The Financial Crisis: Five Years Later

Mortgage Fraud Whistle-Blower Lynn Szymoniak Exposed Robosigning's Sins


June 4, 2010: Homeowner Lynn Szymoniak files a whistle-blower lawsuit

As an attorney in West Palm Beach, Fla., Lynn Szymoniak built a career investigating fraudulent insurance claims, scouring documents for inconsistencies that revealed a con. So in 2008, when she was served with foreclosure papers on her home, she put on her cat’s-eye reading glasses and quickly spotted something amiss. What she found started a multiyear battle that helped change the fate of billions in foreclosed mortgages. It’s also earned her millions—and may make her millions more.

Szymoniak bought her home in 1998 for about $390,000, and by 2006, as Florida boomed, it was appraised at $1.3 million. She refinanced for $780,000, taking out cash to care for her aging mother and replenish savings depleted during a battle with cancer. “I thought I was being conservative in leaving a half million in equity,” she sighs. “I was wrong.”

Her loan had been bundled with thousands of others into a mortgage-backed trust. When the adjustable rate on the loan reset in spring 2008, the monthly payment jumped by an unaffordable $1,200. She stopped paying; two months later, Deutsche Bank (DB), representing the trust’s investors, began the foreclosure.

Signatures: Steven Senne/AP Photo; Paper: picsNews/Alamy

In court filings, lawyers for the trust said the paper that proved it had the right to seize her home had been lost. Then they told the court the documents had been found. Only these showed that the trust hadn’t acquired her loan until three months after suing to foreclose, and, Szymoniak noticed, bore official stamps that looked sloppily cut and pasted from another document. She searched court records in other foreclosures and found that the people who’d “signed” her documents sometimes appeared with different titles, employers, and signatures. Deutsche Bank says it wasn’t involved in the “decisions or filings” for the mortgage. “Rather, the loan servicer for her loan—not Deutsche Bank as trustee—was solely responsible for the foreclosure,” spokeswoman Renee Calabro said in a statement.

By early 2010 other locals digging through foreclosures had begun meeting up at a monthly happy hour. At the third get-together, Szymoniak propped up two posters she’d made at OfficeMax. One showed a dozen obviously different variations of the signature for a bank representative named Linda Green. “I couldn’t believe people were losing their homes to these documents,” Szymoniak says. “I was certain that once it was exposed, it would be dealt with in a swift manner, with criminal charges.”

Within days attendees uncovered scores of other seemingly fake documents in courthouses around the country. Lisa Epstein, who started the happy hours, says they developed a maxim: If you found one fishy document, it was a fluke; if you found two, there were thousands. The activists pieced together how, in the rush to feed Wall Street’s demand for mortgage securities, banks frequently failed to properly document the transfer of loans between various entities. To catch up, the banks later hired third-party contractors to spit out the documents the banks needed to foreclose.

Szymoniak filed a whistle-blower lawsuit on behalf of the federal government in June 2010. She alleged that banks collected millions in mortgage insurance claims from the Federal Housing Administration by using phony documents to show they owned the loans. Then came what Epstein called the “crowbar” that broke open the larger story.

On Sept. 20, 2010, Bloomberg News reported that an internal memo at Ally Financial’s GMAC Mortgage unit directed staff to stop foreclosure evictions in 23 states because of a document “defect.” Bank officials downplayed the memo, but to Szymoniak the moratorium was tantamount to an admission of malpractice. In April 2011, Szymoniak appeared on 60 Minutes. Sitting next to the same two posters from the happy hour, she explained the problems she found with the documents. The show also interviewed several third-party contractors who admitted they’d regularly signed Linda Green’s name to speed up paperwork.

After the show aired, homeowners came to Szymoniak for help. She wrote hundreds of affidavits examining the paperwork on their foreclosures. For some she charged $300; others she did for free. Her name began popping up in suits by investors and pension funds, and she quietly sent documents to state attorneys general, the FBI, and the U.S. Department of Justice.

“You know that money I told you about? It’s here”

In February 2012 federal officials and the attorneys general from 49 states announced a record $25 billion settlement with five major banks. (Deutsche Bank wasn’t among them.) The deal included $228 million to settle claims brought by Szymoniak and five other whistle-blowers, who would split rewards totaling $46.5 million. One morning in May she logged on to her online checking account and saw a balance with more digits than had ever been there before. She quickly called her kids. “You know that money I told you about?” she asked. “It’s here.” After paying her lawyers and taxes, her take came to $5.5 million.

This July a judge unsealed another whistle-blower suit brought by Szymoniak. She alleges that because banks were sloppy when they first created mortgage securities, they later had to spend extra money to try to clean up the paperwork—billions in expenses they passed on to the government, state pension funds, and other investors. The government decided not to join her case, but she’s still pursuing it on her own. “I feel a lot younger now that it’s unsealed,” Szymoniak says of the suit.

Desperate homeowners still contact Szymoniak, finding her at the foundation she set up to fight robosigning. “They want to report crimes, and they want to report it to me, because they have no luck reporting to a law enforcement agency,” she says. To some, she is not just an ally, but someone with deep pockets. “They go to me for advice, and they go to Lynn for money,” Epstein says.

With the proceeds from her suit, she paid off her mortgage and made a sizable donation to an organization that takes veterans hunting and fishing. She took the family to Maui, landscaped her yard, and told her kids they could each get a car—so long as it costs less than $50,000 and “didn’t end in a vowel, like a Lamborghini.” Szymoniak bought herself a Buick LaCrosse that she can turn on remotely. Making sure the engine won’t explode on ignition, she says, is a feature that’s “good for whistle-blowers.”

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

Hollywood Goes YouTube
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • DB
    (Deutsche Bank AG)
    • $34.31 USD
    • -0.09
    • -0.26%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus