Chain of Title Read online

  Over nine years in the D.C. area, Lisa built her freelance nursing business, helping patients balance hopes of recovery with the realities of the life cycle. She had lived in the region since early childhood, and while she wasn’t too interested in politics, she grew accustomed to the dynamic, politically charged environment. Plus D.C. had another side: a storehouse of experts with accumulated wisdom on virtually every topic. Whenever she found herself in the District, Lisa would find a lecture on something she knew nothing about. Away from the stress of caretaking, it was nice to decompress and enter an unknown world.

  But these were also restless years for Lisa. Every fall, when the leaves changed color and the clouds rolled in, she would feel a powerful rush of sadness, bursting into tears for no reason. These days they call it seasonal affective disorder, but Lisa never gave it a name. She just recognized the need for a change of scenery. So in 1997 Lisa decided to head to Florida for the winter. The state had three renewable resources: alligators, palmetto bugs, and the elderly, and the last meant that nurses never had trouble finding work.

  After writing a few letters, Lisa got offered a temp job at a chemotherapy infusion center at Good Samaritan Medical Center in downtown West Palm Beach. The work sounded grueling, but Lisa focused on three syllables: Flo-ri-da. She packed a bag, locked up her apartment in Maryland, and drove down I-95.

  A week or so after taking the job, Lisa strolled outside the cancer center on her lunch break, and under a cloudless sky she sat on a seawall in front of the Intracoastal Waterway. Palm trees lined the waterfront; the view seemed to go on for miles. Lisa felt the sun on her face and listened to the dull hum of the water cresting against the barricades. Her legs dangled below the seawall, her head raised to meet the light.

  She never left Florida again.

  Nearly every day that first year, Lisa would come home from work (the temp job soon became permanent), change into a bathing suit, and stroll along the beach, the spray from the Atlantic Ocean hitting her bare toes. She missed the fast-paced lifestyle in D.C.—she even subscribed to the Sunday Washington Post to keep up with the news. But the sun and the sand provided ample reimbursement.

  Lisa initially stayed with family—her mother’s parents lived in the area—then rented a townhouse recommended by a patient. Within a couple of years she wanted to put down roots, a major decision. Lisa had always been conservative with money. She stashed away her paychecks, clipped coupons, and skipped extravagances. Her hobbies included such inexpensive pursuits as reading and walking. This gave her sterling credit and plenty of savings for a down payment. While Lisa hesitated at the commitment attached to homeownership, she determined that Florida was where she wanted to be.

  Real estate agents routinely tried to upsell Lisa. She gave them a price range, and they would show her houses 25 percent above it. So Lisa cut her price range by 25 percent and was then shown places within her limits. That meant a lot of condos and a lot of junk. Lisa had two non-negotiables: a balcony and a view of the water. “I don’t care what it looks like on the inside,” she’d tell the agents. They’d smile and show her a snappy two-bedroom with granite countertops, where if you stood in the corner of the balcony and leaned out far enough to the left, you could maybe spot a tiny lake. The foray into home buying just wasn’t working out.

  Then Lisa read in the newspaper about a 700-square-foot one-bedroom, owned by a retired couple who loved the place but wanted to move from the fifth floor to the second to make things easier. Lisa went out to see the 1960s-era white building, known as the Royal Saxon, at the southern tip of Palm Beach. The interior resembled an old hotel just past its prime, and the apartment was definitely small. But the balcony looked directly onto the Intracoastal Waterway, with swaying palm trees and the bridge to Lake Worth on one side and boats tied up on a little dock below. Though she would be the youngest tenant in the building by about thirty years, Lisa instantly pictured herself there.

  There was one problem. The apartment was a New York City–style co-op. Instead of obtaining a mortgage, purchasers take out loans to buy shares in a corporation that owns the entire building, enabling them to occupy one of the units. These “share loans” include the cost of maintenance and upkeep, much like a homeowners association fee. Tenants don’t own their residence when they complete the mortgage payments, but they own a stake in the property, which they can sell at the market rate.

