David Dayen’s riveting new book, Chain of Title, chronicles how the activism of three Florida homeowners about to be foreclosed on broadened into a movement that exposed widespread foreclosure fraud.
Dayen says the activists’ work revealed that hundreds of thousands, if not millions of the foreclosures were illegally completed by using false documents. About six million families lost their homes during the foreclosure crisis, Dayen writes.
A columnist for the Fiscal Times and the New Republic, Dayen begins his book with this sentence:
“There is a rot at the heart of our democracy, rooted in a nagging mystery that has yet to be unraveled. Americans want to know why no high-ranking Wall Street executive has gone to jail for the conduct that precipitated the financial crisis.’’
The financial crisis saw the collapse of home mortgage-based securities. Home mortgage securitization was created in 1983 at Salomon Brothers and First Boston, and it enabled investment banks to profit from the largest market in the world, the U.S. home mortgage market. Market Watch.com estimates that there is $8.74 trillion in housing debt in the United States; in 2008, it was $10 trillion.
When the housing bubble burst, pervasive defaulting on subprime mortgages was blamed. Defaulting was at its highest in the “sand states’’ where economies were powered by real estate—Arizona, California, Nevada and Florida, and where “home prices had surged more than 264 percent between 1998 and 2006; over half of all subprime mortgages written in 2006 were issued in those four states,’’ Dayen writes.
Florida homeowners were foreclosed in big numbers when housing prices sank after the housing bubble ended in 2006, and again starting in 2008, from “the ripple effects from unemployment in real estate, construction, and pretty soon everything else, swallowing those who paid their mortgages effortlessly for years.’’
The three who turned their battle against foreclosure into a national movement are Lisa Epstein, an oncology nurse from West Palm Beach; Michael Redman, former Internet manager at a Lake Worth Toyota dealership; and Lynn Syzmoniak, a lawyer specializing in insurance fraud living in Palm Beach Gardens.
In 2009, they were strangers who became allied in their skepticism about the legality of their foreclosures; they met through Internet foreclosure websites such as 4closurefraud.org, created by Redman to centralize information and to energize others to join the fight against what they called the Great Foreclosure Machine—foreclosure mills; law firms representing lenders and the mills; and judges, county clerks and law enforcement agents on federal, state and local levels who didn’t enforce the law.
They investigated, lobbied legislators, attended court proceedings and held social gatherings to network with other victims of foreclosure.
“These whistleblowers, armed with only a few websites and a hunger for the truth, found that the mortgage industry fundamentally ruptured a centuries-old system of U.S. property law; that millions of documents generated to foreclose on people’s homes were phony, and that all those purchasing a mortgage in America were taking a gamble that they would be tossed onto the street with nothing, even if they made every payment and played by the rules,’’ Dayen says.
Dayen says the documents were phony because lenders were not adhering to the “chain of title’’ law: “In the simplest terms, to be able to foreclose, a financial institution must hold the mortgage, the (IOU) note, or both. This gives standing.’’
Because in “securitization,’’ originating lenders transfer the loan and the mortgage to other banks and they to still more banks, proving who legally held the mortgage and/or the note was muddied to the extreme.
“At each stage there would have to be documented evidence of transfer-like links in a chain—a chain of title, which lays out the different transactions. You can’t skip a link; the chain must show evidence of transfers…in precise order.’’
And, as all securitization trusts were set up as a real estate mortgage investment conduit (REMIC), if a trust closed without all key documents, the assets would not qualify for a REMIC tax exemption. Investors in for a windfall now had a tax problem. The boom ended.
The activists’ battle uncovered a lucrative foreclosure industry: offshore after-the-fact document creators and processors; low-level employees known as robo-signers who were designated as bank “vice presidents’’ and who improperly authenticated and notarized thousands of documents; and law firms known as foreclosure mills.
The Plantation, Fla., firm of David J. Stern was the most notorious of these mills. Disbarred in 2014, Stern, the “foreclosure king,’’ had a staff during the bubble of 1,500 processing more than 200,000 Florida home repossessions. The activists’ barrage of evidence of fraud helped expose Stern.
Syzmoniak now runs a non-profit foundation to investigate and create awareness of foreclosure fraud; Redman and Epstein work for a law firm specializing in representing foreclosure clients and Redman still operates 4closurefraud.org.
Their activism helped homeowners win foreclosure fights, led to the election of a foreclosure defense attorney to a Palm Beach County foreclosure judgeship and inspired Dayen to write this book.
He is measured in his epilogue about the future: “Grassroots movements can succeed in America. (But) what’s become of our system, that policy makers can ignore millions of pieces of false evidence used to dispossess Americans to this very day?
“(These) are difficult questions to answer. But the easiest way to discourage dissent is to cast it as hopeless; that robs the purpose from fighting.’’
Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, by David Dayen. The New Press. 385 pages. $27.95
Eleanor O’Sullivan is an award-winning freelance journalist who writes for Financial Advisor magazine.