GMAC Ordered to Stop All Foreclosures in California

Per the Sacremento Bee, hat tip Foghorn Leghorn and Brian:

California officials today demanded that Ally Financial Inc. stop foreclosing on homes in the state, citing reports indicating the big mortgage lender is violating the law.

The cease-and-desist letter, issued by Attorney General Jerry Brown, came as officials in several other states began investigating Ally’s operations…

According to Brown, California law forbids a lender from issuing a notice of default – the first step toward foreclosure – unless it can show it has tried to contact the borrower. The law covers mortgages originated between 2003 and 2007.

Attorneys general in Texas, Iowa, Illinois and Florida are also investigating.

So it appears the Brown argument is at least that the robo signers are the ones affirming that the banks tried contacting the borrower, when they are in no position, legally or practically, to do so. But this potentially opens a much bigger can of worms, that the robo signers may have been providing cover for the failure to make the required effort.

Update 10:00 PM. Hoisted from comments per reader dladow:

California was not one of the 23 states in which Ally halted foreclosures, presumably because it is a non-judicial foreclosure state. Apparently Jerry Brown halted the foreclosures based on the requirement under Civil Code 2923.5 that prior to serving a notice of default, the first step in the foreclosure process, the trustee must file a declaration (affidavit) that it has contacted the borrower “in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” In light of the revelations about filing false affidavits in courts in other states, it will be interesting to see what additional evidence Ally will have to produce to substantiate compliance. The statute seems to require actual contact and not just an attempt to contact. Otherwise the notice of default is invalid, and the trustee has to start over. Interesting to ponder the effect, if any, on already executed foreclosures.

As dladow added later, California provides for a very clear process for trying to reach the borrower if contact proves difficult. It requires some organizational discipline, but given that that seems to have been notably absent, there is a real possibility that false affidavits were used to cover for failure to comply,

A further wrinkle: The attempt that GMAC is trying to make, as in differentiating between judicial and non-judicial states, appears very questionable. In both cases, they are producing bogus affidavits to pursue foreclosures. However, in the judicial states, they must present them to the court in the course of every foreclosure. In non-judicial states, they are presented to the court only if a borrower fights the closing.

So their parsing appears to be based on their view that this is only worth addressing in states where they can be found to be pervasively perpetrating a fraud on the courts, as opposed to only some of the time.

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29 comments

  1. Sufferin' Succotash

    And presumably the robo signers weren’t doing this for free, unless they were being pressured into doing it in some pretty nasty ways.
    Popcorn, anyone?

  2. KnotRP

    This is not unlike hiring under age kids to run drugs at $20/hour.
    The pay doesn’t justify the risk, but the employee doesn’t
    understand what they are enabling so they get (1) underpaid
    for the risk they take, and (2) they can plausibly deny they knowingly did anything wrong, and (3) they shield the real
    boss from wrong doing (I’m shocked, shocked, I tell ya…).

    Some things never change.

    1. Hillary

      It doesn’t seem to matter how clearly someone should know better – if they haven’t experienced immediate consequences, some people don’t comprehend risk or ethical behavior. My last job included international compliance and it was absolutely thankless. I’d find myself arguing or building a case that we were going to follow the law (and not grey areas, this was black and white).

  3. Francois T

    Hmmm!

    Say the securitization industry loses its standing to foreclose, or at the very least has it seriously hampered by relentless investigations and questioning.

    That’ll raise a fascinating question down the road: Who owns what?

    And if some institution did not had proper standing to foreclose, can’t the last homeowner sue for restitution AND damages AND pain & suffering AND…you get the idea. Ya know, a wonderful and massively bad ass class action lawsuit backed up by 2 centuries of real estate settled law that even the present edition of the Supine Court wouldn’t dare modify.

    I love the smell of judicial napalm in the morning.

  4. Opinionated Bloviator

    Who owns what? My answer is C) NOBODY has any idea who owns what. WHY? Simple, what happens to the title when you accidently subdivide it via multiple layers of securitisation that belong to different parties combined with a broken (or fictional) document trail? Anybody, BUELLER?, Here’s a scary thought?, What if the real answer is NOBODY actually owns it? After all, no title no claim to ownership and you cannot subdivide a title, WHY? Can you have 1/2 a hole?. 19th century property law meets 21st century gordian knot securitisation (with broken paper trails/tracability to boot). Bring popcorn.

