THE DEAL THAT STEVE MNUCHIN got to acquire IndyMac was so sweet that many observers wondered if he had benefitted from an extreme form of special treatment.
His group, which ultimately included not only J. C. Flowers and John Paulson but also Mnuchin’s former boss George Soros and computer industry titan Michael Dell (whose money had been managed, in part, by Mnuchin’s friend Eddie Lampert), received all of IndyMac’s assets—its branches, real estate, deposits, and loans—by promising to pour $1.6 billion of capital into the bank. Given that IndyMac was worth more than $30 billion when it failed and was still valued at $20 billion—including $6.5 billion in deposits—at the time of sale, that seemed like a pittance.
The new owners tried to put as much distance as possible between themselves and the previous management, rebranding the bank OneWest the same day they bought it. Unlike IndyMac, which was focused on aggressively selling mortgages, OneWest, a press release read, would be a community bank with deep local roots, “focused on delivering personalized, relationship-focused banking to its customers.”1
Mnuchin had finally made his big score. He’d put in a relatively small amount of money—$10 million, according to multiple sources—but was awarded a 10 percent stake in the bank owing to his work cobbling together the deal and the new roles he would be assuming: chairman and chief executive officer. Thus, he would be the biggest relative winner when it was eventually flipped. His partners would profit in proportion to what they put in, but he would also be paid a hefty salary to run the bank, in addition to an outsized return when it was eventually sold. Mnuchin started spending most of his time in Los Angeles, eventually buying a sprawling nine-bedroom, ten-bathroom Bel Air estate for $26.5 million.2 His wife, Heather, stayed behind in their Park Avenue apartment.
Though the government estimated it would lose more than $10 billion on IndyMac’s failure,3 the deal was virtually guaranteed to make money for Mnuchin and his investors, as it featured a loss-sharing agreement similar to the one Ford and Perelman had gotten for First Gibraltar. Any money that Mnuchin and his colleagues made on IndyMac’s old loans, they got to keep. Any money they made on new business activities they started, they got to keep. But if any part of the old IndyMac lost money, the government would pick up most of the tab.
The sweeteners didn’t end there. The deal required OneWest to continue the FDIC’s limited loan modification program, but it also effectively removed economic incentives that would have otherwise caused Mnuchin’s group to think twice about foreclosing on homeowners. If the new IndyMac foreclosed on a property and the borrower owed more on the home than it was worth (as was usually the case), the government paid most of the difference—along with the company’s legal and appraisal fees, insurance costs, and any other expense of the foreclosure.
So, if a borrower owed $300,000 on a home that thanks to the housing bust was now worth only $100,000, Mnuchin’s group could foreclose and sell the home at auction for $100,000. Then it billed the government for the difference, $200,000, plus all the fees incurred. On the other hand, any profits Mnuchin’s group cleared on new products and services they introduced they would be allowed to keep without ever paying back the taxpayer. It was “heads I win, tails you lose”—all on the government’s dime.4
FDIC officials insisted those terms were necessary to get the bank off the government’s books. “It was the only way we could have gotten anyone to buy the bank,” the then-chairwoman, Sheila Bair, told me. The FDIC had put IndyMac up for bid, and Mnuchin’s group was the only one willing to purchase it all. Goldman Sachs and a number of other investment firms were willing to take on IndyMac’s toxic mortgages, which the government was promising to cover, but not the obligations that came with holding consumer deposits. Whoever bought the deposits would have to write checks to consumers if they withdrew their money. To vulture capitalists, toxic mortgages were worth more than the $6.4 billion in cash that they would have been able to invest at safe—likely lower—rates of return.5 Only one company, US Bank, wanted IndyMac’s checking accounts, savings accounts, and CDs. But the Minneapolis-based bank required the government to not only cover potential losses but also pay it for taking these accounts off the FDIC’s hands.
As the crash dragged on, the federal agency provided nearly identical terms to other early buyers of failed banks. For example, in May 2009 the FDIC signed a loss-sharing agreement with the buyers of BankUnited, the largest lender based in Florida. Like IndyMac, BankUnited failed because of risky, profligate lending. The lead investor in that case was Wilbur Ross, a septuagenarian merchant of debt who had made a career out of manipulating bankruptcy proceedings. In 1990, for example, Ross negotiated on behalf of the creditors of Donald Trump’s failed Taj Mahal Casino Resort in Atlantic City, New Jersey, which had been built with $645 million in borrowed money but failed to turn a profit. Trump was allowed to keep a controlling interest in the casino—“the eighth wonder of the world,” he called it—only after he agreed to pay bondholders high-interest payments as well as give them the ability to wrest control of the board should the operations deteriorate.6 When things didn’t turn around by the following July, Trump was forced to take the casino into Chapter 11 bankruptcy. In so doing, he surrendered half his interest in the casino—although the Trump name was still attached.7 “The Trump name is still very much an asset and a big draw to people in Atlantic City,”8 journalist Hilary Rosenberg quoted Ross as saying in her 1992 book The Vulture Investors: Winners and Losers of the Great American Bankruptcy Feeding Frenzy.
