by David Dayen
Judge Powers vacated the summary judgment with prejudice. He told GMAC to pay $27,000 in attorney fees. He wouldn’t force a takedown of the transcript, because the Ice Legal deposition was on the Internet anyway. And GMAC must have gotten plenty nervous. Several other GMAC cases in Cox’s office settled quickly. Michael started seeing multiple users from GMAC spending hours on 4closureFraud, reading everything GMAC-related on the site. Then Lisa discovered Florida Default Law Group withdrawing a series of affidavits of indebtedness, all of them signed by Jeffrey Stephan. The notice of withdrawal spelled it out: FDLG “has recently been notified that the information in the affidavit may not have been properly verified by the affiant.” Lisa posted this at Foreclosure Hamlet and reported it to June and Theresa at the state attorney general’s office. They asked for all of Lisa’s Stephan-related documents. Lisa put out an APB to her network and collected sixty-nine documents in a few days. As Lynn was searching, she found a mortgage assignment Stephan had signed on her own condo, a document she’d never seen before.
On September 20, 2010, Michael and Lisa were trying to find shelter for Ramsey Harris, a sixty-two-year-old disabled vet evicted from his rental home in Rocky Point, Florida. Harris was initially told he could stay in the foreclosed home while he set up financing to buy it from the bank. But suddenly the bank informed him on Tuesday he would be evicted on Thursday, and subsequently threw all of Harris’s belongings on the side of the road in the rain.
Michael was furious. He looked into every aspect of the case. The foreclosure was fraudulent; Harris lived in the property but never received a summons, a violation of state law. The assignment of mortgage was dated six months after the suit was filed from Bear Stearns, which had already collapsed. Liquenda Allotey, a known robo-signer, affirmed the assignment, but the signature differed from other Allotey signatures. Michael and colleagues exchanged dozens of emails, trying to get Harris a place to stay and legal representation. But while Michael was working so diligently on Ramsey Harris, the thing he’d been trying to provoke for over a year dropped: GMAC announced a suspension of all its foreclosures in twenty-three judicial foreclosure states while they investigated the faulty Stephan affidavits.
Lisa was having her car serviced when she gazed up at the TV screen in the lobby. “GMAC Moratorium on Foreclosure Sales,” read the headline on CNN. At that instant, Michael called her cell phone. “This is it!”
Robo-signing was just one cover-up for the banks’ lack of standing to foreclose. But Lisa and Michael believed this was finally the crowbar in the window. So many media outlets declined to publish their claims because the banks never admitted to problems. Now GMAC admitted it. Lisa tested her newly serviced car engine by speeding home. She and Michael planned to bombard the media with links to their evidence. But before they could, the media started contacting them. The Financial Times asked Michael questions for a story. So did a reporter for the Washington Post, who visited Stephan’s house to ask him about the charges (Stephan “said only ‘No, thanks’ before retreating inside”). Local media already valued them as a source: Paola Iuspa-Abbott of the Daily Business Review ran a profile two weeks before, with a picture of Michael and Lisa, arms folded, on the rooftop of the courthouse. Now the national media were following suit.
Eight days after GMAC’s announcement, 4closureFraud posted video of Jeffrey Stephan’s Ice Legal deposition. Viewers were shocked to see Stephan dressed for legal testimony in a black heavy metal T-shirt and jeans, with spiky blond hair and a chin-strap beard completing the look. Matt Taibbi wrote that Stephan looked like “an advanced-age Beavis or Butt-head.” Toward the end of the video, Stephan burst out laughing; he later made a paper airplane and sailed it toward the camera. Commenters at various sites that cross-posted the video were horrified. “That can’t be real,” one exclaimed.
It wasn’t real. Lisa Epstein played Jeffrey Stephan; Michael Redman played the lawyer asking questions off-camera. They shot it at Carol Asbury’s office, the one with the telemarketers on the first floor. Lisa was getting into costume in the bathroom when one of the telemarketers came in, took one look, and helped her put on the chin-strap beard. Lisa couldn’t hold character by the end, her loud cackle reverberating off the walls. But despite how farcical it looked, the deposition initially fooled everyone.
