Ally/GMAC Legal Issues Could Affect Thousands of Foreclosures

Possibly you’ve seen the reports from the last couple of days that Ally Financial’s mortgage unit, GMAC Mortgage, was suspending foreclosure and eviction proceedings in 23 states.  The news was originally reported in Bloomberg on Monday.  The report was later denied by GMAC.  I did not report on it in this space because I didn’t really have a lot to add to the story, nor was I sure what the real story was.  Bloomberg is typically a very reliable source and it was surprising to me that they might’ve had something like this incorrect.

It turns out there is a lot more to the story.  An article from this morning’s Washington Post by Ariana Eunjung Cha illuminates the matter a little further.  What transpired is fairly unbelievable, so rather than put it into my own words, I will excerpt the critical part of the story.

“As head of Ally’s foreclosure document processing team, 41-year-old Jeffrey Stephan was required to review cases to make sure the proceedings were legally justified and the information was accurate. He was also required to sign the documents in the presence of a notary.

In a sworn deposition, he testified that he did neither.

The reason may be the sheer volume of the documents he had to hand-sign: 10,000 a month. Stephan had been at that job for five years”.

The issue goes beyond just Ally and GMAC Mortgage.  The article says that “hundreds” of mortgage companies, including Fannie Mae and Freddie Mac also used Ally to service at least some portion of their loans.  It is not entirely clear how this will affect foreclosure  proceedings across the country.  The impact of this error could be large or relatively minor, and will likely take a long time to be hashed out by the courts, and may be decided on a state-by-state basis as foreclosure laws vary by state.  I am not a lawyer so I do not wish to speculate, but there is an excellent breakdown of some of the possible fallout that was posted on Nakedcapitalism yesterday.  Both it and the Washington Post article are worth reading.

It seems nearly inconceivable to me that an error of this magnitude was allowed to occur.  The idea that one person was required to verify and sign 10,000 documents a month is patently absurd, and I do not buy for one minute that nobody else knew these foreclosure documents were essentially getting rubber-stamped.  It will be very interesting to see what the ramifications of this situation will be.

Thoughts?  Comments?  Questions?  Let me know in the comments section below.