Chain of Title (32 page)

60 Minutes
even tracked down Linda Green in Georgia. She allowed herself to appear on camera but would not be interviewed. Pelley explained in a voice-over that she was a shipping clerk for an auto parts facility before becoming the vice president of twenty different banks. DocX, “a sweatshop for forged mortgage documents,” chose Green for the assignment because she had an easy-to-spell name. Chris Pendley, the whistleblower who had reached out to Lynn, also appeared. “You're Linda Green?” Pelley asked Pendley.

“Yeah, can't you tell?” Pendley said he signed four thousand documents a day as Linda Green, alongside others spoofing their identity for $10 an hour.

“Not much for a guy who's vice president of five banks,” Pelley said.

“Yeah, I was very underpaid for my status,” Pendley concurred.

Neither DocX's parent company, LPS, nor the banks who used their services would publicly respond. In statements, the banks blamed the mortgage servicers; of course, big banks owned the largest mortgage servicing companies. LPS said that they shut down DocX when they discovered improprieties. The FDIC's Sheila Bair, Lynn's old pen pal, appeared at the end to express astonishment, agreeing that “millions” of documents could be involved. She suggested a “cleanup fund,” like there would be in a natural disaster, compensating homeowners so they would accept the banks' ownership claims.

Forty homeowner activists gathered to watch that Sunday night at a house in West Palm Beach. They didn't think the cleanup fund sounded appropriate for an ongoing criminal enterprise. But they loved how the story so directly explained the fraud epidemic. It was obvious to them that a nationally televised exposé on an esteemed newsmagazine known for inspiring action would finally lead to justice.

19

WRIGGLING OFF THE HOOK

April 4, 2011

“The Next Housing Shock,” the
60 Minutes
foreclosure fraud story, would later win the prestigious
Loeb Award for excellence in business reporting. The day after it aired, Lynn had a hearing for the foreclosure case on her house. Her lawyer, Mark Cullen, passed on a message from the bailiffs: “Please tell Lynn we all support her.” And with Michael Redman, Michael Olenick, and Lisa Epstein watching,
Lynn got the case dismissed—without prejudice, of course, so Deutsche Bank could come back within thirty days and file again. But for a moment the hostility that normally greeted her arguments disappeared. That month homeowner activists praised Lynn at the foreclosure happy hour. Lisa and Michael passed out name tags:
everyone had the name Linda Green.

Lynn frequently received emails and letters and calls because of her Internet postings, but after the story the phone rang constantly, day and night, from Maine to California. Over two thousand people contacted her within a week. Neighbors knocked on her door. The postman knocked, too, and not just to deliver mail;
he
had a foreclosure issue. Few people congratulated her for exposing the fraud; these were mainly cries for help. Some homeowners wanted an introduction to Scott Pelley so they could tell their stories. They sent so many documents by email, it crashed Lynn's computer. And they made Lynn their confessor, spinning tales of misery about seeing their life's work ground to dust. In the darkest moments, they spoke of the relief suicide might bring.

Lynn helped as many as she could, spending long nights talking down homeowners who were determined to shoot it out with sheriffs coming to evict them. But she couldn't deliver peace to everyone. The psychological burden of being perceived as a source of salvation nearly cracked her. Lynn believed it would soon be worth it, because the
60 Minutes
story would make it impossible not to bring indictments. Prosecutors would have to charge LPS, and then they would go up the chain, finding out who at the banks authorized LPS to produce false documents. But despite her certitude, in the days following the broadcast Lynn fielded only social calls from her law enforcement contacts. There were no major announcements.

Hidden observers began to pay attention to Lynn. During practically every phone conversation she heard clicks on the line, suggesting another presence listening in. Lisa and Michael heard them, too; sometimes in the middle of a conversation a voice would say, “This message is being recorded.” An FBI agent from Atlanta grew angry after hearing the third party and demanded, “Are you recording my call?” Lynn said he must be the one recording it. The FBI agent suddenly changed his tone: “Hang up now.”

Lynn had eight months of emails sucked dry, zapped from her inbox—from federal prosecutors, her lawyers, fellow researchers, friends. No data recovery specialist could ever find them. Her car was broken into in her own driveway, in a community with an iron gate and security guards. The burglars took only the GPS unit. One night Lynn heard a loud beep, like a fire alarm, every thirty seconds. She called a local security guard, and they spent a half hour digging through landscaping, trying to find the source of the noise. “I'm sure it's the pool warning system telling you that your leaf basket is full,” the guard said. Lynn said she had no such system.

