GMAC foreclosure case may set anti-bank precedent
Tuesday, November 9, 2010
When James Renfro had to stop making payments on his two-story fixer-upper in Parma, Ohio, a suburb of Cleveland, he triggered events that were supposed to result in the forced sale of his home.
That Nov. 15 auction has been canceled because of defects in documents submitted by his loan servicer, Ally Financial Inc.'s GMAC Mortgage unit. Two affidavits about Renfro's home were signed by Jeffrey Stephan, a GMAC employee who said in sworn depositions in Florida and Maine that he hadn't read thousands of affidavits he'd signed.
Renfro's case has created a showdown between GMAC and Ohio's Attorney General Richard Cordray. Cordray has asked Cuyahoga County Court of Common Pleas Judge Nancy Russo not to let GMAC simply submit new documents to cure defects without consequences. He's taken the same stand against Wells Fargo & Co., which has said it found defects in 55,000 foreclosures.
"This is just the first," said Cordray, who filed an amicus, or friend-of-the-court, brief in the Renfro case. He argued that Russo should punish GMAC for its conduct.
The judge in Cleveland set an accelerated schedule on Monday for evidence-gathering in the case, leading up to a Feb. 17 hearing on the integrity of the loan documents. Cordray's office plans to file a motion today asking to take part in the case and participate in so-called discovery.
In potentially thousands of cases across the United States, judges have the power to impose "sanctions, penalties, fines and even default," as the banks try to submit substitute paperwork to proceed with flawed foreclosures, Cordray said.
"The banks want to wish this away and pretend like it doesn't exist," he said.
In September, Ally briefly suspended foreclosures in 23 states where there is judicial review and later announced an independent survey of foreclosure proceedings that would extend nationwide. After a review, the company began reinstating proceedings in cases it said didn't involve errors.
Tom Goyda, a spokesman for Wells Fargo, said the lender would go ahead with plans to resubmit thousands of affidavits in cases nationwide, including Ohio. When judges seek information on documents already filed, "we will work with them to meet their concerns," Goyda said.
Such banks are conducting their own reviews to spot errors and determine how many cases with defects are involved. GMAC's Stephan testified to signing as many as 10,000 documents a month. JPMorgan initially suspended foreclosures in 23 states affecting 56,000 cases to review potentially faulty documents.
Among the least appealing scenarios for the lenders is that affected cases will have to be examined, like the Renfro case, in individual courtrooms across the country, with the possibility of thousands of judges questioning robo signers and other loan processing officials.
Judge Russo said in an interview that until hearing the evidence, she has no way of telling whether the documents represent an error, negligence, or fraud, and that other judges will have to make the same time-consuming inquiries.
"If Ohio has 10,000 of these cases, there should be 10,000 hearings," Russo said. "I'm sympathetic to the fact that it's onerous for the lenders, but I still have to do my job."
Market Data Provided by Bloomberg News
When James Renfro had to stop making payments on his two-story fixer-upper in Parma, Ohio, a suburb of Cleveland, he triggered events that were supposed to result in the forced sale of his home.
That Nov. 15 auction has been canceled because of defects in documents submitted by his loan servicer, Ally Financial Inc.'s GMAC Mortgage unit. Two affidavits about Renfro's home were signed by Jeffrey Stephan, a GMAC employee who said in sworn depositions in Florida and Maine that he hadn't read thousands of affidavits he'd signed.
Renfro's case has created a showdown between GMAC and Ohio's Attorney General Richard Cordray. Cordray has asked Cuyahoga County Court of Common Pleas Judge Nancy Russo not to let GMAC simply submit new documents to cure defects without consequences. He's taken the same stand against Wells Fargo & Co., which has said it found defects in 55,000 foreclosures.
"This is just the first," said Cordray, who filed an amicus, or friend-of-the-court, brief in the Renfro case. He argued that Russo should punish GMAC for its conduct.
The judge in Cleveland set an accelerated schedule on Monday for evidence-gathering in the case, leading up to a Feb. 17 hearing on the integrity of the loan documents. Cordray's office plans to file a motion today asking to take part in the case and participate in so-called discovery.
May speed cases
The precedent set by the case might hasten a settlement between home lenders and the attorneys general of the 50 U.S. states, who are investigating allegations of fraud in foreclosure filings. Those being probed include Wells Fargo, based in San Francisco, which has said it will refile foreclosure affidavits involving statements that "did not strictly adhere to the required procedures."
In potentially thousands of cases across the United States, judges have the power to impose "sanctions, penalties, fines and even default," as the banks try to submit substitute paperwork to proceed with flawed foreclosures, Cordray said.
"The banks want to wish this away and pretend like it doesn't exist," he said.
In September, Ally briefly suspended foreclosures in 23 states where there is judicial review and later announced an independent survey of foreclosure proceedings that would extend nationwide. After a review, the company began reinstating proceedings in cases it said didn't involve errors.
Tom Goyda, a spokesman for Wells Fargo, said the lender would go ahead with plans to resubmit thousands of affidavits in cases nationwide, including Ohio. When judges seek information on documents already filed, "we will work with them to meet their concerns," Goyda said.
Scope of robo signing
The 50-state investigation is focused on uncovering the scope of tainted foreclosures, including how what are being called robo signers processed documents they didn't review, Cordray said. So far, investigators have identified "double figures of robo signers" working on behalf of lenders such as JPMorgan Chase & Co. and Bank of America Corp., he said.
Such banks are conducting their own reviews to spot errors and determine how many cases with defects are involved. GMAC's Stephan testified to signing as many as 10,000 documents a month. JPMorgan initially suspended foreclosures in 23 states affecting 56,000 cases to review potentially faulty documents.
Among the least appealing scenarios for the lenders is that affected cases will have to be examined, like the Renfro case, in individual courtrooms across the country, with the possibility of thousands of judges questioning robo signers and other loan processing officials.
Judge Russo said in an interview that until hearing the evidence, she has no way of telling whether the documents represent an error, negligence, or fraud, and that other judges will have to make the same time-consuming inquiries.
"If Ohio has 10,000 of these cases, there should be 10,000 hearings," Russo said. "I'm sympathetic to the fact that it's onerous for the lenders, but I still have to do my job."
Market Data Provided by Bloomberg News
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