The firestorm is still raging over revelations that loan-servicing companies employed "robo-signers" to churn out affidavits used to foreclose on massive numbers of homes. The controversy has managed to shut down foreclosures by at least four major lenders (the banks may think the storm is raining something other than fire), and, as we've already written, it has set all 50 state attorneys general and the plaintiffs bar on the warpath.
But while the full extent of the fallout for banks, loan servicers and homeowners is not yet known, the origins of the robo-signing controversy are becoming clearer. As readers of The New York Times learned in a front-page story on Friday, the allegations that lenders engaged in questionable practices began to crystallize after a mostly retired lawyer in Maine, Thomas Cox, deposed a GMAC Mortgage employee in June in a foreclosure case for a Portland nonprofit called Pine Tree Legal Assistance.
The deposed employee, Jeffrey Stephan, admitted that he signed 400 affidavits a day for GMAC without ever reviewing the underlying loan documents or having them properly notarized. That testimony eventually led GMAC (now Ally Financial) to halt mortgage foreclosures in 23 states, and the robo-signing scandal was born. (The ABA Journal and others picked up on Cox's role last month. Click here for a Washington Post report on Stephan's work for GMAC.)
On Friday, we talked with Cox about helping to uncover the robo-signing mess and about winding up on the front page of the Times. The transcript has been edited for length and clarity.
Can you describe your background as a lawyer before you retired and began volunteering with Pine Tree?
I've always been a litigator. But in the late '80s and early '90s, when we had a different kind of banking crisis, one of my bank clients, Maine National Bank, was closed by the FDIC. I ended up working for the successor interim bank and for the FDIC itself trying to call in the demand loans that Maine National Bank had made. A lot of those demand loans had been guaranteed and secured by the owners of the businesses involved, and the mortgages were all on their homes.
Maine's a small state, and Portland's a small community. Most of us know each other. And I had actually helped the bank make the loans to a number of the businesses that were impacted by that bank closure. So I knew, on a first-name basis, a lot of the business owners whose property I ended up going after later on. A lot of them were perfectly fine small businesses, but because the FDIC model is to call in the loans immediately, it put these business owners and their homes in major jeopardy. And it was a difficult, challenging, unpleasant experience. It was not a feel-good time.
What first raised your suspicions in the foreclosure case of Nicolle Bradbury the Times described?
I saw a couple of GMAC cases that came across my desk that that had affidavits by this fellow Jeffrey Stephan. Two things jumped off the page. In the first place, the lawyers who prepared the affidavits left blank what the name and title was of the person who was going to sign them. And then Stephan had a rubber stamp, and he put a stamp in with his name on it, and then in the title he stamped 'limited signing officer.' That combination of factors led me to a real strong suspicion that he really didn't know anything, that he was just a paper signer. And it also led me to have a high level of doubt about whether the lawyer preparing that affidavit had done any due diligence or verified that the guy he was getting the affidavit back from was a competent witness to present admissible evidence on a summary judgment motion.
What was it like deposing Jeffrey Stephan?
I went down there expecting to have a real battle on my hands to get him to admit what I thought was going on. It actually came out very candidly -- it was quite a surprise.
Did you get a sense that Stephan understood why his actions might cause problems?
He never said it. But I couldn't walk away believing that he didn't know that what he was doing was wrong. When you get a piece of paper that's saying you're speaking from personal knowledge, and you're not even reading it, and when you've got a piece of paper in front of you that's got a notarization form at the bottom saying that you personally appeared before a notary, and you really didn't -- he had to know what was going on. He had to.
Did you have any idea of the extent of the robo-signing problem before it became national news?
This is just a confluence of events that's making this come out right now. This has been going on at least since my early involvement in 2008. There's just enough momentum now across the whole industry. But this does not surprise me at all to see problems with the other servicers.
What's it been like getting to be in the center of this crazy story?
I'd like to go back into the previous pattern where for most of my career I ducked the press. I'm looking forward to going back into that mode real soon, but it seemed like this was a story worth keeping out there.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
