GMAC Drew `False Testimony’ Sanction Years Before Eviction Halt

Posted on September 28, 2010 by Neil Garfield

SERVICES YOU NEED

The sharks are circling. Industry practices for the past ten years have been based upon intentional misrepresentation. If their lips were moving, if they submitted a document, they were lying.

The lawyers, the banks and the individual people who signed any of these documents are in serious trouble along with those who witnessed and notarized their signatures. The people who prepared these documents face the worst consequences.

For those of you seeking payment of monetary damages remember that errors and commissions policies normally exclude intentional acts of fraud. So your claim should be based upon the gross negligence of the perpetrators rather than an intentional act if you want the insurance coverage. It’s not hard to allege that since they probably knew something was wrong but accepted assurances from people they trusted. Notaries and others involved in this process a re normally insured, at least up to a point.

AND the companies that employed them to notarize thousands of documents in blank are liable under a number of long-standing solid common-law theories of tort, breach of fiduciary obligation and other causes of action, many of which are covered by insurance as well.

GMAC Drew `False Testimony’ Sanction Years Before Eviction Halt
By Dakin Campbell and Lorraine Woellert – Sep 23, 2010 8:46 AM ET

Ally Said to Tell Freddie Mac of Faulty Foreclosures

Fannie Mae , the largest government-backed mortgage firm, said it notified lawyers of flaws in GMAC documentation after it was alerted. Photographer: Bradley C. Bower/Bloomberg

Ally Financial Inc.’s GMAC Mortgage unit, which suspended evictions in 23 states last week after finding employees didn’t verify foreclosure documents, was sanctioned in 2006 for similar practices, court records show.

GMAC gave “false testimony” when it justified foreclosures by submitting sworn affidavits signed by a mortgage executive who later said in a deposition she didn’t actually review the loan documents or sign in the presence of a notary, according to a 2006 court order filed in Duval County, Florida. In response to the sanctions, GMAC Mortgage directed employees to “read and fully understand” court documents before signing.

“Do not sign unless you have that comfort level,” said a policy directive from GMAC Mortgage’s James Barden, then- associate counsel for the legal staff. “It is the integrity of our cases that is at stake and we cannot afford anything less than full accuracy.”

GMAC Mortgage is facing new allegations in court documents that it evicted homeowners without verifying that borrowers actually defaulted or whether the firm had legal standing to seize the homes. Ally, the Detroit-based auto and home lender, said this week it found a “technical” deficiency in its foreclosure process allowing employees to sign documents without a notary present or with information they didn’t personally know was true.

Loan Industry

Ally declined to say how many loans may be affected. The firm, formerly known as GMAC Inc., ranked fourth among U.S. home-loan originators in the first six months of this year with $26 billion, and fifth among loan servicers, with a $349.1 billion portfolio, according to Inside Mortgage Finance, an industry newsletter. It’s also the beneficiary of more than $17 billion in U.S. bailout funds.

Servicers conduct billing and collections on mortgages, sometimes for other firms that actually own the loans, and handle foreclosures when borrowers default.

Gina Proia, a spokeswoman for Ally, confirmed that a policy directive was issued in 2006, “but we recently became aware of a breakdown in the process. The process has since been addressed and the prior practice is no longer taking place.”

Mark Paustenbach, a spokesman for the U.S. Treasury Department, which owns 56.3 percent of Ally, declined to comment. Kim Fennebresque, a director named by the Treasury to serve as an independent board member, didn’t return calls.

In a statement earlier this week, Proia said “the entire situation is unfortunate and regrettable and GMAC Mortgage is diligently working to resolve the situation,” and that “there was never any intent on the part of GMAC Mortgage to bypass court rules or procedures.” Florida was among the 23 states where evictions have been halted.

Verification

Lawyers defending borrowers have accused mortgage firms including GMAC and JPMorgan Chase & Co. of foreclosing on homeowners without making proper efforts to verify the accuracy of the documents. In foreclosure cases, companies typically file affidavits to start court proceedings. Affidavits are statements written and sworn in the presence of someone authorized to administer an oath, such as a notary public.

The 2006 case stems from a GMAC Mortgage foreclosure that began in August 2004 on a home owned by Robert and Lillian Jackson. The filing included an affidavit signed by a GMAC officer laying out the amount owed on the loan.

Florida Circuit Court Judge Bernard Nachman sanctioned GMAC in May 2006, saying that the company “submitted false testimony to the court in the form of affidavits of indebtedness.” The company was ordered to submit an explanation and confirmation that the policies were changed, and told to pay defendants’ legal costs of $8,135.55.