The Trump deal was atypical for Ross. His usual game was to use bankruptcy proceedings to take control of a company, raid its assets, and then flip it after the fact. This usually started with buying at least one-third of a target’s debt. Because the company was in distress, the debt could be purchased for pennies on the dollar. As Eileen Appelbaum and Rosemary Batt wrote in the public policy magazine American Prospect, “Ross would then become the largest creditor, giving him a lot of power in the bankruptcy proceedings. This positioned him to be the strongest bidder to take the company out of bankruptcy—paying for the purchase by forgiving the loans he had made to it. At the end of the day, the debt he held would be wiped out, but he would now be the biggest or only shareholder in the company.” Over the years, Ross had used this strategy to buy and flip coal mines and textile factories. He was perhaps best known for buying several bankrupt steel companies and bundling them into a platform called International Steel Group, which he flipped to the Indian-owned multinational Mittal Steel Company in 2005. According to Appelbaum and Batt, Ross made $4.5 billion, or fourteen times his investment. Along the way, he raided the workers’ pension fund for exactly that amount; in other words, the money he made off the deal came from leaving employees without promised retirement savings.9
With Ross’s purchase of BankUnited, it was the federal government rather than workers that took the hit. His group pledged to put in just $900 million for a bank with $12.8 billion in assets and $8.6 billion in deposits. The FDIC estimated its losses on BankUnited at $4.9 billion,10 an amount that proved to be optimistic. A year and a half later, the agency upped its guess to $5.7 billion.11 But Ross and his group made out fine. The bank turned a profit for nine consecutive years, largely on the strength of massive government subsidies. According to documents I obtained using the Freedom of Information Act, the government paid $2.7 billion to cover their losses on the old loans.12
Ross and Mnuchin were both looking to put in the least amount of money in return for the biggest government subsidy and the chance to flip the bank as quickly as possible. They bristled when Bair proposed adding rules around capitalization—forcing investors to infuse more cash into the banks they acquired to make sure they didn’t fail again—and requirements that private equity buyers hold on to formerly failed banks for at least three years. In a letter of protest, Wilbur Ross proclaimed himself to be “dismayed” at rules that he called “unfair and unreasonable. . . . I assure you that my group will never again bid if the current policy statement is adopted in its present form. Does the FDIC really want to be stuck with hundreds of failed banks?”13 Mnuchin wrote Bair too, using more measured language but delivering the same message.14 Faced with what the Wall Street Journal dubbed a “ferocious lobbying effort by the buyout industry,” the agency backed down.15
Within a year, Mnuchin and his investors bought two more failed banks from the FDIC: La Jolla Bank of San Diego and First Federal Bank of Los Angeles. In each case, the government sold the failed bank at a discount and then offered a loss-sharing agreement, guaranteeing to cover much of OneWest’s losses when it repossessed borrowers’ homes. Through these sales, Mnuchin’s banking empire grew. By February 2010, OneWest had amassed eighty-one branches, $14 billion in deposits, and $27 billion in assets—almost all of it acquired from the government.16 Over the life of the agreements, the feds would pay the new owners $1.5 billion17—roughly the same amount of money Mnuchin and his investors had pumped into IndyMac Bank to buy it.
Almost as soon as the IndyMac deal closed, signs emerged that OneWest’s effort to keep families in their homes was, at best, haphazard. Homeowners felt like they were on a conveyer belt toward foreclosure. Though OneWest’s deal with the FDIC required it to review a borrower’s entire file, confirm all relevant facts, and offer a financially responsible work-around plan, most of the time, that didn’t appear to happen.
An early, disturbing sign of OneWest’s strategy came just three months into Mnuchin’s ownership, on July 9, 2009, in the conference room of a law office surrounded by green grass and palm trees in West Palm Beach, Florida. A bank employee, Erica Johnson-Seck, had been flown to Florida to be deposed in a wrongful-foreclosure suit filed by Israel Machado, the owner of a pool-cleaning business who had fallen behind on his $400,000 mortgage. Since the property had declined in value, Machado wanted a “work-out,” with the size of his loan reduced to the property’s market value of $200,000. There was no way the bank would get more than that if it sold his property—meaning that, ordinarily, such a move would have made sense for everyone involved. “The whole intent was to get them to come to the negotiating table,” Machado told the Wall Street Journal, “to get me in a fixed-rate mortgage that worked.”18
Mnuchin had promised to turn OneWest into a community bank with a close, personal relationship with its customers, but Johnson-Seck was about as remote from most of the company’s borrowers as one could get. She spent her days in a sprawling 129-acre office complex in Austin, Texas, supervising a team of about fifty employees charged with resolving delinquent loans. Her title was vice president of bankruptcy and foreclosure, and, she said, she was one of only eight people in the company authorized to give final approval for OneWest to take a home. But there were so many foreclosures that it was nearly impossible for her to give any individual case much attention. At the time of the deposition, OneWest had 77,000 homes in foreclosure, she said—or more than 10 percent of all its loans. The number kept climbing, with twelve thousand new foreclosures in June alone.19
Johnson-Seck told Machado’s attorney, Tom Ice, that her team signed 6,000 foreclosure documents a week, and that she personally signed about 750 of them.
