U.S. House candidate David Trott made millions in mortgage crisis

May 18--In a commercial for his congressional campaign, David Trott tells of joining his mom and dad's business in 1985 and later taking the helm.

"The business grew from six people to 1,800," Trott says, as the camera shows him, dressed in an open-collared shirt, in a light-filled room, before shifting to scenes of people working in a warehouse setting and an office. "I'm a job creator."

Trott never identifies what the family business does. The stock footage used in the political ad shows what appears to be manufacturing or shipping.

In reality, Trott is an attorney and his specialty is foreclosing on homes on behalf of banks and other lenders -- as many as 80,000 in Michigan in a single year, by his own count, during the peak of the housing crisis.

His Farmington Hills law firm, Trott & Trott, is Michigan's largest foreclosure law firm and one of the biggest in the country. Financial disclosure statements he filed in December as part of his congressional campaign show the financial holdings of Trott and his wife, Kathleen, are worth at least $60.2 million and possibly as much as $204.9 million.

-- PDF: Read David Trott's financial disclosure statement

Trott became a leader in the foreclosure industry that boomed in 2008 when the housing market went bust by buying up companies needed to complete a foreclosure from beginning to end. And he profits at each step of the process.

Besides his law firm that handles legal work, Trott owns or has a financial interest in the document company that processes paperwork, a newspaper that publishes required legal notices, the title companies that do the deed work, and a large real estate firm that sometimes handles the homes on which his clients have foreclosed.

Trott's businesses are legal, and he defends them as a crucial part of the mortgage lending process, representing the interests of banks and mortgage companies.

"I'm just doing my job for my clients," Trott told the Free Press in December. "We have good people, and we are working hard to do it right."

Elliot Spoon, a mortgage expert who teaches real estate law at Michigan State University, called Trott an innovator who invested in technology and developed a business model that has brought efficiencies to an industry in chaos.

But critics say his one-stop-shopping approach sometimes works against struggling homeowners.

"The only way he makes money is to take people's homes," said attorney Valerie Moran, who helped a retired nurse keep her Walled Lake home after a two-year legal battle.

Trott declined to discuss that case and those of several other Michigan families interviewed by the Free Press, some of whom were able to stop their foreclosures through legal battles with Trott's law firm and the banks.

"This firm has never been subject to a significant judgment, and no court has ever sanctioned the firm for unethical conduct," he said.

His job, Trott said, is to do what is in the best interests of the banks that hire him, whether that's negotiating a loan modification or taking a house through foreclosure. If he put his own interests or those of the homeowners ahead of the banks, his clients would fire him, he said.

Trott's businesses, which he operates from a 200,000-square-foot office complex on Northwestern Highway that formerly housed the headquarters of Compuware, have made him both revered and reviled.

His congressional campaign promises to bring increased scrutiny. Trott is challenging incumbent U.S. Rep. Kerry Bentivolio in the GOP primary in Michigan's heavily Republican 11th District.

A recent political ad, paid for by a group supporting Bentivolio, called Trott "the Foreclosure King" and attacked him for foreclosing on a 101-year-old Detroit woman who'd lived in a family home for 65 years. Unbeknownst to the woman, her son had taken out a reverse mortgage and hidden eviction notices from her.

Trott didn't personally participate in that foreclosure or most of the other thousands of foreclosures handled by his firm annually -- he currently employs 74 attorneys to do that. Those "mediation team" members, as they are called on the business cards handed out to delinquent borrowers, act as the face of the banks and mortgage companies in the foreclosure process.

Offer refused

Mark Rozier sometimes stares out the window of the lower flat of a decrepit duplex where he lives on Burnside Street in northeast Detroit. Some windows in the other flat are boarded up with plywood, the lawn is patchy and brown. Across the street sits a once-tidy, cream-colored house.

He once owned that house. Built a second story. Added a bedroom and a bath. Renovated the kitchen, carpeted the porch, tended the flower beds. And raised a family there, despite the rapid deterioration of one of Detroit's most blighted neighborhoods.

But Rozier, like tens of thousands of other Michiganders, lost his home to foreclosure during the housing crisis. After a three-year legal battle with Trott's law firm and the bank, the notice arrived last Christmas Eve. He was evicted in January and moved his wife, who is on kidney dialysis, his bedridden mother, and his uncle, who has Down syndrome and is in a wheelchair, into a neighbor's empty duplex across the street.

