State Licensing: The Elephant In The Room

Foreclosurepedia has been conducting an Audit of National, Regional and Otherwise Unspecified Order Mills with respect to State Licensing. The genesis of the Audit came as we began to look deeper into the ongoing litigation pending against virtually all of the Legacy Order Mills, all whom are Members of the National Association of Mortgage Field Services (NAMFS),  and their spin offs.

We used California as a test state, initially, and were floored to realize literally how many Order Mills were functioning illegally under California State Law. When we expanded our Search Parameters to other States, we were floored.

Denial is the most predictable of all human responses. The Mortgage Field Services Industry is in a constant state of denial with respect to the fact that it has non compliance regulatory issues. I believe the Denial is partially a result of the fact that should the Industry admit it has been operating within State Boundaries and not obtaining both Licenses and paying the proper taxes, most of these people understand that there are both civil and criminal penalties.

Take Mortgage Contracting Services (MCS), for example. MCS has absolutely no License to conduct business in California nor Tennessee where I live. As a Statement of Fact, I have witnessed MCS Signage in properties here in Tennessee for the past 5 years here which were ordered by MCS to be displayed.

From the MCS Website,

MCS was founded in 1986. Our services include property inspections, property preservation, REO property maintenance, valuation services and more. The success of MCS is the result of our continuous focus on building long-term relationships with mortgage servicers based upon trust and integrity. We strive to hire the best people in our industry who share our values and are committed to providing exceptional service. MCS has built a management team with more than 400 years combined experience in our industry, rivaling that of any field preservation company. We are fortunate enough to serve some of the industry’s best and largest real estate servicing companies.

I found this odd, as one would think that, “…with more than 400 years combined experience in our industry…” MCS would have realized that to conduct hundreds of millions of dollars of business, across state lines, requires licensing in the states you are profiting in.

MCS is not alone. National Field Network (NFN) is another firm …we found that simply did not seem to exist outside of New Jersey. NFN, though, has another unique problem. It would appear that their system of Direct Deposit was tied in 2012 to the issuance of prepaid Visa Credit Cards. While the intentions may or may not have been good, the problem is that shifting taxable income to a mechanism which is untraceable across state lines becomes questionable, at best.

Another New Jersey Company, UNPPG which operates in multiple states, is also hard to document with respect to any licensing out of state. While it is well and good that they and dozens of other New Jersey Companies feel that they do not need Licenses in other states to issue Work Orders on behalf of Safeguard Properties, we believe that this is a fantasy.

Here are some of the Statistics we unearthed,

Vendor Resource Management, 32 States and DC; Safeguard Properties, 34 States and 1 Territory; Lender Processing Services, 10 States; SEAS LLC, 3 States; and you get the point.

Now, the Search Engine we used for this Article was Business Profiles.com which is neither here nor there as we have filed formal requests of each Secretary of State to verify a list we have submitted to them of the Top 50 Order Mills with respect to Licensing. I am sure that each and every Order Mill wants to ensure they pay their fair share of taxable revenue and possess the same credentials they demand of their Contractors.

Brad Hurst had some issues with Buczek Enterprises and those issues came to a head in the US District Court in the Northern District of California back in 2010. Hurst, an unlicensed Sub Contractor, felt he was owed for an entire litany of issues. Buczek Enterprises, a Member of the National Association of Mortgage Field Services (NAMFS), joined fellow NAMFS Members being currently sued in the United States District Courts in California and other jurisdictions. By in large, the Claims are all similar: Employee Status, Overtime, etc. We have Published the Order Granting In Part And Denying In Part Plaintiff’s Motion For Summary Judgement in C-11-1379 EMC below.

The Order is fascinating in that it documents the fact that apparently Buczek Enterprises was not legally licensed to conduct business within California and yet was engaged in commerce crossing state lines.

As the Honorable Edward M. Chin put it, “The Court therefore concludes that”[t]o hold under the facts above recited that [Buczek] is not doing business in [California] is to completely ignore reality. Eli Lilly, 366 U.S. at 280.”

Several interesting quandaries come up in this Order. First, the Buczek Deposition at 173; Hurst Declaration, Docket Number 45 Exhibit C: “These instructions, and others provided by Buczek, were sometimes pages long, and sometimes specified what products Mr. Hurst had to use (e.g., a certain brand of cleaning product).”

