by David Dayen
A liberal group in Washington State contacted Lisa about Dixie Mitchell, a seventy-one-year-old cancer survivor facing foreclosure, whose mortgage servicer, Ocwen, perpetually lost her loan modification paperwork. Ocwen’s headquarters were near Lisa’s co-op, in a West Palm Beach office park. Lisa and Michael printed T-shirts for a fictional company called Bermuda Triangle Recovery Services, specializing in finding missing documents. On a rainy fall day they hand-delivered Dixie’s documents to Ocwen, camera crew in tow, along with a petition from 7,400 Washingtonians supporting Dixie. A man in the lobby, who had been waiting all day to see someone about his mortgage, remarked, “Boy, I wish I could’ve done that!” After some media attention, Dixie did get a modification, showing that servicers could help their customers—at least if they needed to protect their reputations.
Soon the foreclosure fighters had new allies. On September 17, Occupy Wall Street, born from a suggestion in the Canadian magazine Adbusters, set up camp in Zuccotti Park in lower Manhattan. Protesters expressed widespread frustration that the economy served the interests of the wealthiest 1 percent. Everything foreclosure bloggers documented about the bubble and the crash drove the unrest in New York. Eventually some protesters figured that out; in the beginning they searched for answers.
Occupy spread nationwide, including to Palm Beach. A throng gathered at the Bryant Park clamshell and pitched tents. The first general assembly drew four hundred attendees. Lisa went down and saw nothing like the hordes of violent youths the media were hyping. This group was older, people touched by the financial crash’s impact who feared for their kids’ futures. Lisa thought she could finally match her knowledge of fraud with enough bodies willing to lie in the street and demand action. She took the floor and started by saying, “If your neighbor is in foreclosure and you call them a deadbeat, you’re hurting yourself. Let me explain why.” She tied foreclosures to the accumulation of mortgage-backed securities in public pension funds. Mass foreclosures hurt investors, who would make more money keeping people in their homes at a reduced payment. In fact, preventing foreclosures was preferable for just about everyone. But instead investors paid for delays, fraudulent document production, and legal work, exacerbating losses. The public pension crisis had an antecedent in the foreclosure crisis; people hadn’t put that together.
Over time, the Occupy Palm Beach crowds thinned out. But Lisa spent a lot of time at the encampment, bringing Lynn over to run teach-ins on fraudulent documents and vacant properties. The core Occupiers reacted strongly to the message. It gave them an explanation for the rigged system they were condemning.
Occupy’s founding coincided with another potential bailout; the fifty-state settlement had been described as “imminent” for at least six months. That summer New York attorney general Eric Schneiderman told a local paper he was “stunned” by the lack of investigative work from the executive committee, declaring, “We have no leverage.” He announced he would not sign any settlement if it immunized banks for violating New York law. Instead, he opened a new investigation into the validity of mortgage-backed securities transfers involving Bank of America, as well as leading trustees Deutsche Bank and Bank of New York Mellon. Delaware attorney general Beau Biden, the vice president’s son, joined Schneiderman on the probe; between them, they represented states where all mortgage-backed trusts incorporated themselves, the beating heart of securitization FAIL. At 4closureFraud, Michael posted graphics portraying Schneiderman in a white hat, like the lawman coming to clean up the town. “Please everyone, we must support this man,” Michael wrote. “He is our last hope on a national level.”
In response, Tom Miller booted Schneiderman off the fifty-state executive committee, saying he “actively worked to undermine” settlement efforts. The White House pressured him to support the deal he was just barred from negotiating. Kathryn Wylde, chief executive for the business-friendly Partnership for New York City, even accosted Schneiderman at the funeral for former New York governor Hugh Carey, urging him to back off the banks because “Wall Street is our Main Street.” Housing and Urban Development secretary Shaun Donovan, who spent months hosting tea-and-cookies settlement talks with banks in his conference room, didn’t deny the effort to rein in Schneiderman, telling the New York Times that everyone would benefit from a speedy resolution. But the fifty-state probe had launched a year earlier; all this time spent crafting deals could instead have been spent on investigating.
