Chain of Title (36 page)

The fact that the Florida attorney general's office hadn't issued a subpoena to any foreclosure fraud target since June and Theresa left suggested that they weren't committed to hard-charging prosecutions. In fact,
Richard Lawson told Scott Maxwell of the
Orlando Sentinel
that he'd rather work with companies to change their internal culture than penalize them.

Days after the release of the inspector general's report,
Lisa obtained confidential communications between LPS lawyers and the attorney general's office through a public records request. In June 2011 several states were discussing a civil suit against LPS, but
Michigan had issued more damaging criminal subpoenas. Joan Meyer, a partner with LPS's law firm Baker and McKenzie, emailed Victoria Butler in Tallahassee to “catch up” about the Michigan subpoenas: “These public announcements can deeply impact LPS's business operations and stock price. . . . Wondering if there's anything we can do,” Meyer wrote. Later that day, Meyer followed up: “
Sue Sanford from the Michigan AG's Office is going to call you about the State AG meeting with LPS. She may ask about converting her investigation from criminal to civil. If you are comfortable, please encourage her to join the civil group.”

So a month after June and Theresa's dismissal, LPS lawyers were encouraging Florida officials to lobby Michigan to reduce charges, even as LPS was under active investigation in Florida.

On Citizen Warriors Radio that weekend, Lisa summed it up. “
It's a simple cover-up of the fact that these attorneys were ousted because the targets and their attorneys are very powerful, and they did not like the investigations.” From Tallahassee to Washington, the power elite seemed to want to put this sad chapter in American history to bed.

On January 24, 2012, President Obama delivered the final State of the Union address of his first term. The First Lady's box always included dignitaries, from public officials to ordinary Americans the president planned to highlight in the speech. This year one of the guests was Eric Schneiderman.

“
Tonight, I'm asking my attorney general to create a special unit of federal prosecutors and a leading state attorney general, to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis,” Obama announced to applause. Schneiderman stood and clapped as the president winked in his direction. “This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”

Across town, in a dimly lit hotel room, Kamala Harris, attorney general of California, looked out the window, the address on TV in the background. She wanted to be the “leading state attorney general” in the First Lady's box that night. But Schneiderman had outmaneuvered her.

The Residential Mortgage-Backed Securities (RMBS) working group was the culmination of a strategy Schneiderman and his top officials had crafted for months. They believed a settlement was inevitable; the president was desperate to make a show of force against the banks as he headed into his reelection campaign. So Schneiderman's chief of staff, Neal Kwatra, created the Campaign for a Fair Settlement, in association with longtime allies from New York's Working Families Party, to build outside pressure for a better deal.

Many coalition partners in the campaign had memberships of struggling homeowners needing immediate assistance. They weren't focused on the consequences of elites being allowed to break the law while merely paying back a sliver of their profits as a penalty. Schneiderman's team didn't think robo-signing and false document submissions were big enough transgressions to get homeowners what they needed. They covered up what he considered the real crimes of mortgage origination and securitization—“the lending and packaging of risky mortgages,” as Obama put it. So Schneiderman's team negotiated a two-step process: first get federal buy-in for an investigation of pre-crisis conduct, where he could pull from multiple state and federal agencies to exert maximum pressure on Wall Street; then reach a narrow settlement on false documents and servicer abuse, securing relief for homeowners in the process.

Schneiderman was one of five co-chairs of the RMBS working group, housed inside a Financial Fraud Enforcement Task Force that had done little in two-plus years. Other co-chairs included federal officials who
previously worked for banks, including Lanny Breuer (Justice Department/corporate law firm Covington & Burling) and Robert Khuzami (Securities and Exchange Commission/Deutsche Bank). In fact, Breuer and Khuzami were already on the task force and authorized to investigate bank misconduct for years;
why would they do it now? But Schneiderman's advisers vowed to critics that if the government tried to kill or slow-walk the investigation,
he would bolt in the showiest, most public way possible, letting everyone know who was responsible for the lack of prosecutions.

