Janae Pierre: Hey, I'm Janae Pierre. This is NYC Now. Today, we start with WNYC's housing reporter, David Brand, out in Flatbush, Brooklyn, talking to a woman named Barbara Small.

Barbara Small: It's that one over there.

David Brand: That, right?

Barbara Small: 308.

David Brand: That's 308.

Janae Pierre: Small owned a three-story house on Linden Boulevard. She and her father have fixed it up. He lived on one floor, they rented out the others. Then her father died and she lost the house to foreclosure in 2019 after a tenant stopped paying rent.

Barbara Small: This is the closest I've been to it since this happened. I don't really come. I got like a pit in my stomach when I go over there and look at it. My father probably rolling over in his grave.

David Brand: Tell me about that.

Barbara Small: It was mainly his project. I got the mortgage, he lived in it, and I spent a lot of time here with him. Then he got Alzheimer's and was forgetting stuff. Tenants, they weren't paying him the rent. It was a struggle.

Janae Pierre: After years of fighting to keep her house, Small's mortgage lender sold it for $1.3 million in a foreclosure auction. After all was said and done, she got just around $100,000 of that money. What she didn't know at the time was that the lender and its attorneys had increased the amount of money she owed in interest by tens of thousands of dollars. Her lawyer says they did it by using a calculation that violates state law. An investigation by WNYC and New York Focus has found that the practice is widespread in foreclosure cases across the state.

Mark Anderson: We're talking about thousands of cases where people are getting gouged. We're talking about potentially hundreds of millions of dollars here.

Janae Pierre: David, you brought a friend.

David Brand: That's right. I've been teaming up on this story. Chris, you want to introduce yourself?

Chris Bragg: Yes. Hey, I'm Chris Bragg. I'm an investigative reporter at New York Focus.

Janae Pierre: Welcome, Chris. We're happy to have you. I understand that you guys don't do a lot of barhopping, but you hang out at foreclosure auctions.

David Brand: [chuckles] Yes, I've been to a few. Now, attorneys who represent homeowners facing foreclosures suggested I go to observe the court process. Definitely a side of the housing market that not many people see. The one in Brooklyn is held on the first floor of the Supreme Court building. Picture a dimly lit hallway, shades of beige and gray. Dozens of investors sitting on old benches, talking before the auction, and little clicks. Now, you're unfortunately, not allowed to record inside the courtroom, but here's how it works.

Let's say a homeowner, for whatever reason, can't afford to keep paying their mortgage. Their lender will foreclose, and then a judge will appoint what's called a referee to oversee the sale of the home. The house gets auctioned, and the bank takes what it's owed. If there's any money left. Sometimes there is, sometimes there isn't. The person who's losing their home is supposed to get that.

Janae Pierre: Chris, how many homes are auctioned off in foreclosure each year?

Chris Bragg: Just last year, there were more than 600 one or two-family homes sold at auctions in New York City. A lot of those are in predominantly Black and brown neighborhoods, places like Central Brooklyn, Southeast Queens. Overall, we're talking about millions of dollars in a state that's passing through these courthouses in each county within the five boroughs.

In this process, there's long been problems of corruption and incompetence in how foreclosures are handled. Just to give one example, a 2013 audit conducted by the state comptroller examined referees handling of foreclosures in Brooklyn and found that 9 out of 10, in fact, had submitted inaccurate paperwork.

Janae Pierre: Now, you both started looking into another issue with how these auctions are handled. What did you find?

David Brand: Well, it's a lot more subtle than what Chris was just talking about because it has to do with how banks and their attorneys calculate how much interest a homeowner owes, even after the foreclosure sale.

Mark Anderson: Even to lawyers, this a little confusing because it's involving math, because lawyers are terrible at math.

David Brand: I spoke with an attorney named Mark Anderson. He and his legal partner, Charles Walshein, have represented hundreds of people in foreclosure cases, and they were the first to notice this issue.

Mark Anderson: One of the things that we were seeing when reviewing some of the court documents was that the numbers were a little off. At first, you don't really realize why it's off, because they don't specify their math, and everyone just believes it.

David Brand: All right, I'm going to explain this calculation.

Janae Pierre: Yes, please do.

David Brand: What we found is that how this number gets added up has affected thousands of New Yorkers. Before a house is foreclosed on and then sold, a judge has to actually allow it to happen. That means the lawyer for the lender, like a bank, submits this form describing how much the homeowner owes. There's a legalistic term for that. Say it with me, because it's going to come up a few times in this story.

Janae Pierre: Okay, okay.

David Brand: All right, are you ready?

Janae Pierre: Yes.

David Brand: Judgment amount.

Janae Pierre: Judgment amount.