Lisa and Michael weren’t just beating the banks; they were having more fun.
“How do we keep this momentum going?” Lynn wrote to Damian, Nye, Lisa, and Michael the day after GMAC’s announcement.
Michael replied: “Keep republishing the most relevant articles that we already have. It is all there. We just need to lead them to it. We have been preparing for this moment for a year.”
The first thing Michael reposted was a deposition from a Chase Home Finance employee named Beth Cottrell, adding the line, “This deposition is even better than Jeffrey Stephan’s depo.”
Chase’s downfall tracks back to Nye Lavalle. In 2009 he shuttled between south Florida and Savannah, Georgia, working with a woman battling foreclosure on several vacation properties. He would write briefs by day, and hang out at night with his friend Paul DeAgnes in Atlanta on his big yacht. DeAgnes had a friend in Hilton Head, South Carolina, not far from Savannah, who was having trouble with his loan. Nye told Paul to send the guy over.
The man visited Nye and brought along a friend, Dan Junk, an expert in electronic legal discovery with a similar mortgage problem. Dan tried to rescind his loan after learning that the originator, American Home Mortgage Servicing, went out of business. Though he followed all specifications for a rescission, the servicer, Citi Mortgage, wouldn’t let him out. Nye and Dan struck up a friendship and started collaborating. They would build out the facts of foreclosure cases and work with lawyers to introduce them into courts.
In May 2010 Dan and Nye received an Ice Legal deposition with Beth Cottrell, an operations supervisor at Chase Home Finance. Cottrell’s name appeared on a replacement affidavit of amounts due and owing in Lisa’s case. The eight-person Chase team in Columbus, Ohio (which included Whitney Cook and Christina Trowbridge, Lisa’s robo-signers), signed eighteen thousand documents a month, from assignments to affidavits to allonges. And like every other robo-signer, Cottrell had no knowledge of what she was signing, leaving that to whatever attorney had created the document. “I have personal knowledge that my staff has personal knowledge,” she said.
In the case in question, there were two “original” notes filed on the same property. “So when you signed the affidavit and said ‘Plaintiff is entitled to enforce the note and mortgage,’” Ice Legal attorney Dustin Zacks asked Cottrell, “you didn’t know which of these two notes you were referring to?”
“No,” Cottrell answered.
Of particular interest to Nye and Dan Junk was how the documents would get notarized. Cottrell would sign a stack of documents, put them in a folder, and hand them over to the notaries, who stamped and signed everything later. Nye read over that part and said to Dan, “This is notary fraud in the state of Ohio.” That was important because Dan Junk’s sister was Jennifer Brunner, the Ohio secretary of state. And secretaries of state had jurisdiction over notaries.
Brunner served as a common pleas judge in Franklin County, Ohio, for several years, and during the housing bubble she saw plenty of odd foreclosure cases. Either the defendant was never served papers, or the plaintiff would get suddenly substituted, or the bank claimed they lost the note. Brunner always wondered how a bank could lose a note. But most homeowners never mounted a defense, so there wasn’t much she could do. As secretary of state, Brunner built a reputation for integrity. She entered the Democratic primary for Senate in 2010 but lost in May, making her a lame duck.
After the primary, Dan sent his sister the Beth Cottrell deposition, highlighting the section on notarizations. When she read the deposition, she and her legal staff agreed that Cottrell admitted to notary fraud. But after some research, she learned there weren’t many options for secretaries of state to
sanction notaries. The best she could do was forward violations to the Justice Department as a criminal referral.
Brunner had been working on a separate matter with Steve Dettelbach, the U.S. attorney from Cleveland. In August, Brunner hand-carried the deposition to Dettelbach with a criminal referral, and awaited a response. Unbeknownst to her, a fellow statewide officer, Ohio attorney general Richard Cordray, was also investigating robo-signing, particularly the Jeffrey Stephan affidavits. Cordray planned to file a lawsuit against GMAC for fraud against Ohio courts. When Brunner got wind of this, she asked Dettelbach if she could announce her criminal referral in the Chase Home Finance case. Dettelbach said sure.
