How sleazy attorneys help irresponsible homeowners game the system
When sleazy attorneys help deadbeat homeowners obtain free housing, everyone else pays a price through low housing inventory and higher home prices.
Human interest stories need heroes. We are supposed to feel empathy for the aggrieved party that overcomes tough obstacles or intransigent people to achieve a victory for themselves and justice for us all. But have you noticed that the human interest stories from the housing bubble have no heroes?
The housing bust brought out the worst in mankind. Everyone involved sought to avoid any financial responsibility and looked for ways to game the system to their advantage. Banks lobbied for (and obtained) massive bailouts. Homeowners begged for principal forgiveness and loan modifications, and when they didn’t get what they wanted, many quit paying their mortgages and squatted for years paying nothing for housing.
The cast of despicable characters includes lenders, realtors, delinquent mortgage squatters, holdover tenants, mortgage brokers, Wall Street financiers, basically anyone involved with real estate. Today’s featured article profiles some of the nefarious characters, looks at their motivations and sense of entitlement, and illustrates what happens when everyone is wrong, greedy, and stupid.
Inside a deeply suspect mortgage-relief operation in L.A.
Anna Scott, September 10, 2015
Four years ago, Robert and Joan Potter were facing a crisis. The monthly payments on their two-bedroom home in the coastal suburb of Laguna Niguel, Calif., had ballooned from $2,000 to $5,000 in the decade since they bought it for about $360,000. Now the retirees were rapidly falling behind.
Why did they enter into such a bad deal? The article fails to mention the $300,000 or more they extracted in mortgage equity withdrawal. Nor does it mention the sleazy mortgage broker that put retirees in an Option ARM to generate an easy commission — and those are just the boots on the ground.
What about the Wall Street tycoons that created the machinery? Thieves like Anthony Mozilo who peddled the Option ARM to obtain great wealth. He sold his company in 2005 and walked away with millions while simultaneously destroying the lives of millions of people. Infamy is not punishment enough.
Everyone was bad. Everyone.
“It was my parents’ dream home,” said their son, Derrick, 43. Derrick, who works as a mortgage consultant, said Robert and Joan got suckered into the kind of inflationary deal known as a negative amortization loan, since outlawed by state legislators. “They had some sleazy mortgage broker who said my mom, who hasn’t worked in 25 years, made $10,000 a month.”
And why did mortgage consultant Derrick fail to educate his parents on the perils of this loan?
Why did his mother knowingly sign a document claiming she made $10,000 a month when she was retired? It strains credulity to believe she was ignorantly duped into committing mortgage fraud, particularly when a very large cash-out check was involved.
It’s far more likely that she knew it was wrong but went along for the free money, don’t you think? Is this the behavior of an innocent victim you want to emerge victorious?
Still, there was hope. The Potters heard about a firm called Brookstone Law, which was pioneering a novel strategy for challenging allegedly predatory banks. The best part: As long as Brookstone was representing Robert and Joan, the bank would hold off on collecting mortgage payments or foreclosing.
So after extracting hundreds of thousands in mortgage equity withdrawal (stealing from a compliant bank), they found a way to avoid repayment (and responsibility).
Is this the behavior of a hero? Is this the American Way?
While you were working and paying your rent, this family was borrowing on false pretenses and spending $300,000+ — and not paying their mortgage. How do feel about that?
In 2011, Robert and Joan paid Brookstone $6,000 to become the lead plaintiffs in a “mass joinder” lawsuit against their lender, JPMorgan Chase Bank.
“I think, generally speaking, these mass joinder cases are a new twist on an old scene,” said California Assemblyman Mike Gatto, a Democrat and former lawyer who chairs the state’s privacy and consumer protection committee and sits on its banking committee. After the financial crisis, a cottage industry cropped up offering relief to people with subprime loans. In many cases, however, these companies only subjected borrowers to a second round of abuse. “Somebody is in trouble, they get a call, and say ‘you’ll get relief if you sign onto our lawsuit.’ It’s a small price to pay to keep my biggest asset. But these are all just variations of fraud.”
One of the houses I bought at auction in Las Vegas was occupied by the former owners. They filed bankruptcy after the foreclosure twice before I was able to evict them. When we finally took possession, we found a check on the counter written to their attorney for $150: they were late with their monthly “rent” check to continue gaming the system.
If they provided their attorney this check on a timely basis, I might still be trying to take possession of the house, and the young family I sold it to would be living in a rental, wondering why there is no inventory on the market. Do you see the hidden cost in this behavior?
Does it feel “right” or “just” for people to use attorneys to obtain free housing? Why pay the rightful owner rent when you can pay an attorney much less instead?
When these former owners came back to my house (a house that took me a full year to obtain) they were greeted by Sheriff’s deputies and a moving van filled with their stuff. We also presented them with a bill for a year’s back rent (which they didn’t pay).
I was told the owners had a complete meltdown in the front yard — crying, yelling, threatening. Sheriff’s deputies kept the process going without interruption.
Although it’s not spiritually uplifting, I took pleasure in that.
Is Brookstone the con that banks and former clients allege? Or is Torchia, already halted from practicing law by the California state bar, outmatched and getting smeared as he wages what he claims is a lonely, David-vs.-Goliath fight for homeowner rights?
