Florida's corrupt side

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A HERALD-TRIBUNE INVESTIGATION - STORIES | VIEW BANK DATA: --Select A Bank-- AmericanFirst Bank Bank of Bonifay Bank of Florida Southeast Bank of Florida Southwest Bank of Florida Tampa Bay BankUnited Bayside Savings Bank Central Florida State Bank Century Bank Chipola Community Bank Coastal Bank Coastal Community Bank Commerce Bank of Southwest Florida Community National Bank at Bartow Community National Bank of Sarasota County Cortez Community Bank First Bank of Jacksonville First Commercial Bank of Florida First Commercial Bank of Tampa Bay First East Side Savings Bank First Federal Bank of North Florida First Guaranty Bank & Trust First National Bank of Central Florida First National Bank of Florida First Peoples Bank First Priority Bank First State Bank Flagship National Bank Florida Community Bank Freedom Bank Gulf State Community Bank GulfSouth Private Bank Haven Trust Bank Heritage Bank of Florida Heritage Bank of North Florida Hillcrest Bank Horizon Bank Independent National Bank Integrity Bank Key West Bank LandMark Bank Lydian Private Bank Marco Community Bank Metro Bank of Dade Ocala National Bank Old Harbor Bank Old Southern Bank Olde Cypress Community Bank Orion Bank Partners Bank Peninsula Bank Peoples First Community Bank Premier American Bank Premier Community Bank of the Emerald Coast Progress Bank of Florida Putnam State Bank Republic Federal Bank Riverside Bank of the Gulf Coast Riverside National Bank of Florida Security Bank Southshore Community Bank Sterling Bank Sun American Bank Sunshine State Community Bank The Bank of Miami The Royal Palm Bank of Florida Turnberry Bank Wakulla Bank

insider deals.
terrorism financing.
confidential reports
from state regulators
show how florida bankers
made risky bets,
broke the law,
enriched themselves
and their friends
but hurt their
own institutions —
and got away with it.

by Michael Braga and Anthony Cormier

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Regulators closed Florida Community Bank in January 2010 and sold its assets to an unrelated Miami-based holding company that retained the name of "Florida Community Bank." The Florida Community Bank referenced in this story is the entity closed in 2010. A reputed frontman for Philadelphia organized crime boss “Little Nick” Scarfo received millions in loans from a small South Florida bank.
ASSOCIATED PRESS / BILL CRAMER Sarasota lawyer John Yanchek was sent to prison over illegal property deals and was lent $1.6 million from Peninsula Bank.

Federal agents shut down Coastal Community Bank in July 2010. Two weeks after the Herald-Tribune published an investigation of this bank and others, the CEO and two others from Coastal Community were indicted and accused of stealing $4 million from a federal loan program.
The (Panama City) News Herald / Terry Barner

Almost 70 banks failed in Florida during the last five years.

Most executives say the failures were not their fault. They blame a tanking economy. Or meddling government officials. Or people who borrowed more than they could afford while the market was cooking hot.

But these bankers are wrong.

At least half of Florida’s community banks failed because their leaders were greedy, arrogant, incompetent or sometimes corrupt, a Herald-Tribune investigation found.

The newspaper obtained previously confidential state records that show how failed bankers broke the law, manipulated financial documents and gorged themselves on insider deals. These bank records had never before been collected by an American newspaper.

Sixty-eight banks failed in Florida since the Great Recession began, second-most to Georgia, and the misdeeds were found in communities all across the state.

In the farm town of Immokalee, Florida Community Bank executives lent millions of dollars to mob associates while a terrorism financier moved money in and out of its vaults.

In the Panhandle, Coastal Community Bank bought an insurance company from the chief executive's son and sold it back to him three years later at a $900,000 loss.

At First Commercial Bank of Tampa Bay, employees were so fearful of the chairman that they met privately with state officials and told them of secret dealings, altered documents and questionable loans.

Not all of the failed community banks have been accused of wrongdoing. Some made sensible loans and were undone by borrowers who took on too much debt during the real estate boom and couldn't repay.

But banking's worst offenders made insider loans and business deals to enrich themselves at the expense of their own banks and, ultimately, the public. Other banks lent millions of dollars to mobsters, drug dealers, convicted felons and developers with prior bankruptcies.

In flush times, as Florida's real estate prices soared to new heights, bankers rewarded themselves with large salaries and generous dividends. One local banker used a private airplane to fly across the country while others held meetings at lavish beach resorts.

Regulators saw this behavior but often they were too timid to act while the economy was humming. When regulators did object, bankers ignored the warnings, hid important documents, removed conversations from board minutes and doctored financial reports to make things seem better than they were.

Even after home prices fell and hundreds of thousands of Floridians stopped paying their mortgages in 2007, many bankers forged ahead -- continuing to make risky loans and payments to themselves as their banks lost money.

Most of the failures in Florida involved community banks, small institutions founded to serve local customers.

Community bankers are vital to small cities and towns as a source of money to build new shopping plazas, office buildings and neighborhoods.

But some outgrew their local roots to become large and unwieldy. They made loans far beyond their home turf with inexperienced employees handling complex real estate transactions.

In all, the failures cost the Federal Deposit Insurance Corp. more than $11 billion to clean up. The exact cost to America's local economies is unknown but clearly felt.

