For decades, Bill Rabolli built firehouses, family homes, and just about anything else people wanted made out of wood in northern New Jersey. A reputation for quality workmanship helped grow his carpentry business large enough that he needed a staff of 15 to keep up.
Then it all went to hell. Business had been slowing for a couple of years when the market crash cratered the broader economy in 2008. Suddenly clients were delaying payments or cancelling jobs entirely.
“It was shockingly quick,” Bill said in an interview. “My crew went down to like three other people and myself. The people that worked for me had families, and I wanted them to get a paycheck. But it got down to where it was costing me money to pull out of my own driveway and go to work.”
Bill says he was up front with his mortgage company about his hardships. “I told them I was going to miss that payment and it doesn’t look good for the next, either,” he said. After defaulting on the loan in August 2008, he struck a forbearance agreement: the Rabollis wouldn’t face foreclosure while they made up the missed payments gradually in future months.
It seemed, for a time, like the carpenter and his family would weather the worst of the recession and come out of it something close to intact. In arrears, maybe, but still in the Allendale, NJ home they have shared for decades.
But the company that gave Bill a forbearance decided to cut bait on him and sell his mortgage to another firm, which tried and failed to foreclose on the family before reselling the loan to yet another firm.
A stranger knocked on the back door in the spring of 2012, Bill said, and told him whatever deal he’d been promised to keep re-finance his loan and keep the house was no longer on the table. Over the next two-plus years, according to a lawsuit filed this fall, a trio of tiny New York companies milked him for cash and tried to take possession of his home using a dizzying mixture of charm, cajoling, and outright harassment.
It really feels a little Sopranos-esque at times
That’s not how the housing market is supposed to work, even in these last-resort situations. But after wave upon wave of foreclosures and defaults around the country, the kinds of companies that actually operate as mortgage finance firms with incentive to keep people in their homes whenever possible have retreated. And a crop of new buyers that act more like debt collectors than housing companies is springing up to fill the void, often taking care to stay small enough to stay off the federal government’s radar.
These new entrants fracture the incentive structure of the housing marketplace, bringing in different kinds of profit motive that too often run counter to homeowners’ interests. It couldn’t have happened at a worse time for the country as a whole, or for Bill Rabolli.
Now the man who supported his family by building houses for others is struggling to keep hold of the home where he, his wife Terri, and their teenage daughter have lived since 1997.
The lawsuit targets three separate companies, but Bill’s lawyers at the firm Denbeaux & Denbeaux are pretty sure the trio were in cahoots throughout the carpenter’s nightmare. The man at the helm of the alleged conspiracy is Cornerstone Realty Partners President Frank Rizzo, who first walked through their side yard to knock on their back door.
“There’s no modification coming, but don’t worry, this is better. You’re gonna be happy I bought this,” Terri says Rizzo told them that day. But “the first thing he did was try and get money from us.”
It was an even heavier blow because they’d thought they were on the verge of finally striking a deal with the company that had just sold their loan to Rizzo. Kondaur Capital almost never does modifications. It’s part of a new class of companies on the housing finance scene who operate as debt collectors rather than dealmakers.
Rizzo allegedly told them to expect a call from Christopher McElroy of Fort Funding Corp., another of the companies the Rabollis are suing. “Fort Funding absolutely denies any wrongdoing whatsoever and looks forward to clearing it up,” attorney Joseph Armstrong told ThinkProgress. Rizzo did not respond to a request for comment by press time.
Shaken by the sudden evaporation of their deal with Kondaur, the plan McElroy allegedly proposed sounded like a giant relief to the Rabollis. They would send him their financial documents along with three checks for over $2,500 each, dated for the next three months. That would let McElroy get started figuring out what kind of modification might be possible, they say he told them.
In fact, according to the Rabollis’ attorneys, both Rizzo and McElroy never had any intention of saving the family’s mortgage. They were acting as debt collectors, looking to wring enough money out of the family and the house to exceed the cut-rate price they’d paid to buy the loan from Kondaur.
It was like we were in fucking purgatory.
That’s the opposite of what’s supposed to happen with struggling mortgage, Center for American Progress housing finance expert Sarah Edelman told ThinkProgress.
“The best outcome for a neighborhood is, whenever possible, for the homeowner to stay in their home,” Edelman said. “If home retention can’t be achieved, companies need to do something that helps stabilize the neighborhood, not destabilize it. That means avoiding foreclosure at all costs.”
Traditional housing finance companies stand to make more money by keeping the original occupant in place, even if it means modifying a loan in ways that dramatically slow the flow of cash back to the lender. But with a massive number of mortgages underwater in the wake of the financial crisis, these traditional industry actors were eager to get all that bad paper off their books.
