Texas, Iowa, Illinois Investigate GMAC Foreclosures: CAL AG Orders Proof or Halt

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Illinois and other states consider application of consumer fraud statutes allowing recovery of damages, treble damages and attorney fees.

Texas, Iowa, Illinois Investigate GMAC Foreclosures
By Margaret Cronin Fisk, Lorraine Woellert and Joel Rosenblatt – Sep 24, 2010 4:03 PM ET

Attorneys general in Texas, Iowa and Illinois, following Florida, have started investigations into mortgage practices at Ally Financial Inc.’s GMAC unit while California has ordered the company to prove its foreclosures are legal or halt them.

California Attorney General Jerry Brown said today in a statement that he is “demanding that Ally Financial, the fourth largest home loan institution in the country, demonstrate its compliance with California law or else halt all foreclosure operations in the state.”

Iowa, which leads an 11-state working group of attorneys general and bank examiners exploring ways to prevent foreclosures, opened an inquiry yesterday.

“The integrity of the foreclosure process is of utmost importance and we are very concerned by the issues that have been raised regarding Ally Financial’s treatment of affidavits,” Iowa Assistant Attorney General Patrick Madigan said.

Texas Attorney General Greg Abbott opened an investigation “early this month,” said Tom Kelley, a spokesman for the office. Illinois Attorney General Lisa Madigan asked for a meeting with the company and requested information about how homeowners in the state have been affected, according to a statement.

The action by officials in the four states follows an announcement by Florida Attorney General William McCollum, who last month said he was investigating three Florida law firms handling foreclosures.

Florida Subpoenas

Florida investigators issued subpoenas in the case to the Law Offices of Marshall C. Watson PA; Shapiro & Fishman LLP; and the Law Offices of David J. Stern P.A., according to a news release posted on the attorney general’s website.

The law firms were hired by loan servicers to begin foreclosure proceedings when consumers were behind on their mortgages, according to McCollum’s office.

Homeowners facing eviction have accused the companies of filing foreclosure actions without verifying that borrowers actually defaulted or who owns the loans.

GMAC Mortgage notified agents and brokers on Sept. 17 that it had suspended evictions in 23 states. This week, Ally, the Detroit-based auto and home lender, said it found a “technical” deficiency in its foreclosure process allowing employees to sign documents without a notary present or with information they didn’t personally know was true.

GMAC said today in a statement that the problem was identified and then corrected “a few months ago.” The defects didn’t occur in all foreclosure cases in the 23 affected states, according to the statement.

‘Procedural Error’

“Regrettably, a procedural error was found to have occurred in certain affidavits required in certain states,” the company said. “The error is not related to the accuracy of the underlying transaction or the ultimate decisions to have exercised the foreclosure proceedings.”

California wasn’t on the list of states where Ally halted foreclosures. These 23 states have a system that requires a court order for foreclosure, unlike California, Brown’s office said in its statement. Ally has continued its foreclosure operations in California, the state said.

California law prohibits lenders from recording defaults on mortgages made from Jan. 1, 2003, to Dec. 31, 2007, unless, with some exceptions, the lender and borrower determine eligibility for a loan modification, Brown said in the statement. Brown cited reports that Ally approved foreclosure documents without confirming that they complied with state law.

Consumer Fraud Act

Illinois’ Madigan said GMAC Mortgage may have violated the state’s consumer fraud act. Madigan requested information about Illinois homeowners affected by GMAC’s suspension and the names of law firms in the state that work with the company on processing foreclosures.

“If I determine that Ally is rubber-stamping affidavits and filing them with our courts as evidence, I will take appropriate action,” Madigan said in the statement. “The law demands that lenders prove their case in foreclosure actions, and Illinois homeowners demand the same.”

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

To contact the editors responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net; David E. Rovella at drovella@bloomberg.net.

5 Responses

  1. I am a victim of foreclosure and the Loan Co. have lied continuously, they have falsified information and they are stealing property!

    The word of God says”NO WEAPONS FORMED AGAINST ME SHALL PROSPER”

  2. Check out Grayson’s video: ‘fraud factory’

  3. Picked this off of my Mortgage Servicing News today:

    Shadow Inventory Increases

    In its “Shadow Inventory Update” report, Standard & Poor’s estimates that the principal balance of distressed homes amounts to about $460 billion, representing nearly one-third of the nonagency residential mortgage-backed securities market currently outstanding.

    Megabanks/Servicers Told to Comply After HAMP Audit

    The Treasury Department singled out the three largest banks — Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. — for failing to properly solicit and consider homeowners for the government’s loan modification program.

    Connecticut AG Demands Halt in Ally Foreclosures

    Connecticut Attorney General Richard Blumenthal has asked Ally Financial to freeze all home foreclosures within its borders, saying his office is investigating “defective” documents filed by the company and its mortgage division, GMAC.

    Yes, my friends. They can’t hide it any longer.

  4. JPMorgan Chase said Wednesday that it was suspending more than 50,000 foreclosures as it reviewed the legitimacy of legal documents in the cases.
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    The bank is the second major company to take such action this month, underscoring a growing legal problem about identifying the holder of the original mortgage note. The issue could stall an already overloaded foreclosure process. Analysts do not expect the delays to reduce the number of foreclosures in the long run.

    “It will probably slow things down for a couple months while these documents are reviewed,” said Rick Sharga, a senior vice president at foreclosure listing service RealtyTrac Inc. “It won’t stop things.”

    But if the problem turns up at more of the largest mortgage companies, a foreclosure crisis that is likely to drag on for several more years could persist even longer.

    JPMorgan acknowledged that its employees signed some affidavits about loan documents without personally verifying the files. These affidavits identify who holds the original mortgage note in foreclosure cases.

    The company believes the information in the affidavits is accurate, and that the affidavits were prepared by “appropriate personnel,” spokesman Tom Kelly said Wednesday.

    The bank asked judges to not enter judgments against homeowners facing foreclosure until the review is done. It expects the process to take a few weeks.

    In a similar move, GMAC Mortgage last week halted certain evictions and sales of foreclosed homes in 23 states to review those cases. The company said it found procedural errors in some foreclosure affidavits.

    Fitch Ratings said that Wednesday it was asking mortgage companies about their internal processes for executing foreclosure affidavits. If it finds the processes lacking, Fitch will consider downgrading the company’s rating.

    The agency also said if the issue is widespread, the resulting delays and extra costs to foreclose could increase losses related to residential mortgage-backed securities.


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  5. Where can I learn more about the following from your article from 9/24/2010:

    “California law prohibits lenders from recording defaults on mortgages made from Jan. 1, 2003, to Dec. 31, 2007, unless, with some exceptions, the lender and borrower determine eligibility for a loan modification, Brown said in the statement. Brown cited reports that Ally approved foreclosure documents without confirming that they complied with state law.”

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