In a major ruling Friday, a coalition of nonprofit defense lawyers and consumer protection advocates in Maryland successfully got over 10,000 foreclosure cases managed by GMAC Mortgage tossed out, because affidavits in the cases were signed by Jeffrey Stephan, the infamous GMAC “robo-signer” who attested to the authenticity of foreclosure documents without any knowledge about them, as well as signing other false statements.
The University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit, filed the class action lawsuit, arguing that any case using Jeffrey Stephan as a signer was illegitimate and must be dismissed. In court Friday, GMAC agreed to dismiss every case in Maryland relying on a Stephan affidavit. They can refile foreclosure actions on the close to 10,000 homes, but only at their own expense, and subject to new Maryland regulations which require mandatory mediation between borrower and lender before moving to foreclosure. Civil Justice and the Consumer Protection Clinic also want any cases with affidavits from Xee Moua of Wells Fargo, who has also admitted to robo-signing, thrown out, but that case has not yet been settled.
This was not the plan of GMAC and other banks caught using robo-signers last year. They hoped to undergo a pause in proceedings, run a quick “double-check” and then issue substitute documents in the same cases. That would have been a much more rapid solution for the banks and would have resulted in many more foreclosures. Now GMAC has to go back and basically file the entire case all over again, meaning they have to give notice of foreclosure to the borrower, engage the borrower in modification options, and basically run through the whole process from the beginning. They cannot use the shortcut solution, thanks to the class action suit filed. GMAC’s dismissal of every foreclosure in Maryland shows their doubts they would have won the class action.
The Consumer Protection Clinic at the U. of Maryland is a class taught by Peter Holland. Rather than just read and lecture about foreclosure fraud and consumer protection law, Holland has the class join motions, prepare cross-examinations and legitimately get involved in the cases. It reminds me of the class of Alan Dershowitz depicted in the film Reversal of Fortune, or the Medill Innocence Project investigating wrongful convictions at Northwestern. Given the national scope of foreclosure fraud, you can imagine classes like this springing up all over the country.
As I said, this doesn’t mean that GMAC cannot refile foreclosures in these cases. But they have to spend a lot of time and money to go back to the beginning and redo every case, and must adhere to Maryland law of allowing mediation. Maryland is a judicial foreclosure state which has produced some of the better rulings during this crisis. But we’re starting to see challenges even in non-judicial foreclosure states, like Massachusetts, where the Ibanez case has thrown every foreclosure in the state into turmoil. The rates of moving properties through foreclosure have dropped dramatically, in all 50 states, by an average of 50%. It just seems inevitable that lawyers in other states will follow the Maryland action and attempt to get everything which used a robo-signer thrown out.
And if the Ibanez case, which questions the right for banks to foreclose at all, can be broadly applied, those rates will drop even further. And Georgetown Law Professor Adam Levitin thinks may be the case.
In Ibanez, the Massachusetts Supreme Judicial Court noted that PSA was insufficient to serve as an assignment of the loan because what was presented as the affiliated loan schedule:
“did not include property addresses, names of mortgagors, or any number that corresponds to the loan number or servicing number on the LaRace mortgage. Wells Fargo contends that a loan with the LaRace property’s zip code and city is the LaRace mortgage loan because the payment history and loan amount matches the LaRace loan.”
So how do other PSAs fare under the Ibanez metric? I’ve been looking at them, and it seems that there are lots of RMBS deals where the schedules in the PSAs are possibly insufficient to meet the Ibanez standard. And that means that there are lots of RMBS trusts that might not be able to successfully foreclose in Massachusetts or maybe in any other title theory state.
Read the whole post from Levitin for the explanation. Here’s a list of title theory states. There are about 30 of them, including the sand states of California, Arizona and Nevada.
Jamie Dimon and his banker buddies may be saying in public that they aren’t worried about the consequences from future foreclosure fraud cases and repurchases, but in private, they must be going nuts over this.