In case you were wondering why there is a mortgage crisis, and a concomitant dampening of the economy that ultimately will result in people electing a dumb-as-a-sack-of-hammers Republican because they don't understand that the President's role in the economy is comparable to my role in the operation of the Space Program, here is a glimpse inside the sausage-maker that is litigation over mortgages; the trial that (almost) finished up today is a microcosm of what went wrong in the mortgage industry and what continues to go wrong.
This is case number 09 CV 4883 in Dane County Circuit Court in Madison, Wisconsin. It's formal title is SunTrust Mortgage Inc. v. Vicki Lane, et al and my entry into this case came when we were retained by defendant Vicki Lane to help her defend against a foreclosure case filed by SunTrust Mortgage.
The background to Vicki's case is this: she is a middle-aged divorcee who back in 2004 and 2005 was looking for a place to live. She found a two-unit building, an upper-and-lower, on Gorham Street in Madison, and tried to buy the place, but didn't qualify for financing because she didn't make enough money to buy a $200,000 rental property.
So Vicki had a friend of hers buy the property and rent it to her, and her adult son -- each occupying one of the units -- in a nonprofit transaction for the friend, who was simply doing Vicki a favor by "lending his credit" to her. Vicki and her son's rent covered the mortgage and property taxes; the friend made nothing.
Vicki wanted to buy the building, though, and own it, and around 2006 began looking again to get a loan. She was then introduced to a broker at a company called "Fairway Independent Mortgage Company."
"You know what's not confidential? Trials."
I'm going to note that I fought hard for the right to expressly name Fairway Independent Mortgage Company" and otherwise talk about this case. So I'm going to name them. And SunTrust. It's all public record and people ought to talk about this.
Fairway ran Vicki's credit and told her that she would not qualify for a "conventional" loan at the time. So what Fairway did is what so many lenders at that time did: They put Vicki into an unconventional loan.
In this case, the loan chosen was a "No Doc" loan.
A "No Doc" loan is what it sounds like: You don't document anything. You simply say what it is you want to borrow and what the property is worth and apparently what your credit score is and you get the loan.
The "No Doc" loan was one of a limited few options available, the other one being a "Stated Income" loan, in which a borrower simply says what they have for income without providing proof of that income, and gets a loan.
The "Stated Income" loan option was rejected by Fairway for Vicki's case because it had a slightly-higher interest rate.
That's right: if, in 2006, you told a lender what you made, without documenting it, you paid a higher interest rate than if you simply didn't say anything about how much you made, period.
The "No Doc" loan was not without its own hidden intricacies. What Vicki had to do, according to Fairway, was show a sufficient amount of money in her bank account to justify the "No Doc" approach. The problem was, Vicki didn't make enough to have that amount of money in her bank account by the closing, so what Fairway eventually had her do was stop paying her rent -- with her friend's consent -- and use money she'd otherwise pay into her rent to build up her bank account.
No documentation meant, apparently, that nobody would bother to look at how the money got into the account.
I should note that Fairway wasn't just making up these criteria themselves. They were following the guidelines that were set out by SunTrust, which worked with Fairway at the time to provide just those type of guidelines. This practice allowed Fairway to make only those loans that SunTrust would want to buy from them, which was important to Fairway because Fairway makes money not from lending money, but from originating loans: They find a borrower, set up the loan, pay themselves a fee, and then assign or sell the loan, sometimes for a profit.
Fairway, in short, never intended to be Vicki's lender for a very long period of time, if at all. They intended to sell the loan.
Which, one could argue, could make someone like Fairway somewhat blase about whether or not Vicki could actually pay the loan back.
One could argue.
Vicki closed on the loan, and here is where the sides differ slightly: Vicki alleged that Fairway promised her it would refinance the loan in a year, while Fairway denied ever making such a promise.
Vicki felt that refinancing was important because Fairway had gotten her an interest only loan. Two loans, actually: A first and second mortgage totaling $200,000+, at interest rates of up to 14%. Vicki's combined payment on the loans was $1585 -- and that did not include property taxes, which are $300+ per month.
So Fairway set up a way for Vicki to own her house -- if she paid $1885 per month, on a loan on which she would never reduce the principal balance and would never gain any equity barring an increase in property values.