The Campaign for a Fair Settlement front organization fell in line, praising the working group. For some reason, everyone claiming to want to hold banks accountable was thrilled with the foreclosure fraud investigation resulting in little more than a
second
investigation. The attorneys general Schneiderman led in opposition had no leverage once he made his deal. Nevada's Catherine Cortez Masto asked her strike force to review the release of liability, and John Kelleher recommended she reject it, calling it overbroad and vague, arguing it would harm their ability to bring criminal prosecutions. The next day Masto signed on, despite the recommendation. As for California's Kamala Harris, the White House told her they were fully prepared to move on without her; holding out would only hurt her constituents. Michael changed his Schneiderman graphic, replacing the white hat with a black hat. The sheriff had become the villain.

On February 9, 2012,
state and federal regulators announced the National Mortgage Settlement with the five largest mortgage servicers: Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and GMAC.
Forty-nine states joined, all but Oklahoma, which didn't believe the banks should pay any penalty. In exchange for releases from liability on robo-signing and other forms of foreclosure fraud, along with numerous servicing practices like fee pyramiding and driving homeowners into default—components of the largest consumer fraud in history—the banks agreed to pay $25 billion. That was the same number offered a year earlier, which
Eric Schneiderman said at the time would let the banks off cheap.

Only $5 billion was in cash, with $3.5 billion of that going to the federal government and state-based mortgage relief programs. The remaining $1.5 billion in cash would go to victims of foreclosure in an estimated $2,000 “sorry you lost your home” check, a paltry compensation for the wrongful seizure of their property. Officials earmarked $3 billion for refinancing
underwater homes, and the other $17 billion would get paid out through consumer relief credits. For every dollar of mortgage principal reduction, banks would get a dollar of credit. But they could also get partial credit for short sales (where banks agree to allow homeowners to sell for less than the price of the mortgage), post-foreclosure housing assistance, and even anti-blight measures like donating homes to charity or bulldozing properties. Banks performed these activities routinely, and none of them helped save homes. Yet they could comprise over one-quarter of the penalty; principal reduction only had to come to $10 billion.

Banks could also get credit for modifying loans in mortgage-backed trusts owned by investors, paying their penalty with other people's money. They could route loan modifications through HAMP, and take HAMP incentive money
with
their punishment. Homes owned by Fannie Mae or Freddie Mac, the majority of the market, would be ineligible, because the government didn't want those agencies taking more losses. Homeowners benefited from the settlement only if they met random criteria beyond their control. The five servicers would also have to comply with a variety of new standards, but the Consumer Financial Protection Bureau was readying similar standards for industry-wide adoption anyway.

Headlines touted the largest corporate payout since the tobacco settlement. HUD secretary Shaun Donovan said
one million borrowers would get mortgage balances cut. But at the time there was $700 billion in negative equity in the country, and this deal wouldn't cover more than a sliver of that. In fact, the Treasury Department had twice as much money designated for mortgage relief in HAMP as there was in the settlement.

Banks had been caught red-handed submitting false documents to courts, with millions of documented examples, and law enforcement treated it like a man catching a too-puny fish and throwing it back. No one bothered to investigate the misconduct, instead charging banks $2,000 for every family they threw into chaos and leaving it at that. That evidence would be unusable in future cases; Nevada couldn't go up the food chain from LPS and nail servicers for fraudulent documents. Ongoing foreclosure fraud using previously submitted forgeries and fabrications would be effectively legalized, or at least beyond the reach of state and federal prosecutors. And nobody would see a jail cell. Sure, officials swore that they still reserved the right to pursue criminal charges, but the reaction to that varied between
chuckles and hysterical laughter. Individual borrowers could still challenge their cases, but their resources were far smaller than those of the banks. This is why attorneys general existed, but in this case they abdicated their responsibilities, knuckling under to those who really wielded power in America—Washington and Wall Street.

Amid the morass, there was one silver lining. The government folded a bunch of lawsuits into the deal, relieving banks of as much liability as possible. Among them were five whistleblower cases: appraisal fraud at Countrywide, fair lending violations, underwriting inaccuracies, and more, all lumped in as
violations of the False Claims Act. One of those cases came from Lynn Szymoniak. Her
qui tam
suit retrieved $95 million for the U.S. government, and under the law,
she would receive $18 million of that herself.

