Buying Them Time
At the start of the Great Recession, I heard that you could stop an eviction by demanding to see the mortgage. The notion gained currency because of the way that mortgages passed from owner to owner until they were bundled by the tens or even hundreds of thousands into mortgage-backed securities. Some investors collected only the principal payments from these mortgages, others only the interest payments. So who holds the mortgages themselves?
According to instant urban lore, the original mortgages were often misfiled, physically lost, or impossible to tie to particular investors. So when they knock on the door to evict you, you say, “Howdy, Sheriff. I’m a law-abiding citizen, but I don’t think those people own this house. I’ll leave as soon as you show me the mortgage.”
I’d heard it from community organizers; I’d heard it from lawyers; I’d even heard a congresswoman instruct her constituents, on network television, to demand to see the mortgage when they come to take your house. I hadn’t heard of anyone who succeeded. As a matter of fact, I hadn’t located anyone who actually tried it. That remained true even after the robo-signing scandal of 2010 exposed the fact that clerks at mortgage companies signed hundreds of foreclosure papers a day without checking the original mortgage documents whose existence and terms they swore to. But way before that scandal I heard about a judge who seemed to be saying something similar to “show me the mortgage” in his courtroom.
The housing bust was relatively mild in New York City, but from its beginning the Brooklyn judge Arthur M. Schack developed a reputation for standing up to banks and thwarting foreclosures. In his 2007 decision in Deutsche Bank National Trust Company v. Castellanos, he quoted George Bailey (Jimmy Stewart) confronting the evil banker Mr. Potter (Lionel Barrymore) of It’s a Wonderful Life:
Do you know how long it takes a workingman to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you’re talking about … they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?
Schack had been a lawyer for the Baseball Players Association—“I represented millionaires against billionaires”—before he became a Kings County Supreme Court judge. At five feet five inches and two hundred pounds, he looked, on the bench, like one of those Russian stacking dolls. “The third or fourth doll in,” I thought as I followed behind him into his chambers.
By the time I met him in 2009, more than thirty of Judge Schack’s decisions were linked to on a Web site called the Home Equity Theft Reporter. So I was ready to hear some radical talk about reversing that theft. But the most Judge Schack would say to me about his judicial philosophy was “I try to buy the little guy some time.”
Here’s how he did that.
In Florida the legislature set up special “rocket docket” foreclosure courts, hiring retired judges to get through the backlog. At the time, courts in Fort Myers, Florida, were handling a thousand foreclosure actions a day. Most of them received as much judicial time as it took to apply a stamp or a signature where the bank needed it. (Fewer than half the states in the Union even require a judicial signature to foreclose. New York and Florida are among the states that do.)
When homeowners actually appeared in court, one Fort Myers judge permitted them to answer only two questions: “Are you living in the home?” “Are you current on your mortgage?”
Brooklyn’s housing caseload wasn’t nearly as high. Still, foreclosures accounted for about 30 percent of the Kings County Supreme Court’s docket. That didn’t stop the judge from applying an unusual procedure. When Judge Schack gets a foreclosure application, he betrays his bias toward the little guy by actually reading it. If it’s full of errors, he denies the foreclosure until the papers are cleaned up.
The chubby judge swiveled toward the teetering piles of documents on his windowsill and pulled out three examples while somehow leaving the stacks standing.
“This one …” He handed me papers on a ghetto walk-up that had been foreclosed. “But no one from the bank told the tenants, so the former landlord kept showing up for over a year to collect the rent.”
The most recent tenant had found her apartment on Craigslist, the judge told me. “She paid $3,000—one month’s rent and a month’s security—to a scam artist.” For the tenants’ sake, Judge Schack delayed clearing the building for ninety days.
The second case Judge Schack pulled out concerned a man named Jonas Earl who lived on a block of single-family houses near my old high school, James Madison in Flatbush. The neighborhood was now black and Russian and still solidly middle-middle class. In 2006, Earl had taken out a $375,000 loan against his house with Contour Mortgage Corporation, which sold his note to a loan company called Option One. (Hold on to that name.)
