GMAC’s ‘Robo-Signer’ Opens Legal Avalanche for Lenders

GMAC’s robo-signer Jeffrey Stephan, who allegedly signed 10,000 affidavits tied to mortgages facing foreclosure every month, is about to have his 15minutes of infamy.

This week, Ally Financial Inc., the Detroit-based parent company of GMAC Mortgage, one of the nation’s largest auto and loan servicers, halted foreclosures in 23 states due to questions about thousands of documents signed by Stephan.

A picture is now emerging that so-called robo-signers like Stephan — and others nationwide — are mishandling thousands of foreclosure affidavits that critics say are just as flawed as the lax lending standards that created the mortgage crisis.

In sworn depositions in December and June, Stephan testified that he signed as many as 500 documents a day from GMAC’s office in Fort Washington, Pa., without personal knowledge of the cases on his desk. He said he regularly signed off on thousands of foreclosure affidavits without ever personally reviewing the files associated with the actual loans.

Now, lenders like GMAC are withdrawing the affidavits signed by Stephan, ending hundreds of foreclosures in Florida, Maine, Texas and other judicial foreclosure states.

On Monday, Bloomberg News broke the story that GMAC was halting evictions, cash-for-key transactions and suspending sales of GMAC-owned properties in the 23 states.

GMAC, which was owned by General Motors at the time, specialized in subprime loans during days of the real estate boom. Now the company is saying it will continue the suspension on foreclosure proceedings for at least a few weeks or perhaps until the end of the year.

Currently the moratorium is being carried out in Florida, Connecticut, Illinois, New Jersey, New York and 18 other states, mostly in the Midwest and East Coast. All of the affected states utilize the judicial foreclosures, where courts control the foreclosure process between defaulting borrowers and their lenders.

GMAC, which received billions of dollars in government aid, is concerned about its potential liability for evicting families and selling houses to which it does not have clear title. The federal government is Ally’s majority owner following a $17 billion taxpayer bailout.

GMAC has recently come under fire in Florida’s courts, according to the St. Petersburg Times. Lawyers defending mortgage borrowers have accused GMAC and other lenders, loan servicers and law firms, of foreclosing on homeowners without first verifying that they own the loans they are foreclosing on.

In addition, Florida’s attorney general, William McCollum, is investigating the state’s three largest foreclosure law firms that represent lenders and loan servicers for unfair and deceptive practices, the New York Times reports. The law firms are alleged to have submitted fraudulent documents to the courts. The three “foreclosure mills” — the Law Offices of Marshall C. Watson, in Fort Lauderdale; Shapiro & Fishman, in Tampa; and the Law Offices of David J. Stern, in Tampa — handle about 80 percent of the foreclosure cases in the state.

The Wall Street Journal says the allegations that Stephan and other robo-signers are working for assembly-line foreclosure mills could have wide-ranging repercussions for the mortgage industry.

Florida defense attorney Matt Weidner believes this is a huge story that will throw a gigantic monkey wrench into judicial foreclosures.

What do you think?

Are lenders like GMAC recklessly mass-producing foreclosures for financial gain?

Or are they simply protecting their legal right through the courts?