Vicki did not, though, try to refinance her property the next year, because she'd left her job and wasn't in a position to get a refinance. In 2009, she began trying to redo the loan, but ran into a brick wall at Fairway, which, when she contacted them to ask about doing a refinance, suggested that she contact a realtor to do a short sale.
Vicki didn't want to sell her property. She wanted to own it, and reduce her payments. She was paying credit-card interest rates on hundreds of thousands of dollars.
Now, between 2006 and 2009, Vicki had lost a job and her son Rick had moved out of the property and gotten his own place and she'd had some difficulties re-renting, and, of course, the economy went bad. So in all fairness to Fairway, refinancing probably wasn't a viable option... in 2009.
But while it was not an option, it was clearly a necessity, and it was a necessity because of the loan set-up in the first place: An interest-only non-escrowing loan made to someone who had no reasonable prospects of repaying this loan in the long term.
"They talk about an investor the way people in Narnia talk about Aslan."Vicki, in 2009, not wanting to short-sell her property, contacted SunTrust, which by then was only the servicer on her mortgage. SunTrust had owned the loan but had sold it off to an investor.
We don't know who the "investor" is. The "investor" was not a party to this suit. The "investor" has no lawyer in this case. The "investor" was never even named by any witness that I can recall.
But there's an "investor."
SunTrust's job, in 2009, was simply to collect money and apply it to the loan. And to handle requests on behalf of the "investor." Requests such as the one Vicki made when, after she left her job at a retail store in March, 2009 because she couldn't physically handle the work anymore, she called SunTrust to ask them to modify her mortgage.
Vicki left her job in early March, 2009, and found a new job a bit later, doing home health-care type work that had her traveling around quite a bit. But at the end of March, 2009, Vicki was unemployed and had $1800+ per month in mortgage expenses, and she called up SunTrust to try to work with them to go on paying her mortgage.
Vicki testified that she faxed documents to SunTrust on March 30, 2009. On April 19, 2009, Vicki submitted a package to SunTrust asking for a modification; the package included a formal application, a hardship statement, bank statements, payroll records, and 2 years' tax returns.
In May, 2009, SunTrust sent Vicki a form letter telling her that she should gather up financial information and that she would be contacted soon by a SunTrust employee. The letter said to expect a decision in "30-45 days."
In June, 2009, Vicki had not heard from SunTrust. SunTrust phone records produced at trial showed that SunTrust, some two months after Vicki's formal packet had been submitted, had "activated" her "loss mitigation" account.
That, a witness flown in from some other state to testify for an hour -- presumably, at Vicki's expense, but we'll see -- marked the time that a "decisioner" would be appointed. I may be misunderstanding what this witness called the person responsible for reviewing Vicki's file, but I'm pretty sure they said "Decisioner."
Because why not have a stupid name for someone in an important job.
SunTrust claimed that they got 100,000 phone calls in 2009. My co-counsel thought the witness said "per month." I thought it was "in that year." But either way, SunTrust was claiming that it had a lot of requests for assistance. That was part of their defense for what happened: We were really busy.
Following Vicki's "activation" in loss mitigation, SunTrust never called her. SunTrust sent her only one other letter -- at least, only one other letter was produced in evidence at trial -- an October, 2009 letter saying that Vicki might qualify for loss mitigation options. SunTrust produced no records that it requested further information from Vicki. SunTrust provided no evidence that it had called Vicki, wrote Vicki, or done anything to help Vicki.
"You see a lot of ads for stores hiring part-time holiday help right now. You know why that is? Because the holidays are coming and they know they're going to be busier. That's what companies do: when they get busier, they hire more people."
SunTrust's records, produced at trial, said that Vicki had called at least one time per month, sometimes more. Vicki testified that she provided updated bank records and a new application in September and October, 2009.
SunTrust records showed that SunTrust thought the house would be sold on July 7, 2009. SunTrust's records showed that the file twice in 7 months needed to be reopened. SunTrust's records showed that on November 23, 2009, the person responsible for evaluating Vicki's claims -- the "decisioner," if I heard right -- claimed to have not gotten any records from Vicki at all.
SunTrust, in the end, never acted on Vicki's request at all. At least not in any way that could be called "actually deciding whether or not to modify the loan."
Instead, SunTrust filed for foreclosure in late 2009, before ever telling Vicki whether or not her request had been denied.