21

LISA'S LAST STAND

Lynn learned about the $18 million from her lawyers, but the news didn't go public until National Mortgage Settlement term sheets were released in March 2012. Everyone offered congratulations: Lisa, Michael, Damian, Matt Weidner. She was officially gracious—“
It's very satisfying to recover this money for the government,” she told the
Huffington
Post—but privately, she wished the payout would go to homeowners who needed it. The situation was almost farcical: five banks paid the government $95 million for filing FHA insurance claims based on false documents, but those documents could still be used to remove people from their homes.

Lynn's own mortgage company proved this.
Deutsche Bank removed Mark Elliot from the case, but a new law firm, corporate giant Akerman Senterfitt, decided to depose Lynn again. The meeting featured nine plaintiffs' lawyers and two armed guards, as if Lynn presented a threat. Though Lynn's original allonge was supposed to be affixed to the note, she discovered years earlier that it had no staple holes or signs of attachment. But during the deposition, Akerman's lead lawyer pulled out the allonge, and it did have staple holes. Days earlier Akerman filed an order to release the allonge from the court file; not being idiots, Lynn and her lawyer, Mark Cullen, went to the courthouse and took close-up photos of the allonge, in case Akerman tried to doctor it. Which they did.

“I knew you would do this, you lying cheats!” Lynn bellowed as the camera videotaping the deposition rolled.

“Who do you think did what?” the lawyer answered with mock surprise.

“You did it, you counterfeits! But guess what, we took photos of this, so you're caught!”

The Akerman lawyer pulled back and stuttered, “Well . . . why didn't you disclose ahead of time that you took photos of the allonge?”

“
That's
your question? I don't believe this.”

Reuben Guttman, the lawyer from the
qui tam
case who watched the deposition, told Lynn it was his all-time favorite.

In that same deposition, Akerman asked Lynn to identify everything she remodeled in the home. The application for Lynn's original refinance stated the purpose of the loan as “home improvement.” It did not obligate her to any dollar amount for that purpose. But Lynn answered the question: she reconfigured the bathroom for her late mother, installed new floors, and did pool and lawn maintenance. Within a few days,
Akerman said they wanted to depose pool maintenance staff, landscapers, contractors, and plumbers. Mark Cullen filed a motion for protective order, calling it a frivolous attempt to harass the defendant. But Diana Lewis, the notoriously pro-bank judge, accepted the argument that Lynn potentially lied about home improvements on her loan application.

Everyone drove ninety minutes west to depose Lynn's contractor, a personal friend who installed her floors. Akerman's lawyers demanded information about every job the contractor held since high school and every detail about the installation. “Was Lynn Szymoniak ever late paying her bills?” The contractor replied that he lost past invoices in a hurricane.

“Isn't that convenient!”

“Look,” spat back the contractor, a big ex-firefighter, slapping the table. “If you want to call me a liar, say it to my face! Don't do this chicken-shit stuff!”

The Akerman lawyer started shaking so much he dropped his list of questions.

Lynn didn't want to validate these tactics by paying off her house, but she saw no other options in the Palm Beach County court system. If anything, the courts had grown
more
hostile to homeowners after revelations of robo-signing and false document pleadings. You couldn't walk into a courtroom, assert that evidence had been falsified, and expect anyone in
authority to care. So Lynn mentally set aside a big chunk of cash to buy peace.

The National Mortgage Settlement waived so many predatory servicing practices that a lot of people were astounded that such companies remained in business. Beyond the illegal fees, force-placed insurance scams, dual tracking, lies to borrowers seeking loan modifications, and lost paperwork was a basic inability to perform, euphemistically described as “
failing to maintain accurate account statements.” A HUD inspector general report released with the settlement documents reviewed a sample of thirty-six JPMorgan Chase foreclosures and found incomplete or incorrect information on what borrowers actually owed in
thirty-five of those cases. That report was among the most extensive federal investigations of mortgage servicing, and it still only examined a handful of files. But managers who oversaw the 97 percent error rate didn't have to resign in disgrace. In fact, no servicer had to admit wrongdoing. Falsifying documents and stealing from customers are serious criminal offenses in any other legal context, unless you're a bank.

