No, mortgage companies aren’t embracing futuristic robot technology. Instead, the public is just beginning to learn about a time-honored industry practice that just might invalidate tens of thousands of foreclosures around the country.
Last Wednesday, a company called Ally Financial quietly ordered its agents in 23 states to halt any sales, evictions, cash-for-keys deals, and other foreclosure transactions. According to a two-page memo obtained by Bloomberg News, the company was considering “corrective action in connection with some foreclosures” in the affected states, which include foreclosure hotspots like Florida and Ohio.
Beneath Ally’s smooth technical language lies a troubling revelation with potentially disastrous implications for the massive industry that has grown up around the foreclosure crisis. According to the Washington Post, the Wall Street Journal, and others, Ally used to be GMAC Mortgage, an entity that received three federal bailouts totaling more than $17 billion since 2008. After rebranding as Ally, Inc., the company began servicing mortgages for some of the nation’s largest lenders. In the wake of the housing crash, a great deal of Ally’s business involves executing foreclosures—in other words, verifying and signing the affidavits that judges rely on to determine whether a lender can seize a home. And as the market continues to spiral out of control, homeowners’ losses are Ally’s gain: the more foreclosures out there to process, the more fees it and other companies can rack up. And now it looks like good old-fashioned greed may call tens of thousands of foreclosures into question.
According to the deposition of Jeffrey Stephan, an Ally employee based out of Montgomery County, Pennsylvania, he signed 10,000 of these affidavits every month. That’s about one legal document to read, verify, and sign for every minute of a 40-hour work week. So, is Mr. Stephan some kind of foreclosing Superman? Hardly. By his own sworn testimony, he simply didn’t read most of the documents that he signed. Not only is this an obvious breach of professional responsibility, it’s a violation of the Rules of Civil Procedure familiar to every first-year law student and echoed by most state laws. By signing an affidavit, Stephan was promising that he had personal knowledge of its contents, and would be comfortable testifying to its contents in a court of law. In fact, Stephan admitted that the flood of documents was so massive that he just assumed the contents were correct before affixing his signature and moving on to the next one, each affidavit corresponding to another foreclosure and eviction. Nor is he simply one bad apple: experts say that the industry is full of Jeffrey Stephans, employees whose jobs consist of mechanically signing thousands of legal documents in order to keep the foreclosure machine humming. They’re so common that critics have given them a name: robo-signers.
Now that the Ally story has come to light, the lender and other robo-signing giants may be forced to clean up their acts. The attorneys general of Texas, Iowa, Illinois, Florida, and Connecticut have initiated investigations into Ally. Fannie Mae and Freddie Mac have halted the foreclosure evictions they believe may be related to Stephans’s office. But the problem is almost certainly bigger than one company. Said one Florida foreclosure defense attorney, “They’ve made a mockery of the legal system [and] this is just the tip of the iceberg. They all do it. They all do it all the time.”
– Geraldine Doetzer, Housing Staff Attorney