The biggest U.S. mortgage lenders and servicers say they’re putting the foreclosure mess behind them, and that it never was a major problem. The reality is these companies are so big and unmanageable, the people in charge of running them have no way to know if that is true.
One thing that remains unknowable is how many flawed home-mortgage records and foreclosure proceedings are out there waiting to be unearthed. Dozens of federal and state agencies are investigating. It’s anyone’s guess what they might turn up.
The industry’s self-exonerations keep pouring out anyway. “We believe the integrity of Citi’s foreclosure process is sound,” Citigroup’s chief financial officer, John Gerspach, said Oct. 18 on a conference call with investors. While Citigroup uses outside lawyers to prepare foreclosure documents, he said, “each package is reviewed by a Citi employee, who verifies the information and signs the foreclosure affidavit in the presence of a notary.”
That’s not what happened in the case of a Port Charlotte, Florida, husband and wife, Peter and Cheryl Hesser. Citigroup sued the Hessers in January 2008, seeking to foreclose on their home mortgage. In February 2009 the bank filed a motion for summary judgment in the case. The affidavit it filed in support of that motion wasn’t signed by a Citigroup employee, however.
Room for Doubt
Rather, the signature was from someone named Cheryl Samons, an operations manager at one of Citigroup’s outside law firms, the Law Offices of David J. Stern PA in Plantation, Florida. There’s reason to wonder if Samons knew what she was signing when she swore she had personal knowledge about the Hessers’ mortgage and the amount of money they owed.
Three months after that affidavit, in a deposition for a separate lawsuit, Samons testified that she spent two hours a day executing affidavits and other records. She said she spent “very little” time examining each document before signing them. Asked if she signed more than 100 a day, Samons said yes. She declined to provide her own estimate. “It’s definitely not more than a million,” she told the lawyer deposing her.
It’s not clear who owns the Hessers’ loan. In its complaint, Citigroup said it was acting as the servicer for the mortgage’s owner, and that the mortgage had been lost. In her February 2009 affidavit, Samons said Citigroup owned the Hessers’ mortgage.
As recently as Oct. 4, a Stern attorney representing Citigroup at a court hearing said the bank was still relying on Samons’ affidavit, and that it had found the Hessers’ original mortgage. The court has yet to rule on the bank’s motion.
Samons didn’t return phone calls. Asked last week about her work, a lawyer representing Stern’s firm, Jeffrey Tew of Tew Cardenas LLP in Miami, said, “She was signing affidavits and doing it appropriately.” He added: “I don’t think there’s any evidence that she’s done anything improper.” Tew told a Bloomberg News reporter this week that “David and foreclosure lawyers are foreclosing legitimate mortgages that are in default,” and yet “they have been successfully villainized.”
Stern’s firm is one of at least four law firms under investigation by the Florida attorney general’s office over its foreclosure work in the state. The inquiry is separate from the joint investigation divulged last week by attorneys general for all 50 states. As recently as June, Stern’s firm claimed it had 20 percent of the market share in Florida for residential foreclosures.
In a deposition taken this month as part of the Florida attorney general’s investigation, a former assistant to Samons, Kelly Scott, said Samons signed about 1,000 documents a day. A former paralegal at Stern’s firm, Tammie Lou Kapusta, told lawyers for the attorney general’s office in a Sept. 22 deposition that employees repeatedly signed affidavits without reviewing them, forged signatures, and improperly notarized and backdated documents.
Citigroup says it has stopped sending new cases to the Stern firm. A spokesman for the bank, Mark Rodgers, declined to comment on Citigroup’s lawsuit against the Hessers. Before last year, he said, Citigroup had authorized certain law firms to sign documents on its behalf. He said the policy changed in 2009, and that all foreclosure affidavits now must be executed by Citigroup employees.
In addition to Citigroup, Stern’s clients include Bank of America Corp., Wells Fargo & Co., GMAC Mortgage and six other major servicers and lenders. That’s according to a prospectus that a publicly traded affiliate of the Stern firm, DJSP Enterprises Inc., filed with securities regulators in June. If Stern’s foreclosure procedures present a potential problem for Citigroup, it stands to reason that they might spell trouble for those companies, too.
Bank of America, for instance, this week said it would re-open about 102,000 foreclosure actions in 23 states, after concluding that “the basis for our foreclosure decisions is accurate.” The bank released that statement 10 days after it said it would halt foreclosure sales nationwide, pending a review of its procedures. It’s hard to believe a review completed so quickly could have been very thorough.
The banks have only themselves to blame for the fix they’re in. Three years ago, as the subprime mortgage crisis began to spiral, one of the lessons the public should have learned is that the leaders of these companies often have no idea what’s going on inside them. We may be witnessing the same phenomenon again. There’s no excuse this time for anyone to be surprised.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
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