A recent defense class action lawsuit in Maryland resulted in the dismissal of hundreds, if not thousands, foreclosure cases initiated by GMAC Mortgage. GMAC's ability to re-file the foreclosure documents remains intact.
Baltimore non-profit Civil Justice, Inc. and the University of Maryland School of Law Consumer Protection Clinic brought what they're calling the first ever defense class action suit against the mortgage company in October, alleging wrongful foreclosure due to faulty foreclosure affidavits.
"We filed a defense class action lawsuit, meaning instead of filing affirmatively, we used the case as a defense for all those individuals being sued or foreclosed upon by GMAC," defense attorney Tony DePastina told HousingWire.
DePastina, alongside partner Philip Robinson and head of the university Consumer Protection Clinic Peter Holland, defended the case on behalf of Kevin Matthews and "a class of similarly situated persons." GMAC filed a foreclosure case against Matthews in March 2010.
Maryland is a quasi-judicial state with regard to foreclosures, meaning that a foreclosure will only go through the court if a case is filed. Not all foreclosures have a case filed.
After reviewing Matthews' case later in the year, post robo-signing scandal, DePastina said he noticed Jeffrey Stephan signed the foreclosure affidavit. Stephan, an employee of GMAC, said in September that he and a team of 13 others signed an estimated 10,000 foreclosure related documents a month.
The issue at the heart of the robo-signing scandal was that those servicers signing foreclosure affidavits either had no previous knowledge of the specific case for which they were signing affidavits, or there was no notary present when the paper was signed.
"These affidavits are to allow banks and foreclosure firms some streamlining of the foreclosure process. It's not a right the court gives you, but it's a way to allow banks to move forward with foreclosures without having to fly in or produce witnesses," said DePastina. "The problem with this case is the banks or their employees circumvent that process."
GMAC Mortgage said in a HousingWire interview that as part of its foreclosure remediation efforts, the company made the decision in November to dismiss and re-file its active foreclosure cases pending in Maryland "where the company believed the case could have been affected by a defective affidavit."
"On Friday, Jan. 14, 2010, one of these cases (Matthews) went before the court and the case was dismissed, with the consent of both parties, on GMAC's motion and with the ability to re-file the case," said Jim Olecki, a representative for the mortgage lender.
This one court decision is reportedly affecting many more. Firedoglake, a mortgage industry blog, originally reported that 10,000 GMAC cases in Maryland were being dismissed. However, both Olecki and DePastina said that is a substantial overestimation. GMAC estimates about 250 cases will be dismissed in the state. DePastina said at least 1,000.
Whichever cases are dismissed, GMAC maintains the right to reinvestigate, review and re-file the foreclosure affidavits. Olecki said GMAC will review each case before it is re-filed with the court "to ensure that all home preservation options were exhausted."
Of the many cases the firm has reviewed, Olecki said the company has not found any evidence to date, in any state, in which GMAC has pursued a foreclosure action based upon a potentially affected affidavit and the borrower was not in default.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
I caught an old movie over the long weekend. One of the cable channels (I don't know which one. It comes on after you hit the next channel button a couple hundred times in search of something to watch) was running the 1985 film "The Goonies." It took me back to my college days and surprised me with a critical connection to the mortgage lending business I'd never noticed before.
Without going into a lot of detail, the movie revolves around a group of kids (led by a sword wielding Sean Astin long before his "Lord of the Ring" days) who are desperate to help their parents stave off the impending foreclosure of their home.
The antagonists are a family of petty criminals, led by Anne Ramsey, that tries to beat the kids to a fabled treasure that folklore says is hidden in a cave by the bay. But the real bad guys are the rich mortgage holders who plan to foreclose on all of the neighborhood homes and build a golf course.
Even back in the 1980s, you could count on moviegoers to know that rich folks who hold your mortgage cannot be trusted.
But things were different back then. Today, with an estimated half a million homes owned by banks and enough shadow inventory to keep our real estate agents in homes to sell for over four years without building any more, bankers don't even want to think about another foreclosure. This is too bad because other estimates suggest that we've only worked our way through about half of the properties that will eventually be foreclosed upon.
Of course, banks will have to work against the courts, shoddy paper trails in their own shops and their partners', legislators and the plaintiff's bar to get these foreclosures done. If they don't, it could hold off a housing recovery for … well, no one knows for how long.
It should come as no surprise that today, everyone wants to be on the Goonies' team.
Bankers don't want to deal with REO any more than homeowners want to be kicked out of their houses. It would be easier to make everyone happy if people paid their mortgages.
I realize that's not a politically correct thing to say. We are in the middle of an economic downturn and people do get sick and divorced, to say nothing of strategic default. I just think that if more people thought like the Goonies, this problem wouldn't be as serious as it is.
This group of kids know that they're about to lose their home and have to start over at a new school. They don't even discuss why their parents are behind on the mortgage, except to show the mother's arm in a cast and throw out one line about how the dad was passed over for a promotion. Instead, they focus on what they can do to get the mortgage paid. It's the hook that spins us into the movie.
The Goonies win in the movie because the kids make the conscious decision to take control of their lives and risk everything on an adventure that just might give them a chance to stay in their home.
It's totally unrealistic, '80s fun that bears no resemblance to anything in the real world. And yet, the film worked for a lot of people of my generation because it spoke to that part of us that believed we could take control — the part that didn't sit around waiting for an unemployment check or a government bailout.
Maybe our industry isn't the best one to tell folks not to take the bailout money if Uncle Sam stops by with his checkbook, but I have to believe we'd all be a lot better off if none of us took it and we acted more like Goonies.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
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