Mother Jones has the must-read of the week: A superb investigation by Andy Kroll into one of the nation’s biggest foreclosure mills.
We’ve got backdated documents, pre-dated documents, doctored documents, lawyers forced to sign docs without reading them, gouging, railroaded consumers, sexual harrassment, securities fraud suits, and big corporate patrons like Citigroup, Bank of America, and Countrywide. And get this: even fire-code violations!
These are all the old predatory lending practices Dean Starkman spelled out in “Boiler Room.” This could be a companion piece to that one. Call it “Sweatshop.” And this time they’re being used to take houses away.
Organizations, very much including corporations, reflect the culture at the top, and this one looks like a textbook case. Stern has been cited for professional misconduct by the state and paid a $2 million settlement. He’s settled a sexual-harrassment lawsuit and is called a “pig” by former employees. He lives a lavish lifestyle:
His $15 million, 16,000-square-foot mansion occupies a corner lot in a private island community on the Atlantic Intracoastal Waterway. It is featured on a water-taxi tour of the area’s grandest estates, along with the abodes of Jay Leno and billionaire Blockbuster founder Wayne Huizenga, as well as the former residence of Desi Arnaz and Lucille Ball. (Last year, Stern snapped up his next-door neighbor’s property for $8 million and tore down the house to make way for a tennis court.) Docked outside is Misunderstood, Stern’s 130-foot, jet-propelled Mangusta yacht—a $20 million-plus replacement for his previous 108-foot Mangusta. He also owns four Ferraris, four Porsches, two Mercedes-Benzes, and a Bugatti—a high-end Italian brand with models costing north of $1 million a pop.
And he has a “let them eat cake” attitude to all the poor folks on whose misery he makes his bread:
In a March speech to prospective investors, he made note of the administration’s embattled $75 billion homeowner-relief program. “Fortunately, it is failing,” he said.
Last year his firm did more than 70,000 foreclosures.
But of course, it’s the system that enables an individual culture within it to run amok, and MoJo explains that the current one is set up for corruption and nontransparency. It reports on the foreclosure courts that run through cases in twenty seconds apiece and the handful of judges who are raising questions about the propriety of all the cases filed by foreclosure mills. And it’s clear that, although Stern’s firm (publicy traded by the way) may be an egregious case, it’s far from alone.
In 2006, for instance, a federal bankruptcy judge blasted New Jersey law firm Shapiro & Diaz for filing 250 home-seizure motions presigned by an employee who had left the firm more than a year earlier. Calling it “the blithe implementation of a renegade practice,” the judge slapped Shapiro & Diaz with $125,000 in fines. The following year, a federal judge in Texas fined Barrett Burke Wilson Castle Daffin & Frappier—a powerful foreclosure firm—$65,000 for filing computer-generated documents the judge called “grossly erroneous” and “gibberish.” Likewise, Wells Fargo was fined $95,000 thanks to shoddy paperwork by Florida Default Law Group—a Wells contractor that clearly believed, according to the judge, that “filing any old pleading without undertaking any investigation into its accuracy is perfectly acceptable practice.” (In April, the state attorney general’s office began probing Florida Default for allegedly “fabricating and/or presenting false and misleading documents in foreclosure cases.”)
And then there’s Fannie and Freddie, the hybrid private company/public-backed Frankensteins, who we’re told named Stern their Attorney of the Year twice (insert lawyer joke here), and who Kroll reports are responsible for setting up the system. That’s a good area for further reporting.
This is a great piece of muckracking journalism.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.