As chants of “We are the 99 percent” reverberated, attorneys general chose sides. Delaware’s Beau Biden, Massachusetts’s Martha Coakley, and Nevada’s Catherine Cortez Masto stood with Schneiderman; all had active foreclosure investigations in their states. On September 13, Lori Swanson of Minnesota released a letter rejecting a settlement over conduct “that has not been investigated.” Kentucky’s Jack Conway announced on September 22 that he opposed “immunity against the banks.” The big holdout was California’s Kamala Harris. Her brother-in-law Tony West, a top Justice Department official, was helping negotiate the settlement, and she served as a key surrogate in Barack Obama’s 2008 election. Like almost all attorneys general, she viewed the office as a stepping-stone. But she represented the nation’s biggest state, one of the hardest hit by the foreclosure crisis. Without her participation, the settlement would be incomplete.
Practically everyone who helped get Harris elected, from community and labor groups to the half-million-strong California Courage Campaign, started encouraging her to abandon the talks. Phone lines at the attorney general’s offices, unused to constituent calls, jammed several times. Gavin Newsom, lieutenant governor and Harris’s biggest potential rival in California politics, joined a coalition opposing the emerging deal called Californians for a Fair Settlement. This presupposed a settlement at some point, instead of civil lawsuits or criminal prosecutions. But it got Harris to abandon Tom Miller. After spending a full day with bank executives trying to hammer out a deal, Harris announced on September 30 that the proposal was “inadequate for California homeowners” and that she would forge “an independent path forward to resolution.”
A lack of accountability characterized the first decade of the new millennium, from the 2000 election onward. Torturers and warrantless wiretappers and commanders in chief lying America into war received free passes for their crimes with such regularity that upholding the rule of law felt like an anomaly. Banks already got away with breaking the U.S. economy, and for a time it looked like they would obtain the same privilege for the biggest consumer fraud in history, in exchange for a meaningless dollar amount plucked out of thin air. Grassroots activists, joined by scattered leaders disinclined to facilitate a crime spree, put a pause to it. But it was only a pause.
In the foreclosure devastation, community organizers saw kindling for a mass movement wildfire. For years national groups held public protests, like when activists in Robin Hood outfits crossed a moat and stormed JPMorgan Chase’s headquarters in Columbus, Ohio (in true medieval fashion, JPMorgan Chase’s headquarters has a moat). But smaller organizations like No One Leaves in Springfield, Massachusetts, specialized in post-foreclosure eviction defense. They combined legal resources for homeowners and mass resistance to make it painful for banks to toss people into the street. More radical groups like Take Back the Land broke evicted residents back into their vacant homes, a tactic they called a “live-in.” It was a throwback to farm communities banding together in the Depression to prevent foreclosures and stabilize neighborhoods.
Foreclosed properties stolen by banks with false documents were contested spaces, like the city parks and sidewalks Occupy commandeered. Matt Browner-Hamlin, who organized the Where Is the Note? campaign for the Service Employees International Union, thought he could convert disorganized Occupy protests into meaningful action. To his surprise, he found it happening organically. In Atlanta, Minneapolis, Cleveland, and Los Angeles, foreclosure victims asked for help at Occupy general assemblies, and Occupiers mobilized to defend those homes. Browner-Hamlin suppor
ted this with a toolkit of resources and links to larger community groups. Occupy Wall Street activists got involved, and soon they announced Occupy Our Homes, a national day of action on December 6, 2011. Organizer Max Berger enthused, “This is a shift from protesting Wall Street fraud to taking action on behalf of people who were harmed by it.”
With her new friends at Occupy Palm Beach, Lisa organized two events. One was a program called Foreclosure Watch, based on the efforts of Mothers Against Drunk Driving in the 1980s. In the morning, activists in Foreclosure Watch T-shirts sat in the courtroom and bore witness to hearings, their presence a signal that rulings affecting homeowners would be monitored and remembered. Judges seemed to take more care when Foreclosure Watch arrived.
