Home stand The quixotic campaign to topple the foreclosure industry

It’s getting to the point where I might just have to stay in this fight for awhile longer.  It’s been 10 years for this guy, only 8 for me.  With what’s happening in Florida and Washington, we’re building steam.

Philip Slagter sits in a folding chair in his garage, holding a hand-rolled cigarette as he taps his Macbook’s trackpad. Blind in one eye, he leans to see the cursor on the screen. Up pops a news article he bookmarked back in 2009 about the predatory practices of his now-infamous mortgage company. Washington Mutual’s subprime unit, the article says, was “the worst of the worst” among lenders who stacked profits on houses of cards.

Slagter didn’t learn of these accusations until it was too late, of course, after his home was among the one-in-three loans ending in foreclosure.

“I was perfectly naïve about everything,” he says.

For now, though, Slagter and his wife still live in the hills outside Corvallis, where their wraparound deck offers panoramas of the Bitterroots. Slagter, an artist, has been fighting to stay in the home for 10 years, a battle that has led him through thickets of legal documents, spanned his daughter’s death and colored his view of the world. But Slagter feels taken. He won’t quit.

Now he finds himself among a quixotic band of Montana homeowners who are determined to expose the fraud behind their foreclosures. Some have penned their own court briefs, armed with laptops and legal dictionaries. One clashed with police when she tried to videotape a private showing of her home. This summer, with the help of a private investigator himself embroiled in foreclosure proceedings, they stumbled upon a new legal argument they think will win their cases—and could upend thousands of others.

“These guys are just cheating everybody,” Slagter says. “If one of us can beat them, maybe it will help everybody.”

The country’s mortgage boom was created, in large part, using phony documents. Lenders bundled and sold their portfolios on Wall Street as real estate mortgage investment conduit, or REMIC, trusts. The craze pushed banks to make riskier loans—and to cut corners. As the time came to foreclose on delinquent borrowers, note holders found themselves lacking the necessary paperwork. So they forged it.

The “robosigning” scandal prompted a $25 billion settlement in 2012 between the country’s five biggest banks and 49 states, including Montana. The agreement set aside funds to help troubled homeowners modify their loans, but some people, like Absarokee-based investigator Bill Paatalo, note the documents are still corrupt.

click to enlargeThe painting Philip Slagter was working on when his daughter died in 2012 hangs unfinished in the basement of his Corvallis home, which is currently threatened with foreclosure. - PHOTO BY DEREK BROUWER

  • The painting Philip Slagter was working on when his daughter died in 2012 hangs unfinished in the basement of his Corvallis home, which is currently threatened with foreclosure.

Paatalo has been combing state law as he litigates his own foreclosure and reviews mortgage documents for clients such as Slagter. He found that Montana law requires any business trust operating in the state to register with the Secretary of State and file income tax returns. The REMIC trusts that own Paatalo and Slagter’s mortgages didn’t register, the agency confirmed.

Paatalo then points to a Montana Supreme Court decision that a particular out-of-state trust couldn’t register after the fact. In other words, any debt collection or foreclosure brought on behalf of an unregistered trust should be void, he argues.

Paatalo’s attorneys have put this question to the primary foreclosure firm in the region, whose attorneys stated in depositions for Paatalo’s case that they were unaware of such a requirement. In court briefs, they also point out that U.S. Bank, the trustee for the REMIC trust and the entity bringing the lawsuit, is exempt from registration.

Paatalo figures that if his interpretation proves correct, it’s unlikely any REMIC trusts complied with the statute, and all have been functioning illegally. “It’s going to turn everything upside down. The liability is absolutely staggering,” he says.

Paatalo hasn’t found many allies in his attempt to disrupt the foreclosure business. The district court judge in his Stillwater County case has been sitting on the brief for the past four months. Other officials, including the attorney general, shrugged him off, he says. Then, there’s the issue of tax evasion.

“I’m trying to blow this whistle here on the failure to pay your income taxes,” Paatalo says, “and we’re hearing nothing but crickets.”

That hasn’t stopped Slagter from using the argument to battle his eviction. Steered into default in 2008, after he says mortgage officers misled him with promises of a refinance for his $400,000 home, Slagter has used any tactic he could muster to delay and eventually dispute foreclosure. A turning point came in 2013, after his teenage daughter died in a car accident and his options were dwindling. When the notice of trustee sale arrived, Slagter decided to sue.

“I was no longer protecting my family to keep a house over their head,” he says. “I was realizing the extent of the fraud and the corruption inside the banking industry.”

Slagter buried himself in legal research. He hired Paatalo to audit his mortgage. Slagter wrote and filed a complaint in district court. But he lost on a procedural issue—he had misinterpreted a deadline.

The eviction notices started to arrive this year. He ignored them, forcing a lawsuit and another day in court. This time, Slagter thinks he’s found a technicality of his own.


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