None of this was particularly unusual in the foreclosure fraud universe. Attorneys would tell Lynn about people burglarizing their offices and rifling through files. It was a throwback to her student radical days, when the FBI surveilled and tracked her across the country. But it didn't feel pleasant to be on the receiving end forty years later, and from private banks instead of the government.

Right around this time, Lisa received a bizarre-looking mechanical device in a package addressed to Michael. It smelled of kerosene and was
shaped like a ray gun from a low-budget science fiction film. Lisa didn't remember Michael telling her anything about it. She called Lynn, who asked her, “Do you think it's a bomb? Is it ticking?”

When Lynn picked Lisa up for a previously planned meeting, Lisa had the contraption with her to give to Michael. Lynn didn't want it in the car and exclaimed, “Throw it out the window!” But it turned out the device was a used automotive fuel-sending unit, which Michael ordered on eBay. Michael didn't have a permanent residence, couch-surfing with friends after separating from Jennifer and moving out of the house. So he told Lisa he would mail the device to her place, and she forgot about it.

Lynn remembered a key element of the FBI's counterintelligence program: to make targets suspect infiltration in their networks. She guessed those psychological operations manuals hadn't changed.

Two officials buoyed by Lynn's TV appearance toiled as obscure custodians of public land records. John O'Brien, register of deeds of Essex County, Massachusetts, first elected in 1977, compared the sleepy task of maintaining his office to running the public library. But he took pride in his stewardship of one of the oldest land registries in America. O'Brien had loudly protested the corruption of the county records since 2008, when a forensic examiner named Marie McDonnell ran a pro bono audit of a sample of 100 files, finding the majority of the documents to be invalid.
O'Brien contacted state attorney general Martha Coakley seeking funds for a full audit and demanding fees from MERS for unrecorded transfers. Coakley didn't respond for months.

O'Brien decided to go public, announcing he would no longer record fraudulent documents, making it nearly impossible to complete mortgage transactions. Banks started sending replacement documents to Essex County, with brand-new signatures and notarizations. O'Brien didn't buy it: “
I believe the banks' actions speak louder than words and show their consciousness of guilt.”

Down the Atlantic coast, Jeff Thigpen, a register in Greensboro, North Carolina (Guilford County), contacted O'Brien. They were a mismatched pair: O'Brien an irascible and boisterous Irishman, Thigpen a soft-spoken and deeply religious community activist who took the foreclosure crisis personally. When Thigpen was young, his father lost his leg in a farming
accident; the same year his mother went temporarily blind. The community rallied to save the family home, and later he committed his life to repaying that debt.

When Thigpen watched Lynn on
60 Minutes
, he grew sick with terror. Those phony documents were infecting his office.
Thigpen and O'Brien drafted an open letter, demanding all past and present MERS assignments be properly filed, to perfect chain of title and allow registers to collect lost fees. A few days later Lynn contacted them. She sent Thigpen fabricated documents from his own county, which led him to mobilize the office to search specifically for DocX/LPS files, the ones profiled on
60 Minutes
. Within a month they found 6,100 of them—processed for banks like Wells Fargo and Bank of America—4,500 of which had signature variations that suggested forgery. Some were dated after the Jeffrey Stephan revelations broke nationwide. In other words, the banks were
still
robo-signing, even while under investigation. Thigpen held a press conference, with Lynn and her poster boards at his side. He called it “
a betrayal of public trust.”

At a convention for county registers, Thigpen and O'Brien tried to get their colleagues interested in attacking fraud, with only scattered success. Most registers worked nine to five and just wanted to clock in and out without the burden of uncovering a national conspiracy. Thigpen sent his report to the attorney generals' fifty-state investigative committee; they never responded. All this damning evidence, millions upon millions of documents, was sitting around in courthouses and county offices. But nobody bothered to inspect the paper.

In fact, by February 2011 the media were eager to put a bow on a “global settlement” for foreclosure fraud. The
Wall Street Journal
said
the whole thing would cost $20 billion to $30 billion, mostly going toward a fund for loan modifications for struggling homeowners. The head of Missouri's Consumer Protection Division told a community meeting the fifty-state investigation uncovered “
a good deal of fraud” but found nobody to prosecute, an odd position to take amid negotiations. Critics noted there was already a $50 billion kitty for loan modifications, the government's HAMP program, and it wasn't working, because it relied on understaffed and venal mortgage servicers.
The proposed settlement sounded like HAMP 2.0.

