THIS HOUSE IS STOLEN. The words are spray-painted in what was once black along the sidewalk directly in front of 2122 Ward Street. It's old graffiti. Over time, sunlight and foot traffic have reduced it to a shade of gray only slightly darker than the concrete.
But the message is unlikely to be overlooked. Just feet away, on the paved landing leading up to the steps of the gray, wood-paneled south Berkeley house, someone has stenciled DONT BUY THIS HOUSE in smaller, darker block letters. Just beyond, a six-foot chain-link fence encircles the rest of the property. Inches farther, on the same landing, are more stenciled graffiti: STOLEN PROPERTY and GIVE IT BACK and RETURN JIM & BRETT.
These unequivocal slogans began cropping up in the summer of 2005, just weeks after Jeff and Loren Toews bought Jim Hultman's house at an Alameda County trustee's sale. The Toews (pronounced "taze") brothers are retired NFL players turned San Jose businessmen who have made a small fortune in Bay Area real estate. It wasn't the brothers who "stole" the house, but they bought it after an unscrupulous mortgage servicing company foreclosed on the property fraudulently, according to Hultman. That's why he thinks the new owners ought to sell it back to him and his partner Brett for what the brothers paid, rather than to a third party at the market rate.
The graffiti has served half of what appears to be its intended purpose: Jeff and Loren Toews have been unable to make a sale. They balked at Hultman's offers and vice versa but haven't found anyone willing to buy the contested property. The two-year stalemate has whittled away at the patience of all the parties: The businessmen have a high-six-figure asset that is now essentially frozen, Ward Street residents have an eyesore and a headache for a landmark, and Hultman and his partner Brett are stuck living at Brett's mother's house. Hultman, meanwhile, is at his wits' end, and by many accounts has become reclusive. The Express, in fact, was unable to track him down for a photograph to accompany this article.
The way Hultman tells the story, his despair is understandable. The house had been in his family since 1911, when his maternal grandfather bought the property. Seventy years later, Hultman moved in to care for his ailing grandparents, and inherited the property when they died. In August 2001 he took out a $170,000 loan with Aames Home Loan to pay off some property taxes and do a series of long-overdue repairs. At the time, the house was appraised at $850,000, but many of its parts roof, plumbing, wiring hadn't been replaced since his grandfather bought it. Hultman, an assistant property manager and home stager for local real-estate agents, planned to do most of the work himself.
About a month later, he got a call from a representative of Fairbanks Capital Corporation asking for his mortgage payment. This was news to Hultman, who insisted he'd sent his $1,200 payment to Aames earlier in the month. The Fairbanks rep politely informed him that the company had bought servicing rights to his loan from Aames, and would be managing his payments thereafter.
Confused and a bit suspicious, Hultman immediately went online to research Fairbanks, which was then the nation's tenth-largest loan servicing company, owned by the PMI Group, a publicly traded mortgage insurance corporation.
What he found frightened him. Roughly a dozen Web sites warned of the company's practices. Among the many grievances of fellow Fairbanks clients: The company charged them unwarranted late fees, demanded payments already made, and falsely stated customers' account balances. "I knew it was trouble," Hultman recalls.
Still, he figured there was little he could do except pay on time and keep record of it: "I went ahead making my payments. They were never late, and I always mailed them before they were due."
Hultman provided the Express with photocopies of his canceled mortgage checks from the time he became concerned right up through the date his property was auctioned.
Sure enough, the homeowner says, the company would occasionally claim his payments were late. "But I knew that was one of their ploys," he says. "I would just argue with them and just get it straightened out."
In November 2003, the US District Court of Massachusetts settled a national class-action lawsuit Alana L. Curry, et al., v. Fairbanks Capital Corporation. While the company admitted no wrongdoing, the lawsuit represented the first significant legal action by a regulatory agency against a large mortgage servicer. The $40 million settlement sent a mixed message to customers. While both the settlement deal and an accompanying order from the Federal Trade Commission demanded that the company reform its exploitative business practices, they also confirmed customers' widespread suspicions.
Hultman qualified for the settlement but decided to opt out. "I had followed the lawsuit against Fairbanks," he says. "Everything I read said, 'Opt out; don't go along with it.' If you stayed in as a class in the lawsuit, you gave up all rights to ever sue the company." In addition, the settlement made little financial sense. The $40 million in consumer redress was split among nearly 300,000 homeowners for an average payout of less than $200.
