by David Dayen
Amid the morass, there was one silver lining. The government folded a bunch of lawsuits into the deal, relieving banks of as much liability as possible. Among them were five whistleblower cases: appraisal fraud at Countrywide, fair lending violations, underwriting inaccuracies, and more, all lumped in as violations of the False Claims Act. One of those cases came from Lynn Szymoniak. Her qui tam suit retrieved $95 million for the U.S. government, and under the law, she would receive $18 million of that herself.
21
LISA’S LAST STAND
Lynn learned about the $18 million from her lawyers, but the news didn’t go public until National Mortgage Settlement term sheets were released in March 2012. Everyone offered congratulations: Lisa, Michael, Damian, Matt Weidner. She was officially gracious—“It’s very satisfying to recover this money for the government,” she told the Huffington Post—but privately, she wished the payout would go to homeowners who needed it. The situation was almost farcical: five banks paid the government $95 million for filing FHA insurance claims based on false documents, but those documents could still be used to remove people from their homes.
Lynn’s own mortgage company proved this. Deutsche Bank removed Mark Elliot from the case, but a new law firm, corporate giant Akerman Senterfitt, decided to depose Lynn again. The meeting featured nine plaintiffs’ lawyers and two armed guards, as if Lynn presented a threat. Though Lynn’s original allonge was supposed to be affixed to the note, she discovered years earlier that it had no staple holes or signs of attachment. But during the deposition, Akerman’s lead lawyer pulled out the allonge, and it did have staple holes. Days earlier Akerman filed an order to release the allonge from the court file; not being idiots, Lynn and her lawyer, Mark Cullen, went to the courthouse and took close-up photos of the allonge, in case Akerman tried to doctor it. Which they did.
“I knew you would do this, you lying cheats!” Lynn bellowed as the camera videotaping the deposition rolled.
“Who do you think did what?” the lawyer answered with mock surprise.
“You did it, you counterfeits! But guess what, we took photos of this, so you’re caught!”
The Akerman lawyer pulled back and stuttered, “Well . . . why didn’t you disclose ahead of time that you took photos of the allonge?”
“That’s your question? I don’t believe this.”
Reuben Guttman, the lawyer from the qui tam case who watched the deposition, told Lynn it was his all-time favorite.
In that same deposition, Akerman asked Lynn to identify everything she remodeled in the home. The application for Lynn’s original refinance stated the purpose of the loan as “home improvement.” It did not obligate her to any dollar amount for that purpose. But Lynn answered the question: she reconfigured the bathroom for her late mother, installed new floors, and did pool and lawn maintenance. Within a few days, Akerman said they wanted to depose pool maintenance staff, landscapers, contractors, and plumbers. Mark Cullen filed a motion for protective order, calling it a frivolous attempt to harass the defendant. But Diana Lewis, the notoriously pro-bank judge, accepted the argument that Lynn potentially lied about home improvements on her loan application.
Everyone drove ninety minutes west to depose Lynn’s contractor, a personal friend who installed her floors. Akerman’s lawyers demanded information about every job the contractor held since high school and every detail about the installation. “Was Lynn Szymoniak ever late paying her bills?” The contractor replied that he lost past invoices in a hurricane.
“Isn’t that convenient!”
“Look,” spat back the contractor, a big ex-firefighter, slapping the table. “If you want to call me a liar, say it to my face! Don’t do this chicken-shit stuff!”
The Akerman lawyer started shaking so much he dropped his list of questions.
Lynn didn’t want to validate these tactics by paying off her house, but she saw no other options in the Palm Beach County court system. If anything, the courts had grown more hostile to homeowners after revelations of robo-signing and false document pleadings. You couldn’t walk into a courtroom, assert that evidence had been falsified, and expect anyone in authority to care. So Lynn mentally set aside a big chunk of cash to buy peace.