Vicki testified that during those seven months she had repeatedly offered to make payments to SunTrust, but that SunTrust refused to accept payments from her. SunTrust's own records showed that Vicki offered to set up an escrow account to pay her property taxes, and Vicki during those months made payments to the second mortgage holder (until I told her to stop doing that.)
When SunTrust filed for foreclosure, Vicki hired my firm and we filed counterclaims and sued both SunTrust and Fairway. Fairway hired a Chicago law firm. SunTrust already had a big Wisconsin law firm. Vicki had me, and my small firm.
SunTrust and Fairway demanded to depose Vicki. We had to wrangle about whether SunTrust would provide witnesses and let them be deposed about that. We let them depose Vicki, and Vicki suffered through the first of many attacks on her credibility.
"If Vicki is a liar, she's the worst liar ever."
SunTrust's main theory of attack was Let's get Vicki. They didn't say that; that's my characterization. SunTrust, which called exactly one witness at trial (a supervisor who was able to testify in only a limited manner about some records and who was on the stand for maybe an hour), spent the bulk of its litigation going after Vicki and calling her a liar, primarily based on what SunTrust thought were discrepancies in Vicki's applications. SunTrust noted that Vicki had filled in boxes on the application showing a budget for groceries, for example, of $300-$325 per month. But bank statements which Vicki had submitted at the same time showed that Vicki's expenditures were actually higher than that.
Keep in mind: SunTrust, when sued for violating Wisconsin law and acting unfairly, responded not by calling witnesses to explain what it had done, but by poring over Vicki's financial information to try to prove that she was a liar.
Remember that when you feel like you have a "moral obligation" to pay your lender: When you call your lender for help or get in a dispute with them, your lender will literally spend tens of thousands of dollars not to help you or prove what it did, but to disparage you.
SunTrust only knew about the differences between what Vicki put on her modification application and her expenditures because Vicki gave them her bank statements, prompting me to have to point out to the Court that it's a pretty pathetic liar who does that: Why, I wondered, would Vicki have tried to deceive SunTrust about how much she spent on groceries, only to give them a bank statement in the same packet that showed exactly how much she spent on groceries?
SunTrust also noted that on the April application, Vicki had listed credit card debts but on her October re-application...
... SunTrust never explained why Vicki had to re-apply for a modification...
...Vicki had not listed the credit card debts.
Vicki explained that she had hired a lawyer to file a chapter 7 bankruptcy, and that she believed that the chapter 7 bankruptcy had discharged those credit card debts, so she didn't have to list them in October when she re-applied for the modification she'd previously applied for.
SunTrust (which, again, provided little evidence in defense of its own actions or inactions) provided a search of bankruptcy courts to show that Vicki had not filed a chapter 7 bankruptcy at all.
Vicki then responded that she'd hired a lawyer and had paid the lawyer to file a chapter 7 bankruptcy (it wasn't my firm) and believed that she had filed a chapter 7 bankruptcy. Vicki explained that she didn't know anything about chapter 7s and thought that she'd filed.
SunTrust's sole witness, by the way, testified that the chapter 7 bankruptcy (or lack thereof) wouldn't have factored into its actions, or lack thereof, in any way.
So what was the point of a high-priced lawyer or three tracking down whether or not Vicki had filed a chapter 7 bankruptcy in 2009?
You tell me.
I say "high-priced lawyer," and that's accurate. I'll get to that in a bit.
Vicki throughout her litigation felt attacked and roughed up; she nearly dismissed her claims after the deposition, feeling so badly about how she'd been badgered by lawyers who didn't need to do that at all. And SunTrust wasn't done.
Vicki had, on her application for modification, noted that she and her son Rick were taking care of her ex-husband John. John, Vicki testified, had a brain injury and lived with Rick. Vicki pointed out in her application that it would be a hardship to move him.
SunTrust's lawyers, earning those big bucks, produced in the litigation some sort of internet search document claiming John Lane had actually died in 2006, before Vicki made those statements on the modification application.
Vicki, under oath, testified that was inaccurate. Vicki swore her John Lane was alive in 2009.
SunTrust then went and located a death certificate for a John Lane who in many respects matched Vicki's John Lane. SunTrust had this certificate validated and brought it to trial, where they confronted Vicki with it. Vicki testified that in some respects the John Lane on the certificate appeared to match her John Lane, but reiterated that her John Lane was alive in 2009.
