This is big news. I just got off a conference call with Richard Cordray, the Attorney General for the state of Ohio. He has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.
This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.
I don’t think that’s necessarily going to be the end result of this, but for the moment, Cordray is suing GMAC, and all he has to prove is that the lender knowingly presented false affidavits and false documents to the court. Even the hundreds of cases he suggested GMAC committed fraud in would amount to a significant fine.
What’s more, Cordray sent letters seeking meetings with the other four top lenders in the state – Bank of America, JPMorgan Chase, Citi and Wells Fargo – to discuss their use of robo-signers and how they plan to remedy the practice. He certainly sounded like someone ready to include them in future lawsuits.
“It is now becoming clear that fraud, deception, and an utter disregard for accuracy are in part to blame for our national foreclosure disaster,” Cordray said in prepared remarks. “What we are seeing and hearing strikes at the very foundation of the rule of law in our court system… Clearly any fraud or deception that has contributed to this state of affairs must be stopped, and those responsible must be held accountable.”
In addition to seeking penalties from GMAC in the lawsuit for their violations of state laws and perpretration of fraud, Cordray wants a “preliminary and permanent injunction” against all foreclosures by GMAC in any pending case. If he were to file future lawsuits – and I believe he will – he would move to do the same in those cases. That would effectively end all foreclosure proceedings in Ohio, a judicial foreclosure state.
This was the most powerful part of Cordray’s statement:
“The actions by lenders that I am talking about today show gross disregard for the integrity of this legal process and for the private property rights of homeowners.
We are talking about lenders and servicers treating foreclosure not as a legal proceeding that deserves the careful attention of the property owner, the servicer of the mortgage and the courts, but rather as a production line making widgets, that accords foreclosures little deliberate accuracy that the law – or for, that matter, basic courtesy and common sense – mandates be given to such serious matters.”
Cordray said he was in contact with other Attorneys General across the nation about this matter, and that there is “deep concern” nationally about these practices.
Importantly, filing a lawsuit will enable a discovery phase, where more instances of fraud could be uncovered inside GMAC and potentially industry-wide.
When challenged by one reporter about the fact that the borrowers were in fact delinquent and that merits some action on the part of the lender, Cordray struck back. “What each side merits is that proper legal processes be carefully followed… If we would file a case with an affidavit we know to be false, that is seen as a very serious matter by the court. I don’t see why this should be taken any more lightly.”
Again, you can read the entire lawsuit here. Cordray has three other lawsuits pending against other loan servicers, and just got a favorable ruling against HomeEq Servicing which will allow that case to go forward.