“How long to do you spend executing each document?” Ice asked her.
“Not more than thirty seconds,” she replied. “I have changed my signature considerably. “It’s just an E now.”
“Is it true that you don’t read each document before you sign it?” the attorney pressed.
“That’s true,” she said proudly. “Everyone’s in a groove now.”
What about outreach? Ice wanted to know if anyone from the bank ever went to a house to talk to the delinquent property owner. Sometimes, Johnson-Seck said, there would be a campaign where “they’ll leave door knockers so that the borrowers know that we’re trying to reach them,” to deliver some kind of help. But in general, when a property was in foreclosure, the bank would send out an employee with specific instructions not to talk to the homeowner. “Go to the house, make sure it’s not burnt down, make sure the grass is not ten feet high, and bring us that information if it is,” she explained. “But don’t knock on the door and contact the borrower.” The bank didn’t want to get anyone upset, Johnson-Seck added.
The process led to questionable foreclosures all over the country. In a Cleveland suburb, social worker Carla Duncan was heading out of town for a short trip when she stopped off at home to check her mail and found a note from a OneWest field inspector saying that her house was vacant and was going to be boarded up. “It wasn’t vacant, I was living there,” she told the Columbus Dispatch. “There were curtains on the windows. The radio was playing. The dog was there.”
An incredulous Duncan had no idea that OneWest had already begun foreclosure proceedings on her three-bedroom home. She was even current on her payments. But OneWest refused to accept a loan modification that had been approved before Mnuchin’s group bought the bank, and it wanted to substantially increase her interest rate and monthly payment, and add late fees. The court records would trace the foreclosure to OneWest’s office in Austin, with Erica Johnson-Seck signing key documents.
Carla Duncan was able to keep her home, but only after a five-year court battle that included filing personal bankruptcy. “It got to the point that I was afraid to open my own door,” she said.20 And she was one of the lucky ones.
THIS PROCESS, OF having an employee sign hundreds of foreclosure documents a day without truly reviewing them, came to be known as robosigning. It devastated entire communities. It laid waste to the country’s housing market and badly hamstrung the economic recovery. The process was widespread. It was also illegal. In February 2012 the US Justice Department, together with forty-nine states and the District of Columbia, reached what was called the National Mortgage Settlement with the nation’s five largest banks. JPMorgan Chase, Bank of America, Wells Fargo, Citi, and Ally/GMAC agreed to provide $25 billion in consumer relief in exchange for the government dropping its case on illegal foreclosures.21 But though the dollar amount looked big, the settlement was full of holes. Families who’d already lost their homes to foreclosure were due just $1,400 each in compensation.22 As for borrowers fighting to hold on, the settlement allowed banks to claim they’d provided consumer relief while still dispossessing the house.
Take, for example, a delinquent borrower who owed $200,000 on a home that was now worth just $100,000. The solution advanced by consumer advocates—which was allowed by the settlement—was that the big banks could write down the loan balance to $100,000. This would be a win-win: the borrower could stay in his or her home, and the bank wouldn’t get more than that anyway by selling the house through foreclosure. But the settlement also allowed the banks to take credit for helping consumers by facilitating short sales, where the bank allows the borrower to sell their house to someone else for less than value of the loan. Banks were also allowed to claim they’d provided that $100,000 in relief when they simply allowed the borrower to hand the deed of the home to the bank, a practice called deed in lieu of foreclosure. In both cases, the consumer avoided the stigma that came with a foreclosure on their credit report—but ended up with no money and no home. According to a 2014 report by the Urban Institute, a think tank in Washington, DC, this was the most popular form of relief offered by Bank of America, Wells Fargo, and JPMorgan Chase.23 Clearly, all the money the banks had given to politicians and spent on lobbying was paying off.
