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Maryland shuts down Internet mortgage operation


The Maryland operations of a Long Island-based Internet mortgage company have been shut down by state regulators after it was discovered that the company had failed to provide approximately $1 million to borrowers who had paid upfront fees and gone to settlement. Inc., which also did business as Island Mortgage Network Inc. and Reliance Mortgage Network, was given a final "cease-and-desist" order yesterday by Maryland Commissioner of Financial Regulation Mary Louise Preis.

According to Deputy Commissioner Nerry Mitchell, the action is the first the state has taken against an online mortgage broker. The agency initially took action with an emergency cease-and-desist order after it first learned of problems with the mortgage company July 7.

The New York State Banking Department had already suspended the company's mortgage broker's license on June 30 and on July 19 the company filed for Chapter 11 bankruptcy protection. Creditors had claimed that the mortgage company had diverted more than $50 million bound for homebuyers.

A court-appointed trustee is now in place and has hired a private investigation firm in New York to locate assets still believed to held by the company. Calls to its Melville, N.Y., headquarters were answered by an outdated voice recording.

Maryland regulators at first were unsure how far-reaching the situation was, but narrowed it down to about "two dozen" affected borrowers in the state. Mit- chell said most of those affected borrowers have been able to resolve their problems through other mortgage companies, but nine borrowers' situations remain in limbo.

Mitchell said Island Mortgage had operated seven offices in the state, including branches in Crofton, Annapolis and Frederick, and last year originated $141 million on 500 loans.

The agency said Island Mortgage accepted mortgage applications and fees from borrowers, but failed to properly advance funds to complete the transactions.

At settlements, checks were issued by or on behalf of Island Mortgage by title companies to sellers of property or their mortgage holders. However, those checks were stopped and, in some cases, were rejected by banks because of insufficient funds.

"The monies were wired to the settlement table, but when the dust settled, there really was no loan," Mitchell said. He added that, in some cases, when borrowers were trying to refinance a first and second mortgage, Island Mortgage would satisfy the first mortgage, but would fail to do so for the borrower's second mortgage.

Mitchell said other Marylanders who believe that they have been harmed by Island Mortgage may file a claim with Utica Mutual Insurance Co. Address claims to P.O. Box 530, Utica, N.Y. 13503, attention Mike Schultz, claims attorney; bond number: SU2984098.

Mitchell also said borrowers can contact the Office of the Commissioner at 410-230-6079.

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