Mortgage lenders who want to avoid becoming innocent victims of money-laundering cases need to be able to prove their innocence lest they become liable should the government seize the property, legal experts warn.
"Do you know who the principals are? Is it a Panamanian corporation--why use them? Who's going to pay the loan?" asked Holly Skolnick, an attorney at the Miami law firm of Greenberg, Traurig, at a money-laundering conference last month. "All of this is necessary because if the asset used as collateral was seized, you've got to show innocence."
In some cases, it appears that prosecutors are basing some allegations that a company was attempting to conceal its cash source simply on the fact that the company getting the loan was Panamanian, added Sharon L. Kegerreis, an attorney in Miami at the firm of Zuckerman, Spaeder, Taylor & Evans.
"If you make a loan, you just can't solely look at the collateral," Skolnick said. "The government insists on more diligence."
She added that a lack of case law means there are relatively few guidelines for lenders. "But it's clear that, from the get-go, you better establish you're an innocent lienholder," she said. "And you better have a lot of paper."
Federal drug statutes permit the forfeiture of any property constituting or derived from drug proceeds as well as any property "used in any manner or part" to commit a drug violation, according to a paper Kegerreis presented at the conference. In one 1990 case, a U.S. Appeals Court upheld the forfeiture of an entire piece of land on the grounds that a telephone in the home was used to negotiate a drug deal.
Skolnick sees just two cases in this field of particular interest to mortgage lenders. In one, Republic National Bank was found liable as a lienholder on a home mortgage. In this case, she said, it turned out that Republic had given given an $800,000 loan even though it had failed to conduct a title search and had concluded the borrower had no known source of repayment. The money used as collateral for the loan was traced to Switzerland.
In another case, however, a bank in Bal Harbour, Fla., was found to have taken the normal steps needed to investigate a borrower and thus wasn't liable as a lienholder when that property was seized.
Kegerreis wrote in her paper that the government's broad, flexible statutory definitions regarding what can be forfeited "give little guidance on what property may be at risk."
"In response to the government's zealous efforts to take forfeiture actions beyond the narcotics area, courts have begun to carve out methods for limiting the scope of property that may be subject to forfeiture," she wrote. "The cases are far from clear, however. The complex and controversial problems posed by forfeitures that reach legitimate as well as illegal assets suggests a strong need for comprehensive forfeiture reform."
While forfeiture and money-laundering cases might still be relatively new occurrences in most parts of the country, they're part of South Florida's legal landscape. Ana Barnett, an assistant U.S. attorney in Miami. says her office has about 300 civil forfeiture cases pending, some of which go back as far as 1987.
That backlog prompted the Justice Department to issue regulations on Jan. 15 that should expedite the handling and release of seized suspect assets. Despite this policy and despite Barnett's protestations, some participants at the money-laundering conference suggested the forfeiture program increasingly was being looked on by the government as a source of revenue.
Skolnick said not all U.S. attorneys appeared to her to be as resolute as Barnett was in arguing that forfeitures are a law-enforcement rather than a fund-raising device. And Kegerreis said she's seen cases where the government appeared to be looking for lucrative assets to seize, such as $1 million properties with marijuana growing in the yard.