Chain of Title (30 page)

Lisa and Michael flew up and held a D.C. happy hour the night before. The next morning they entered an office building on Massachusetts Avenue, just steps from the White House. Lisa was back where she grew up, the slate-gray sky a reminder of her perennial sadness at the loss of the sun. But today she was happy. People she and Michael heretofore only wrote about or linked to were in attendance. Damon Silvers, Katherine Porter, Tom Cox, and Adam Levitin, all involved in those hearings, gave presentations. Writers from
The Nation
, the
Huffington Post
, and
The American Prospect
, congressional staff, and researchers for the Financial Crisis Inquiry Commission made it. There were activists from unions and faith groups, community organizers with more foot soldiers than Lisa or Michael could ever scrape together. It was loftier company than the nurse, the car salesman, and the forensic expert ever expected.

The Florida activists got to tell their stories, describing the situation to people with no personal exposure to it. Lisa talked about how she could find fifty foreclosed homes in a two-mile walk around her neighborhood, and how the land records had been defiled, perhaps permanently. “The response from people I see is no different than to anyone attacked by a predator: shame, confusion, fear, terror and embarrassment,” Lisa told the group. “But my role is that I will overcome my embarrassment to better this country.”

At one point meeting organizer Matt Stoller, a longtime blogger who worked with Rep. Alan Grayson and MSNBC's Dylan Ratigan, pulled Lynn aside. During the meeting she had hyped the federal criminal investigation in Jacksonville. Stoller said to Lynn, “You know, this is not going to work out well for you with the Justice Department.” Stoller went on to explain
his skepticism about Attorney General Eric Holder and the head of the Criminal Division, Lanny Breuer. Both had worked as corporate lawyers for Covington & Burling, which not only represented every major bank but
provided the legal opinions that created MERS. So far the Justice Department hadn't pursued prosecutions against anyone associated with the financial crisis. Former DoJ officials complained that Holder and Breuer weren't interested in bringing cases unless they were sure they could win.
That guaranteed timidity.

Lynn still believed in the justice system, that it was possible to bring enough evidence to nail the worst actors. And she had the evidence, undeniable incidents of fraud a million times over. But Stoller's words, along with the White House's tepid moves on the scandal, stuck in her head.

18

WE WILL PUT PEOPLE IN JAIL

When Michael, Lisa, and Lynn returned to south Florida, several rapid-fire events dropped like dominoes. Damian Figueroa found an intriguing New Jersey bankruptcy court ruling,
Kemp v. Countrywide
. Linda DeMartini, a supervisor for Countrywide's successor, Bank of America Home Loans, acknowledged in a deposition that “to her knowledge, the original note never left the possession of Countrywide . . . the original note appears to have been transferred [directly] to Countrywide's foreclosure unit, as evidenced by internal FedEx tracking numbers.” DeMartini also testified that “it was customary for Countrywide to maintain possession of the original note and related loan documents.”
Hilariously, most of this came out on redirect from Countrywide's own attorney. Judge Judith Wizmur ruled for the debtor that the trustee, Bank of New York, could not prove its claim on the mortgage.

The suspicions of securitization FAIL, that mortgage lenders neglected to transfer notes to the trusts, finally had some hard evidence behind it. Countrywide packaged hundreds of billions of dollars' worth of mortgage-backed securities, or rather non-mortgage-backed securities. At the finance blog
Naked Capitalism
,
Tom Adams tracked down the pooling and servicing agreement for the Kemp loan—CWABS 2006-8—and saw no exemption from conveying the mortgage and note, with complete chain of title, within ninety days of closing. Bank of America hired a tall-building lawyer from K&L Gates to argue, “
We believe the loan was sold to the trust even if there wasn't an actual delivery of the note.” But that violated the language of the pooling and servicing agreement. There was a very simple way to find out
who was right: subpoena the trust documents. The U.S. attorney's office in Jacksonville had been doing that for months. But so far they were alone, and as Adam Levitin told Congress, the bank regulators didn't want to look, in case they found something.

The same week as the Countrywide bombshell, Florida Supreme Court chief justice Charles Canady, amid pressure from the ACLU's Racial Justice Project, issued a directive to courts across the state, ordering them to grant access to observers of foreclosure proceedings, a rebuke to the judge who reprimanded April Charney for bringing Matt Taibbi into a courtroom in Jacksonville.
Observing the rocket docket was the first step toward exposing and stopping it.

Lisa started hearing from contacts inside the foreclosure mills that David Stern was laying off dozens of employees and filing motions to withdraw from cases in bulk. The Sarasota
Herald-Tribune
published an investigation on Stern, finding hundreds of improper mortgage assignments and faulty notarizations in the public records—following the same path of discovery in Michael's guide.
The reporter went to Stern's offices in Plantation, and security threatened to have him arrested.
The top foreclosure mill in Pennsylvania, Goldbeck McCafferty & McKeever, had problems, too: they were caught prosecuting thousands of foreclosures with complaints prepared and filed by nonlawyers, which risked having all those cases thrown out of court. The biggest cogs in the Great Foreclosure Machine were belching exhaust and sputtering.

