by David Dayen
Throughout the crisis, the Obama administration would not endorse a national foreclosure moratorium, which Michael, Lisa, Lynn, and virtually all the other activists demanded. While the president couldn’t automatically stop state court activity, advocates thought a show of high-level support could create political pressure for a moratorium. Instead, Obama adviser David Axelrod told Face the Nation that foreclosures with proper paperwork should go forward. Michael didn’t know of any cases with “proper” paperwork; in his eyes, every land record in America had been corrupted.
On a hunch, Michael checked Illinois public records for the president’s mortgage documents. Sure enough, he found the Obamas’ satisfaction of mortgage on their first condo in Hyde Park, signed in 2005 by Marshe Craine, a Chase robo-signer. Michael found Craine’s name on three other satisfactions of mortgage with different handwriting styles, sometimes for Chase, sometimes for MERS. Even people who paid off their mortgage—even the Obamas—couldn’t be certain the payoff documents were legal.
Michael posted the Obama robo-signer story at 4closureFraud and Zero Hedge. The hit count soared by the minute after an irreverent Dutch blog called GeenStijl linked to it and thousands of websurfers from Holland streamed in. The next day Michael found a second robo-signed Obama mortgage document. “Feel free to call or email me to discuss this further, Mr. President,” Michael wrote. But the phone call didn’t come, nor did the White House change its position on a moratorium.
Within three weeks Bank of America pronounced themselves free of errors, returning to the courts with 102,000 “replacement” affidavits. The rocket docket hearings resumed. After an internal audit, BofA found “10 or 25” problems in the first “several hundred” files studied, a vague figure made more embarrassing by a report in the New York Daily News detailing 4,450 errors just in the five boroughs of New York City, including banks foreclosing on homes they didn’t own. Michael bet he could find “10 or 25” problems in his own loan file.
Some courts fought back. In Cuyahoga County, Ohio, a judge ruled that any plaintiff substituting documents must explain within thirty days why that case should not be dismissed. Supreme courts in New York and New Jersey forced attorneys for the foreclosing entity to personally attest, under penalty of perjury, that they reviewed the loan file and verified all its elements. It was even stronger than Florida’s verification standard because of the personal consequences, and as a result, foreclosure filings in these states initially vanished. Nobody would put themselves on the line for these documents.
Bank stocks sank throughout October; investors were as skeptical as the courts. Owners of mortgage-backed securities, who had to pay for all the document manufacturing and legal shenanigans, began to organize themselves. Under securitization agreements, if banks failed to convey mortgages to the trusts, investors could sue to force the banks to repurchase bonds. Major institutional bondholders BlackRock, Pimco, and the New York Federal Reserve, which bought oodles of mortgage-backed securities during the bailouts, asked that Bank of America take back $47 billion. Before filing a repurchase lawsuit, at least 25 percent of all bondholders had to agree to it. Mortgage-backed securities investors were scattered around the world, and banks were, let’s say, protective about releasing who owned what. But Talcott Franklin, a lawyer in Dallas, was amassing bondholder lists. Analysts put the ultimate cost to the banks at $120 billion.
Behind the scenes, banks were freaking out. Michael got passed notes from a conference call between Citigroup and Adam Levitin, a law professor from Georgetown University and expert on securitization. Citi gave the document the subtitle “Foreclosures Gone Wild.” Levitin forthrightly told Citi executives that the affidavit issue was secondary to the big question of whether loans “were never properly transferred at each step of the securitization process.” This transfer failed to take place “in many instances,” Levitin said, raising questions about loan ownership as well as “the validity and tax exempt status of the trusts.” Citi even acknowledged that “it is unclear in many cases where the actual paperwork rests today.” Michael uploaded the conference call notes, and Citigroup immediately threatened legal action. Eventually Citi did get the notes scrubbed. But Michael gave readers a brief window into the anxiety in the C-suites.
