Article Courtesy of The Daily Business Review

By Julie Kay
Published 02-11-2005

The Florida Supreme Court's emergency suspension of a Miami real estate attorney has prompted lawmakers to hastily draft a bill to protect homeowners from so-called foreclosure vultures.

The issue first came to the legislators' attention after Broward County Circuit Judge Robert Rosenberg issued a scathing order and sanctions in December against Miami lawyer Terry Rosenberg in a foreclosure case in Judge Rosenberg's court.
Following an eight-month investigation last year, the Bar accused lawyer Rosenberg of engaging in a scheme, along with a Miami lien company called Global Heir and Assets and its principals Manuel Rosado Sr. and Manuel Rosado Jr., and two out-of-state banks, to defraud as many as 300 Floridians whose homes were foreclosed.

Under the alleged scheme, Rosenberg and his associates identified foreclosure cases where there were surplus funds, collected them supposedly on behalf of the former homeowners but without their knowledge and took up to 40 percent of the surplus funds as payment.

The Bar contends that Rosado Jr., acting with bank employees, cashed checks made out to the ex-owners without the ex-owners' endorsements. In total, the Bar said, Rosenberg "illegally collected $151,634 from 18 victims and none of the victims received any funds." Its petition seeking Rosenberg's emergency suspension said, however, that the Bar is investigating dozens of other victims of "the respondent's machinations."

"We've seen other cases but nothing this bad," said Bar counsel Barnaby Lee Min. "It's a strong possibility we will ask the Supreme Court to disbar Mr. Rosenberg."

Terry Rosenberg, a 30-year real estate law veteran, is vigorously fighting the charges. His attorney blames Rosado Jr. for the wrongdoing, and accuses the Bar of overzealousness in its investigatio n.

"The business of locating surplus funds in foreclosures is a big business, and it's a legitimate business," said Rosenberg's attorney, Miami lawyer Peter Heller. "Checks were stolen and absconded by a third party. This is just allegations all the way around. The Bar has jumped to quite a few conclusions."

The Rosados could not be reached for comment, and a phone number for Global was disconnected.

But state Rep. Ira Abraham Porth, D.-Coral Springs, Fla., and Sen. Walter "Skip" Campbell, D-Tamarac, Fla., sponsors of the foreclosure bill, say the case has exposed a loophole in the law that is allowing businesses and attorneys to prey upon people in financial straits. Possible remedies include setting up a hotline to educate people facing foreclosure about the possibility of surplus funds and the fact that they don't need an attorney to collect them. Another possibility is capping attorney fees in surplus fund recoveries.

"These lawyers and co mpanies have popped up in recent years, and they're known around the courthouse as foreclosure vultures," Porth said. "There are cases of attorneys taking 38 percent of $48,000 for attending what amounts to a 10-minute hearing. In reality, people don't even need an attorney to obtain these funds."

Min said the Bar has referred the Rosenberg case to state attorneys around Florida, the Florida attorney general's office and the U.S. attorney's office in Miami. He said he doesn't know if any of those agencies are investigating.

A spokesman for the Miami-Dade state attorney's office said a prosecution is unlikely in a case such as this, which is more a matter for the civil courts.

UNAWARE OF SURPLUS

Because of the rapid appreciation of real estate in South Florida, many homeowners whose homes have been foreclosed have funds left over after their mortgages are paid. In many cases, court clerks have difficulty locating the former owners, who t ypically are unaware of the surplus funds that are due to them.

In recent years, "asset locator" companies and lawyers have made a lucrative business out of locating surplus foreclosure funds and collecting them on behalf of the former property owner. They charge up to 40 percent of the surplus funds for their services.

According to the motion the Bar filed with the Florida Supreme Court on Dec. 23, this is how the scheme worked: The Rosados, who are not attorneys, would comb through records at the offices of the court clerks in Miami-Dade, Broward, Hillsborough, Orange, Osceola and Seminole counties to find foreclosures with surplus funds.