Sarasota defense lawyer Chris Forrest posted video depositions, real ones this time, of
Brian Bly, Crystal Moore, and Dhurata Dako, three employees at Nationwide Title Clearing who manufactured documents for several servicers.
Michael thought Bly resembled cubicle drone Milton from the movie
Office Space
, and he posted the comparison at
4closureFraud
. Bly signed mortgage assignments in batches of two hundred for over twenty different banks but couldn't explain what one was. Dako, a native of Albania, went a step further: “We don't do mortgages in my country.”

Michael, Lynn, and Matt Weidner embedded the video deposition at their sites, and Nationwide Title Clearing's parent company, the Church of Scientology, fired off cease-and-desist letters. They even got a court injunction to remove the videos, arguing that their employees suffered death threats and “highly offensive” criticisms about their looks. Forrest took the
videos down, but they were reposted so many times, he couldn't locate them all. Nationwide Title Clearing later sued Weidner for slander and libel; he ended up removing several posts.
You don't mess with the Scientologists.

In early January
the Massachusetts Supreme Court delivered a lightning bolt, confirming a lower court ruling for homeowner Antonio Ibanez against Wells Fargo and U.S. Bank. State law was quite clear: the plaintiff must hold the mortgage through a properly conveyed assignment in order to enforce foreclosure. In this case, the assignments of mortgage were executed after the foreclosure sale. Wells Fargo and U.S. Bank argued they had the intent to transfer (the “I meant to do that” defense), but to no avail; the foreclosures were canceled and Antonio Ibanez got his house back. Ibanez's was the first major securitization FAIL case decided by a state's highest court. It only applied to Massachusetts, but
bank stocks plummeted anyway.

Alongside court victories came a new willingness to challenge the system.
In Simi Valley, California, a couple broke into their foreclosed house, on the recommendation of their lawyer. In Los Angeles, the Alliance of Californians for Community Empowerment (ACCE), built from the rubble of the defunct community group ACORN, installed bedroom furniture in a JPMorgan Chase lobby; if Chase moved out homeowners,
the homeowners would move into the bank.
PICO, a national faith coalition, rallied on the Treasury Department steps for months before getting a sit-down meeting with Timothy Geithner. Community groups—ACCE, PICO, National People's Action, Alliance for a Just Society, Right to the City, and more—
formed anti-foreclosure coalitions, like The New Bottom Line and the Home Defenders League.

Lisa had been doing her Moratorium Monday protests for months without much traction, but now, capitalizing on the breakthrough, she and Michael announced a big demonstration at the courthouse. Scheduled just before Christmas, they called it
Homeless for the Holidays. Local media picked it up; even a French TV crew arranged to cover the protest. Courthouse officials got so panicked that they sent an internal email, leaked to Lisa, announcing that they would hire extra security and cordon off parts of the building.

The night before Homeless for the Holidays, the temperature in Palm Beach dropped forty degrees. The morning brought heavy winds, as palm
trees swayed and rain came down sideways. Every day that week was beautiful
except
for the protest day. Grassroots organizing in south Florida proved difficult even in perfect weather, let alone a hurricane. Nobody showed up except the French camera crew, a couple of stragglers, and Evan Rosen, a defense attorney from Fort Lauderdale. Rosen's presence impressed Michael, but overall it was a disappointing day.

That week Michael's wife, Jennifer, told him that after the holidays she wanted him out of the house. Tensions had grown over the past year, with Michael trying to draw a line between his activism and his family life but never being able to hold himself to it. In the end he didn't even argue, just packed a bag.

Officially the fifty-state attorney general investigation started in October 2010, but within a month
anonymous reports hyped an imminent settlement, focused on improvements to the mortgage servicing industry and a compensation fund for homeowners. Michael immediately posted contact numbers for all fifty state attorneys general, demanding, “
Don't sit down with the banks, stand up against fraud.” He believed a compensation fund would make nice headlines, but the flood of phony documents and chain of title problems would remain. And it would allow banks to buy themselves out of trouble without individual accountability, without even an attempt to determine the extent of the damage. As the congressional oversight panel for the Troubled Asset Relief Program pointed out in a tough report, “
If the public gains the impression that the government is providing concessions to large banks in order to ensure the smooth processing of foreclosures, the people's fundamental faith in due process could suffer.”

Iowa attorney general Tom Miller, who orchestrated a major settlement in 2006 with now-defunct subprime lender Ameriquest, led the investigation. The
Washington Post
asked Miller whether he was interested in a cash settlement or acquiring a set of facts for civil and criminal prosecutions. “
It's both,” he answered.
Miller received $261,000 from banking interests for his 2010 reelection campaign—eighty-eight times the total from the previous decade. In a subsequent report in
Time
,
Miller acknowledged asking bank lawyers for contributions.
Miller told the Senate Banking Committee in November 2010 that he held two settlement negotiation sessions with Bank of America in the first month of the investigation.

