by David Dayen
Lisa was amazed by how Lynn could tick off the names of the trustees for every home on Pinewood. “That’s a Deutsche Bank, that’s Bank of America, that’s Fannie,” Lynn said as she passed each property. The neglect stood out: damaged roofs, black mold. Once the mold set in there wasn’t much to do but bulldoze; the property couldn’t be sold anymore. Passing by one house, Lisa spotted an extension cord that ran into the neighbor’s home, from which the first house’s residents were siphoning power. “They call this the historic district,” Lynn said.
After touring Pinewood, Lynn and Lisa decided to get some lunch. Lynn got through about half her salad when Lisa asked if she was going to finish it. She admitted that she wasn’t working at the chemo center anymore, and every little bit helped. Lynn wasn’t in the best financial condition, either: once foreclosure fraud invaded her life, she mostly gave up legal work. She and her son, Zach, started selling old stuff on eBay to pay the electric bills and keep the grass cut. But Lynn marked the expression in Lisa’s eyes, and gave her the leftover salad in a to-go box.
Michael got a call in late February from someone he hadn’t heard from in months: Carol Asbury, the defense attorney from the Neil Garfield seminar. Carol had a business proposition: she wanted to sponsor 4closureFraud. Michael met Carol at her office to go over the particulars. They would take 4closureFraud off WordPress and onto its own server, and Carol would cover all webhosting expenses. Michael would still be the lead writer, free to post whatever he wanted without interference. Carol might write posts every now and then, but that wasn’t central to the deal. She really wanted an ad for her law firm in a prominent spot. And Michael would do all intake of new clients brought in from that ad. For this, Carol offered $40,000 for the first year.
Michael liked Carol; she seemed like someone who wanted to fight for people. And it was hard to overcome the flattery of having something he did in his spare time turn into a valuable commodity. Michael wasn’t sure about the intake, but he was hearing from foreclosure victims anyway; at least now he’d get paid for it. So he agreed to let Carol underwrite the site. It shifted from 4closurefraud.wordpress.com to 4closurefraud.org. Unbeknownst to Michael, Carol listed it as her law firm’s website in official registries.
Carol set Michael up with a meeting location for prospective clients, in a rickety two-story building in Lake Worth. The first floor was a telemarketing office, and the employees always seemed to be loitering at the entrance on a cigarette break, no matter what time of day. Prospective clients had to stagger through a haze of smoke to reach Michael’s desk. But they came, one by one, as the crisis metastasized in south Florida.
Michael had to lead a double life to make it work. He drove every day from Port St. Lucie to the Toyota dealership in North Palm Beach. At some point he’d announce that he had to go to the port to check on some cars they were exporting overseas. But instead he’d head to the new office, meet with homeowners, write a couple of posts, and check feeds. Then he’d race back to Toyota in the afternoon, and then home to Port St. Lucie. Life had already been a grind dealing with just the blog; this took Michael completely over the edge.
Like Lisa, he had foreclosure fraud on the brain twenty-four hours a day. Mentally, he checked out of his day job. And he felt guilty about it. So he told his managers that he wanted to quit. “This isn’t fair to you guys; I’m spending 90 percent of my time here on something other than what I’m supposed to be doing,” he told them. The lead manager replied that Michael’s 10 percent beat most of the staff’s 100 percent. They wouldn’t let him resign. So Michael kept making the trips back and forth, from Port St. Lucie to North Palm Beach to Lake Worth and back, up I-95 and down.
The same week he made the deal with Carol Asbury, Michael heard from Tom and Ariane Ice. Two months had passed since they sent him a deposition, but this was a good one. Cheryl Samons worked for the David J. Stern law firm, a foreclosure mill that ballooned to nine hundred employees during the crisis, filing more than seventy thousand cases in 2009 alone, diligently forcing people out of their homes all week long and sometimes on weekends. The company also owned several ancillary services, making money at every stage of the foreclosure process. Stern lived like a captain of industry, with a $15 million mansion on the Intracoastal and a 130-foot yacht named Misunderstood. According to rumor, he initially considered calling it Su Casa Es Mi Casa. He recently bought his neighbor’s $8 million property to tear it down and build a tennis court.
