Banks' Foreclosure Crisis Had Humble Beginnings

Large mortgage companies have been shaken to their core by the latest crisis, this one also of their own making.

The foreclosure assembly line has been brought to a halt in many states as officials investigate whether the loan servicers committed fraud when they filed foreclosure documents. 

Specifically, it's alleged that many mortgage company employees simply rubber-stamped affidavits that declared they had read the foreclosure documents and had verified the information. A number of banks have suspended foreclosures in the 23 states that have "judicial foreclosure" and Bank of America has suspended foreclosures in all 50 states.

This latest crisis for banks had humble beginnings earlier this year when five Maine residents filed a complaint against GMAC Mortgage, LLC (GMAC) on behalf of themselves and a class of Maine homeowners. The homeowners alleged that the company routinely and systematically files false certifications that it has a right to foreclose on Maine homeowners, and false affidavits when asking courts to enter foreclosure judgments.

One Maine homeowner in particular, Nicolle Bradbury, had a pro bono lawyer to defend her foreclosure and it was during preparations for her suit that her attorney discovered that GMAC didn't always read the documents before foreclosing. 

A court in Maine sanctioned GMAC for this, noting that "this case is not the first time that GMAC's high-volume and careless approach to affidavit signing has been exposed." 
In their class-action, the homeowners complained that GMAC filed false documents knowing that the courts in Maine would rely on them in deciding whether foreclosures could go forward and in allowing GMAC to sell their homes. 

Additional depositions of GMAC employees reportedly revealed that they did not verify the truth of information necessary to give GMAC the right to foreclose when they sign these court documents and that these improper practices have been in place since at least 2004, according to the Center for Responsible Lending, a co-counsel to the class action suit. 

"Because of GMAC's unfair and deceptive practices, hundreds or possibly thousands of Maine homeowners have lost their homes to foreclosure based on judgments obtained through bogus affidavits, and have been improperly charged costs and attorneys fees," CRL said in a statement. "Most of them have had no attorney to protect them." 

The Maine residents are now represented by Andrea Bopp Stark from the Molleur Law Office in Biddeford, Maine; Thomas Cox, coordinator of Maine Attorneys Saving Homes in Portland; the National Consumer Law Center; and the Center for Responsible Lending.