Consumer lawyers have been traveling to a remote 160-acre farm in the mountains of western North Carolina since 2006 to network, drink Scotch and prepare for legal combat in foreclosure and bankruptcy cases.
They arrive in groups of a dozen or so for a four-day boot camp where they learn how to protect their clients’ assets by exploiting the mistakes of creditors. Attendees these days are especially keen on strategies to fend off mortgage lenders and servicers seeking to seize their clients’ homes.
Their instructor is O. Max Gardner III, a 65-year-old bankruptcy litigator and grandson of a North Carolina governor, who was using flaws in mortgage servicing to stave off lenders years before cases involving shoddy paperwork spurred this month’s investigation of the industry by the attorneys general of all 50 states. He charges $7,775 for the program, which covers 3,000 pages of materials, lodging, food and unlimited wine, beer and single-malt Scotch.
“My time with Max changed the trajectory of my legal career,” Nick Wooten, a 40-year-old Alabama attorney who changed his focus from personal injury to bankruptcy and foreclosure after attending the boot camp in 2007, said in a telephone interview. “Knowledge is power, and one thing he is able to give in his boot camp is a tremendous amount of knowledge about how the other side operates.”
Participants, who are admitted only after a background check confirms that they don’t work for creditors, gain access to a private e-mail distribution list where they share legal strategies, documents and advice. Linda Tirelli, a consumer-bankruptcy attorney in New York and Connecticut and one of the 599 people who have gone through the program, said she feels like she’s now part of a big law firm.
While Gardner and some of his graduates have been winning settlements for years, it wasn’t until Ally Financial Inc.’s GMAC Mortgage unit said Sept. 20 it was halting some evictions that foreclosure documentation and the use of robo-signers became a national issue that threatened to stall sales of repossessed homes and gave investors ammunition in their fight to force banks to buy back billions of dollars of mortgage-linked securities.
“We had a steep hill to climb to convince the judges that the largest financial institutions in America were engaged in this kind of conduct,” Gardner said in an interview during a break in this month’s session.
Bunking in Cabins
Students travel along a gravel road to reach Gardner’s place in the South Mountains about 60 miles (97 kilometers) northwest of Charlotte, North Carolina. They sleep in cabins and swap stories over meals prepared by Gardner’s wife, Victoria, in the family’s three-story log cabin-style house on a hill overlooking a spring-fed pond. During days that run 10 to 12 hours, Gardner lectures on topics including “Max’s Favorite Discovery Devices,” “Strategy to Trap Opponents in their Own Mistakes,” “Mortgage Servicing Litigation: How the Legal Network for Creditors is Organized” and “The Alphabet Problem, A to D Unlawful Transfer of Mortgages and Notes.”
Guest speakers at the October session included a forensic accountant, a North Carolina Superior Court judge and the former vice president and general counsel of Saxon Mortgage Inc., which is owned by Morgan Stanley.
The heart of Gardner’s strategy is to uncover omissions and errors in mortgage securitizations, the process in which thousands of loans are bundled into bonds and sold to investors. Securitizations are plagued by lost promissory notes and missing or inconsistent tracking of changes in loan ownership, Gardner said in the interview. Servicers processing default actions papered over the errors with improperly prepared affidavits and after-the-fact assignments of mortgages, he said.
“One of my primary objectives is to give you enough knowledge so that you can understand more about the business structure and organization of the creditors than their own lawyers know,” he told the boot-camp class.
He started the sessions after piecing together evidence that lenders and servicers were relying on teams of workers -- dubbed “robo-signers” in cases brought by other lawyers -- to process thousands of foreclosure documents a day without the time to verify them.
One tactic Gardner employs in court is to allow creditors that produce dubious evidence to “dig their own grave.”
“I wouldn’t go in waving documents around,” he said. “The more false documents and inconsistent documents I get the other side to produce, the more legal leverage I have against them.”
Gardner’s boot camp is the “story behind the story,” said attorney Tirelli, who attended the program in October 2008 after first balking at the price.
More Profitable Practice
Tirelli, a sole practitioner who works on contingency, said she now makes four times more from a case than she did before changing her business model. Gardner, who devotes one wall in the boot-camp classroom to framed settlement checks, tells students they can be more profitable by concentrating on a smaller number of cases. Tirelli, who accepts no more than 20 clients a month, said she has the confidence to go up against what Gardner calls “tall building law firms” because the community of graduates located in 47 states functions as a unit, exchanging documents and discovering patterns of misconduct, she said.
“It’s a fraternity,” Tirelli said. “We don’t see each other as competition. We want more attorneys to join because the more we have the better.”
Private attorneys working on behalf of homeowners can be paid in different ways, said Margery Golant, a lawyer in Boca Raton, Florida, who attended the boot camp in August 2009 and handles foreclosure cases. Some are paid by clients, many of whom have cash even though they are in default because they aren’t making mortgage payments, she said.