The fallout is seen everywhere: in the ruined credit of Americans who walked away from homes they could no longer afford; in cities like North Port and Lehigh Acres, beaten by wave after wave of foreclosures; in stagnant wages and frozen credit; in the millions who still struggle to meet the rising costs of milk and eggs and bread.

Even with clear evidence of wrongdoing, few bank officials will be arrested or charged with a crime.

Many more still work in the industry today. Just six banks have been sued by the federal government, while 10 others settled out of court -- with insurers covering the damages.

To investigate the reasons for Florida's bank failures, the Herald-Tribune obtained state banking reports that had never before been made public. The documents are so secret that even federal judges have kept them sealed in court filings.

But these examinations become public record one year after a bank fails thanks to a law passed by the Florida Legislature in 1992. No other state permits access to such reports until at least 50 years after a failure.

In 44 states, bank examinations are either destroyed or permanently sealed after an institution fails.

The newspaper collected 3,000 pages covering 40 of the banks overseen by the Florida Office of Financial Regulation. It also built a database of nearly 400,000 mortgage and foreclosure records and reviewed 25 reports published by the FDIC Office of Inspector General.

Reporters visited a dozen counties and conducted more than 90 interviews with bankers, borrowers, regulators and analysts.

Among the newspaper's findings:
• Thirty-four of the 68 banks broke federal or state laws, ignored repeated warnings from regulators, had high amounts of insider loans or made risky bets on customers who clearly couldn't repay their loans.
• Banks lent more than $400 million to borrowers convicted of crimes, indicted by federal prosecutors or dogged by a past bankruptcy. These were not mortgages for people to purchase homes, but development loans to buy land and build on it. Each loan went into default.

Florida Community Bank, for example, lent $8 million to a company partly controlled by Leonard Mercer, identified by New Jersey law enforcement as a "front man" for the "Little Nicky" Scarfo crime family.
• Twenty-one banks engaged in some form of insider dealing. Although these transactions were not illegal, they raised questions from regulators about conflicts of interest. Banks leased property from executives, bought cars from dealerships owned by directors, provided jobs for relatives and subsidized sister companies owned by insiders. At Ocala National Bank, directors started their own mortgage company, lost $1 million and persuaded the bank -- by threatening a lawsuit -- to pay them off.
• More than 200 loans to insiders were never repaid, and regulators scolded 17 banks for lending more to officers and directors than was legal. In Port St. Lucie, the adult children of Riverside National Bank's chief executive borrowed $3.8 million. The bank wrote off the losses when they did not repay.
• Eighteen banks paid a dividend to investors during years they lost money. Essentially, these banks were giving out cash that they could have used to cover growing problems created by foreclosures and the collapse of the housing market. Naples-based Orion Bank paid out $28 million in 2007 -- the same year it lost $6.1 million.
• Bankers ignored a declining real estate market and warnings from regulators to slow down. They made some of their biggest loans after the slump took hold, and provided borrowers additional cash to keep up with their payments. Sarasota's Century Bank lent more than $70 million to just 10 borrowers in late 2006 and early 2007. One of these borrowers had already spent time in prison; three others would later do the same. All of those loans went into default.
• Only three people have been charged with crimes related to their banks. Orion CEO Jerry Williams was imprisoned for lending money that was later used to buy stock -- a practice meant to fool regulators into thinking a bank has more capital than it actually does. Four other banks -- Florida Community Bank, First Priority Bank, Lydian Private Bank and Community National Bank of Sarasota County -- were accused by regulators, shareholders or employees of similar behavior. No one has been prosecuted.

"Bankers operated like riverboat gamblers," said Jack McCabe, a Florida real estate consultant. "They threw caution to the wind to prop up their bottom lines. The country suffered, but very few have been brought to justice."

And it could happen again.

In Florida, the government has undertaken no studies to examine why so many banks collapsed nor has it written any new laws to prevent similar failures in the future.

In fact, the state has moved to further deregulate the industry, with managers appointed by Gov. Rick Scott cutting 10 percent of employees in the Division of Financial Institutions and closing half of the regulatory offices across the state.

Top financial regulators vow to give bankers more freedom -- even when history suggests that without oversight, they take risks that ultimately hurt themselves, the economy and ordinary Americans.

The newspaper spoke with more than two dozen bank leaders and all but one said their banks closed due to forces beyond their control -- meddling by the government, the real estate downturn or homeowners who stopped paying their bills.

Florida's top regulator agrees with them.

Instead of faulting bankers, Drew Breakspear, the head regulator in this state, attributed the failures largely to homeowners who were "out of their league in terms of their spending habits."

But that analysis is flawed.

The newspaper found that many banks encouraged borrowers to fudge their incomes to qualify for bigger mortgages. And most Florida institutions went under because of multimillion dollar loans to real estate developers -- not to average home buyers.
State examiners found Peninsula Bank was awash in questionable loans and practices and insider dealings before it failed.
Questionable ethics

Peninsula Bank showed all the signs of a troubled institution.

It lent millions to developers whose behavior should have raised red flags. A property flipper who later went to prison. An attorney suspended three times from the Michigan bar. A builder sued four times for copyright infringement. And six developers with a past bankruptcy.

None of those people would ever repay their loans.