Does that sound familiar? Asset Management Specialists (AMS) is currently demanding, on behalf of FannieMae, that Contractors use Renuzit Air Fresheners. Below is a quote from a recent AMS email to a Contractor,

Going forward, please make sure you are using “Renuzit” brand of air freshener when completing your routine work orders as well as providing clear photos of the remaining gel fragrance and date in which the air freshener was opened for use.

Buczek Enterprises took the very dubious approach of counter suing Hurst for close to a quarter of a million dollars in damages it alleges he was responsible for in lost income. Ironically, Buczek took a pass on suing the other alleged party responsible for the allegation. Buczek Deposition at 251 – 252.

Buczek also provided training and assistance to its workers, including one-on-one meetings, conference calls, instructional memos, and offsite trainings. Hurst Declaration, Docket No. 45, Paragraphs 14 – 15 and Exhibits E – G.

The Secretary of State’s Office for the State of California confirmed that there was no Certificate of Qualification filed in California nor was there any listing on the California Corporation Search Website. The Case was resolved on 09 August, 2012, according to the US District Court Clerk. With that said, it brings up a huge problem which has been known by NAMFS Members for years: You cannot legally conduct business in a State without proper licensing.

Safeguard Properties knows this all too well which is why they are fighting so hard in the State of Illinois vs. Safeguard Properties. Safeguard Properties is even licensed in the State of California to conduct business.

The odd thing is that while National, Regional and Otherwise Unspecified Order Mills, both Members and Non Members of NAMFS, are demanding that Contractors jump through these bullshit hoops, they themselves appear to be illegal.

The reality is that Buczek Enterprises is not alone in their failure to obtain Licenses to operate out of state. Foreclosurepedia will publish a Full List in January and provide such to the Consumer Financial Protection Bureau.

California Corporations Code § 2105(a) was primarily relied upon for the Order. I believe that Title 2.5 (Corporations Code §§ 17001(a)(2), 17451 and 17456) was probably more on point; however, it is neither here nor there. What is material is the fact that there is an ENORMOUS LIST of Companies which have no Licenses in either California nor most of the States other than where they are based out of. With the Beverly-Killea Act now being modified under the California Revised Uniform Limited Liability Company Act (RULLCA) there are even more regulatory headaches to deal with.

Instead of the Freshman Lawyers Guild taking pop shots at Foreclosurepedia, perhaps they ought to go back for some refresher training. The reality is that the House of Cards upon which the Mortgage Field Services Industry has created; the lack of true lobbying by NAMFS on behalf of its constituency, is catastrophe waiting to happen.

The Industry’s continuing attempts to shift all regulatory responsibilities upon the shoulders of Contractors identifies the reality that we need US Government Oversight. While many Contractors out there decry such; those Late Night Drive By Social Media Gurus, the reality is that none of them have the balls to confront the ongoing issues surrounding their cozy relationships with the Order Mills nor the detrimental impact it has upon the common men and women in the Industry. The reality is that while they are owed collective tens of thousands of dollars, they still lick the boots of the very same masters that screw them.

I want to say that we reached out to Buczek Enterprises and were encouraged by the response. We are following up with that party tomorrow and will hopefully be able to document some of the pro active steps they appear to be putting into place. Buczek got off easy on this first of what I anticipate to be many Courtroom Battles the Mortgage Field Services Industry is going to deal with in 2014.

Thomas Duckworth was the Counsel of Record in the Hurst Matter. You see, Duckworth of Duckworth, Peters, Lebowitz and Olivier LLP was simply sharpening his teeth, proverbially speaking. I had reached out to Monique Olivier when I broke the story about Field Assets being sued under nearly identical circumstances and had a pretty candid discussion.

Hope is the quintessential Industry delusion; hope that everything will simply go away and Contractors — especially Foreclosurepedia — will simply shut up. We saw how far that hope got Dean Counce. The reality is that the very same legality which Members of NAMFS are demanding of Contractors; the fiat rules that the Naked Emperor dictates, are now going to begin to haunt the Order Mills. Make no mistake that when the Tax Man comes, there will be a very high price to pay indeed.

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