Incredibly, OneWest ended up paying nothing at all. Though Treasury Department officials found the bank engaged in “unsafe and unsound” practices when handling mortgage loans and foreclosures, that bank employees lied in foreclosure paperwork, and that it failed to devote “adequate oversight” to its foreclosure process, the Justice Department didn’t haul it into court. Instead, Mnuchin and his fellow board members from J. C. Flowers, Paulson & Co., and George Soros’s fund simply agreed to an additional level of oversight.24
Despite the lack of action from Washington, OneWest wasn’t out of the woods. Mnuchin’s bank still could have faced a threat from California, where Attorney General Kamala Harris had ridden her tough talk against banks to national prominence, securing a prime speaking slot at the 2012 Democratic National Convention. On the National Mortgage Settlement, she negotiated a side deal for California that got Golden State consumers a higher dollar value of relief than those in the rest of the country. Harris also won plaudits for creating a Mortgage Fraud Strike Force “charged with protecting innocent homeowners and bringing to justice those who defraud them.”25
The unit quickly went to work on OneWest, which had been the focus of so many consumer complaints. After going through hundreds of loan files, on January 18, 2013, four deputy attorney generals produced a twenty-five-page memo detailing “evidence suggestive of widespread misconduct.” OneWest employees, Harris’s deputies said, “signed backdated and false” documents that propelled borrowers rapidly toward foreclosure. Bank staff also performed acts in the foreclosure process “without valid legal authority” and “failed to comply with requirements related to the execution, timing, and mailing of foreclosure documents.”26
Harris’s deputies recommended that their boss sue the bank—an important step, they said, because OneWest had already foreclosed on thirty-five thousand California homes. In addition, they explained, the bank’s loss-share agreement with the FDIC stated clearly that Mnuchin’s group could receive payments from the government only if it followed proper foreclosure practices, including the loan modification program established by the FDIC. If the state of California found that OneWest violated those rules, the payments could stop—saving not only homeowners, since the bank would have much less incentive to foreclose if it wasn’t being paid when it did so, but government coffers as well.
Oddly, despite a strong recommendation from her staff, Harris never sued OneWest Bank. “Case NOT filed despite strong recommendations,” reads a cover sheet atop the memo. As a result, no one at OneWest faced prosecution, and no customers got their homes back. Yet the loss-share payments from the FDIC kept coming. It was business as usual.
Six years later, Harris offered her first substantive explanation for the nonprosecution, telling her hometown paper, the San Francisco Chronicle, that her department’s hands were tied. “We didn’t have the legal ability,” she argued, because federal law prevented the state from issuing subpoenas. “I am pretty certain based on what we knew that there should have been some accountability and consequence,” Harris explained, but “the rules were written in favor of the banks.”27
The twenty-five-page memo produced by Harris’s staff, however, had presented a detailed plan for how Mnuchin’s bank could be held to account using only publicly available loan records. While recognizing the difficulty of proceeding without a subpoena, the state prosecutors estimated their chance of success as “moderate.”
“We believe that there is substantial public justice value in fully investigating OneWest’s conduct through the use of civil discovery and holding it publicly accountable,” they wrote.28 Harris not only turned them down, but also her office buried the report. The only reason we know about California’s investigation into OneWest today is because David Dayen of the news website The Intercept obtained a leaked copy of the memo Harris’s staff wrote and published it in January 2017.29 By then, Harris was no longer California attorney general. She was a US senator.
SANDY’S ROAD TO foreclosure began three years after she filed her lawsuit, seeking to void her parents’ reverse mortgage. The suit had devolved into a seemingly never-ending series of depositions, motions, and countermotions. She paid the mounting court costs by borrowing money from her sister, spending down her savings, and pulling money out of her mother’s trust. Steve Mnuchin’s bank fought her every step of the way. The case still hadn’t gone to trial, when a letter addressed to Patricia Hickerson arrived from the bank.
On the surface, at least, it had little to do with the ongoing court case. The letter, dated December 14, 2010, was from a debt collector at Financial Freedom Acquisition LLC, a wholly owned subsidiary of OneWest. The return address was a post office box in Austin, Texas, a few miles from the office complex where Erica Johnson-Seck had signed so many foreclosure notices. The letter informed Sandy’s mother that she had violated the terms of the reverse mortgage:
“Upon the occurrence of a maturity event, including a borrower’s decision to permanently leave and no longer occupy the subject property as a primary residence, the loan becomes due and payable.” Because Patricia no longer lived in the home, the letter explained, she would need to present a plan to pay $300,000 within thirty days, or the bank would begin the process of taking the house. In the meantime, the letter disclosed, the bank would continue to add interest and fees to the total, so the required payment would likely be higher.
“As we notify you now that the above referenced loan is due and payable, we are hopeful that our services have been true to our mission and have enhanced your financial security and independence.”