Peninsula also dealt with dubious customers in other areas of the bank. A money launderer moved cash in and out of its vaults. A jury found that it lent $10 million to a man running a Ponzi scheme.

Mortgage records show that it also lent millions to insiders. And during its final months, state examiners say a director accused the CEO of using accounting tricks to hide information from regulators.

Peninsula failed in June 2010, costing the FDIC $195 million.

Once a small bank based in Charlotte County, Peninsula took off when Simon Portnoy entered the picture. In 1995, Portnoy led a takeover and grew the bank from just two offices and $50 million in assets to a statewide real estate player with 14 branches on both coasts and $650 million in assets.

As home prices rose, Peninsula soared.

But below the surface, the bank's growth was fueled by loans to people with questionable ethics or past financial problems.

In particular, Peninsula lent nearly $50 million to developers who had once declared bankruptcy and later sought money to invest in raw land, develop golf course communities, buy office buildings and erect everything from town homes to hotels across Florida.

A company controlled by Miami Beach developer Mordechai Boaziz received nearly $9 million from Peninsula in August 2006 to finance the renovation of a Tampa hotel even though one of his companies filed for bankruptcy two years earlier. He also was in the midst of a federal lawsuit in which former partners accused him of misappropriating $8 million from a hotel business in the Midwest.

Boaziz denied the allegations in court and the case was ultimately dismissed. Boaziz defaulted on his loan from Peninsula in December 2009.

Other questionable loans included: $6.25 million to a company controlled by David P. Hickey, a Michigan attorney suspended for failing to repay a loan to a client; nearly $10 million to companies managed by James W. DeMaria, a Spring Hill developer who was accused four times of copyright infringement and later settled the cases in federal court; and $1.6 million to John Yanchek, a Sarasota attorney later imprisoned for illegal property flips.

All of those loans went into default.

'Cash for trash'

Then there was James Bovino.

The founder of a bank in New Jersey and a real estate developer with projects in six states, court records show Bovino already owed hundreds of millions of dollars to other institutions when he took on even more debt from Peninsula in 2008.

The bank lent him $12 million despite the fact that the world financial system was on the verge of seizing up and companies Bovino controlled in Arizona and New Jersey had filed for bankruptcy just a few months earlier.

"Remember what's going on at this time," said Raymond Vickers, an economic historian and former regulator. "We're talking October 2008. No other bank in the country is lending money."

The loan was one that bank analysts call "cash for trash." State examinations show Peninsula had foreclosed on 200 acres in Port St. Lucie just a few months earlier, and was anxious to get the land off its books. So it transferred the property to Bovino at no cost and provided him with $12.1 million.

The transfer seemed to benefit the bank because it made it look like Peninsula had replaced a bad loan with a good one. But state regulators said the transfer violated federal accounting rules and complained that Bovino did not have to put any of his own money into the deal. They said nothing about his bankruptcies.

"No prudent banker would make such a loan," Vickers said.

Bovino eventually defaulted.

Reckless behavior

Again and again, Peninsula seemed to do business with people whom it should have avoided.

One depositor pleaded guilty to money laundering, regulators found. Another customer was Robert Bentley, the investment adviser who pleaded guilty to orchestrating a $380 million Ponzi scheme.

In June 2006, a federal jury found that a senior vice president at Peninsula -- and the bank itself -- had assisted Bentley's operation. Jurors said that Peninsula vice president Joseph Marzouca helped the scheme stay afloat by providing money to a company controlled by Bentley when his investors demanded they be paid.

A jury ordered Marzouca and the bank to pay $13.1 million in damages, but the decision was overturned on appeal. An appellate court ruled that Marzouca and the bank were not responsible for the Ponzi schemer's actions.

Marzouca remained in the industry and became CEO of Davie's Floridian Community Bank in 2008.

"The receiver tried to make more out of it than it was, and the jury was influenced by that," Marzouca said. "That's why we appealed and the three judges on the appellate court ended up throwing it out."

Meanwhile, Peninsula insiders were helping themselves to the bank's money.

In 2009, long after the housing boom, Peninsula had nearly $18 million of insider loans on its books -- up from just $5 million two years earlier and enough to rank it among the top five of all Florida banks that failed during the Great Recession.

Most insider loans are not illegal and are not necessarily a bad thing for a bank, but they can be an indicator of reckless behavior by executives, officers and directors because they are not "arm's-length transactions" -- meaning it is hard to tell if the insider is getting a better deal than an ordinary customer might.

"Why do insiders need to borrow from their own banks?" Vickers said. "If they've got good credit, why not go across the street?"

With losses mounting, Peninsula began to cut corners.

State officials found that executives were slow to write down bad loans, making the bank seem healthier than it was. In August 2009, three out of every four bad loans were less likely to be repaid than the bank reported. Peninsula should have moved $14 million out of its capital reserves and into a fund to protect against losses, regulators said.

Within the bank, dissension began to bubble up. One insider started wondering whether the CEO was hiding important information, according to regulators' reports.

Portnoy, the CEO, refused to downgrade struggling loans, a director said in a private meeting with the state, and tried to give extra money to customers who were already behind on payments.

When pressed by directors, Portnoy said he could "fire" the entire board if he wanted to, because of an agreement that gave him and two other shareholders special voting rights, according to a regulatory report.

