by David Dayen
The foundation’s biggest project was the qui tam case, which didn’t end with the $95 million federal settlement. That only involved the five leading mortgage servicers; Lynn sued thirteen other parties, from servicers to trustees to document manufacturers like Lender Processing Services. In August 2013 the case was unsealed, along with one remarkable document: a mortgage assignment dated February 9, 2009, after the foreclosure of the mortgage in question. Typed on the right-hand side of the assignment was this note: “This Assignment of Mortgage was inadvertently not recorded prior to the Final Judgment of Foreclosure . . . but is now being recorded to clear title.” You could not find stronger evidence of a mass document production scheme to fabricate ownership.
Though the behavior of the five servicers in the settlement and the behavior of the remaining defendants were identical, the Justice Department declined to intervene in the second half of the case, leaving Lynn and her lawyers to cover expenses. When the seal was lifted, Lynn discovered that all those confidential information disclosures, which she spent hundreds of hours crafting for DoJ, were never served to the banks to force disclosure of documents. All that drafting was just a D.C. smokescreen.
Lynn kept returning to federal court in Columbia, South Carolina, for qui tam hearings. She would hear whispers from prosecutors: “Why doesn’t she just take her money and go home?” The banks drew out the case, resisting every discovery request, making frivolous arguments and abruptly dropping them, and bringing in dozens of lawyers—at least three for each bank—to argue each point separately. A lawyer for American Home Mortgage Servicing tried to explain away forgery by saying, “You know how it is sometimes when you’re married, judge, and you sign your wife’s name to a check. And sometimes she knows . . .” He paused dramatically, then concluded, “And sometimes she doesn’t!” He sat down with a big grin on his face.
But no matter how many bank lawyers embarrassed themselves, they simply wore out the system. In spring 2014, in what felt like a bloodletting, Judge Joseph Anderson threw out most of the case. Lynn trudged on for another year, filing appeals and motions out of some warped sense of duty to the truth. But she reached an undisclosed settlement on the lion’s share of the claims on April Fool’s Day 2015. On June 26, Lynn kept alive a sliver of the case, appealing to the Fourth Circuit on HUD claims against three trustees, two mortgage lenders, and LPS. If that fails, all that’s left is the Supreme Court. But even if it succeeds, Lynn won’t send Wall Street tumbling to the ground. She won’t even make them hand back all their illegally gained profits.
One other case remains. On March 4, 2013, Damian Figueroa, the Stop Foreclosure Fraud blogger who was once Lynn’s client, sued her for breach of fiduciary duty and unjust enrichment. Damian said Lynn stole his research, to be used in a jointly filed qui tam case, and filed the suit on her own. And he submitted hundreds of emails between him and Lynn to prove it.
When I asked Lynn about this, she dismissed it as a lie. She did represent Damian in a class action suit against the David Stern law firm and MERS, as specified in the retainer. She actually disclosed to Damian, confirmed by his emails, that she had a False Claims Act case going, with her as the relator. Many of Lynn’s articles describing fraud, along with her letters to regulators, predate ever meeting Damian. They collaborated later, but everybody was helping everybody research public documents. Lynn added that Damian congratulated her after learning of the settlement, and they even went to lunch together. He never said he was the “real relator.”
Damian, whose class action suits against the banks were all dismissed, declined to speak to me, on the advice of his lawyers. But in his complaint, he says he initiated talk of a qui tam on February 9, 2010, at the foreclosure happy hour where he and Lynn met. A week later, over email, Lynn did say she had a qui tam going, though she expected nothing to come of it. “But if you want to try this too, let me know and we will file together both knowing that this is a real long-shot,” Lynn’s email added. That line is the essence of Damian’s argument.
For months they continued corresponding, with the qui tam offer never again made explicit. Lynn occasionally asked for research and Damian would supply it. At one point Damian found a list of LPS signers and shared it with Lynn. The names ended up in the complaint, though lists of robo-signers were also compiled elsewhere. After filing the qui tam, Lynn complied with the seal order by denying to Damian that she had her own case going. Lynn specifically says that Damian should consider a qui tam against the Stern law firm and IndyMac, who were never defendants in her case.
