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Intermission, at Best, in Battle over Foreclosures

I love today’s article by David Streitfeld of the New York Times:

Intermission, at Best, in Battle Over Foreclosures

Aside from appropriately acknowleding that Foreclosure-Gate is far from over, the article reflects the point I’ve been emphasizing for many months – Florida judges are starting to realize that just because the banks want things to return to ”business as usual” doesn’t mean our courts should.  We’ve all seen and learned far too much to let banks keep pushing through foreclosure cases like they’re in front of a conveyor belt at a factory. 

Also, notice how the New York Times continues to discuss foreclosures on a national level by talking to lawyers and judges right here in Florida?  Tampa, West Palm Beach, Sarasota … this is the ground zero of the foreclosure crisis.  Lawyers such as myself, Matt Weidner, and a handful of others, along with websites like www.foreclosurehamlet.com and www.4closurefraud.com … we are making a difference.  So if you’re a homeowner facing foreclosure, don’t give up.  We are making headway, and the nation is watching us.

Here’s the article:

Bank of America may be trying to bring down the curtain on the foreclosure furor, but there were numerous indications Tuesday that the problems would not move off-stage so quickly.  A day after the bank said it would once again pursue defaulting borrowers in the 23 states where foreclosures were overseen by the courts, judges in Florida said they were expecting even more challenges from defaulting homeowners.

The White House is convening a meeting of regulators and administration officials on Wednesday to review federal investigations into the foreclosure crisis, while state law enforcement officials emphasized their inquiry into flawed foreclosures was continuing.  “There has been an attempt by some of the major servicers to indicate there are no problems,” said Patrick Madigan, an assistant attorney general in Iowa. “We’re not at the end of this process. We’re at the beginning.”

All 50 state attorneys general have joined in an investigation into lenders’ foreclosure processes, which in at least some cases appear to have been so sloppy that legal requirements went by the wayside.

The lenders maintain the errors involved mere technicalities, while lawyers for defaulting homeowners say they are symptomatic of a foreclosure system out of control.

The Obama administration, which declined last week to push for a national freeze on foreclosures, emphasized Tuesday that it was committed to holding accountable any bank that had violated the law.  Robert Gibbs, the White House press secretary, said that the administration was “strongly supporting the investigation by the state attorneys general” while noting that the Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own investigation.

Federal regulators have been looking into loan servicing problems for some months before the recent freezes by the big lenders. The meeting at the White House on Wednesday, which will be attended by the housing and urban development secretary, Shaun Donovan, among others, will focus in part on concerns about the foreclosure crisis’s effect on the housing market and the larger economy.

In remarks at a quarterly news briefing Tuesday, William C. Dudley, president of the Federal Reserve Bank of New York, said the Fed was “seeking to establish the facts” in conjunction with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

“We want to ensure that the housing finance business is supported by robust back office operations,” he said. He gave no timetable for when such a review might be completed.  Whatever the outcome of the various investigations, the era when the vast majority of foreclosures were unopposed and easily granted may be waning. Some judges in Florida, the state whose courtrooms are the most overwhelmed by foreclosures, said they were likely to scrutinize the papers submitted by the big lenders with extra care.

“If we get information that there was a problem with a prior affidavit, maybe we look more carefully at the next one,” said Peter D. Blanc, chief judge of the 15th Judicial Circuit in West Palm Beach, Fla.

Thomas McGrady, chief judge of the Sixth Judicial Circuit in Clearwater, said it was still an open question for him and other judges whether they would accept amended documents from Bank of America or force the lender to refile its cases.  “All of the courts are struggling with this,” Mr. McGrady said.

The investigation by the state attorneys general is so new — it was formed last week — that its scope is still being settled. Behind the question of improper foreclosure documentation lies a more important issue of whether lenders even have legal standing to foreclose because they lack the original mortgage note as required by law.

“The problems are not over, but their extent remains to be seen,” said Mr. Madigan, the Iowa assistant attorney general.

