Risky Legal Strategy Wins Big for Maryland Homeowners

It was a bold legal strategy, and it proved enormously successful. As the result of what may the first-ever defensive class action ever filed in the U.S., GMAC Mortgage announced it will dismiss foreclosure lawsuits against homeowners in Maryland.

“This has never been done to our knowledge in the United States,” Tony DePastina, an attorney for Civil Justice, a consumer advocacy group in Baltimore, said of his legal tactic in a recent phone interview.

The lender in the case, GMAC Mortgage, had foreclosed upon homeowner Kevin Matthews. When Matthews contacted Civil Justice, the group’s attorneys read his foreclosure documents and saw a name they recognized: Jeffrey Stephan, a former GMAC employee who said in a deposition in December 2009 that he regularly signed 10,000 foreclosure documents a month. In most of those cases he never performed his actual job: checking to make sure that the documents in each foreclosure case were correct. Instead he just signed his name and skipped to the next case.

Since Stephan was involved in so many foreclosure cases, Civil Justice decided to try a kind of class action-in-reverse. Instead of suing GMAC for wrongly foreclosing on peoples’ houses, the group decided to try a class-action defense, filing the same arguments in many different cases: All foreclosures signed by Stephan were fraudulent and should be dismissed.

GMAC argued that class actions can only be used in offense, not defense, and asked the court to dismiss this novel strategy. The judge refused. GMAC backed down.

“They hired a very good attorney, and he could have litigated the hell out of these cases,” DePastina says. “He and GMAC chose not to.”

That’s not exactly how GMAC put it.

“We’re dismissing the cases but they will be re-filed,” Gina Proia, a spokeswoman for Ally, which owns GMAC Mortgage, said in e-mailed comments to reporters. “The intention is to re-file the cases to go through the new foreclosure procedures in Maryland.”

Many news reports have said the case will affect 250 homeowners. In fact, Civil Justice and GMAC don’t really know how many foreclosures Stephan signed in Maryland, DePastina says. It could be a few dozen, or maybe over 1,000.

Whatever the final number, anyone whose foreclosure was signed by Stephan, and whose house has been foreclosed upon but not yet sold at auction, will have their houses released from foreclosure. They get to start at square one, which in Maryland has changed since the passage last year of a new law requiring all foreclosures to go first to mediation to see whether the mortgage can be reworked to allow homeowners to keep their homes. Only if mediation fails can the foreclosure process begin again.

That’s a new step that applies only in Maryland. But Stephan signed documents foreclosing on houses in many other states, too. And many banks hired their own robosigners like Stephan to plow through documents without following the law.

DePastina hopes his class-action-in-reverse catches on in those states, too.

“I imagine that attorneys in other states will say, ‘Wait a minute, if they’re doing it in Maryland, why aren’t we doing it here?’” says DePastina. “Everybody’s supposed to play by the rules.”

Image © Ryan Stevenson