Judges in Pinellas-Pasco Circuit Court say they've never seen anything like the letters they've been receiving over the past few weeks from the South Florida foreclosure law firm of David J. Stern.
Referring to Florida Bar rules that say lawyers have a duty to disclose false evidence presented to the court, the letter said that unbeknownst to Stern's attorneys, previously submitted affidavits in foreclosure cases "may not have been properly verified" by the lender. But no worries: Substitute documents, this time "verified," would be forthcoming.
This highly unusual move — call it the affidavit two-step — is hitting foreclosure courts around the country as lenders try to regroup from revelations that employees never read or properly notarized critical loan documents that were processed at mind-boggling speed. Stern's client, Ally Financial Inc.'s GMAC Mortgage, has been among the first to do refilings. So far, the company said it has reviewed about 9,523 foreclosure files in 23 states. It declined to say how many of those cases had documents re-executed. "We have found no evidence of any inappropriate foreclosures related to the affidavit matter," said GMAC spokesman Jim Olecki.
JP Morgan Chase and Wells Fargo have said they will be refiling foreclosure affidavits soon. On Tuesday, a Bank of America representative told a Senate panel that it would be resubmitting papers in about 102,000 foreclosure cases after reviewing its document process.
Frequently seen among the questionable paperwork being replaced by the Stern law firm are affidavits by Jeffrey Stephan, a "limited signing officer" for GMAC in suburban Philadelphia. Stephan said in sworn depositions that he signed 10,000 foreclosure documents a month — about one per minute — claiming personal knowledge of each case, though he had none.
The legal system is trying to figure out how to respond to lenders' requests for do-overs while foreclosure cases continue to clog the courts. In Maine, a judge ruled that GMAC's submission of a Stephan affidavit amounted to "bad faith" and ordered the lender to pay the homeowner's attorney fees and costs.
Adding to the judge's ire was that a Florida court had sanctioned GMAC for the same kind of affidavit processing issues in May 2006, when it had promised to change its procedures. "It is well past the time for such practices to end," said Maine District Judge Keith A. Powers, who set the case for trial.
Ohio's attorney general filed a "friend-of-the-court" brief earlier this month in a case where a Stephan affidavit was basis for a court-ordered auction, since canceled. Attorneys general in all 50 states are investigating lenders on allegations of fraud in foreclosure filings. And Florida's attorney general has been investigating the activities of several lenders' law firms, including Stern's, which recently laid off about a third of its employees after giant lenders Fannie Mae and Freddie Mac cut ties to the firm. Stern's office did not respond to a request for comment.
In the Tampa Bay area, judges are urging homeowners, most of whom fail to appear in court for foreclosure hearings, to start challenging the revised affidavits, which usually attest to fees and delinquent payments owed.
"If no one is there to say the facts are not true, we're in a tough position," said J. Thomas McGrady, chief judge of Pinellas and Pasco courts. "We're not seeing in court situations where the defense is bringing up the falsity of affidavits. If we do, we'll rule accordingly."
Linda Burhans was unaware that GMAC filed a revised affidavit in her foreclosure case this month, replacing one by Stephan and raising the amount owed on her Seminole home from $143,000 to $163,000. Burhans, 57, said when she and her husband first fell behind on their payments last year, she tried unsuccessfully to negotiate a lower payment.
"No one would work with us and they kept charging us exorbitant fees, so I finally gave up," said Burhans, who has since separated from her husband and moved to an apartment. "Now I'm paying living expenses elsewhere when I still could be living in and maintaining my home."
Burhans, whose estranged husband remains in the couple's home, was surprised to learn her lender's lawyer said it may have filed a false affidavit in her case.
"They'd throw the book at me if I did that," she said.
Attorneys representing homeowners, like St. Petersburg's Matthew Weidner, wish the courts would do just that. "A case should be dismissed if fraud has been committed on the court," Weidner said. "At a minimum, cases should not go forward until there's some investigation."
But the filing of substitute affidavits doesn't appear to be slowing the process. In mid October, there were four summary judgment hearings in cases in which GMAC had amended "unverified" filings; in three cases, the judge moved forward and granted the lenders' request and scheduled the homes for sale this week. Only one home was saved from the auction block — at least temporarily. In that case, Weidner said he alerted the homeowner about the affidavit substitution. When she spoke up, her hearing was postponed.
McGrady, the chief judge, said the timing of when substitute affidavits are filed could determine their impact.
"If the affidavits differ and there's a contradiction in facts, that could prevent a summary judgment and then it would have to go to trial or it could be dismissed," McGrady said. "But if the case has already gone to summary judgment or sale, there could be a motion to vacate the judgment, then a hearing and we'll start all over again. There will be a problem where the house has already been purchased by a third party."
Weidner, the defense attorney, predicts problems with title issues if homes are foreclosed and resold based on robo-signed affidavits. "I talk to reporters from Canada and Australia and the world is looking at our foreclosure courtrooms," he said. "They're thinking maybe you don't want to buy property in the U.S."
Lisa and Dan Brave had been trying to postpone a foreclosure ruling on an investment property they owned in Gulfport while arranging a short sale. But in August, the judge ordered the house to go to auction Nov. 9. In mid October, however, the lawyer for the lender, J.P. Morgan Chase, filed a motion to cancel the sale. The motion, which was granted, was accompanied by a statement from Chase saying employees may have signed loan documents without personally reviewing them, as is required. Chase said it will begin "updating" affidavits soon; till then the lender has put all foreclosure actions on hold.
Tom Kelly, a Chase spokesman, said that of the lender's 127,000 foreclosure cases nationwide with questionable documents, 24,000 were in cases like the Braves' where the court has already decided in favor of the bank.
"The issue is not whether the borrower paid on the mortgage, it's a signature issue," Kelly said of the affidavits. "It's just that other employees of our company had reviewed those files. But now the person who reviews the file is also the signer."
Asked why this procedure wasn't followed in the past, Kelly said, "I don't know."
Times researcher Carolyn Edds contributed to this report. Kris Hundley can be reached at email@example.com or (727) 892-2996.