Ally Financial Suspends Some Foreclosures

[Joseph Burkeson, CMI]

Big news here in Florida!

Ally Financial Suspends Some Foreclosures

GMAC Mortgage, one of the nation's largest servicers of home loans, said it is suspending sales of foreclosed homes and putting a moratorium on evictions of borrowers who have fallen behind on their mortgages in 23 states.

The company, a unit of Ally Financial Inc., which is majority-owned by the U.S. government, said the suspensions are intended to give it time to review its foreclosure procedures. The company declined to elaborate, but the actions come one week after several Florida law firms representing lenders in GMAC-related foreclosures withdrew their cases against borrowers, an indication that they believe the foreclosures were mishandled by GMAC.

In states that have so-called judicial foreclosure laws, banks must file a summary judgment motion in order to take possession of a property where the owner is in default on the loan. These motions must be supported by a "witness" who has reviewed the file in question and made sure the lender actually owns the mortgage note in question, and that the loan is actually in default.

According to a sworn deposition given in June, GMAC employee Jeffrey Stephan, who was described as a foreclosure specialist working in a GMAC office in Pennsylvania, said he signed off on hundreds of these legal documents per day without examining the documents associated with the case, which sometimes included loan documents and other verifications.

One of the hallmarks of the foreclosure crisis has been the court's inability to deal with the complex paperwork that comes with mortgages that have been packaged, sliced and diced and resold to investors as securities. The securitization process has made it difficult to identify who actually owns a mortgage. Some troubled borrowers have tried to use these quirks to argue that mortgage servicing companies don't have standing to foreclose on them because they can't prove that they actually own the mortgage.

"This is a legal reaction [that] underlies a much bigger problem" facing GMAC and the mortgage-servicing industry, said Christopher Whalen, managing director for Institutional Risk Analytics. "Banks don't know who owns the loan. That wasn't ever an issue because collateral values kept going up."

"The whole property system depends on courts doing their job right. When you start cutting corners, you're going to run into problems," said Mr. Whalen.

Mr. Whalen said lawyers who have provided misleading information to courts could face criminal charges, including jail time.

The result of GMAC's actions are likely to further slow down already exaggerated foreclosures timelines, he said, and they could prompt homeowners become more aggressive in taking legal action to stop foreclosures.

Meanwhile, the office of Florida's Attorney General has opened an investigation into at least four large law firms that process foreclosure actions, including Florida Default Law Group, a Tampa, Fla., firm that the attorney general said "appears to be fabricating and/or presenting false and misleading documents in foreclosure cases."

[Michael Larson]

That is going to be messy beyond belief.


They must prove ownership of the title/deed and it appears the paperwork was not in order.

[Joseph Burkeson, CMI]

In Florida and maybe in other places...

The MERS Conveyance

The heart of your mortgage – the most important clause in the entire document – is the “Transfer of Rights in the Property” clause. This is the language that creates the lender’s security interest backing the loan – it’s the sentence that allows them to foreclose if the borrower doesn’t pay.

But many Florida mortgages contain a bizarre twist – the mortgage conveyance does not go to the lender – whoever made the loan – but to another entity known as “MERS.” This strange construction – where the loan goes one way and the mortgage goes another – runs against real estate law that has existed for hundreds of years and may have serious consequences for anyone trying to enforce that mortgage.

[John Onofrey]

Oops the banks F'ed up. Time for another bailout.