Samons had been Stern’s operations manager for fourteen years. The first half of the deposition, taken back in May 2009, spun a familiar story: Samons signed an untold number of documents per month (“it’s definitely not more than a million,” she said when asked), without any personal knowledge about the contents, without even reading them. She signed as a vice president or assistant secretary of MERS without being paid by them or having any other official duties.
But near the end, Tom Ice brought up something new. He showed Samons a document she signed that was notarized by Valerie Nemes, a notary in the Stern office. The date of execution on the document was June 19, 2007, three days before the foreclosure case was filed. But Tom had another piece of evidence. “Here’s a printout from MyFlorida.com Notary Public Commission for Valerie Nemes,” he said. “And it shows that the issue date for her commission was August 20, 2008. So how is it possible that this was notarized on June 19, 2007, over a year before she was issued that commission?”
“I can’t testify to that,” Samons said brusquely.
Tom showed Samons another assignment where the notary wasn’t a notary at the date of execution. Samons breezily dismissed it as a mistake: “There would be no purpose in backdating an assignment.” But the backdating was necessary because the mortgages weren’t assigned at the time of the transfer, which violated the pooling and servicing agreement. Stern’s assembly-line operation, which got a flat fee for every foreclosure rather than billing hourly, foreclosed first and mocked up the documents later. But if the foreclosure predated the assignment, Stern’s client could not possibly have standing; they wouldn’t own the loan on which they were trying to enforce the terms. Backdating the assignments was the only way to win cases.
Tom kept pulling out backdated assignments with impossible notarizations. He had twenty-one in all. Eventually Samons grew angry. “Do I have to say the same thing on every single assignment? Because I can tell you I don’t remember. You’re going to ask me if I think it was backdated. I’m going to tell you no. I’m going to tell you I don’t know what the mistake is. I don’t know if I want to answer the same question every single time.”
After she finished her rant, Tom calmly went forward. “You are a notary?” he asked Samons.
“I am a notary.”
“How often does it get renewed?” asked Tom, referring to the notary stamp.
“I don’t remember off the top of my head.”
“I’ll represent to you it’s every four years.”
“Okay.”
“When it gets renewed every fourth year, you get a new stamp, right?”
“Correct.”
Tom pointed down at the mortgage assignment. “If you just look at the document itself, you will see that the expiration date is more than four years after the execution date.”
“Okay.”
“Which means that unless they are capable of time travel,” Tom said, his voice rising slightly, “they couldn’t have used that stamp that wasn’t going to be issued until after this document was executed.”
At that point Samons’s personal lawyer, David Bakalar, requested that the deposition be taken off the record. When they came back, Bakalar stipulated that every one of the twenty-one notarized assignments in Tom’s pile had fraudulent dates, based on the notary stamps.
Michael posted the Samons deposition, and so did Matt Weidner, at virtually the same time. Shortly afterward, Matt got a call from an unidentified Stern employee, saying there was plenty more to come. A national reporter, Andy Kroll
from Mother Jones magazine, had been poking around the operation for months, interviewing former employees. The anonymous insider worked in the process service department, and started feeding Matt information about dual sets of books and massive overbilling. Matt told them this was just what he needed to take Stern down. The insider replied that it would never happen, because Stern was too tied into the power structure in Florida.
“But if I put everything in public, it can’t be ignored,” Matt insisted.
“That’s what you think,” was the reply.