Two days before Brunner went public, on September 29, Chase Home Finance announced it would suspend foreclosure operations in all judicial states. It would have been customary for Dettelbach to inform Chase they were being targeted for investigation. It certainly looked like Chase was preempting disclosures about the criminal case.
The Great Foreclosure Machine could maybe explain away one mortgage servicer’s corrupt practices. But now a second admitted to the same misconduct. There’s an old Monty Python sketch about the Amazing Mystico, a conjurer who imagined a block of flats with his mind. The tenants had to believe in the building for it to stay upright; if they stopped believing, it would tumble. By September 29, everybody stopped believing in the Great Foreclosure Machine.
Nye chuckled at the timing. In 2000, former SEC chair Arthur Levitt told him about the ten-year lag between the identification of financial fraud and its exposure. September 29, 2010, was almost exactly ten years from the day Levitt made that comment.
Lisa Epstein and Michael Redman, after toiling in obscurity for a year, were suddenly among a small collection of experts able to talk about this scandal. Journalists they hadn’t heard from in years solicited comments or interviews or document requests. CNBC wanted to film Lisa asking questions for a town hall meeting with President Obama. Ariana Cha, a Washington Post reporter, asked Michael if there were documents signed by Jeffrey Stephan in non-judicial foreclosure states, where GMAC hadn’t yet halted foreclosures. The next day Cha wrote an article, “Ally’s Mortgage Documentation Problems Could Extend Beyond 23 States,” based on Michael’s research. Kim Miller at the Palm Beach Post published a tip from Lisa that GMAC withdrew affidavits from another one of their robo-signers, Kristine Wilson. Lisa found other withdrawals, including documents signed by Linda Green, the infamous DocX robo-signer from Lynn’s papers. Michael Olenick found Beth Cottrell’s name attached to dozens of foreclosure cases for banks other than Chase. “The GMAC announcement was the mushroom cloud,” Matt Weidner soberly told the New York Times. “The fallout will burn through the entire mortgage servicing industry.”
An anonymous tipster passed Michael a remarkable document. DocX printed a catalog for foreclosure mills and mortgage servicers, with an online order form called GetNet for missing documents. Curing a defective mortgage would cost you $12.95. Lost note affidavits and allonges were also $12.95. Creating a “missing intervening assignment?” $35.00. Re-creating “the entire collateral file”—that means the note, mortgage, securitization agreement, everything? It’s yours for the low, low price of $95.00.
So a company under state and federal investigation for fabricating documents had a document fabrication menu: choose one from column A and one from column B. As finance blogger Yves Smith of Naked Capitalism explained, this proved that trustees did not hold the evidence necessary to foreclose. Smith later relayed a heated conversation between a colleague and an anonymous subprime lender CEO, who acknowledged, “If you’re right, we’re fucked. We never transferred the paper. No one in the industry transferred the paper.”
Now roused to investigate, the media proved adept at finding examples that the destruction of the land records system was something everybody should be concerned about, not just so-called deadbeats. The Fort Lauderdale Sun-Sentinel reported that Jason Grodensky received a foreclosure notice on his door. But he paid cash for his home. He bought it in a short sale in 2009, but Bank of America never stopped foreclosure on the previous owner, and Fannie Mae bought the home at auction. So both Jason Grodensky and Fannie Mae owned the home. North Carolina attorney general Roy Cooper found Bank of America foreclosing on another house with no mortgage, according to the Triangle Business Journal.
Martin and Kirsten Davis of Cleveland lost their home to foreclosure after accidentally paying 14 cents too little on a monthly payment, wrote the Cleveland Plain Dealer. Their servicer charged late fees, pyramiding them on top of one another until 14 cents became thousands of dollars.
Matt Weidner got a call from a woman named Nancy Jacobini. She was on her couch one evening when she heard someone kicking in her door. Terrified, she retreated upstairs and called 911: “Help, I’m locked in my bathroom, somebody broke into my house!” It turned out to be a “property preservation” specialist hired by her bank, JPMorgan Chase, to change the locks on an abandoned property. But Jacobini was still living there, and while she was behind on mortgage payments, foreclosure proceedings had not even begun. Weidner used to holler about these breaking-and-entering cases, never getting a response. But because nobody believed in the Great Foreclosure Machine anymore, Nancy Jacobini appeared on ABC News, MSNBC, and Democracy Now.