In the end, foreclosures couldn’t stem the Tea Party tide on Election Day 2010. Some communities were so dislocated that politicians couldn’t find their voters. Alan Grayson’s campaign staff would walk precincts around Orlando and find only a couple of occupied houses per block. He ended up losing by eighteen points. Democrats relinquished the House to Republicans. In lower-profile races, the roster of attorneys general changed over, just after every office agreed to a fifty-state investigation of foreclosure fraud. Republicans picked up six seats. Richard Cordray, who had sued GMAC, lost in Ohio to former GOP senator Mike DeWine. Former AGs Andrew Cuomo and Jerry Brown became governors of New York and California, respectively, and Eric Schneiderman and Kamala Harris, both seen as more liberal, replaced them. And in Florida, Bill McCollum’s tenure ended, supplanted by an assistant state attorney known for appearances on Fox News named Pam Bondi.
When Congress returned in November for a lame duck session, Democrats announced hearings on foreclosure fraud. While hearings were normally exercises in grandstanding, because Congress knew so little about the issue there was an opportunity for education. Jim Kowalski and Tom Cox testified before the House Judiciary Committee, flying up to Washington on their own dime. Tom Ice and Lisa talked to Senate staff about appearing, but staffers were primarily interested in people who lost their homes even though they never missed a payment. While such cases certainly happened, Tom and Lisa tried to explain that the issue was bigger than that, it was about judicial integrity and the rule of law. They weren’t invited.
The hearings were often lively. Politicians came armed with constituents’ horror stories of victimization by mortgage servicers. Executives from Bank of America, JPMorgan Chase, and other Wall Street giants had to run for cover. Diane Thompson of the National Consumer Law Center made clear that many of these illegal foreclosures were also unnecessary, driven by servicers who engaged in fee pyramiding, force-placed insurance, and other schemes to push homeowners into default. Servicers would tell borrowers to miss payments to become eligible for loan modifications, and then foreclose on them, just like in Lisa’s case. Thompson, an attorney, claimed that half her clients fell victim to servicer-driven defaults. Foreclosure fraud was the last stop on a well-traveled road of abuse.
Damon Silvers, of the congressional oversight panel for the Troubled Asset Relief Program, cited the $47 billion Bank of America repurchase request. “Five such requests will amount to more than the market capitalization of Bank of America,” he howled at a Treasury official. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks. We can’t do both.”
Law professor Katherine Porter cut to the heart of the matter: if the banks never transferred mortgages to the trusts, which lawyers on the ground confirmed to her was true in virtually all cases, confusion would reign for years. “Just because a homeowner hasn’t paid his mortgage doesn’t mean anybody in the world can kick him out,” she observed. At the House Financial Services Committee, Adam Levitin summed up why nobody had undertaken a real investigation: “The federal regulators don’t want to get information from the servicers, because then they’d have to do something about it.” It was more convenient to remain in the dark about whether mortgage-backed securities were backed by anything than to uncover a problem that could end up too big to fix.
In early November the Roosevelt Institute, a progressive think tank, invited Lisa, Michael, and Lynn to Washington for a private meeting on foreclosure fraud with lawyers, writers, academics, analysts, and activists. The group would discuss where things stood and brainstorm the path to solutions. Without funds to get to Washington, Lisa and Michael put out the tip jar at 4closureFraud. Readers gratefully pitched in. �
��I donated my last $10, good luck you guys,” wrote one commenter.
Lisa and Michael flew up and held a D.C. happy hour the night before. The next morning they entered an office building on Massachusetts Avenue, just steps from the White House. Lisa was back where she grew up, the slate-gray sky a reminder of her perennial sadness at the loss of the sun. But today she was happy. People she and Michael heretofore only wrote about or linked to were in attendance. Damon Silvers, Katherine Porter, Tom Cox, and Adam Levitin, all involved in those hearings, gave presentations. Writers from The Nation, the Huffington Post, and The American Prospect, congressional staff, and researchers for the Financial Crisis Inquiry Commission made it. There were activists from unions and faith groups, community organizers with more foot soldiers than Lisa or Michael could ever scrape together. It was loftier company than the nurse, the car salesman, and the forensic expert ever expected.
