LITTLE ROCK — Flawed foreclosure documents like those that led mortgage lender Ally Financial to halt evictions in 23 states this week are showing up in parts of the country previously thought to be unaffected, according to attorneys and consumer advocates.
Ally Financial has not called off evictions in the District of Columbia and the other 27 states, including Arkansas, none of which require a court order to initiate a foreclosure. And yet in those places, distressed borrowers, on the brink of losing their homes, are finding flawed and forged documents in their files and scrambling to challenge foreclosure proceedings.
Joan Cavanagh, who lives near Cape Cod, Mass., a state not included in Ally Financial’s moratorium, is to be evicted from her home in 30 days. Her documents were signed by Jeffrey Stephan, the Ally document processor who admitted that he approved 10,000 foreclosures a month but never read the files to see whether the proceedings were justified.
Until Ally’s announcement this week, Cavanagh said she did not understand why her documents had so many inconsistencies. Her file, for instance, was notarized after Stephan signed it, although the notary was supposed to witness the signing.
She said she initially did not fight the foreclosure case, but is now seeking a lawyer to file suit.
Ally, the nation’s fourthlargest home mortgage lender, said Monday that it would freeze evictions after discovering a “technical defect” in documents submitted for foreclosure proceedings. Attorneys for homeowners say Ally, formerly known as GMAC, was compelled to take such an extreme action because of Stephan’s admission, which was made in a sworn deposition.
The problems in the nation’s foreclosure system are much wider than those exposed at Ally. Court documents and interviews with lawyers and legal experts show that forged documents and faked signatures are common in foreclosure files.
In the 23 states where Ally froze evictions, the courts require the person signing off on foreclosures on behalf of a lender to have “personal knowledge” of the documents involved in the case, Ally spokesman James Olecki said Thursday. Once the company realized that its document signers did not, it had to replace the “defective affidavits” with new ones.
Olecki said this process should be completed by the end of the year. He declined to comment further about ongoing foreclosure cases in the rest of the states.
In states in which lenders do not need a court order, homeowners challenging foreclosure proceedings face an uphill battle. In those places, a bank needs only to file papers with a local court official after giving a borrower sufficient notice.
Business, Pages 32 on 09/25/2010