The discord boiled over in June 2009, when board member Marcus Faust successfully lobbied for Portnoy's removal while accusing him of "falsifying, or at least distorting" important bank records.

"The validity of Mr. Faust's allegations is unconfirmed," state officials wrote.

No one from Peninsula has been charged with a crime. But the FDIC sued Portnoy and nine of the bank's officers and directors in April, accusing them of gross negligence in their management of the institution.

Officers and directors "blindly approved loan transactions despite numerous, repeated and obvious violations of the bank's lending policies and procedures, banking regulations and prudent banking practices," the FDIC suit says.

Portnoy did not return three calls for comment.

An attorney representing Peninsula's directors denied the government's allegations and said the bank failed because of the real estate slump, not board members' decisions.

'Not in our stars ...'

Even the federal government has acknowledged that wayward bankers were responsible for the global crisis.

A 600-page report by the Financial Crisis Inquiry Commission borrowed a quote from Shakespeare when it came time to assign blame:

"The fault, dear Brutus, is not in our stars, but in ourselves."

The crisis could have been avoided, had the system not been choked by risky mortgages, dangerous investments, a lust for growth and regulators too meek to put a stop to it all, the commission said.

According to a separate report from the FDIC, examiners reacted slowly and "had difficulty restricting risky behavior while institutions were profitable."

In some cases, the FDIC's inspector general said, regulators knew about problem banks that had repeatedly broken the law and still took little or no action against them.

The FDIC has sued officials at six failed banks in Florida, claiming gross negligence. Officers and directors at 10 others have settled out of court by agreeing to pay the FDIC nearly $17 million from insurance policies.

Even other bankers questioned some of the decisions -- both by executives and regulators -- during the boom and the crash.

Jody Hudgins, a veteran Sarasota bank executive, saw counterparts who tried to build their institutions as fast as they could with an eye toward selling them off to out-of-state companies seeking a foothold in Florida.

From 1994 to 2008, more than 230 new banks started in the state. This ramped up competition for customers and experienced staffers.

"There were just too many banks," said Hudgins, who now serves as chief credit officer for First National Bank of the Gulf Coast in Naples, "and not enough really good bankers who had been in the business for 25 to 30 years and had experienced all the different kinds of crooks and what they can do to you."

Meanwhile, there was increased pressure to find good customers. With fewer and fewer options, some bankers turned to borrowers with bad credit, past jail time or clear evidence suggesting they would never make good on the debts.

In many cases, making loans to people with questionable backgrounds was a conscious business decision, according to Bill Black, a University of Missouri professor and former Savings & Loan regulator.

It was a strategy used by banks and thrifts during the run-up to the Savings & Loan crisis of the 1980s and early 1990s, Black said. This allowed lenders to make more loans and book higher profits than they might have through the more arduous task of finding creditworthy borrowers.

"Making money in banking is really hard," Black said.

If a bank wants to grow by making good loans, it has to seek borrowers with the best credit histories and compete for their business by offering the lowest possible interest rates.

But if a bank focuses on making loans to borrowers with poor credit, it can charge much higher rates and will not face the same competition.

"If you make really crappy loans and charge a premium to people with nowhere else to go, you can make money really fast," Black said.

Hudgins, the bank executive from Sarasota, said: "Why did loan officers make so many loans to people who had problems in their past? Because it helped them meet their quotas."


Published — September 10, 2014

Updated — January 7, 2015 at 4:47 pm ET

Homeowners steamrolled as Florida courts clear foreclosure backlog

Lawyers wait to sign in for foreclosure hearings at the Palm Beach County Courthouse in West Palm Beach in July. Alison Fitzgerald/Center for Public Integrity

Initiative funded by mortgage fraud settlement meant to help borrowers

Homeowners steamrolled as Florida courts clear foreclosure backlog

NPR Alison Fitzgerald Kodjak
Alison Fitzgerald Kodjak
Health Policy Reporter

Key findings:
Florida has set up a parallel legal system to tackle backlog of foreclosure cases with brutal efficiency.
Florida Supreme Court’s goal is to close 256,000 foreclosure cases a year — that breaks down to 700 cases each day, if judges work weekends & vacation days.
In Florida’s parallel foreclosure courts, banks can ignore a defense motion for 60 days and it disappears.
Unlike Florida’s elected judges, foreclosure judges are effectively temps who don’t have to face voters.
Mortgage giant Freddie Mac pays loan servicers who expedite foreclosures, and charges a daily fee for delayed cases.

Florida Circuit Court Judge Diana Lewis was in a hurry. She had 93 foreclosure cases before her in the next two hours and she made it clear that she wasn’t going to let anything slow them down.
“This is a 2009 case. You’ve had years to negotiate,” she told one lawyer trying to delay a foreclosure judgment because his client and the lender were working out a deal.
Later, she agreed to an extension on a foreclosure sale but admonished the defense lawyer. “I’ll give you 30 days. That’s it. Don’t come back. I don’t want to see your face back here.”
At least twice that morning at the Palm Beach County Courthouse she refused to delay foreclosure trials in cases where the banks and homeowners together requested extra time.

