Chain of Title (29 page)

Right around the time of the GMAC moratorium announcement,
June and Theresa took a deposition from Tammie Lou Kapusta, a former senior paralegal with Stern. She testified that all foreclosure documents were created and signed in-house, without input from servicers or default services providers. How would a law firm have the manpower to create thousands of documents, June and Theresa wondered. “Well, there was work being done offshore,” Tammie Lou said, identifying facilities in Guam and the Philippines. Offshore doc shops generated the “casesums,” specific file information like unpaid principal balance and fee calculations. It resembled Firm Solutions, the Panamanian facility where Lisa Epstein's documents were prepared. All the paralegals at Stern did was sign their name.

Tammie Lou kept talking. Homeowners frequently didn't get served legal papers, even though Stern goosed fees by charging for serving nonexistent tenants or unknown spouses. Mortgage assignments were always produced after the foreclosure case was entered. Affidavits of indebtedness went out with incorrect figures. Notes got lost all the time, as entry-level employees threw things out or placed documents in the wrong files. And the business with the signatures was completely illegal. “I don't think any notary actually used their own notary stamp. The team used them,” Tammie Lou said.

“There were just stamps around?” June asked.

“Correct. We would stamp them and they would get signed.”

“Who would sign them?”

“Other people on the team that could sign the signature of the person or just a check on there or whatever.”

Cheryl Samons, whom Ice Legal deposed earlier, instituted this system. Though she had exclusive signing authority for many lenders, three different people regularly penned Samons's name, Tammie Lou explained. Paralegals
sat around a big table and signed as witnesses and notaries in assembly-line fashion, placing the documents in a folder for Samons. Nobody read anything, just signed. This happened on six floors of the office, every single day. The fourth-floor mass signing sessions took place right outside David Stern's office; it was impossible for him to plead ignorance. Tammie Lou got fired because she refused to falsify military documents used in process service; two weeks later, she was told to pack up. Nobody challenged the situation because everybody knew the consequences. Question the system and you're out.

June and Theresa leaked the deposition, hoping to heighten interest in the Stern case and bring more people forward to testify. Michael posted it at
4closureFraud
.
The state prosecutors sent another deposition later, with Kelly Scott, one of Cheryl Samons's former assistants. Within a week Fannie Mae and Freddie Mac, amid pressure from Congress, terminated referrals to Stern for cases in Florida. Citigroup and GMAC followed suit.
That wiped out a large chunk of the company's business. But seeing Stern crumble financially wasn't enough for the activists. They wanted indictments.

June and Theresa had data coming in from Lynn and Lisa. But they also received information from just about everyone involved in a case with foreclosure mills, LPS, or DocX. They were early movers in a rapidly growing scandal. Assistant attorneys general in Nevada, California, and Ohio traded information with them. Regulators started visiting the office. The banks called them, lobbying for leniency. June and Theresa's superiors supported their efforts;
they even formally reprimanded Erin Cullaro for her foreclosure mill moonlighting (though, amazingly, she kept her job for another year). But just as June and Theresa verged on announcing indictments, their boss changed.

Foreclosure fraud's blast into the public consciousness coincided with the 2010 midterm elections. Democrats, from congressional leaders Harry Reid and Nancy Pelosi on down,
pounced on the issue, demonstrating concern for struggling homeowners. Thirty-one California House Democrats cosigned a letter calling for a federal criminal investigation and attaching
twenty pages of horrific case studies from constituents—tales of dishonesty and misrepresentation.
Alan Grayson wanted foreclosure fraud monitored
by the Financial Stability Oversight Council, a new super regulator created by the Dodd-Frank reform law, as a systemic risk. But Republicans had little interest in the story, save for a few in hard-hit foreclosure areas. Their electoral strategy instead focused on Obamacare and allegations of presidential lawlessness.

When the scandal broke, Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, thought the government should capitalize on its leverage with legally exposed servicers. She drafted a proposal called the “super-mod,” which would take every loan over sixty days delinquent and write it down to face value. Borrowers would have a shot at making reduced payments, and lenders would get a share of the upside as home values appreciated, giving them a stake in neighborhood stability. Bair formally sent the proposal to Treasury Secretary Timothy Geithner. It never went anywhere.

The White House took foreclosure fraud seriously enough to convene a high-level economic meeting in the Roosevelt Room. President Obama asked National Economic Council director Larry Summers about robo-signing, and he assured the president that there was no systemic threat to the economy. Around the room they went, everyone agreeing with Summers: a mild problem, nothing existential. Finally Obama pointed to newly minted assistant Elizabeth Warren, whom one of his staffers invited. She expressed much stronger concern, laying out how foreclosure fraud covered up a larger crime, deeply damaging homeowners and investors and putting the housing market at risk. But the rest of the group moved on to the next topic. It was one of the few times Warren would get into a presidential-level meeting; Summers tried to keep her away after that.

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.