Chain of Title (39 page)

Aside from the woeful consumer outcomes, the basic architecture of a law enforcement settlement presumes that the activity being settled stops.
But robo-signing, document fraud, and predatory servicer abuse continue unabated. All the foreclosure fighters got out of years of fraud exposure was another weak investigation.

One thousand FBI agents and prosecutors brought bank executives to justice after the savings and loan scandals of the late 1980s. By contrast, months after the inauguration of the vaunted securitization task force co-chaired by Eric Schneiderman, the New York
Daily News
noticed that it had
no executive director, no offices, no phones, and no staff. In congressional testimony, Securities and Exchange Commission enforcement chief Robert Khuzami let slip that “
most of the investigative work . . . is not really being done by a staff that belongs to the task force, it's being done by the individual investigative groups that make up the task force.” In other words, the task force didn't exist; it was a repository for press releases about existing cases.

In 2013 and 2014,
the task force secured several headline-grabbing settlements with big banks like JPMorgan Chase, Bank of America, and Citigroup, all of which knowingly sold to investors mortgage-backed securities that failed to meet prescribed underwriting guidelines. Investors, the actual party harmed by securities fraud, saw none of the benefit; the top beneficiary of the cash awards was the Justice Department. The settlements netted nearly $37 billion, but they had what writer Yves Smith called
a high “bullshit-to-cash” ratio. For one, they were tax-deductible, meaning that ordinary taxpayers effectively paid part of the fine. “Consumer relief”
portions of the settlement allowed banks to get penalty credit for loan modifications they were already doing, and even for making loans in low-income communities, a profit-generating activity. It was like sentencing someone convicted of stealing to opening a lemonade stand. When you weeded out the bullshit,
the $37 billion fine looked more like $11 billion.

Schneiderman's lieutenants vowed that the task force investigations would result in outcomes “an order of magnitude” bigger than the National Mortgage Settlement, but they simply didn't. Chain of title issues or REMIC tax fraud—the biggest sources of exposure on securitization, both of which Schneiderman talked up before the task force got started—were never on the menu. And despite swearing that all options remained on the table, the task force never issued one criminal subpoena. The banks bought their way out of the problem cheaply, and those paying the penalty were the shareholders, not the executives who helped generate the largest destruction of wealth in American history.

The Obama administration has ignored banks that lie to people, and prosecuted people who lie to banks.
Theresa and Joe Giudice, stars of the
Real Housewives of New Jersey
, obtained mortgages with fraudulent applications, and they went to jail. Four different federal agencies worked on that case. Meanwhile,
Lanny Breuer and Eric Holder, the Justice Department leadership who presided over this disparity, went right back to the corporate law firm, Covington & Burling, from which they came. The firm even held open a corner office for Holder while he was attorney general, as he negotiated settlements with banks that were Covington & Burling clients.

America is a punitive nation, the most incarcerated nation on earth. If you're caught stealing a soda or smoking a joint, we'll put you away for way too long. But if you commit systemic crimes—if you hand out millions of fraudulent mortgages, package them into fraudulent securities, fail to complete fraudulent securitizations, engage in fraudulent servicing, and evict homeowners with fraudulent foreclosure papers—you can get away with it. Many have theorized why the banks would be so cavalier as to break the housing market just to make a few extra dollars. And the answer is proven by the outcome: because they knew they
could
, without serious consequences. We don't have a justice system with the will to convict everyone, regardless of wealth and power. And that ensures that the wealthy and powerful will keep committing crimes.

In Jacksonville, determination against concerted resistance from Washington led to the only major prosecution for foreclosure fraud.
Lorraine O'Reilly Brown, founder and CEO of DocX, which produced over a million fraudulent assignments and affidavits for mortgage companies, was indicted in November 2012 on conspiracy to commit mail and wire fraud. Apparently this was a conspiracy of one, because the indictment claimed Brown directed the document forgery and fabrication scheme “unbeknownst to DocX's clients.” In other words, mortgage servicers contracted Brown to fake evidence so they could prove standing to foreclose, but they were shocked that she would, you know, fake the evidence. Servicers may not have known the precise mechanics of the DocX fraud, but that's because they wanted a layer of plausible deniability.