There are also opportunities to negotiate uncovered fees in settlements with creditors. If a bankruptcy court judge rules that a mortgage firm has submitted false evidence, the court can order the creditor to pay legal fees, Golant said.
Borrowers who can’t afford attorneys sometimes turn to legal-services organizations such as Jacksonville Area Legal Aid in Florida, where boot-camp graduate April Charney has worked since 2004 -- the year she met Gardner. They met at a conference of consumer lawyers in Minneapolis, and Gardner later offered her a scholarship to attend training.
While Charney considers Gardner a mentor, she said she disagrees with his assertion that servicers likely produced false affidavits and other documents because of the time and expense involved in pulling the originals from custodians. Charney, who also trains lawyers how to defend clients’ homes, said the mortgage firms simply don’t have the documents.
Most foreclosures go unchallenged because homeowners rarely hire attorneys. That began to change as judges began questioning whether banks were producing sufficient proof that they had standing to foreclose. Gardner advocates using mortgage firms’ faulty evidence as leverage to secure affordable loan modifications for clients and have creditors cover all attorney fees.
Forcing banks to write down loans could push losses to taxpayers and investors in mortgage-backed securities, said Patrick Randolph, a University of Missouri-Kansas City law school professor who has consulted for mortgage firms defending class-action predatory lending claims. The paperwork flaws will ultimately be repaired and foreclosures will go forward because the vast majority of borrowers fighting seizures are in default, Randolph said.
About 2.5 million homes have been taken back since 2005, while 6.5 million more homes may soon face repossession, Morgan Stanley said Oct. 12.
“Max is definitely very influential,” Randolph said. “He claims to have neat solutions to lots of problems facing foreclosure opponents. Whether they are long-term solutions or taking advantage of confusion in the court system is hard to know.”
Gardner, a North Carolina native, has lived out of state only two years as an adult, when he worked as an armed guard and assistant vault teller for a bank in Anchorage, Alaska. He lives on the sprawling farm in Casar, where he, Virginia and their domesticated animals contend with wild coyotes, black bears and mountain lions. Virginia breeds Cavalier King Charles spaniels, and they have seven Great Pyrenees, two bloodhounds, a fox hound, two donkeys and five horses.
Gardner received his undergraduate degree from the University of North Carolina at Chapel Hill and graduated with high honors from its law school in 1974, before opening his practice three years later in his grandfather’s 19th-century home in downtown Shelby, which is 20 miles south of the farm. He switched from general practitioner to fulltime bankruptcy attorney in 1986.
Sherlock Holmes Costume
Gardner, who is pictured as a pipe-smoking Sherlock Holmes on a poster plastered on a wall at the boot camp, said he discovered that loan servicers were employing document-execution teams to sign affidavits and other paperwork needed in cases against homeowners after reading internal newsletters produced by a subsidiary of Fidelity National Information Services Inc.
Fidelity National spun off its Lender Processing Services division into a separate public company in July 2008. The Jacksonville, Florida-based company, the biggest U.S. mortgage-and-foreclosure outsourcing firm, was subpoenaed Oct. 13 by Florida Attorney General Bill McCollum, who says the company produced numerous documents in foreclosure cases that appear to be fabricated.
The September 2006 issue of the newsletter removed any doubt for Gardner that signatures were being penned with factory-like efficiency that “would either make Henry Ford proud or scare the hell out of him,” he said.
The 18-member “Document Execution team is set up like a production line, ensuring that each document request is resolved within 24 hours,” the newsletter reads. “On average, the team will execute 1,000 documents per day.”
Michelle Kersch, a spokeswoman for the firm, said the company decided the affidavit-execution services were “not an appropriate use of resources,” and ended them in September 2008. Lender Processing Services still “signs a limited number of documents for clients,” including assignments of mortgage, she said.
Gardner shows boot campers signatures on mortgage documents by bank vice presidents or assistant secretaries, and photographs from newsletters showing that they actually worked for Lender Processing Services.
The materials supplied to students on thumb-size data- storage units include “Max Gardner’s Top Road Signs of Bogus Mortgage Documents,” a list that has been updated and expanded since it first appeared in the boot-camp materials in January 2006, he said. The last of the 66 tips for spotting irregularities is if the document is signed by any of 295 people, who he lists by name.
The roster includes Jeffrey Stephan, a GMAC Mortgage employee whose depositions in December 2009 and June 2010 brought the issue of robo-signers to the public’s attention. The latest batch of boot campers included Thomas Cox, a Maine attorney, one of two lawyers who deposed Stephan.
“What the grand scheme is here is not what I’m teaching because honestly I don’t know,” Gardner said. “What I want them to understand is what happened and how it happened and how they can identify the improper unlawful documents and what they can do with them.”