Sitting in her lawyer's office at South Brooklyn Legal Services, her hands folded calmly in her lap, Sandra Barkley describes how she became the first person in her family to buy a home. The 52-year old single mother begins by speaking in a relaxed southern drawl, but as she comes to recount her experiences more fully, her voice rises, and her cool breaks.
In the winter of 2002-2003, an acquaintance of Barkley's put her in touch with United Homes, a New York City-based company that specialized in fixing up and reselling homes purchased at foreclosure auctions and distress sales. (Later, Barkley learned that her acquaintance had received $1,000 for the referral.) United Homes--whose slogan is "We Make Dreams Come True"--simplified the process of buying a home for first-time homebuyers like her by being a "one-stop shop," where customers could obtain the services of a real estate broker, mortgage broker, appraiser, and attorney all under one roof. A 2008 New York State Commission of Investigation report on the subprime mortgage crisis reported that there were 40 such shops in one New York minority neighborhood alone.
Barkley, who at the time made around $28,000 a year working for the New York City Housing Authority, wasn't sure whether she'd have enough money to buy a home when she first walked in the door at United Homes. She says that she voiced her concerns to a United Homes salesman, and later to a lawyer the company found for her--but both men assured her that she'd be fine. Still, Barkley's apprehensions grew, and she became so nervous about the deal that she attempted to postpone the closing until she could obtain independent legal advice. A United Homes employee, she claims, told her that she could not change the date. Unsettled by the flurry of paperwork at her closing, Barkley stayed up all night reading the documents, and the next day sent letters and made phone calls to her lawyer, Olympia Mortgage, and United Homes in what proved to be an unsuccessful effort to cancel the mortgages she had signed. And so, less than two weeks after being shown a $359,000, three-storey, white vinyl sided house on a tree-lined street in the Bedford-Stuyvesant neighborhood of Brooklyn, Barkley closed on the property with a $10,000 down payment.
Turns out, though, that Barkley had reason to worry all along. The Olympia Mortgage Corporation, which worked with United Homes on some of its deals, approved Barkley for two no-income no-asset mortgages based on an appraisal that valued the house at its $359,000 sales price. But that number was arrived at by someone who, at the time, was under suspension from doing appraisals on federally insured mortgages by the United States Department of Housing and Urban Development (HUD). Later, after a woman passing on the street asked how much she paid for the house and implied that she had overpaid, Barkley commissioned her own appraisal, which valued it at $260,000. A subsequent appraisal by Barkley's new lawyers valued Barkley's house at its time of purchase at $235,000. In addition, unbeknownst to Barkley, United Homes had purchased the house for $153,000 at a foreclosure auction only three months before selling it to her.
According to court papers filed by Barkley's lawyers, Wall Street investment banks were also involved. Before Barkley had even closed on her house, Olympia Mortgage completed the necessary paperwork to sell her mortgages, which were designed to meet underwriting guidelines on a website maintained by the investment bank Credit Suisse. A Credit Suisse subsidiary, DLJ Mortgage Capital, purchased the loans only a month after Barkley closed on her house, despite the fact that an automated review of Barkley's mortgages stated that they were "high risk" and that her house had been over-appraised by more than $120,000. After being sold to another Credit Suisse subsidiary, Barkley's two mortgages were then separately bundled into mortgage-backed securities (which today are under the trusteeship of JP Morgan Chase and Fannie Mae), and shares were sold to investors.
Meanwhile, the house was hers, and her financial situation was slipping. She was unable to afford her mortgage payments and faced the possibility of losing her house to foreclosure--a fate that could severely compromise Barkley's prospects of buying another house, renting, or even finding a new job. And she is just one of countless first-time homeowners--many, like her, African-American--who now face uncertain financial futures as a result of experiences with one-stop shops. "It was worse than my worst nightmare," she said, tears streaming down her face. "My words to myself were, 'How could you be so stupid? How could you be so trusting? How could you be so naive?'"
Barkley is a plaintiff in one of six ongoing lawsuits that charge United Homes with being at the center of vast and far-ranging conspiracies--involving appraisers, lenders, lawyers, and major financial institutions--to defraud low-income homebuyers. (This past May, after a five-year court battle, Barkley's claims against Credit Suisse, JP Morgan Chase, and Fannie Mae were resolved in an out-of-court settlement, subject to a confidentiality agreement. Her lawsuit with United Homes is still unresolved.) According to Barkley's lawsuit, United Homes concealed damage in houses the company sold and engaged in the very profitable (and collusive) practice of "property flipping." Barkley's lawyers at South Brooklyn Legal Services say that their clients in the United Homes case are entitled to have their mortgages declared invalid, to receive compensation for their actual financial losses, and to receive additional financial compensation for the alleged wrongs they have suffered.
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