Legal Directive

GMAC’s legal department issued a statement afterward that told employees “not to sign verifications on court pleading documents unless you have independently reviewed and checked the facts.” The policy, distributed in June 2006, also stated in italics and boldface that employees should sign documents only in the presence of a notary. GMAC told the court four years ago that the policies were “being corrected.”

In December 2009, a GMAC Mortgage employee said in a deposition that his team of 13 people signed about 10,000 affidavits and other foreclosure documents a month without verifying their accuracy. The employee’s supervisor is the same executive sanctioned in the 2006 case.

GMAC’s internal review discovered the new discrepancies “a few months ago” and halted the practice, according to Proia’s statement earlier this week. Barden, who wrote the 2006 directive, and the two employees still work at GMAC, Proia said. Barden didn’t return a request for comment left on his work phone.

GMAC Impact

“They’re acting like this is a new problem,” said O. Max Gardner III, a bankruptcy attorney at Gardner & Gardner PLLC in Shelby, North Carolina, who isn’t directly involved in either GMAC case. “It’s the exact same thing,” Gardner said. “This is not just a GMAC problem. This is an industry-wide problem.”

Deborah Rhode, a Stanford University law professor and director of the school’s Center on the Legal Profession, said GMAC Mortgage’s behavior may amount to misleading the court.

“It’s not ‘technical’ when people attest under oath to knowledge they don’t have, and it doesn’t matter that in fact there isn’t actual error or discrepancy,” Rhode said. “Any court would take this very seriously.”

Judges could decide to dismiss the foreclosures, sanction the attorneys and company or levy a “substantial” financial penalty that would “get their attention,” she said.

The U.S. took control of Ally as part of a larger effort to prop up auto manufacturers. On a national level, regulators and lawmakers are trying to persuade bankers to avert foreclosures as seizures of homes by banks set records. Bank repossessions climbed 25 percent in August from a year earlier to 95,364, according to RealtyTrac Inc., the Irvine, California-based data provider.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editors responsible for this story: Alec McCabe at amccabe@bloomberg.net. Lawrence Roberts at lroberts13@bloomberg.net.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , | 20 Comments »

APPRAISAL FRAUD IN DETAIL

Posted on May 11, 2010 by Neil Garfield

APPRAISAL FRAUD IS THE ACT OF GIVING A RATING OR VALUE TO A HOME THAT IS WRONG — AND THE APPRAISER KNOWS IT IS WRONG. This can’t be performed in a vacuum because there are so many players who are involved. They ALL must be complicit in the deceit leading to the homeowner signing on the the bottom line and advancing his home as collateral on a loan which at the very beginning is theft of most of the value of the home. It’s like those credit cards they send to people who are financially challenged. $300 credit, no questions asked. And then you get a bill for $297 including fees and insurance. So you end up not with a credit line of $300, but a liability of $300 just for signing your name. It’s a game to the “lenders” because they are not using their own money.

And remember, the legal responsibility for the appraisal is directly with the appraiser, the appraisal company (which usually has errors and omissions insurance) and the named lender in your closing documents. The named “lender” is, according to Federal Law, required to verify the value of the property.

How many of them , if they were using their own money, would blithely accept a $300,000 appraisal on a home that was worth $200,000 last month and will be worth $200,000 next month? You are entitled to rely on the appraisal and the “verification” by the “lender” (see Truth in Lending Act and Reg Z). The whole reason the law is structured that way is because THEY know and YOU don’t. THEY have access to the information and YOU don’t. This is a complex transaction that THEY understand and YOU don’t.

A false appraisal steals money from you because you rely on it to make the deal for refinancing or for the purchase. You think the home is worth $300,000 and so you agree to buy a loan product that puts you in debt for $290,000. But the house is worth $200,000. You just lost $90,000 plus closing costs and a variety of other expenses, especially if you are moving into anew home that requires all kinds of additions like window treatments etc. But the “lender” who is really just a front for the Wall Street and the investor pool that funded the loan, made out like bandits. Yield spread premiums, extra fees, profits, rebates, kickbacks to the developer, the appraiser, the mortgage broker, the title agency, the closing agent, the real estate broker, trustee(s) the investment banking entities that were used in the securitization of your loan, amount in some cases to MORE THAN YOUR LOAN. No wonder they are so anxious to get your signature.