Bank of America, the country’s largest lender, announced it was unfreezing foreclosures in the 23 states less than three weeks after it froze them. A process that many expected to take months was completed in days.

In its statement, the bank said that it had “reviewed our process” and found it satisfactory enough to file new affidavits in 102,000 pending cases starting next week. Documents in those cases were presumably improperly done before. A bank spokesman declined Tuesday to explain more fully the lender’s review process.

GMAC Mortgage, another large lender that had announced a freeze, also said it was refiling cases. “We have more training, more people, a more robust policy now,” Gina Proia, a spokeswoman said.

Four years ago, in a case that foreshadowed the current uproar, a Florida court censured GMAC for false testimony. An employee said in a deposition that she had neither reviewed the record of the mortgage in the case nor known how it was created, which contradicted her sworn affidavit.

GMAC promised at the time to clean up its procedures, reminding employees not to sign court pleadings unless they had independently reviewed and checked the facts.  Despite GMAC and Bank of America’s proclamations that everything is now being done by the book, some legal and financial experts are disbelieving.

“The banks have dragged their feet and taken forever to do loan modifications, yet within less than two weeks they have managed to review hundreds of thousands of foreclosure cases,” said Adam J. Levitin, an associate professor of law at the Georgetown University Law Center. “It is simply not credible.”  Mr. Levitin is convinced that the lenders will suffer for what he sees as their attempt to put themselves above the rules. “The genie is out of the bottle,” he said.

While most cases in Florida are still unopposed, the judges there are already starting to see an increase in defendants with counsel, even if they are simply acting as their own lawyer.  “The largest impact has been from the publicity,” said Lee E. Haworth, chief justice of the 12th Judicial Circuit in Sarasota. ”A lot more borrowers are coming forward to oppose summary judgment. More hearings are going to be contested.”

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Title insurance, where we go from here

Kimberly Miller of the Palm Beach Post was the first reporter who explained how the foreclosure moratoriums we’re now seeing are a direct result of title insurance problems.  She first reported that on September 24, 2010

After B of A announced it was halting foreclosures, Ms. Miller reported it again in today’s Palm Beach Post

This is the story, folks.  The banks didn’t stop foreclosures out of the kindness of their hearts, out of the sudden urge to “do the right thing,” or because judges made them.  The banks stopped foreclosures to give lip service to the title insurance companies, like Old Republic, that have stopped writing title insurance policies on foreclosure properties.  After all, even the banks realize that if they can’t get title insurance, the value of their REO will go down even more (yes, more). 

Soon, the banks are going to try to convince the title insurance companies that their title problems are fixed (the “lip service”), after which it will be “business as usual.”  At that point it will be up to foreclosure defense attorneys such as myself to continue to expose the pervasive fraud that permeates every aspect of foreclosure lawsuits in Florida and throughout the country.

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Breaking News – JP Morgan Chase halting foreclosures

Hot off the presses …

JP Morgan Chase is halting foreclosures, essentially for the same reasons as GMAC. 

That makes two of the biggest mortgage companies in the country who have openly admitted the affidavits that cause foreclosure judgments to be entered have not been done correctly.  In the words of the Chase spokesman:

“It has come to our attention that in some cases employees in our mortgage foreclosure operations may have signed affidavits about loan documents on the basis of file reviews done by other personnel — without the signer personally having reviewed those loan files,” said Tom Kelly, a Chase spokesman. “As a result, we have begun to systematically re-examine documents we have filed in current foreclosure proceedings to verify that the affidavits and other documents meet the standard of personal knowledge or review where that is required.”

The obvious question, of course, is:

When banks are admitting their evidence is faulty, how can judges keep entering summary judgments of foreclosure?