Damian wasn’t the only one claiming that Lynn stole his work; people habitually called up the office with such charges. But nobody else acted on the impulse. The case remains in the courts, and Lynn thinks it’ll just go on forever. You can parse the evidence on either side. But it’s really a textbook example of what happens when movements falter. Before long everyone starts turning on each other, and the cause itself becomes secondary, making it easier for perpetrators to steal away into the dark.
Housing and Urban Development secretary Shaun Donovan insisted the National Mortgage Settlement would deliver principal reductions to one million struggling homeowners. In the end, according to reports filed by the settlement’s oversight monitor, just 83,000 homeowners received a first-lien principal reduction, over 90 percent fewer than promised. The banks issued almost exactly the $10 billion in principal reduction listed in the settlement as the minimum requirement. Donovan touted over $50 billion in tangible benefits, but much of it came in the form of short sales, where homeowners sell their homes for below the mortgage balance, without having to make up the difference. Short sales can be helpful for families, but they represent the polar opposite of keeping people in their homes, the intended goal. Far more Americans lost homes in transactions via the National Mortgage Settlement than got principal reductions to save them.
Servicers received credit for “forgiving” debt already discharged in bankruptcy, for extinguishing second mortgages deemed uncollectible, and for modifying loans held by investors (paying for the settlement with other people’s money). They satisfied their penalty by donating some homes to charity and bulldozing others, routine activities to establish community goodwill. And in perhaps the most devious maneuver, nearly one-quarter of the gross consumer relief value, $11 billion, came from short sales in “non-recourse” states like California, where lenders are prevented by law from seeking money from borrowers if the sale price comes in lower than the price of the mortgage. In other words, this supposed “gift” to homeowners had no material value whatsoever.
Cash payouts for families illegally kicked out of their homes ended up as an insulting $1,480, less than two months’ rent. Oklahoma, the one state that didn’t join the settlement, set up a mortgage fund for foreclosure victims that granted over seven times as much cash per homeowner.
The other big settlement, the Independent Foreclosure Review from the Federal Reserve and the Office of the Comptroller of the Currency, was neither independent (banks hand-picked their own reviewers) nor an adequate review (whistleblowers alleged that reviewers deliberately minimized evidence of borrower harm). In the end, regulators aborted the mission, with banks instead paying $3.6 billion in cash to all 4.2 million families put into foreclosure in 2009 and 2010, divided into broad and seemingly random categories. People approved for a loan modification who illegally lost their homes anyway got $300 for their trouble. Most homeowners received under $1,000; some were so insulted that they sent the checks back. Lisa Epstein got a check for $600.
Aside from the woeful consumer outcomes, the basic architecture of a law enforcement settlement presumes that the activity being settled stops. But robo-signing, document fraud, and predatory servicer abuse continue unabated. All the foreclosure fighters got out of years of fraud exposure was another weak investigation.
One thousand FBI agents and prosecutors brought bank executives to justice after the savings and loan scandals of the late 1980s. By contrast, mo
nths after the inauguration of the vaunted securitization task force co-chaired by Eric Schneiderman, the New York Daily News noticed that it had no executive director, no offices, no phones, and no staff. In congressional testimony, Securities and Exchange Commission enforcement chief Robert Khuzami let slip that “most of the investigative work . . . is not really being done by a staff that belongs to the task force, it’s being done by the individual investigative groups that make up the task force.” In other words, the task force didn’t exist; it was a repository for press releases about existing cases.
In 2013 and 2014, the task force secured several headline-grabbing settlements with big banks like JPMorgan Chase, Bank of America, and Citigroup, all of which knowingly sold to investors mortgage-backed securities that failed to meet prescribed underwriting guidelines. Investors, the actual party harmed by securities fraud, saw none of the benefit; the top beneficiary of the cash awards was the Justice Department. The settlements netted nearly $37 billion, but they had what writer Yves Smith called a high “bullshit-to-cash” ratio. For one, they were tax-deductible, meaning that ordinary taxpayers effectively paid part of the fine. “Consumer relief” portions of the settlement allowed banks to get penalty credit for loan modifications they were already doing, and even for making loans in low-income communities, a profit-generating activity. It was like sentencing someone convicted of stealing to opening a lemonade stand. When you weeded out the bullshit, the $37 billion fine looked more like $11 billion.