  Share loans are often cheaper than traditional mortgages, but because of their uncertainty—for example, defaults by one resident can force others to carry their costs—lenders steer clear of them, particularly in places like Florida, where they aren’t widely used. That’s what happened to Lisa, whose preapproved financing collapsed.

  The retired couple liked Lisa. Or maybe they liked the idea of adding some youth to the building. So they financed the property themselves. In December 1998 Lisa put down $25,000 cash and signed a private, fifteen-year fixed mortgage with her neighbors for $56,000. Every month she would walk down three flights of stairs and slide her payment under the door. She never dealt with a mortgage company and never had to take out a separate homeowner’s insurance policy, as her neighbors bundled it with the monthly payment. Lisa’s local “banker” lived in her building, and they agreed to a mutually beneficial private deal. No hidden fees, no adjustable-rate mortgages, none of the innovations of the past forty years of financial services. There were maybe a dozen mortgages like this left in America.

  Lisa had backed into a nice little life: a job she enjoyed, the respect and appreciation of her patients, the view of the water. And then she met Alan in an America Online chat room. Both Alan and Lisa were middle-class Jews raised in the Northeast, reinventing themselves amid the sunshine. Lisa introduced Alan to her brother, who ran a business reselling mobile phones and equipment, and Alan began to work with him. A closeness soon blossomed between Lisa and Alan, and they quickly fell in love.

  Very early into the relationship, while not explicitly trying to have a child, Lisa and Alan stopped trying to prevent it. The tug of motherhood pulled Lisa into her life’s next phase. In the fall of 2002 she became pregnant. The couple made plans to marry and beamed with joy. But twelve weeks into the pregnancy, Lisa was at work when she found a pink spot on her clothing. Hours later, at the hospital, the obstetrician couldn’t locate the baby’s heartbeat. It took surgery to extract the fetus; Lisa’s body wouldn’t let go.

  Despite their profound grief, Lisa and Alan did marry. And it took three years—a period of much heartache, guarded hopefulness, and expensive fertility treatments—before they conceived a second time. After enduring so much, Lisa was thrilled to have life growing inside her again. She was forty-one and knew this would be her final pregnancy. She smiled every time the baby kicked and when she got to see her little arms and legs on the sonogram.

  And then Alan tried to sell Lisa on moving.

  Lisa and Alan lived in Lisa’s one-bedroom co-op. The place could barely fit two people; Alan considered three out of the question. He started telling Lisa he wanted their daughter to grow up in a typical American home, with her own room. Lisa felt like the motivation wasn’t simply greater comfort but a sense of duty, what you could call “white picket fence syndrome.” People get married and have a child and move into a big house. Society dictated that, and everyone had to play by the rules.

  “For people all over this world, this would be paradise,” Lisa argued, pointing out how families lived in New York with two kids and a dog in a studio apartment. Maybe in a couple of years, after the baby started walking, after they built up more equity, it would make sense to move, but not now. Lisa had her view of the water, and she didn’t want to give it up. But Alan was insistent.

  It was early 2007 when Lisa and Alan started looking for a new place. Whatever Lisa remembered about the housing market when she bought her apartment did not correspond. Stories about real estate mania were legendary in Florida. Turn on the radio or television, pass by a bus stop, and the messages bomb
arded you: New homes! Great opportunity! Buy now! One day Lisa drove by a row of people in tents, lined up in front of a trailer on an empty tract of land. These were prospective buyers, camped out for two or three days to pick their preferred spot on a grid of new construction. In Florida during the housing bubble, every day was Black Friday.

  As Lisa and Alan began their search, however, things were a little less frenzied. Where advertisements once stressed urgency (Don’t miss out!), now they highlighted deals (Was $400K, now $350K!). The professionals pitched it as a moment for bargain hunting, “a great time to buy.” Lisa wondered if they would ever consider it a bad time.

