Illegal foreclosure documents may vindicate millions of borrowers

illegal foreclosure document

A foreclosure document processor at a major mortgage lender authorized the eviction of tens of thousands of homeowners without reading their files. Image: Thinkstock

Foreclosure documents processed by Ally Financial used to repossess homes and evict residents were submitted to courts without verifying their accuracy. A single Ally Financial employee said he signed off on as many as 10,000 foreclosure documents a week without reading them and without a notary present. The revelation led Ally Financial, the fourth-largest mortgage lender in the U.S., to suspend evictions of homeowners in 23 states. Other companies–including Fannie Mae and Freddie Mac–who used Ally Financial to process foreclosure documents may also be affected. The Ally Financial case could give millions of homeowners a stout legal leg to stand on for challenging foreclosure in court.

Foreclosure documents submitted without verification

Some of the nation’s largest mortgage lenders have been accused of foreclosing on families without verifying all the information in a case. The Washington Post reported that in sworn depositions involving families trying to keep their homes, Jeffrey Stephan, head of Ally’s foreclosure document processing team, neither read the documents or signed them in the presence of a notary as required. Stephan would sign up to 10,000 documents a month, which were bundled and sent off for notarization later. The Post said that at the rate Stephan was reviewing files, in an eight-hour day he would have spent an average of 1.5 minutes on each document. The documents were then used in court by law firms, sometimes called “foreclosure mills” to evict homeowners so the bank could sell their properties.

Mortgage lending abuses continue in the courts

Abuses by the mortgage lending industry that led to the housing crisis and foreclosure epidemic are still having an effect. The Wall Street Journal reports that the courts are struggling with complex paperwork on millions of mortgages that have been packaged, chopped up, scrambled and resold to investors as securities. The schemes have made it difficult for courts to identify who actually owns a mortgage. Foreclosure documents are intended to clarify that issue. In the case of Stephan, who has been called a “robo-signor,” and “affadavit slave,” the banks turning the homeowners out on the street don’t really know who owns the loan either.

A legal gift for foreclosed homeowners

Ally Financial’s illegal foreclosure documents may cast doubt over millions of foreclosures filed by Wall Street banks in the past few years. The issue could open the door for homeowners across the country to challenge foreclosure proceedings. Andy Kroll at Mother Jones writes that according to federal rules of civil procedure, affidavits like the kind Stephan was signing “must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated.” To abide by the law, Stephan had to read the documents in detail to know what they said. Before he signed them, he had to be familiar enough with their contents to defend them in court.

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