Three ordinary Americans — a cancer nurse, a car dealer and an insurance fraud specialist — did more work uncovering one of the greatest frauds in American history than all the FBI agents, state and federal prosecutors combined.
Lisa Epstein, Michael Redman and Lynn Szymoniak had no history of anti-corporate activism, no knowledge of real estate law or finance. They were merely three of thousands of victims of foreclosure fraud.
Yet, they did what few other Americans did — read their foreclosure documents. And what they found out was that the foreclosure crisis in America was based on fraud.
Epstein, Redman and Szymoniak are the central characters of David Dayen’s new book — Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud (New Press, 2016).
Dayen opens the book with this: “There is a rot at the heart of our democracy rooted in a nagging mystery that has yet to be unraveled. It gnaws at people, occupies their thoughts, leaves them searching for answers in the chill of the night. Americans want to know why no high-ranking Wall Street executive has gone to jail for the conduct that precipitated the financial crisis.”
And why exactly did no Wall Street executive go to jail?
“Often, top officials bob and weave on that question,” Dayen told Corporate Crime Reporter in an interview last week. “They will say — nobody went to jail, but there weren’t any good cases. Or they will say — what was done was unethical but not illegal. Juries had a hard time understanding the complexities.”
“I wrote a book long refutation of those responses. Here are three people, ordinary Americans — a cancer nurse, a car salesman, and a white collar insurance fraud specialist. They knew nothing about mortgages, nothing about real estate, nothing about finance. They had no history of activism or anti-corporate action of any sort. And then, they fall into foreclosure. And they end up doing more research than the state and federal government agencies combined – it is their job to investigate this type of conduct.”
“But it was these three individuals who find this very deliberate and systematic delivery of false documents. They find millions of documents that are pieces of false evidence, used in courts to take people’s homes on a systematic basis over years. They hand this information up to the figures of authority in the state and federal law enforcement agencies. And virtually nothing happens. Settlements are reached. But nobody faces any criminal sanction. Criminal subpoenas were not issued. Criminal investigations get stonewalled, seemingly by the Justice Department.”
“We have to wrestle with that. We had an alternate history ready to be written. There was the possibility for real accountability for corporate crime committed in a systematic way, that continues to this day. Every day in America, somebody is thrown out of their homes based on a false document. The law enforcement and the judiciary just pretend it didn’t happen. That is an enormous problem for our country.”
But some people did go to jail for the foreclosure fraud. They just weren’t on Wall Street.
“The Obama administration has been much more willing to prosecute people who lie to banks rather than banks that lie to people,” Dayen says. “Three or four of the Real Housewives of New Jersey were sent to jail for lying on mortgage applications. Four federal agencies participated in that prosecution.”
“On the other hand, we have false applications and information being submitted to courts in a systematic way by mortgage companies and nobody is held responsible for that.”
“The one person held accountable for foreclosure fraud was Lorraine Brown. She was the CEO of DocX. DocX was a third party company that actually created these fraudulent documents. She was arrested, charged and convicted for committing a conspiracy that was “unbeknownst to DocX clients.”
“In other words, her clients — banks and mortgage companies — were asking for documents after the fact to support their foreclosure operations. However, somehow they didn’t know that they were going to be fake documents — even though they couldn’t be anything but fake because they were done after the fact. I describe Lorraine Brown as the private first class Lindy England of the foreclosure.”
“Lindy England went to jail for the Abu Ghraib scandal and none of her superiors did. Lorraine Brown went to jail for this foreclosure fraud scandal and none of her superiors did.”
Is she still in jail?
“Yes. She was sentenced to five years in jail — mainly for lying to the FBI. If she hadn’t lied to the FBI, she might not have gone to jail.”
Your book reads like an indictment. Why didn’t the government file it?
“I provide a good deal of evidence in the book that there was enough proof to file an indictment,” Dayen says. “I provide enough evidence to show that the decision was coming from on high in Washington. There was a lack of resources to local prosecutors. There are allegations that the Department actively stopped some of these cases from being filed. That’s why the trail went cold after Lorraine Brown — they didn’t flip Lorraine Brown, didn’t ask her — who authorized her to create these documents? Who at the banks asked for these documents? That’s just police work 101. They could have moved up the chain and implicated every major bank on Wall Street.”
“It’s certainly the case that the 50 state investigation that was done after the revelations of these false documents and robo-signings came out — that 50 state investigation was nothing more than a 50 state negotiation. And it was fully stage managed by the Justice Department and the administration itself, through Shaun Donovan at HUD. Donovan said that one of his greatest moments in Washington was holding these tea and cookies events with banks to hammer out a negotiated settlement.”
“The state Attorneys General were inclined to go along with the Justice Department. The Department was pressuring them throughout. There were some dissidents at one point, led by New York Attorney General Eric Schneiderman and California Attorney General Kamala Harris. They said — we haven’t done an investigation. How can we move to a settlement? How do we know what we are settling? How do we know the depth of the misconduct and how much it is worth? They held off for a time, but then the Justice Department and the Obama administration effectively made a deal with Eric Schneiderman. They made him the head of a task force that would look into other types of financial misconduct. But they would settle the foreclosure fraud part.”
“New York was critical to this settlement. Mortgage backed securities are created with trusts. Most of those trusts were governed by New York trust law. And New York trust law is very clear as to the time frame you have to finish the funding of the trust. If you don’t fund that trust in time, you have mortgage backed securities that are backed by nothing. And you have to mock up these documents to have the proof that you can foreclose.”
“New York was a linchpin. Schneiderman made the agreement to throw overboard the foreclosure fraud investigation in order to get more resources to a federal joint task force on securitization of loans with investors being defrauded. Once that happened, the other dissidents didn’t have much leverage to hold out. Once you had New York in the fold and forty other states in the fold, it was either get on board the train or stay off it and do nothing. And they did nothing.”
“I certainly don’t have great things to say about Eric Schneiderman in this book. Once he got that task force going, even though they agreed that criminal prosecutions would be on the table, they never issued a single criminal subpoena. Months into that task force, they didn’t have staff or even an office or phones. It seemed to be a repository for press releases for existing cases that would have been sent out anyway.”
“A couple high profile civil cases were settled over securitization. The outcomes were worse than the foreclosure fraud settlements. In the book, I call it a high bullshit to cash ratio. They were designed to create headline numbers. But the reality didn’t match the headlines.
“In those big settlements from the Schneiderman task force on securitization, one of the penalties that banks like JPMorgan Chase had to pay was making loans in low income communities. It’s perfectly fine to make loans in low income communities, but that is a profit making activity for that bank. That is like sentencing a bank robber to opening up a lemonade stand. You are sentencing them to make money. That is an example of the kind of weak accountability we got out of those settlements.”
[For the complete q/a format Interview with David Dayen, see 30 Corporate Crime Reporter 25(12), June 20, 2016, print edition only.]