The following February, a man appeared at Hultman's door hoping to buy the house. Hultman had defaulted on his mortgage, the man said, and the house was in foreclosure. Bewildered, Hultman dismissed the man from his property. The last time he'd spoken with Fairbanks, the rep had told him his account was current. Moreover, he says, he'd received none of the documents that always accompany a foreclosure.
California law requires a lengthy process 121 days at the very least for a lender or servicer to foreclose on a house, which gives homeowners the chance to "cure" their default. It begins with a Notice of Default, which must be recorded with the county and sent by certified mail. Even if this notice is lost in the mail, thrown out with the recycling, or simply overlooked, it's nearly impossible for homeowners not to know they're in foreclosure.
Foreclosure specialists among them professional Realtors, independent investors, and the occasional con artist regularly comb through county records for names of homeowners in foreclosure, whom they rush to contact with offers before the lender sells off their houses.
Fairbanks had indeed recorded a Notice of Default for $8,150.65 in arrears against Hultman on February 6, 2004, by way of the National Default Servicing Corporation a company to which Fairbanks outsourced its notice-posting and debt collection. The ambitious man at the door may have outpaced the postal system, but Hultman insists the notice never arrived. (A spokesperson for the NDSC counters that its notices are always properly delivered without exception.)
Immediately after the man left, Hultman rushed to call Fairbanks, he says. On the phone, a company representative told him that, no, his house was not in foreclosure, and that, yes, his account was current.
At this point, Hultman recalls, he had little faith in the company, and so he called back again. And again. And again. "On my fifth phone call," he says, "I was told by Fairbanks, 'Yes, we show you as behind in payments, but we can't tell you right now which payments, so let us work up a forbearance agreement and get it to you next week.'
"Well, I also read that Fairbanks did that," Hultman continues. "They would tell you that there was a forbearance agreement, and you wouldn't get it before your house was supposed to be sold, and you would lose your house."
Hultman called a few real-estate attorneys, who told him his only option was to file for bankruptcy. "I'm not bankrupt, but I went along with them and did it," he says. "It was explained to me that if you file bankruptcy, that'll stop it. Then just go refinance with another company, and get away from Fairbanks at any cost."
The bankruptcy filing put a stay on the foreclosure while Hultman weighed his options for resolving what he saw as a case of servicing fraud. "Fairbanks never really came up with the exact months they claimed that I was behind in payments, but for the next year, I was going ahead and paying them my regular payments while trying to refinance," he says. "I had eleven companies tell me they would refinance me, and all eleven had to back out because Fairbanks wouldn't give them my payoff amount. Every company came back and said, 'We would do it, but we can't get any information out of Fairbanks they are the worst company to deal with.'"
By then, Fairbanks had changed its name to Select Portfolio Servicing to shed the bad publicity from the Curry settlement, and although Fairbanks/SPS claimed to have changed its ways, the testimonies against it on Web sites such as RipoffReport.com and MSFraud.org were and still are unrelenting. Contacted for this story, SPS spokespeople were given the opportunity to explain Fairbanks' foreclosure action against Hultman, and to refute his claims. But they never called back as promised.
As Hultman considered his refinancing options, a miscommunication with his attorney inadvertently ended his bankruptcy case without his knowledge. But NDSC, Fairbanks' default servicer, found out the bankruptcy had lapsed. Even as Hultman continued to make payments, it proceeded with the foreclosure.
Much like the previous year, it was only when Hultman found two unfamiliar men in his backyard in July 2005 that he realized something was amiss. He came home from work at 10 a.m. to pick up some tools and let his dog out, he says. When he opened the door to the backyard, he saw the men and demanded to know why they were on his property. "What the hell are you doing in my yard?" he recalls yelling.
One of the men laughed. "It's not your house for long," he chided. "I'm buying it this afternoon; it's up for sale! Enjoy it while you can."
"I don't care," Hultman says he told them. "Get the hell out of my yard."
Again, the company initially denied any intent to foreclose on his house, he says: "I called Fairbanks and they told me, 'No, there's nothing wrong. Your house isn't for sale. Everything's current.' And I called them a total of five times again. Every person told me that there was no problem. I was told, 'If we were selling your house, we wouldn't be accepting your payments.'
"The sixth phone call I make, the lady tells me, 'Oh, yes, we do show it as being scheduled for sale today. You should have gotten a notice.'"
But Hultman insisted he had never received anything. He then called his attorney and learned the bad news about his bankruptcy. Together, they rushed to the county courthouse and filed the missing paperwork, but it was too late. Minutes earlier, on the steps behind the courthouse, 2122 Ward Street had been sold to two buyers for $635,100.
