Lenders statewide may have to work harder to get their paperwork right in foreclosure cases after an N.C. Court of Appeals decision.
The court has ruled against a lender in a 2009 Hyde County foreclosure, saying the documents presented did not prove the lender was the legal holder of the homeowners’ promissory note to repay. The court’s decision stopped the foreclosure, at least for now.
The $525,000 home loan to Rex and Daniela Gilbert – like many mortgages in the nation in recent years – was passed among several lenders. N.C. law requires “that the party seeking to foreclose on a promissory note is the holder of said note….and the debtor is entitled to demand strict proof,” according to the 3-0 opinion written by Judge Robert Hunter.
The court found that two affidavits by GMAC Mortgage employees did not explain how the signers had knowledge of some testimony. One affidavit was signed by Jeffrey Stephan. The appeals court opinion noted GMAC “recently was found to have submitted a false affidavit…by signing officer Stephan” in U.S. District Court in Maine. His name also has been cited in reports about lenders whose workers robo-signed hundreds of documents without knowing what they contained.
The appeals court also found that the party wishing to foreclose on the Gilberts – “Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loan, Inc. Series 2006-QA6″ – was not the last lender named in the paperwork. The final lender on the promissory note was “Deutsche Bank Trust Company Americas as Trustee,” the opinion said.
Katherine Parker-Lowe of Ocracoke, the Gilberts’ attorney, said of the court opinion filed last week: “I think it’s a great day for homeowners.”
James Olecki, a spokesman for GMAC Mortgage that handled the lender’s foreclosure, said: “We disagree with the court’s ruling in this matter and feel strongly that we produced sufficient evidence that the foreclosing party was the holder of the promissory note…”
He said the foreclosure should have been allowed under N.C. law, and that the lender is reviewing its next steps.
Options include an appeal to the N.C. Supreme Court or initiating another foreclosure proceeding, legal experts say.
The Jeffrey Stephan name on one affidavit is among several at the center of a national robo-signing controversy connected with home mortgage failures.
Stephan, a team leader in GMAC’s foreclosure department, told a Florida court last year that he did not verify the accuracy of foreclosure documents he signed, according to court records. In the same deposition, he said his team presented him with about 10,000 documents a month to sign.
Jerry Hartzell, a Raleigh lawyer who consulted with the Gilberts’ attorney, applauded the appeals court “about how picky they’re getting with affidavits. That seems to be a consequence of the robo-signing stuff – about how mortgage servicers are swearing to things they don’t really know about. Who knows how many foreclosures that could affect?”
Now, mortgage servicers “can’t come and just say XYZ is owner and holder and in default,” Hartzell said. “They have to say, ‘Here’s how I know XYZ is the owner and holder of the note. I have personally seen the note with the endorsements in the file cabinet next door’ – or something like that.”
Mecklenburg Clerk of Superior Court Martha Curran says her office hears about 200 foreclosure cases each week. “I think with the volume we handle, we do the best we can to make sure (lenders) have properly notified the people they need to notify and their documents are in order,” she said Tuesday.
That afternoon, Curran said she expected a lender’s attorney to “submit probably a foot-high stack of paper. Do I think the hearing officer will read every line of that by 5 o’clock? No. You’re talking about a voluminous amount of paperwork. But once you get familiar, there are certain things you look at. And when someone shows up and raises issues, you look harder.”
She sees the ruling as a strict application of existing law, a message from the courts to “get it right, get it right.” The N.C. attorney general’s office “is carefully reviewing” the Gilbert case, said a spokesman. “It’s a significant issue.”
Millions of U.S. home loans in recent years have been sold and resold among lenders and investors. It’s often difficult for homeowners to know who holds the mortgage on their property, or who to contact if they face the threat of foreclosure.
In addition, U.S. Senate hearings last fall focused on mistaken foreclosure efforts against homeowners who had paid their mortgages on time. Owners in Florida, Nevada, Texas and Pennsylvania have filed lawsuits alleging they were victims of mistaken foreclosure. In many cases, the bank went so far as to haul away belongings and change the locks on the wrong homes.