Chain of Title (28 page)

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 and 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.”

CNN asked Michael to come on. Michael, of course, forwarded the request to Lisa. They rushed to a local affiliate, where Lisa sat in a tiny studio while anchor Mary Snow asked her questions for thirty minutes. At the end, the cameraman told her, “I know three people in foreclosure; thanks for what you're doing.” Lisa and Michael decamped to a nearby bar to watch her first national interview. Right before it was supposed to air, CNN broke away for important breaking news: a tractor-trailer filled with pigs flipped over on a Canadian highway. Authorities tried to corral the swine as they strolled across the road. Lisa headlined the
Foreclosure Hamlet
recap “
Preempted by a Passel of Pigs Being Put in the Pen (Hopefully Foreshadowing Reality).”

MSNBC's Dylan Ratigan didn't preempt Lisa, bringing her on live. “
MBS? There are no mortgages backing these securities, they didn't put
them in. I think we should call these ‘malicious bankers with syphilis,'” Lisa said, reciting a line she'd practiced that whole day. Ratigan remarked on the air that Lisa could take over for him if she was available some afternoons. A thousand miles away in Massachusetts, Andrew “Ace” Delany watched the show with his dad. After the syphilis line, his dad said he wanted to adopt her.

Every second of every day was filled. Michael and Lisa set up “
emergency happy hours” statewide, including Tampa and St. Petersburg. The documentary filmmakers behind
Inside Job
contacted Lisa. Michael got to blog at the cranky yet high-traffic finance site Zero Hedge. While in Sarasota for a seminar, Lisa bumped into Florida governor Charlie Crist, who was running for U.S. Senate. Halfway into a black SUV, Crist turned around, pointed at Lisa, and said, “I want to talk to you.” Lisa couldn't believe
she
was the one being recognized.

After hearing about the accelerated rocket docket, two attorneys with the American Civil Liberties Union's (ACLU) Racial Justice Program, Larry Schwartztol and Rachel Goodman, called Lisa and Michael for information about potential constitutional violations of due process.
They filed public records requests, finding that the Office of State Courts Administrator distributed court funds based on the percentage of cases completed. Schwartztol and Goodman flew to Palm Beach to meet with Lisa and Michael, who set them up with statewide contacts.

Lisa and Michael enjoyed their unusual moment in the spotlight because they finally saw an ending: people in charge would take over, and they could fade away. But they had to stay prominent for now, because there was a lot of nonsense to knock down.
Lisa found a flood of “replacement” mortgage assignments and affidavits being filed across Florida. Michael wondered how they managed to find people with deep personal knowledge of hundreds of thousands of foreclosure cases so quickly. Particularly amusing were the “found allonges,” when the rules stated that allonges had to be attached to original notes and therefore couldn't simply be found.

The industry next dismissed the scandal as a matter of “bad paperwork,” as if someone in the back office just forgot an initial somewhere. They didn't want the public to understand that they had no proof of ownership on the homes they were seizing in foreclosure cases. The American Securitization
Forum, a leading trade group for Wall Street banks, invented a clever refrain: “
The mortgage follows the note.” That way, faulty mortgage assignments were irrelevant. Of course, the notes were faulty, too. The theory also contradicted the securitization agreements, which clearly stated that assignments had to be conveyed into trusts for the asset to be valid.

The Service Employees International Union started
a campaign called Where Is the Note? Under the 1974 Real Estate Settlement Procedures Act, homeowners, whether in foreclosure or not, could ask servicers for original mortgage documentation and be guaranteed a response within sixty days. SEIU uploaded a “qualified written request” form for homeowners, and servicers got six thousand letters in the first few weeks. SEIU organizers sifted the replies into three categories: “we don't know,” “we won't tell you,” and “no comment.” If this was the reaction to notes, what the industry considered the good paper, what did the really bad stuff look like?

A remarkable “news” piece in the
Wall Street Journal
entitled “Niche Lawyers Spawned Housing Fracas” carried a distinct attitude of
And we would have gotten away with it, if it weren't for you meddling kids
. “
Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing,” author Robbie Whelan wrote, intimating that forcing plaintiffs to prove their cases was unfair. Industry mouthpieces warned that clogging foreclosures would trigger economic disaster, reducing cash flows to mortgage companies and delaying market “clearing.” Of course, foreclosures hurt the economy, lowering property values and tearing up communities.
The Daily Show
's Jon Stewart asked, “
So we can improve the economy by throwing millions of families out of their houses just in time for the holidays? . . . Because apparently now we have a foreclosure-based economy.”

The most common argument was that borrowers deserved to lose their homes for missing payments, which ignored not only the foreclosures on people who were current on their mortgage but also several hundred years of judicial procedure. “
Fraud doesn't erase the fact that the borrower agreed to make payments or face the penalty of losing her home,” sniffed CNBC's John Carney. But it actually
does
erase that: that's how the criminal justice system works. If the prosecution violates procedures, it loses, regardless of the status of the defendant.

Behind the rhetorical effort was a quieter strategy that reached the desk of Ohio secretary of state Jennifer Brunner. On September 30, the same day she announced the criminal referral in the Beth Cottrell notary fraud case, she received an email from Leslie Reynolds, executive director of the National Association of Secretaries of State: “We just learned that HR 3808, Interstate Recognition of Notarizations Act, which passed the House under a suspension of the rules in April 2010, was passed by the Senate on September 27.” In a near-empty chamber, Senator Bob Casey's motion to approve HR 3808 by unanimous consent passed without debate. Reynolds's group, which opposed the bill, was never informed; in fact, they were told in August it wouldn't get a vote.

