When several major U.S. banks agreed last month to pay $25 billion to settle charges of foreclosure fraud — including allegations workers faked signatures, backdated records and "re-created" missing documents — it offered some measure of resolution for millions who lost their homes in the housing bust.
But the settlement reached by 49 attorneys general and Wells Fargo, Bank of America, Ally Financial (formerly GMAC), Citigroup, and JP Morgan Chase doesn't end the trouble for those banks. With the banks' records in such disarray, some foreclosed homeowners are fighting back by making a simple demand: Prove you own my mortgage.
Increasingly, courts are taking the homeowners' side. At least five times since 2010, Wisconsin Court of Appeals panels have upheld challenges by debtors demanding to see the legal paperwork tracking their loans, and lenders were unable to do it.
"The negative perception seems to be 'You're trying to get a free house,'" said Tom Wuensch of Onalaska, who has staved off foreclosure for four years by challenging the efforts by a series of lenders to seize his home. "Really what this is about is, we shouldn't be letting banks take free houses. We bailed them out once already."
Homeowners facing foreclosure told the State Journal they have encountered documents that appear to transfer their mortgages to the banks that sued them months or even years after the foreclosure lawsuits were filed. They have discovered signatures from known "robo-signers" — often low-paid workers at signature mills who signed off on foreclosure documents without verifying them — and records they say fail to tie the bank to their mortgage.
"Fraud is an everyday occurrence in foreclosures," said Madison attorney Reed Peterson, who has represented about 80 homeowners facing foreclosure.
But many irregularities are never uncovered. The vast majority of foreclosed homeowners in Wisconsin don't contest the banks' actions, walking away from their homes, uprooting their families and leaving their credit in tatters.
The banks involved in the national settlement have admitted no wrongdoing.
Show me the documents
In 2009, Jason Abbott was diagnosed with colon cancer. The treatments left him exhausted and distracted, forcing him to leave his job as a legal assistant.
He had to decide: Pay for food and medical care, or pay his $1,200-a-month mortgage.
Selling the house wasn't an option. After the real-estate market collapsed, the value of the three-bedroom Verona townhouse Abbott bought in 2008 for $165,000 now is a little more than $100,000 — less than what he owes the bank.
Like many others, Abbott blamed the boom and bust of the nation's housing market on risky behavior by banks, which lent money to unqualified buyers, artificially driving up home prices to unsustainable levels and leading to a massive wave of foreclosures.
In September 2010, he stopped sending in his mortgage payments. In January 2011, Wells Fargo sued for foreclosure.
Abbott, who knows a bit about the law, decided to fight the lawsuit in Dane County Circuit Court. He charged his loan was no longer owned by Wells Fargo but by the Federal Home Loan Mortgage Corp., known as Freddie Mac, the congressionally chartered company that buys mortgages from lenders.
"I said, 'Show me a document that shows Freddie Mac, Wells Fargo, Jayson Abbott and 1117 Enterprise Drive,' " said Abbott, who hired Peterson to help him battle the lender. "They said, 'We don't have that.' "
What Wells Fargo did produce, he charged in court filings, were documents he said raise doubt about whether the bank is entitled to collect the debt he owes.
Wells Fargo spokesman Jim Hines disputed Abbott's allegations, calling them "baseless."
"At all times during the course of this litigation, Wells Fargo has remained holder of the note and record title holder of the mortgage," Hines said. "All documentation pertaining to Mr. Abbott's foreclosure proceedings was handled appropriately."
Study: Fraud rampant
But a California study released last month found 99 percent of 382 randomly sampled foreclosures in San Francisco County between January 2009 and October 2011 had "irregularities," including 84 percent with "suspicious activities indicative of potential fraud."
"It is not implausible that there are home-owners who are ... being foreclosed upon by lenders that might not even own such loans," according to the report, commissioned for the Office of Assessor-Recorder for the county and city of San Francisco.
In December, Massachusetts Attorney General Martha Coakley alleged just that. Coakley sued five banks and the banks' private record-keeping service, the Mortgage Electronic Registration System, saying the companies foreclosed on mortgages in which they had no legal interest and "falsely identified themselves as the present holder of certain mortgages" in sworn statements filed in court.
Madison-area attorneys say that same activity takes place in Wisconsin courts, where almost 200,000 property owners have been sued for foreclosure in the past decade.
In one case, Peterson said, three signatures purportedly from the same person appear radically different. In another case, a judge dismissed a foreclosure lawsuit and barred the bank from suing the homeowner again after it tried repeatedly and unsuccessfully to prove it owned the defendant's mortgage.
Company vault yields note
Not all such challenges are successful. Mike Hilla of Chicago is among those who used the "show-me-the-note" defense. In an interview, Hilla said he stopped paying for the rental home he owns in Fitchburg when his monthly mortgage payment ballooned by more than $800 a month to $2,280 in 2009.
But Hilla, whose job was to bundle and sell mortgages to Wall Street, saw his income plummet as the housing market collapsed.
Late last month, he lost his bid in Dane County Circuit Court after Wells Fargo brought in one of its top officials, along with what it said was the original mortgage note from a company vault in Texas.
Judge Richard Niess seemed particularly bothered that Hilla — who has failed to pay his mortgage, property taxes or insurance for more than two years — would get the Fitchburg rental home free and clear.
Hilla, whose principal balance was $402,718 at the time he stopped paying, now owes Wells Fargo at least $525,695 in taxes, insurance and other fees, the bank's operations analyst, Michael Dolan, testified.
'Linda Green,' red flag
Wuensch, the Onalaska homeowner, said he was current on his payments in 2007 when, he alleges, American Home Mortgage forced him into default by failing to pay property taxes the company was supposed to have been putting in escrow.
The company sued for foreclosure in La Crosse County Circuit Court. American Home Mortgage went out of business, and another lender came in, suing Wuensch on the same loan.
Now a self-taught mortgage fraud investigator, Wuensch demanded to see the paperwork transferring his loan. The new lender, Deutsche Bank, responded with documents he alleged were back-dated and robo-signed. Some were endorsed by "Linda Green," a fake signature that has been found affixed to tens of thousands of loans by the now-defunct DOCX company of Alpharetta, Ga.
"At that point," Wuensch said, "it was obvious they had committed fraud."
Deutsche Bank's attorney, Abigail O'Dess of Wauwatosa, said she forwarded questions submitted by the State Journal to American Home Mortgage Servicing, which manages the loan for the bank.
Wuensch said he doesn't dispute he owes money on his four-bedroom home. The balance on his loan was $360,000 when he stopped paying. The house is now worth no more than $250,000, he said. His case is pending.
Abbott is not sure he'll live to see the resolution of his foreclosure case. The Verona resident now is receiving end-of-life hospice care.
"I owe the money," he said. "If (the bank) had played by the rules, I wouldn't have a leg to stand on. But they cheated. The only thing I can think of is they got so swamped. They had so many foreclosures ... they just cut corners."
"Robo-signers" at work