The stories incensed Barry Ritholtz, Wall Street analyst and author of a popular finance blog called The Big Picture. In a post, “Why Foreclosure Fraud Is So Dangerous to Property Rights,” he listed every document homeowners sign during closing to ensure clear title. A system created and refined over three hundred years, with multiple checks, safeguards these rights. “There is no room for errors,” Ritholtz thundered, explaining how capitalism breaks down if a buyer cannot be certain that someone else does not have a legal interest in the property they purchased.
Hence, we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed . . . The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” . . . There is simply no reason we should tolerate unlawful property seizure merely when it is done by banks. They are not the State, not the King, and not above the law.
CNBC’s Larry Kudlow brought Ritholtz on to discuss this with network correspondent Diana Olick. In characteristic embedded-reporter style, Olick downplayed the corporate malfeasance, asserting that most of these homeowners were not paying for their homes and “they shouldn’t be in them.”
“When you have people in Texas and Florida being foreclosed on, and they don’t have mortgages,” Ritholtz replied in his thick New York accent, “something’s wrong with that process.”
Olick interrupted him. “You’re always going to see those stories—”
“No, you never see those stories!” Ritholtz shot back. “That has never happened before! That is a legal impossibility!”
“That’s a very small minority of cases—”
“It should be zero! For most of American history it’s been zero!”
Although business reporters covered for the scandal, banks knew they’d been caught. That last straw was when Old Republic National Title Insurance announced it would not insure title on properties foreclosed upon by companies that used robo-signers. The company simply couldn’t guarantee who owned the homes. And without title insurance, nobody would risk a purchase.
The Amazing Mystico’s buildings all fell down. Bank of America suspended foreclosures in judicial states October 1, 2010. The same day, Connecticut called a moratorium on all foreclosures in the state, and Texas, Massachusetts, Maryland, North Carolina, and California followed suit. Congress got involved, too; Senators Al Franken and Jeff Merkley and Representatives Gabby Giffords and Alan Grayson demanded investigations an
d moratoria. Grayson made an easy-to-understand video about foreclosure fraud that went viral (“We are reaching a point where the easiest way to make a buck is to steal it”). Ohio attorney general Richard Cordray announced his GMAC lawsuit, seeking $25,000 per fraudulent Jeffrey Stephan affidavit, a penalty that could reach into the billions of dollars. Federal banking regulators opened formal reviews of all foreclosure processes at major mortgage servicers. On October 8 Bank of America extended its moratorium to all fifty states. Chase, GMAC, Litton Loans, and Citi followed suit. Wells Fargo held out for a while, claiming they were the “good” bank, but their robo-signer Xee Moua, who signed five hundred documents a day without verification, eventually got deposed, and they started slowing down their cases. On October 13 the attorneys general of all fifty states announced an investigation into foreclosure fraud, and the leading foreclosure operations in America were mostly at a standstill.
The game plan, hatched almost a year earlier at the Bonefish Grill, worked to perfection. Michael and Lisa assumed law enforcement would now move in, expose the scandal, stop it cold, and hold those responsible to account. They had dinner to celebrate. “We had so much hope,” Lisa later reminisced. “We thought we did it.”
17
THE BIG TIME
Foreclosure fraud bloggers had to contend with something new: notoriety. Their obsession became front-page news: Good Morning America, The Daily Show, and nightly newscasts led with the story. And Lisa and Michael became front-page news as well, with profiles in the Washington Post, McClatchy Newspapers, and the Palm Beach Post (“The Deadbeat Took On Wall Street”). Ordinary people exposing a complex financial scandal provided a compelling media angle. Not that Michael was satisfied with the newfound interest; he wrote on 4closureFraud, “Funny how we have been screaming this for about a year and no one would listen until GMAC made their announcement.”