HR 3808 came from an obscure Alabama Republican named Robert Aderholt, who claimed he introduced it upon a constituent's request. It would require state and federal courts to “
recognize any lawful notarization . . . commissioned under the laws of a State other than the State where the court is located.” Brunner discovered that three states allowed electronic notarizations: Nevada, Minnesota, and Arizona. E-notarizations meant that signers of official documents would not need to personally appear before a notary. Brunner envisioned mortgage companies moving their document assembly lines into t hose three states, forcing courts to accept electronic notarizations, and the underlying paperwork, as presumptively valid.
States could challenge the statute, but that could take years of appeals, with untold numbers of foreclosures processed in the meantime.

Congress was out of session, with campaigning intensifying for the midterm elections. HR 3808 was just sitting on President Obama's desk. Brunner sent the bill text to Dan Junk, and he and his colleagues agreed HR 3808 could make it more difficult for attorneys to challenge documents. Brunner did two things. First she blasted her old Senate campaign email list, asking a half million subscribers to contact the White House and tell the president to veto HR 3808. Then she called Campbell Spencer, political liaison to the White House during her Senate race.
Spencer, who was still working in the West Wing, promised to pass word to her colleagues.

News of HR 3808 reached Michael and Lisa.
Michael reposted Brunner's email at
4closureFraud
. Thousands of people contacted the White House; at one point the switchboard lines jammed. Once the veto movement went viral, legal experts split over whether HR 3808 would truly grease foreclosures
through the system. Some argued that even with valid e-notarizations, bad assignments and affidavits could be challenged. But activists weren't interested in a debate: they just wanted the bill stopped.

On October 7 the White House announced that the president would give HR 3808 a pocket veto, refusing to sign the legislation because of the “
unintended impact of this bill on consumer protections, including those for mortgages.” Like 99 percent of America, Michael didn't know what a pocket veto was. A president could withhold his signature from a bill and prevent it from becoming law when Congress was out of session. But Congress was still holding pro forma meetings while away from Washington, to block recess appointments. Some observers were anxious that a pocket veto would not take, and the bill would become law without the president's signature on October 12, ten business days after passage, unless he sent it back to Congress.
Michael published his findings, including emails from readers featuring arcane discussions of veto procedures and constitutional law.

That night Michael got an anonymous email that read, “You're right and you need to follow through on this.” He ignored it—by this point he was getting wacky emails all the time—but the same emailer sent another one the next day: “Keep at this, keep going.” The tone made Michael believe this was not a random oddball, but someone with inside knowledge.

White House reporters peppered spokesman Robert Gibbs with questions about whether a pocket veto would hold during pro forma sessions. Michael's alert about whether the pocket veto was valid became the most-read page in the history of
4closureFraud
. And on October 9 the White House issued a
second
press release: “
To leave no doubt that the bill is being vetoed, in addition to withholding my signature, I am returning HR 3808 to the Clerk of the House of Representatives.” Lisa told Michael, “They're talking to you about that.”

In President Obama's first six years in office he vetoed only two bills, and one was a stopgap defense bill made redundant by passage of a separate appropriation days later. So HR 3808 represented the only time in six years anyone stopped Barack Obama from signing a bill that passed Congress, all thanks to people power.

Well, plus one other individual. A couple of months after the veto, Jennifer Brunner heard from Elizabeth Warren, the Harvard professor who
had been installed in September 2010 as a special assistant to the president, overseeing the implementation of her brainchild, the Consumer Financial Protection Bureau. Warren thanked Brunner for warning about HR 3808; her staff found out via Campbell Spencer, Brunner's White House contact. There were rumors on the blogs that Warren personally intervened to convince the president to veto; when Brunner asked about that, Warren would only say, “
One person really can make a difference.”

Lynn Szymoniak also delighted in the Great Foreclosure Machine's collapse, though not as publicly as Lisa and Michael. Instead she went back to every contact she made over the past year, with links to every deposition, every exposed bank, every false document. There would have to be prosecutions now, Lynn thought, not because of any commitment to right and wrong but because the negative publicity raised the pressure in Washington. A package of 150 robo-signer depositions from Deerfield Beach defense attorney Peter Ticktin only turned up the heat. Deponents couldn't define the terms “affidavit,” “promissory note,” or even “mortgage,” which might have been fine if that wasn't what they worked on for a living. Before becoming vice presidents on paper, robo-signers held jobs like hair stylist, Walmart greeter, and assembly line worker. “
I don't know the ins and outs of the loan, I just sign documents,” said one robo-signer.

So when attorney general Eric Holder said on October 6 that the Justice Department was “looking into” the allegations,
Lynn was nonplussed. A federal grand jury had been empaneled in Jacksonville for nine months. And DoJ was intensely involved in her
qui tam
case, holding meetings and deputizing Lynn to write confidential information disclosures. Even if Holder knew nothing, someone in Washington could pull up the pending cases, from Jacksonville to Lynn's inquiries in North and South Carolina. There was a ready-made latticework of legal actions waiting for DoJ to grasp. So far Justice was playing dumb.

Meanwhile, the Jacksonville case moved at the speed of a man walking through quicksand. Lender Processing Services, parent company of DocX, hired
a Bush-era assistant attorney general, Paul McNulty, among their flotilla of lawyers in the case. Agents told Lynn that LPS denied the Linda Green inaccuracies by calling their practice “surrogate signing,” as if it
were routine for multiple employees to forge a colleague's name on legal documents.

At the Florida attorney general's office, June Clarkson and Theresa Edwards subpoenaed information on six former DocX employees and LPS's internal records, and LPS responded in typical firehose fashion, sending enough notebooks and files to overwhelm the office. June and Theresa began to wade through the records, but David J. Stern's embattled law firm also drew their focus.