Some lenders are modifying mortgages only after homeowners waive their right to sue.
Azia, of the New York State Banking Department, said given the vagueness of the language, it wasn't clear whether the clause was meant to act as a waiver. But if GMAC relied on it to preempt a borrower's defense, she said, it would clearly be a violation of the state rule.
GMAC did not respond to a request for comment. Romeo said the bank had so far resisted removing the clause.
GMAC is not alone. Citibank's servicing arm, the fourth-largest servicer, included a very similar clause in a recent modification agreement with another client of Queens Legal Services.
Mark Rodgers, a spokesman for Citi, said the language "does not waive any rights to claims or defenses. It requires the borrower to acknowledge that the lender is the owner of the note, and that should the note be transferred, the new owner will be entitled to payments. We believe the language is appropriate."
A case in Florida shows how servicers can invoke such waivers to smooth the way to foreclosure—even when servicer error is the apparent cause of default.
Facing foreclosure in August 2008, Joseph and Myrna Strain of St. Augustine, Fla., signed a modification agreement with American Home Mortgage Servicing, Inc., a large servicer that handles about 430,000 mortgages. It contained a waiver clause.
"My client had no choice but to agree it," said Chip Parker, the couple's attorney. "Otherwise they were going to foreclose on the home."
Parker says the Strains made the payments as agreed, but that American Home did not credit them correctly, a common mistake by servicers. As a result, American Home started the foreclosure process again in 2009.
On the Strains' behalf, Parker raised a number of defenses to the foreclosure. In response, the servicer's attorney pursuing foreclosure argued that the waiver signed in 2008 precluded any defense: "Defendants expressly waived the right to challenge or contest the foreclosure process."
"They were clearly relying upon the waiver language to try and get around all of the very complex securitization problems plaguing their case," said Parker. Furthermore, he said, it didn't make sense to rely on a waiver that was part of an agreement American Home had breached by not properly handling the payments.
Early in April, shortly before the foreclosure suit was about to go to trial, American Home's attorney suddenly dropped it. The Strains, meanwhile, are pursuing a countersuit.
American Home spokeswoman Philippa Brown said the company could not respond to the specifics of the Strains' case because it is in litigation. She said American Home no longer includes that waiver clause in its agreements but continues to use another clause from the Strains' agreement: That language says the borrower has no "defense to the obligations of the note."
Brown argued the language in the clause "is not a waiver" because it did not expressly waive the borrower's rights.
But Azia, of the New York Banking Department, said it sounded like a waiver to her. "That's exactly what a waiver is—a relinquishment of your claims and defenses."
It's unclear whether such clauses are ultimately successful in blocking homeowners' challenges to foreclosures. Many attorneys said the waivers might not hold up in court because they sought to waive rights that couldn't be waived (like whether the bank even had the right to foreclose). The inherent unfairness of the tactic might also get them thrown out. But all of them said it was particularly unfair to homeowners without legal representation.
"It's a horrible tactic by the banks because most homeowners give up," said Parker.
Paul Kiel is a reporter at ProPublica, a Pulitzer Prize-winning nonprofit investigative newsroom.
Photograph byPaul J. Richards/AFP/Getty Images.