In the crowded landscape of predatory lending, real-estate fraud, and mortgage fraud, mortgage-servicing fraud is yet another case of greedy individuals and companies taking advantage of homeowners.
Because the problem has surfaced only recently, and because few victims report the transgressions, and because those reports don't go through any central clearinghouse, there are no reliable statistics on its prevalence. But the 300,000 homeowners represented in Curry v. Fairbanks likely represent just a small fraction of those affected.
The past four years have seen additional class-action lawsuits against Ocwen Financial Corporation and Litton Loan Servicing, also among the country's highest-volume servicers. And there have been countless individual lawsuits against these collection firms. "It's a terrible problem," says Jack Guttentag, finance professor emeritus at the University of Pennsylvania's Wharton School.
Guttentag, who prefers the term "predatory servicing," since there are no laws to govern much of the unscrupulous behavior, has written extensively about the state of mortgage servicing, with a keen eye on the limitations the industry places on consumer choice. "It is these specialized servicers that are the problem, because they have zero incentive to satisfy their customers," he says. "Servicers have nothing to sell the customer, so they make their money by squeezing nickels and dimes out of customers."
Mortgage servicing is just one of many specialized niches in the larger mortgage business. In this recently deregulated industry, what begins as a relatively simple loan may be bundled into a complex investment for Wall Street investors. In this process, a mortgage can change hands several times within weeks of its creation. But no matter where it ends up at the bank that originated it, or perhaps as part of a "mortgage-backed security" at an investment bank the monthly payments still need collecting. That's where the servicer fits in. Most lending banks can't be bothered with collections, so they typically transfer "servicing rights" for their loans to firms like Fairbanks.
For a small per-mortgage fee, these companies collect interest and principal on loans, do the required paperwork, and hound delinquent borrowers. But since late customers require considerably more work than punctual ones, the lenders let the servicers impose late fees and various other fines to compensate for their trouble. To an unscrupulous firm, the prospect of milking such fees from punctual borrowers may be too enticing to pass up.
In most industries, a company that systematically fleeced its clients would quickly go out of business, because the customers would switch to a competitor. In the mortgage servicing industry, customers have no such freedom. Banks can sell their mortgages to nearly any investment bank they wish, and the investment banks, in turn, can sell servicing rights to whomever they please. Neither transaction requires approval from the borrower, nor does the borrower have the means to change servicers.
Maureen McGrath, representing a group calling itself the National Advocacy Against Mortgage Servicing Fraud, made this point to a House of Representatives subcommittee in June 2004. "The financial incentives to provide good service to customers, which work in other sectors of our economy, don't work for loan servicing," she testified. "The firm servicing mortgages will not get more customers by improving service quality, only higher costs. And the firm providing minimal service or less will not lose customers, because their customers are locked in."
Fairbanks/SPS customers may have caught a break this past August, when the Federal Trade Commission issued an order modifying the original Curry settlement. The revised order requires the company to undergo third-party audits each year until 2013, and to hereafter issue clear and comprehensive monthly statements to each borrower. The change should do much to protect the firm's current and future clients, but it's of little help to Hultman.
LOREN TOEWS PITTSBURG HOUSE STEALER. This stenciled message outside the Ward Street house, misspelling and all, plays on Loren's past as a linebacker for the Pittsburgh Steelers. Over the past decade, he and his younger brother Jeff, a former Miami Dolphin, have bought and sold more than one hundred foreclosed homes around the greater Bay Area. Now Jim Hultman and some of his neighbors hope to shame the Toewses into returning the property.
In a next-door neighbor's window, a paper sign asks: LOREN AND JEFF TOEWS HOW CAN YOU SLEEP AT NIGHT?
But isn't Fairbanks the bad guy here? Actually, Hultman suspects the Toewses are in cahoots with the mortgage servicer, and systematically follow the lenders Fairbanks contracts with. Loren Toews will have none of this. "We don't know anything about what transpires prior to an auction," he says.
Indeed, trustee's sales occur so frequently and with such short notice that investors seldom have much time to research a given property (see "The Best Game in Town," page 17). "We show up and the world is invited and encouraged to bid," Loren Toews says. "In any event, we showed up, and unfortunately showed up with the highest bid. We happen to be the easiest dog to kick, because we bought the house. But he's kicking the wrong dog."
Conspiracy claims aside, Hultman still has numerous beefs with the new owners. He's certain it was Jeff Toews who laughed at him from his backyard that day, that the brothers evicted him and Brett prematurely, that they routinely intimidate his neighbors, and that they are letting the house and yard decay. His biggest complaint, of course, is that they won't sell him back the house at a price he deems reasonable.
