Authors: David Dayen
Chain of Title (11 page)
But Alina insisted on keeping that group private. First of all, she didn't want to publicly reveal their litigation strategies to the world. Second, most group members weren't attorneys, and Alina feared violating statutes outlawing the unlicensed practice of law by giving advice. Finally, there were many scammers at foreclosure-related websites, “rescue” specialists promising to fix everything for a thousand dollars up front. Alina didn't want her resource center infiltrated by crooked lawyers with nefarious ideas. So she closed the loop.
Lisa thought the email group solved only one of the problems. Yes, she could communicate with other researchers and work on projects. But she couldn't reach out to the newly foreclosed, the confused, the lonely. Without someone urging them on, they would only hear the dominant cries of “Deadbeat, deadbeat,” and become too cowed to fight back. Those people needed a lifeline. The only hesitation Lisa had was a reluctance to enter the spotlight. She hardly wanted to become the face of foreclosures in America; she never really wanted to be known to anyone but family, friends, and patients. But the times demanded that she step up and do this work.
Lisa had limited computer skills and no aptitude for putting together a website. So for $50 she hired a web developer she found on the Internet. The main feature Lisa wanted was a chat room, where people could gather to discuss their foreclosure cases. The web developer suggested a software platform called Ning. Dave Lehoullier, a fellow
Living Lies
commenter and foreclosure victim with some Web experience, agreed to help out as a troubleshooter and tech guru. Lisa named the site
Foreclosure Hamlet
, with a
double meaning:
hamlet
as in a village or community, and
Hamlet
as in the Shakespearean tragedy. (She quoted the play in several early posts, including these lines from Act I, Scene I:
“And then it started like a guilty thing / Upon a fearful summons.”)
Foreclosure Hamlet
launched in late September 2009, with the tag line “Supporting, Informing and Connecting People in Foreclosure.” It was pretty spare: no images, no ads, just a white background and simple text. Lisa filled the site with disclaimers:
“This Blog is NOT to be viewed as a source of competent legal advice. . . . We are NOT attorneys.” Users had to pick a screen name and an avatar, giving them their own page on the site. They could post blog entries, submit questions to the forum, or comment on other people's posts. But the chat room was the centerpiece, a town hall where foreclosure victims could connect and find help, the avatars serving as people's faces. Lisa kept it on in the background all day long, and greeted everyone who entered. Some raised questions about their foreclosure cases, but others weren't that advanced; they had stumbled into the site off a Google search and just needed someone to talk to.
Lisa quickly discovered she would need moderators to get useful dialogue. Too many familiar types descended on blogs: the salesmen, offering services that Lisa had no way of verifying; the Internet trolls, who seemed to spring up everywhere, posting off-topic rants about everything from black helicopters to sex; the bullies, who took time out of their day to torment foreclosure victims. So Lisa found volunteers to scan the site and weed out the genuinely unhelpful. Dave Lehoullier filled in as a moderator, and Lisa also recruited Andrew Delany, who had talked the woman at
Living Lies
out of suicide.
Once Lisa organized
Foreclosure Hamlet
, she penned a few blog posts, as a lure for visitors to write their own. While legal motions in her case required a formal style, these were more freewheeling, allowing Lisa to draw on a previously untapped flair for writing. “I know this is starting from the middle, but that's the best I can do until I get the background posted,” Lisa wrote in the site's first post, October 6, 2009.
When I get those large white envelopes in the mail, notifications of yet another filing from FDLG (Florida Default Law Group AKA Florida's Top Foreclosure Mill), an immediate sick feeling descends upon me like mercury; heavy,
metallic, dangerous, toxic. I wonder, who am I, a simple working mother, to stand up against these attorneys in the lofty halls of the judicial system.
Then, 24 hours pass, and I regain my footing and my resolve to defend myself. I cope. I read. I Google. I search. I think. I research. I focus. I write a filing.
The post got twenty-one views. It was a start.
To those paying attention, September 2009 represented a turning point in the foreclosure fraud story.
The Kansas Supreme Court decided the case of Boyd Kesler, who sold his house in bankruptcy to his original lender, Landmark National Bank. A second lien on the home was held by a separate lender, with MERS, the electronic database, named as the nominee, and no assignment recorded at the county office. The court ruled that since the MERS loan was never recorded, the lender was not due proceeds from the bankruptcy sale. In other words, MERS had no interest in the property. By implication, the electronic registry could not foreclose on Kesler's loan, either; it was as if the lien didn't exist in the eyes of Kansas.