The National Mortgage Settlement waived so many predatory servicing practices that a lot of people were astounded that such companies remained in business. Beyond the illegal fees, force-placed insurance scams, dual tracking, lies to borrowers seeking loan modifications, and lost paperwork was a basic inability to perform, euphemistically described as “failing to maintain accurate account statements.” A HUD inspector general report released with the settlement documents reviewed a sample of thirty-six JPMorgan Chase foreclosures and found incomplete or incorrect information on what borrowers actually owed in thirty-five of those cases. That report was among the most extensive federal investigations of mortgage servicing, and it still only examined a handful of files. But managers who oversaw the 97 percent error rate didn’t have to resign in disgrace. In fact, no servicer had to admit wrongdoing. Falsifying documents and stealing from customers are serious criminal offenses in any other legal context, unless you’re a bank.
GMAC, which by then changed its name to Ally Bank, succeeded in cutting its fine in half based on “an inability to pay it,” Reuters reported, making the National Mortgage Settlement one of the first “pay what you can” corporate penalties in American history. Ally doled out dividends to the U.S. government on its Troubled Asset Relief Program funds while crying poor to settlement negotiators.
Negotiators never mandated that cash awards to the states had to go to mortgage relief. So, one by one, states started using the money to fill holes in their budgets, from Wisconsin to California to, of course, Florida. By the end, nearly half the penalty—over $1 billion—got sucked into state budgets, leaving homeowners expecting free counseling or modification programs with nothing.
The most shocking wrinkle in the term sheet concerned “threshold error rates.” Servicers received indemnity for a certain amount of violations of settlement standards, including illegally taking someone’s home. For most standards, the threshold error rate was 5 percent. So servicers could break the law on one of every twenty mortgages they serviced, or 90,000 of the 1.8 million foreclosure filings throughout 2012, with nobody able to do anything about it. Since servicers self-reported their own errors and could appeal findings of noncompliance, far more fraudulent foreclosures could be made undetected. The settlement codified predatory servicing.
Many state lawsuits, including Ohio’s against GMAC and Nevada’s against Countrywide, were folded into the settlement. But justice didn’t roll down from the other lawsuits carved out. Eric Schneiderman filed a last-minute suit against MERS and three banks but quickly settled the case for $25 million. After years of litigation, Massachusetts’s Martha Coakley got only $2.7 million from banks who foreclosed on homeowners without standing. Illinois’s Lisa Madigan agreed on a $350,000 settlement with Nationwide Title Clearing. Delaware’s Beau Biden settled with MERS for $0 and promises that the company would no longer sue for foreclosure in their name and record assignments prior to foreclosure—things MERS already voluntarily agreed to do.
Catherine Cortez Masto’s case against LPS had perhaps the most humiliating outcome. In May 2012 John Kelleher was abruptly taken off the Mortgage Fraud Strike Force, in what Masto called a “realignment.” Within a month he left. The facts came out in an affidavit provided to the court. Kelleher was himself a foreclosure victim; just like Lisa Epstein, his servicer told him to miss payments and put him into foreclosure after he did. Saxon Mortgage served him with papers in January 2011, before the criminal fraud case against Gary Trafford and Gerri Sheppard. Kelleher alleged in his affidavit that he was being considered for a loan modification the entire time, but the defense found a notice of default taped to Kelleher’s door on September 7, 2011. The notice came from LSI Title, one of the many names used by Trafford and Sheppard’s document processing
company. Defense attorneys argued that Kelleher, in a vindictive rage, bullied Tracy Lawrence into testifying before the grand jury and accepting the plea bargain. Kelleher claimed that he never saw the notice from LSI Title until after Tracy Lawrence’s death, and when he did, he informed the attorney general and recused himself from the case. But it was too late. The judge dismissed the charges against Trafford and Sheppard entirely.
John Hueston, Trafford’s lawyer, who previously represented Ken Lay and Jeffrey Skilling in the Enron trial, called the defeat a “complete embarrassment.” But he made more revealing comments to Law360 about the impact of Tracy Lawrence’s death. “When we first got involved in the case we realized the critical witness was no longer with us,” Hueston said.
Kelleher believes he was pushed off the strike force for getting too close to prosecuting the banks, like June Clarkson and Theresa Edwards in Florida. After he left, former colleagues were told not to speak to him. His replacement closed all pending mortgage investigations. Kelleher ended up running a martial arts studio for three years before finding another lawyer job.