LPS wiggled out of criminal indictments by paying $35 million in a non-prosecution agreement and cooperating in the Brown conviction. According to the complaint, LPS was unaware of this DocX scheme and fired Brown when they discovered what was occurring, despite performing the same fraud at multiple other facilities. It's not like Brown invented robo-signing. In fact, the indictment confirmed that “surrogate signing,” authorizing temps to forge the names of senior employees on foreclosure documents, was illegal, though LPS defended it as legitimate for years.

Brown's biggest sin was lying to Jacksonville FBI agents and being expendable after LPS cut her loose. She pleaded guilty, with concurrent convictions in Missouri and Michigan. John O'Brien, the register of deeds in Essex County, Massachusetts, received a call from assistant U.S. attorney Mark Devereaux asking him to testify at the sentencing hearing. O'Brien tried to recoup $1.28 million from Brown, to clean up
the 10,567 polluted DocX land records filed with his office. Devereaux called him back, saying the judge wouldn't accept the claim, because registers were not victims. “What do you mean, we're not a victim?” O'Brien exclaimed. “We're the ones with all these false documents!”

“No, the bank is the victim,” Devereaux replied.

Lynn went to Brown's sentencing hearing. Jeff Thigpen, register of deeds from Guilford County, North Carolina, testified. Judge Henry Lee Adams asked Jeff if he sought restitution, and he replied, “I'd like it but I realize I'm not going to get it.” The judge asked Devereaux who would replace all these false documents in registers' offices. “Well, that's where we—that's
where we get a lot of issue here,” Devereaux stuttered. “
I don't know how you fix that.”

Prosecutors revealed that the FBI interviewed over seventy-five DocX employees in the case, with forty-five agents taking statements from homeowners who lost homes via DocX assignments. Jeff could sense the frustration that all that work amounted only to putting Lorraine Brown in jail; everyone else was protected. Brown cried in court, apologizing repeatedly. Her lawyer argued that the government was prosecuting his client for activities the banks did on a regular basis. But the judge showed no leniency.
Brown got five years, the maximum sentence.

Lynn told Devereaux after the guilty plea that she still watched people lose their homes to DocX documents, because nobody required the courts to be notified. Devereaux replied that he hoped bank lawyers would disclose that information. “I hope you're kidding,” Lynn said. At the hearing, Devereaux wouldn't look her in the eye. But Lynn decided to feel relief instead of frustration. At least someone went to jail for falsifying mortgage documents, proving they were real crimes punishable by prison time, not “sloppy office work.” But Brown was a convenient scapegoat, the PFC Lynndie England of foreclosure fraud. Nobody else went to jail because the misconduct was so pervasive that the entire banking industry would have to pay the price, and Washington couldn't let that happen.

After it ended, Lynn called up one of her FBI friends and thanked him for convicting Lorraine Brown. There was a long pause. When the agent finally broke the silence, he said, “I don't think the taxpayers were well served.”

In a lush backyard surrounding a swampy south Florida lake, prehistoric-looking birds periodically dive-bomb the water in search of food. Every few minutes, planes roar upon takeoff at the nearby West Palm Beach airport. Michael Redman tosses some shrimp on the grill and lights citronella candles to keep the mosquitoes away.

Michael started renting the renovated back house on this lot a couple of years ago. It's just one room with a bed and a couch and a kitchen, but it's adequate for him, and for his daughter, Nicole, when it's his turn to take care of her. He likes the backyard oasis, hiding out in the shadows, where he wants to be. He has no mortgage and expects to never have one again.

A few months back, a new family moved into the main house. Michael said hello to the wife and asked what she did. She said she represented banks in foreclosure cases. “Some of this stuff, I can't make it up,” Michael tells me. “She's doing exactly what I'm doing, only the opposite.”

Every day Michael travels an hour to Fort Lauderdale, to work at the law offices of Evan Rosen. Evan was the only attorney who showed up at Lisa and Michael's rained-out Homeless for the Holidays protest, something Michael never forgot. Lisa hooked on with Evan first, doing side research and docket checks. Evan later reached out to Michael and they made a deal over lunch. Michael handles client intake, along with preparing discovery requests and depositions. Of course, Michael runs Evan's website; sometimes he'll cross-post stories to
4closureFraud
, which remains online, though not as active.