Leaving aside for the moment the question of what Vicki would have gained had she lied about supporting John Lane in 2009 -- it's certainly of dubious use in a modification request to suggest that you're supporting an invalid when your budget is already stretched thin and you can't pay your mortgage-- consider this:
SunTrust dispatched its high-powered legal counsel to locate the "John Lane" listed in a 2009 application and find proof of some sort that there could not have been a "John Lane" living in the Gorham street property in 2009.
SunTrust did that, instead of "acting on Vicki's modification request" or "calling witnesses to explain what it did."
SunTrust opted to spend its money digging into every detail on a 2-year-old application, leaving no stone unturned in its quest to prove that Vicki was a liar... while spending little to no effort reviewing her mortgage application.
Remember that when you argue about a "moral obligation" to pay your lender. SunTrust, Vicki's servicer, spent more time at trial questioning Vicki about which "John Lane" might be dead than it did questioning the witness who was actually responsible for reviewing Vicki's loan application.
That's right. That person was named "Miah," and "Miah" was named as a witness that SunTrust's expensive lawyers were going to call.
But Miah never showed up.
Miah never testified at all.
No reason was given.
One could argue that the reason Miah wasn't called was because Miah claimed, on November 23, 2009, that she'd never seen Vicki's modification documents, documents SunTrust admitted it had, which means one of two things: Either Miah's note of November 23, 2009, was a business-record-y lie, or there was something wrong at SunTrust, something so wrong that more than seven months after Vicki first submitted her request and five months after her file was "activated," the person responsible for Vicki's file had not even seen it.
We don't know, because SunTrust didn't call Miah. SunTrust produced a death certificate for a "John Lane," though.
SunTrust and Fairway moved for "summary judgment," trying to avoid a trial, twice. The Court denied the first of those motions, finding that Vicki had enough evidence to go to trial on most of her claims: Vicki had sued Fairway and SunTrust for violations of Wisconsin's laws regarding mortgage brokers and bankers, alleging that SunTrust and Fairway had acted incompetently and improperly.
(The Court did dismiss a debt-collection related claim Vicki made against SunTrust, and found that whatever improprieties involved in the origination of the loan might have been, SunTrust was not directly responsible for them.)
The second of the two motions to avoid trial was filed just weeks before trial, arguing that Vicki could not prove she'd been damaged. The Court never acted on that motion.
Here's something interesting, though: The week before trial, I got a call from the lawyers representing Fairway and SunTrust. The primary reason for that call? These two high-powered lawyers had written down the wrong dates for trial.
Originally, the trial had been scheduled for November 21 and 22. But in July, when SunTrust had asked for (and gotten) a judgment of foreclosure against Vicki that started the clock running on when she might have to leave her house -- I'm betting she won't have to, but that's not certain yet -- the Court had moved the trial to the 22nd and 23rd.
But a week before trial, the two high-powered lawyers who seemed to find me so ridiculous and annoying throughout this case had to call me to insist, first, that I do something because they'd only just realized that the trial was not on the 21st and 22nd but was two days later.
This is where I want to tell you how much SunTrust paid its lawyer, through July, 2011.
Seventy-four thousand dollars.
Plus. It was actually a little more. $74,000+ in fees were added into the judgment of foreclosure because when you get sued for foreclosure, you pay the lender's fees.
(Vicki may not end up paying those. We'll see.)
So Vicki was paying SunTrust's lawyers to beat her up in depositions and claim she was a liar, and for $74,000 these days you can't really get good help because for $74,000 you'd think you could at least buy a desk calendar, but who am I to judge?
So last Tuesday, a week before trial, I got a late phone call from these two lawyers who'd miscalendared, and they tried everything to get me to move the trial: they said I had to fix it, that I was wrong, that online court records were wrong, that I ought to agree to shorten the trial, this that and the other thing.
Because they hadn't planned on trying the case on the day that the Court was going to try the case.
I refused to bend and said they should do something about it.
And, ultimately, we showed up for trial on Tuesday, November 22.
Prior to that, Fairway and Vicki had almost agreed to a settlement -- on Friday afternoon, I had accepted on Vicki's behalf an offer of $20,000 to settle, but immediately things fell apart because Fairway wanted the deal to be confidential.