Option One passed Earl’s debt along to other financial institutions until it finally became part of the asset-backed certificate 2006-OPT4, managed by Deutsche Bank. But Judge Schack (remember, he actually reads these papers) noticed that the first transfer in the chain occurred a day before Earl signed for his loan. “Nonexistent mortgages and notes are incapable of assignment,” the judge said, throwing the case out “with prejudice.”
“Does that mean he gets to keep the house,” I asked, “and they’d just be out that cash?”
Judge Schack laughed, perhaps at the way I’d suddenly reversed sides at the idea of a real “little guy” walking away with 375,000 real dollars. But all the judge would say about his decision was “I bought him some time.”
“But what if Contour and Option One can’t find the correctly dated paperwork?” And I told him about the myth I still cherished: “The sheriff comes to Earl’s door, and he says, ‘Of course, sir, but first show me the note I signed.’ ”
“Like the silent movies,” the judge said, kidding me. “Perils of Pauline. The guy with the black mustache forecloses on the mortgage and ties her to the railroad track, but our hero comes along and …”
“Yes,” I had to admit. That’s what I’d hoped was going on in his courtroom.
Judge Schack had never heard of any case where they “lost” the mortgage. He explained that all mortgages are registered immediately by the block and lot. “Things may get messy as the debt passes from brokers to banks to investor trusts and back to the bank or some mortgage servicer to handle. Then you might sometimes find that bank X doesn’t own it but bank Y does. It can get murky, that’s the word you should use, ‘murky.’ But in New York you need a judge to approve a foreclosure, so they have to establish who owns it before the sheriff comes to your door.”
Judge Schack’s “little guy” decisions merely required that the banks establish things properly.
“Here’s a good one …” The final decision Schack showed me opened with a quotation from Gretchen Morgenson in the New York Times Sunday business section:
It’s dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.
Schack had extended Morgenson’s “show” metaphor in the foreclosure action against Susana Elsemeer:
The show we’re watching in this … action features a possible incestuous relationship between HSBC BANK USA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE FOR THE REGISTERED NOTE HOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2006-4 (HSBC), Ocwen Loan Servicing (OCWEN), Delta Funding Corporation (DELTA) and Mortgage Electronic Registration Systems, Inc. (MERS) that might also include Goldman Sachs and Deutsche Bank.
Judge Schack noted in his decision that the address of the plaintiff, HSBC, is care of the large mortgage servicer Ocwen at 1661 Worthington Road, suite 100, in West Palm Beach, Florida, while the mortgage assignment was executed by one Scott Anderson, vice president of MERS, who gives his address as 1661 Worthington Road, suite 100. The judge, who not only reads the documents but remembers them, went on to cite previous foreclosure requests in which both Deutsche Bank and a Goldman Sachs real estate subsidiary were also said to be housed in the same suite 100. On one document Scott Anderson swore that he was HSBC’s servicing agent, and two days later he swore that he was a vice president of MERS.
“Did Mr. Anderson change his employer between June 13th and June 15th?” Judge Schack asked. “The Court is concerned that there may be fraud on the part of HSBC, or at least malfeasance.”
So before the Elsemeer foreclosure could go forward, Judge Schack demanded to see “an affidavit from Scott Anderson clarifying his employment history for the past three years … and an affidavit by an officer of HSBC explaining why HSBC purchased a nonperforming loan from Delta Funding Corporation, and why HSBC, OCWEN, MERS, Deutsche Bank and Goldman Sachs all share office space in Suite 100.”
In a general way, I could give him some of the answers myself. A mortgage servicer is delegated by the mortgage owner (which may be a bank or an investor group) to handle collections and other contacts with the homeowner. Ocwen may have serviced some mortgages for all the banks the decision mentions. So it might be convenient for them to use Ocwen’s address for certain mortgage-related dealings.
MERS is a private registry set up in 1995 by Fannie Mae, Freddie Mac, and other major lenders to keep track of mortgages as they change hands in the Grand Allamande of securitization. One of MERS’s primary functions is to thwart my show-me-the-mortgage scenario through careful record keeping. But as we learned in the fallout of the robo-signing scandal, some twenty thousand people like Ocwen’s Scott Anderson, at mortgage companies around the country, were allowed to log in to the MERS computerized mortgage registry and make changes. In the middle of a gold rush this procedure for registering claims invites error at the very least.
The mortgage of Susana Elsemeer of Decatur Street in Brooklyn may have passed through many of Scott Anderson’s “employers” on its way to being lumped with thousands of others into Renaissance Home Equity Loan Trust 2006-4. Every step from originating this mortgage to foreclosing may have been sloppy and deliberately obfuscated, but was it any more malfeasant than the rest of the U.S. mortgage system? Does the judge really believe there’s fraud afoot in suite 100?
“If you’re going to take away someone’s house,” says Judge Schack, “it better be legal and correct.”
He handed me a copy of the Elsemeer decision, but I couldn’t extract the human story from the legalese, so I peppered him with questions. “No,” he told me, he’d never gotten that employment history from Scott Anderson. “Yes,” any corrected foreclosure papers would have to come back to him if the company had tried to straighten it out. That made it likely that the matter had been settled out of court.
“So how did it end? Who got the house?”
When he shrugs, Judge Schack looks even more like one of those Russian dolls. But that was the only response he could make. All he can tell me about Susana Elsemeer and her co-defendant, Samuel Elsemeer, is “I bought them some time.”
“This Is My Tara”
I drove down the shopping street nearest the Elsemeer home looking for a supermarket, but all I saw were a couple of dismal food marts. A peeling three-story building with an empty storefront bore the sign “For Sale $1,000 Down, No Closing Cost.”
But as soon as we turned onto Decatur, we were on a tree-lined block of nineteenth-century Brooklyn. Six-Sixty was one of the most elegant town houses on the street.
No one answered on the parlor floor, but a male head emerged from the below-street-level door and told me that Susana Elsemeer was sleeping. I asked if I could speak to the co-owner, Samuel Elsemeer. “That’s me,” he said. “Susana is my mother.”
Samuel, a large young black man, made me comfortable in the kitchen on the ground floor, or “servants” floor, and went to check on his mother. “She’ll be right down,” he reported. Susana Elsemeer soon scurried in, lively as a squirrel. At the mention of Judge Schack’s name, she seemed to do a delighted little skip-hop.
Eager to be interviewed, Susana emphatically said, “I’ve lived in this house all my life,” giving me time to copy it down. But she quickly corrected the facile sound bite. “Well, I traveled a little, and I was married a little. But I’ve lived in this house”—she did the calculations—“maybe fifty of my fifty-nine years.”
Her parents bought the house on the GI Bill in 1951, then raised their family and died there. At that time Susana was back living on Decatur Street with little Samuel. She had to buy her brother’s and sister’s shares of the house if she wanted to stay.
“That was only fair,” she pointed out. Still, she couldn’t help remembering, “I did all the shoveling snow and the heating and that stuff while their names were still on the title.” She had also helped pay off her parents’ mortgage from her earnings as a freelance typist when Samuel was a toddler.
“So I took out a mortgage loan to pay them off, and I used the leftover to replace all the windows. Then there was a water main break—that cost me $6,000 … later roofing, and then …” According to the foreclosure papers, there was a consolidated debt of $463,817.64 when Susana Elsemeer missed a payment in 2007.
By then she was working as a school secretary and boarding foreign youngsters from a Manhattan language school to pay the mortgage. “Because I had a young man in the home, I chose to host young guys—from seventeen to twenty-five or so is what they sent. Samuel would take them out in the mornings to the subway and point them in the right direction. He still gets birthday cards from one of the French kids that we entertained.
“It was very good money.”
“How much?” I asked.
“One eighty-five a week for a room upstairs and two meals.”
“Wait, you served breakfasts, worked full-time, and then cooked dinner every single night for a crowd of students?!”
“Well, I’m a big cooker, Samuel will tell you. Some things I don’t know how to make small.”
“Still,” I said, remembering my own single parenthood, “some nights you just want to eat a spoonful of peanut butter and sit there and stare.”