The Arkansas Supreme Court made a similar ruling. If replicated across the country, it would question the true ownership on millions of mortgages.
Tragedy accompanied the triumphs. On September 29, an angry homeowner in Phoenix refused to leave his foreclosed property and threatened the new owners with a gun. Police were dispatched, and after a standoff, the homeowner was shot and killed. The man,
Kurt Aho, reportedly shared a beer with a neighbor earlier that day, saying he wanted to die after losing his home.
“May God watch over this man's family,” Lisa wrote in the comments. But Michael, who had switched usernames from “Fraud in FL” to “Foreclosure Fraud,” instead dug up the homeowner's documents. “I have been searching the Internet and public records for over a year now,” Michael wrote, “and you wouldn't believe how many hats these people wear. I have seen hundreds of documents all using the same players assigning mortgages over to the lenders they work for using MERS as their shield.”
Lisa, who was in touch with Michael through email, sent him a message asking him how he found the mortgage documents from Arizona. Michael sent her back an explanation of how he searched and what he looked for in the documents.
“Would you think about putting together a guide,” Lisa wrote back. “Because this is great information. A lot of people are going to be asking you for this. It's going to be a lot easier if you just write it up.” She offered to post the guide on her website.
Years later Michael would blame Lisa for getting him involved in all this.
Michael Redman doesn't want you to know who he is. He never did. Anytime he could separate himself from the outside world, he'd take the opportunity.
He came to Florida, like many before him, to sever links to the past, to mold a new life. Michael grew up along the Jersey Shore, in Toms River and Seaside Heights. Snooki and The Situation were
tourists
; living along that stretch of sand all year long, outside the frame of reality-show cameras, proved rougher. Michael's parents split up when he was young. He bounced from one home to another and mostly grew up on the streets. Lots of friends ended up either in jail or dead.
When Michael was a senior in high school, some buddies went to Florida for spring break; he was working and couldn't join them. The friends came back and told him they'd had a blast. That summer, 1993, Michael turned eighteen, and escaping New Jersey sounded pretty good. So did a place where nobody knew him. In a car stuffed with clothes and records and with $1,500 in his pocket, Michael, his girlfriend, and an acquaintance of hers drove down I-95 for two days straight. They kept going until they hit the exit for Boynton Beach Boulevard, as good a place to stop as anywhere else.
Michael's first impressions of Florida were in terms of color. The Jersey Shore was gray and drab; Florida was bright yellows and pinks, shades of rejuvenation. Outside of summer, you would hardly see cars driving through Seaside Heights; Florida felt alive.
Michael and his girlfriend bunked with a friend while they sought an apartment. They had no credit and no jobs. And though Florida welcomed
fresh-faced young adults every year, landlords and employers didn't always take kindly to transients. Michael and his girlfriend spent all their cash just on the security deposit. He picked up shifts at a nearby restaurant and tried to acclimate to new surroundings. Before long the girlfriend split, and Michael found himself alone, waiting tables and spending many nights watching ballgames, just him and a six-pack. It took Michael a while to make his own luck.
Motorola, the phone and pager company, had their world headquarters in Boynton Beach, across the street from Michael's restaurant. One day he walked into the lobby and announced himself. “Are you guys hiring? Because I work across the street, and it sucks.” The company actually had a job fair scheduled the next week. Michael landed a gig in the factory, making pagers on the graveyard shift. Despite lacking a college diploma, he picked things up quickly. Within seven years he moved into software development, heading up one element of the company's Y2K bug strategy and living the corporate life. The job even took him to Russia for a month, working out of frigid Vladivostok, the military gateway to the Chinese border. Michael loved it at Motorola. He had a parking pass, a bonus package, a health care plan, every accessory for the Organization Man. It was a mailroom-to-the-corner-office success story.
And then in 2001 the layoffs began. Michael got innovated out of a job; with the release of the BlackBerry and more advanced cell phones, nobody needed a pager anymore. First the manufacturing center closed, then engineering, then research and development. All 3,500 workers were eventually laid off, and
the Boynton Beach campus shut down in 2004. It was later converted into a giant
retail and residential development called Renaissance Commons, which after the crisis would slip into foreclosure.
Michael never expected a corporate job, but he was chastened by its loss. Young and unsure of his future, he took a break from working, spending his nights carousing and blowing through his severance package. On one of those nights out, he met Jennifer. She was a third-generation Floridian, and something about her signaled stability, roots, the comforts Michael hadn't known his entire life. They started dating.