The Florida activists got to tell their stories, describing the situation to people with no personal exposure to it. Lisa talked about how she could find fifty foreclosed homes in a two-mile walk around her neighborhood, and how the land records had been defiled, perhaps permanently. “The response from people I see is no different than to anyone attacked by a predator: shame, confusion, fear, terror and embarrassment,” Lisa told the group. “But my role is that I will overcome my embarrassment to better this country.”
At one point meeting organizer Matt Stoller, a longtime blogger who worked with Rep. Alan Grayson and MSNBC’s Dylan Ratigan, pulled Lynn aside. During the meeting she had hyped the federal criminal investigation in Jacksonville. Stoller said to Lynn, “You know, this is not going to work out well for you with the Justice Department.” Stoller went on to explain his skepticism about Attorney General Eric Holder and the head of the Criminal Division, Lanny Breuer. Both had worked as corporate lawyers for Covington & Burling, which not only represented every major bank but provided the legal opinions that created MERS. So far the Justice Department hadn’t pursued prosecutions against anyone associated with the financial crisis. Former DoJ officials complained that Holder and Breuer weren’t interested in bringing cases unless they were sure they could win. That guaranteed timidity.
Lynn still believed in the justice system, that it was possible to bring enough evidence to nail the worst actors. And she had the evidence, undeniable incidents of fraud a million times over. But Stoller’s words, along with the White House’s tepid moves on the scandal, stuck in her head.
18
WE WILL PUT PEOPLE IN JAIL
When Michael, Lisa, and Lynn returned to south Florida, several rapid-fire events dropped like dominoes. Damian Figueroa found an intriguing New Jersey bankruptcy court ruling, Kemp v. Countrywide. Linda DeMartini, a supervisor for Countrywide’s successor, Bank of America Home Loans, acknowledged in a deposition that “to her knowledge, the original note never left the possession of Countrywide . . . the original note appears to have been transferred [directly] to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers.” DeMartini also testified that “it was customary for Countrywide to maintain possession of the original note and related loan documents.” Hilariously, most of this came out on redirect from Countrywide’s own attorney. Judge Judith Wizmur ruled for the debtor that the trustee, Bank of New York, could not prove its claim on the mortgage.
The suspicions of securitization FAIL, that mortgage lenders neglected to transfer notes to the trusts, finally had some hard evidence behind it. Countrywide packaged hundreds of billions of dollars’ worth of mortgage-backed securities, or rather non-mortgage-backed securities. At the finance blog Naked Capitalism, Tom Adams tracked down the pooling and servicing agreement for the Kemp loan—CWABS 2006-8—and saw no exemption from conveying the mortgage and note, with complete chain of title, within ninety days of closing. Bank of America hired a tall-building lawyer from K&L Gates to argue, “We believe the loan was sold to the trust even if there wasn’t an actual delivery of the note.” But that violated the language of the pooling and servicing agreement. There was a very simple way to find out who was right: subpoena the trust documents. The U.S. attorney’s office in Jacksonville had been doing that for months. But so far they were alone, and as Adam Levitin told Congress, the bank regulators didn’t want to look, in case they found something.
The same week as the Countrywide bombshell, Florida Supreme Court chief justice Charles Canady, amid pressure from the ACLU’s Racial Justice Project, issued a directive to courts across the state, ordering them to grant access to observers of foreclosure proceedings, a rebuke to the judge who reprimanded April Charney for bringing Matt Taibbi into a courtroom in Jacksonville. Observing the rocket docket was the first step toward exposing and stopping it.
