GMAC Mortgage said Tuesday it is dropping about 250 Maryland foreclosure cases that were apparently "robo-signed," giving homeowners a second chance to save their properties — and raising the possibility that other lenders might follow suit.
The company said it is asking Maryland courts to dismiss cases in which it submitted "potentially defective" affidavits, documents signed by an employee who didn't confirm the information's accuracy and that were improperly notarized. The practice, dubbed robo-signing, appears to have been widespread among large mortgage servicers.
GMAC plans to refile the cases but only after each case undergoes another review "to assure that all home preservation options were exhausted," spokeswoman Gina Proia said. GMAC cited the implementation of new Maryland procedural rules that meant it would be "more efficient" to restart the cases from scratch. It is not dropping foreclosure suits en masse in other states.
"What's happening in Maryland is unique to Maryland," Proia said.
Civil Justice, a Baltimore nonprofit group that works on housing issues, had filed legal motions aimed at forcing GMAC to dismiss the cases that the group contends were tainted. Civil Justice agreed Friday to drop its class-action against GMAC after an attorney for the lender told Baltimore Judge W. Michel Pierson that it was withdrawing cases across the state.
"The most important thing is that we've resolved this," said Anthony DePastina, Civil Justice's litigation attorney. "They've agreed to dismiss these cases, and Maryland homeowners have another chance now. And, hopefully, other banks will do the same."
Civil Justice in late October sought dismissal of any GMAC case with an affidavit signed by employee Jeffrey Stephan, who acknowledged in a deposition that he signed hundreds of the documents each day without knowing if the information was correct.
The nonprofit believes about 1,000 cases would be affected by GMAC's decision, but the lender disputes that figure and said its decision to voluntarily dismiss the cases wasn't influenced by the legal action. Court records make it difficult to ascertain how many pending foreclosures GMAC has in Maryland.
Civil Justice filed similar motions against Wells Fargo. That case is continuing. A Wells Fargo spokeswoman said she had just heard of the GMAC dismissals and needed to research the matter before she could comment.
The Center for Responsible Lending said Maryland's new court procedures aimed at stamping out robo-signing were likely instrumental in GMAC's decision. The state court system approved an emergency update of its rules in October to make clear that courts can conduct audits for problematic foreclosure paperwork and toss cases if documents were robo-signed.
In other states, GMAC is moving forward with cases, in some instances filing new affidavits, said Nina Simon, the center's director of litigation. The center is helping to litigate a Maine case against GMAC that alleges it routinely filed false documentation.
"They have not stopped proceeding with these foreclosures unless they are really caught in a legal bind," she said.
GMAC, which said it only foreclosed on homeowners who were in default, began asking the courts to throw out Maryland cases in December. With few exceptions, the company said, it is requesting dismissal even if the homes were already auctioned off, as long as the sales haven't been ratified.
"The process is well under way," Proia said.
Because GMAC is refiling the cases, the homeowners would benefit from new protections that went into effect for Maryland cases started after June 30. GMAC must now show in its new filings that it considered the homeowners for foreclosure alternatives, and the borrowers will be eligible to pursue court-supervised mediation.
DePastina called the sit-down mediation sessions "a much more meaningful process" for homeowners trying to get loan modifications than the usual method of seeking approval by telephone and mail — which prompted many borrowers to complain that their mortgage servicers repeatedly lost their applications.
As allegations of foreclosure misconduct spread like wildfire last year, so did investigations and promises of reform. All state attorney general offices in the country are pursuing a joint inquiry into foreclosure practices.
On Tuesday, U.S. Sen. John Kerry of Massachusetts said he is asking the Federal Reserve to investigate foreclosures of homes owned by military families, after JPMorgan Chase & Co. said it overcharged 4,000 troops on their mortgages and improperly foreclosed on 14.
Chase said in a statement it will be mailing $2 million in refunds to homeowners, and that "while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here."
In Maryland, hundreds of foreclosure cases were flagged for review by courts after widespread documentation problems came to light. In those cases, foreclosure lawyers acknowledged in court papers that they allowed others to sign documents on their behalf — in violation of court rules.
While the long-term effect of foreclosure procedural problems is unclear, the short-term results are not. Servicers have hit the brakes on repossessions.
The rate of U.S. foreclosure cases turning into bank-owned property was half as high in October and November as it had been earlier in 2010, according to the most recent data analyzed by investment bank Barclays Capital.
"The decline is a direct result of foreclosure process-related issues, including robo-signing, that came to light in the fall," the researchers wrote, adding that they "expect this slowdown to persist for another few months."
Mike Morin, an Annapolis attorney who represents homeowners in foreclosure, said he has noticed a sea change in how Maryland judges are treating the documentation presented to them.
"Prior to all of this, the clear assumption of every judge in Maryland was that an affidavit submitted by an attorney, under oath that he himself had executed the affidavit, was something you could — forgive the phrase — take to the bank," he said. "With some [judges], it's now quite the opposite."