Various updates on the possible drivers of the GMAC announcement suspending its foreclosures in 23 states. Max Gardner, a North Carolina bankruptcy attorney who is held in high esteem and is playing a leading role in legal efforts against foreclosure fraud, provided this comment on our earlier post on the GMAC bombshell:
I believe this action relates to thousands of false affidavits filed by an officer of GMAC Residential Funding. It is also my understanding that this particular officer may be facing a multitude of federal and state criminal charges. As of this date, thousands of foreclosure affidavits have been withdrawn in Florida and a number of notices of false evidence have been filed by the mill law firms with the Florida trial and appellate courts. This, in my view, is the tip of the iceberg!
More details from Jeffrey Stephens of the Florida Default Law Group via e-mail:
On September 14, 2010, Florida Default Law Group filed “Notices” in foreclosure actions that the firm was withdrawing Affidavits it had previously filed. The Affidavits were signed by Jeffrey Stephan of GMAC Mortgage/Homecomings Financial in Montgomery County, PA. Stephan had previously admitted in depositions that he signed thousands of such affidavits each month with no knowledge of the contents and in many cases without even bothering to read the Affidavits. In the Notices, Florida Default claimed that “the undersigned law firm was not aware” that the Stephans Affidavits were improper and had a good faith belief in the Stephans Affidavits. Stephans signed so many Affidavits, however, on behalf of so many different securitized trusts, that his lack of actual knowledge should have been obvious. Many other mortgage servicing companies and foreclosure firms have filed thousands of other worthless, unfounded Affidavits. Perhaps the Law Offices of Marshall Watson will notify courts that Lost Note Affidavits signed by Linda Green, Tywanna Thomas and Korell Harp are also improper; perhaps The Law Offices of David Stern will notify Courts that their own office manager, Cheryl Samons, had no knowledge and did not even read the Affidavits she signed. The dark days of the foreclosure “robo-signers” seem to finally be coming to an end in Florida. Will the same judges who accepted thousands of these worthless Affidavits now believe the allegations that the foreclosure law firms acted in good faith when they presented these documents to Courts? An example of the Notice filed by Florida Default is available in the “Pleadings” section of this site. Highlights from the deposition of Jeffrey Stephan are available in the “Articles” section. Scott Anderson, Bryan Bly, Margaret Dalton, Erica Johnson-Seck, Crystal Moore and the other professional signers may finally be held accountable for their sworn false statements.
I’m also told that an Mortgage Bankers Association conference which is in progress, is “freaking out” over this. Um, how could they not know this dead body was in the room?
This analysis from Jasraj Vaidya at Barclays via Brian C (no online source). As this alludes, this has the potential to extend/derail foreclosures and potentially increase loss severities. Moreover, the evidence is mounting that documentation fraud has become widespread, if not pervasive, because the securitization machinery effectively broke down on the back end (the steps necessary to get the note, the borrower’s IOU, into the trust, were not completed, and after the fact forgery is used to create a legally acceptable paper trail).
It was reported on Bloomberg today that GMAC has sent a memo to all brokers suspending all foreclosure activity against delinquent borrowers in 23 states…
Most likely an issue with judicial states
Using publicly available data from HUD and RealtyTrac, we have created a list of judicial foreclosure states. These are states where judicial foreclosures are most common and in which the lender has to appear before a judge and obtain a court order before initiating foreclosure proceedings against the delinquent borrower. Such states tend to have much longer foreclosure timelines than non-judicial states. What is striking about the list of states in the GMAC announcement is that all but one (North Carolina) are judicial states. Also, all judicial states in the country but one (Delaware) are in the GMAC list. This would hint at some potential issues with judicial states that is driving the GMAC directive.
A recent news report provided some hints at the type of issues with judicial foreclosures that servicers may look to avoid before it become a larger issue. The Florida Attorney General recently announced an investigation of the three largest foreclosure law firms in the state. These firms represent the lenders, and there have been question about claims of note ownership put forth by these firms during foreclosure
proceedings. A clean record of note ownership is lost or hazy in many cases, due to multiple transfers of the notes. The moratorium can be an attempt on the part of RFC to ensure that the process does not have significant flaws that can leave it open to legal action in the future.