  5. dladow

    California was not one of the 23 states in which Ally halted foreclosures, presumably because it is a non-judicial foreclosure state. Apparently Jerry Brown halted the foreclosures based on the requirement under Civil Code 2923.5 that prior to serving a notice of default, the first step in the foreclosure process, the trustee must file a declaration (affidavit) that it has contacted the borrower “in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” In light of the revelations about filing false affidavits in courts in other states, it will be interesting to see what additional evidence Ally will have to produce to substantiate compliance. The statute seems to require actual contact and not just an attempt to contact. Otherwise the notice of default is invalid, and the trustee has to start over. Interesting to ponder the effect, if any, on already executed foreclosures.

    1. Yves Smith Post author

      Thanks. This is very helpful.

      A further wrinkle: The attempt that GMAC is trying to make, as in differentiating between judicial and non-judicial states, appears very questionable. In both cases, they are producing bogus affidavits to pursue foreclosures. However, in the judicial states, they must present them to the court in the course of every foreclosure. In non-judicial states, they are presented to the court only if a borrower fights the closing.

      So their parsing appears to be based on their view that this is only worth addressing in states where they can be found to be pervasively perpetrating a fraud on the courts, as opposed to only some of the time.

    2. DownSouth

      The banksters could care less whether their actions are legal or not. They know that most people facing foreclosure can ill afford attorney’s fees, and they take full advantage of that.

      It’s no different from police/prosecutors who have no case, but prosecute anyway. They know the defendent is innocent, but rely on the fact that the defendant cannot afford competent representation to achieve a plea bargain.

      1. Skippy

        Hay DS do you know when the Faux news backed Expeditionary Forces are going to invade Mexico?

        Skippy…will the News presenters hold “O” ranks? lol.

  6. dladow

    Actually the statute provides a procedure if actual contact is not made. It is step by step, involving attempted phone calls, first class and certified letters, etc. All do-able with reasonable organization and a call center.

  7. MichaelC

    Yves, and co.

    At the risk of sounding foolishly hopeful I want to express my gratitude that you (and a few others) have pounced on this story and are committed bulldogs.

    I’m doubt I ever have an original idea in my head, so I think I speak for more than myself, when I remind you that you’re giving voice (in print) to what is exasperatingly clear to those folks on the short end of this stick,who believe they have no political voice, that they’re fucked, until someone calls the abusers to task.

    You’re going to be overwhelmed with allies and this battle will finally be properly joined.(underwater homeowner vs bondholder/govt protectorates). In retrospect( hopefully by Nov) people are going to ask what took so long?

    I’d like to see an equitable result emerge from this (i.e the borrowers take a reasonalbe hit for their folly, and for the boys who should have known better (bondholders)to take their lumps (and fight it out amongst themselves), before the system crashes.

    If the govt needs to fund their(banksters/bondholders)losses for a time, I can deal with that as a clear and verifiable price for keeping the finacial system ‘working’.

    When my mom punished me more than my pals in my pranks her reasoning was simple.

    You knew better,they didn’t,you did it anyway, so you get doubly punished. And now they’re going to be twice as mad at you as I am. Grow up and good luck with their fury, till you do.

    1. La Caterina

      Foreclosure attorney here- very grateful to you, Yves, for keeping this on the front burner. It’s been a long, depressing siege, but I think we’re about to see some light at the end of the tunnel. Thanks for all you’re doing.

      Now, back to sharpening my pitchfork . . .

      1. psychohistorian

        I suppose I am going to get a reputation for this but….

        Lets hear it for the creation of a PITCHFORK LIST! It was Yves thought and I can think of nothing better to focus those assholes thoughts than to be on a public PITCHFORK LIST.

        I have a pitchfork but I am saving it for when they try and take away the Social Security I paid into for 45 years.

  8. Nelcisco

    So what does that really mean to the average mom and pop borrower when affidavits in non-judicial states are presented to the court only if a borrower fights the closing?
    Does that mean closing costs? the whole transaction? What?

    1. aet

      No dispossession – until the flaws in the paperwork are fixed.
      But I think the debt itself will still ultimately be enforceable – perhaps.

  9. Neil D

    I hope that when we break out the pitchforks, we take a shot at all the mortgage deadbeats who enabled the looting. They are just as guilty as the bankers.

    There are no innocent people left in America.

    1. aet

      The bankers would have less trouble enforcing their security had they followed the laws, which are very clear.

