Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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And so it begins. In one of the state’s first lawsuits made by a distressed homeowner against a bank on the basis of alleged fraud during the foreclosure crisis, an Ohio man is out to get GMAC for knowingly presenting improperly-prepared paperwork in the process of his judicial foreclosure case. Yesterday, Michael Fox of Johnstown filed suit against GMAC Mortgage and Jeffrey Stephan, a bank employee who allegedly signed thousands of foreclosure affidavits without any actual knowledge of the cases therein. Stephan, who was deposed in January as part of a separate suit in Florida, admitted that during his tenure as a GMAC “robo-signer,” he signed off on around ten thousand foreclosures a month without once looking at the paperwork.

At present, several of the country’s biggest names in mortgages have frozen their in-progress foreclosures while a federal investigation of fraud in the foreclosure procedures of these lenders is being carried out. Most of these lenders have come forth and confessed that, in an attempt to cope with the unspeakable backlog of foreclosure cases jamming up the legal system in the twenty-three states that require a judicial foreclosure, they hired employees to quickly sign hundreds of thousands of foreclosure documents over the past two years. These employees never even read the court documents that they were supposed to be witnessing, many of which contained incorrect or incomplete information that couldn’t stand up to legal scrutiny. The attorneys general of all fifty states are currently working in conjunction on a joint investigation as to the full extent of this fraud and how foreclosure procedures will need to be amended so it does not happen again in the future.

Fox, whose twenty-two acre horse farm is mortgaged by GMAC, accuses the bank of having flouted the state’s Consumer Protection Sales Practices Act, in addition to having committed common law fraud and an abuse of process as well as civil conspiracy through the attempted foreclosure. In retribution, he is demanding twenty-five thousand dollars from GMAC in compensatory damages, an additional twenty-five thousand dollars in civil penalties, and what NPR described as “undetermined punitive damages that his attorney said will be 2 percent of GMAC’s 2009 gross revenue.” His suit was filed in the Common Pleas Court.

The crux of Fox’s complaint is the fact that Stephan was hired by GMAC and knowingly committed fraud by signing the paperwork without having read it, even in light of the fact that “these hundreds of affidavits would be filed in Ohio courts and relied upon by Ohio common pleas court judges in deciding whether one plaintiff in the particular case had a right to foreclose on Ohio residents.” GMAC, the suit concludes, should have been aware of that same fact and stopped committing the fraudulent acts. Stephan inked Fox’s foreclosure affidavit in January of last year.

Despite the fact that he was served with foreclosure paperwork in February 2009, Fox remains in his home since there has not yet been a final order issued upon the property, which would clear the way for a sheriff’s sale. Fox’s lawyer says that his client simply wants to remain in his home with his family. Fox’s mortgage is an example of those home loans that got bundled and batched so many times during the heyday of the housing boom that, although the proverbial music has stopped, nobody has yet figured out who’s left standing – attorney John Sherrod says that even GMAC doesn’t know who actually holds the promissory note on Fox’s home. Fox bought the property in 2006, during the final days of the real estate bubble.

Per robo-signer Stephan’s deposition in Florida at the beginning of this year, he executed foreclosure affidavits at the rate of about one per minute during his work days. He did not at any point in the signing off of a given file have a clue as to who owned the promissory notes in question. He did not sign the documents in a notary’s presence, as the forms claimed, nor did he expect any pertinent exhibits presented as proof in the cases. He never actually went so far as to read the full files.

Fox’s initial suit will not ensure that he stays in his home; that’s the motive of a second lawsuit that could potentially be filed to challenge the foreclosure itself, said Sherrod. It’s likely that the case could blossom into a class action filing, since it’s believed that many homeowners both within Ohio and throughout the country will be getting in on the pursuit of lenders after discovering how little attention was paid to the documents that could put them out of their homes. Sherrod says that he personally has ten other clients in the same county that will be filing suit within a week.
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