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Foreclosure fraud – from coast to coast

I just read this article and I loved it so much that I cut and pasted it below. From the suggestion of a foreclosure moratorium to the realization that taxpayers are now paying for investigations of foreclosure cases (which the greedy banks and their lawyers should have been doing on their own), this author “gets it.”  It’s great to see the media finally starting to side with homeowners.

posted by: Jessica Pieklo 6 hours ago

Foreclosure Fraud Expands to California

This week California officials demanded that Ally Financial Inc stop foreclosing on homes in the state after reports show the mortgage lender was violating the law.  The report comes on the heels of significant problems with GAMC foreclosures and shows just how little help consumers are getting in the foreclosure process.

Just cease-and-desist letter was the result of testimony from that Florida case where a foreclosure official admitted to signing thousands of documents in foreclosure cases without even reviewing the homeowners’ loan documents.

Attorneys general in Texas, Iowa, Illinois and Florida are also investigating the mortgage giant for similar instances of fraud.

The process now coming under scrutiny is known as “robo-signing” and one that is nothing short of fraud on the court.  The affidavits that get signed are executed, under penalty of perjury, that the signer has personal knowledge sufficient enough to warrant the extraordinary relief of re-taking possession of a person’s home.

The process also shows the significant economic machine that processing residential foreclosures has become.  Ultimately it is not just the homeowners that lose when this happens, it is the taxpayer.  We will now have to weed through hundreds of thousands of foreclosure proceedings to determine the fraudulent from the legitimate-a process that is supposed to happen before filing.  Had sufficient regulatory oversight of the lending industry existed, in any fashion after the meltdown of the housing industry, this is a crisis that would have been avoided.

Just to show how out of control those initiating foreclosure are, including the enormous banks involved, is news like this--homeowners having homes sold out from under them, without their knowledge, by lenders like Bank of America, despite the fact that the homeowner didn’t have a mortgage at the time.

Put these stories together and what emerges is a singular narrative of greed at the expense of individual homeowners.  The foreclosure process is expensive and ultimately damaging for the overall economic health of our communities.  But there’s not enough incentive for banks and attorneys to work with homeowners, despite the fact that many, if given a fair opportunity, would be able to save their homes. 

Given the scope of the foreclosure industry, unfortunately I think we are only going to hear more of these kinds of stories.  Given the scope of the fruad that has come to light, Congress should demand a halt on all residential foreclosures until the legitimate cases can be sorted from the illegitimate ones.

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It’s not just Jeffrey Stephan, folks!

Many media outlets seem to be suggesting that GMAC’s decision to halt foreclosures in 23 states, including Florida, is a result of Jeffrey Stephan’s false affidavits. 

This is simply not true.  The issue is much bigger.  To illustrate, attached is an Affidavit and a withdrawal of that affidavit signed by Kristine Wilson, as Limited Signing Officer of GMAC Mortgage, LLC. 

More fallout is coming, but clearly the problem is not limited to Jeffrey Stephan.

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Title problems – banks won’t warrant title to their own, foreclosed properties

As I type this, reporters across the country are scrambling to understand why GMAC has stopped all foreclosures in 23 states, including Florida.  The more I think about it, the more I think the answer is clear:

Banks and title insurance companies have realized that title conveyed via foreclosure is unreliable. 

That’s worth repeating. 

Banks and title insurance companies have realized that title conveyed via foreclosure is unreliable.

I’ve been explaining for a long time now, both on this blog and to every judge who will listen – invalid service of process, failure to join all necessary defendants in a foreclosure case (e.g. the mortgage holder of record and junior leinholders), and the bank’s use of fraudulent evidence to obtain a foreclosure judgment have resulted in tens of thousands of foreclosure judgments that are voidable, if not void. 

Let me put it in non-lawyer terms.  Even if a bank wins a foreclosure lawsuit, if service of process on the homeowner was ineffective (and it often is, especially if service was done via publication), or if the bank failed to join all necessary defendants (e.g. junior lien holders or the mortgage holder of record), or if the bank relied on evidence that was fraudulent (like the affidavits of Jeffrey Stephan, described in the blog below), then the Final Judgment may be vacated.  This means, essentially, that even if the bank won a foreclosure lawsuit, was the high bidder at a foreclosure sale, and sold the house to an independent third party, the original homeowner may still ask the Court to vacate the Final Judgment and re-take possession, and ownership, of the home. 

