trying to work with defaulted borrowers. Yet note something curious in Arizona law. Normally after a default and foreclosure, all the bank can do is get your house and sell it in the open market. If it does not fetch a higher price than the loan, it is not your problem, other than botched credit. They cannot sue you for the difference (deficiency).

Arizona’s laws that prohibit deficiencies are found in Arizona Revised Statutes Sections 33-814.G and 33-729(A).  These types of laws are also called “anti-deficiency legislation.”

A.R.S. § 33-729(A) states: “. . . if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.

A.R.S. § 33-814(G) states: “If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee’s power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.”

At the law firm of William A. Miller in Scottsdale, Arizona, we can help you sort through these laws to give you as much protection as possible. So give us a call at 480.948.3095 if you want to have us look over your case. LAW is not a four letter word.

When I broke the NCFE (http://articles.latimes.com/2008/nov/01/business/fi-poulsen1) fraud back in 2002, the first thing I did was sue the third-party professionals, the lawyers, accountants and financial firms, who helped NCFE commit their crimes. My favorite law school professor Charles Ayers always said, “go for the deep pockets.” Well, it is now time for the Minnesota accounting firm of McGladrey & Pullen to give back some of the money they got for helping Bernie Madoff. The firm has just been sued in both Madoff’s and Tom Petters’ Ponzi schemes.

Last week, an investment fund that placed $280 million with Madoff sued in Connecticut state court saying its auditors — Goldstein Golub Kessler in 2006 and McGladrey & Pullen in 2007 — failed to detect the fraud. And, in October, the Ellerbrock Family Trust filed a similar suit in federal court in Minnesota saying that McGladrey & Pullen failed to conduct thorough audits or take other actions that would have uncovered alleged fraud by Petters’ companies.

At the Law Firm of William A. Miller in Phoenix we manage a number of high-profile estates. On Jan. 1, the amount exempted from federal estate taxes rose to $3.5 million from $2 million, which means that estates at or above the new limit would save $675,000 in estate taxes (at the 45% rate) compared to last year. So, party on, trust fund preps, heirs and heiresses. But wait, this may all end sooner than expected.

Under the current law, the estate tax is scheduled to disappear altogether in 2010, so the heirs of millionaires who go to their reward next year stood to inherit everything without Uncle Sam taking a cut on any of it.

While that is how the law stands, the notion of uber-rich being able to pass on their millions tax-free never squared with common sense reality. Of course, there are good arguments against the so-called death tax, especially that it taxed income twice; first when it originally was earned, then when it was saved and invested over time.

We are more than happy to help you properly plan your Estate at the law Firm of William A. Miller. Give us a call at 480.948.3095.

OK, it’s now 2009 and we are all looking for a fresh start. We settled three significant matters at the law firm of William A. Miller in Phoenix, Arizona, over the last 30 days. I like to say, “I am a patriot first and a conservative second” and this quote from Cicero in 55 BC is as timeless as the saying of the Bible.

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”

Sounds like there is nothing new under the sun. Good Luck to our President-Elect in 2009.