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  Nye was hooked on exposing banking industry fraud, and years of setbacks wouldn’t stop him. In his career, he always peered to the edge of the horizon and brought back the future. Now he saw tsunami waves on that other side, and he felt obligated to warn people. Nye started serving as a consultant and expert witness for some foreclosure defense lawyers who embraced his theories. Through those cases and additional reports, Nye believed, he could educate lawyers, judges, and the general public. It was hard to get people to listen; even Nye’s friends would tease him, calling him Chicken Little, asking when the sky would fall. They stopped laughing when it did.

  Nye left a trail a mile wide, so anyone could see what he called “the fraud of our lifetime.” When the truth came out, as he knew it would, the corporate accountants, bank directors, judges, and federal regulators could not say they weren’t informed. What would really bring down the whole charade, Nye thought, was the Internet. Without a way for people to talk to each other, banks could squash dissenters. But if victims could coordinate, and expose the fraud for themselves, everything would come crashing to the ground.

  5

  THE COMMUNITY

  If Lisa Epstein was going to act as her own lawyer to fight her foreclosure, she figured she’d better observe the process. Once Jenna was well enough, Lisa returned to work, but shifted into a four-day-a-week schedule, reserving Fridays for the courthouse. On Craigslist Lisa found a babysitter named Mary Delaguila, who coincidentally lived on Gazetta Way, the same street as her foreclosed home. Every week she would pack a lunch, drop Jenna off with Mary, and drive to downtown West Palm Beach.

  Bounded by the Intracoastal, downtown shimmered with fancy new buildings, as if a county commissioner happened upon a windfall of cash and decided its best use would be to make a giant movie backlot. The 1980s postmodernism of the eleven-story Palm Beach County Courthouse, all aqua and pink and granite and mirrored windows, fit the dominant aesthetic. The original courthouse, across the street on Dixie Highway, had traditional classical features; its replacement had the sobriety and seriousness of a shopping mall.

  The last time Lisa stepped into the courthouse was to get her marriage license. Passing security, she reached the fourth floor, where one judge heard every foreclosure case in the county. A white folding table sat outside courtroom 4A, with well-dressed lawyers snaking down the hallway and back. Others loitered on their cell phones or hurried between floors. The bulletin board listing the day’s cases in tiny type must have had a hundred docket actions scheduled. Lisa walked up to the entrance to courtroom 4A and put her hands on the door, whispering to herself, “Okay, God, let’s see what we can do.”

  The small, wood-paneled courtroom had just a few benches, packed with lawyers awaiting trials. Lisa could not find anywhere to sit, and struggled over to the back wall. Plaintiff and defense counsels each had a small table and a podium, with a staging area in the back, almost like an on-deck circle for future cases. The judge sat in front of the official seal of Florida, with her assistants and the bailiff off to the side. The place was so thick with murmuring that Lisa couldn’t always make out if any business was taking place. What she did manage to hear, she didn’t fully understand.

  Nobody in attendance looked like a homeowner, nor did their needs seem addressed by the obscure maneuvers on display. In the morning, the judge made motions and set future schedules; she also affirmed plenty of summary judgments, ruling for the plaintiff without a trial, based on glancing at the motions and supporting evidence for a few seconds. Veteran defense lawyers later told Lisa they almost never saw a summary judgment in any other area of the law; the judge would usually figure there had to be a fact worth proving in the case file. But in the foreclosure division, summary judgments were almost the norm, with homeowners evicted with all the effort of buying a soda.

  In the afternoon were the trials, which were seldom, because virtually no homeowner mounted a challenge. If foreclosure defense attorneys showed up, most had little trial experience and would jump at any deal they could get, no matter how piddling. A trial with counsel often did not last more than a few minutes; as long as the judge heard the magic sentence “Your honor, the defendant is in default on their mortgage,” material facts seemed not to matter. Pro se litigants put up more of a fight, but the judge appeared exhausted, if not outraged, by their mere presence. Even if the defendant managed to get the case withdrawn, the judge would almost never grant dismissal with prejudice, so plaintiffs could always refile. Servicers could try over and over again to foreclose, only needing approval once; homeowners lose any case and they lose their home. Some began to use a nickname to describe Florida foreclosure courts: the “rocket docket.”