A placard describing the format for foreclosure orders is posted in multiple locations at the Palm Beach County Courthouse. ()Alison Fitzgerald/Center for Public Integrity

Lewis’ manner may be brusque, but her actions aren’t unusual among foreclosure judges in Florida, who in the last year have been working under explicit directions from the state Legislature and Supreme Court to get rid of old cases and clear the court dockets, largely by awarding tens of thousands of homes to banks.

“The state’s entire court system has been compromised,” says Matt Weidner, an outspoken foreclosure defense lawyer who practices in Tampa and St. Petersburg and blogs about the system. “They’re stripping away private property rights and transferring billions of dollars in assets from individuals to large entities.”

A year into its latest effort to clear the wreckage left from the housing crash and subsequent recession that left hundreds of thousands of Floridians facing foreclosure, the state’s so-called foreclosure initiative is laser-focused on clearing the court system of cases and cutting the time it takes a bank to foreclose.

What began as an effort by the Florida Legislature and judicial leaders to help the state’s economy by moving properties out of foreclosure and back into the market has turned into a Kafkaesque nightmare for people struggling to hang on to their homes.

State legislative and judicial leaders have largely ignored the ramifications of throwing thousands of families out of houses and turning the foreclosed properties over to banks and mortgage servicers to maintain and sell into an already swamped market.

“They dealt with it as a court system problem,” said Mike Fasano, a former Republican lawmaker from New Port Richey who opposed the two bills passed last year to clear the foreclosure backlog. “It was, ‘How can we speed up forcing people out of their homes?’ ”

Kathleen Passidomo, a Republican from Naples who sponsored a bill to streamline foreclosures that passed last year, said borrowers, banks and homeowner associations want to get the foreclosures behind them.

“Lots of people just want to get it over with and get on with their life,” she said.

To accomplish its goal of eliminating the backlog of foreclosures, the state has set up a parallel legal system in which judges hear only foreclosure cases — often more than a hundred motions a day — in courtrooms set up solely for that purpose, under rules that differ from those that guide civil law in other types of cases in Florida and across the country.

The state set an express goal of disposing of 256,000 cases in each of the three years of the effort.

Cases closed2010/112011/122012/132013/14* through6/10/14050,000100,000150,000200,000250,000300,000

Click 2013/14 column to see monthly breakdown.

Source: Florida State Courts Administrator.

Homeowners and the lawyers that advocate for them say they aren’t getting a fair hearing in a legal system tilted toward banks from start to finish.

“They just slam the defendants,” said Margery Golant, a lawyer in Palm Beach and Broward counties. “They deny them their rights, have hearings in absentia and just flush them down the garbage disposal.”

‘How can this happen?’

Ricardo Lopez could barely contain his fury as he walked from the St. Petersburg courtroom in late July after Judge Karl Grube for the second time in five months set a date to sell his family home.

“How can this happen? He didn’t even listen to you. This is a total fraud!” the 12-year St. Pete police officer fumed as he paced around Weidner, his lawyer, in the courthouse hallway while his wife sat rigidly behind sunglasses on a nearby bench and his two small kids’ wide eyes took in the scene.

“I could go in and arrest that lawyer. I can call the economic crimes unit right now,” he offered, brandishing his cell phone.

Lopez got to this point because he was injured in 2009, missed two months of work and got behind on his payments to JPMorgan Chase. As he recovered and began paying, he says, the bank allocated the money to his past due debt, late fees and other charges. He tried to send something extra each month, but no matter what, he remained more than 90 days late.

A sign welcomes guests to the home of Ricardo and Christine Lopez in St. Petersburg. The family is trying to save their home after a judge entered a foreclosure judgment in April. (Alison Fitzgerald/Center for Public Integrity)

“It was never an issue of can we afford the house,” he said. “They wouldn’t make anything current. It was constantly past due.”

Finally, he stopped paying, and asked for a loan modification. JPMorgan foreclosed.

Ricardo Lopez in the garage of his home. (Alison Fitzgerald/Center for Public Integrity)

At the trial in March, Weidner argued that JPMorgan couldn’t foreclose because it didn’t have an original promissory note, the only original document required in a foreclosure trial.

Whoever has a promissory note can demand payment. So if JPMorgan didn’t have Lopez’s note, maybe someone else did.

JPMorgan’s lawyer claimed she had the original note, then realized it was a copy, according to the trial transcript. She then told the judge the bank had lost the note. Then she changed her mind again and announced she had found it.

The document she produced wasn’t the original, Lopez said. His signature was in black ink, while it was blue on every other document, and the paper was a different size.

Grube disregarded the discrepancies and allowed the document into evidence.

“So we’re making a factual determination that this is, in fact, the original?” Weidner asked.

“Overruled, sir,” Grube responded.

Weidner also argued that new federal regulations barred JPMorgan from foreclosing because Lopez had asked for a loan modification. Grube said the rules may not apply in Florida.

“This is a federal regulation,” the judge said. “Whether or not it applies to this court, being a state court as opposed to a federal court, is a question.”

He said that he as a state judge might not have the authority to enforce the federal regulations.

Lynn Drysdale of Jacksonville Area Legal Aid said she and many other lawyers have reported such incidents to the federal Consumer Financial Protection Bureau but the agency declined to comment.

What’s lost in the technicalities is the fact that Grube was deciding whether Lopez, his wife Christine and their two young children would be kicked out of the home they have lived in for more than 12 years.

