Foreclosure + Corruption = Homelessness

Take a drive along I-5 in Seattle and they’re everywhere.  Tents.  Throughout Washington, tens of thousands of people have been relegated to life on the streets, part of a nationwide epidemic in which 500,000 Americans are homeless.  In King County alone, 12,500 have nowhere to call home, a problem so pervasive it has its own Wikipedia page.

One of many “tent cities” in Seattle.

Why is homelessness such a rampant problem in Washington?  Some media pundits blame the victims – mental illness, drug abuse, etc. – but might the true cause be far more sinister?  Might Washington’s homelessness epidemic be the byproduct of corporate greed and government corruption, as manifested through the foreclosure process?

Michelle Darnell, a consumer advocate and political figure, now serving as Executive Assistant to the Campaign Manager for Gubernatorial Candidate Tim Eyman, thinks so.

“It’s absurd to discuss homelessness in Washington,” Darnell says, “without addressing how banks have taken so many homes – and how our elected officials have let them do so.”

To some, Darnell’s position may sound extreme.  After all, we’re talking about homeowners who didn’t pay their loans.  Or are we?

“If I heard it once,” says Scott Stafne, an attorney and consumer advocate in Seattle, “I’ve heard it a thousand times. Homeowners come to me and explain how the bank induced them to default on payments to get a loan modification, yet when they heeded the bank’s advice and submitted the modification paperwork, the bank refused to give them one and pursued foreclosure instead.”

In the aftermath of the Great Recession, bank-induced default and “dual-tracking” [evaluating a homeowner for a modification yet still proceeding with foreclosure] became part of everyday life for millions of Americans. “Unfair and deceptive practices” like these were central to a 2012 consumer protection lawsuit by 49 Attorneys General – one for each state except Oklahoma – against America’s six biggest banks.  The ensuing, $25 billion-dollar National Mortgage Settlement (that’s billion, with a “b”) was supposed to help millions of homeowners who’d been victimized by America’s largest financial institutions.  Instead, this $25 billion was little more than a media headline – a way for politicians to create the impression they helped the public without actually acting against the banks’ interests.

To illustrate, more than $12 billion of this $25 billion represented the banks’ “forgiveness” of deficiencies in twelve states [a deficiency, of course, is the amount owed on a loan that exceeds the value of the home being foreclosed], including Washington:

Alaska: $2,589,876
Arizona: $1,114,023,528
California: $9,464,156,773
Connecticut: $117,209,151
Idaho: $89,738,344
Minnesota: $162,181,513
North Carolina: $145,747,252
North Dakota: $1,190,321
Oregon: $208,572,946
Texas: $117,511,953
Utah: $154,708,217
Washington: $506,984,592
TOTAL: $12,084,614,476

These states, however, had well-established laws that prevented banks from recovering these deficiencies in the first place. As such, the $506 million in debt “forgiveness” rendered to Washington homeowners was entirely worthless, as was the other $11.5 billion given to homeowners in eleven other states.

The National Mortgage Settlement did entitle 16,765 Washington homeowners who were wrongfully foreclosed between 2008-2011 to compensation.  The amount awarded, however, was just $1,480 apiece.  Indeed, thousands of Washington homeowners lost their homes because of “deceptive practices” by banks and were given just $1,480 as compensation – and that’s if they knew about the settlement, completed the requisite form, and otherwise qualified for relief.

Can you imagine if $506 million wound up in the hands of Washington homeowners?  Or if those who were wrongly foreclosed received more than $1,480?  Would we see as many tents along I-5?

No matter how miserably the government’s efforts to help homeowners on a systemic level failed, you’d think the court system would provide a remedy for individual homeowners, right?

“Good luck with that,” says Scott Stafne, a consumer protection attorney in Seattle.

As many consumer advocates will attest, Washington homeowners have long faced an uphill challenge when battling banks.  Much of the problem is systemic.  Washington is one of a handful of states that utilizes a non-judicial foreclosure process, enabling banks to foreclose a home merely by causing the recording of a notice of sale.  For them, foreclosing is essentially a matter of pushing paper.  Homeowners who wish to stop banks from taking their home must file a lawsuit and win – an onerous, often expensive undertaking in the Washington court system.

“Before it happened to me,” says Aaron Griffith, a foreclosed homeowner in Washington, now living with his wife in a one-car garage, “I thought Michelle [Darnell] was crazy, the way she talked about bank fraud.  Then the bank stole our home and I wasn’t even in default.  I wanted to fight, but I couldn’t afford to hire a lawyer or file a lawsuit.”

Aaron Griffith and his wife sleep on an air mattress in the empty space of this garage.  

As if the non-judicial foreclosure process weren’t hard enough on homeowners, Washington’s elected officials have further streamlined the process for banks.  For example, the Washington Supreme Court recently eliminated the long-standing requirement that a foreclosing lender be the “owner” and “holder” of a promissory note, ruling it need only be the “holder” of the note.  Likewise, the Washington Legislature recently passed a statute permitting foreclosure if a lender has a copy of a promissory note, foregoing the obligation imposed in most other states that it possess the original note.