“Especially when I was the suspensions secretary at the high school. I was stressed, stressed, stressed. But in the beginning Samuel helped me. If I was tired, I put a good face on it for the kids.
“Then Samuel went off to the Job Corps to learn a trade and get his GED, and then I had the knee surgery, and then the recession came and the students dried up. First it got sporadic, but after Lehman Brothers and all that craziness the bottom dropped out. So at that point in time I was dealing with empty-nest syndrome and empty-pocket syndrome.”
That’s when Susana missed a payment and began the process of negotiating a series of forbearance agreements with her mortgage servicer. A forbearance agreement allows a debtor to pay a lesser amount and defer the rest, plus interest, to an agreed later time.
“What was it like dealing with Ocwen?” I asked.
“Ocwen?” Angst came into her voice. “I was working at a high-stress job; I was taking an Access-a-Ride back and forth to Manhattan, sometimes traveling four hours a day. Then you get home and call Ocwen, and it says, ‘The waiting time will be an hour and a half.’ ”
“They actually said an hour and a half?” I asked dubiously.
“Do you remember that, Samuel? They would say, ‘Waiting time two hours,’ ‘Waiting time two hours forty minutes.’ So you take your food upstairs and sit at the phone after work; you sit on the weekends. I called for months, and they would put me in a queue.”
“You must have gotten through to somebody, sometime?” I said.
“Yes, and you know what happened. I’ll never forget that. I waited and I got to someone in Indian customer service, and he said he was going to transfer me to somebody else, and I said to him, ‘Please don’t put me back in that queue again.’ I said to him, ‘I have waited so long.’ I said, ‘Please, are you sure you’re going to connect me to a person?’ And he put me right back in the queue.”
“This was at a time when you were going into another default?”
“Yes. There was one time that I even had a check that sat in my dresser and I couldn’t get in touch with anyone.”
“So how did you …?”
“I wrote to the New York State Banking Department and—”
“You needed the New York State Banking Department to contact your own mortgage company?”
“What I found out is you don’t talk to customer service. What I found out is you’ve got to get through to the people who have the authority to make these decisions, and they did that. So this was a learning process.”
“That must have felt terrible,” I said stupidly.
“I felt like David facing Goliath, only I had no rock and I had no slingshot and I wouldn’t have known what to do with it if I had it. I felt small, powerless, put-upon, ignored—all of those good things.
“But Samuel will tell you, I’ve stood and I’ve fought for this house for a long time. I’m smart and I’m educated, in certain ways, and if I’m determined to find something out, you’re not going to keep it away from me. I contacted the New York State Banking Department, and then the office of the ombudsman from Ocwen called me, and we worked out a forbearance agreement.
“But it was a bad agreement because at that point in time I didn’t understand the difference between a forbearance and a loan modification.” A forbearance agreement temporarily lowers a monthly payment, but you still owe all of your remaining mortgage plus additional interest. A modification permanently changes the terms of the mortgage by lowering either the interest rate or, less frequently, the principal that’s owed. “Besides, I just wasn’t financially stabilized at that point. When I had the students, I could pay it; when I didn’t have the students, I couldn’t pay it. This was one of my darkest points. I was in an agreement, but I couldn’t keep it.”
“So what did you do?”
“I stayed awake nights and I worried and I cried and I prayed and I did all that stuff. I thought about taking in foster children. I thought maybe it would be nice to have some older girls. You know, be a role model, a power woman. But I’m getting older. I mean, the interaction with the students was intense. You can imagine young girls and their problems and dramas. I said, ‘I’m going to have to do something; I’m going to have to declare bankruptcy. Let me first start out with a consumer credit counseling service.’
“I was in such a state, I was so embarrassed. You know how they tell you to bring your bills. I had paper all over this place, and all I could do is take everything in a shopping bag. The lady would ask to see something, and I would just pull stuff out. I said, ‘I’m not usually like this; I’m a secretary. I work with paper all day long.’
“Finally, she looked at the things and she said, ‘You’re asking for the wrong thing. This is not going to work. You have to go back and tell them that you need a loan modification.’
“I got to be the queen of modifications and forbearances. I was in two forbearance agreements that I couldn’t keep, then a modification.