When the severance ran out and the party ended, Michael had to figure out his next step. He excelled in a respectable industry; by his logic, he could really shoot up the ranks in a terrible one. Michael remembered how impossible
a time he had buying a car a while back; that business could use some help. He hooked on at Carmax, industry leader in online auto sales. Michael ran the company's Internet department for a couple of years. Though he stayed behind the scenes, he also had a knack for promotions. In 2003 a team from Boynton Beach won the Little League World Series, and Michael pitched Carmax on a parade celebration, piling the team into thirty used cars and driving around town honking and shouting. The horn in Michael's car didn't work by the end of it.
Next Michael became Internet manager at Earl Stewart Toyota, a family-owned-and-operated outfit in North Palm Beach, one of the most successful local auto dealers in the country. Earl and his three sons owned the business and made themselves completely accessible to their employees. Red phones around the office were direct lines to Earl's cell phone; he would answer any question at any time of day. They charged no dealer fees, a rarity that kept prices well below competitors.
Michael built the Internet sales and marketing operation from scratch, leading a team of six. They ended up generating more volume from the Internet business than the storefront operation. Michael loved the power of the Web, how things could go viral and reach millions, how your credentials or personal history didn't matter. There's a saying that on the Internet no one knows you're a dog. This appealed to Michael tremendously.
While Michael was still at the Toyota dealership, he and Jennifer purchased a home together, a 1,200-square-foot wood-frame number in Lake Worth, twenty minutes from Michael's office. The unmarried couple kept the house in Jennifer's name. Michael would pay the mortgage but didn't want his fingerprints on the deed. And while he wore a wedding ring and considered Jennifer his wife, the couple never got an official marriage certificate; in the eyes of Florida, they were unmarried partners. Michael was always cautious.
The bubble was already inflating by 2004. Michael and Jennifer would get handwritten notes in the mail from real estate agents inquiring about buying the house. Michael's in-laws played the house-flipping game. They pooled all their savings and constructed a $4 million waterfront mansion on Manalapan Island, an oceanfront luxury getaway south of Palm Beach. They filmed part of the movie
Body Heat
on Manalapan, and it had a sultry feel and the smell of new money. Don King and Yanni lived there. Michael's
in-laws planned to stay in the mansion for a while and then sell it, securing their retirement from the proceeds. The stratagem worked, but it took longer than expected. When the in-laws got out, it was late 2005.
Jennifer's parents moved from Manalapan to Vero Beach, an hour and a half north. At the same time Jennifer got pregnant, and she wanted more space for the family than the little Lake Worth cottage. She had her eyes on Port St. Lucie, about midway between Palm Beach and Vero Beach. Michael could still work at the Toyota dealership, and the baby could be near the grandparents.
Port St. Lucie and Vero Beach were on the Treasure Coast, so named after divers found precious trinkets among the wreckage of a Spanish fleet lost in a hurricane in the early eighteenth century. During the bubble years the treasure sat onshore: Port St. Lucie was perhaps the biggest real estate boomtown in America. Michael did like the control factor. He and Jennifer could purchase one of the city's plentiful vacant lots and build their dream house to exacting specifications. They could put the light switches where they wanted them. They could pick the moldings, the style of the windows, the roof shingles, and the built-in shelves. They could invest in their future.
A few years earlier, lots in Port St. Lucie went for around $5,000 a half acre. By 2005 that swelled to $50,000 and rising. Michael and Jennifer finally chose a lot for $75,000, but the financing didn't clear in time for the closing date. A week later they bought land two lots down and paid $15,000 more. The couple took out a construction loan for $280,000, to build a house that might have been worth half that in a normal market. It was steep, but Michael thought they could manage. Again Jennifer signed the papers. Michael had everything else in his name, from the auto loan to the credit cards. If things went south, he figured he could ditch other obligations to pay the mortgage.
As work began on the Port St. Lucie dream home, Michael and Jennifer put their Lake Worth house on the market. But in early 2006 the fish weren't biting in Florida real estate, compared to the prior feeding frenzy. Nobody bid on the house for three months, raising Michael's anxiety level. One day he and his wife sprawled on the couch after a sparsely attended open house. “This is not going well, we're going to get screwed,” Michael ranted. Right at that moment, a hugely pregnant woman showed up at the front door and grabbed a flyer. She returned the next day with her husband and put in a bid.
Michael and Jennifer bought the house for $140,000; they sold it three years later to that couple for $260,000. Michael guesses it's worth $60,000 today.