The Toews brothers counter that they've done nothing wrong. They drove past the property on the day of the sale, Loren says, but never left the car. And he insists they have obeyed the law throughout. "Everything was done by the book," he says. "We served him with the [eviction] notices. We were contacted by three of his attorneys. And I don't know if they dropped the ball or what. It was a pretty garden-variety deal from our perspective."
As for the negotiations, Loren contended that Hultman's original offer of $650,000 would have left the brothers with a net loss, factoring in money they've put into the property. Loren says he came back with a higher, no-profit counteroffer, but Hultman rejected it. For his part, Hultman says he can afford no more than he offered, largely because he netted just over $450,000 from the forced trustee's sale.
After negotiations failed, Hultman's neighbors and friends rallied to prevent the house from selling. When the house went on the market briefly in the winter of 2005, his supporters stood out front and handed out fliers urging potential buyers to look elsewhere. If a third party bought it, they figured, there would be even less chance that Hultman would regain it.
Then there's the graffiti. Everyone has their hunches. Hultman says he thinks the culprit might be a friend or neighbor, but so far nobody has told him. Loren Toews suspects Hultman is the one doing the spraying. In addition to the sidewalk and landing, the graffiti appeared on the house before the new owners painted it over and erected the fence, installed a motion-sensor light, and put up No Trespassing signs.
The new paint is just thin enough to reveal faint ghosts of graffiti past, but the markings appear fresh in online photos. On Zillow.com, a popular Web site that estimates the value of individual homes, the profile for 2122 Ward Street includes two photos of the graffitied house STOLEN PROPERTY, PITTSBURG HOUSE STEALER, etc. posted by "jimshouse," a user who could not be reached for comment.
Hultman, meanwhile, has made several large signs, which next-door neighbor Mary Kay Murlas hosts in her front yard. Resting against a small tree is a wooden one titled 2122 WARD PROPERTY DISCLOSURE. It includes a list of the property's shortcomings: 3 DEATHS ON PROPERTY, NO GAS SERVICE ON PROPERTY, FOUNDATION IS BAD, MAIN SEWER LINE NEEDS REPLACING, etc.
There's also a large plastic sign hanging between two trees, which states in a large, bold font: "DO NOT BUY 2122 WARD," and below that, "IT WAS STOLEN BY FRAUD." A third directs people to MSFraud.org, a site dedicated to combating mortgage servicing fraud. People still knock on Murlas' door to ask about the signs. "I have tried to be straight about it, and not embellish," she says. "My feeling about the whole thing is that there were screwups all along the way."
When a neighbor made a batch of large paper "DON'T BUY 2122 WARD" signs shortly after the trustee's sale, others posted them in street-facing windows. Two years later, four houses still display them in plain view.
One of them is Chris Byrne at 2140 Ward. "We had several at one point, but we went with the simple large one for emphasis," she explains. "People come by all the time asking about the sign." When they do, Byrne adds, she tells them how Hultman's house was stolen by Fairbanks, and why discouraging a secondary sale improves his chances.
She and her husband have known Hultman a long time they reckon they first met some twenty years ago. Like many on Ward Street, Byrne considers Hultman a cornerstone of the community, a man devoted to his neighbors and his neighborhood. "Jim was like the unofficial mayor of the street," Murlas concurs. "He was on the street talking to people a lot, and he would keep us updated with what was going on in the city."
Byrne remembers the time Hultman organized residents to evict a local crack dealer, and how he started their Neighborhood Watch. "We really had hopes Jim would run for city council," she says. "He was so good at resolving neighborhood issues."
In the Toewses, however, Byrne sees people with little regard for the neighborhood or its residents. Earlier this year, she claims, one of the brothers came to her door and pointed to the window sign. "He barked at my sixteen-year-old daughter who answered the door: 'Are you responsible for this?'" she says. She also claims the brothers have threatened other neighbors with lawsuits over their signs.
This, she says, has only solidified her support for Hultman. She'll keep the large sign in her window until he says it's okay to take it down, she says. The new owners, she acknowledges, may have not broken any laws, "but they've replaced a favorite neighbor with an empty slum."
Things are more nuanced for some neighbors, including a few who declined to comment publicly for this article. Ron Bogely, also a next-door neighbor, approaches the topic with extreme caution. "I want to be in as far a neutral corner as I can be," he says. "It's like the Twilight Zone. We have heard so many different things about what happened. Nobody knows what really happened it's all too murky."