Envision that scenario.  The bank filed a foreclosure suit, won, took title, and sold the property to an independent third party.  Now imagine you’re the indepedent, third party purchaser.  (I know, that may be hard for some of you, but stick with me.)  You bought a home from a bank that obtained title via foreclosure.  You did nothing wrong.  You’re living in a house you purchased from a bank.  Yet suddenly, out of nowhere, the original homeowner, who owned the property before the bank foreclosed, has convinced a court that it still owns the property.  Incredibly, in light of the bank’s failure to prosecute the foreclosure lawsuit the right way, the homeowner is right – it’s still his house.  Hence, you’re being forced to vacate the home that you purchased even though you did nothing wrong. 

If that happened to you, what’s the first thing you’d do?  I know what I’d do – make a claim against the title insurance policy.  That’s what title insurance is for – to protect homeowners in the event of a problem with the title to the property they’ve purchased.  (Title insurance is routine in real estate closings.  The purchaser pays a little extra at closing in exchange for an insurance company agreeing to pay that homeowner the entire sale price in the event the seller does not actually have title to the property.  The way it’s supposed to work, the insurance company collects a little bit at a lot of closings and rarely has to pay anything, so it makes money, and the homeowner has the peace of mind of knowing that if the seller did not have title to the house that the title insurance company will pay.) 

Now imagine this scenario playing out over and over again, thousands of cases at a time.  If you’re the title insurance company, wouldn’t you stop issuing title insurance properties when the bank obtained title by foreclosure?  Absolutely.  It wouldn’t be worth the risk.  You couldn’t possibly afford to stay in business.  As far as I can tell, that’s precisely what is happening right now. 

Title insurance companies have realized that title via foreclosure is unreliable, so they don’t want to write title insurance policies for such properties.

If you’re skeptical, and think I’m being an alarmist, consider this article: 

http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html

As the article explains, Wells Fargo has stopped warranting title to its own, foreclosured properties.  What does this mean?  Instead of issuing purchasers of bank-owned properties a warranty deed, Wells Fargo is only willing to issue a quit claim deed.  Of course, the difference between a warranty deed and a quit claim deed is huge.  With a warranty deed, Wells Fargo is making an affirmative representation that it owns the property, giving the purchaser legal recourse against Wells Fargo if the bank’s title is defective.  With a quit claim deed, Wells Fargo is making no such representation, giving the purchaser no recourse if the bank did not own the property.  I know that sounds crazy – how can a bank sell a property, pocket the money, not actually own the property, and have no liability?  The absurdity of that proposition is the point of the article.  Essentially, banks are trying to set it up where they can keep the money from the sale of a house (that they did not own) even though the homeowner couldn’t keep the house. 

The question that arises, of course, is this – why would a bank like Wells Fargo be unwilling to warrant title to its own, foreclosed properties?  For me, the answer is clear:

Banks like Wells Fargo realize there are title defects to these properties and they don’t want to face the liability associated with selling properties they don’t actually own. 

In other words, Wells Fargo undoubtedly realizes that it may not be the owner of that property, so instead of warranting that it owns the property, and facing a potential lawsuit later, Wells Fargo wants to shift the risk that it doesn’t own the property onto the purchaser.  Would this happen in every case?  Certainly not.  But for Wells Fargo, it’s a numbers game.  If they’re selling 500,000 houses, they know this problem is going to arise on a certain percentage of them, so they want to transfer the risk from itself to the purchaser. 