Rosado Sr. and his son Rosado Jr., who was working in Tampa, Fla., would find the cases and pass the information to Rosenberg. The attorney would prepare a notice of appearance to the judge, a motion for disbursement of surplus funds, a notice of hearing and a letter to the calendar clerk requesting a hearing. Ther e were no prior agreements or contracts with the foreclosed homeowners to represent them, according to the Bar.

The judge would disburse the funds to Rosenberg and the court clerk would issue a check directly to him. From these funds, according to the Bar, Rosenberg would issue a check to Rosado, a check to himself and a check payable to the ex-owner of the property.

In at least 18 cases, the Bar says, the check to the ex-owner was cashed by Manuel Rosado Jr., without any endorsement, by Providian National Bank in Tilton, N.H. The amounts of the checks ranged from $1,400 to $25,000.

Beth Haiken, a spokeswoman for Providian, said, "There's not a lot I can say because this allegedly involves an employee. We do take any and all cases of fraud or alleged fraud very seriously and would take appropriate action were any instance to involve an employee."

Another bank, Capital One in Glen Allen, Va., also cashed unendorsed checks presented by Rosado Jr ., according to the Bar petition. A spokeswoman for Capital One declined to comment, citing pending litigation.

CASHED WITHOUT ENDORSEMENT

The Bar started its investigation after receiving a complaint last April from Kathleen Assmus of Hillsborough County. Assmus, whose house was foreclosed on, had asked the court clerk's office about any surplus funds. She was advised that there was a surplus of $7,749.

According to the Bar petition, Assmus also was told that on April 3, 2004, Rosenberg, purporting to represent her, had filed a motion for disbursement of the funds. On April 11, Rosenberg received a check for $7,749 from the court.

"Ms. Assmus, in her complaint to The Florida Bar, stated that she had never met nor heard of the respondent, let alone given him permission to take her money," the Bar filing states.

On May 7, Rosenberg, notified of the Bar investigation, wrote a letter to the Bar stating that he had sent Assmus her c heck and enclosed a copy of his trust account check. The back of the check, which was cashed by Providian, had no endorsement.

On June 7, Assmus was contacted by one of the Rosados, who, according to the Bar complaint, sent her $13,000 and asked her to write a letter to the Bar requesting that the "file against [Rosenberg] be closed." The Bar is not sure whether Rosado Jr. or Sr. contacted Assmus, Min said.

On June 8, the Bar issued a subpoena to Rosenberg, requesting copies of all his bank statements, canceled checks, client ledger cards, bank reconciliation statements, Assmus' file and other documents. A subpoena also was issued to Rosenberg's bank, Union Planters Bank.

According to the Bar, Rosenberg did not fully comply with the subpoena. After several extensions, he produced illegible client ledger cards and 63 surplus fund files lacking letters stating he had authority to represent the clients, victims' addresses and phone numbers, and financial figures.

A staff auditor at the Bar, Carlos Ruga, determined that Rosenberg was involved in 300 surplus fund cases. At least 18 of the cases were similar to Assmus' case and involved the cashing of checks made out to ex-owners without endorsement by an unidentified Providian employee. The Providian bank account was owned by Manuel Rosado Jr., according to the Bar complaint.

"At this time, the staff auditor is investigating dozens of other cases in order to determine the magnitude of the fraud," the Bar petition states.
In another case, a British citizen named David Howlett was out of the country when his Hillsborough County house was foreclosed in November 2004. According to the Bar petition, Rosenberg told a Hillsborough Circuit Court judge that he represented Howlett and collected $32,525 from the court clerk's office. Rosenberg then issued two checks to the Rosados for $7,381 each, one check to himself of $1,000 and another check payable to Howlett fo r $7,381. The remaining $9,381 was left in Rosenberg's trust account.

When Howlett returned from England, he went to the Hillsborough County Courthouse to obtain information about the foreclosure and learned that the surplus funds were appropriated to Rosenberg. He complained to the clerk, who referred the matter to Hillsborough Circuit Judge Gregory P. Holder. Holder ordered Rosenberg, Rosado Sr. and Howlett to appear at a hearing on Nov. 24. When confronted by Howlett at the hearing, Rosenberg invoked his Fifth Amendment rights and Rosado "blamed everything on his son," according to the Bar.