“The system makes it virtually impossible to stop a bank from foreclosing in Washington – no matter how horrific the bank’s misconduct and no matter how obvious it is that the bank lacks standing to foreclose,” Stafne laments.

Standing, i.e. the legal right to sue, has long been a rallying-cry for homeowners in the foreclosure process.  In the aftermath of the Great Recession, after many banks that owned delinquent loans went bankrupt, surviving banks became notorious for manufacturing documents enabling them to foreclose.  Low-level corporate employees signed hundreds or thousands of documents in one sitting, as if they were robots, with such regularity that the term “robo-signing” became a household term.  Many consumer advocates, sadly, believe that judges just don’t care.

“The courts are corrupt,” Stafne deadpans.  “They routinely look the other way when banks commit fraud and manufacture evidence.”

The notion that a court system could be “corrupt” may sound outlandish to some.  After all, Americans have long trusted judges to serve as impartial arbiters.  Why would anyone conclude that’s not happening in any case, much less on a systemic level, in Washington or anywhere else?

I represented homeowners in the foreclosure process in Florida for ten years.  My experiences across many thousands of lawsuits were so horrific that I spent every day for a year documenting them in People v Money, an international, best-selling book.  In the process, I analyzed many hundreds of judges’ financial disclosures, explaining how the judges who treated homeowners and their advocates with such overt hostility were financially aligned with the banks in whose favor they were ruling.  The conflicts of interest that I encountered during my ten-year journey through Florida courts were so extreme that one judge testified the pay raises of all Florida judges were tied to their pushing foreclosures through the system for the benefit of banks.  See www.peoplevmoney.com.  Alas, nobody in the Florida court system did anything to change this dynamic, even as $400 billion [2 million foreclosures x $200,000 per house] was redistributed from low and middle-income families to big banks corporations, and wealthy investors.  With the judges invested in the foreclosure process, why would they speak up?

Might this same dynamic exist in Washington?  Do judges, legislators, and other public officials favor big business because they’re financially aligned with the banking industry?

Angling to curb corruption in his campaign for Governor of Washington, Tim Eyman (pictured, right), seems to think so.  “Currently,” he says, “every branch of government in Seattle is of Seattle, by Seattle, and for Seattle, and this includes the judicial branch.”

The Washington State Investment Board (“WSIB”) manages the retirement plans for public employees in Washington, including judges, clerks, and legislators.  As the 2018 Comprehensive Annual Financial Report depicts, the assets for these plans are pooled into a Commingled Trust Fund, which contains $21.5 billion in “debt securities,” including $1.68 billion in “mortgage-backed securities.” [A mortgage-backed security is a bundle of loans acquired from a bank.]  In fact, 25% of the King County Investment Pool consists of mortgage-backed securities.
With their pensions tied to the collection of debt, including mortgage-backed securities, might Washington judges, clerks, and legislators have a personal, financial incentive to facilitate foreclosure for the benefit of banks?  Might this conflict of interest explain why Washington’s public officials have streamlined the foreclosure process?  Is this conflict of interest an untold reason for the homelessness problem throughout Washington?

I called Mary Fairhurst, Chief Justice of the Washington Supreme Court, to ask her those very questions.  She did not respond to my request for a comment.  With the help of a few, kind Washington residents who have suffered through the foreclosure process, I hence decided to do my own research.

Since 1980, the cost of a home in America has increased 500%.  Over this same time period, the average household income has increased just 25%:

Average U.S. household income:                         Average U.S. home price:
1980: $44,000                                                         1980: $73,000
1990: $47,000                                                         1990: $149,000
2000: $52,000                                                         2000: $202,000
2010: $54,000                                                         2010: $275,000
2016: $59,000                                                         2016: $357,000

With home prices increasing exponentially faster than the typical person’s income, the “American dream” has become impossible for millions of Americans.  In both Washington and beyond, countless families have no choice but to rent.  A February, 2018 report reflects half of all Seattleites are renters, a 14% increase from ten years earlier.  As if that’s not troubling enough, what happens when the cost of rent skyrockets while wages remain stagnant?

In January, 2011, one and two-bedroom rentals in Seattle went for $925 and $1,450 per month, respectively.  Today – less than a decade later – these same properties rent for $2,000 and $2,800 per month.  With hundreds of thousands of Washington homeowners having lost their homes to foreclosure, many thousands forced to rent, and the costs of rent doubling in a ten-year period, is it any wonder why homelessness is rampant in Seattle?

Banks, of course, are doing just fine.  After falling to $3.95 in 2009, Bank of America stock is now worth more than $33 per share.

“The problem is clear,” Darnell summarizes.  “Foreclosure + Corruption = Homelessness.  Now it’s time that Washington residents stand up and insist upon a solution.”