Lisa started hearing from contacts inside the foreclosure mills that David Stern was laying off dozens of employees and filing motions to withdraw from cases in bulk. The Sarasota Herald-Tribune published an investigation on Stern, finding hundreds of improper mortgage assignments and faulty notarizations in the public records—following the same path of discovery in Michael’s guide. The reporter went to Stern’s offices in Plantation, and security threatened to have him arrested. The top foreclosure mill in Pennsylvania, Goldbeck McCafferty & McKeever, had problems, too: they were caught prosecuting thousands of foreclosures with complaints prepared and filed by nonlawyers, which risked having all those cases thrown out of court. The biggest cogs in the Great Foreclosure Machine were belching exhaust and sputtering.
Sarasota defense lawyer Chris Forrest posted video depositions, real ones this time, of Brian Bly, Crystal Moore, and Dhurata Dako, three employees at Nationwide Title Clearing who manufactured documents for several servicers. Michael thought Bly resembled cubicle drone Milton from the movie Office Space, and he posted the comparison at 4closureFraud. Bly signed mortgage assignments in batches of two hundred for over twenty different banks but couldn’t explain what one was. Dako, a native of Albania, went a step further: “We don’t do mortgages in my country.”
Michael, Lynn, and Matt Weidner embedded the video deposition at their sites, and Nationwide Title Clearing’s parent company, the Church of Scientology, fired off cease-and-desist letters. They even got a court injunction to remove the videos, arguing that their employees suffered death threats and “highly offensive” criticisms about their looks. Forrest took the videos down, but they were reposted so many times, he couldn’t locate them all. Nationwide Title Clearing later sued Weidner for slander and libel; he ended up removing several posts. You don’t mess with the Scientologists.
In early January the Massachusetts Supreme Court delivered a lightning bolt, confirming a lower court ruling for homeowner Antonio Ibanez against Wells Fargo and U.S. Bank. State law was quite clear: the plaintiff must hold the mortgage through a properly conveyed assignment in order to enforce foreclosure. In this case, the assignments of mortgage were executed after the foreclosure sale. Wells Fargo and U.S. Bank argued they had the intent to transfer (the “I meant to do that” defense), but to no avail; the foreclosures were canceled and Antonio Ibanez got his house back. Ibanez’s was the first major securitization FAIL case decided by a state’s highest court. It only applied to Massachusetts, but bank stocks plummeted anyway.
Alongside court victories came a new willingness to challenge the system. In Simi Valley, California, a couple broke into their foreclosed house, on the recommendation of their lawyer. In Los Angeles, the Alliance of Californians for Community Empowerment (ACCE), built from the rubble of the defunct community group ACORN, installed bedroom furniture in a JPMorgan Chase lobby; if Chase moved out homeowners, the homeowners would move into the bank. PICO, a national faith coalition, rallied on the Treasury Department steps for months before getting a sit-down meeting with Timothy Geithner. Community groups—ACCE, PICO, National People’s Action, Alliance for a Just Society, Right to the City, and more—formed anti-foreclosure coalitions, like The New Bottom Line and the Home Defenders League.
Lisa had been doing her Moratorium Monday protests for months without much traction, but now, capitalizing on the breakthrough, she and Michael announced a big demonstration at the courthouse. Scheduled just before Christmas, they called it Homeless for the Holidays. Local media picked it up; even a French TV crew arranged to cover the protest. Courthouse officials got so panicked that they sent an internal email, leaked to Lisa, announcing that they would hire extra security and cordon off parts of the building.
The night before Homeless for the Holidays, the temperature in Palm Beach dropped forty degrees. The morning brought heavy winds, as palm trees swayed and rain came down sideways. Every day that week was beautiful except for the protest day. Grassroots organizing in south Florida proved difficult even in perfect weather, let alone a hurricane. Nobody showed up except the French camera crew, a couple of stragglers, and Evan Rosen, a defense attorney from Fort Lauderdale. Rosen’s presence impressed Michael, but overall it was a disappointing day.
That week Michael’s wife, Jennifer, told him that after the holidays she wanted him out of the house. Tensions had grown over the past year, with Michael trying to draw a line between his activism and his family life but never being able to hold himself to it. In the end he didn’t even argue, just packed a bag.