The Worst Bank Foreclosure Fraud in U.S. History was sponsored by Morgan Stanley and was a collaborative effort principally executed in North Carolina by Wachovia Bank and Paragon Commercial Bank. These banks were assisted in their efforts by the law firms of Kirkland & Ellis, Nelson Mullins and Poyner & Spruill, respectively through an astonishing display of legal and judicial corruption. This foreclosure fraud involves six properties aggregating $22 million in value and seven loans, aggregating $9 million at the time the fraud was commenced. The foreclosures proceeded uncontested because Spencer C. Young, a mortgage expert with an extensive experience base, was unlawfully denied legal representation.
The last phase of this foreclosure fraud was executed by Paragon Commercial Bank and Poyner & Spruill, entailing a mortgage loan that was:
- ALWAYS paid before the monthly due date
- NEVER delinquent
- NEVER in default
- And on the day of eviction PAID-IN-FULL !!
In this final phase there were TWENTY separate elements of fraud employed and . . .
FRAUD ELEMENT # 1
involved . . .
Rejecting the Receipt and Deposit
of Rent Remittances from Tenants
In late January 2009, Paragon Commercial Bank initiated their FRAUD by suddenly blocking the receipt and deposit of monthly rental remittances from tenants. Their malicious intent was obvious, and their timing was deliberate. They did this by abruptly canceling a long-established ACH agreement with Mr. Young, and fabricating reasons for doing so. Knowledge of the ACH is important in understanding how utterly absurd Paragon’s actions and stated rationale were – hence an explanation of the ACH electronic network for processing interbank transfers of monies between customer accounts is presented in Exhibit XIII.
Reason For Rejecting Deposits Was Absurd
The rationale provided for carrying out such a sudden draconian action was predicated on a:
- Lie – in fact, it was a bold-faced lie;
- Misrepresentation – in this case, it was a complete misrepresentation of risks THAT DID NOT EXIST in this case because the ACH transactions pertained to the direct deposit of rental receipts from CORPORATE customers; and
- Convolution - the reasoning for their action was predicated on a complete falsehood and entirely convoluted reasoning . . . in other words, because there was no legitimate reason for taking such a draconian action, and the circumstances could not support their evil plans, THEY JUST MADE IT UP . . . and as reflected in the evidentiary documents contained in Exhibit XII – FRAUD Element # 1, they did a poor job of that indeed.
On Jan. 14, 2009, Jim Hoose Of Paragon sent Spencer Young an email informing him the ACH Agreements in effect for years with Paragon would be suddenly cancelled in 9 days. (Click here to access this)
The reason given was “several returned ACH transactions”, “over the last two months” posed an “unacceptable risk to the Bank”.
As explained further below, this is utter NONSENSE.
Further Analysis of Paragon’s Bogus Rationale & Entirely Flawed Conclusions:
The Lie – This was a bold-faced lie and represented the initial step in the carefully orchestrated Assault – there were NOT several returned transactions – in fact, there were NO ACH reversals in the prior two months associated with the subject property. The ONE reversal occurring during this time period was:
- UNRELATED to the Paragon Loans;
- An INSIGNIFICANT AMOUNT, in that is was less than 5% of the monthly rent roll, and an even lesser percentage of the average deposit balance kept on account; and
- A ONE-TIME EVENT that was beyond Mr. Young’s control, in that it was “kangaroo court” ordered (explained further in FRAUD Element # 17) but outside the scope of this matter. In actuality, it was a temporary deposit from a tenant at a property where Paragon was NOT the first mortgage lender.
The Misrepresentation – There was NO ASSOCIATED RISK to Paragon, in that: (1) Paragon served as the Originating Depositary Financial Institution on all of Mr. Young’s ACHs; (2) all rent receipts are from corporate business entities (i.e., NOT consumers); and (3) the ONLY risk that could have possibly existed would be a “time-frame” risk, which would arise ONLY IF Paragon served as the “Receiving Depositary Institution” and the monies were received from consumers, as there are certain provisions of the Electronic Funds Transfer Act that could introduce a time-frame problem. Since NONE OF THESE CONDITIONS APPLIED, the transactions posed NO RISK WHATSOEVER to Paragon. Moreover, if there was any fraudulent “money good” risk (there wasn’t), it could be readily ameliorated by placing a simple “hold” for 24 hours, as the majority of any reversals occur within 24 hours of the processed ACH. And lastly, no bank would terminate such an arrangement under the circumstances – for it would merely be another source of income from the related NSF processing fees, which the banking industry has dramatically increased recently.
The Convolution - A fundamental feature in sound commercial mortgage loan administration and related credit management is to require the direct receipt of rental monies (this was voluntarily arranged by Mr. Young years earlier). In this case, Paragon Commercial Bank did the opposite. The convoluted logic behind Paragon’s action is beyond the pale, and only further underscores their malicious intentions.
The Prophetic Warning - On Jan. 21, 2009, Mr. Young issued a memo to Hatley (click here to access this) asking that he cease and desist from preventing the deposit of rental monies, and ended his message with a prophetic warning: “I want to go on record that your action is baseless, and absolutely irrational from a banking and credit risk perspective – ergo, it is seemingly sinister – for it appears you are trying to prevent the good faith deposit of monies in order to orchestrate a fraudulent loan default. “
Fraud Exposed – in an email dated Feb. 10, 2009, Mr. Young sent a responding email to Carol Horton of Paragon (click here to access this), and copied Mr. Hatley and Martin Borden (Mr. Young’s relationship banker). In this transmittal, Mr. Young laid bare Paragon’s FRAUD-based rejection of deposits.
Importantly, Congress did NOT bail out Banks so they could defraud and maliciously defraud and persecute the very taxpayers who bailed them out. Moreover, the corruption observed in this matter alone, suggests a threat to the integrity of the U.S. Justice System may exist.