CINCINNATI — A federal appeals court has reversed a lower court’s approval of a class-action lawsuit settlement that dealt with robo-signed foreclosure filings.
Originally filed in 2008 in Erie County, the class-action suit challenged debt-collection agency Midland Funding’s practice of using false affidavits to initiate foreclosure proceedings. The affidavits claimed the person signing the paperwork had direct knowledge of the situation, when in fact they did not.
Midland employees had been signing 200 to 400 computer-generated affidavits a day for use in debt-collection actions without any knowledge of the accounts.
In August, 2011, a U.S. District judge approved a $5.2 million settlement in the Midland Funding vs. Brent case that would have paid $17.38 to each of the approximately 133,000 plaintiffs.
Eight plaintiffs objected to the ruling, however, arguing the settlement was improper and unfair.
In a decision published Tuesday, the 6th District Court of Appeals agreed, sending the case back to the district court.
Among the points the appellate court raised in its reversal was that while the settlement exonerated the debts of the four named plaintiffs, including Erie County’s Andrea Brent, it did not exonerate the debts of the other plaintiffs. In fact, the settlement prevented unnamed class members from using Midland’s use of false affidavits against the collection agency in other lawsuits.
The court said that virtually guaranteed Midland would be able to collect those debts.
The court wrote that the “disparity in relief is so great that we conclude the district court abused its discretion in finding that the settlement was fair, reasonable, and adequate.”
The settlement also provided a one-year injunction that required Midland of San Diego, to change its policies. The appellate court argued that Midland would be free to resume its “predatory practices” after that year, should it choose to do so.