Enter the speculators. Much like uncollected credit card and medical debts get resold for pennies on the dollar to collections agents who will hound debtors into repaying a larger share of the debt than what they paid to buy it, distressed mortgages are flooding into the collections industry’s hands. Unlike traditional housing companies that make money by preserving the value of a home, these actors profit by getting more out of both homeowner and property than they paid to buy a loan.
The first thing you hear when you call Kondaur Capital is a recorded warning that the company is a debt collector. The people the Rabollis are suing never offered such a disclosure, according to the lawsuit, even though it is required by federal law.
The fallout from all this speculation is still taking shape. It doesn’t always produce the kind of horror story the Rabollis are accusing Rizzo of engineering. Wall Street firms are buying up huge numbers of family homes in order to rent them out, creating a frightening new type of landlord-tenant relationship and the potential for a new kind of housing bubble. And the government is struggling to ensure that distressed loans go to buyers who will try to preserve homeowners’ rights and communities’ economic wellbeing.
“I don’t think it’s quite as simple as all these companies are total deadbeats,” Edelman said. “[It’s not] always worse for the consumer to have one of these companies buy your loans.” There are small servicing companies out there with strong records of producing good outcomes for homeowners and neighborhoods, she said.
But there’s no good data out there to assess the overall performance of this new class of housing speculators. “Their portfolios are growing very rapidly and we don’t know much about them or their capacity to do good work,” she said.
The Rabollis gave McElroy his three checks, and later a fourth. Fort Funding allegedly cashed a total of $10,268 in ostensible mortgage payments from the couple, furnished mostly by the job Terri found when demand for Bill’s trade dried up.
They never got a mortgage statement in return, according to the complaint. They say they asked Rizzo and McElroy repeatedly to mail them documents showing where their money was going and how far they still had to climb out of the hole that threatened to swallow their home. Nothing was delivered.
Without proof of the four monthly payments from Rizzo or McElroy, they had no hope of getting any kind of re-financing from a traditional mortgage broker.
“It was like we were in fucking purgatory,” said Terri. By the fall, Rizzo had offered them $20,000 plus a sliver of any profit Cornerstone would make by selling their home if they would the house and renounce ownership. Over the following months, the lawsuit alleges, “several people came to Plaintiffs’ home and could be seen inspecting the home from the outside.” The Rabollis said that multiple people interested in buying a house from Frank Rizzo harassed both their downstairs tenant and, on one occasion when they were not home, their young daughter.
“Jen had already told him, my parents are not home, but he wanted to come in,” Terri said. “After that we told her don’t answer the door. We felt like prisoners in our own house.”
Months later a man named Carmine Masullo showed up in Allendale. Masullo told the couple he could almost certainly get them a modification to save their home, for a modest fee.
But like every previous attempt, the couple say, Masullo’s efforts mostly amounted to wheel-spinning and eventually they stopped believing his claims.
We felt like prisoners in our own house.
Soon Masullo was texting and calling Bill and Terri at all hours. Sometimes it was with an encouraging word about his promised modification. Other times it was to threaten them with imminent foreclosure if they didn’t agree to a payoff that same day.
Neither Masullo nor Rizzo have the proper business registrations for their Staten Island firms to conduct business in New Jersey, according to the lawsuit. Yet “you have the cojones to go door to door, to the back door, to send other people there.” plaintiffs’ attorney Adam Deutsch said. “It really feels a little Sopranos-esque at times.”
Reached by phone briefly, Masullo told ThinkProgress that “most of [these claims are] not accurate.”
“What you’re gonna need to do is speak to Frank Rizzo, because he’s the one that’s actually involved in this and I’m not,” Masullo said, before hanging up.
The Rabollis remain in their house, but that doesn’t mean it feels like home. “It does in one way, and in another it really doesn’t,” Bill said. “I wake up in the middle of the night in a ball of sweat. It’s like a living nightmare.”
“The stress was unbelievable,” Terri said. “I went on meds. My nerves were shot, I couldn’t work.”
Just a few years ago they wouldn’t have had much ability to fight back against the alleged harassment and the scheme that Denbeaux & Denbeaux believe they’ve uncovered. The Dodd-Frank legislation that overhauled financial industry regulation across the board included some rules for the mortgage industry that give homeowners new rights.
“That means you don’t have to rely on federal regulators to go ahead and prosecute something,” Deutsch said.
Bill says the whole thing nearly knocked the fight out of him before he ever knew the law provided a chance to go on the attack. “I’m a pretty principled person. I really feel this whole thing is not right,” he said. “But I had thought — I mean, it’s been very detrimental to both my wife, my daughter and myself — maybe it’s the wrong call.”
“Maybe I should’ve thrown my keys on the counter and walked, even if I didn’t know where I was gonna be walking to.”