Improper GMAC Affidavits Leading to Charges of Document Fabrication to Change Title

Ah, what a tangled web we weave when first we practice to deceive, said the bard.

And the web emanating from the GMAC affidavit improprieties extend much further than most may realize. Although GMAC continues to maintain that having its “robot signor” officers like Jeffrey Stephan provide affidavits on matters they know nothing about is a mere technical problem that they can remedy. In fact, an affidavit is a statement of someone with personal knowledge of a matter. Stephan signed as many as 10,000 documents a month and clearly could not have personal knowledge of the underlying situations. Deliberately preparing and submitting inaccurate documents in a legal proceeding is a fraud on the court, something most judges really really do not like.

Predictably, lawyers who are contesting foreclosures are jumping on the affidavit issue and using it to open up broader issues with foreclosures where GMAC was the servicer of the loan. For instance, this letter to a judge in South Carolina, a judicial foreclosure state, discusses not only the role of an apparent fellow robot signor of Stephan, one Jack Kerr, but more critically, another document provided in this case stamped (not signed) by one Judy Faber, also of GMAC. The Faber document transferred title to the party foreclosing in the case, so if the document is invalid, the plaintiff, in this case a Deutsche Bank trust, will lack standing to foreclose (legalese for “no tickie, no laundry”). Here is the critical section of the letter (on page 2):

Upon information and believe, Judy Faber has instructed document custodians in thousands of foreclosure cases to apply her stamped endorsement bearing her name after foreclosure commenced to an allonge and after a consumer had challenged the chain of title in the case. Upon information and belief, Ms. Faber and her document custodian team at facilities described in the Washington Post article attached to this letter have fabricated and changed title in thousands of foreclosure cases.

This takes a wee bit of unpacking. The pooling and servicing agreement, which governs who does what when in a mortgage securitization, requires the note to be endorsed (just like a check, signed by one party over to the next), showing the full chain of title, and the minimum conveyance chain is A (originator) => B (sponsor) => C (depositor) => D (trust). The note, which is the borrower’s IOU, is the critical document in 45 states. The mortgage, which is the lien, is a mere accessory to the note and can be enforced only by the proper note holder (the legalese is “real party of interest”).

The wee problem is that this apparently never done (I’ve been told one person trying to track down a particular note found it, at Countrywide. The guy who wandered down the corridor to produce it from his files claimed that Countrywide kept all the notes on its deals, and would send them out on request when someone needed them in a foreclosure. If this is true, it indicates there are pervasive and not readily remedied problems. The required endorsements were never done).

Why is this serious? The cure for the mortgage documents puts the loan out of eligibility for the trust. In order to cure, on a current basis, they have to argue that the loan goes retroactively back into the trust. This is the cure that the banks have been unwilling to do, because it is a big problem for the MBS. So instead they forge and fabricate documents.

The letter in particular mentions an allonge. An allonge is a separate sheet of paper which is attached to a note to allow for more signatures, in this case, endorsements, to be added. Allonges have had a way of magically appearing in collateral files while trails are in progress (I’ve seen it happen in cases I was tracking; it’s gotten so common that some attorneys warn judges to be on the alert for “ta dah” moments).

The wee problem with an allonge miraculously being discovered is that the allonges that show up are inherently in violation of UCC (Uniform Commercial Code) provisions (UCC has been adopted by all states, a few states have minor quirks, but the broad provisions are very similar).

An allonge is NOT to be used unless all the space on the original note, including the margins and the back side of pages, has been used up. This is never the case. Second, an allonge has to be so firmly attached to the original document as to be inseparable. Thus an allonge suddenly being discovered is an impossibility (well impossible if it were legit), yet it seems to happen all the time.

So as much as GMAC and its fellow servicers no doubt hope there little document mess will fade from public view, attorneys are using it as a new weapon to fight questionable foreclosures or force servicers to negotiate principal mods, which investors like Wilbur Ross (the antithesis of a charity, he’s a very successful distressed investor) have found to be a win/win.

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  1. dcb

    Surprise, surprise. Massive fraud in the securitization precess, unpunished by law (where are those pesky trials of bankers who put this stuff together), and now massive fruad in where they try to forclose on people.