“Then one August morning—schools were closed for the summer, and I was sitting upstairs worrying—a miracle came through the mailbox.
“At that point in time I was current on my latest forbearance agreement, so I thought I was safe for another month. What I didn’t know until aftersight is just because I was in an agreement didn’t mean I was safe, because meanwhile they were going ahead with foreclosure, and rightly so.” Banks in modification negotiations reserve the right to continue with foreclosure and often go ahead. “So these two things were going along parallel with each other, and then out of the blue his decision came.”
Susana Elsemeer may not have heard about the bank’s foreclosure petition, but she saw immediately that Judge Schack’s answer to it bought her time. But time to do what?
“It took two miracles. If Judge Schack had said ‘fine’ and rubber-stamped it, everything would have been different. And the second miracle—maybe it was not the best of miracles …” Susana stopped herself short and directed her voice upward. “I’m sorry, God, I shouldn’t have said that.” Then she turned back to explain the lesser miracle to me.
“What happened is, when I first got working, I didn’t officially work for the city. I officially joined the Department of Education in 1994. I wasn’t aware for a couple of years that I could change my pension tier. Tier one is the old-timers, and naturally they have the best deal. I put in for a conversion, which is, I worked for the city for fourteen years, but now I’d be given credit, in certain ways, for twenty years. It takes a long time, but sometime during that summer they must have juggled the numbers. In the fall I got a statement. I barely had any money because, naturally, I’d taken out loans on my pension all along. But suddenly my pension—not the 401(k) part, but the other part—had an available loan of like $11,000. At that point I knew for certain, I can manage.
“You know something. To this day, and I am a woman of faith, to this day I don’t know why I got sent a copy of that decision. It didn’t make any sense at first, because I didn’t know I was in foreclosure.
But I read those first couple of paragraphs, and I laughed myself to death. All the problems I had with Ocwen seemed to be distilled in those paragraphs. I just sat down, I called up my girlfriend, and we laughed and laughed and laughed and laughed because she knew everything that was going on with me and Ocwen. She has a little kid’s voice and she said, ‘He certainly seemed angry with them.’ And I said to her, ‘Let me tell you something, I don’t know what this is all about,’ I said, ‘but there’s something good in it for me because they were the bad guys and he just chased them all back to this little room. All those big banks in one little room.’ I was just so tickled.”
I asked Susana if it had felt different to negotiate with Ocwen once she had the judge’s decision behind her. I expected her to crow about how fiercely she bargained once she had a rock for her slingshot. But instead her whole body seemed to sigh.
“I couldn’t do it,” she said apologetically. “I couldn’t start the telephone calls. I couldn’t start with the ombudsman’s office.” She appealed for my understanding. “I was seriously considering bankruptcy. I was ready to have a nervous breakdown. Emotionally, I couldn’t talk to Ocwen again. I just couldn’t. I wanted someone to do it for me.
“So this last time I did some research on loan modification companies.” She must have seen my dismay. The newspapers were full of stories about crooked and useless modification schemes, and I would soon meet people who fell for them.
“My friend who’s a realtor said, ‘Don’t do it, don’t pay anyone.’ But no one is walking around in your shoes. I did good research, and I found a company called Amerihope. They have a Web site. I paid them $1,200 in installments.
“They told me that Ocwen was getting ready to foreclose again in court. I guess they had gotten it together, got their papers correct. I would have had to show up myself; I would have had to retain a lawyer for a lot more money than $1,200. These people went in, and they got me the last agreement, which I am getting ready now to make the third payment on. I got a letter in the mail saying that the charges against me, against the house and what not, they’ve been dropped.” Late fees and other charges connected with mortgage delinquencies can be flabbergasting. “I have the letter upstairs on my printer. And that’s how the last agreement happened.
“And now that I have respectable, steady money coming in from three roomers and I had the money from the pension for a new down payment, I could make a payment plan that I can keep.”
Susana’s new monthly payment of $2,900 is actually higher than some earlier negotiated payments, but it’s doable as long as she keeps collecting rent from the three single adult roomers that her friend in real estate helped her find. But the recession was dragging on. What if one of them loses a job? I wondered. Where would Susana find another miraculous cache of capital after borrowing the maximum from her pension? And how will she ever be able to retire?