Iowa activists again asked Tom Miller if he would “put people in jail,” as promised. He answered, “
I really feel I shouldn't talk about what's going to
be in the agreement.” In March Miller delivered a twenty-seven-page “
settlement term sheet” to the banks, featuring the modification fund and a series of standards for mortgage servicers to follow, mostly restating prohibitions that were already supposed to be illegal. There was no indication of what legal indemnification would be exchanged. Miller's fellow attorneys general didn't know about the term sheet until it was sprung on them at a scheduled meeting. At the time, no subpoenas had been issued, no depositions taken, no effort made to even talk to foreclosure fraud experts. The executive committee cobbled together unrelated reports about tiny samples of the mortgage market and extrapolated total liability from there. Nobody ever saw the underlying documentation from the reports, just the summaries. Michael posted the term sheet, commenting, “
Without CRIMINAL INDICTMENTS, there is no settlement.”

Activists found it difficult to acquire any hard information about the negotiations because the whole thing was run out of the White House, where officials believed a settlement could stabilize the housing market and remove uncertainty from mortgage servicers.
They described a tension between doing something quickly for homeowners who had little time to save their homes and doing something commensurate with the scale of the problem. But all mortgages included mandatory default servicing for delinquent borrowers; the proposed “penalty” of mortgage modifications would just force servicers to live up to existing obligations. And since the financial crisis, Washington had been far more preoccupied with the safety and soundness of banks than of homeowners.

That vaunted interagency review, with hundreds of investigators crawling all over the banks, concluded that all the foreclosures were warranted because the borrowers were behind on their payments. Nobody tried to address
why
borrowers fell behind on payments, which could have been due to predatory servicing. They didn't bother to look at chain of title issues or the systematic lack of standing to foreclose. And the investigation involved only
2,800 loan files (and, FDIC's Sheila Bair admitted later, only 100 foreclosures), in most cases evaluated by the servicers themselves. Despite this narrow scope, the review found “
critical deficiencies” in document preparation practices and “violations of state and local foreclosure laws.” The alleged propriety of the foreclosures did not retroactively make criminality legal.

In February 2011 JPMorgan Chase admitted that they indeed wrongfully foreclosed on active-duty military members, evicting them while they served in Iraq and Afghanistan. This violated the federal Servicemembers Civil Relief Act (SCRA), which carried jail time in the statute, but nobody ever suggested such a penalty.
JPMorgan acted swiftly, firing the executive in charge of mortgages, David Lowman, and giving servicemembers back their homes, debt-free. Other banks who violated SCRA went above and beyond to make amends, even setting quotas to hire veterans. But while servicemembers got justice, everyone else who suffered from similarly abusive treatment were on their own. Bloggers compared it to corporations who promoted environmentally friendly policies to engender public support. That was called “greenwashing”;
this was “camo-washing.”

In mid-April, a week or so after Lynn laid out the horrors on
60 Minutes
,
the Office of the Comptroller of the Currency and the Federal Reserve split from settlement talks and announced an enforcement action against ten mortgage servicers, LPS, and MERS. They ordered servicers to offer a single point of contact for homeowners and end the practice of “dual tracking,” pursuing foreclosures and loan modifications simultaneously. But mostly they just asked servicers not to break the law again. The regulators promised monetary penalties, based on an “independent review” of foreclosure files to determine borrower harm. Of course, the government just got done saying that everyone who experienced foreclosure deserved it. And the banks got to handpick and pay the reviewers. The orders, then, put
guilty parties in charge of determining their own punishment.

Activists considered the orders a toothless ploy to undermine the fifty-state investigation. But at least it killed the global settlement, the one check for banks to pay. And Lisa found nuggets buried in the interagency review, released by the Fed in conjunction with the enforcement order.
Page 3: “The reviews showed that servicers possessed original notes and mortgages,” confirming that critical documents were never conveyed to the trustee's custodian. Page 7: “Examiners noted instances where documentation in the foreclosure file alone may not have been sufficient to prove ownership of the note at the time the foreclosure action commenced without reference to additional information.” But then, sounding suspiciously like a cover-up: “When additional information was requested and provided to examiners, it generally was sufficient to determine ownership.” On that point, Lisa
noted “the financial sector's propensity to fabricate evidence.” You could almost picture it: examiners found deficient documentation and asked the bank for an explanation, and the bank magically produced the original note, just like they did in courtrooms. And the examiners, ignorant of such practices, sighed in relief.