    We have a whole industrial sector that routinely operates on faud and other improper acts. Yet these giants aren’t broken up. so fucking disgusting. (sorry for the language, but in this instance appropriate usage)

    I would like to remind flks about how thye big boys got together and rigged the muni market for years generating higher fees than for corporate bonds. Once more where are the trials. If there ever has been proof that enough lobby money can buy legal protection it is the financial world.

    Why aren’t individuals and management going to jail for these things!!!!!! Instead the shareholder pays the crooks fine and the person who did it walks off with the loot.

    We really have a kleptocrisy

  2. Alrady

    These issues are the same as we’ve been learning in our pro se group and putting into our legal complaints for quite a while.

    1) Fraud 2) Fraud 3) Fraud

    We have a person in our group doing affadavits and witnesses of fraudulent signatures and notary fraud as well as chain of title issues.

    I still can’t say I understand the securities stuff for any longer than the 5 minutes that it stays in my brain after being explained.

    The allonge and the PN must be together as well as the deed of trust and PN must be together and like you stated inseparably. It is interesting to me that many times in asking for the note they send back an uncertified copy with no allonge… I am glad you mentioned UCC code.

  3. john haskell

    not the Bard. Sir Walter Scott. This time I’m not the one who “needs to work on reading comprehension.”

    1. Anonymous Jones

      This is absolutely hilarious. What does wrongly attributing a quote have to do with “reading comprehension”?

      I noticed the quote mistake too. The phrase is very frequently attributed to Shakespeare (hence a common error and not worthy of much derision, unlike yours).

    2. Yves Smith Post author

      Funny, you continue to prove my remark. Acquaint yourself with a dictionary. “Bard” means poet.

  4. Ray L Phenicie

    This blog has been focusing on the fraudulent affidavits produced by GMAC, but according to a very quick search on Goggle news several of the larger players in the mortgage funding area have been working outside the pale of the rules of law. I’m including the quote below to show that this is looking like a systemic problem. My comment is below

    BofA’s unfunny foreclosure tricks
    Posted by Colin Barr
    September 23, 2010 11:12 a

    The irresponsible foreclosure practices of banks have been in the headlines. Employees of both GMAC and JPMorgan Chase (JPM) have admitted to signing off on foreclosure documents without actually having read them. The reports have led to renewed questions about the banks’ foreclosure practices.

    But as usual, the no holds barred winner in the irresponsible bank tricks department is BofA (BAC).

    The bank recently foreclosed on a Florida property that doesn’t even have a mortgage, the Sun Sentinel of Fort Lauderdale reported.

    OK-here’s my take on this:

    When times are tough, like now, we as rational humans, can take one of two paths-we always have these choices but the contrasts are a shade or two heavier in troubled times-the path that a decent human would take and the path that an indecent human would take. The mortgage sector of our society has obviously taken the second path.

    1. Yves Smith Post author


      We’ve said in earlier posts this practice extends beyond GMAC, so our remarks have been broader than you indicate, and we linked to the BofA incident yesterday. Please check prior post before making criticisms. This post is making a specific point, that the GMAC action is leading lawyers to open up both barrels on the servicer, which is going to lead to other revelations, meaning how pervasive document fabrication is.

      1. Ray L Phenicie

        I humbly stand corrected; I did not mean has been focusing only on GMAC but that the few most recent articles over the past few days have been focused there. Yes, I realized after I posted the comment, somewhat too hastily, I admit, that there in fact have been other articles pointing out to the whole industry committing huge acts of fraud.
        Here are some of them broken out under ‘mortgage fraud.’

  5. apachecadillac

    Does anyone else remember the back office crisis of the early 1970s that was an integral factor in the collapse of the financial system vaguely remembered as the “Go-go” years? Back then securities transactions settled on paper. The paper trails got hopelessly crossed. Essentially, the system imploded and had to be rebuilt. It took a couple of years. Great names like F.I. Dupont, Glore Forgan, Hornblower, all blowing, scraps in the wind . . .

    More seriously, this is just more bad news for residential real estate. Anything that clouds the title of, or reduces liquidity of, an asset reduces the value of the asset (all else being equal). That’s without regard for the full load of outrage likely to be vented at those responsible at either the front end or the back end.