Susana and Samuel saw me out.
“It’s too gorgeous,” I said, breathing the air on Decatur Street. “It’s going to be gentrified.”
“Hey, they’re jogging with dogs already,” Susana responded. “I stood here this spring with my next-door neighbor—he’s been here like forever—and we saw them jogging with these little dogs, it’s like, ‘The pit bulls are going and the poodles are coming in.’ I’ve said to Samuel, someday he’ll be able to demand a million for this house.”
“So his only way to enjoy the house may be to sell it?” I suggested.
“We’re disputing with that now. I’m getting tired of the cold weather. But we’re not sure the neighborhood is gonna change quickly enough. I tell Samuel if he does get into those unions [Samuel was up for an apprenticeship program] and he’s making the money, then I’ll go get a little place somewhere where it’s warm and then come back and forth and maybe he’ll have a family and maybe not.
“But it’s gotten so shabby.” She turned to look at the house. “The staircases need carpets, I want to redo the outside. Not with that stuff they used across the street.” She points to a house with modern siding. “My dream is one of these days I’ll be able to restore it to the way it was. Like on This Old House, the one they did on Sterling Place”—a Brooklyn town house that had had a televised restoration.
“Anybody who knows me knows two things,” Susana said, summing up. “They know Samuel, and they know this house. That’s my life.”
“It’s gorgeous,” says Samuel.
“And we love it,” says his mother.
The tiny black woman sweeps her arm back toward the Brooklyn town house and says, only half joking, “This is my Tara, and I swear I’ll never be hungry again.”
Susana Elsemeer and I are small, wisecracking, middle-aged women with almost the same Brooklyn accents. We were both single parents, and we both spent our prime years managing the family’s finances alone. The big difference between our two financial systems was savings—or capital.
Before my daughter was born, I had put away about $30,000 from a play I wrote. It was easy to save since I earned the money all at once. My system from then on was to put all my book advances (also earned all at once) in the bank and spend them as slowly as possible. I never had much more than $30,000 during my single years, but I was always ahead of the game.
When my daughter broke a tooth, I paid cash; when Susana’s house broke a water main, she borrowed. That meant that the $6,000 repair cost her $10,000 or $12,000 or more as she paid it off. Meanwhile, she had that much less equity in the house.
Susana borrowed on her parents’ house in order first to buy and then to maintain it. Then she borrowed from her pension (and not for the first time) in order to put enough cash back into the house to get a mortgage payment she could afford. She’s already hollowed out her two most obvious sources of savings, her house and her pension. How will Susana ever get ahead of the game?
What about saving out of her wages?
Even cheap as I am, I’m not sure I could have come up with a budget that would have allowed a school secretary to set aside enough cash to cover a mortgage of close to $3,000 a month in so deep a recession.
Susana had deliberately rented through a foreign school so she wouldn’t be dependent upon more economically insecure local renters, she’d told me. Though that is what she has now. But she considers them stable since her friend the realtor helped her to find them. Susana herself never mentioned being black or living in a black neighborhood as an economic problem. Still, she’d “diversified” in a manner that would leave her less vulnerable to black or even U.S. unemployment. But she hadn’t prepared for a global recession.
When it came, the Elsemeer finances were precarious enough that despite a good union job (formerly known as a regular job) it took two miracles—a windfall of time plus a windfall of credit—for this single earner to save her house. But save it she did. And though she’s fallen behind a time or two since, she will keep it, I’m sure.
I was still hoping to find someone who got his house free and clear because the bank couldn’t produce all the pieces of the sliced-and-diced mortgage. Frankly, I was a little disappointed that Susana hadn’t used Judge Schack’s decision to say, “Show me the mortgage—or at least, give me a lower interest rate.” But in fact, I had just seen the happiest housing outcome I ever would.
I wish I’d taken a picture of Susana and Samuel Elsemeer waving from their town house steps. Judge Schack would love to see it. By the way, they asked me to convey their profound gratitude.