Ally Financial, one of the nation's largest lenders, said Tuesday that it is withdrawing all of its foreclosures in Maryland that were approved by employee Jeffrey Stephan, the "robo-signer" who admitted he signed off on thousands of files every month with little or no review.
The company, formerly known as GMAC, said about 250 active cases signed by Stephan will be dismissed and resubmitted in Maryland, a potentially lengthy process that is likely to delay foreclosures and create uncertainty for the state's fragile real estate market. An Ally spokeswoman said the firm has no plans to take similar action in other states.
Consumer advocates say, however, that the move puts pressure on the company to withdraw similar cases across the country and may force other lenders who also used robo-signers to follow suit.
"What they're doing is triage," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "They're thinking: We've got a problem in Maryland. Let's get in front of it. But they're naive if they think that what they're doing in Maryland is going to shut the door on their troubles elsewhere."
The dismissals come as homeowners who missed their monthly payments are achieving some success as they challenge their foreclosures in court. In January, the Massachusetts Supreme Court voided two foreclosures because the banks failed to show the proper paperwork proving they owned the loans.
On Friday, Maryland Circuit Court Judge W. Michel Pierson in Baltimore dismissed the foreclosure of Kevin Jerron Matthews, a Baltimore homeowner who acknowledged he missed his monthly payments but alleged that Ally committed widespread fraud when it filed the paperwork in his case. Both parties consented to the dismissal.
Matthews's attorneys singled out cases signed by Stephan, who admitted in sworn court statements last year in a separate case that he signed off on 10,000 foreclosures a month, verifying their accuracy, even though he rarely reviewed the files.
"To permit this or any other foreclosure actions to proceed based upon these false and fraudulent papers would be to accept dishonest and bogus behavior in Maryland courts," argued Matthews's lawyers, who work for Civil Justice, a nonprofit law firm in Baltimore.
The company said its decision to rescind the active foreclosures in Maryland was not in response to court cases. Gina Proia, a spokeswoman for Ally, said that the firm made its decision in November and that the company's move would offer homeowners added time to "exhaust all their options" to avoid foreclosure, including loan modifications and the opportunity to bring their cases before a mediator.
As for other states, Proia said, the company has yet to find "any evidence to date, in any state, in which [it] has pursued a foreclosure action based upon a potentially affected affidavit and the borrower was not in default."
Lawyers for homeowners say Ally is playing down its problems.
Anthony DePastina, a lawyer at Civil Justice, said his side agreed to the dismissal only because Ally told the court it had begun to resubmit all the active Maryland cases involving Stephan. DePastina added that the number of affected cases in Maryland may be around 1,000, much higher than the company's estimate.
Thomas Cox, the attorney in Maine who took Stephan's deposition last year, said Ally probably agreed to the dismissal of the Baltimore case to avoid losing a legal battle.
"They're trying to avoid a ruling that would set a legal precedent around the country," Cox said. Meanwhile, in Maine, Ally is "fighting tooth and nail" to dismiss the cases signed by Stephan, he said.
Ally's dismissals gives some borrowers a chance to hang on to their homes, but the relief is unlikely to last since Ally is committed to resubmitting the foreclosures. The extra time could allow the borrowers to negotiate for better mortgage terms or find alternatives to foreclosure.
But the delay could also be a drag on the housing market. Buyers tend to shy away from homes that are facing an uncertain foreclosure process.
The results may not even be welcome by some of the homeowners who are getting another shot to keep their houses, consumer advocates say.
"It's good for those who are in their homes," said DePastina, the Civil Justice attorney. "It's bad for those who left their homes and maybe even moved out of the area. . . . Maybe they don't want their houses back.
"Now, they technically own the property again," he added. "They will get a notice from [Ally] saying: 'Your sale has been rescinded, come back and get your house.'â"