The GMAC fiasco

By Felix Salmon
September 21, 2010
Yves Smith has been doing a fabulous job covering the latest fiasco at Ally Financial, the state-owned bank which used to be called GMAC.

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Yves Smith has been doing a fabulous job covering the latest fiasco at Ally Financial, the state-owned bank which used to be called GMAC. But to get a quick idea of how dysfunctional the situation is, all you need to do first is read the official GMAC memo to its agents in 23 states around the country, and then read the official GMAC press release on the subject.

The memo could hardly be any clearer. “Do not proceed with evictions, cash for keys transactions, or lockouts,” it says. “All files should be placed on hold, regardless of occupant type. Do not proceed with REO sale closings.”

Yet here’s how the press release begins:

Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.

There’s no good reason for this kind of misdirection and mendacity. Ally is meant to be the friendly, transparent bank; instead, at the first sign of trouble, it retreats into Clintonian language (didja spot that “new” in the press release?) which only serves to reinforce the impression that no banks, including Ally, can ever be trusted.

The substantive problem here seems to be a series of affidavits — tens of thousands of them — signed by Jeffrey Stephan of GMAC Mortgage/Homecomings Financial. The states where GMAC has put its evictions on hold are the ones where you need to go to court to get an eviction. And when you go to court, you need to provide an affidavit signed by someone with personal knowledge of the case in question. Stephan, it seems, had no such personal knowledge: rather, he was something of a “robo-signer”, who would put his name to affidavits without even reading them.

As Smith details, this problem is just as likely to get much bigger as it is to quietly get sorted out in the coming weeks. GMAC was not the only mortgage lender using robo-signers. And during the housing boom, all manner of legal corners were cut when mortgages were written, which can make them very hard to legally enforce.

And although the GMAC moratorium is so far only in 23 states (including Florida, but excluding California), the legal issues are surely substantively the same in the 27 other states as well. Just because you don’t need to go to court to get an eviction doesn’t mean you can toss someone out of their home without your legal i’s dotted and t’s crossed.

All of this is complicated, too, by the fact that the US Treasury owns 56.3% of Ally. At most banks, it’s generally assumed that the shareholders just want to see the maximum possible returns, over the long run. That’s not a safe assumption, however, when your shareholder is Treasury, which has been ploughing billions of dollars into schemes designed to prevent evictions.

It would be wonderful if GMAC could take the high road here, and act with full transparency in a manner consistent with the best possible practices that Treasury would like to see in the mortgage market. Judging by its press release, there’s not much indication that’s happening yet. But maybe a couple of phone calls from Washington might change its mind. I wonder how Elizabeth Warren is settling in to her new job.

10 comments

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Felix,

I’m a corporate bankruptcy attorney – I’ve never done a home foreclosure, but I’m familiar with the process from business foreclosures. I’m not going to defend what Mr. Stephan did at all – knowingly filing a false affidavit is perjury, after all. I wouldn’t be surprised if there are other problems at Ally.

However, I do want to clarify that you’re only half right when you say that “the legal issues are surely substantively the same in the 27 other states as well.”

In the foreclosure states, the lender has to prove to a judge’s satisfaction that the loan is in default and foreclosure is proper. That proof is subject to the rules of evidence, which practically means it has to be in the form of an affidavit by someone with personal (rather than hearsay) knowledge. After all, your computers can’t testify.

In the power of sale states, the lender may not foreclose unless they can show there was a default. However, they’re proving it to themselves in a contract dispute, not proving it to a judge in a lawsuit, so they don’t need to follow the rules of evidence, and don’t need an affidavit. (This is the same reason why Reuters could fire you without a trial, unless there’s a contract stating otherwise).

Posted by AnonymousChef | Report as abusive

I tried buying a house from GMAC in a short sale last year. We spent more than three months in contract. And I spent the last month of this period on the phone with GMAC to get them to at least tell us what was holding them back. The short sale was something like $15k for a $400k house in Long Island. And we had the mortgage commitment done already.

GMAC waited for the day before the contract expired to reject our offer. The reason they gave us was that the seller failed to provide some form 90045.

This process showed that GMAC had nothing in place to properly handle short sales. We never had anyone on the phone who could do anything more than read a computer screen. Pretty aggravating.

