Foreclosure lawyers go to Gardner’s Farm for edge on lenders

Consumer lawyers have been traveling to a remote 160-acre farm in the mountains of western North Carolina since 2006 to network, drink Scotch and prepare for legal combat in foreclosure and bankruptcy cases.

They arrive in groups of a dozen or so for a four-day boot camp where they learn how to protect their clients’ assets by exploiting the mistakes of creditors. Attendees these days are especially keen on strategies to fend off mortgage lenders and servicers seeking to seize their clients’ homes.

Their instructor is O. Max Gardner III, a 65-year-old bankruptcy litigator and grandson of a North Carolina governor, who was using flaws in mortgage servicing to stave off lenders years before cases involving shoddy paperwork spurred this month’s investigation of the industry by the attorneys general of all 50 states. He charges $7,775 for the program, which covers 3,000 pages of materials, lodging, food and unlimited wine, beer and single-malt Scotch.

Most foreclosures go unchallenged because homeowners rarely hire attorneys. That began to change as judges began questioning whether banks were producing sufficient proof that they had standing to foreclose. Gardner advocates using mortgage firms’ faulty evidence as leverage to secure affordable loan modifications for clients and have creditors cover all attorney fees.

Forcing banks to write down loans could push losses to taxpayers and investors in mortgage-backed securities, said Patrick Randolph, a University of Missouri-Kansas City law school professor who has consulted for mortgage firms defending class-action predatory lending claims. The paperwork flaws will ultimately be repaired and foreclosures will go forward because the vast majority of borrowers fighting seizures are in default, Randolph said.

Nick Wooten, a 40-year-old Alabama attorney who changed his focus from personal injury to bankruptcy and foreclosure after attending the boot camp in 2007, said in a telephone interview that his time with Gardner changed the trajectory of his career.

“Knowledge is power, and one thing he is able to give in his boot camp is a tremendous amount of knowledge about how the other side operates,” Wooten said.

Participants, who are admitted only after a background check confirms that they don’t work for creditors, gain access to a private e-mail distribution list where they share legal strategies, documents and advice. Linda Tirelli, a consumer-bankruptcy attorney in New York and Connecticut and one of the 599 people who have gone through the program, said she feels like she’s now part of a big law firm.

“It’s a fraternity,” Tirelli said. “We don’t see each other as competition. We want more attorneys to join because the more we have the better.”

While Gardner and some of his graduates have been winning settlements for years, it wasn’t until Ally Financial Inc.’s GMAC Mortgage unit said Sept. 20 it was halting some evictions that foreclosure documentation and the use of robo-signers became a national issue that threatened to stall sales of repossessed homes and gave investors ammunition in their fight to force banks to buy back billions of dollars of mortgage-linked securities.

“We had a steep hill to climb to convince the judges that the largest financial institutions in America were engaged in this kind of conduct,” Gardner said in an interview during a break in this month’s session.

Students travel along a gravel road to reach Gardner’s place in the South Mountains about 60 miles northwest of Charlotte, N.C. They sleep in cabins and swap stories over meals prepared by Gardner’s wife, Victoria, in the family’s three-story log cabin-style house on a hill overlooking a spring-fed pond.

During days that run 10 to 12 hours, Gardner lectures on topics including “Max’s Favorite Discovery Devices,” “Strategy to Trap Opponents in their Own Mistakes,” “Mortgage Servicing Litigation: How the Legal Network for Creditors is Organized” and “The Alphabet Problem, A to D Unlawful Transfer of Mortgages and Notes.”

Guest speakers at the October session included a forensic accountant, a North Carolina Superior Court judge and the former vice president and general counsel of Saxon Mortgage Inc., which is owned by Morgan Stanley.

The heart of Gardner’s strategy is to uncover omissions and errors in mortgage securitizations, the process in which thousands of loans are bundled into bonds and sold to investors. Securitizations are plagued by lost promissory notes and missing or inconsistent tracking of changes in loan ownership, Gardner said in the interview. Servicers processing default actions papered over the errors with improperly prepared affidavits and after-the-fact assignments of mortgages, he said.

One tactic Gardner employs in court is to allow creditors that produce dubious evidence to “dig their own grave.”

“I wouldn’t go in waving documents around,” he said. “The more false documents and inconsistent documents I get the other side to produce, the more legal leverage I have against them.”

Borrowers who can’t afford attorneys sometimes turn to legal-services organizations such as Jacksonville Area Legal Aid in Florida, where boot-camp graduate April Charney has worked since 2004 — the year she met Gardner. They met at a conference of consumer lawyers in Minneapolis, and Gardner later offered her a scholarship to attend training.

While Charney considers Gardner a mentor, she said she disagrees with his assertion that servicers likely produced false affidavits and other documents because of the time and expense involved in pulling the originals from custodians. Charney, who also trains lawyers how to defend clients’ homes, said the mortgage firms simply don’t have the documents.

About 2.5 million homes have been taken back since 2005, while 6.5 million more homes may soon face repossession, Morgan Stanley said Oct. 12.

The materials supplied to students on thumb-size data-storage units include “Max Gardner’s Top Road Signs of Bogus Mortgage Documents,” a list that has been updated and expanded since it first appeared in the boot-camp materials in January 2006, he said. The last of the 66 tips for spotting irregularities is if the document is signed by any of 295 people, who he lists by name.

The roster includes Jeffrey Stephan, a GMAC Mortgage employee whose depositions in December 2009 and June 2010 brought the issue of robo-signers to the public’s attention. The latest batch of boot campers included Thomas Cox, a Maine attorney, one of two lawyers who deposed Stephan.

“What the grand scheme is here is not what I’m teaching because honestly I don’t know,” Gardner said. “What I want them to understand is what happened and how it happened and how they can identify the improper unlawful documents and what they can do with them.”