That's something I never agree to -- and even more so when the justification is that Fairway's employee -- Anissa Baker, who I've held off naming until now -- ought not to be given negative publicity.
"She can't just point and say it's a sausage; she has to say how the sausage is made."
You see, it's okay for a mortgage broker to make a loan based on unsound economic principals. It's okay for that broker and lender to then devote tens of thousands of dollars to trying to make someone look like a liar instead of simply justifying what they did. It's okay to take a middle-aged home health care worker and put her under such scrutiny and stress that she has to take sleeping pills and painkillers to deal with it.
But GOD FORBID you say something bad about the broker.
Anissa Baker, at Fairway Independent Mortgage Corporation, didn't deserve mean things said about her.
Vicki, though, apparently deserved to repeatedly be called a liar in court.
Moral obligations etc etc.
I rejected confidentiality and told Fairway the deal was off. So as of Tuesday, we had no deal whatsoever, but Vicki told me to try to make it again, with no confidentiality, so prior to the start of trial, I offered again: $20,000 with no restrictions on speech.
Fairway waited until lunchtime to accept that deal. Neither side admitted the other was right -- Fairway expressly still denies doing anything wrong -- but Fairway paid Vicki $20,000 after seeing Vicki testify in court.
Make of that what you will. Remember, though: Fairway expressly denies doing anything wrong.
SunTrust proceeded on through trial, even though Vicki has several times offered to keep paying her loan. Vicki's last offer, in fact, was that SunTrust ought to write the principal of the loan down and reduce the interest rate, and Vicki would then begin paying it, with the proviso that if she missed a payment, SunTrust would get their judgment of foreclosure without any further ado -- and for the full amount it felt it was owed, not the reduced amount.
Think about that. SunTrust rejected the offer, but it's worth thinking about: Vicki was saying "I'll pay you $300,000 plus over time" ($140,000 with interest over 30 years comes to several hundred thousand) "And if I don't, you win automatically. No starting over, no new pleadings, defenses, depositions, etc."
That's what's called a "Doomsday Stipulation." It's all-or-nothing and many lenders routinely enter into them in bankruptcy court. Vicki would be waiving every legal right she has, and promising to pay, and SunTrust would be at worst giving up some (but not all) of its profit.
Vicki gives up everything -- but stays in her house. SunTrust gives up almost nothing, and starts making money.
SunTrust didn't want that.
You know what's not clear? Whether SunTrust's investor -- let's call him Aslan -- wanted that deal. SunTrust's lawyer told me she hadn't spoken to the investor. Ever. Do you suppose that the person who is supposed to get Vicki's money knows what Vicki offered? It's not clear to me that he does.
So who's making the decisions here?
And why are they deciding those things?
In the end, SunTrust called their one witness, identified some records, provided no explanation for why, in seven-plus months it hadn't even told Vicki whether her request had been approved or denied, and then closed its case by arguing that Vicki hadn't proven her case.
The judge took it under advisement, and we don't know yet whether Vicki will win against SunTrust. She's already up $20,000 -- my fees are nowhere near $74,000+, because I'm not a big-shot lawyer with a big-time client -- and we'll see what happens.
But here's what I know and SunTrust seems not to:
Vicki can't lose, and SunTrust can't win.
Vicki can't lose because Vicki will maybe have to move out of this house -- maybe. We have a lot of other tricks up my sleeve. A lot. (I'm quite good.) But move or not, Vicki has to make a house payment. She wants to make that payment to SunTrust and live in this house, but either way, Vicki's end result is she gets to pay for the house she lives in.
SunTrust can't win because SunTrust is owed $300,000-plus by its account -- nearly 1/4 or more of that being lawyer's fees for this case only-- but the house in question is worth at most about $200,000. SunTrust will never collect any money from Vicki, for a variety of reasons. It will at best get paid the value of this house less the cost of sale -- or about $182,000-- and it will have to pay upkeep and property taxes until that house sells, further cutting SunTrust's profits.
So SunTrust, which has already shelled out at least $84,000 in fees and costs (it paid $10,000 in property taxes Vicki was willing to pay) will maybe net $98,000 from this house.
In case you were wondering why there's a mortgage crisis in this country... wonder no more.