This raises perhaps another significant question – if banks won’t warrant title to foreclosed properties, and title insurance companies won’t issue title insurance policies, then what is going to happen with all of the foreclosure cases that are pending?  And all of the homes for which foreclosure is sought?  Candidly, I’m not sure.  Lest you think that’s a copout, I don’t think I’m alone in that feeling of uncertainty.  In fact, I believe the reason GMAC has halted foreclosures in 23 states is because it doesn’t know the answer to these questions, either.  If you disagree, you tell me –

Why would GMAC suddenly stop all foreclosure cases in 23 states? 

What other explanation could there be?

To illustrate my point, suppose you’re the CEO of GMAC.  Would you want to keep foreclosing on properties for which you cannot obtain title insurance policies?  What are you going to do with all of those properties?  You can’t sell them without title insurance (certainly not for fair market value anyway, as few people will want to buy properties without clear title).  What good is a Final Judgment of Foreclosure if you can’t sell the property you’ve obtained? 

I realize I’m speculating a bit.  But doesn’t it make sense that GMAC is stopping all foreclosures, and Wells Fargo is refusing to warrant title to its properties, because they realize the inherent unreliability of the title they’ve obtained via foreclosure? 

The way out of this quagmire is perhaps scarier than the quagmire itself.  As I see it, every property in which there is a title problem is going to have to have another lawsuit filed, either for another foreclosure or a quiet title lawsuit.  That’s how the law works, at least in Florida – if there’s a title problem, the way to fix it is with a quiet title suit or a foreclosure suit.  This raises perhaps my biggest point of all:

every foreclosure mill and every judge that is rushing to “push through” foreclosure cases may be staring at a second round of these cases, on the exact same properties, because the cases were not done correctly the first time. 

If you think that’s an absurd proposition, remember – that’s precisely how Florida law works with respect to tax deed sales, and, in a lot of ways, tax deed sales are just like foreclosure sales (public auctions at the courthouse, high bidder gets a deed from the clerk).  A key difference, at present, is that when someone purchases a property at a tax deed sale, the deed from the clerk does not convey marketable title. After a tax deed sale, the way for a purchaser to obtain marketable title is to file a suit to quiet title (or wait four years).  Given what’s happening right now in our economy, I don’t think it’s a stretch to say this is where we’re headed with foreclosures.  A scary proposition, yes, but this may be where we’re headed. 

If your head is spinning right now, I don’t blame you.  For the average person, here’s what you should take from all of this:

MAKE SURE YOU HIRE AN EXPERIENCED LAWYER TO DEFEND YOUR FORECLOSURE CASE.

After all, things are absolutely crazy right now.  If you retain an experienced foreclosure defense attorney, and are able to avoid a final judgment of foreclosure, who knows what the future may bring.  Maybe the government will step in and fix this mess.  Maybe the banks will be forced to negotiate with homeowners (because the foreclosure process isn’t working).  There are a ton of possibilities if you defend yourself.  But if you give up, lose your case, and something changes in the future, it may be too late for you to do anything about it. 

If you’re a judge reading this, ask yourself this.  If/when this all comes crashing down, are you going to be able to look at yourself in the mirror, like Judge Anthony Rondolino in St. Petersburg will, and know that you followed the law and forced the banks to prove their entitlement to foreclosure?  Are you going to feel good about how you handled the foreclosure crisis?  Or are you going to realize that you signed thousands of final judgments of foreclosure without evaluating those files, contributing to the problems we’re now facing? 

I realize you cannot change the past.  But isn’t it time that you start being part of the solution and not part of the problem?  The laws are in place for a reason.  Please.  Force banks to prove their case.  Read their affidavits.  Read their motions.  Give each case an honest assessment.  I know you have a lot of cases, but that’s your job.  If you shirk that responsibility, and just “push through” more foreclosures, you may think you’re removing another case from your docket, but all you’re really doing is contributing to the problem that has brought our economy to its knees. 

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GMAC halts foreclosures

In what has quickly become a national story, GMAC has suspended actions in all foreclosure cases in 23 states, including Florida. 

http://www.bloomberg.com/news/2010-09-20/gmac-mortgage-halts-home-foreclosures-in-23-states-including-florida-n-y-.html

http://topics.nytimes.com/top/reference/timestopics/subjects/f/foreclosures/index.html

There is undoubtedly more to come on this huge, breaking story.  At this point, though, here is what I know (from my own experience as a foreclosure defense attorney with hundreds of cases in Florida). 