The police officer was willing to pay the principal and interest due on his mortgage, but now, five years later, with all the added fees, he’s so far behind he can’t catch up. He’s made six requests for loan modifications since April 2010, according to the piles of records he keeps on the case.

Grube was unmoved. He ruled for the bank in April and scheduled the Lopez home for sale on Sept. 3.

Two days after the trial Lopez got a letter from a company called Bayview Loan Servicing saying it now owned the loan. JPMorgan had sold it a full month before the foreclosure trial to the U.S. office of Housing and Urban Development, which in turn sold it to Bayview.

So JPMorgan foreclosed on a mortgage that it didn’t own. JPMorgan spokesman Jason Lobo declined to comment because the loan was transferred to Bayview.

Lopez went back to court on July 29, armed with the Bayview letter, document experts and the notary from the 2008 loan closing to ask Grube to retry the case. The judge refused. Lopez’s case had been pending since 2010 and Grube made it clear in several hearings that day that he was looking to get aging cases resolved. He signed a second, conflicting, order to sell the house on Sept. 29.

Lopez contacted Bayview, which agreed to consider a loan modification. The two parties went to court on August 28 to ask that the sale be canceled and circuit judge Thomas Minkoff agreed. Judge Grube stepped in however, and reversed that decision, and reinstated the original sale date of Sept. 3.

The day before the sale, Lopez went back to Minkoff and got the sale order reversed.

Stacks of foreclosure case files are piled on the desk in front of a clerk in the courtroom of Palm Beach County Judge Diana Lewis. (Alison Fitzgerald/Center for Public Integrity)

Settlement funds used to speed foreclosures

Grube was working under explicit orders to get rid of old foreclosure cases. Florida’s so-called foreclosure initiative was launched in July 2013, when the state Legislature and budget commission together allocated $36 million of the $334 million the state won when it settled previous allegations of foreclosure fraud against the five biggest banks. It was part of a 49-state settlement.

The money was allocated specifically to “expedite foreclosure cases through the judicial process.”

The state Supreme Court set a target of disposing of 256,000 foreclosure cases each year for three years. That works out to about 700 cases per day — if everyone works weekends and vacation days. The courts have hired retired judges solely to hear foreclosures and case managers to move cases forward. These clerks and judges schedule hearings and trials even if the parties don’t want them.

“I often feel like the biggest adversary is not the bank or its counsel, but the judge, the court system,” said Mark Stopa, who practices foreclosure defense in Orlando. “When the court is moving cases along so quickly, the court is saying, ‘Hey banks, come to court. Get your justice.’ ”

In Miami-Dade County, Chief Administrative Judge Jennifer Bailey has issued a series of policies designed to get pending cases to trial and judgment.

One requires judges to deem any pending motion abandoned if it hasn’t been acted upon in 60 days, and then schedule a trial. The result: A bank can ignore a legitimate defense motion, and it will disappear.

In a series of internal emails obtained by the Center, Bailey has begged circuit judges not to continue cases that should be in the hands of senior judges, urged them to reject hearing requests, and suggested that legal maneuvers are delay tactics.

“Please oh please do not continue these cases. For those of you who have been continuing cases, please stop and at least come talk to those of us working on the project to let us know what the problem is,” she said in one email.

In another, with the subject line “Danger! Danger!” Bailey warned that lawyers are trying to delay cases by going to circuit judges rather than foreclosure-only senior judges.

“This end run is happening ALL THE TIME. Any weakness is exploited. Please help us stop this abuse of process,” she wrote. She did not respond to an email request for an interview.

Lewis in Palm Beach lost her retention election on August 26, perhaps due to her actions in foreclosure cases. The Sun Sentinel newspaper, based in Ft. Lauderdale, said when it endorsed her opponent that “Lewis’ reputation for rudeness stopped being a forgivable quirk and became an embarrassment to the judiciary.”

But senior judges like Grube cannot be voted off the bench because they are there only as temporary appointees to hear foreclosures.

“These judges are qualitatively different than elected judges who must face voters,” Weidner said.

A lawyer scans the morning hearing docket for Judge Diana Lewis at the Palm Beach County Courthouse in July. The judge had 93 cases schedule for the three-hour session.
(Alison Fitzgerald/Center for Public Integrity)

Foreclosure ‘rocket docket’

It’s not the first time Florida’s courts have tried to speed up foreclosures. In fiscal 2010-2011, the state spent $9.6 million to hire senior judges and clerks to push through foreclosures in what became known as “rocket dockets.” The state cleared 250,000 cases that year. When that money ran out, the “rocket dockets” went away.

In the first three months of the latest push, the clearance rate of foreclosure cases — a ratio of cases closed to new cases filed — jumped in every district. In the 17th Judicial Circuit, for example, the clearance rate rose to 405 percent from 148 percent in the prior three months.

One judge in Broward County, Sandra Perlman, closed 786 cases in a single day, according to data collected by the state.

Overall, Florida judges disposed of 193,922 foreclosure cases in the first nine months. The overwhelming majority of those were judgments against homeowners.

In statements from the bench and other public forums, judge after judge has made it clear that speed is their priority. The rights of homeowners come, at best, second.