In the evening, protesters lit candles at a Deutsche Bank–owned foreclosed property on North B Street in Lake Worth, to “mourn” lack of prosecutions of bank executives. Lisa previously participated in two previous vigils at this same white-and-yellow house, which had been boarded up for years without Deutsche Bank spending a dime to maintain it. Lynn and Michael and Jenna were there, too, along with dozens of others.
Other Occupy Our Homes groups were more aggressive. Protesters formed a human chain around foreclosed homes, keeping residents safe inside. Activists in Atlanta camped in the front yard of a police officer facing eviction. Families reclaimed vacant homes. In Brooklyn, Occupiers disrupted a foreclosure court by loudly singing; other demonstrators “micchecked” foreclosure auctions.
These tactics worked. Los Angeles homeowner Rose Gudiel, who occupied her foreclosed home, got a loan modification offer from Fannie Mae. Beth Sommerer of Cleveland won a thirty-day stay of eviction. One-hundred-three-year-old Vita Lee of Atlanta got a reprieve from JPMorgan Chase. In Minneapolis, an ex-Marine named Bobby Hull had 150 people rally on his front lawn in front of television cameras, refusing to leave. Bank of America made him a deal.
Even after local police dismantled Occupy encampments, evicting protesters the way they evicted homeowners, Occupy Our Homes lived on. Homes became community hubs, with round-the-clock patrols so that homeowners could leave for work without threat of repossession. Occupy Homes Minneapolis placed heavy concrete barrels on front porches and chained themselves to them, making it difficult for law enforcement to remove them. They created an emergency text blast system that could bring a hundred activists to homes within thirty minutes. Occupy Fights Foreclosures in Los Angeles descended on foreclosure auctions, warning that banks had no proof of ownership in the homes they were selling. One thousand Los Angeles protesters prepared a Rose Parade float, a seventy-foot octopus made from plastic bags, symbolizing the financial industry.
Behind the resistance, Occupy Our Homes facilitated negotiations with mortgage servicers, with the protests creating leverage. Organizers recognized the value in creating a cost for evictions, throwing sand in the gears of the Great Foreclosure Machine. Victims telling their stories humanized the crisis and brought media attention that no bank wanted. Occupy Our Homes neutralized the greatest weapon the financial industry employed: shame. If you could convince homeowners that they did nothing wrong, you could get them to defy an unjust process, and build political power.
Evidence of false documents underpinned the movement and tore the veneer off the industry’s schemes. Occupy Our Homes members knew about Linda Green. They understood securitization FAIL. If law enforcement would not arrest the perpetrators of an industry-wide crime spree, protesters would enforce the law through confrontation.
As protesters took action, Lynn found another inside game in Nevada, where three out of every five homeowners were underwater. Before their firing, June and Theresa worked with Nevada investigators on LPS. So Lynn sent files over and connected with Helene Lester, an assistant to John Kelleher, chief deputy of the Criminal Fraud Unit. When Kelleher was chosen to lead Nevada’s Mortgage Fraud Strike Force in 2007, there wasn’t even a crime called “mortgage fraud” in the state code. But after educating himself and hearing thousands of consumer complaints, he recognized the depth of the problem. With assistance from Lisa, Lynn passed along numerous documents to the strike force that summer, explaining to Lester in strategy sessions how they could locate fraud in county records. Lynn became their go-to consultant.
Catherine Cortez Masto, Nevada’s attorney general, told Kelleher to follow the evidence wherever it led, and prosecute whomever was responsible. In August 2011, Masto sued Bank of America for promising to modify mortgages in a prior settlement but deceiving homeowners instead. In an amended complaint, Masto pulled out a bazooka:
Bank of America misrepresented, both in communications with Nevada consumers and in documents they recorded and filed, that they had authority to foreclose upon consumers’ homes as servicer for the trusts that held these mortgages. Defendants knew that they had never properly transferred these mortgages to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law. Because the trusts never became holders of these mortgages, Defendants lacked authority to collect or foreclose on their behalf and never should have represented they could.