13
THE NINTH FLOOR
Like Lisa, Lynn delivered a stack of letters to state and federal officials, urging them to investigate foreclosure fraud. The Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the House Financial Services Committee, the Financial Crisis Inquiry Commission, the state attorney for Palm Beach County, and every one of Florida’s sixty-seven county clerks of courts got detailed information, with binders an inch and a half thick. “It is very possible that one letter to any of these authorities will be ignored,” Lynn wrote in a February 9 Fraud Digest post. “If they receive 10, they may open a file. If they receive 100, they may be compelled to act. If they receive 1,000, they may actually conduct an investigation, discover the truth and demand an end to these shameful and illegal practices.”
Only Lynn’s friends in the U.S. attorney’s office in Jacksonville had opened any sort of investigation. Lynn spent hours on the phone with prosecutors, teaching them about mortgage-backed securities. It was a slow process. But even without deep knowledge of securitization, they had the physical evidence of fraudulent documents polluting state courts. Somebody was creating those documents, and somebody else was authorizing them to do it. To Lynn, it seemed like a relatively easy white-collar criminal case, where you work your way up the ladder to prosecute those responsible. But because so many people in the Jacksonville office knew Lynn, she wondered if they were overcompensating by casting undue skepticism on her claims. She would write to her friends in Jacksonville stressing her restlessness: “I just drove by an underpass under I-95, I think that’s where I’ll be living next.”
Prosecutors strongly hinted that DocX executives were on the short list for indictment. But when Lynn tried to depose them in her own foreclosure case, suddenly New York–based “TBLs” (tall-building lawyers) for Lender Processing Services marched into court. They claimed the depositions constituted harassment of LPS employees. In court, with Lisa and Michael in the gallery—they all attended each other’s hearings for moral support—Judge Diana Lewis granted LPS’s motion for a protective order. “You can revisit it later if you give me a better reason,” the judge told Lynn.
Lynn filed an IRS whistleblower claim over REMIC tax law, which stipulates that mortgage assignments and note endorsements illegally made after the trust closing date trigger major penalties equaling 100 percent of the late “contribution” (i.e., the full value of the mortgage). Lynn wrote up a long, detailed complaint explaining that these trusts were acquiring defaulted loans two or three years after the closing date, with a mountain of physical evidence confirming it. The IRS brought Lynn to New York for an interview. Agents displayed little understanding of trusts and securitization, and mostly focused on questioning Lynn’s credibility as a witness. Then one of them asked, “Ms. Szymoniak, exactly how much money is at stake here?”
If every securitized mortgage in the United States were taken into account, the total could equal trillions of dollars. Lynn said she couldn’t know without further analysis.
“But that’s your job as a whistleblower,” the agent said.
The meeting broke up.
After the class action lawsuit withered, the notion of a qui tam case, which Lynn initially found impractical, reentered the conversation. Dick Harpootlian didn’t know much about a qui tam, but Ken Suggs, the other lawyer, suggested a New York firm named Grant and Eisenhofer, which specialized in False Claims Act cases. Lynn got a loan from her ex, Mark Cullen, to return to New York and meet with Grant and Eisenhofer attorney Reuben Guttman. He had won some of the largest awards in the history of the False Claims Act; there was really nobody better for this case.
Lynn took her class action draft and restructured it as a False Claims Act complaint, supplemented by evidence uncovered by her, Damian Figueroa, and other homeowners across the country. The critical challenge was proving how the government was harmed by these schemes. First Lynn alleged plain old securities fraud. Through bailout programs like Maiden Lane, intended to help Bear Stearns and AIG, the government purchased tens of billions of dollars’ worth of mortgage-backed securities. And the Federal Reserve bought trillions in mortgage-backed securities after the crisis in an attempt to lower long-term mortgage rates. When trustees spent money to mock up documents, they charged investors in the securities. So because the trusts failed to receive mortgages and notes, investors—including the government—had to pay for the cover-up. Lynn asked Damian for help, and the two of them found the trusts for federal government mortgage bond purchases and identified forged mortgage assignments associated with them.
