by David Dayen
April Charney started getting cases where none of these requirements had been satisfied. She tracked down the federal statute mandating the delinquency notice, 12 USC 1701x(c)(5). It was part of the National Housing Act of 1934. Early intervention made sense: if struggling borrowers got special assistance when they missed a payment, they might have a chance to prevent foreclosure. Yet many servicers did not even seem to be aware of the obligation.
You could count on one finger how many lawyers realized this in 1992. Fortunately, the lawyer who figured it out was April Charney. She began to fight foreclosures on grounds of inadequate servicing, first on VA and FHA loans, where requirements were very rigid. Her main contention to the judges was that the consumer paid for this service and wasn’t getting it, just like if you went to a repair shop and bought a spare tire and they forgot to bring it out to you.
April began to train lawyers on foreclosure defense for the Sarasota Bar Association, explaining how servicers routinely broke a fundamental consumer right. She had a knack for breaking down complex legal issues into accessible bits, like a high school math teacher. For years April and her colleagues fought bad servicing practices. Servicers ran a low-margin business, and they couldn’t afford to follow federal law and hire enough staff to counsel delinquent borrowers. So they took their lumps from a handful of rabble-rousers in 0.005 percent of their cases, rather than change their practices.
The rise of securitization made improper delinquent servicing look quaint. In 2004, April moved to Jacksonville Area Legal Aid as a consumer attorney, and before long the foreclosure cases rushed in. Almost all the plaintiffs filed “lost note affidavits,” claiming that they owned the loan but just didn’t hold the required paperwork. And the plaintiff was usually MERS, the electronic database that had no financial interest in loans but nevertheless claimed standing to foreclose. Nobody goes to law school to learn about foreclosures, April was fond of saying, and that was especially true in the securitization era. April taught herself about the various actors in the chain of ownership, spending nights reading intricate pooling and servicing agreements and obscure tax laws. The paperwork in her Jacksonville office piled up so high, she had to meet clients in the lobby.
But while the topics were obscure and the cases complicated, at the heart of the matter were insights available to any novice law student. First of all, April reckoned, Americans simply didn’t make enough money to keep up with the demand for mortgage bonds. As a result, underwriting guidelines had to be scrapped. But REMICs, the tax-exempt trusts set up for mortgage-backed securities, were supposed to invest only in safe assets, not subprime loans. Wall Street banks that sold the securities didn’t want the Internal Revenue Service to notice they were consistently violating the REMIC rules. So they purposely didn’t create a paper trail, despite clear language requiring such documentation in the pooling and servicing agreements. April would explain it with one of her colloquialisms. It was like closing on your house and not signing the closing papers. Then ten years later you sign the papers and try to get everyone to believe that you owned that house the whole time.
Worse, there was no set schedule of mortgage loans pooled in a securitized trust, or if there was, the trustees were extremely loath to provide it. Sometimes the principal payments went to one trust and interest payments went to another. April saw cases with the same loan pledged into multiple trust pools, so when the loans went into default, different entities would try to foreclose on the same note. April called the mortgage-backed securities from the bubble years “nothing-backed securities.”
April was preparing to put her arguments about securitization FAIL to the test in court when she attended a consumer attorneys’ conference in Minneapolis and met the one person who independently came to similar conclusions about the mortgage industry and already won cases on these points. His name was O. Max Gardner III.
Max, whose grandfather was once governor of North Carolina, carried himself with the courtly mien of a political scion. One friend said that listening to Max was like listening to the prophet Elijah—if Elijah had a syrupy Carolina accent. After law school and clerking for the state supreme court, Max set up shop as a small-town lawyer in his southern Appalachian birthplace, Shelby, eventually specializing in consumer bankruptcy. Many of his clients struggled with mortgage payments, forcing him to deal with servicers. Starting in the mid-1980s, he began to see improper fees, misapplication of payments, and other unlawful activities. His Chapter 13 bankruptcy clients would get charged for monthly property inspections that were never carried out. Servicers also ignored the bankruptcy stay, a designated stoppage of debt collection during the bankruptcy process. And they would try to recapture fees in asset sales. Max hooked up with a forensic accountant named Kevin Byers, who discovered that servicer software was actually programmed to violate the bankruptcy stay, so that servicers could try to collect windfall revenue. Servicers could also change nonrecoverable fees to recoverable ones with a couple of keystrokes, and add them into payoff statements.