Posted by MatNYC | Report as abusive

“which only serves to reinforce the impression that no banks, including Ally, can ever be trusted”

No kidding! Pretty obvious.

I wish Geithner and Summers had done the right thing and forced each of those bankrupt banks into bankruptcy.

Regards,
http://blog.mdwoptions.com/

Posted by MarkWolfinger | Report as abusive

Where I come from, you can be disbarred for knowingly and repeatedly violating the personal knowledge rule.

Posted by MaggiesFarmboy | Report as abusive

Felix,

I am the individual that reported on these affidavits last week on my blog that I believe started this “Fiasco”…

See…

http://4closurefraud.org/2010/09/14/what -what-re-jeffrey-stephan-of-gmac-florida -default-law-group-admits-to-violation-o f-professional-conduct-code/

The Foreclosure Mills here in Florida are pulling thousands of affidavits from multiple “robo-signers” because of this. (I can provide the notices)

I just followed up with a post on a deposition RE Beth Cottrell Robo-signer for Chase in where she states, and I Quote…

Q. So if you didn’t review any books, records, and documents or computerized records, how is it that you had personal knowledge of all the matters contained therein?

A. Well, I have personal knowledge that my staff has personal knowledge. That is our process.

See Cottrell depo here…

http://4closurefraud.org/2010/09/21/gmac -you-aint-the-only-one-full-deposition-o f-beth-cottrell-chase-home-finance-robo- signer-extraordinaire/

Hearing on motion for sanctions and dismissal of Cottrell case set for next month and can provide motion if interested…

So, the moral to the story is this isn’t only a GMAC issue, it is happening across the board.

This is just the tip of the iceberg.

Michael
4closureFraud.org

Posted by 4closureFraud | Report as abusive

Felix,
My wife and I are currently in the process of trying to purchase a GMAC REO property. My attorney has been repeatedly amazed at the incompetence evident in our interactions with GMAC and their representatives. They have asked for an extension in closing on a property that is losing value by the minute. Their ‘procedural oversights’ may be minor but this is obviously an institution that is way over their heads. But should we expect any less from a financial institution started by GM?

Posted by hankC | Report as abusive

Thanks for this post.

NPR’s financial program called “Planet Money” has barely touched this story. Wonder why? Here’s what I think. Ally Financial (Ally Bank, GMAC Mortgage, LLC) is the SOLE CORPORATE SPONSOR for the Planet Money program. So much for public radio and transparency right? I mean, you can count on NPR to parrot WaPo, right?

http://www.washingtonpost.com/wp-dyn/con tent/article/2010/09/20/AR2010092006193. html

Posted by DonQP | Report as abusive

We’ll see some attorneys go to jail over this nonsense regarding documentation in FL and elsewhere. But don’t believe that the only reason for GMAC’s action were legal issues regarding perfection of collateral liens. See our comment on the operation issues facing GMAC and other legacy securitization shops. And don’t forget the link with GMAC to Bear Stearns, which is now JPM’s problema… Chris

http://tinyurl.com/29wywsm

Posted by rcwhalen | Report as abusive

NC is also one of the states where a full stop occurred. BUT NC is not a judicial foreclosure state. Folks here attribute the work of our DOJ, Comm. of Banks, Legal Aid, Center for Responsible Lending and other fair housing advocates to why NC was included. Just wanted to highlight the good work of good people.

Posted by clbemail | Report as abusive

I arrived here one year later via links in current stories. Nothing has changed

rowhalen posted on Sept 23, 1010 “We’ll see some attorneys go to jail over this nonsense regarding documentation in FL and elsewhere”

I would have thought so too. Today, even Florida’s “Foreclosure Baron,” David J. Stern appears untouchable. This says it all:

“And yet, despite all this David Stern walks around as a member in good standing of the Florida Bar, even today. Not a blemish. Ignore everything else about this train wreck….just consider how many millions in taxpayer dollars were spent with judges and courts trying to unsort the mess he caused when he walked away. And Pam Bondi….what about the millions spent investigating all this and still nothing…..our state, a state of corruption.”
Matt Weidner, 10:26 AM, 9/24/2011 orig posted here http://www.palmbeachpost.com/money/forec losures/fannie-mae-ignored-robo-signing- abuses-in-florida-1876292.html#comment-1 876997

Posted by KSinCFL | Report as abusive