With the neighborhood in decline, his former house was only worth $10,000 when the foreclosure was filed -- even though Rozier, 49, owed $48,000 on the mortgage, money taken out in part to fund the improvements. He'd started missing his $634 monthly payments in 2009 when his wife, Nomora, a nurse's aide, went into kidney failure and could no longer work.

Rozier said he scraped up $8,000 to try to keep it.

The bank, through Trott's law firm, refused that offer, and spent three years and thousands of dollars in legal fees, taking the home away from him, Rozier and his attorney said.

JPMorgan Chase & Co. spokeswoman Amy Bonitatibus said the bank tried to work with the Roziers early on but that Rozier made the cash offer too late, after the house had been foreclosed upon. The bank spent little on legal fees because the case stalled after a judge halted the eviction for a year, she said.

"We worked hard to keep the customer in his home," she said.

The home is now for sale for $4,900. Most of the $8,000 Rozier said he had saved up at the time of the foreclosure went to other bills, including medical payments for his sick wife.

"I hope someday we can go back home," Rozier said wistfully in a recent interview. "That maybe somebody will let me buy back my house."

The home that Rozier put his heart and earnings into has since been stripped by vandals of its copper wiring, plumbing and kitchen cabinets. The front door and side doors have been kicked in, and it is taking on the look of all the other homes in the neighborhood -- one of despair.

Attorney Angela Howell, who helps low-income families fight foreclosures and represented the Roziers in their battle, said there were government programs that could have helped the Roziers refinance, if Trott's law firm and the lender had agreed.

"Why does Trott, the bank, want to spend $20,000 in attorney fees fighting to throw this family out of a home they won't be able to resell?" she asked. "It makes no sense."

Money to be made

As the housing crisis imploded -- 3 million homes were in foreclosure nationwide by 2009 -- Trott's clients were woefully unprepared to handle the avalanche of foreclosures and the millions of requests for help that swamped the mortgage industry.

"Banks were overwhelmed by the amount of loans that were in default and the amount of loans that might be eligible to be modified," said MSU's Spoon. "They didn't have control of the situation. They didn't have enough trained people to deal with it. It spun out of control on them."

Their inability to deal with the onslaught of defaults proved Trott's good fortune.

For lenders looking to take back a home from a delinquent borrower, Trott & Trott offered a unique one-stop-shopping business model.

For Trott, there was money to be made on each foreclosure that came through his business empire -- in 2009, by his own accounting, he handled 80,000 in Michigan alone. The banks paid his firm a flat fee for each foreclosure completed -- exactly how much, Trott won't say.

Filings with the Securities and Exchange Commission show that beyond his firm's legal fees, Trott's businesses generated hundreds of millions of dollars for him and his business partners.

Two aspects of Trott's work -- legal notice publishing and foreclosure file processing -- generated $344.3 million in business between 2007 and 2012 for Dolan Media. The Minneapolis-based information company partnered with Trott on numerous projects, including partial ownership of Detroit Legal News Publishing, according to the SEC filings.

Trott's business was so valuable, Detroit Legal News took out a $15-million life insurance policy on Trott and paid him a $500,000 annual consulting fee, as long as his law firm provided at least 1,000 foreclosure notices per month, the SEC filings show.

Trott also helped create a foreclosure file processing company, now known as NDeX. He sold his stake to Dolan Media for $10.5 million four years ago but continued to run it until February 2013, earning about $264,000 annually, the SEC filing shows. Dolan also paid about $646,000 annually to lease office space for NDeX in Trott's headquarters on Northwestern Highway.

As the economy recovered and foreclosures fell, Dolan Media sold back the Michigan part of the NDeX business to Trott last year for an undisclosed sum. In March, Dolan filed for Chapter 11 bankruptcy to reduce its debt.

'Nothing but a charade'

In 2009, the federal government launched massive housing assistance programs to try to stem the avalanche of foreclosures; Michiganders alone lost 500,000 homes during the crisis. The assistance was available through banks.

Trott's firm was hired by the banks to bargain in good faith with borrowers to modify loans with incentives such as reduced principal, lower interest rates or longer payback periods.

But in state and federal lawsuits reviewed by the Free Press, dozens of delinquent borrowers complained that they were turned down for minor problems, such as misplaced documents, confusion over deadlines or poor communication.

Trott, in recent interviews, said that although his firm had the authority to assist homeowners in stopping foreclosures -- and was even required by state law to meet with troubled homeowners to discuss their options -- he preferred to defer to the banks and mortgage companies, which often gave the thumbs down to new deals.