Unlike other bankruptcy attorneys, Max had trial experience, and he believed he could fight these improper charges in court. The bankruptcy judges were initially indignant. “Max, are you on a crusade against the banks?” they would ask. In his calm manner, Max explained that his client wasn’t behind on the court-ordered payments; the servicers were just tacking on charges using their software codes. The presumptions of industry innocence lingered, but Max did start to have modest success, because the servicers would rather pay him off than correct their systems.
In 2000 Max attended the same National Consumer Law Center conference in Colorado where Nye Lavalle made his presentation. Max sized up Nye as the kind of guy who would play golf in a suit and tie. But unlike the rest of the room, Max didn’t laugh at Nye’s hyperbolic contentions, because he had seen hints of them in his cases: affidavits, assignments, and endorsements of questionable legality. No other lawyer had put it all together, but this civilian did. Max pulled Nye aside at the conference, and the two spent a few hours together in the hotel bar. They talked about the newfangled securitization model and how it was working on the ground. They bonded over being outcasts, lone voices in the wilderness.
Over the next several years Max came to discover the lost note affidavits, faulty mortgage assignments, missing transfers, and dubious signatures that infected courts nationwide. He theorized that passing authenticated, notarized documents along every link in the securitization chain and into the trusts was too costly for the fly-by-night originators that sold the loans, let alone everyone else involved. So they didn’t do it.
When the borrower defaulted and trustees needed standing to foreclose, they would call special fix-it companies. Max wrangled a copy of a quarterly newsletter put out by Fidelity National Title Group called The Summit. Fidelity actually created the main servicer software platform used to dial up profits. It had a subsidiary called Fidelity National Foreclosure Solutions. And The Summit described how the Document Execution team at Fidelity National Foreclosure Solutions generated whatever assignments or promissory notes were needed for its clients, after the fact. Team manager Dory Goebel explained how “FNFS has signing authority for a number of our clients” and how plaintiff attorneys could simply request any mortgage document and receive it within twenty-four hours. “The Document Execution team is set up like a production line,” Dory explained. “On average, the team will execute 1,000 documents per day.” There was even a flow chart showing the trail, from document request to fabrication to return to the foreclosure mill law firm. In 2008, Fidelity spun off its mortgage division into a public company called Lender Processing Services, or LPS. When foreclosures exploded, LPS controlled most of the market in servicer software and third-party document fabrication.
Max began to speak at national seminars about these issues. He also questioned whether the parties trying to claim payment from his bankruptcy clients actually established a proof of claim. He would use these challenges as legal leverage to
secure better terms: reduced principal, forgiven past due balances, whatever. And he started to win. “Max has a better record than Roberto Duran, 103–0,” said one observer. Bankruptcy judges, who were accustomed to proofs of claim, began to understand Max’s arguments. When the big cases started to move, bankruptcy judges were well ahead of state and federal courts.
In 2004, Max’s wife, Victoria, who bred Cavalier King Charles spaniels, needed more land for a kennel. So the family packed up their menagerie (they have seven Great Pyrenees, along with three other dogs, two donkeys, and five horses) and moved into the mountains, to a remote log cabin and farm twenty-five miles northwest of Shelby, reachable only along a gravel road. Victoria made a suggestion: instead of flying around the country giving seminars on fighting improper mortgage claims, why not have people come to the farm? That was the beginning of Max Gardner’s bankruptcy boot camp, one of the more unusual legal training sessions in America. Lawyers paid $7,775 for the four-day retreat, room and board included; Victoria did all the cooking. Holed up in the woods, attendees had nowhere to go and could only focus on the good food, the homemade Carolina rye whiskey, and how to beat the banks in court. April Charney attended one of the initial events, on a scholarship.