Lynn’s arguments helped to shape that language of securitization FAIL. Masto even quoted from Kemp v. Countrywide, where Bank of America executive Linda DeMartini admitted that mortgages never made it to the trusts. It wasn’t just that Masto was suing over Bank of America’s failure to honor a settlement, at a time when the Justice Department and other AGs wanted to clinch another settlement. Rather, her office understood the core issue, which many colleagues still regarded with bemusement. “These are not mere technicalities,” the complaint stated. “The PSAs spelled out a specific procedure in order to ensure a proper transfer.”
By September, investigators found repeated patterns in the Clark County recording office on notices of default, which inform Nevada homeowners that they face foreclosure. Two names kept showing up on the notices as representatives of multiple different banks: Gary Trafford and Gerri Sheppard. Prosecutors traced the documents to a Lender Processing Services branch office in Las Vegas. But Trafford and Sheppard actually worked in Orange County, California. The notary stamps came from Nevada, but the individuals who purported to sign documents in the notary’s presence lived one state over. Investigators pulled Trafford and Sheppard’s driver’s licenses from the California DMV, and the signatures didn’t match the Clark County notices of default. Tens of thousands of documents appeared forged.
The strike force tracked down employees from the Vegas LPS office, including Tracy Lawrence. Tracy entered the real estate business in her twenties with only a high school education. A month into her new job at what would become LPS (the company went through five different names during this period), her bosses asked her to become a notary. Actually, they strongly implied that her continued employment depended on her becoming a notary. So she filed an application and got a stamp.
Within a year Tracy became assistant title officer to Gary Trafford. The office processed notices of default for entities foreclosing in Clark County, including Bank of America, Washington Mutual, and Fannie Mae. Trafford had a system: Tracy would receive the documents, sign Gary’s name, notarize in her own name, and send the notice to the recording office. When this began, there weren’t many notices to forge, but after the bubble popped, the numbers grew to three hundred a week, every week, for five years.
Tracy said Trafford rarely visited Las Vegas. But there was his name, all over Clark County land records. Tracy forged Gary Trafford’s name, and other employees forged Gerri Sheppard’s. At some point Sheppard apparently recognized the fraud inherent in the workflow, but only tried to make the forgery less detectable. She told employees in an email: “Regarding the signature of my name . . . please have someone other than the person that is notarizing it sign it. Thanks everyone—Gerri.” Tracy didn’t want to be blamed for following orders, so she checked with her boss via email: “Per your instructions, I will continue treating our docs as I
have all along, i.e. signing your name and notarizing myself. If there are any further changes, let me know.” Trafford replied affirmatively. And like a good employee, Tracy did as she was told until getting laid off in 2010.
But when state investigator Todd Grosz stopped by her home a year later, she was given a choice: testify against Gary Trafford or face arrest. So Tracy, again following instructions, agreed to testify in exchange for leniency. Before the grand jury, she nonchalantly explained the institutionalized fraud that occurred at 500 North Rainbow Boulevard every day for five years. It sounded like any office in America: employees covering their ass to avoid blame, stressed out by superiors squeezing more productivity from everyone. “Did you ever have any feelings that what you were doing may be illegal?” Kelleher questioned.
“I didn’t really think about it,” Tracy said. “They said, ‘Oh yeah, it’s OK, you can sign our names.’” Submitting to authority was so ingrained in office culture, it never occurred to robo-signers to question the system.
Tracy Lawrence wasn’t the mastermind behind the destruction of America’s mortgage market, just a tiny pin in the Great Foreclosure Machine, a line worker. Even Gary Trafford and Gerri Sheppard were only slightly larger pins. But they represented a way to get to executives at LPS who authorized the forgery factory, and then the servicers who hired them. It was Criminal Justice 101: flip the small fry to get to the big fish. Kelleher was itching to indict a director at one of the major banks, and the strike force was deliberately climbing toward their target.