  In truth, the housing bubble had begun its long decline. If you scanned the back of the business pages, you knew it. Ameriquest, one of the biggest mortgage lenders in the country, abruptly closed all its retail branches in the middle of 2006. New Century Financial, another giant, faced a huge cash shortfall that summer, and would go bankrupt the following spring. Homeowners felt the crunch as well; foreclosure rates doubled within three years. For most ordinary Americans, even prospective home buyers, these warning signs stayed far in the background. And you could still find optimists among economic analysts. As Federal Reserve chair Ben Bernanke testified to the Joint Economic Committee in early 2007, “The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” In other words, there would only be one foreclosure wave, not two, flushing out only those who bought too much house and borrowed too much money. Young families with steady incomes, like Lisa and Alan, didn’t have to worry.

  But while Ben Bernanke didn’t foresee a crisis, Florida home builders knew the machine that had sustained profits for the last decade was seizing up. They needed to dump their remaining homes before the market collapsed. Subdivisions halfway through construction suddenly listed all their properties for sale. Developers hired landscapers and quickly poured asphalt for streets. They cut prices to reel in shoppers and flush inventory off their books. Those looking for homes thought they were smartly buying low, but they were actually the last unsuspecting souls lured into the housing bubble’s trap. Lisa didn’t pay much attention. She was pregnant, still working full-time, and low on energy.

  One day Alan asked Lisa to stop by a house on Gazetta Way, in a brand-new gated community built by D.R. Horton, one of America’s largest developers. She made the trip to the development, twenty minutes west of the Atlantic Ocean, down one of the wide boulevards that seemed to stretch endlessly through south Florida. The homes inside the gate looked gargantuan, dwarfing the tiny, just-planted palm trees scattered about. To the left was a standard item in Florida subdivisions: the giant, purposeless manmade lake, with a fountain shooting water skyward. Lisa called Alan and asked if he was sure the house was on Gazetta Way. “These look like college dorms, not homes!” Alan assured her she was in the right place.

  The model Alan picked out was the most affordable on the block. But Lisa frowned before walking inside. Despite the relative modesty—neighbors’ homes towered close on either side—the house was almost three times the size of her co-op. The front door opened to a giant room with high ceilings that Lisa found pointless. Mazelike corridors spilled into bedrooms split between opposite sides of the house. Lisa hated the idea of having to walk through the giant unusable room to attend to her child in the night. The kitchen had no windows, but the bedroom windows looked directly into the neighbor’s property, with zero space in between. Lisa thought she could reach out her hand and actually touch the neighbor’s house, at least if the windows would open.

  Lisa stepped outside to a tiny backyard patio bracketed by two saplings, and a few feet beyond that was a thin canal containing something resembling a liquid substance. It hardly compared to Lisa’s view of the water. Everything about the house seemed rushed and slapped together. She had no interest in the place. But Alan did, and so did his parents, who encouraged the house hunt. Lisa felt outnumbered and exhausted, so she just went along.

  They made a plan to buy the house and then sell the condo. Lisa was eight years into a fifteen-year mortgage, and thanks to sometimes paying extra principal, she only owed about $25,000. Meanwhile, the value of the condo had shot up. They figured they could get at least $250,000 for it and put the proceeds toward the new house, with a small mortgage left over. It wasn’t a reckless idea; growing families stepping up into bigger homes had used the same strategy for decades. And the bubble-era price spike would theoretically work in their favor on the condo.

  To lock in the house, however, they had to close the deal first. So on February 23, 2007, Lisa and Alan sat down at DHI Mortgage, D.R. Horton’s financing subsidiary, to sign the closing papers. They put $17,000 down for the house on Gazetta Way, 5 percent of the purchase price, and took out a mortgage for the remaining $313,000. Because Alan’s phone reseller business had unpredictable revenue, the couple decided to use Lisa’s superior credit score—803 at the time—and put the loan in her name. And Lisa, eight months pregnant, told the loan officer, much to his surprise, that she would read every page of the mortgage before signing it.

  The problem was that she had to pee. A lot.

