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Masses of defective foreclosures uncovered

Mortgage companies used a processor who signed 10,000 foreclosures a month -- without reading them or using a notary.

By Karen Datko Sep 22, 2010 2:01PM

This post comes from Marilyn Lewis of MSN Money.

 

News organizations are writing about a breathtaking revelation that potentially affects foreclosures around the country. As The Washington Post explains:

Some of the nation's largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork -- an admission that may open the door for homeowners across the country to challenge foreclosure proceedings.
The legal predicament compelled Ally Financial, the nation's fourth-largest home lender, to halt evictions of homeowners in 23 states this week.

The Post added that "hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans." Post continues after video.

The U.S. Treasury Department declined to comment or say how many loans might be affected. Treasury owns a majority stake in Ally, formerly called GMAC, and manages Fannie and Freddie after having seized them in 2008.

 

Writes The Wall Street Journal:

They are called robo-signers, putting their names on thousands of documents tied to mortgages facing foreclosure. Now, under pressure from borrowers, banks are halting foreclosures where the documents are signed by these employees.

At the heart of the revelations is a sworn deposition by Jeffrey Stephan, 41, head of Ally's foreclosure document processing team for five years. He was deposed in two different court cases brought by homeowners.

 

Stephan's job was to ensure foreclosures were legally justified and the information supporting them was accurate. He was also supposed to sign these documents -- roughly 10,000 a month -- before a notary public. The Post says he did neither. Stephan did not respond to the paper's requests to interview him.

 

The Post writes:

From his office in suburban Philadelphia, Stephan oversaw a team of 13 employees that brought documents to him for his signature at a rapid clip. ... 
His official title was team leader of the document execution unit of Ally's foreclosure department, but consumer advocates call him the company's "super robot signor" or "affidavit slave." ...
He said he would glance at the borrower's names, the debt owed and a few other numbers but would not read through all the documents as legally required. He would then sign them. The files were packed up in bulk and sent off for notarization several days later.

The Journal says:

Mr. Stephan, a 41-year-old Penn State graduate from Sellersville, Pa., has worked at GMAC since 2004, and before that worked in collections and foreclosure processing work for ContiMortgage Corp. and Fairbanks Capital Corp. In depositions, he said that he had received a three-day training program in how to handle foreclosure paperwork when he joined GMAC.

A spokesman for Ally told the Post the errors are "an important but technical defect." The documents were "factually accurate," he said. He allowed that "corrective action" and "court intervention" may be required.

 

The Post writes:

Christopher Immel, an attorney in Florida who deposed Stephan for a case in Palm Beach County, said he thinks Stephan was not a rogue employee but one that was performing his job responsibilities as the company told him to do.
"GMAC has a business model to do this, and Stephan was just one small part of it," Immel said. "He was under the impression it was okay to do this."

The potential implications are far-reaching. Right now Ally is stopping foreclosure evictions in 23 of the so-called "judicial foreclosure" states. Those require a lender to get a court judgment before foreclosing on a home. (Here's a list of state foreclosure laws, at Foreclosure.com.) But "non-judicial" states, which do not require court action (this article at AllForeclosure.com explains the differences) could become involved, too:

 

The Post explains:

But if Stephan signed documents related to foreclosures in states without this requirement (it's unclear whether he did), it could help a much broader range of borrowers.
Iowa Assistant Attorney General Patrick Madigan, chair of a national foreclosure prevention group composed of state attorneys general and lenders, said the fallout from the Ally review could be enormous because Stephan's actions could be considered an unfair and deceptive practice.

The problem shines the spotlight on an activist movement of homeowners banding together to fight foreclosures, some of which, they say, are brought illegally. Well-organized homeowners in Florida have convinced the state's attorney general to investigate.

 

Says a detailed story about the activist movement in Florida (at the Daily Business Review): "Florida Attorney General Bill McCollum has launched investigations into three South Florida foreclosure law firms, and issued them all subpoenas seeking detailed financial, client and employee records." The story continues:

Investigators want to know whether bogus documentation was created and filed with Florida courts to speed up foreclosures, potentially without the knowledge or consent of homeowners.
"On numerous occasions, allegedly fabricated documents have been presented to the courts in foreclosure actions to obtain final judgments against homeowners," McCollum's office said in a news release. "Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of the law firms under investigation."

ABC News says:

In courts around the country, some judges have raised questions about what amounts to a virtual assembly line of foreclosure affidavits in attempts to speed up the arduous process.
"You know what I'd really like to see?" Pinellas County, Fla., Circuit Judge Anthony Rondolino told plaintiffs' lawyers during a foreclosure hearing in April. "I'd like to see in one of these cases where a defense lawyer cross-examines, takes a deposition of these people (so) we can see whether they ought to be charged with perjury for all of these affidavits."
At that hearing, the judge vacated a summary judgment he granted in January in favor of GMAC Mortgage. Rondolino reconsidered his decision after a defense lawyer requested a rehearing to challenge GMAC's affidavit, which did not include any sworn or certified documents.

Ramifications

It's too soon to assess the implications of the new disclosure, says Todd Zwicki, a professor of real estate finance at George Mason University. He told the Journal that it could be "a gigantic monkey wrench in the works, to being something really small."

Potentially, millions of foreclosures might be affected if the courts stop accepting foreclosure filings where there might be problems with the accuracy of the documents, says the Journal:

"The kind of facts that you're talking about here are the facts that judges don't like -- this kind of assembly-line paperwork pushing with no oversight. There's good reason for lenders to be worried about here, if they misstep," Mr. Zwicki said. "It could be a relatively sever hurdle to foreclosures."

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