Trott denies that he or his bank clients mistreated homeowners seeking loan modifications.

"I don't purposefully avoid giving someone a loan modification to make more money," he told the Free Press. "It suggests I'm unethical."

But he acknowledged that he makes more money by foreclosing than by stopping the process with a loan modification.

"Absolutely," he said. "You could say the same thing about a doctor who says you're healthy now. I don't need to see you anymore."

In 2012, the U.S. Justice Department sued the nation's top five banks for mishandling foreclosures and failing to adequately assist struggling homeowners in obtaining money they were entitled to under federal programs -- loan modifications typically handled through foreclosure law firms such as Trott & Trott.

The banks -- Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial -- eventually settled the suit, agreeing to pay $25 billion but without admitting wrongdoing. Trott was not named in the suit and did not participate in any settlement.

"In the course of their servicing and oversight of mortgage loans the banks violated federal laws, program requirements and contractual requirements governing loss mitigation," the Justice Department charged in the suit, adding the banks engaged in "unfair, unlawful, and deceptive practices" in how they treated troubled homeowners facing foreclosures.

"It was nothing but a charade," said attorney Ryan Stearn, who has represented dozens of homeowners suing Trott & Trott and the banks, sometimes successfully alleging that they were entitled to loan modifications under the laws but were wrongly turned away. "The banks weren't even capable of processing the sheer volume of loan modification requests that were coming in. They didn't have enough underwriters."

Valuable service

Besides his headquarters at the Trott Financial Center, Trott also has offices in Oakland and Macomb counties, as well as in Westerville, Ohio.

It's a far cry from the firm's humble beginnings, when his parents opened up Robert A. Trott, P.C., a boutique firm that worked in real estate law.

"They needed 20 files a month to break even," Trott told the Free Press.

When David Trott joined the business in 1985, his father changed the firm name to Trott & Trott.

Trott said his father was bookish and enjoyed proofreading files, while his mother, Rose, who was the office manager, was more gregarious and liked talking to clients. Trott said he takes after his mother and always preferred dealing with the clients.

Trott's wife is also an attorney. In 2000, Kathleen Trott formed Attorneys Title Agency to do the title searches for the firm after the company they had used stopped taking new files.

"We formed the title agency out of the necessity," he said.

As the real estate market crashed, many longtime title companies in metro Detroit were struggling or closing. Trott bought Greko Title, Seaver Title and Great Lakes Title to handle his foreclosures as well as other work.

"The ancillary businesses have been great," Trott said. "They help you cross-sell the business. As the foreclosure business has declined, we've been able to move people on to the title companies."

MSU's Spoon said Trott, whom he has known for years, provides a valuable service to the mortgage industry.

Although the foreclosure crisis has subsided, about 5.5% of mortgages across the country were at least 90 days delinquent in the fourth quarter of 2013, according to the most recent figures compiled by agencies that track those figures.

If those borrowers don't pay, lenders need a way to recoup their losses by taking back those homes through foreclosures, Spoon said. Without such a system, banks would be far less willing to lend to home buyers, and they likely would charge higher interest rates to cover the losses.

Trott "created a software and processes that made the default part of this much more efficient and less costly," Spoon said. "What I think David understood -- in ways that I think his contemporaries did not -- was how to make this process more efficient and less costly. If you can reduce the cost of default servicing,you reduce the cost to everyone."

Bulldozing people

It's unclear how much Trott and his companies make on each foreclosure, and he declined to say. But lawsuits and other public records provide some hints.

A lawsuit filed by James and Melissa Dahl of Swartz Creek listed some of the fees that Trott & Trott charged on behalf of their lender, Bank of America, and that were passed on to them. Trott charged $1,152 for legal work and $260 for a title search.

The Dahls were making regular payments on their home after obtaining a loan modification in March 2010, but at the behest of the bank, Trott & Trott sold the house anyway at a sheriff's sale in 2013. Three months later, after the couple sued, the bank gave the house back to them in a letter "rescinding" the sale, but the Dahls didn't get reimbursed for any of the fees.

The Dahls are continuing to sue Trott & Trott and the bank for alleged violations of the Fair Debt Collection Practices Act, claiming intentional infliction of emotional distress. Bank of America declined to discuss the matter because the litigation has not been resolved.

"These people had money; these weren't deadbeats who couldn't make their payments. They did everything they were supposed to do," said their attorney, Adam Alexander. Trott & Trott and the banks "are just bulldozing people out of their houses. They don't want loans; they want foreclosures."

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