GMAC Mortgage Corp., a unit of Ally Financial Inc., told a Maryland court on Friday that it would dismiss around 250 pending foreclosures in the state to avoid a potentially lengthy class action lawsuit.
The bulk dismissals allow the bank to restart foreclosure proceedings without the threat of litigation and title disputes. But they could lead to delays because Maryland has stepped up scrutiny of banks' foreclosure filings in recent months, and the state last year began requiring banks to conduct mediation with delinquent borrowers in a bid to avert foreclosures.
A spokeswoman for GMAC says that the company had already begun dismissing and re-filing all Maryland foreclosure filings signed by Jeffrey Stephan, a back-office employee who had admitted under oath to signing documents without first reviewing them.
"The process to file for dismissal has been well under way," said Gina Proia, the company spokeswoman.
GMAC initiated the policy to dismiss Maryland foreclosures in November at the same time that attorneys for Kevin J. Matthews, a Baltimore homeowner facing foreclosure by GMAC, initiated proceedings to begin a class action lawsuit for all borrowers in foreclosure that had foreclosure paperwork signed by Mr. Stephan.
In other states, GMAC has moved to swap out improper affidavits and replace them with new ones instead of voiding foreclosures and re-filing them, which can be more expensive and time-consuming. Lawyers for Mr. Matthews credited the threat of a class-action lawsuit with GMAC's decision to handle foreclosure filings differently in Maryland.
Anthony DePastina, a lawyer at Civil Justice, the Baltimore legal nonprofit that represented Mr. Matthews, says he's already heard from dozens of lawyers interested in mounting similar class-action challenges in other states. "This could lead to a cascade event," he said. "The banks are going to be faced with either deciding to step up to the plate and dismiss their actions across the board or fight" additional lawsuits.
The action represents the latest fallout from the mortgage industry's use of so-called "robo-signers" and illustrates the risk to banks that their sloppy paperwork invites further lawsuits, slowing the foreclosure process.
GMAC isn't allowed to pass along the cost of foreclosure delays onto delinquent homeowners. The agreement doesn't necessarily resolve potential problems with properties that have already gone through the foreclosure process, including those that may have been sold to third parties.
Maryland doesn't require banks to conduct foreclosure proceedings through courts, but unlike other non-judicial states, Maryland requires banks to go back to court and confirm completed foreclosure sales. The state also makes it easier for homeowners to challenge those foreclosures in court before the property is sold.
A separate suit was filed in November on behalf of homeowners with loans signed by a Wells Fargo & Co. employee, and a hearing is set for next month. A spokeswoman for Wells Fargo had no immediate comment.
