The GMAC mortgage unit of Ally Financial, Inc. is planning to drop 250 foreclosures in Maryland due to defective affidavits, the company announced on Wednesday.
The decision encompasses every Maryland foreclosure “robo-signed” by Ally employee Jeffrey Stephan, who has already admitted that he signed off on thousands of foreclosures every month without conducting any meaningful review.
Ally’s announcement came after Civil Justice, Inc., a Maryland nonprofit group, agreed to abandon a class action brought on behalf of homeowners whose foreclosure papers were signed by Stephan.
Robo-signing defined
“Robo-signing” occurs when an individual is assigned to sign off on a large number of foreclosures without first checking to ensure that all the documentation is correct. The practice, which came to light after a Washington Post report last fall, potentially poses serious threats to the mortgage industry. In November, the Congressional Oversight Panel (COP) warned that robo-signing could put some large banks at risk.
“The risk stems from the possibility that the rapid growth of mortgage securitization in recent years may have outpaced the ability of the legal and financial system to track mortgage loan ownership,” the panel wrote. “In essence, banks may be unable to prove that they own the mortgage loans they claim to own.”
Buyers and sellers could potentially be thrown into limbo as well, with no one reasonably sure of whether they could validly buy or sell a home.
Jeffrey Stephan, the best-known robo-signer, estimated during a deposition that he signed around 10,000 documents per month.
Company plans to re-file
In an e-mailed statement to Bloomberg, Ally spokeswoman Gina Proia said the company’s “intention is to re-file the cases to go through the new foreclosure procedures in Maryland.”
But that will likely be a lengthy process, and one that could inject additional uncertainty into Maryland’s already-shaky real estate market.
Action may have “ripple effect”
Although Ally’s action is ostensibly confined to Maryland, one consumer activist told The Washington Post that other mortgage companies who used robo-signers are likely to follow suit.
“What they're doing is triage,” Ira Rheingold, executive director of the National Association of Consumer Advocates, told the Post. “They're thinking: We've got a problem in Maryland. Let's get in front of it. But they're naive if they think that what they're doing in Maryland is going to shut the door on their troubles elsewhere.”
Indeed, that is the hope of Civil Justice, the group that filed the lawsuit.
“Hopefully GMAC’s actions will set a precedent with other lenders where robo-signing has occurred,” Civil Justice attorney Anthony DePastina told Bloomberg. “I think there will be a ripple effect throughout the country.”