Schneiderman’s lieutenants vowed that the task force investigations would result in outcomes “an order of magnitude” bigger than the National Mortgage Settlement, but they simply didn’t. Chain of title issues or REMIC tax fraud—the biggest sources of exposure on securitization, both of which Schneiderman talked up before the task force got started—were never on the menu. And despite swearing that all options remained on the table, the task force never issued one criminal subpoena. The banks bought their way out of the problem cheaply, and those paying the penalty were the shareholders, not the executives who helped generate the largest destruction of wealth in American history.
The Obama administration has ignored banks that lie to people, and prosecuted people who lie to banks. Theresa and Joe Giudice, stars of the Real Housewives of New Jersey, obtained mortgages with fraudulent applications, and they went to jail. Four different federal agencies worked on that case. Meanwhile, Lanny Breuer and Eric Holder, the Justice Department leadership who presided over this disparity, went right back to the corporate law firm, Covington & Burling, from which they came. The firm even held open a corner office for Holder while he was attorney general, as he negotiated settlements with banks that were Covington & Burling clients.
America is a punitive nation, the most incarcerated nation on earth. If you’re caught stealing a soda or smoking a joint, we’ll put you away for way too long. But if you commit systemic crimes—if you hand out millions of fraudulent mortgages, package them into fraudulent securities, fail to complete fraudulent securitizations, engage in fraudulent servicing, and evict homeowners with fraudulent foreclosure papers—you can get away with it. Many have theorized why the banks would be so cavalier as to break the housing market just to make a few extra dollars. And the answer is proven by the outcome: because they knew they could, without serious consequences. We don’t have a justice system with the will to convict everyone, regardless of wealth and power. And that ensures that the wealthy and powerful will keep committing crimes.
In Jacksonville, determination against concerted resistance from Washington led to the only major prosecution for foreclosure fraud. Lorraine O’Reilly Brown, founder and CEO of DocX, which produced over a million fraudulent assignments and affidavits for mortgage companies, was indicted in November 2012 on conspiracy to commit mail and wire fraud. Apparently this was a conspiracy of one, because the indictment claimed Brown directed the document forgery and fabrication scheme “unbeknownst to DocX’s clients.” In other words, mortgage servicers contracted Brown to fake evidence so they could prove standing to foreclose, but they were shocked that she would, you know, fake the evidence. Servicers may not have known the precise mechanics of the DocX fraud, but that’s because they wanted a layer of plausible deniability.
LPS wiggled out of criminal indictments by paying $35 million in a non-prosecution agreement and cooperating in the Brown conviction. According to the complaint, LPS was unaware of this DocX scheme and fired Brown when they discovered what was occurring, despite performing the same fraud at multiple other facilities. It’s not like Brown invented robo-signing. In fact, the indictment confirmed that “surrogate signing,” authorizing temps to forge the names of senior employees on foreclosure documents, was illegal, though LPS defended it as legitimate for years.
Brown’s biggest sin was lying to Jacksonville FBI agents and being expendable after LPS cut her loose. She pleaded guilty, with concurrent convictions in Missouri and Michigan. John O’Brien, the register of deeds in Essex County, Massachusetts, received a call from assistant U.S. attorney Mark Devereaux asking him to testify at the sentencing hearing. O’Brien tried to recoup $1.28 million from Brown, to clean up the 10,567 polluted DocX land records filed with his office. Devereaux called him back, saying the judge wouldn’t accept the claim, because registers were not victims. “What do you mean, we’re not a victim?” O’Brien exclaimed. “We’re the ones with all these false documents!”
“No, the bank is the victim,” Devereaux replied.
