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Ohio Files Wrongful Foreclosure Lawsuit

Oct 7, 2010 | Parker Waichman LLP
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The Ohio attorney general has filed suit against Ally Financial, the parent of GMAC Mortgage, for wrongful foreclosures. According to a report from The Washington Post, the lawsuit could be the first of many against the large home loan lenders whose foreclosure procedures have been recently called into question.

GMAC, along with JP Morgan Chase and Bank of America, have all delayed foreclosure proceedings in 23 states where home seizures require a court order. The action came after it was learned that the lenders employed people who could sign foreclosure affidavits so quickly they popularized a new term for them: “robo-signer.” In depositions taken by lawyers for embattled homeowners, the robo-signers said they or their team had signed 10,000 or more foreclosure affidavits a month. Those affidavits say the preparer personally reviewed the files, but in their depositions, the workers acknowledge they had no time to actually do that. In some cases, the affidavits weren’t properly notarized.

Meanwhile, Fannie Mae, the government-created mortgage finance agency that helps people buy homes, is directing its servicers to review their foreclosure processes to make sure their affidavits are properly reviewed and signed.

The revelations by the lenders could provide an opening for homeowners in default to contest their foreclosures. If foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.

Attorneys general in several states have already opened investigations into wrongful foreclosures. In announcing his lawsuit, Ohio Attorney General Richard Cordray alleged that the fraud disclosed so far was the “tip of an iceberg of industrywide abuse of the foreclosure process.” His lawsuit asks for civil penalties of up to $25,000 for each violation of consumer laws and for Ally to pay back losses to homeowners. He also wants the lender to freeze foreclosures in the state.

Cordray also told Bloomberg News that other attorneys general will be filing similar lawsuits.

“You’re going to see a tremendous amount of activity with all the AGs in the U.S.,” says Ohio Attorney General Richard Cordray, who has sued Ally over foreclosures. “We have a high degree of skepticism that the corners that were cut are truly legal.”

It’s also likely that homeowners who were victims of wrongful foreclosures will file their own lawsuits.

In a related matter, some homeowner advocates are warning that a bill currently on President Obama’s desk awaiting his signature could make it more difficult to challenge wrongful foreclosures. The bill, which according to Reuters made it through Congress without any debate, requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents.

The fact that the bill was passed just as the recent foreclosure problems came to light has raised eyebrows. Ohio Secretary of State Jennifer Brunner told Reuters the timing of the bill’s passage was “suspicious,” and suggested that mortgage companies might have engaged in behind-the-scenes lobbying.

The Obama administration said it is reviewing the bill, but has not indicated if the President will sign it.

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