In addition, Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, used servicers for the loans they acquired, meaning that they paid for fraudulent mortgage assignment preparation. The REMIC tax issue, which the IRS seemed disinclined to pursue, provided another count. There was a final possibility with the Federal Housing Administration, which provided insurance to mortgage companies on qualifying loans; they paid out insurance on foreclosed homes based on fraudulent mortgage documents, literally false claims.
While Lynn wasn’t enthused about winning money for the government after they ignored subprime lending, bailed out banks, and did little to help struggling homeowners, she did think her qui tam could serve as a template for investors in mortgage-backed securities to force payback. She saw any possibility to increase pressure on the banks as positive.
Before the meeting, Lynn sent her three-hundred-page draft complaint to Reuben Guttman at Grant and Eisenhofer. Upon her arrival, Reuben greeted Lynn and said, “I started to read this but I couldn’t understand any of it. Why don’t you just explain to me what this is about?” Lynn gave him the remedial version, and at the end of it, Reuben said, “I maybe understood 25 percent of what you just said, and I get the feeling you dumbed it down a lot for me, but you said it very convincingly.” Lynn thought, This is what it must be like to have Jon Stewart as your lawyer.
Another lawyer in the room, who specialized in securities law, said maybe Reuben should get some lunch while he met with Lynn privately. They reviewed several technical issues, from statutes of limitations to provisions of the pooling and servicing agreements governing the securitizations. When they finished, Reuben said they’d give Lynn an answer within the week.
When Lynn returned home, she pulled out a map of the United States and a box of red round-headed pins. Leafing through her wall of mortgage assignments, which dominated the front room, Lynn located the cities where they were made and stuck a corresponding pin on the map, the way a cop would analyze where bad drugs originated. Lynn only wanted to meet with prosecutors in places with a pin: venue and jurisdiction meant a lot. Select Portfolio Servicing documents came out of Utah. Citi’s came from Missouri. Litton Loans, Saxon Mortgage, BAC Home Loans, and American Home Mortgage Servicing all had various sites in Texas. JPMorgan fabricated documents in Louisiana. Then she put a pin in Fort Mill, South Carolina, the home of America’s Servicing Company, a division of Wells Fargo. Almost all the Wells documents originated there, really sloppy stuff, including assignments that were notarized but unsigned. South Carolina could provide an inroad; Dick Harpootlian knew everybody there. Maybe she could get a prosecution going against America’s Servicing Company, the way she got one in Jacksonville against LPS and DocX.
Before she could get a chance to pitch Dick, he called her. “I just want you to know we’re all in. We’re all going to do it.” The qui
tam case was on.
Dick flew Lynn up to Columbia to meet Bill Nettles, who had just been installed U.S. attorney for South Carolina. Nettles worked on voting rights issues in the 2008 Obama campaign. He brought his criminal staff to meet with Lynn, and she recognized a couple of them from the insurance fraud days. Lynn presented the scheme and named all the various law firms and document shops in the state. One of the biggest robo-signers in the Fort Mill office was named John Kennerty; Lynn found him signing as a MERS officer on behalf of at least twenty different banks. When Lynn mentioned Kennerty, one of the criminal staff exclaimed, “You mean they’re forging the name of John Kennedy?” She had to talk them down on that one.
Nettles’s staffers promised to assign an FBI agent right away, but that never really happened. The FBI claimed a lack of resources, though Lynn suspected it involved friction between Nettles, a former criminal defense attorney, and local agents resisting orders from someone who used to be on the other side. Later Nettles’s office asked Lynn if she wanted to meet with the U.S. attorney for the Western District of North Carolina, Anne Tompkins. Lynn consulted her map, finding that Fort Mill, South Carolina, was actually closer to Charlotte than to Columbia.
So Lynn flew out to Charlotte, the trip again paid for by her lawyers. While at home Lynn was broke, on the road she’d have an expense account. She’d pay for hotel rooms with old Marriott points; if she confined herself to the restaurant downstairs, she could eat for free as well. It was a strange life, jet-setting across the country but penniless in Palm Beach.