In another case, Rosenberg filed a motion to the Hillsborough court Feb. 3, 2004, stating that he represented Tampa resident Michelle Benton, and obtained a check from the court clerk for $4,911. Benton had died in March 2002, according to the Bar.

FATHER BLAMES SON

At the same time the Bar was investigating Terry Rosenberg, Broward County Circuit Judge Robert Rosenberg independently issued an order and sanctions against the lawyer last December in a foreclosure case that came before him.

Judge Rosenberg was livid and ordered the Miami lawyer to pay some $8,000 in attorney fees and a $5,000 fine to the court or face suspension from the practice of law in Broward County. His order became part of the Bar's petition to the Supreme Court requesting an emergency suspension.

Terry Rosenberg has appealed the judge's order to the state's 4th District Court of Appeal.

On Jan. 7, the Supreme Court approved the emergency suspension requested by the Bar. It suspended Rosenberg from practicing law indefinitely and required the Bar to notify all banks with which Rosenberg does business as well as all opposing counsel.

On Feb. 3, Rosenberg's attorney filed a motion for dissolution and a stay of the suspension. He complained in the motion that the Bar investigator, Carlos Ruga, "has apparently single- handedly spearheaded what respondent feels is a 'rush-to-judgment' campaign against him.
"Essentially, Mr. Ruga's entire crusade is centered upon a severely skewed interpretation of a series of unfortunate events for which the respondent himself has only recently been made aware of," Heller stated.

Heller stated in the motion that Ruga's overzealousness was apparent at a preliminary meeting. Ruga, he said, demanded that Rosenberg surrender his Bar license after accusing the lawyer of "knowingly conspiring to commit bank fraud."

"These specious accusations are a prime example of the overly zealous, prosecutorial mindset exhibited by Ruga throughout his investigation," Heller stated.

Over the years, Heller said, Rosenberg has handled thousands of cases of surplus funds in foreclosures. The problem cases, he wrote, were recent, isolated cases in Hillsborough County that were handled by Manuel Rosado Jr. The motion includes an affidavit from the fathe r blaming the "fraud" on his son.

Heller said Rosado Jr. misrepresented to Rosenberg, via e-mails, that he had authorization from the foreclosed homeowners to represent them. According to Heller's motion, Rosenberg later learned that Rosado Jr. forged endorsements and cashed them. "Rosado Jr. managed to inveigle a bank or banks to accept the forged signature of the claimants, on these checks or checks with no endorsement," the motion said.

According to the motion, Manuel Rosado Sr., upon learning of his son's fraudulent conduct, attempted to track down all the victims and repay them. Howlett, for example, was paid $34,000 by Rosado Sr.

Heller also said Judge Rosenberg was "completely out of line" for his sanctions and that he "exceeded his judicial authority."

The Bar has 60 days from the Florida Supreme Court's emergency suspension order to file its primary complaint to the justices. At that time, a referee will be appointed by Chief Miami-Da de County Circuit Judge Joseph P. Farina Jr.

BOUNTY HUNTERS

News of the Bar's investigation and Judge Rosenberg's ruling reached legislators in Broward County. Rep. Porth said he and Sen. Campbell drafted their joint bill after meeting with judges and Broward County Clerk of Courts Howard Forman, who complained about the problem of abuses against foreclosed homeowners involving surplus funds.

Porth asked the Bar for suggestions on a proposed bill to stop the foreclosure vultures. Their bill, filed last Wednesday to meet the Senate's deadline, is a placeholder bill and the details will be worked out in committee, Porth said.

Frank Kowalski, president of the Orlando-based Florida Association of Realtors, said he had never heard of the surplus funds scam. But companies long have marketed their services in obtaining "abandoned" court funds in Florida. "These are usually bounty hunter types, pyramid-type businesses," he said. "They usually t ake a sizable percentage."

Kowalski suggested there should be a better system to get surpluses to foreclosed homeowners without the intervention of such private services.

"It's funny, if there's a deficiency with the mortgage after foreclosure and you owe money, they seem to be able to find you," he said. "It surprises me that they can't find you if there's a surplus."