GMAC, which by then changed its name to Ally Bank, succeeded in cutting its fine in half based on “an inability to pay it,” Reuters reported, making the National Mortgage Settlement one of the first “
pay what you can” corporate penalties in American history. Ally doled out dividends to the U.S. government on its Troubled Asset Relief Program funds while crying poor to settlement negotiators.

Negotiators never mandated that cash awards to the states had to go to mortgage relief. So, one by one, states started using the money to fill holes in their budgets, from Wisconsin to California to, of course, Florida. By the end,
nearly half the penalty—over $1 billion—got sucked into state budgets, leaving homeowners expecting free counseling or modification programs with nothing.

The most shocking wrinkle in the term sheet concerned “threshold error rates.” Servicers received indemnity for a certain amount of violations of settlement standards, including illegally taking someone's home. For most standards, the threshold error rate was 5 percent. So servicers could break the law on one of every twenty mortgages they serviced, or 90,000 of the 1.8 million foreclosure filings throughout 2012, with nobody able
to do anything about it. Since servicers self-reported their own errors and could appeal findings of noncompliance, far more fraudulent foreclosures could be made undetected.
The settlement codified predatory servicing.

Many state lawsuits, including Ohio's against GMAC and Nevada's against Countrywide, were
folded into the settlement. But justice didn't roll down from the other lawsuits carved out.
Eric Schneiderman filed a last-minute suit against MERS and three banks but quickly settled the case for $25 million. After years of litigation, Massachusetts's
Martha Coakley got only $2.7 million from banks who foreclosed on homeowners without standing. Illinois's Lisa Madigan agreed on a
$350,000 settlement with Nationwide Title Clearing. Delaware's
Beau Biden settled with MERS for $0 and promises that the company would no longer sue for foreclosure in their name and record assignments prior to foreclosure—things MERS already voluntarily agreed to do.

Catherine Cortez Masto's case against LPS had perhaps the most humiliating outcome. In May 2012 John Kelleher was abruptly taken off the Mortgage Fraud Strike Force, in what Masto called a “realignment.” Within a month he left.
The facts came out in an affidavit provided to the court. Kelleher was himself a foreclosure victim; just like Lisa Epstein, his servicer told him to miss payments and put him into foreclosure after he did. Saxon Mortgage served him with papers in January 2011, before the criminal fraud case against Gary Trafford and Gerri Sheppard. Kelleher alleged in his affidavit that he was being considered for a loan modification the entire time, but the defense found
a notice of default taped to Kelleher's door on September 7, 2011. The notice came from LSI Title, one of the many names used by Trafford and Sheppard's document processing company. Defense attorneys argued that Kelleher, in a vindictive rage, bullied Tracy Lawrence into testifying before the grand jury and accepting the plea bargain. Kelleher claimed that he never saw the notice from LSI Title until after Tracy Lawrence's death, and when he did, he informed the attorney general and recused himself from the case. But it was too late.
The judge dismissed the charges against Trafford and Sheppard entirely.

John Hueston, Trafford's lawyer, who previously represented Ken Lay and Jeffrey Skilling in the Enron trial, called the defeat a “
complete embarrassment.” But he made more revealing comments to Law360 about the impact
of Tracy Lawrence's death. “
When we first got involved in the case we realized the critical witness was no longer with us,” Hueston said.

Kelleher believes he was pushed off the strike force for getting too close to prosecuting the banks, like June Clarkson and Theresa Edwards in Florida. After he left, former colleagues were told not to speak to him. His replacement closed all pending mortgage investigations. Kelleher ended up running a martial arts studio for three years before finding another lawyer job.

Lisa had almost run out of financial reserves, so within months the fulltime activism would have to stop. And yet she didn't feel she was through pursuing a justice that never seemed further away. She would tick through scenarios for possible redemption. Maybe the Schneiderman task force could devise some fertile prosecution strategy. Maybe judges would suddenly sanction the fraudsters. Maybe some media exposé could awaken the dormant conscience of a nation. Or maybe there were just a few homeowners left to help; even that would be worth it.