“We’re under a mandate from court administration, Supreme Court, to get the older cases out. Because we might lose funding for that,” Lewis, the judge in a hurry, told the Sun-Sentinel newspaper in August.

Judge Terence Perkins, chief judge of the 7th Judicial Circuit, which includes Daytona Beach, congratulated his colleagues in a spring 2014 newsletter on their progress eliminating foreclosure cases.

“Last year, we challenged each other to roll up our collective sleeves and dispose of these cases,” the chief judge wrote. “We knew that the rest of the branch and our fellow trial judges were ALL watching and we were told our political credibility hung in the balance.”

Most foreclosures uncontested

However, Judge Robert Roundtree, chief judge of the 8th Judicial Circuit, which spans six counties in north central Florida, said homeowners are getting a fair hearing in his district.

“No cases ever close without having the defendant being able to pursue their cases,” he said.

He said the courts are obligated to ensure cases don’t drag on too long. And the state Supreme Court has guidelines as to how long it should take for a case to conclude.

“If a lawsuit’s been filed, people need closure,” Roundtree said.

To be sure, most pending cases involve homeowners who cannot pay and aren’t fighting the foreclosure. Many have already moved out of their homes.

“Most of the time in my experience it really was that the debtor, oftentimes through no fault of their own, they owed the money,” said ***Magistrate Paul  Silverman , who hears foreclosure cases in Alachua County. “I’ve never had anyone walk in to a foreclosure who said, ‘Judge, the bank is wrong. I’ve made my payments.’ ”

It remains a mystery why state officials determined that a bunch of foreclosure files sitting on the court dockets amounted to an emergency.

If banks wanted to pursue their foreclosures they were free to do so. And Florida judges are empowered to dismiss cases if the parties don’t take action for a year.

But banks and loan servicers don’t have a great incentive to take ownership of a home, and the maintenance costs and liability risk that goes with it, in a stagnant real estate market.

However, in 2012 and 2013, a series of policy changes from the Federal Housing Finance Administration and from Fannie Mae and Freddie Mac provided some motivation to speed the process.

FHFA oversees Fannie and Freddie, the two housing finance giants that buy most mortgages from banks to bundle into securities and sell on the secondary market. The agencies, which charge fees to lenders to buy and guarantee the loans, together are the center of power in the mortgage market.

In September 2012, the FHFA proposed new fees that would increase the costs of mortgages in Florida and four other states because it takes so long in those places to foreclose.

The proposal was withdrawn after enormous opposition, including from Florida’s chief financial officer, Jeff Atwater, who said in a comment letter to FHFA the plan would “raise the lifetime cost of mortgages by potentially thousands of dollars.”

“This consequence is especially troublesome for Florida, where the housing and construction sectors have suffered enormous losses in recent years,” Atwater said in the letter.

In June 2013, Freddie Mac issued new guidelines that encouraged loan servicers to “use the bulk trial foreclosure method” in Florida by which the servicer schedules numerous foreclosure cases for the same court session to clear out the backlog of cases, and offered a direct financial reward for doing so.

The company offered to reimburse servicers $1,750 for their legal fees for each case and pointed out that quick resolutions to cases would reduce the $30-per-day fee it charges for delayed foreclosures.

Freddie Mac spokesman Brad German said the guidelines are designed to prevent abandoned homes from languishing in limbo, and to save money for taxpayers, who are currently footing the bill for the agency because it’s operating under government conservatorship.

Fannie Mae has similar fees for delays beyond 660 days to foreclose and sell a home in Florida. The company includes “Florida Bulk Trials” as an expense category in its servicer guidelines, according to notices on its website.

And early this year, the FHFA dropped a $5.95 a month per loan fee to lenders in most states but left it in place in Florida because of the state’s slow foreclosure process.

“That goes against every rule of evidence since the beginning of time.”

Thomas Ice, Palm Beach County lawyer

Backlog and bad paperwork

In launching the foreclosure initiative, state court officials laid blame for the backlog of cases squarely in the laps of mortgage lenders, saying they weren’t pursuing cases and they often didn’t have the proper paperwork to prove they had the right to foreclose.

Florida was a center of the financial crisis that started slowly in 2007 with house prices stalling and homeowners falling behind on their payments. The crisis spread across the rest of the country in 2008, when Lehman Brothers Holdings Inc. went bankrupt, setting off a cascade of giant bank failures and leading the government to bail out the entire financial system.

As residents fell behind, banks filed thousands of foreclosure complaints in Florida courthouses then let them languish as stagnant court files. When they did have hearings or trials, the lenders often couldn’t come up with the proper paperwork to prove they were the owners of the loan.

That paperwork mess, and indeed the entire financial crisis, was the direct result of creative investors’ turning mortgage debt into a tradable commodity. Mortgages were placed in pools and securitized. Very often the deeds to the homes, promissory notes or other key mortgage documents, got lost.

When the market collapsed and homeowners stopped paying, many banks couldn’t come up with the records they needed to prove they had a right to foreclose.

“They were rushing around so much to securitize that the paperwork they were supposed to keep was never kept,” said Thomas Ice, a Palm Beach County lawyer.

Banks and their lawyers turned to so-called robo-signers, employees whose sole job was to sign fraudulent documents the banks created to establish a paper trail to allow them to foreclose. Some of these people signed thousands of documents a day.

