Ally's mortgage documentation problems could extend beyond 23 states
Thursday, September 23, 2010; 8:38 PM
Flawed foreclosure documents like those that led mortgage lender Ally Financial to halt evictions in 23 states this week are showing up in parts of the country previously thought to be unaffected, including the Washington area, according to attorneys and consumer advocates.
Ally Financial has not called off evictions in the other 27 states or the District of Columbia, none of which require a court order to initiate a foreclosure. And yet in those places, distressed borrowers, on the brink of losing their homes, are finding flawed and forged documents in their files and scrambling to challenge foreclosure proceedings.
Joan Cavanagh, who lives near Cape Cod, in Massachusetts, a state not included in Ally Financial's moratorium, is scheduled to be kicked out of her home in 30 days. Her documents were signed by Jeffrey Stephan, the Ally document processor who admitted that he approved 10,000 foreclosures a month but never read the files to see whether the proceedings were justified.
Until Ally's announcement this week, she said she did not understand why her documents had so many inconsistencies. Her file, for instance, was notarized after Stephan signed it, although the notary was supposed to witness the signing.
She said she initially did not fight the foreclosure case but is now seeking a lawyer to file suit.
"Everything about the documents were suspect to me," Cavanagh, 54, said.
Ally, the nation's fourth-largest home mortgage lender, said on Monday that it would freeze evictions after discovering a "technical defect" in documents submitted for foreclosure proceedings. Attorneys for homeowners say Ally, formerly known as GMAC, was compelled to take such an extreme action because of Stephan's admission, which was made in a sworn deposition.
The problems in the nation's foreclosure system are much wider than those exposed at Ally. Court documents and interviews with lawyers and legal experts show that forged documents and faked signatures are common in foreclosure files while an overwhelmed legal system looks the other way.
In the 23 states where Ally froze evictions, the courts require the person signing off on foreclosures on behalf of a lender to have "personal knowledge" of the documents involved in the case, Ally spokesman James Olecki said Thursday. Once the company realized that its document signers did not, it had to replace the "defective affidavits" with new ones.
Olecki said this process should be completed by the end of the year. He declined to comment further about ongoing foreclosure cases in the rest of the states.
In Maryland, Virginia, the District and 25 other states in which lenders do not need a court order, homeowners challenging foreclosure proceedings face an uphill battle. In those places, a bank needs only to file papers with a local court official after giving a borrower sufficient notice.
It's up to the homeowner to sue the lender to stop the process.
It remains unclear whether suing on the basis of faulty paperwork - call it the "robo-signer" defense - could help borrowers keep their homes, especially if they failed to keep up with their monthly payments.
But "it would be enough to slow the process down, which oftentimes is what our clients are looking for," said Jennifer Schiffer, a lawyer with Pels Anderson, which has offices in Alexandria and Bethesda and defends homeowners.
Charles Delbau, a lawyer with the D.C.-based National Consumer Law Center, said the revelations about lender practices have "the potential to be very important for borrowers facing foreclosure."
Generally speaking, delinquent borrowers have a better chance of keeping their homes in judicial foreclosure states because of the involvement of judges who appear to have wide discretion over how to handle shoddy or forged foreclosure papers.
The system in the other states creates "enormous barriers for homeowners who want to assert legal claims and raise a defense," a report from the National Consumer Law Center concluded.