  6. brian

    All I know is the guy from Ally promised me a free pony and I’m still waiting

    Time for some state bars to start some disbarment proceedings

    We all have cowboy clients but in the end some lawyer is responsible and has a higher standard of care

  7. Tom Stone

    If you made a list of the things that people care about on a visceral level,their home comes right after their children. Talk about destroying trust in the system! The consequences are going to go far beyond any fines and may have serious repercussions society wide. We either see perp walks and jail time or kiss the home resale market byebye for a long time.

    1. steelhead23

      On the other hand Tom, the casual homebuyer may go from ignorant chump to a counterparty, with counsel. Also, title search work could become a LOT more meaningful. To be clear – if I were purchasing a home today, all documents in the transaction would be reviewed by my lawyer – and I would purchase title insurance with a policy my lawyer approved. This will increase transaction costs, which of course, I would take out of my offered price.

  8. fog Horn Leg Horn

    Literally heard a judge utter, “don’t go after the lawyers, their client’s have put them in a bad position.”

    WTF? Even the bench is apologizing for the loss of ethics. Ever hear that silly little phrase, “I withdraw?” Oh yeah, that doesn’t pay the bills now do it?

    1. attempter

      And meanwhile, the client seems to be able to say “the lawyer advised me so” as a defense, as in the BofA-Merrill case. So it’s a Catch-22 wherever the judge is willing to go along with it, which is probably most of the time.

      To keep this fraudulent structure propped up is going to require nothing less than systematic lawlessness in the courts themselves. There’ll end up being some unconstitutional Congressional (or executive, if they can do it via the GSEs) declaration of force majeure “legalizing” it all. Since no one among the elites will dispute it, it’ll go forward, as the latest brazen advance of tyranny.

  9. Francois T

    “Deliberately preparing and submitting inaccurate documents in a legal proceeding is a fraud on the court, something most judges really really do not like.”

    If they really, really don’t like it, when will we see the judge ordering the hindquarters of the corporate suits be seated in the august perimeter of the Court for an extensive and painful Q&A encompassing the 5 “W”?

    “Someone got to go to prison Ben.”
    –National Treasure

  10. IF

    Lets assume the bank plays nice. How does the home debtor do a principal mod if there are no documents? They both pretend for the moment that there are documents? Sign waivers with respect to documents? And what if there is a third party showing up? What if they both agree and ten years down the road the property has to be sold. Shouldn’t somebody produce ownership documents then?

    Basically, if it is a mess as you describe and it is not curable in a few weeks or months, how/why would it ever be curable?

    1. R Foreman

      Here is Denniger’s take on it.

      This is how we should resolve this.

      * For each and every loan that was not properly conveyed into the MBS trusts and cannot be proved to have been properly conveyed, the purchasers of such MBS have every right to sue the banks that created these MBS for fraud. They received a representation and warranty that the deeds and notes were taken in good recordable form. They were not. This is fraud – period – which entitles them to force the bank involved to either fix the problem (if it can) or buy back the MBS at par. They should immediately do so.

      * For each and every loan that was not properly conveyed into the trust the net effect is that the mortgage (deed) and note have been split. This is a permanent deficiency. The buyer of the home therefore has title and he paid with an unsecured loan.

      The net effect here is that the buyers of said homes have a signature loan for the entire mortgage balance. If they do not pay, the holders of those notes (whoever can prove they actually are holding the note) can attempt to collect it. The buyer can in turn declare bankruptcy, discharging the note. In states where there is a 100% homestead exemption for a primary residence (Florida among others) this has the effect of the buyer getting a “free” house.

  11. Sufferin' Succotash

    Call me a doofus. Call me a knothead. Call me a cab.
    But I’m still trying to figure out what those robo-signers are supposed to get out of this.

  12. cher

    I am gleaning all information from you folks who care enough to share this wealth. Thank you. I am a greenhorn in this fight, but I’m planning a bullish return of my home:):0 :) My little 1/2 acre of God’s green earth>

    Can you please tell me what an MBS is? Also I am going to courthouse Monday to print out all 54 of documents related to my property since 1996> They are $1 each, unless certified, then $3 each. Do they have to be certified?
    Then what is my next step of action, I am on extended auction time…have BK and want to take part in the tar & feathering of the true crooks.

    Thank you, sincerly

  13. New Englander

    “The note, which is the borrower’s IOU, is the critical document in 45 states.”

    Okay, which states?

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