In day-long strategy sessions Max counseled a cool, almost laconic strategy in the courtroom. Since the plaintiffs had nothing but false documents to use, he recommended having them present their evidence before jumping on it—letting them “dig their own grave,” in his words. An entire wall of the classroom displayed settlement checks from Max’s cases, a testament to his success. Eventually Max brought in expert guests, including Dick Shepherd, former general counsel of Saxon Mortgage; Margery Golant, a foreclosure defense attorney who previously worked at mortgage servicer Ocwen and two different title insurance companies; and Kevin Byers, his forensic accountant friend. With insight from those who spent their careers on the other side of the table, defense lawyers learned how to anticipate opposing counsel’s arguments.
Max also handed out materials on a thumb drive for each attendee, including a file called “Max Gardner’s Top Road Signs of Bogus Mortgage Documents.” By 2010 this would include sixty-six independent features of false documents, including a list of 295 names, a roster of fraudulent document signers from around the country. Once participants graduated from bankruptcy boot camp, they would get access to Max Gardner’s private email listserv, which included case files from a growing number of lawsuits, all stored and indexed. Competing attorneys in the same field rarely collaborated like this, but boot camp graduates operated like a networked foreclosure defense practice, using the listserv for strategy and information sharing. Between 2005 and 2010, six hundred lawyers from forty-seven states attended boot camp and discovered this new support system. They all returned home ready to take on the mortgage industry. One of these lawyers was April Charney.
April set out to prevent every foreclosure in her case file, because the plaintiffs possessed no legitimate evidence that they owned the loan with a right to enforce it. In the bubble years, virtually every mortgage she saw was placed into a securitized trust or sold on the secondary market. If the originators tried to take over and claim the right to foreclose, they would be admitting that they never transferred the mortgages to the trusts—a major violation of securities law. So trustee plaintiffs were stuck asserting ownership without proof. April’s pleadings got a reputation—they were known as the “show me the note” defense.
Hanging over every case was this notion that judges might grant someone a “free house.” But April directly challenged that point. Societies constantly make legal rules that cannot be violated, even if they lead to a guilty person going free. Police cannot coerce a confession and have that be admissible in court. They cannot falsify evidence. Even failing to read criminal suspects their rights should result in dismissal. Nevertheless, judges who would have no problem throwing out a criminal case if they found planted evidence wrestled with the moral and psychological implications of giving homeowners a windfall. Everyone had to follow the law, except for banks, which could wave a piece of paper and get a foreclosure affirmed. To April, stopping these foreclosures represented a critical step to preserving the whole concept of justice.
April believed the mortgage market was ripe for collapse, with tragic consequences, and lawyers needed to be trained to protect clients. She went to Ohio, California, Minnesota, Missouri, South Carolina, wherever she was asked. She never took money for her seminars, charging only enough to recoup the cost of the facility. And she required that everyone taking the class perform twenty hours of pro bono work.
Between 2004 and 2008, as foreclosures became a growth industry, fifteen hundred lawyers took April’s seminars. Like Max Gardner, she also maintained an enduring relationship with those she trained, inviting attorneys throughout Florida and the nation onto two listservs where they could collaborate, share pleadings, and develop strategies. Between April’s and Max’s listservs, young attorneys could access the accumulated knowledge in foreclosure defense with the click of a mouse.
April produced results, albeit mixed ones. She froze dozens of cases in place because plaintiffs possessed no legitimate proof of ownership. In others, servicers agreed to loan modifications so her clients could afford the payments. In 2005 she got Judge Walt Logan to throw out twenty-four Florida cases in which MERS attempted to foreclose without possession of the note. But an appeals court reversed the decision two years later; the banks had the means to keep trying until they found someone to wave cases through. The stops and starts angered April, who believed that any judges allowing foreclosures to advance by plaintiffs without standing failed to uphold their constitutional duty. But she was gaining a following; the New York Post dubbed her “the Loan Ranger.”