David Brand: In the case of Barbara Small, who we heard earlier, that judgment amount added up to about $852,000, but this is annoyingly complicated because that doesn't include all the interest. Lenders are allowed to add more interest to account for the period of time between when they ask for that judgment amount and when the judge actually approves it. That can be a really long time.

Charles Walshein: Sometimes there's a very big gap, more than three months. Sometimes it's three years.

David Brand: This is Charles Walshein. He's Anderson's law partner.

Charles Walshein: Don't ask me why it takes that long. I mean, you can, but that's the phony baloney part.

David Brand: At least that's when they say the phony baloney part starts because Anderson says that a lot of these lenders and their attorneys don't calculate that additional interest the right way.

Mark Anderson: They're doing it completely wrong to the point of it being illegal.

Janae Pierre: Illegal, how?

David Brand: Well, many of these banks, many of their attorneys, they'll take that judgment amount we talked about, and then they'll apply interest to that number.

Mark Anderson: Which is not what you're supposed to do.

David Brand: Remember, interest has already been applied when that judgment amount was decided. Anderson says you can't charge it again. That, in his view, is artificially inflating how much the homeowner, or in this case, the former homeowner owes the bank.

Mark Anderson: It's interest on interest, which is illegal.

David Brand: He says what they should be doing and what the law requires them to do is only apply that additional interest to the amount left on the homeowner's original loan.

Mark Anderson: Which is a staggeringly lower amount.

Janae Pierre: Barbara Small, you're saying this happened to her? Her lender and her lender's attorneys charged her more in interest than they really should have?

David Brand: That's what Anderson is arguing. Yes, she was charged using this higher calculation method.

Janae Pierre: What's the difference in her case between these two calculations that you're describing right now?

David Brand: Well, if the interest had only been charged on what she still owed on her mortgage, she would have gotten about $24,000 more.

Janae Pierre: That's a good chunk of change.

David Brand: Yes, it is.

Janae Pierre: You're taking someone who's already down on their luck, obviously having financial trouble. If your house is being foreclosed on, you are, by definition, in a bad financial situation. Then what these attorneys are saying is that the lenders and their lawyers are taking even more money from people who are already struggling.

David Brand: Yes, that's right. In cases where there's money left over or should be left over, yes. Anderson has filed lawsuits in federal court accusing lenders and their attorneys of inflating the interest calculations to steal from homeowners. He says it's happening on a systemic level, and he says there are 14 law firms that handle a significant number of foreclosures that are doing it.

Janae Pierre: Chris, what does state law say about how these numbers should be calculated?

Chris Bragg: Yes, state law prohibits charging interest on interest or what's called compound interest on residential loans. It very explicitly prohibits that for any one or two family home. Actually, in 2015, a panel of appellate court judges upheld the law. The court system's own guidance for doing this is much clearer. The state court system actually has a template that explicitly says interest should be calculated on unpaid mortgage and not the higher judgment amount.

Janae Pierre: All right, two questions, David. How does something like this happen, and how often is it happening?

David Brand: Well, if you think about how hard this was just to explain the difference of one number in this complex calculation amid all these documents, think about how hard it is to catch, especially if you're someone who's losing their home. It's probably chaotic. You probably don't even have a lawyer.

Mark Anderson: Even when you show this to lawyers, they have no idea, even lawyers that do this area of practice.

Chris Bragg: Now, to your question about how often this is happening, we wanted to know an answer to that question, too. We hired a data-scraping expert who wrote code and found and pulled a specific type of court filing from thousands of foreclosure cases. These are the cases that were handled by the 14 law firms Anderson says he found doing this, including the five that he and his firm have targeted in their lawsuits.

Court records show that these 14 law firms handle a significant chunk of foreclosure cases in New York. We identified over 7,000 reports that these law firms filed in New York over a 12-year period. What we found is about 95% of them used a calculation method Anderson says is illegal.

Janae Pierre: How many of those lost out on money like Barbara Small did?

Chris Bragg: We found more than 400 cases of people like Barbara Small, people who should have received more money than they did. There's another kind of potential victim here in about 6,800 cases we reviewed, where people's income taxes may have been wrongly inflated, because even if there was no money left over from the sale of your home, if the bank inflated the amount of money you owed, and that you didn't pay back, that's the kind of thing the bank may report to the IRS. That would show up as money you owed on your income taxes.

Mark Anderson: We're talking about thousands of cases where people are getting gouged. We're talking about potentially hundreds of millions of dollars here.

Janae Pierre: Not all lenders and their attorneys do this, but some do.

David Brand: Some law firms do this the way court guidelines and the way Anderson says it should be done. There's a lot of inconsistency. What that means is if you get foreclosed on, how much you owe depends a lot on what law firm your lender hires.

Janae Pierre: The lenders and law firms that do do this, what do they say about why they do it this way?