Sandy was livid. Her mother still lived in the house! How could the bank possibly believe that her mother had moved out? Yes, Sandy had disconnected the home phone number that the bank had on file. But that was just to stop the constant ringing of the telephone that came from solicitors seeking to sell all manner of products and services to her senile mother. Furthermore, Sandy had sent Financial Freedom all the necessary paperwork. “My mother, Patricia Hickerson, is not deceased and occupies the property,” she wrote in response. “You sent a representative out here to verify her occupancy some months ago. I sent in your occupancy form shortly afterward and signed it for my mother, including my power of attorney to do so.”
When she’d filed suit in January 2008, her attorney had told her the case would go to trial that November. “Financial Freedom had other ideas and created delay after delay until Mom died,” Sandy declared. “They didn’t want her to be seen in court.” She demanded an apology. “I am sure you are also aware that we are in litigation with Financial Freedom regarding this loan fraudulently sold to my parents,” she wrote. “How dare you send a letter right before Christmas without cause.” The bank responded with a second notice, restating its demand. It wanted to be paid.
MEANTIME, SANDY WAS losing the legal battle. A key development had occurred earlier that year, in February, when the bank received a favorable ruling in the Simi Valley courtroom of Judge David Worley, a conservative jurist appointed by California’s last Republican governor, Arnold Schwarzenegger. Worley dismissed charges of elder abuse and unfair competition against Financial Freedom on the grounds that Sandy had waited too long to file suit. The statute of limitations had expired, he said. The judge also dismissed charges of negligence and fraud, saying there was no “triable issue of material fact” regarding Dick and Patricia’s reliance on the salesman’s pitch.
Judge Worley allowed just one part of the case to go forward: the issue of Dick and Patricia’s mental capacity. If their dementia was severe enough that they did not understand the loan documents they were signing, the reverse mortgage could be voided, he ruled. That was a matter that would have to be decided by a jury.
Here Sandy found some reason for optimism. The medical records for both of her parents were substantial. They showed that her mother had been seeking treatment from the UCLA Alzheimer’s Disease Center for three years before she signed the reverse mortgage. In September 2004, eight months before Patricia signed on to the loan, the director of the center’s neuropsychological lab wrote that the disease had advanced to a stage where Patricia did not know what day it was, had trouble identifying colors, and could not spell the word world backward. The family’s regular physician, Dr. Peter Margolis, also testified, stating in a sworn deposition that, in his opinion, neither Patricia nor Dick was competent enough to sign a reverse mortgage. Though Dick was able to carry out daily tasks such as cooking and driving, a CT scan revealed “a diminution of brain structure.” Dick was also suffering from cancer and enduring chemotherapy, conditions, Margolis said, that put strain on all parts of the body, including cognitive function. A heavyset man with a history of heart disease, Dick sometimes forgot to take Crestor, a cholesterol-lowering medication, and couldn’t remember that it had been prescribed.
Why, OneWest’s attorney asked, couldn’t Dick understand that Financial Freedom would be “taking a security interest in property for the repayment of the loan”?
“He had trouble keeping track of his pills,” Margolis replied. “If he couldn’t keep track of his pills, how could he understand that?”
To combat this line of argument, the bank hired its own doctor, a forensic psychiatrist, and paid him $20,000 to review Dick’s and Patricia’s medical files. Dr. Dominick Addario was a professional expert witness who’d testified in more than two hundred depositions and fifty trials. A retired navy lieutenant commander with more than thirty years in practice, he sported a friendly beard that recalled Sigmund Freud. Unlike Margolis, who tended to hem and haw in the way that most people do under pressure, Addario spoke with measured authority.
Addario never had the chance to meet Dick Hickerson, and he evaluated Patricia only once, in January 2009. The transcript of their exchange is painful to read. Patricia can’t recall the city or state where they are meeting, or the name of the country she lives in. After failing to name the color of her dog, a golden retriever, Addario asks her about animals more generally. She isn’t able to name an animal that flies in the sky.
“By the way, how many legs does a cow have?” Addario asks.
“Five,” Patricia responds. Then, realizing she may have made a mistake, she lets out a little laugh. “I haven’t ever had a cow,” she says.
Based on this examination and a review of Patricia’s medical record, Addario concluded that Patricia was competent to sign the reverse mortgage.
“At the time I saw her, she was still able to live at home and was socially functional, in that she could be guided by family members,” Addario said in a deposition in his office in San Diego. Patricia still recognized her daughter, he stated “and acted in a socially appropriate way.” For example, she “was able to sit for an hour with me without being panicked or confused or needing to leave the room or going to the window.” Addario dismissed Margolis’s testimony as lacking clinical rigor. “I have more than once seen doctors who are compassionate, caring about their patients, not describe as accurately the patient’s actual condition years before,” he explained.