What Bogely does know is that the whole thing has become a headache for everyone on the block. "It's been a real blight on the neighborhood, especially on us neighbors," he says. "The graffiti is a real nuisance, and so is having a chain-link fence up around it." Bogely adds that he has seen vagrants sleeping under the back deck and the hedges. "I just want it to be over with, but I just don't know if it will happen."
Neither, apparently, do the principal players. Hultman is still deciding whether to proceed with a lawsuit against Fairbanks/SPS. Lawyers are typically shocked when they hear his story, he says: "First they don't believe it. Then, when they see exactly what happened, they [still] can't believe that this happened. And then we are being advised, 'You have a case that you can win hands down, but it's going to cost you a half-million dollars in legal fees to win it, so you might want to cut your losses and run.'"
Indeed, Fairbanks/SPS has a slew of lawyers dedicated to mitigating such claims. Mike Dillon can attest to this he's spent the last four years fighting the company in court, and has yet to see a dime.
Fairbanks tried to foreclose on Dillon's Manchester, New Hampshire home in 2003, claiming he was behind with payments. Like Hultman, Dillon was incredulous. "I think I just knew that something was wrong," he says. "There was no good reason for them to be foreclosing on me."
Dillon also knew that the terms of the Curry v. Fairbanks settlement would be of little help to him, so he went the solo route. After realizing just how difficult it would be to wrest his home back from Fairbanks, he quit his job as a Boston-area set builder to work full-time on his own case. "Ultimately it was sheer tenacity, talking to law firm after law firm after law firm," he says. "I have met with at least one hundred fifty of them by now."
For Dillon, the case has been an exercise in self-education. "This is all stuff that as a homeowner I shouldn't need to know. I shouldn't need to know what the Pooling and Servicing Agreement is," he says, referring to the lengthy pact between a mortgage company and its servicer. "I should just be able to make my monthly statements and to have them recorded properly every month, and not have to deal with this."
In 2005, after Dillon had been fighting Fairbanks and SPS in court for two years, the courts granted him a permanent injunction against the company. The ruling, which prevented SPS from taking any further action to foreclose on Dillon's house, was the first ever for a Fairbanks/SPS client who did not file for bankruptcy.
In June, Dillon took the next step. He and his attorney filed a racketeering and corruption suit to the tune of $13.5 million against Fairbanks/SPS and five other companies connected to his mortgage. But the case has taken a heavy toll. "I only sleep around four hours per night," he says. "If I'm not thinking about it, I'm talking about it. If I'm not talking about it, I'm researching it. It becomes your entire life. And then depression and anxiety set in, and you are halfway to losing the battle. ... It's no wonder that people give up. It just turns out that I haven't."
Hultman also says he hasn't given up on fighting the foreclosure. In the meantime, he has turned his wrath on the Toews brothers, more or less declaring war on their reputation. "If I have to spend every dime I have to ruin the Toews' name, I will," he says.
Among his plans are to report the brothers to the Internal Revenue Service. He is also contemplating taking them to court for various transgressions for which he holds them accountable. The mystery spray painter has taken a similar tack. In early August, two identical jet-black stencils appeared on the driveway concrete and on the stairs, just in front of the chain-link fence: LOREN & JEFF TOEWS FROM PRO FOOTBALL PLAYERS TO PRO CRIMINALS. Loren Toews doesn't appear much concerned, although he does seem surprised by Hultman's spite. Personally, he says, he harbors no hard feelings. Toews wouldn't go so far as to call the Ward Street standoff a headache. It is "more of a pebble in our shoe," he says.
Indeed, the Toewses have no shortage of property to manage while they wait things out. Nor do they appear to be hurting for cash. Property records show the brothers, both individually and through their company Jayan Elle LLC, have netted an estimated $30 million through real estate transactions since the mid-1990s. Given the failed negotiations, and Hultman's declaration of war on their name, they can likely afford to do battle.
Of course, as businessmen, they'd rather just remove the pebble and get on with it. Loren Toews says he's confident they will sell Hultman's old house. "We are going forward with it and put it on the market," he says. "I don't know when, but at some point in the near future."
As for the graffiti, the overgrown hedges, and the fence? "We are going to renovate the property," he assures. "It needs a little tidying up."
Neighbor Byrne is certain that the neighborhood will again rally to thwart a third-party sale if the brothers put the house up for sale. But such opposition won't deter the Toewses. They have strategies, Loren says, intended to prevent neighbors from interfering with the sale this time around. "I won't say what," he says. "But we have some plans."
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