When the massive fraud was revealed, the Justice Department and 49 states sued the five largest mortgage servicers, Bank of America, JPMorgan Chase, Ally Financial (formerly GMAC), Citigroup, and Wells Fargo.

That was the case that led to the massive settlement that now is helping those same banks speed up their foreclosures on Florida’s homeowners.

“The robo-signing scandal was all about banks cutting corners and getting hand-slapped,” Ice said. “The money is being used to get them what they wanted anyway.”

Even though it was the banks that came to the courts with forged documents, it’s almost impossible to find an example of a Florida judge ruling against a bank and granting a home to a family.

“That doesn’t occur very often,” said Kris Slayden, who oversees foreclosures for the Office of the State Courts Administrator. “That’s why those cases make news.”

While robo-signers have largely disappeared, judges are now allowing so-called robo-testifiers to appear in their courtrooms to attest to the validity of the documents the banks are using to justify foreclosures.

Many “robo-testifiers” never worked in the bank departments for which they’re testifying. Some never worked for the banks at all before being hired and trained in what to say on the witness stand. Still, they travel from courtroom to courtroom explaining to judges how banks track payments and keep mortgage records.

“That goes against every rule of evidence since the beginning of time,” said Ice, the Palm Beach County foreclosure lawyer. Ice said that for someone to authenticate business records, they would normally be required to have firsthand knowledge of how a company functions.

Carmen and David Abdo sit in their West Palm Beach shop and sort through the paperwork related to the three foreclosure cases they are fighting. ()Alison Fitzgerald/ Center for Public Integrity)

The New Smyrna Beach house of Carmen and David Abdo, which went into foreclosure after Wachovia added an $11,000 wind insurance policy to their mortgage that they didn’t need. (Alison Fitzgerald/Center for Public Integrity)

Losing faith

Many homeowners struggling to save their homes have lost faith in Florida’s legal system, among them Carmen and David Abdo.

The Palm Beach County couple is facing simultaneous foreclosures on three homes. They got into this mess not because they couldn’t make their monthly mortgage payments, but because all three of their lenders added expensive and unnecessary insurance policies to their loans three years in a row. One of the policies cost more than $16,000.

The Abdos — David is a retired firefighter and Carmen is an interior designer — had insurance on all their houses, and informed the banks each year that they didn’t need the expensive policies. It would take months to straighten out the problem and in the meantime all three banks were charging them thousands of dollars extra each month. Then the cycle would repeat the following year.

The payment on one of their loans went from $1,800 to $2,500, to $4,800 and reached $7,800 when they finally cried uncle and stopped writing checks.

“We just couldn’t pay anymore,” said Carmen, who sat in her shop filled from floor to ceiling with vintage dining sets, second-hand ball gowns and collectibles like monkey-shaped plant holders.

Her meticulous records, punctuated with hot pink sticky notes that match the lipstick she favors, include stacks of correspondence with the lenders, copies of insurance policies and ever increasing demands for payment.

She never had a chance to show her records to a judge. In December, the Abdos went to court in Volusia County to ask Judge Raul Zambrano to rule against the bank because they never should have been charged for the unneeded insurance. Zambrano declined and scheduled a trial for the following week.

“This judge has never ruled in favor of a homeowner,” Carmen Abdo claimed, in explaining why she didn’t want to risk a trial.

Afraid they’d lose everything before an unsympathetic judge, the Abdos instead filed for bankruptcy in federal court the morning they were supposed to go to trial. Now they’re hoping a federal judge will listen to their story.

“It was horrible for us to have to do that,” Carmen said. “That’s not the kind of people we are.”

Why Carmen and David Abdo are fighting for their homes

Needing banks to listen

Many believe that those who lost their homes in the financial crisis were simply greedy people who bought houses they couldn’t afford. Certainly there were many whose ambitions were bigger than their incomes and took out loans they could never pay back.

However, thousands were driven into foreclosure because of the recession — they lost their jobs, their tenants moved out, they couldn’t sell. Many others defaulted because of bank incompetence, or perhaps outright fraud. They could have made their payments, or made slightly smaller payments if the banks would have worked with them.

“Most of the cases I’ve taken on are just people who wanted someone to sit down and talk to them about a work-out,” Golant said.

Today, Carmen and David Abdo remain in limbo as their bankruptcy petition winds its way through federal court.

And Ricardo Lopez is racing the calendar while negotiating with Bayview mortgage in hopes of keeping his home. There’s still an order in the St. Petersburg courthouse to sell his home on Sept. 29.


The judges in this foreclosure article should all BE TERMINATED and banned from presence in any courtroom. That they do not even look at a homeowner’s records is horrendous – THESE ARE THE MOST CROOKED JUDGES ANYWHERE and are the kind of people who if you saw on the side of the road needing help you would just drive by without a care at all. They DO NOT DESERVE anyone’s respect ever because they do not respect the judicial process. Typical Florida corrupt – I wouldn’t be surprised if the judges were in bed with some of these same banks.… Read more »

8 months ago

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***This is the person over my foreclosure case. I was to appear in court a week after I was illegally arrested, and put in jail, But it was not Mr. Silverman who was responsible for my home being illegally taken from me....It was an ex-state attorney, who EX-governor Scott appointed   to be judge: Judge Pena.. That's another story...  jt