As for Dick Hickerson, Addario testified that the diminution of brain structure noted in the CT scan was normal for a seventy-nine-year-old man. Moreover, he said, Dick’s decision to take out the reverse mortgage came from a desire “to care for his family.”
“His motivation and the desire to do these things appear to be within the realm of rational thinking,” the psychiatrist stated. “He was not taking out a loan, for instance, to drive off in a Rolls-Royce or . . . run off to Vegas or something. So, he appeared to be rational. There appeared to be no evidence that he was suffering from a delusional disorder or an impairment of the mind.”
IN ADDITION TO her dementia, Patricia’s physical health was deteriorating. In the summer of 2010, she was hospitalized with a colon infection that never went away. She had constant diarrhea, which Sandy had to clean up. Gaunt and increasingly frail, Patricia was no longer safe in her two-story home. She fell, sometimes down the stairs. (Sandy would call 911 and have paramedics come to lift her up.) Patricia really should have had professionals caring for her, but the family could no longer afford it. On top of that, the terms of the reverse mortgage were clear: a nursing home was not an option, because if Patricia left the house, the bank could take it.
But as Sandy fought the bank’s attempts to foreclose, she realized reluctantly that it was time to say good-bye to her mom. She checked Patricia into Sarah House, a hospice facility in Santa Barbara, an hour’s drive north.
Patricia was at Sarah House for ten days. Sandy spent the nights sleeping on a chair in her room. On the eleventh day, Sandy went home to check on the house, planning to come back early the next day. She got a call at five in the morning, telling her to come up; that Patricia’s breathing was labored. Fifteen minutes later, another call. Her mother had passed away.
FIVE MONTHS AFTER Patricia died, the pretrial motions had concluded, and a jury was finally seated. Opening arguments commenced on September 2, 2011, in a fourth-floor courtroom at the Hall of Justice in downtown Ventura, the county seat, part of a tan complex of concrete government buildings set off by green lawns. Like the earlier motions, which were heard by Judge David Worley, the trial was overseen by sixty-seven-year-old former litigator Henry Walsh. The judge, a Republican appointee, had a quick wit, a short temper, and a penchant for wearing bow ties. He could often be seen looking over a pair of clear reading glasses.
Sandy sat on a bench next to her attorney, Brice Bryan, and Ingrid Evans, an elder abuse lawyer from San Francisco who had joined the case pro bono. Financial Freedom was at the other table, represented by Eric T. Lamhofer, sporting a blue suit, a square jaw, and an even, white smile. Lamhofer worked for the law firm Wolfe & Wyman, and had driven up from Orange County for the trial. While Sandy had borrowed heavily from her siblings and spent a large chunk of her mother’s estate on legal fees, Lamhofer’s bills were being paid by the bank’s insurance.
Sandy’s attorney went first, arguing in his opening statement that Financial Freedom had perpetrated financial elder abuse. “It’s about fraudulent concealment,” he said. “It’s about negligence.” Lamhofer told a different tale. In an expansive opening statement that lasted more than two hours, he painted his client as Dick and Patricia’s savior, providing the elderly couple with much needed cash in their final years. “Richard, although still very mentally sharp, was physically in a bad situation,” Lamhofer told the jury. Sandy’s father “saw fairly clearly that he was not going to be around for an extended period of time” and wanted to make sure his wife was well cared for. In Lamhofer’s version, the salesman who visited the Hickersons’ door wasn’t a predator but a trusted financial advisor and friend.
“When this loan closed, the loan documents were signed,” Lamhofer said, “Richard was so relieved that he had been able to get this done that he threw his arms around Les Barnhart and hugged him and thanked him for removing this burden, this worry that had been hanging over his head for years. . . . Doesn’t sound like somebody who thinks they were taken advantage of.” With Patricia and Dick gone, there was no way to know if this was true.
As he presented his case, Lamhofer turned the tables on Sandy, painting her as a greedy child who contributed little and was only after her parents’ life savings. “When was the last time you worked before today?” he asked.
“I can’t recall,” she responded.
“So, as you sit here, you have no recollection as to when the last time is that you worked?”
“Right,” Sandy said.
Lamhofer’s questioning left Sandy no opening to describe how she’d put in far more than forty hours a week caring for her sick and dying mother—changing her diapers, picking her up when she fell, calling the paramedics when she wandered the streets late at night. “They were saying she was just in it for the money,” her sister Julie told me years later. “They didn’t care that she stopped her own personal life for five years and took care of my parents. She had no life because she was taking care of a person with Alzheimer’s.”
In all, the bank kept Sandy on the stand for six days. Lamhofer pressed her on an earlier, failed business ventures. (In 2002 she had invested in a tanning salon in North Carolina, a financial disaster that had led her to declare bankruptcy in 2004, a year before her father died.) The attorney also questioned the money Sandy spent on stress counseling as she fought Financial Freedom and cared for her mother. “It was just a whole failure of the federal process to protect people from being taken advantage of,” Julie said.