A lot of her activism filtered through Occupy Palm Beach; she and Lynn ran several “teach-in” events on foreclosure fraud. One day in March 2012, Tom Conboy, a local Democratic Party activist, attended their presentation, and grew furious: “What is our clerk of courts doing about this?”

Since 2004 the Palm Beach County clerk of courts was a Democrat named Sharon Bock, a bleached-blond doyenne with a plastic smile. Bock told the
Palm Beach Post
she had no authority to reject fraudulent documents, despite the clerk's responsibility to maintain integrity of public records. Other land records officials, like John O'Brien in Massachusetts and Jeff Thigpen in North Carolina, loudly publicized the crime scenes in their offices.
Curtis Hertel, a register of deeds in Oakland County, Michigan, sued Fannie Mae and Freddie Mac for failure to pay recording fees on property transfers;
Thigpen had just sued MERS. But Bock viewed her job narrowly; in fact, in all the time Lisa had been going to the courthouse, she never saw Bock there. “I've practiced law here for thirty-two years and I can't get a fifteen-minute meeting with Sharon Bock,” Lynn said.

“Well, we need someone to run against her,” Tom Conboy replied.

Lynn smiled. “I nominate Lisa!”

Lisa thought they were nuts. She had spent years learning about foreclosures and securitization and the judicial system, and now they wanted
her to learn about election laws and fund-raising and campaigning? And though she'd grown more comfortable in the spotlight, the idea of running around seeking votes filled her with unease.

Yet something about it also appealed to her. She relished getting control of the fraudulent evidence, joining the activist clerks resisting more powerful officials who wanted to put this tragedy in the past. And it wasn't just about foreclosures: fabricated assignments and satisfactions put all real estate transactions at risk. It would be enormously challenging—
Palm Beach County had 1.3 million residents, stretching an hour east to Belle Glade and back. Lisa knew she would have a slim chance against an entrenched incumbent. But somebody had to keep up the fight. Something inside Lisa kept whispering,
You're not done
.
So she announced her intent to run in the Democratic primary.

Lisa's first priority was to figure out what a clerk of courts actually did. Through foreclosure work, she knew a defense attorney in the Jacksonville area whose husband was a deputy clerk of courts. Michael and Lisa went to his office and shadowed him for two days, learning everything about how land records were kept, stored, and distributed. Lisa soaked up information about file management systems and digital document retrieval strategies. In Palm Beach the clerk of courts also served as the county's chief financial officer. So Lisa researched county investments and accounting practices. But days after filing her intent to run, Lisa heard from Mark Alan Siegel, chairman of the Palm Beach County Democratic Party. Sharon Bock wanted to meet.

They planned lunch at the Broken Sound Club in Boca Raton, a posh golf and tennis resort where Siegel was a member. Tom Conboy attended as a go-between, along with Lisa, Lynn, and Michael. They entered the main lobby, a four-story rotunda dominated by an undulating pink sculpture that looked like stacked seashells. Siegel greeted them and took one look at Michael. “Blue jeans in the dining room,” he said with clear disdain. “That's going to be a problem.”

“Okay, we can eat on the patio!” Lynn offered cheerily.

“No, I'll take care of it,” Siegel interrupted.

As they walked into the fancy dining room, they saw ladies in casual tennis outfits and bikinis with sarongs. “Some dress code,” Michael snickered.

The group reached the table. Sharon Bock, seated between two deputies and wearing a sharp white suit, stood up and smiled broadly. Lynn thought this lady had on more makeup than she had ever seen on a human being.

“It's nice to see you, Sharon,” Lynn said, “I've been trying to meet with you for four years.”

“No,” Sharon replied with deep sincerity, “I would have known.”

Everyone got settled, with Sharon fishing lipstick out of her purse and laying it on the table. As the meeting began, Sharon reapplied her lipstick carefully, and continued to do so after almost every bite of lunch. It was like she would melt away into a puddle without a full plastering of ruby red.

Mark Alan Siegel, who represented Manhattan in the New York State Assembly in the 1970s and 1980s, laid on the charm as thick as Sharon's makeup. “You've all raised so many important issues. How can we be helpful?” he asked. The implication was clear: what would it take for Lisa to go away?