    2. LeeAnne

      I knew one half of a couple just returned from a honeymoon happily in negotiation for a dream house as finance was collapsing before people on the ground got the news, because after all, TPTB put out false and fraudulent information consistently -oh, we didn’t see the bubble burst coming -oh, the economy and production is growing -on and on -all criminal and fraudulent, speaking from a smoking hell hole as they headed for the gates with our money.

      These 2 young people, if they went ahead with their plan to purchase that house, were defrauded at the top of a vicious pyramid. But of course, given there no longer such a thing as finance fraud, they were SCREWED.

  10. bammbamm

    This is great. Now we’re going to have to do a second bailout for the additional losses to the banks? It’s unfortunate that some homeowners got stuck when the music stopped. But millions who did the same thing a couple of years earlier, are still enjoying the profits they made on home appreciation. This is politically driven, and the goal is votes. If a guy stops paying his mortgage the bank has the right to take the house. To reverse this decision based upon the slightest technicality, that was brought about by the shear volume of work, is dishonest.

    1. Skippy

      Dishonesty (cough…fraud) in the first case, brought this all about…nice try.

      Skippy…seems a no brainer, go after the architects, not the buyers of said shitty design, other wise you just get more shitty product…eh.

      PS. who would recomend more bailouts…oh the architects again…shezz.

  11. MinnItMan

    “Attempt to contact” is a standard used to justify ex parte proceedings like applications for a Temporary Restraining Order – “ex parte” means without the other side present.

    Constitutional due process allows the TRO to avoid imminent and irreparable harm so long as some effort is made to notice the other side. In the event that the other side cannot be contacted, the moving attorney must certify “in writing any efforts made to give notice and the reasons why it should not be required.” Generally, the TRO, being “temporary,” must be converted to a preliminary injunction to get more than a little breathing room.

    I’m going off of the Federal rules here, but they are a good guide, because this is a constitutional due process issue: “The order expires at the time after entry — not to exceed 14 days — that the court sets, unless before that time the court, for good cause, extends it for a like period or the adverse party consents to a longer extension. The reasons for an extension must be entered in the record.”

    It appears that California further defines the process as described above regarding the attempt to contact the homeowner to dtermine if a foreclosure alternative is justified.

    If the affidavit of compliance is false here, borrowers will have due process claims that challenge the validity of trustees’ sales. A number of potential remedies come to mind here, but it will interesting to see, when and if a tidal wave comes to pass, what the preferred one is. I can imagine plenty of folks who could care less if they get the property back with all of the debt coming back to life. It may well be the trustees who get nailed here worst, because although they are “private” parties, they are performing a public function, and may have civil rights liability for violation commited “under the color of law.”

    There really are two distinct, but related issues here: 1) due process, and 2) suborned perjury (knowingly providing sworn statements without performing minimum due diligence to determine their truth or falsity).

    The other potentially interesting aspect of this is, in the event of civil rights lawsuits, whether by virtue of government ownership, GMAC is considered a “state actor,” and thus itself subject to the due process clause which normally would not apply to private entities (or even public entities engaged as quasi-private “market participants”). This theory has been tried with respect to due process claims regarding HAMP and HAFA lawsuits over modification and/or short sale denials, but has not been definitively settled.

    Many helpful issues are being raised here because of the non-judicial, trustee sale model here, which are among the toughest types of foreclosures to challenge.

    I would add one final comment, however. As a lawyer, I have to sell clients on the value of representation in defending against foreclosures. While I recognize homeowners are in financial distress, they also need to be prepared, at the very least, to make a commitment to coming up initially with the equivalent of fair market rental value (EFMRV) to pay legal fees (I usually charge 1-2 months EFMRV up front), plus court and service costs. It’s worth noting that this is frequently about half or less what the mortgage payment would be.

    Regrettably, I am in one of the most pro-lender, pro-MERS jurisdictions, good ol’ liberal Minnesota – Minnesota is to foreclosure what Texas, Alabama, Mississippi are to the death penalty.

  12. razzz

    Excuse me, but Jim Sinclair was on this maybe years ago warning then of what is happening in foreclosure today and to ask for note documentation and followed cases heard in courts on his site.

    He even took it a step further by saying maybe you are making payments to the wrong entity and if the correct entity comes forwarded demanding payment then you will be paying twice because the first entity will be BK unable to respond to lawsuits.

    Don’t wait for foreclosure, remods, or anything else, find out now who the note holder is (you might get lucky if you know what I mean).

    Also, I read lately the GSEs just send a letter saying they have control over your note now without even filing at the local recorder’s office (a lien).

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