Lisa had almost run out of financial reserves, so within months the fulltime activism would have to stop. And yet she didn’t feel she was through pursuing a justice that never seemed further away. She would tick through scenarios for possible redemption. Maybe the Schneiderman task force could devise some fertile prosecution strategy. Maybe judges would suddenly sanction the fraudsters. Maybe some media exposé could awaken the dormant conscience of a nation. Or maybe there were just a few homeowners left to help; even that would be worth it.
A lot of her activism filtered through Occupy Palm Beach; she and Lynn ran several “teach-in” events on foreclosure fraud. One day in March 2012, Tom Conboy, a local Democratic Party activist, attended their presentation, and grew furious: “What is our clerk of courts doing about this?”
Since 2004 the Palm Beach County clerk of courts was a Democrat named Sharon Bock, a bleached-blond doyenne with a plastic smile. Bock told the Palm Beach Post she had no authority to reject fraudulent documents, despite the clerk’s responsibility to maintain integrity of public records. Other land records officials, like John O’Brien in Massachusetts and Jeff Thigpen in North Carolina, loudly publicized the crime scenes in their offices. Curtis Hertel, a register of deeds in Oakland County, Michigan, sued Fannie Mae and Freddie Mac for failure to pay recording fees on property transfers; Thigpen had just sued MERS. But Bock viewed her job narrowly; in fact, in all the time Lisa had been going to the courthouse, she never saw Bock there. “I’ve practiced law here for thirty-two years and I can’t get a fifteen-minute meeting with Sharon Bock,” Lynn said.
“Well, we need someone to run against her,” Tom Conboy replied.
Lynn smiled. “I nominate Lisa!”
Lisa thought they were nuts. She had spent years learning about foreclosures and securitization and the judicial system, and now they wanted her to learn about election laws and fund-raising and campaigning? And though she’d grown more comfortable in the spotlight, the idea of running around seeking votes filled her with unease.
Yet something about it also appealed to her. She relished getting control of the fraudulent evidence, joining the activist clerks resisting more powerful officials who wanted to put this tragedy in the past. And it wasn’t just about foreclosures: fabricated assignments and satisfactions put all real estate transactions at risk. It would be enormously challenging—Palm Beach County had 1.3 million residents, stretching an hour east to Belle Glade and back. Lisa knew she would have a slim chance against an entrenched incumbent. But somebody had to keep up the fight. Something inside Lisa kept whispering, You’re not done. So she announced her intent to run in the Democratic primary.
Lisa’s first priority was to figure out what a clerk of courts actually did. Through foreclosure work, she knew a defense attorney in the Jacksonville area whose husband was a deputy clerk of courts. Michael and Lisa went to his office and shadowed him for two days, learning everything about how land records were kept, stored, and distributed. Lisa soaked up information about file management systems and digital document retrieval strategies. In Palm Beach the clerk of courts also served as the county’s chief financial officer. So Lisa researched county investments and accounting practices. But days after filing her intent to run, Lisa heard from Mark Alan Siegel, chairman of the Palm Beach County Democratic Party. Sharon Bock wanted to meet.
They planned lunch at the Broken Sound Club in Boca Raton, a posh golf and tennis resort where Siegel was a member. Tom Conboy attended as a go-between, along with Lisa, Lynn, and Michael. They entered the main lobby, a four-story rotunda dominated by an undulating pink sculpture that looked like stacked seashells. Siegel greeted them and took one look at Michael. “Blue jeans in the dining room,” he said with clear disdain. “That’s going to be a problem.”
“Okay, we can eat on the patio!” Lynn offered cheerily.
“No, I’ll take care of it,” Siegel interrupted.
As they walked into the fancy dining room, they saw ladies in casual tennis outfits and bikinis with sarongs. “Some dress code,” Michael snickered.
The group reached the table. Sharon Bock, seated between two deputies and wearing a sharp white suit, stood up and smiled broadly. Lynn thought this lady had on more makeup than she had ever seen on a human being.