At this stage, we are unable to ascertain what that exact issue might be. What is certain is that foreclosure timelines in those states for GMAC loans will be extend further, potentially adversely affecting their eventual severity.
Can it also be a lawsuit in the making?
Given that the directive spans multiple states, and given previous experience with Countrywide, there is always the possibility of some multi-state settlement in the works for various disclosure issues with
lending practices. However, we found some major omissions when we compared the list of states in the GMAC announcement with those involved in the Countrywide announcement. California, Nevada and Michigan – three states with significant mortgage volume, as well as distressed mortgages – are missing from the announcement. This makes us a little skeptical whether this is indeed a class action lawsuit in the making on the lines of the Countrywide one. On the other hand, the Countrywide list ballooned from 11 states initially to 42 states and DC finally, so one cannot yet rule out multi-state action. However, given greater evidence about judicial states, we still believe that to be the primary driver of
Update 5:00 PM: GMAC has issued a press release denying the Bloomberg story, which is pretty curious, given that Bloomberg cited specific language from a memo GMAC issued last Friday and got confirmation of the memo from a named GMAC source. As we will show further down, Bloomberg has modified its earlier report only slightly. While GMAC asserts it it in business as usual mode, this is hardly the case; it has most assuredly suspended evictions in the 23 states in question.
Note that the press release indicates that the GMAC investigation started more than three months ago. It further indicates (at the top, where one might not notice the timing issue) that “new foreclosures” are proceeding. That isn’t defined, since foreclosures consists of many legal filings, but it gives the impression of meaning newly-initiated foreclosures. Moreover, given the apparent change in procedures, it also raises the question of whether this change will restrict the number of properties that can be foreclosed upon. As we have indicated, the evidence is mounting that private label securitizations in the post 2004 era suffered from widespread, if not endemic, failure to convey the note (the borrower’s IOU) to the trust properly, which means the trust cannot foreclose (ie, the trust lacks legal standing), and the time has long passed for any easy remedies to be available.
Note even more curiously, this memo takes the line that the problem was “procedural”. Hhm. So they found they had an internal officer signing thousands of bogus affidavits? He presumably would not have gone this route if there was not an impediment (presumably failure to convey the note through the proper chain of endorsements, as required by the Pooling & Servicing Agreement). And what workaround have they come up with, exactly?
From PR Newswire (hat tip reader mezcal). I’ve highlighted the relevant sections
Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.
The speculation likely emanates from a direction previously given by GMAC Mortgage to certain of its outsource vendors to allow time to address a potential issue that was raised in a number of existing foreclosures challenging the internal procedure we used for executing one or more judicially required forms. This direction was to suspend evictions and REO closings where the related foreclosure could have been impacted by the same internal procedure. We are also reviewing certain previously completed foreclosures where the same procedure may have been used.
We are unable to comment on the specific merits of the challenge because some of them are in litigation. Nevertheless, a new process has already been developed and implemented so that though some existing foreclosures may experience delays while corrective action is taken, there will be no interruption in new foreclosures. These delays are expected to be resolved within the next few weeks and certainly before year end, without serious consequence. GMAC Mortgage has been addressing the procedural challenge for more than three months. In all other respects, the mortgage business is operating as usual.
Now contrast this release, which in isolation reads like a denial, with the updated Bloomberg story, which shows that you can drive a truck through “In all other respects” qualification to the “business as usual” claim:
Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt evictions tied to foreclosures on homeowners in 23 states including Florida, Connecticut and New York….
The company has been working on the issue for “more than three months” and expects it to be resolved “within the next few weeks,” Proia said. She declined to provide further details, saying some of the cases are in litigation.
Suspensions will occur “where the related foreclosure could have been impacted by the same internal procedure. We are also reviewing certain previously completed foreclosures where the same procedure may have been used,” Proia said.
The lender will suspend sales of bank-owned properties and extend closings 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the memo