Last week, news reports brought to light serious allegations that Ally Financial (GMAC Mortgage) – the nation’s fourth-largest home lender – mishandled thousands of foreclosure documents. As a result, pending evictions in 23 states have been stopped (at least for now) and homeowners across the country may be able to challenge past foreclosure proceedings.
From the thousands of questions asked on Avvo.com each week, we see first-hand how the mortgage crisis and resulting foreclosures are a huge problem for families across the country.
To get a better understanding of these allegations, and what it all means for homeowners, we’ve asked John Watts, a foreclosure defense and consumer protection attorney with Watts Law Group P.C. & M. Stan Herring P.C. in Birmingham, Alabama, to answer a few questions.
Q: Media sources have reported that Ally Financial processed thousands of foreclosures, without actually reviewing them. How did this even happen?
What happened with Ally is just a part of what we are seeing in the mortgage industry over the last ten years. The mortgage industry has changed over the years with the widespread use of securitization as a means of loaning more money for a greater profit. Securitization is where thousands of loans of bundled together and placed into a “Trust” on Wall Street so the company you received the money from — Bank of America, Countrywide, Wells Fargo, etc — is normally not the owner of the loan anymore.
There is nothing wrong with securitization or any of the other innovations – as long as the laws are followed.
But in the rush of this decade to loan ever increasing amounts of money without regard to sound business practices and the law, mortgage companies have started taking numerous shortcuts.
We see mortgage companies that cannot show they truly own the loan. Their lawyers stand before courts somewhat befuddled and say “We are not sure who owns this loan.” But yet they still want to foreclose.
This particular situation with Ally Financial (GMAC Mortgage) involved a single person who signed affidavits that were used to convince courts that the mortgage company was entitled to foreclose and take someone’s home.
If the information in the affidavits was accurate, then this is appropriate.
But at Ally, one person signed 10,000 affidavits a month. That’s 500 a day if he worked 20 days a month. If he did nothing but sign affidavits 8 hours a day, that’s about 62 affidavits an hour.
Let’s round up and call it one affidavit per minute. Non-stop for 8 hours a day. Day in and day out. This is why these types of employees are called “Robo-Signers.”
An affidavit in this context is a sworn statement that identifies critical information about the homeowner, the loan, and the payment history.
Obviously this Ally employee does not know this information about each homeowner. That’s 120,000 a year. Sometimes I can’t remember what I ate for lunch yesterday so I suspect this guy doesn’t personally know all of the information about these loans.
So if he doesn’t know it, he needs to look in the records to see if all of the information in the affidavit is accurate.
One minute is not going to be enough time to read, and research, a page or two page long affidavit.
We also see this in the context of credit reporting agencies investigating credit report disputes. They will often allocate just a minute or two in order to review a dispute submitted by a consumer. It is very hard for them to get these investigations handled properly when there is not sufficient time.
So why do these companies put all of this work on someone who only has a minute to do what really takes ten minutes or even hours to do?
It all comes down to money. In the mortgage servicing industry — the companies that actually handle the payments, escrow, and the foreclosures — the decision has been made to automate as much as possible even when it means making numerous errors including wrongful foreclosures. This is why we see “inspections” of a home by a servicing company when it is impossible — such as when New Orleans was shut down and yet servicing companies claimed that they repeatedly “drove by” houses that were literally under water.
So, it is too much to pay someone else or a team of trained workers to make sure these affidavits were accurate and legitimate. Even though 10,000 affidavits were signed every month — meaning 10,000 homes were being foreclosed every month — Ally and the mortgage companies that Ally works for thought it not important enough to make sure the truth was being told to courts.
Sad but not surprising. This is how business is done by many mortgage companies today.
Q: What impact does this have on mortgage companies like Fannie Mae and Freddie Mac?
Numerous mortgage companies relied upon this particular “processor” who has admitted to signing affidavits without reading them, even though affidavits must be based upon personal knowledge. Now, all of these mortgage companies that have relied upon these bogus documents are going to face some tough decisions. Do they press ahead with foreclosures or do they try and clean up the documentation?
If they clean up the documentation, or try to, this raises issues about the foreclosures that happened before the “clean up.” This may be seen as an implicit admission that the previous foreclosures were invalid and should be set aside. That is the nightmare scenario that all of these mortgage companies face that have taken extreme shortcuts or even fraudulent shortcuts.
My suspicion is that the mortgage companies will simply state this “problem” is not a big deal. It is a “technicality” that does not change the fact that the homeowner is “behind on her mortgage.” In every wrongful foreclosure case I have, we hear the same thing — “Judge, don’t worry about whether we really own the loan. The important thing is the borrower is behind.”
Keep in mind, however, that it doesn’t matter if the homeowner is late on payments if the foreclosing entity is not entitled to foreclose. Just because you are late paying your mortgage, for example, doesn’t give me the right to foreclose. I have no right to do that, regardless of whether you are behind or not.
Bottom line is I suspect the companies will maintain a fairly united front on this and claim this is all created by foreclosure defense lawyers who are looking for technicalities to stop the wheels of commerce. They will say they did a sampling of the 10,000 affidavits every month and it turns out everything was fine so this is all just a “distraction” by foreclosure defense lawyers.
Q: If a homeowner believes he or she lost their home as a result of this mishandling of documents, first – is there any way they would even know, and if so, what are their options?
Often times there will be an affidavit offered in a judicial foreclosure case. That affidavit will be a part, usually, of the court file. So that is the best place to start.