West Palm Beach is about halfway between his job in Fort Lauderdale and where his ex-wife, Jennifer, lives. In 2014 she executed a short sale on the property in Port St. Lucie, the dream house that started Michael down this path. Jennifer stayed around Port St. Lucie, and Michael won't move closer to work, because he'd be too far away from his daughter. So he logs a lot of hours on I-95. He joked about applying at Ocwen, the mortgage servicer headquartered up the street: “I've wanted to go undercover for so long.”

Michael expected to be co-directing the Housing Justice Foundation with Lynn and Lisa. The three foreclosure fighters talked about the nonprofit a lot; Lynn even supplied details like the building site and insurance status, things Michael would never care about if he wasn't part of the team. Even when Mark Elliot and Rachael moved into Lynn's condo and Michael had to move out, he found another place downtown, close to the offices. But the partnership never materialized. I ask Michael if he felt strung along. He would only reply, “Things ended up working out for the best.”

Michael attributes the decline of
4closureFraud
to the death of Google Reader. All his keyword searches and news feeds were wiped out, and he never quite figured out how to replace them. Plus there was less urgency to cover every detail of foreclosure nation anymore: after a while it just felt pointless. The site still looks the same, the Carol Asbury ad replaced with a bigger one for Evan Rosen. But he can go weeks without writing, unlike the daily grind of the activism years. Instead of trying to save the nation, Michael has pulled back, trying only to save one Florida homeowner at a time.

It can be difficult.
Too many judges in Florida, and really nationwide, aren't willing to enforce the full panoply of the nation's property laws. A securities lawyer put it to me this way: Judges like to avoid big legal issues whenever possible. Why bring foreclosures to a standstill if they can find an escape route? Besides, the judges come from the same class as the plaintiff lawyers, not the homeowners. Even when those lawyers openly lied to them and defiled their courtrooms, they couldn't bring themselves to sanction them if it meant giving some deadbeat a free house.

I attended a mock court session Evan Rosen coordinated to teach sixteen defense lawyers in Fort Lauderdale. Rosen played the bank attorney and his colleague played the judge. The biggest innovation banks have made in judicial foreclosure states has been to bring the fraud into the courtroom. Instead of having a robo-signer create an affidavit attesting to the validity of the foreclosure, a professional “robo-witness” walks into court and testifies to the accuracy of the records. For the mock court, Lisa and Michael were the robo-witnesses.

The robo-witness knows as little about the case as the robo-signer, having read the documents a moment before testifying, if at all. They are hired from low-skill temp jobs, with no record of bank employment. They have no firsthand knowledge about how the payment history was generated, whether the note was properly endorsed, or whether the plaintiff has a complete chain of title. The only difference between them and robo-signers is that they look the part. “The witnesses are actresses,” Michael told me. “They hire somebody to parrot a script. If you actually trained them to know anything, it would cost money.”

The strategies Rosen taught didn't hinge on fraudulent evidence or standing to foreclose. Those crimes are off-limits in Florida courts these days. You may get a win on a missing delinquency letter—April Charney's old defense, nailing servicers for failing to inform borrowers how to cure a default. You could maybe hit the plaintiff for not presenting documents as evidence before trial, or violating another courtroom procedure. You could argue that the account statement provided was a summary and not a full loan history. You had to play around the edges to find something the judge would accept, to make them think they'll look smart if they align with the defense.

The mock judge kept overruling defense objections. “This trial is going on no matter what,” she said, smacking down a challenge. It was an accurate
depiction. Florida judges are mostly plumbers now, flushing through cases to clear the clog. Banks convinced judges that the only path out of the crisis was to throw people out of their homes. And they convinced the legislature to help make that a reality. After years of false starts and Rallies in Tally,
the state did pass a law to speed up the foreclosure process, though it was so poorly written that it actually slowed foreclosures down at first. But in a bizarre irony, Florida allocated $36 million from the National Mortgage Settlement, intended to aid homeowners, to fund high-speed foreclosure courts for another three years. Bank penalties finance homeowner evictions. The new rocket docket has a mandate to clear 256,000 foreclosure cases a year.
One judge in Broward County closed 786 cases in a single day, mostly final judgments against homeowners. Florida homeowners in foreclosure have two adversaries: their lender and their government.