“It’s nice to see you, Sharon,” Lynn said, “I’ve been trying to meet with you for four years.”
“No,” Sharon replied with deep sincerity, “I would have known.”
Everyone got settled, with Sharon fishing lipstick out of her purse and laying it on the table. As the meeting began, Sharon reapplied her lipstick carefully, and continued to do so after almost every bite of lunch. It was like she would melt away into a puddle without a full plastering of ruby red.
Mark Alan Siegel, who represented Manhattan in the New York State Assembly in the 1970s and 1980s, laid on the charm as thick as Sharon’s makeup. “You’ve all raised so many important issues. How can we be helpful?” he asked. The implication was clear: what would it take for Lisa to go away?
Lisa and Lynn came prepared with several ideas to improve the clerk of courts office. By this time, word had spread about Lynn’s $18 million judgment, which Sharon seemingly saw as a key funding source for the primary. So Lynn was uniformly celebrated as the smartest person in the room. “If you recorded assignments under the homeowner’s name, people could find their own records easier,” Lynn said.
“Great point, Lynn!” Sharon Bock shouted enthusiastically between lipstick applications. “Write that down,” she said to her deputy. “Keep a list so we can implement these fine suggestions.”
Lynn asked if Sharon had ever been to foreclosure hearings, which occurred three doors from her office. Sharon said no. Then Lisa asked about the county signing a case management contract with a division of LPS. “They’re still under investigation by the Florida attorney general’s office. Don’t you see this as a concern?”
“Well, LPS is a respected company,” Sharon replied. “We don’t expect any problems.” Lisa would later learn that LPS gave Sharon a maximum-level contribution for her reelection three days before the meeting. Sharon eventually returned the money.
Lisa brought up the $1.4 billion county investment fund, over half of which was tied up in funds exposed to mortgage-backed securities. Sharon Bock didn’t fret about that, either. She leaned back in her chair and said, “Those were all AAA-rated!” Lynn almost spat out her salad.
It went back and forth for a while. Siegel and Bock offered Lisa and Lynn plenty of inducements, from better access to files online to a citizen task force. “The party needs you,” Siegel said, horse trading like he was negotiating a highway bill. Lisa committed to nothing, but tried to stay positive.
As they wrapped up, Tom Conboy thanked everyone for coming, adding, “We’ve accomplished a lot today.”
After a final splash of lipstick, Bock’s smile turned stern. S
he leaned toward Lisa. “But if you go forward with this campaign, this will be the last time we accomplish anything. We’ll be enemies.”
If it was intended as a threat, Lisa didn’t pick up on it. “Oh, I don’t think so, Sharon. I think we can still work together!”
Candidates in Palm Beach County needed to complete two steps to make the ballot. In March they filed an intent to run. In June candidates could file a petition signed by 5 percent of the county’s voting population—about ten thousand names—or pay a filing fee of $9,300 out of campaign contributions. Lisa just started her campaign and saw no reasonable way to amass ten thousand signatures in ninety days. So the first few months mostly involved dialing for dollars.
Every call Lisa made, people responded the same way: “Why don’t you ask Lynn Szymoniak?” She’d have to explain that individuals could only donate a maximum of $500. “She’s already given that, so now I’m calling you!” Sharon Bock fueled that misimpression, telling supporters that Lisa had millions of dollars behind her. Lynn hadn’t even received her money yet, but that didn’t matter; Bock raised more off her than Lisa did.
The first non-Lynn contributor was David Weck, head of the Boca Raton Investment Club, a group of local real estate investors that Lynn and Lisa spoke before every year. Many others gave what they could, sometimes just a few dollars. Lisa’s ex-husband, Alan, even donated. Grace Rucci, a Foreclosure Hamlet member, became campaign treasurer. Tom Conboy stayed involved. And other activists, inspired by her run, started their own campaigns, like Ron Gillis’s wife, Deb Lilley, in Charlotte County, and writer Matt Gardi in Monroe County. Grubbing for money never got comfortable for Lisa, but she managed to make enough for the filing fee.