  The closing agent, representatives from the builder, and Alan had to wait while Lisa perused the mortgage, line by line, in between trips to the bathroom. She could get through about five pages at a time before excusing herself.

  Lisa’s only experience with mortgages was the private one with her neighbors. That was a simple fifteen-year fixed-rate deal; this was much more complicated. Despite her perfect credit, DHI Mortgage put Lisa into a loan reserved for subprime rather than prime borrowers. To keep initial payments low, it was interest-only for the first ten years. After that, not only would principal payments get added and the mortgage reamortized over the final twenty years, but the interest rate would adjust upward. The monthly payment would end up hundreds if not thousands of dollars higher. Financially speaking, it was a time bomb set to explode in ten years, by which time DHI Mortgage would have made plenty of money.

  The interest-only terms meant the couple would build no equity for a decade, beyond the 5 percent down payment. Once closing costs were factored in, a small decline in home value, maybe 3 percent, would put them underwater. That would create a precarious situation if they experienced any financial disruption. As prominent financial analyst Josh Rosner said back in 2001 when these types of mortgage products started coming out, “A home without equity is just a rental with debt.” But Lisa wasn’t aware of these downsides. Reading through the mortgage was more of a formality, a way to appear responsible. She didn’t have the background to decipher it all, and in the back of her mind she gave herself an out: Lisa was planning to sell the apartment and use the money to pay down the mortgage significantly. So whatever those pieces of paper said wouldn’t apply. When she reached the last page of the mortgage, she signed it.

  Only later would Lisa and Alan realize their mistake. They could not sell the co-op, whose value would eventually drop by more than 60 percent. Every week Lisa would call the listing agent, and every week she’d hear the same thing: no bidders. Lisa slid the mortgage payment under her neighbors’ door at the Royal Saxon once a month, then came back to write a check for the house. The couple had enough savings to handle two mortgage payments for a little while, but not forever.

  In March Jenna was born, and Lisa considered all the hardship of bringing her into the world worth it. But when she was eighteen months old a new pediatrician found a birth defect on Jenna’s lower spine, something her old doctor had dismissed as nothing important. The new doctor requested an MRI, which led to the diagnosis of spina bifida. Her vertebrae were tethered to the bottom of the spinal cord, pulled tight as a rubber band. Without treatment, the stretching would aggravate over time. The barrage of tests and doctor’s visits took Lisa out of work periodically. Jenna’s doctors recommended surgery to correct the malady, and between that and aftercare, Lisa and Alan were looking at thousands of
dollars in medical bills. At the same time, as the housing bubble popped, businesses throughout Florida failed, including the cell phone reseller. Alan lost his job.

  The cascade of financial and emotional pressures overwhelmed the young couple, their relationship suffering the collateral consequences of the mounting pile of debt. Compounding this was the fact that Lisa and Alan dared not tell family or friends about their money troubles. Anybody in Florida in 2007 could recognize a foreclosure crisis if they paid attention—a moving truck in the driveway, packed boxes on the curb with a crude sign attached reading “Free”—but you’d almost never hear about it in public. Neighbors who lost their homes drove down property values, which led to more foreclosures and more drops in home prices. So people had powerful reasons to keep to themselves, to try to solve their problems in isolation, lest they be identified as the source of the community’s downward spiral. As a result, the foreclosure wave swept through Florida practically in silence.

  In January 2008 Lisa made some calculations and determined she could pay the mortgages on the house and the condo for nine more months. After that she would need financial help for the first time in her life. She called her mortgage company, hoping it could modify the payment or work something out. Though Lisa had taken out the loan with DHI Mortgage, early on she was advised to mail payments to Chase Home Finance, a division of JPMorgan Chase, one of America’s biggest banks. The whole thing always seemed a little suspicious. But JPMorgan Chase’s stature encouraged Lisa about the prospects for assistance. The company boasted of its “fortress” balance sheet. When the investment bank Bear Stearns failed in March 2008, government officials solicited Chase to buy it. Lisa read about other banks failing left and right, but Chase seemed secure. Surely it had some smart people who could make this all work.