“Comparable” means reference to time, nearby geography, and physical attributes of the home and lot. Here are SOME of the more obvious indicators of appraisal fraud:

  1. Your home is worth 40% of the appraisal amount.
  2. The appraisal used add-ons from the developer that were marked up for the home buyer but which nobody in the secondary market will pay. That kitchen you paid an extra $10,000 for “extras” is included in your appraisal but has no value to anyone else. That’s not an appraisal and it isn’t collateral or fair market value.
  3. The homes in the immediate vicinity of your home were selling for less than your home appraisal when they had the same attributes.
  4. The homes in the immediate vicinity of your home were selling for less than your home appraisal just a few weeks or months before.
  5. The value of your home was significantly less just a  few weeks or months after the closing.
  6. You are underwater: this means you owe more on your obligation than your house is worth. Current estimates are that it might take 20 years or more for home prices to reach the level of mortgages, and that is WITH inflation.
  7. Negative amortization loans usually allow the principal to rise even above the falsely inflated appraisal amount. If that happened, then they knew at the time of the loan that even if the appraisal was not inflated, it still would not be worth the amount of the principal due on the obligation. For example, if your loan is $290,000 and the interest is $25,000 per year, but you were only required to pay $1,000 per month for the first three years, then your Principal was going up by $13,000 per year compounded. So that $300,000 appraisal doesn’t cover the $39,000+ that would be added to your principal balance. The balance at the end of 3 years will be over $330,000 on property APPRAISED at $300,000. No honest appraiser, mortgage broker, or lender, would be complicit in such an arrangement unless they were paid handsomely to do it and they had no risk because they were not using their own money for the loan.

Filed under: foreclosure | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 26 Comments »

Foreclosure Offense: You’re Up to Date — But Paying the Wrong Party?

Posted on August 2, 2008 by Neil Garfield

You could be up to date in all your payments. Your billing proves it. And yet, the person (Mr. Investor) who loaned you the money for your mortgage is not getting the payments. This person steps forward and says you owe all the payments from the date of the loan, including interest, late payments, late fees, attorney fees and costs.He’s saying you owe the money all over again. Ridiculous, right? Not so fast…..

So you say well, here is the notice I received as to where to make payments and you produce a copy. Here are my canceled checks and you produce a copy. You even took the time to write in the memo section the loan number and the month to be credited. In fact, you sent extra checks to prepay the mortgage.

So the true lender says he never received the money. And he says that the mortgage servicer you have been paying had no authority to collect those payments. And he mentions that if you made a prepayment, there is a penalty for doing that and so you owe still more money. And you say, how was I supposed to know that?

Good question, but the scenario might just play out that way. An investor might come forward and you might be able to successfully defend against prior payments that you made but which were not forwarded to him because you had no notice of the change in title of the loan — in legal language of the real holder in due course. But now here he is and produces all the proof necessary to show that he put up the money for the loan on your house.

So as to future payments, you definitely owe him, if the mortgage is valid. As to past payments he might have a claim against people who intercepted your payments and diverted them to the wrong SPV or asset backed security or maybe they just pocketed it for “fees.”

Now you get a lawyer who has read this blog or my upcoming book, Homeowner’s War, and says that you have valid defenses and can rescind the loan for fraudulent and deceptive lending practices, disclosure violations and common law fraud among other things. If the investor was unaware of the actions giving rise to your claims then you only have set off up to the amount due on the loan. The rest of your claim would be against the other people in the chain of securitization. If the investor DID know of the actions giving rise to your claims at the time he made his investment, then he is not a holder in due course either. Then there is the question of what happens if you know the investor is out there but he doesn’t step forward.

And this is the answer to the rhetoric about a windfall to borrowers. Your claim alleges no such thing. It just might end up that way because in the chaos and flood of money and documents during 2001-2008 nobody can find Mr. Investor, but that is not your fault and that doesn’t mean you owe the money to the current mortgage servicer.

Every payment you make might well be the subject of liability to the investor for the same payment. And every payment you don’t make might be completely covered by AMBAC, swap options, other insurance, or the reserve pool established in the SPV. If the holder in due course received the payments, there is no default. If there is no default, there is no basis for the foreclosure.

And if the Trustee posted a notice of sale knowing about the securitization of the loan, he breached his fiduciary duty to you. In fact, you ought to be writing to the Trustee asking who owns your note, mortgage or Deed of Trust, where you can in touch with him, it, or them, and where he is getting his instructions from and maybe ask for a copy of his authority so you can determine if he is answering to the correct party.

Then you might want to add that if the Trustee knew about all this and failed to share his knowledge with you, his knowledge might be attributed to you as your trustee or your agent, and that your payments to the mortgage servicer were therefore knowingly made (by legal definition) to the wrong party. Thus you would get no credit for them. So you would want to tell this Trustee that he should forward a copy of your letter to his errors and omissions insurance carrier because you are going to make a claim for any payments that were made to the wrong party. You might also want to mention that this is an obvious cloud on your title and that it is up to him to clear it up or pay for the entire costs of clearing your title.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: , , , , , , | 1 Comment »

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