  Lisa took notes in a composition book, then made her way to the file room on the third floor. This long, narrow room had a desk separating visitors from the clerks, with paperwork-lined shelves behind them. By this time Lisa had several files to check, not just her own. A couple of her new online friends were local, with cases in the Palm Beach County system. Her babysitter’s in-laws had a problem with an underwater home. Even patients approached her for advice. Just by talking about foreclosures online or in public, Lisa became a valued source for desperate homeowners searching for information.

  She had enough facility with her own documents to recognize what to look for in others. And many of the same discrepancies were evident: assignments dated after the foreclosure filing, the use of special document processing companies, the ubiquitous presence of MERS. She also pulled a couple of dockets she had just seen in the courtroom, tying together the motions and rulings. On many occasions the plaintiff’s complaint purported to have the promissory note attached, but it was nowhere in the file.

  Whitney Cook and Christina Trowbridge, the vice president and assistant secretary for MERS on her mortgage assignment, kept popping up on other homeowners’ documents. Sometimes Cook and Trowbridge were representatives of MERS, sometimes JPMorgan Chase, sometimes Chase Bank, sometimes U.S. Bank, and sometimes Chase Home Finance.

  It cost a dollar a page to photocopy files, and Lisa had no budget for this project. So she transcribed what she could and copied only what was absolutely necessary. The next week she brought in her Acer laptop and a portable scanner and started to scan the documents herself. The file clerk stopped her and said that was against court policy. “What is the policy?” Lisa asked. The clerk said she would discuss it with her supervisor, and Lisa heard nothing for months. All the while she scanned on the sly.

  That summer of 2009, Lisa became a familiar presence at the courthouse. On Fridays she dressed professionally, always accessorized with a signature scarf. The rest of the week she would arrive in hospital scrubs. The cancer institute was a mile down Dixie Highway. Lisa estimated it took twelve minutes to walk from work to the courthouse, or seven minutes to run. Twelve minutes up and twelve minutes back gave her thirty-six minutes out of her lunch hour to scan files or observe hearings; if she ran, she’d get a bonus ten minutes. At first Lisa stopped by once a week; after a while she was there practically every lunch hour. There was always another theory to test, another case to watch, another file to check out. And she got really good at researching and identifying patterns of fraud.

  Bailiffs started to recognize Lisa, along with attorneys from either side. She would meet homeowners in the hallways and tell them to observe court proceedings, talk to other borrowers in trouble, work together to solve the crisis that had befallen their communities. The only way to fight back, Lisa believed, was by relying on each other.

  Amid the suffering of the 1930s, communities banded together to fight foreclosures, particularly in rural areas. T.H. Watkins’s chronicle The Great Depression explains how farmers would disrupt their neighbors’ foreclosure auctions. They would bid low, no more than a few dollars. Anyone who attempted a more robust offer would feel the cold hand of the biggest farmer in the yard on his shoulder; that bid would be summarily withdrawn. The winning bidder would sell the farm back to the orig
inal owner for the pittance. As Watkins writes, “So it was that in the fall of 1932, an $800 mortgage on Walter Crozier’s farm outside Haskins, Iowa, was satisfied for $1.90, or that the horses, cows and chickens offered for sale at Theresa Von Baum’s farm near Elgin, Nebraska, went back to her at a nickel apiece, for a total of $5.35.” Sustained action led to several foreclosure moratoria throughout the Midwest. Farmers simply would not allow their neighbors to get swallowed up by the side effects of rampant speculation and greed.