He thinks a lot about that young couple, so pleased to find their starter home. They probably went out that night and celebrated. Little did they know how rapidly they would be trapped inside a four-walled nightmare. Michael never kept up with the couple, but he could guess that they fell into foreclosure, and he couldn't help but feel a little responsible. Maybe they would have bought someone else's home, but they bought Michael's. Hearing their names makes him sad.
In June 2006, five days before their daughter, Nicole, was born, Michael and Jennifer moved into their new home in Port St. Lucie. A friend of Jennifer's converted the construction loan into a mortgage; before becoming a real estate broker, he fought fires. That was Florida in the bubble years; selling homes proved more lucrative than a public service job with a pension.
The conversion operated like a refinance. The ex-firefighter sold Michael and Jennifer an 80/20 loan, with a first lien for 80 percent of the mortgage price and a second lien for the remaining 20 percent. Michael and Jennifer paid with two separate checks. A wholesale lender named AmNet issued the mortgage, but they immediately flipped it to Washington Mutual, which then sold it to Freddie Mac. So Michael's loan was not securitized by a private Wall Street bank. Around this time, Freddie Mac jumped into the subprime and Alt-A markets, seeking to recapture a greater share of the housing market. They purchased the first lien; Washington Mutual remained the loan servicer.
Things floated along for a couple of years. The baby took her first steps. Jennifer scored a part-time job after maternity leave. Michael sold more cars than ever during Florida's boom years. Lawns were mowed and furniture dusted. The family led a normal, happy life. And then, in January 2008, they received a letter from Washington Mutual: “We are sorry to inform you that we miscalculated your escrow for the past two years.”
In the mortgage contract, AmNet calculated property taxes based solely on the land value before construction. But two years later the servicer reassessed, taking into account the value of the home and making the amount due retroactive. This was the first Jennifer and Michael heard of a retroactive reassessment, and it added $600 a month to the $1,600 payment. If they
had known the projected monthly payment at the time, they might have declined the mortgage.
Had house prices not exploded and then burst, Michael and Jennifer could have sold the house and paid off the loan. But instead they bought at the top of the bubble and were now desperately underwater. They had a newborn, with all the expenses that implied, and Michael's job relied on auto sales amid a tanking Florida economy. The family savings mostly went toward the new home, and they couldn't afford to pay 35 percent more than they budgeted on the mortgage.
Michael contacted Washington Mutual, requesting that they roll the payment back to the original amount quoted at signing. But WaMu had no interest in being charitable. Michael and Jennifer used their tax refunds to buy some time, but they knew they would only have about nine months before money would get tight. Jennifer believed strongly in paying her bills, but Michael saw no other choice. They couldn't continue to make this higher payment, and they weren't getting anywhere with pleading. Michael understood it was easy for him to say “stop paying,” because his credit wasn't on the line. But eventually Jennifer had to forget her pride and give in to reality.
Michael devised a plan. He would put the $1,600 mortgage payment, the one they could afford, into a safe. He “paid” the mortgage there, in cash. When they straightened things out with Washington Mutual, they could draw on the nest egg to pay past due amounts.
The couple stopped paying the bank in September 2008, just as the U.S. economy teetered and credit seized up nationwide. The same month, Washington Mutual collapsed in the largest bank failure in American history. The federal government brokered
a sweetheart deal for JPMorgan Chase to purchase WaMu and its $310 billion in assets for just $1.9 billion.
A few weeks later, Chase sent what is known as a breach/cure letter to Michael and Jennifer. This indicated that the missed payment violated the loan terms, and if the couple failed to cure this breach within thirty days, the loan would be accelerated, with the principal balance, all back payments, and late fees due under threat of foreclosure. Usually letters like this didn't come until three months of delinquency; Michael reckoned it had something to do with the liquidation of Washington Mutual.
According to the letter, JPMorgan Chase was now the creditor, having assumed the loan when they took over Washington Mutual. But Freddie
Mac owned it originally: WaMu was just the servicer. Unless Freddie sold it to Chase at some point in the past few weeksâa highly unlikely scenario amid the current upheavalâthis was impossible.
Michael started poking around the Internet for answers, stumbling upon the reports of none other than Nye Lavalle. He learned about predatory servicing and securitization FAIL and the Great Foreclosure Machine. And he read
Nye's report about Ocwen employee Scott Anderson, who would pass himself off as a vice president for multiple banks. Michael found Nye's phone number in one report and rang him up. Nye listened politely but ultimately blew him off; he got dozens of calls every week, a side effect of being outspoken about illegal foreclosures in a time of crisis.