Among the many young Florida lawyers seeking guidance at the dawn of their careers was a lanky guy out of St. Petersburg named Matthew Weidner. His family had a tradition of civic engagement. His father joined the air force, one uncle became the executive director of the state Republican Party, and the other liked to walk around in Benjamin Franklin costumes. After graduating from Florida State University, Matt did political campaign work, but found it laced with corruption, so he moved on to practicing law. He filed his first case while still in law school, over the denial of a public records request. It went nowhere because he didn’t turn in enough copies for the process servers. The combination of earnest principles and reckless abandon never faded.
Matt thought of foreclosure defense as the subsistence farming of the legal profession: the $500 retainer he charged would barely cover expenses, and clients couldn’t pay much more. When he realized he could get attorney fees from the banks instead, it changed his life. A couple of key moments stuck out. Once Matt sat in a judge’s chambers before a hearing, reviewing a mortgage document. The judge pointed to one of the amount-due figures that looked improbable, and the plaintiff’s attorney interrupted, “We can change that right away and give it back to you.” Matt wondered how much of the document could be legitimate if the attorney could alter it by snapping her fingers.
Later he hired a law school clerk, who ran down a provision in the rule book requiring plaintiff’s attorneys in foreclosure cases to attach internal records for the borrower. Matt didn’t believe him, but after looking it up himself, he agreed. Matt took it to a local judge, who immediately responded, “Weidner, what the fuck are you doing?”
“Look at the rule book!”
After the judge found the rule in question, he said, “Holy shit, you’re right!” Not even judges with extensive experience in foreclosure cases knew the required steps to take away someone’s home. And they didn’t really have to know; until the crisis, most cases went untried. In fact, when Matt took April Charney’s seminar, with her insistence that securitized mortgages constituted the largest criminal scheme in the history of mankind, most of the lawyers in the audience feared that judges would find such defenses frivolous. Lawyers often try to build rel
ationships with judges; they don’t want to be seen as wasting the court’s time. If they believed they would lose and that judges would consider them ridiculous for even bringing the case, they would stay away from filing.
Matt didn’t see it that way. April inspired him that the rule of law was at stake. He watched April’s 2005 trial, in which Judge Logan threw out all those cases where MERS tried to foreclose in its name, as the smoke heralding the fire of the collapse. If the judges paid attention, the foreclosure crisis might have been avoided. And he’d be damned if he would keep quiet out of concern for career advancement.
April Charney’s insistence that lawyers collaborate rubbed off on Matt. He met Greg Clark, a title attorney in Clearwater, who worried that broken chains of title would make existing homes unmarketable, creating ghost properties without resale potential. “The judges can do whatever they want,” Greg told Matt. “But I’m a title attorney. This is unfixable.”
Greg assembled a group of local attorneys in St. Petersburg, and Matt joined up. They called themselves Jurists Engaged in Defending Title Integrity, or JEDTI. The whole thing was vaguely related to the concept of Jedi knights; maybe the membership had seen Star Wars too many times. They bought a broadsword, engraved it with the initials “JEDTI,” and held round-table meetings where only the attorney in possession of the broadsword could speak. They found a meeting room on the twenty-sixth floor of the county administration building in downtown Tampa, which took two elevator rides to reach. They even had a JEDTI motto: “The light of truth, the strength of defense, the heart of passion, and the leadership that follows from integrity.”
Matt built a website to market his law practice, and colleagues convinced him to include a blog. In fact, before Lisa and Michael published their blogs, Matt Weidner started his own, in July 2009. Matt filled the blog with the kinds of rants he couldn’t say out loud in court: contempt for the Great Foreclosure Machine and the judges’ nonchalant acceptance of bank attorney lies.