Lynn went to Brown’s sentencing hearing. Jeff Thigpen, register of deeds from Guilford County, North Carolina, testified. Judge Henry Lee Adams asked Jeff if he sought restitution, and he replied, “I’d like it but I realize I’m not going to get it.” The judge asked Devereaux who would replace all these false documents in registers’ offices. “Well, that’s where we—that’s where we get a lot of issue here,” Devereaux stuttered. “I don’t know how you fix that.”
Prosecutors revealed that the FBI interviewed over seventy-five DocX employees in the case, with forty-five agents taking statements from homeowners who lost homes via DocX assignments. Jeff could sense the frustration that all that work amounted only to putting Lorraine Brown in jail; everyone else was protected. Brown cried in court, apologizing repeatedly. Her lawyer argued that the government was prosecuting his client for activities the banks did on a regular basis. But the judge showed no leniency. Brown got five years, the maximum sentence.
Lynn told Devereaux after the guilty plea that she still watched people lose their homes to DocX documents, because nobody required the courts to be notified. Devereaux replied that he hoped bank lawyers would disclose that information. “I hope you’re kidding,” Lynn said. At the hearing, Devereaux wouldn’t look her in the eye. But Lynn decided to feel relief instead of frustration. At least someone went to jail for falsifying mortgage documents, proving they were real crimes punishable by prison time, not “sloppy office work.” But Brown was a convenient scapegoat, the PFC Lynndie England of foreclosure fraud. Nobody else went to jail because the misconduct was so pervasive that the entire banking industry would have to pay the price, and Washington couldn’t let that happen.
After it ended, Lynn called up one of her FBI friends and thanked him for convicting Lorraine Brown. There was a long pause. When the agent finally broke the silence, he said, “I don’t think the taxpayers were well served.”
In a lush backyard surrounding a swampy south Florida lake, prehistoric-looking birds periodically dive-bomb the water in search of food. Every few minutes, planes roar upon takeoff at the nearby West Palm Beach airport. Michael Redman tosses some shrimp on the grill and lights citronella candles to keep the mosquitoes away.
Michael started renting the renovated back house on this lot a couple of years ago. It’s just one room with a bed and a couch and a kitchen, but it’s adequate for him, and for his daughter, Nicole, when it’s his turn to take care of her. He likes the backyard oasis, hiding out in the shadows, where he
wants to be. He has no mortgage and expects to never have one again.
A few months back, a new family moved into the main house. Michael said hello to the wife and asked what she did. She said she represented banks in foreclosure cases. “Some of this stuff, I can’t make it up,” Michael tells me. “She’s doing exactly what I’m doing, only the opposite.”
Every day Michael travels an hour to Fort Lauderdale, to work at the law offices of Evan Rosen. Evan was the only attorney who showed up at Lisa and Michael’s rained-out Homeless for the Holidays protest, something Michael never forgot. Lisa hooked on with Evan first, doing side research and docket checks. Evan later reached out to Michael and they made a deal over lunch. Michael handles client intake, along with preparing discovery requests and depositions. Of course, Michael runs Evan’s website; sometimes he’ll cross-post stories to 4closureFraud, which remains online, though not as active.
West Palm Beach is about halfway between his job in Fort Lauderdale and where his ex-wife, Jennifer, lives. In 2014 she executed a short sale on the property in Port St. Lucie, the dream house that started Michael down this path. Jennifer stayed around Port St. Lucie, and Michael won’t move closer to work, because he’d be too far away from his daughter. So he logs a lot of hours on I-95. He joked about applying at Ocwen, the mortgage servicer headquartered up the street: “I’ve wanted to go undercover for so long.”
Michael expected to be co-directing the Housing Justice Foundation with Lynn and Lisa. The three foreclosure fighters talked about the nonprofit a lot; Lynn even supplied details like the building site and insurance status, things Michael would never care about if he wasn’t part of the team. Even when Mark Elliot and Rachael moved into Lynn’s condo and Michael had to move out, he found another place downtown, close to the offices. But the partnership never materialized. I ask Michael if he felt strung along. He would only reply, “Things ended up working out for the best.”