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Saturday, November 20, 2010

Deadbeats' Defender Is Himself a Deadbeat

In a case that may warrant the attention of the authorities, a prominent foreclosure defense attorney in South Florida learned his trade by defending himself from foreclosure in what looks like a very intentional, strategic default that may be a form of bank fraud.

Peter Ticktin has not paid his mortgage since December 2006, according to this Sun-Sentinel of Fort Lauderdale report.  Ticktin is fighting his own foreclosure action on the basis of shoddy paperwork and the related concept that Deutsche Bank cannot prove it has standing to foreclose (i.e., he claims they don't hold the mortgage note).  (Background:  Public records show that Debra Ticktin is the sole owner of a home, purchased for $650,000 in May 2004.)

Just asking, but wasn't the typical homebuyer in 2004 in South Florida looking to score a quick profit in a housing market going up at an annual clip of 25 percent or more?  In other words, weren't many of these buyers consumed by greed? (That greed has since consumed them, you can bet, but in a different way.)

Due process and standing issues aside, just note that Ticktin -- an apparently successful lawyer with two offices -- has not paid his mortgage in four years.  His mortgage is reportedly over $574,000, but unless he was a subprime borrower with some sort of funky mortgage terms (like interest-only or negative amortizing), one has to assume the interest rate cannot be over six or seven percent a year and would thus produce a monthly payment obligation which cannot be over, say, $3,500-4,000 per month inclusive of taxes.

How is this that this man -- ostensibly well off with two law offices and a $6cannot pay this mortgage?

Why does one think that many of these delinquent homeowners are just doing strategic defaults, pocketing the money they're supposed to be paying, and trying to see how long they can get away with stiffing the bank holding their mortgage -- and by extension, the rest of the economy?

The more that the apparently able-to-pay borrowers get away with such intentional strategic defaults -- a form of a "tort" or civil wrong -- it encourages the rest of the borrowers who play by the rules to consider doing the same.  Bad behavior must be punished, or else it will be rewarded and it will increase.

In fact, cases like Ticktin make one wonder if a criminal investigation is in order, on the theory that a strategic default, in certain cases where the borrower is clearly able to pay the monthly payment, shows that the borrower took out a bank loan without a bonafide intent to maintain his obligations under the loan, while representing that he was able and willing to assume and fulfill those obligations in order to induce the bank to grant the loan. 

Ticktin bought his house (it apparently is in his wife's name as an extra way of asset protection) about 30 months before defaulting, and within a year of the South Florida property market bubble bursting with amazing speed.  If he had bought it and defaulted much quicker after the purchase, it would create a fact pattern much more similar with the "traditional" mortgage fraud cases.  In such cases, so-called straw buyers take out "cash out" mortgages with banks -- often using entirely fraudulent documents and sometimes with the assistance of collaborators inside the banks --  get the cash back and then disappear, usually without even making the first payment.  

The bank gets stuck with a nonpaying and often entirely-fraudulent mortgage, and is out the entire cash payment.  The bank ostensibly has collateral -- the house -- but the appraisal of that house has often been inflated or also entirely fraudulent, and since then actual values have dropped. 

The essence of mortgage fraud is a knowingly false or fraudulent representation by the borrower in order to induce the bank to hand over its money, either to purchase a property or cash out its equity.  (Reminder:  Bank fraud today hurts all prospective borrowers tomorrow, and all bank depositors both today and tomorrow.)  The question with strategic defaulters like Mr. Ticktin (who should not receive special scrutiny because of  his professional activities, by the way) is whether their pre-purchase representation as to their intent to pay was fraudulent.  The typical straw buyer fraud explained above has a much closer proximity between the time of the fraudulent representation and the default.   Here, Mr. Ticktin can use "changes in circumstances" and a two-and-a-half-year record of payment to explain that his ability to pay changed, and that his intent is not an issue.  Others may not have so much luck explaining their strategic defaults.

When you misrepresent or outright lie about your ability to pay back a loan in order to convince a bank to grant you a loan, that is a fairly clear case of bank fraud.   It should be no different when the misrepresentation is not about the ability to pay a mortgage, but one's intent.

Eric Dixon is a New York lawyer who provides strategic analysis and litigation stress management consulting through his proprietary concern, Eric Dixon LLC.  Mr. Dixon has been a lawyer since graduating from Yale Law School in 1994 and has substantial experience with complex business transactions, regulatory compliance and government and regulatory investigations.  He may be reached for comment or consultation at edixon@NYBusinessCounsel.com and by phone at 917-696-2442.

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