It didn’t take long for the partnership among Brookstone, Kramer, and Stein to sour. As Torchia tells it, he did things the right way, while everyone else around him was willing to bend the rules. In August 2011, California Attorney General Kamala Harris sued Kramer and Stein for false advertising of mortgage mass joinders, among other allegations, and won court orders allowing the state bar to take over their law practices. In a press release, Harris said the move was based on “false and misleading representations” the lawyers used to lure clients, not “the legal merits of any claims asserted in the mass joinder lawsuits filed by defendants.”
Stein sued back. In a lawsuit filed against Harris in September 2011, he denied the attorney general’s allegations and accused her of being “the pawn of America’s most powerful banks.” His suit was dismissed a year later. Stein was ultimately suspended from practicing law in California in 2013 after a conviction in an unrelated fraud case. He’s currently serving a 17-year prison sentence in Florida.
A real man of the people, right?
Back in 2010, Golden was appointed by the court to oversee United Law Group’s liquidation, scour its finances, figure out what assets were still there, and make a plan for paying back creditors. After going through the company’s accounts and interviewing employees and ex-employees, Golden reached a conclusion. He is reluctant to elaborate, but it is all laid out in a lawsuit he filed against Torchia and Brookstone about six months after the raid.
In it, Golden claimed that Damian Kutzner, of Serious Pimp, masterminded Brookstone as a vehicle to funnel more than $200,000 and future income out of the reach of United Law’s creditors. Golden asked the court to let him take over administering United Law’s remaining debt clients from Torchia. The court eventually did.
“Jeff Golden is a piece of shit,” said Torchia. “He ruined my life.”
Pot, see Kettle.
Banks’ responses to Brookstone suits have varied. Some voluntarily halted foreclosures and even mortgage demands as long as the cases were active, as JPMorgan Chase did with the Potters. As the cases dragged on or got dismissed, however, banks again started demanding payments. … Increasingly, Torchia is dealing with angry clients who say they’re no better off than when they started.
Retired radiology technician Jose Velasco, 69, borrowed money from his sister a few years ago to pay Brookstone a $6,000 fee to join a case against OneWest and IndyMac banks, filed in November 2013. He and his wife, Beatrice, had already been foreclosed on when they heard about the firm. “They told us we could get some money,” Velasco said through a thick Salvadorian accent. “The value of the home and some punitive charges … you know, stress caused by it.” Until I told him, Velasco had no idea that the court had dismissed all the plaintiffs in the case (except for the lead one) last year.
Do you feel any sympathy for this guy? He undoubtedly extracted a ton of cash, gamed the system for free rent for years, and now he bitches that it’s not enough. His greed blinds him to the evil that he does.
For some Brookstone clients, the outcomes of the cases hardly matter.
Aaron Sebagh, 63, is one of the plaintiffs in the Wright case. He lives in a two-story, beige stucco house on a hilly street in the wealthy suburb of Thousand Oaks, Calif. “I’m like everybody else with this economy,” said the Paris native, through a thick French accent. “Everybody got hurt.”
Sebagh said he got the same type of negative amortization loan the Potters did when he bought his place in 2005. He managed to stay current with his payments and eventually worked out a modification he’s pleased with. Yet he’s happy to be attached to Brookstone’s lawsuit, not because he particularly needs relief but for the priceless satisfaction of sticking it to the bank.
So the bank unilaterally changed a contract in favor of the borrower so he can keep his house, and he feels the need to stick it to them?
He should be thanking them.
“They don’t care less about you,” said Sebagh, whose black eyebrows arch dramatically above the matching black frames of his glasses. “There’s no sympathy, no nothing. That’s the reason I did it. They need to be punished for everything.”
While I agree that lenders are more culpable than borrowers, and I would love to see them ground into pulp, he has nothing to complain about. He kept a house he couldn’t afford and doesn’t deserve. He’s merely being a curmudgeon.
The Potters aren’t as pleased as Sebagh. Their case officially died when it was dismissed in January. … Chase again started demanding payments after the case was thrown out. The Potters sold their home in March for $700,000. Despite fetching nearly twice what they bought it for, the Potters’s debt on the property had grown so large that the deal was a short sale, said Bob Gottuso, the agent who handled the deal.
Gottuso doesn’t know how that happened …
Let me clue him in: THEY BORROWED AND SPENT THEIR HOUSE! How else does something like that happen?
Torchia admits he could’ve been more communicative with the Potters and the others who joined their suit. “They didn’t get as timely updates as we’d like to,” he said. Still, on the bright side, “None of them had made payments on their homes for years.”
And that’s exactly why none of them should complain. And what about the families waiting for this house? Everyone in the industry is complaining about a lack of inventory, but much of it is tied up with losers gaming the system for free housing. Who advocates for the displaced families waiting for these deadbeats to get pushed out?
What do you do with a story that has no sympathetic characters?
Perhaps William Shakespeare said it best:
I am hurt.
A plague a’ both your houses! I am sped.
Is he gone and hath nothing?
Romeo And Juliet Act 3, scene 1, 90–92