Chris Bragg: Going back to Barbara Small's case, we reached out to the lawyers for the lender, New York Mellon, the loan servicer Shellpoint, and the law firm that handled the case LOGS Legal Group, which is also known as Shapiro, DiCaro & Barak. They all declined to comment on the claims or explain how they calculated interest. We also reached out to the other 13 law firms we reviewed as well, and none of the have responded to our detailed requests, but in court documents, attorneys for Shapiro and Mellon did argue that judges approved the method and that Small essentially did, too, when she applied for and received the leftover money.

David Brand: Now, we mentioned that the court system has really clear guidance showing you're not supposed to calculate interest based on that higher judgment amount, but in a separate case, another law firm representing lenders pointed to different guidance from the state court system that they say does allow them to calculate interest this way, but if you read it, that isn't entirely clear at all. The question is, which method is right? What is the correct way to add up how much is owed?

Janae Pierre: Coming up, how does Barbara Small feel about all of this?

Barbara Small: If it's something that's owed to me that I'm entitled to, then I should get it.

Janae Pierre: We talked to the person appointed by the court to oversee the sale of her house.

Speaker 7: If they're doing something that does not comply with the law or the rule, then that's obviously inappropriate. If there are cases where that happened, then it should be revised.

Janae Pierre: All right, time for a podcast recap.

David Brand: Podcast recap.

Janae Pierre: Podcast recap. All right, so let's run down a list of things that we know so far. Lenders and their attorneys, they're using these higher figures to charge people more interest when they lose their homes to foreclosure. This attorney you spoke to, Mark Anderson, he says it's illegal. In fact, he's filed lawsuits against lenders and their attorneys in federal court. You guys have found that this is happening in thousands of foreclosures. In Barbara Small's case, she's out of like $24,000. I know she could use that money.

David Brand: She definitely can.

Barbara Small: If it's something that's owed to me that I'm entitled to, then I should get it.

David Brand: She described going through a lot before she lost the house. A tenant stopped paying rent for over a year. She says she hired an attorney to help her work out a loan modification. Then that attorney ran off with the money. He's since been disbarred. Her dad was very sick.

Barbara Small: The bank wasn't really working with me. He was trying to get a modification on it, modify the loan, and the bank wasn't corporating.

David Brand: Now, when you go to her old address, this prewar brick house she had is totally gone. It's been replaced by this very tall, very narrow apartment building.

Barbara Small: We're looking at what, one, two, three, four, five, six, seven families. It was a three family house.

David Brand: I checked the rents on the place on Streeteasy. I saw that two-bedroom apartments were going for over $3,300 a month earlier this year.

Janae Pierre: That's expensive.

David Brand: The building that's there today is way more valuable than what was there before, and the money that Small got after she lost the place.

Barbara Small: It was supposed to be my legacy. My dad tried to help me create a legacy for myself and my kids. Now I have nothing really to give them, to pass on.

David Brand: Does it make you angry that this happened?

Barbara Small: Of course it does. Of course it does, because they weren't willing to help me. They weren't willing to help me, but yet they're holding on to money that I'm supposed to get.

David Brand: Now, we've mentioned that there are these people called referees who oversee foreclosure cases, but one thing we haven't talked about in detail is the role they play in vetting the numbers that lenders provide. That's their job. They're appointed by judges to make sure a foreclosure is handled fairly and properly, but the court records we've looked through suggest they don't give the paperwork they get from banks that much scrutiny. I called up the referee who handled the foreclosure on Barbara Small's house. His name is Jeffrey Dinowitz. Do you remember this case?

Jeffrey Dinowitz: I may remember it. When I say that, I do remember a case in Brooklyn. I keep copies of everything I can tell you all the numbers. I can even tell you how we calculate the amount owed.

David Brand: You might recognize Dinowitz's name because he's also an elected official. He's represented a part of the Bronx in the State Assembly for over 30 years.

Janae Pierre: Wait, so you're telling me a member of the state legislature is processing and signing off on foreclosures? How common is this?

Chris Bragg: Yes, it's actually pretty common, going all the way back to the days of Tammany Hall. There's been a big problem with patronage in New York City, and that patronage system today really does survive within our judicial system. That's something I've been reporting on for years.

Janae Pierre: All right, Chris, break it down for us.

Chris Bragg: In much of New York City, State Supreme Court judges are essentially selected by county Democratic Party political machines. After those judges win election, it's pretty common for them to then grant appointments to lawyers who are connected to the same political machine. Referee appointments can be kind of a side hustle for politically connected attorneys to make some easy money by overseeing these foreclosure auctions. That's true even sometimes when they wield a lot of power.

In the case of Jeffrey Dinowitz, he's an influential member of the Bronx Democratic Party, and he actually helps run the annual judicial convention where judges are selected. He also happens to be the former head of the Assembly Judiciary Committee, which basically oversees New York's court system.