  When it began in late 2006, the foreclosure crisis didn’t find the same level of public solidarity and organized resistance. Decades of neglect of the civic square weakened traditional activism, and the relentless depiction of delinquent homeowners as irresponsible deadbeats kept many silent, turning their shame inward, asking what they did wrong to deserve foreclosure. That made it difficult to campaign for their rescue. And back in the 1930s the bank had a community face; now homeowners were not fighting the savings and loan in Bedford Falls but a thicket of servicers and depositors and trustees, all attached to impersonal yet powerful Wall Street conglomerates.

  A few scattered groups did protest repossessions, including remnants of the Association of Community Organizations for Reform Now (ACORN), which set up a Home Defenders campaign in early 2009, undertaking civil disobedience by standing in front of foreclosed properties and refusing to leave, while families barricaded themselves inside. They also mimicked Depression-era farmers by disrupting foreclosure auctions. In one case in Baltimore, ACORN members reclaimed Donna Hanks’s abandoned foreclosure by breaking in and replacing the locks. Another group called the Neighborhood Assistance Corporation of America (NACA) started demonstrating at the offices and even homes of top executives for major banks and lenders like Countrywide, demanding that they offer loan modifications. Encampments outside major cities, often referred to as “Bushvilles” in an evocation of 1930s Hoovervilles, raised awareness of the crisis.

  But politicians didn’t heed these cries for help and easily knuckled under to the persuasions of the financial services industry. The White House’s HAMP incentives for foreclosure mitigation were voluntary and did not force servicers to offer principal reductions, the most sustainable type of loan relief. Treasury Secretary Tim Geithner reportedly saw HAMP not as a relief vehicle but as a way to “foam the runway” for the banks, allowing them to absorb inevitable foreclosures more slowly. The Obama economic team also resisted a policy called cramdown, which would have allowed bankruptcy judges to modify terms on primary residence mortgages, as they can other debt contracts. Liberal lawmakers believed this threat of bankruptcy modifications would give homeowners needed leverage to negotiate relief. But although then-Senator Obama endorsed cramdown on the 2008 campaign trail—banks even held meetings to prepare for its eventuality—his administration pressured congressional leaders against including it in must-pass bills like the economic stimulus. When it came up as a standalone bill, a dozen Senate Democrats sided with the industry and against cramdown, and Senator Dick Durbin, the bill’s sponsor, remarked about Congress that the banks “frankly own the place.” But they appeared to own the White House too. Liberal lobby groups complained that they would meet with senators on cramdown, and then Treasury Department bigwigs would come in afterward and lobby against it. Concern for fragile bank balance sheets outweighed concern for homeowners.

  After losing the cramdown fight, housing activists focused primarily on the denial of modification requests. Mortgage servicers repeatedly lost paperwork, gave contradictory information, and showed little interest in granting mortgage relief. The banks blamed homeowners for sending incomplete financial documents, but the breakdowns were deliberate. Servicers turned HAMP into a predatory lending program, squeezing borrowers for every payment they could get and then foreclosing anyway. After keeping people in trial modifications for a year, servicers would suddenly reject permanent relief and demand the difference between the trial and original payment, under threat of eviction. Bank of America employees later testified they were given Target and Best Buy gift cards as bonuses for lying to homeowners, denying HAMP modifications, and pushing people into foreclosure.

  While activists challenged the modification hustle, practically nobody went a level deeper to consider breakdowns in property transfers and mortgage documentation, or how lenders faked their way through foreclosures. It took victims connecting on the Internet, screaming about banks trying to seize their homes with trumped-up evidence, for foreclosure fraud to enter the conversation.

  Writers for pre-crisis foreclosure fraud blogs typically had personal experience. Robert “Jack” Wright of msfraud.org lost his $200,000 home without ever missing a payment. Craig Kinney started FairbanksSucks.org after a dispute with Fairbanks Capital over incompetent loan servicing; Fairbanks would eventually settle with the Federal Trade Commission in 2003 for $40 million over unfair and deceptive servicing practices, changing its name to Select Portfolio Servicing in the aftermath. Mike Dillon, a freelance stage technician in New Hampshire, spent nine years fighting Fairbanks in the courts; his site was GetDShirtz.com. The bubble’s collapse, throwing millions of families into foreclosure, pushed awareness of fraud beyond these personal blogs and allowed formerly concealed patterns to float to the surface.