THE SCOPE OF the trial proceeded narrowly per Judge Worley’s earlier determination. While Sandy’s attorneys again tried to argue wider issues of concealment and fraud, the case was fought in only one area: whether both Dick and Patricia lacked the mental capacity to understand the reverse mortgage. Even if only Sandy’s father understood what he was signing, Judge Walsh told the jury, the loan would stand. This proved decisive. After the trial concluded, jury foreman Catherine Berning signed an sworn affidavit saying that although “a majority of the jury members thought fraud was committed” by Financial Freedom and that the bank “concealed important costs regarding the reverse mortgage . . . it would not matter and would not make a difference because Richard Hickerson wanted the reverse mortgage.”
Ultimately, Lamhofer’s attacks on Sandy’s character were successful. On September 29, 2011, the jury sided with the bank. They found the bank’s expert medical witnesses more credible than Dick’s and Patricia’s own doctors. According to Berning’s statement, “There was discussion among the jury that Sandy Jolley influenced the declaration of Dr. Margolis, so as to make it more beneficial to her parents’ case. Because most of the jury didn’t like Sandy Jolley, or find her credible in her testimony, several said that they didn’t want her to get her parents’ house.”
EVEN AFTER THE jury verdict, Sandy wouldn’t give up. She appealed. And lost. She fought one foreclosure after another and won an additional year of delays, which she used to complain to the US Department of Housing and Urban Development, which regulates reverse mortgages. “I have been praying for an audit and investigation of the above loan since the day it was sold to my sick and dying parents,” she wrote to an investigator in the HUD inspector general’s office. “I have studied this contract word for word for years and have found Financial Freedom and now OneWest Bank have not complied with or followed one Federal Law or regulation.” HUD officials listened attentively, but no investigation followed. So, Sandy went to her congresswoman, whose staff got the agency to review the case. Again, the government found no wrongdoing.
SANDY FINALLY LOST her family home on a sunny Tuesday morning, April 2, 2013.
She got up early that day, dressed as if she were heading to court, and drove her thirteen-year-old BMW thirty miles up the California coast to Ventura, where the San Diego–based Cal-Western Reconveyance Corporation would be auctioning off the house on Benson Way for the benefit of Steve Mnuchin’s OneWest Bank.
The auction was scheduled for eleven o’clock in front of the same courthouse where she lost at trial. Sandy arrived an hour early and waited in her car, breathing deeply, clutching a large packet of paperwork. After everything she’d been through—fighting the reverse mortgage for eight years now, including five years in court—she was not going to give up just because the bank put the property on the block.
She’d printed a four-page flyer on her home inkjet printer and made dozens of copies. She planned to show every potential buyer that the property was legally troubled; that they would be in for a fight if they bought it, that they would not be able to take ownership, that they would not have clean title. “Unlawful, Unfair, and Fraudulent Business Practices & Rescission” was the heading of her handout, all in bold type. “Hickerson v. Financial Freedom, et al., Case Number 56–200800310670.” Underneath, bullet pointed, were nearly fifty problems with the property, each linked to a specific court record. “Overcharging of recording fees—Exhibits 56, 57, 58,” read one bullet. “Failure to disclose monthly servicing fees, see Exh. 186, 187, 223, 280,” read another.
Sandy got out of her car and walked to a shady patch of cement in front of the courthouse. One by one, buyers arrived. She gave a packet to each of them. “I started handing out my flyers, saying, ‘Please, please don’t bid on this house. I am begging you,’” she recalled. Each prospective buyer agreed not to bid on the Benson Way house. There were other properties to purchase. Sandy started to feel relieved.
Then, just a few minutes before the auction was set to begin, another woman arrived. While other potential buyers held clipboards, notebooks, and legal pads, she set up a small, foldable desk for her laptop by the courthouse windows. Then she carried out a chair from her car and put on a Bluetooth headset. She wouldn’t talk to Sandy. She wouldn’t take Sandy’s flyer. “We don’t care about that,” she snapped.
In that moment, Sandy’s heart sank. The house, she knew, was finally lost. When her home was called, the woman bid on it, and so did one man. Bidding started at $315,097. It ended with the woman buying it for $330,000. She shut her laptop, packed up her portable desk, took off her headset, and drove off. Sandy’s was the only home the woman bought at the courthouse that day.
Sandy didn’t know who this woman represented—only that she paid for the house with a wire transfer rather than a cashier’s check. With no idea what would happen next, she walked back to her car, shut the door, and sat there crying. “I had a breakdown,” she said. “I just sat in my car for an hour or two and just had a complete breakdown.” Financial Freedom had destroyed her. “That how I felt. We lost the court case, and now we lost everything. I was helpless, and I thought soon I would be homeless.” But eventually she composed herself. Sandy turned the key in the ignition and drove back to Thousand Oaks, to the home on Benson Way that had been in her family for thirty-five years. Her daughter was waiting for her there.