Within the past two weeks, I have received notices, in three different cases in which I am counsel, purporting to withdraw an affidavit that had been filed in that case.  There are many similarities among these notices.  Specifically, in all three cases:

1.  The affidavit was used to support a motion for summary judgment (by itemizing the amounts allegedly owed on that note/mortgage). 

Significantly, this is how hundreds of thousands of foreclosure cases have been “pushed through” in Florida – by individuals signing an affidavit stating the total amount owed and the Court accepting that affidavit and granting a Final Judgment of Foreclosure. 

2.  The affiant was Jeffrey Stephan, who purportedly signed, under oath, as a “Limited Signing Officer” for GMAC Mortgage, LLC. 

3.  The Note was securitized, i.e. the Plaintiff is a trust (Deutsche Bank, “as trustee,” or The Bank of New York Mellon, “as trustee”). 

4.  The law firm for the Plaintiff was Florida Default Law Group (one of the three firms currently under investigation by the Florida Attorney General). 

5.  The law firm, Florida Default, tried to withdraw Mr. Stephan’s affidavit “pursuant to Rule 4-3.3, Rules of Professional Conduct of the Rules Regulating The Florida Bar.”  (If you’re not familiar with the language in that rule, click here.  As you can see, this is really serious stuff.  For instance, subsection (b) of the Rule discusses a lawyer’s obligations when a client engages in criminal or fraudulent conduct.)

6.  The law firm, Florida Default, admits “the information in the affidavit may not have been properly verified by the affiant [Mr. Stephan].” 

For a sample Affidavit and Notice, click here – GMAC Affidavit, Withdrawal

Again, I’m sure there will be more to this story in the coming days.  At this point, though, here’s what I’m thinking. 

Florida Default must realize the affidavits signed by Mr. Stephan are either untrue or insufficient to support summary judgment (or both).  Otherwise they would not be taking the unprecedented step of withdrawing the affidavits.  GMAC must realize these same things, or it wouldn’t be taking the unprecedented step of stopping all foreclosure cases. 

What does that mean for the average person?  Well, if you have a case pending and GMAC is the plaintiff or the servicer for the plaintiff, your case will probably be stagnant for a while.  But what about those individuals who have already been foreclosed? 

Rule 1.540, Fla.R.Civ.P., authorizes a party who has lost a case, e.g. via entry of Final Judgment of Foreclosure, to move to vacate the Final Judgment on the grounds of fraud.  Under the circumstances, it’s hardly a stretch to say there may be thousands of people in Florida who have lost their homes as a result of fraud.  

Let me put it this way: 

If you are a defendant in a foreclosure case in which GMAC was or is the Plaintiff, or in which GMAC was or is the servicer, I welcome you to contact my office for a free consultation, especially if Jeffrey Stephen signed an affidavit in your case.

Even if your foreclosure case is already over, there may be grounds to vacate it. 

In fact, you may be able to move back into your home (even if you’ve already been foreclosed). 

If your case is still pending, I strongly urge you to look closely at the affidavits that have been filed in your case.  Have they been signed by Jeffrey Stephan?  Someone else with GMAC?  Bear in mind – just because GMAC is not the Plaintiff does not mean it’s not the servicer, and often it’s the servicer that files affidavits. 

The scariest part about all of this is that, in my view, this is just the tip of the iceberg.  I strongly believe the actions that caused Florida Default to withdraw the affidavits of Jeffrey Stephan, and for GMAC to halt all foreclosure cases, are prevalent in many other cases, with many other affiants and many other banks.  Consider this development yet another reason to defend your foreclosure case with a competent foreclosure defense attorney.  You just never know – maybe we’ll find fraud in your case, too.

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