  Few visitors to Living Lies, by 2009 one of the larger anti-foreclosure sites on the Web, even knew each other’s names. But they managed to build a knowledgeable community out of what is normally a mélange of craziness and unrestrained anger. There was Deontos and SF_Dan and baffledinga and usedkarguy and maineloanmodifications. Lisa used her name, Lisa E, as her handle; every so often Nye Lavalle would post a comment. A lot of commenters were first-timers asking for help: “My foreclosure was filed August 2008, never served. Should I file a motion to dismiss under the 120 day rule?” “Can a foreclosure, in Florida, still take place where there was no assignment recorded but the original note?”

  Neil Garfield jumped into comments periodically to answer questions. And the site offered resources—sample motions, definitions of legal terms, and examples where homeowners beat the banks. But perhaps the most powerful resource was the other commenters. They would reply to newbies with information, suggest attorneys in different parts of the country, or detail what to look for in foreclosure documents. Most of all, they would fortify desperate homeowners who felt utterly alone in combating the most powerful institutions in America. The site became a salve to overcome that shame. This proved challenging, as foreclosure summoned up dark passions. One night an unidentified woman logged on and typed that she and her husband saw no other way out but a murder/suicide. Andrew “Ace” Delany replied, “It isn’t your fault. I don’t think it’s my fault.” He tried to prove to the woman that her life had meaning and support. Nobody at Living Lies was a licensed therapist. Their only weapons against depression were honesty and the comfort of another voice to kill the loneliness.

  To shine hope through the darkness, Living Lies users passed around positive court rulings, which popped up with increasing regularity in 2009, illustrating that the walls protecting banks had begun to creak. In Miami, Ana Fernandez had her foreclosure sale vacated on February 11 (just days before Lisa got served) because Chevy Chase Bank could not prove it held the promissory note. Samuel Bufford, a federal bankruptcy judge in California, began to demand valid documentation in any case involving securitized loans. Judge Walt Logan in Pinellas County, Florida, stopped accepting any foreclosures precipitated by MERS. New York State Supreme Court justice Arthur Schack of Brooklyn halted numerous foreclosure cases with irregularities as varied as the same representative signing documents on behalf of two different banks in the same case, or a bank initiating foreclosure before they owned the loan—symptoms of securitization FAIL. Over a two-year period, Judge Schack rejected 46 of 102 foreclosure cases that came before him. “If you are going to take away someone’s house,” Schack told the New York Times, “everything should be legal and correct.”

  But Living L
ies commenters were also tempered by pervasive horror stories about people who did everything right and played by the rules. In August, Anna Ramirez of Miami came home to find all her belongings out on the lawn and a stranger telling her to get off the property. Without warning, Washington Mutual sold her home at auction; she had never missed a payment. Miami-Dade County police officers tossed out the family, who had to collect their things and stay with friends for a few nights while Ramirez explained the situation to a judge. The bank eventually claimed the sale was a “mistake.” Across town, physical therapist Tony Louzado was fighting two separate law firms, each one suing him on the same note, with both plaintiff banks asserting standing to foreclose.

  These scenarios should be impossible. When borrowers close on a mortgage, they sign dozens of documents designed to verify chain of title, document exactly how much the borrower will pay every month, and detail what happens in event of late payment or default. The mortgage and the note get filed at the county recording office. The borrower receives title to the property and even purchases title insurance to guard against defects in establishing ownership. There should be no question about the owner of the loan, the purchaser of the mortgage, and the very detailed steps of the process, all put into fine print in a binding contract.

  When multiple lenders filed foreclosures on the same note, or when a bank tried to auction a home when the borrower never missed a payment, it spoke to a deep rot in the property records system. If Lisa Epstein showed up at the courthouse claiming to own someone’s home, the judge would sanction her. If a bank did the same, with no more reliable evidence, why should they get a free pass?