GMAC SUSPENDS FORECLOSURE OPERATIONS - JUDGMENTS MAY BE VOIDABLE

The Palm Beach Post reported today that GMAC has suspended all pending foreclosures nationwide because of a practice uncovered in Florida that could lead to VOIDABLE foreclosure judgments - thus creating havoc with foreclosure sales and REO sales.  The article, GMAC Suspends Foreclosure Evictions and Sales of Seized Property, cites the deposition taken by a Palm Beach County law firm that exposed the practice of affidavits regarding the verification of accuracy of a complaint and information about the loan being summarily signed in conveyor belt fashion. In the affidavits the signor is saying he or she has personal knowledge of the facts in the affidavit. The deposition showed that in fact such statements were untrue.

This creates a huge problem.  If there is a fraud on the court (the court is asked to consider these affidavits in making a judicial review as part of having that judge issue a foreclosure judgment), then the judgment can be reversed. Essentially the judgment is "voidable".

There is no statute of limitations on the voidablity of a judgment because of fraud on the court.  Wikipedia has a basic and accurate statement on this issue:

In the U.S., when an officer of the court is found to have fraudulently presented facts to court so that the court is impaired in the impartial performance of its legal task, the act, known as "fraud upon the court", is a crime deemed so severe and fundamentally opposed to the operation of justice that it is not subject to any statute of limitation.

Officers of the court include: Lawyers, Judges, Referees, and those appointed; Guardian Ad Litem, Parenting Time Expeditors, Mediators, Rule 114 Neutrals, Evaluators, Administrators, special appointees, and any others whose influence are part of the judicial mechanism.

"Fraud upon the court" has been defined by the 7th Circuit Court of Appeals to "embrace that species of fraud which does, or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery can not perform in the usual manner its impartial task of adjudging cases that are presented for adjudication." Kenner v. C.I.R., 387 F.3d 689 (1968); 7 Moore's Federal Practice, 2d ed., p. 512, ¶ 60.23

In Bulloch v. United States, 763 F.2d 1115, 1121 (10th Cir. 1985), the court stated "Fraud upon the court is fraud which is directed to the judicial machinery itself and is not fraud between the parties or fraudulent documents, false statements or perjury. ... It is where the court or a member is corrupted or influenced or influence is attempted or where the judge has not performed his judicial function --- thus where the impartial functions of the court have been directly corrupted."

What this means for existing judgments of foreclosure? Each is subject to scrutiny. One big problem is FUTURE real estate closings. If title passing needs to have title insurance and the closing is an REO sale or is a purchase from a foreclosure sale, title insurers may be fearful of insuring into a lawsuit since there is a distinct and not remote chance that the foreclosure judgment could be set aside.

As of this writing no insurance company has made the announcement that it will not insure REO or foreclosure sale properties- but wait a few days after the underwriters start to examine this new risk.  The inability to obtain title insurance will certainly inhibit the private purchase of property at foreclosure sales and from REO inventory where the property was acquired by foreclosure sale.

Copyright 2010 Richard P. Zaretsky, Esq.

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Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.

Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 email: RPZ99@Florida-Counsel.com - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com  New Website www.Florida-Counsel.com. 

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