Deacon Tom McCarthy of the faith and justice group Iowa Citizens for Community Improvement (CCI) buttonholed Miller at a meeting in Des Moines and asked what he wanted out of the investigation. In addition to cash assistance for people in foreclosure, Miller said, “
we will put people in jail.” Michael didn't believe it. The French TV crew that covered Homeless for the Holidays had just interviewed Miller in Washington, and they said he was far more passive, saying that the fraud wasn't so bad and that everything would get tidily worked out.

Within days Miller's office claimed he wasn't referring to the fifty-state investigation when he mentioned jail, but to a mortgage fraud probe in conjunction with a U.S. attorney's office in Iowa. Michael knew what “mortgage fraud” usually meant—people who duped banks, not banks that dupe people. Miller also described the fifty-state investigation as “inherently civil.” Iowa CCI held follow-up meetings with Miller and said it seemed like “the big banks had knocked the wind out of our state's top law enforcer.”
Miller kept a low profile after that.

Parallel to the state-level attorney general probe, every bank regulator and law enforcement agency even tangentially attached to housing, eleven in all, opened their own civil and even criminal cases. The opening salvo was an intensive eight-week review of servicer practices, with what Treasury Department official Michael Barr called “
hundreds of investigators crawling all over the banks.” But eight weeks seemed to experts like no time at all, and some of that time stretched over Thanksgiving and Christmas. Barr claimed that individual file reviews took between five and eight hours, which both highlighted the inadequacy of the time frame and made him sound absurd, because anyone spending eight hours looking at a loan file didn't know what to look for.

White House officials kept talking up a “
global solution,” presumably where every investigation or pseudo-investigation would merge into one big settlement, so the banks would only have to write one check for their failures. As a result, promising leads funneled up to Washington, where they would disappear. Thomas Cox, who helped break open foreclosure fraud, heard that the Justice Department didn't want U.S. attorneys pursuing cases in the states. His own U.S. attorney in Maine, whom he presented with information, was quite interested in the matter initially, but that faded.

Perhaps the biggest tell that the mishmash of investigations wasn't very serious was the lack of outreach to anyone with deep knowledge of the issues. Tom Ice, armed with the most comprehensive set of depositions on foreclosure fraud in the country, never got a call from investigators. Tom Cox sent his Jeffrey Stephan deposition everywhere, but had no takers. Jim Kowalski also sent information to Congress, to the Treasury Department, and to the FDIC, and heard nothing back. Securitization experts weren't consulted. Nye Lavalle wasn't consulted. Matt Weidner wasn't consulted. Max Gardner was, but he found that investigators were beginning from a blank slate, with no understanding of the modern mortgage system.

Lisa Epstein didn't feel like waiting. To her, the fifty-state investigation offered the best possibility for justice; the federal government was just playacting. So she built customized document bundles, state by state. For Illinois, she found fifty Linda Green forgeries on Illinois homeowners' documents. Then she assembled fifty California-specific Linda Greens, and so on. Lynn custom-built evidence files for attorney generals' offices, too. After Ohio's Richard Cordray sued GMAC, Lynn sent him hundreds of robo-signing examples. When Texas's Greg Abbott made a statement, Lynn had a bundle for him.

A foreclosure fraud blogger named Virginia Parsons had contacts in Hawaii state government. Lisa created a file of dodgy Hawaii documents, and even appeared via Skype at state legislative hearings in Honolulu. Some of the legislators maintained that, with federal banks servicing the mortgages, there was nothing they could do. “But this is Hawaiian land, these are Hawaiian people getting evicted,” Lisa insisted. “You have jurisdiction over your own land.” In May 2011, Governor Neil Abercrombie signed the toughest foreclosure law in the nation, based partially on Lisa's work. It mandated mediation between homeowners and banks, and required servicers to submit to the mediation board the full chain of title on the note and the mortgage prior to any foreclosure. Banks not negotiating in good faith or filing fraudulent documents could be heavily sanctioned.
Hawaii transformed from a state with fairly lenient hurdles for taking a house to one where banks had to follow the law.

Through the Roosevelt Institute conference in Washington, Lisa met a staffer for New York attorney general Eric Schneiderman. A former state
senator who took office in 2011, Schneiderman's initial pronouncements about foreclosure fraud stressed the need to bring people to justice. New York law governed nearly all securitization trusts, and state prosecutors wielded the Martin Act, a financial fraud statute with a relatively low burden of proof. Lisa sent some targeted New York materials to the staffer, and they wrote back asking for more. So Lisa sent more. Lynn held a conference call at her lawyer's offices in New York City with representatives from Massachusetts, California, Nevada, Illinois, and New York. Schneiderman's associates sent follow-up requests. Lisa and Lynn supplied different sets of evidence to separate contacts at the same office.