A homeowner’s foreclosure defense lawyer, or bankruptcy lawyer, will likely be aware of this issue and other similar issues and so the lawyer will request documents and other information from the mortgage companies during the case.
If the foreclosure has already happened, and the consumer believes the foreclosure was improper, then it is critical to get with a foreclosure defense lawyer as soon as possible because there may be some very strict time limits involved in trying to undo the foreclosure.
In Alabama, where I practice, the foreclosures are almost 100% “non judicial” so this means the foreclosure happens without the court being involved but then the company that buys the home (usually the mortgage company or Fannie Mae, Freddie Mac, etc) then sues for “ejectment” or eviction.
But in a judicial foreclosure state, such as Florida, the foreclosure normally happens when the foreclosure case is won by the mortgage company and lost by the homeowner. So now the homeowner will be faced with the prospect of trying to get a judge to overturn a court decision on allowing the foreclosure to go forward. I don’t practice in Florida but, in general, overturning decisions by judges is difficult as you are asking the court to rule that it made a mistake. Homeowners in this situation need to get with a lawyer very quickly to see what their options are in this situation.
Q: What legal action should we expect to see be taken against Ally Financial?
I think we will see some Attorney Generals investigate this situation but I don’t expect anything substantive from that. Hopefully I am wrong.
I do think that this whole mess will encourage foreclosure defense lawyers to really press hard against mortgage companies to see if what the mortgage companies say is true or not.
Lately foreclosure defense lawyers have done this with respect to assignments of notes and mortgages. We see quite often bogus documents which purport to transfer notes and mortgages long after the time limits to do so have expired. We have been told not to worry about such “minor details” as who owns the loan.
This mess with Ally demonstrates that everything needs to be questioned. Think of this way — if a company such as Ally will file 10,000 bogus affidavits a month – in court – then would it surprise you that companies might be less than honest when they are dealing with you outside of court?
I think we will see numerous suits against Ally and the companies that relied upon Ally. Claims will be made of wrongful foreclosures or fraud on the court. There will be efforts made to “undo” or “rescind” foreclosures that were based upon the bogus affidavits.
This admission from Ally will not go away quickly and the lawyers that brought this to light deserve a lot of credit for exposing this dirty side of the foreclosure business.
Q: From the very beginning of the mortgage crisis, many people have said the entire system is fraudulent. Do you think this is one unfortunate event, or that this is just one example of a widespread issue within the foreclosure process?
I don’t think the entire system is fraudulent but I do think the level of fraud in the mortgage industry is shocking.
Here’s what I mean.
Most loans from this decade were securitized and placed (supposedly) in a Trust. The Trust (or trustee) is allegedly the owner of the loan. But the problem is that the Trust requires the loans to be placed in it by a certain deadline. There are a variety of reasons for this including the IRS tax code.
But I’m not sure I’ve ever seen a loan go into the Trust by the deadline. There is no good explanation for this by the mortgage companies other than “Don’t worry about it.”
This is why we see situations where more than one company claims to own the loan — which is impossible. The record keeping was done so ineptly (either intentionally or unintentionally) that no one knows who owns the loan.
Then when we consider “servicing” of a loan, we see rampant fraud. Bogus inspections (remember the New Orleans example above). Servicers who take in payments and then blatantly violate the terms of the loan in how the servicer applies the payments. They do this so that they can take out of the payment any late fees, inspection fees, etc. as this is all profit to the servicer. They do this illegally and then say “You didn’t make your payment big enough so you are now late again.” They then stick the balance of your payment in a “suspense account” which they use to loan out money and make interest on instead of properly applying your payments.
But the biggest area of fraud is in the weeks and days leading up to a foreclosure. Promises will be made that “If you pay $3,000 we will stop the foreclosure” and then when you pay that money the servicer still forecloses. When you are doing a loan modification the servicer will “accidentally” lose your paperwork multiple times and claim you never sent it so the foreclosure is your fault.
Now this situation with Ally — which is not isolated — where 10,000 bogus affidavits were filed a month.
The whole system is not fraudulent. For many homeowners who never get behind, the system works to some extent. But for homeowners who do get behind, so many are being taken advantage of in a fraudulent manner with the end result being the loss of their home when that should not have occurred. Improper foreclosures lead to communities being harmed and families being subjected to almost incalculable stress.
Q: What is the ultimate solution for homeowners?
Homeowners should realize that mortgage companies act based upon two presumptions:
1. You don’t know your rights or you don’t that the mortgage companies are breaking the law; and
2. Even if you do, you won’t do anything about it.
Think of all of the months and months that this single company put out 10,000 bogus affidavits. They knew this was improper. They didn’t just realize “Oh my, our employee has been signing 10,000 affidavits at the rate of one per minute. Who knew?”
They knew this was improper but they assumed, you would never know. Or even if you did know, you wouldn’t do anything about it.
So the solution is to prove these mortgage companies wrong in their presumptions.
Learn what your rights are. You have access here at Avvo.com to questions and answers with lawyers in your state. You have legal guides – both written and videos. Use these resources to learn about your rights and then meet with a lawyer to get specific advice for your unique situation.
Then when you are clear on what your rights are and what your options are, take action. It does no good to know everything about the law in this area, if you do nothing. Instead take action based upon your knowledge.
If you are facing a wrongful foreclosure that is in violation of the law, then you have options. Learn what they are and then make a decision by taking the appropriate action.