IT WAS A long night. Sandy and Kristin looked around. Between Patricia’s illness and the court case, they had never really gone through Dick’s and Patricia’s belongings. There was all of their furniture, including Dick’s favorite brown easy chair, still in the living room, where he had watched that reverse mortgage commercial featuring James Garner years earlier. “I was paralyzed,” she recalled. “What was I going to pack? For what? For where? What was I going to pack in case they came into our house and started throwing things out?”
The next morning, Sandy and Kristin were still at home when they heard a driver kill the engine of a car and walk toward their front door. The visitor didn’t knock or ring the doorbell, but they didn’t leave right away.
The person, thirty-three-year-old Bruno Larrea, had come to post an eviction notice. He was affixing the three-day “Notice to Quit” to the front door with a piece of blue masking tape when Sandy and Kristen opened it to greet him.
Sandy took the paper and started to read. “Dear Occupant,” the notice began. “I am a Field Manager for Strategic Property Management, who represents ColFin AI-CA5 LLC. ColFin AI-CA5 LLC purchased the home you occupy at a foreclosure auction. It is very important that you contact me right away.”
Who was ColFin AI-CA5 LLC? Sandy didn’t know. She couldn’t imagine the person who would come up with such a strange name for a company—“only someone motivated entirely by greed,” she thought. She read on. The letter described the accompanying eviction notice as a formality, “purely as a protective measure for the new owner.” This new owner, the paper said, didn’t want to kick them out—it wanted them to stay and pay rent.
“We want nothing more than to have you remain in the home as our tenant,” it said. “Our mission is to help people whose lives have been impacted by the foreclosure crisis. We understand that you have been through an incredibly difficult process, and we would like to work with you toward a brighter future. Our goal is to give you a second chance to continue to call your house ‘home.’ Everyone deserves a second chance.”
Sandy looked up from the letter and felt a mix of emotions. On one hand, there was anger. Her parents had made their mortgage payments month after month for decades, accruing hundreds of thousands of dollars of equity. And now she was being asked to pay rent on the same house, to build wealth for a nameless, faceless company represented by a property manager who’d come to her door? On the other hand, there was relief. She would not have to leave right away. She wouldn’t be homeless.
How much would it cost? she wanted to know. The answer, Larrea said, was $2,400 a month. It was four times the monthly mortgage payments her parents had been making before they signed the reverse mortgage with Financial Freedom. It was also more than 30 percent higher than the going rate for rental homes in the neighborhood, which the Census Bureau put at about $1,800 a month.
Larrea told Sandy she would also have to buy renter’s insurance and pay a security deposit of $800. That really got her going. A security deposit? On a home her family had lived in for thirty-five years? This new landlord had done nothing to fix up the property. Now it wanted to take her money in case she damaged it? It was outrageous.
But the deposit was nonnegotiable. If she wanted to stay, she would have to pay it, Larrea said. In any case, he argued, the security deposit was a formality. Everyone understood the house would look lived in when she moved out. The company wouldn’t nickel-and-dime her, he promised. She would get her deposit back—no problem.
Sandy told Larrea she wanted to stay, but she tried to negotiate on the price. The next day, she sent him an email. “As we discussed yesterday, it is our intention to sign a year lease with you,” she wrote. But she should have to pay less than $2,400 a month, she wrote, “due to the amount of money we have spent and continue to spend on maintenance and care of the property.” She ticked off $4,800 in investments her family had recently made in the house: a new water heater, an upgrade to their sprinkler system, money for a gardener who helped them take care of the backyard orchard of eighteen fruit trees. “We want to continue to work with you in order to maintain the property in the best condition,” she wrote. “Please let us know if we can meet and discuss.”
Larrea said the new owner wouldn’t budge on the price, but he gave them a $500 “concession” for the first three months. And, in exchange for the concession, the term of the lease was cut short. Instead of lasting for a year, it was set to expire in the fall, giving the landlord a fresh opportunity to raise the rent. That knocked the rent down to $1,900 until August, after which it would jump to the $2,400. The revised lease also would push much of the maintenance requirements off the new landlord and onto Sandy, the tenant. She would be responsible for maintaining the grounds and fixing the pipes if they backed up.
Sandy signed the lease with a thick, black-tipped pen. At the end of the document, she promised not to remove her parents’ oven or dishwasher from the house; they were now property of the owner. She also acknowledged having received keys to the house, a garage door opener, and a key to the gas fireplace. She had them already, of course; it was she who had given a copy of the keys to her new landlord.