David Brand: How do you get the appointments for referee?

Jeffrey Dinowitz: It's called part 36 appointments. You get your name on a list, and people get appointed.

David Brand: How do you personally get them? Like, do you know specific judges will do it?

Jeffrey Dinowitz: No, I don't. Some of the judges know me, obviously, but I've never once asked any judge to appoint me.

David Brand: Do you do the calculations as a referee, or did- especially in this case, did the lenders' attorneys, did they give you the forms and you sign off on it, or do you actually do the calculations?

Jeffrey Dinowitz: I never, never rely on the numbers given by the plaintiff. In a foreclosure case, the lender, like the bank, is the plaintiff because they're an interested party. While I'm sure in almost all cases people are honest, but you never know. I don't know. I do the calculations myself.

David Brand: He said he was not aware that there could be a problem with the numbers these banks attorneys are starting from in the first place.

Janae Pierre: Right. A referee could be making sure that 2+2=4, but if one of those numbers isn't supposed to be 2, you're not going to catch that if you don't know.

David Brand: Exactly. Did Office of Court Administration ever give guidance to you when you became a referee or in the past years being like, this is how this should be calculated, look for this problem, or look for this type of calculation that's incorrect?

Jeffrey Dinowitz: Now, the first time I did this, another lawyer basically showed me how to do it. How else do you learn to do things? Somebody shows you.

David Brand: Now, I want to be clear. Dinowitz did not weigh in on whether these calculations are being done wrong, but he said if the banks and their attorneys are using the wrong number, that needs to be corrected, and that people like Small need to get their money back.

Jeffrey Dinowitz: If they're doing something that does not comply with the law or the rule, then that's obviously inappropriate. If there are cases where that happened, then it should be revised. People are struggling enough as it is without having to get less than they're entitled to from any surplus that may be available? There should be uniformity, obviously, in how these things are done.

David Brand: What do you think that might look like?

Jeffrey Dinowitz: Well, I think it ought to be made clear to everybody so there's no ambiguity. Certainly, a defendant in such a case who's obviously going through a hard time in the first place should not be further disadvantaged by losing more money than they might.

Janae Pierre: Chris, who would be responsible for making sure there is uniformity in how these calculations are made?

Chris Bragg: Well, you would think it would be the state court system, the agency that oversees the court system. That's called the Office of Court Administration, which is responsible for overseeing judges and referees in New York. As we mentioned before, the state's own guidance says that you're supposed to use the smaller number here, the amount that the homeowner still owes on their loan.

Now, in court filings, the banks and their attorneys have disputed that. They actually say that the court's guidance does allow them to use the larger number, the judgment amount, to calculate interest, but again, the Office of Court Administration, which oversees the system, could clear this up pretty quickly and issue an explicit rule as to which type of calculation method should be used. We have reached out to the court's spokesperson, Al Baker, to ask what the court's stance is on this issue. He has cited the ongoing litigation that Mark Anderson filed to say that he can't comment.

Janae Pierre: David, what could be the fallout if Anderson is successful in this lawsuit?

David Brand: It could be huge. It could really change the way interest is calculated in all future foreclosure cases statewide. It could possibly give former homeowners a chance to challenge their debts from past foreclosures.

Mark Anderson: In our complaint, we're alleging that on top of just actual damages, we're charging them with a number of different allegations, which include deceptive acts by an attorney, which is a criminal statute. The people that are damaged by that, they're actually entitled to triple the amount that they they were damaged.

David Brand: In that scenario, if Barbara Small was owed $24,000, she would be owed $72,000.

Mark Anderson: But then on top of that, we charge them under RICO statutes because the money that the bank received was wired out to someone else, which is a violation of wire fraud. Then there's also a situation where there's the Fair Debt Collection Practices Act, where they're misrepresenting the character of a debt. There's just untold number of violations here. For reasons unexplained, they've been able to get away with it. The only thing that I can think of is that they just found that no one cared.

David Brand: Again, the lenders and their law firms are fighting this. They say what they're doing is legal and sanctioned by the state court system, but for people like Small, they just want some accountability here for what they say happened. What's it like on top of all this, you find out there's more money out there for you?

Barbara Small: It's like a light at the end of a tunnel. I've been through so much. I've been through a lot. Maybe this is God's way of saying let me help you a little bit because you've been through so much. You know, that's how I feel.

Janae Pierre: David Brand, Chris Bragg, thanks so much for sharing the story with us.

David Brand: Thanks a lot, Janae.

Chris Bragg: Thanks so much, Janae.

Janae Pierre: Thank you for listening to NYC Now from WNYC. I'm Janae Pierre. Enjoy the rest of your day.

 

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