Ally's GMAC mortgage unit temporarily halts evictions in 23 states
Ally Financial, the troubled lender that received a massive federal bailout, has temporarily halted evictions on foreclosed homes in 23 states, a company spokesman said Monday.
The firm, once the financing arm of General Motors, said late Monday that the moratorium was due to "an important but technical defect" in the company's court filings for individual foreclosures.
Ally spokesman James Olecki said that in a number of cases the legal documents from the company's mortgage arm in support of the foreclosure proceedings "may have been executed without direct personal knowledge stated in the affidavit" and were not signed in the presence of a notary public.
But pro bono attorneys said the suspension of evictions came after their lawsuits filed against the company in Maine revealed that a single employee of Ally Financial may have approved tens of thousands of foreclosures across the country without reviewing the documents he was signing.
In a deposition, the employee stated that when he put his signature on case files, he did not know what information the file contained other than the borrower's name, that he did not inspect the exhibits he was supposed to, and that the notary who supposedly witnessed his signings was not in the room.
More: Full list of states affected
Thomas Cox, a lawyer in Portland, Maine, who took the deposition while representing homeowners, said in a phone interview that it's clear that this employee "doesn't know what he's talking about."
"We've established that in these foreclosures GMAC hasn't proven its case," Cox said.
Cox said the Maine attorney general's office is investigating the matter. The GMAC employee's name also came up in several mortgage foreclosure cases in Florida that are being disputed. The attorney general there is investigating at least four law firms that process foreclosures there, saying that they may be fabricating information or presenting misleading documents in cases.
Olecki declined to respond to specific questions on the pending litigation, but emphasized that the "sum and substance" of the company's foreclosure filings were correct. And an internal review has found that there were no "factual misstatements or inaccuracies" about the mortgage holders or the delinquency of their loans, he said. The vast majority of cases will be resolved in the next few weeks. Some, however, will require "court intervention," Olecki said.
He said that the suspensions will give the company time to review files across the 23 states, which span the country from New York to Florida and Hawaii. These states follow a judicial procedure that requires a court order to approve a foreclosure. A bank representative must sign off on the validity of a foreclosure filing after checking that the correct mortgage holder is named and that he or she is truly in default, among other things.
The U.S. Treasury Department, which owns a 56.3 percent stake in GMAC after bailing it out last year, was not involved in the decision, Olecki said.
Treasury officials declined to comment.
In an internal memo dated Sept. 17 and marked "urgent," brokers and agents of the company's GMAC mortgage unit were ordered to immediately halt evictions. Ally, the nation's fourth-largest home loan originator, may "need to take corrective action in connection with some foreclosures" in the affected states, the memo said.
Created in 1919 to finance GM auto sales, GMAC--as Ally was called back then--changed its focus during the housing boom and became one of the largest U.S. mortgage lenders. The company lost $13 billion from 2006 to 2009 as borrowers defaulted on those loans.
The government's $17 billion aid to the firm - which was the only bank to get three rounds of financing and is the only one in which the government owns a majority stake - has been criticized by members of a congressionally appointed panel tasked with overseeing the bailout.
The Obama administration has tried to tackle the foreclosure issue with various mortgage-relief programs, but those have not yielded significant progress.
Meanwhile, lenders like Ally have been trying to clear out a backlog of bad loans by repossessing homes but have had trouble selling them on the market.
The number of homes being repossessed by banks in August was the highest of any month since the start of the U.S. financial crisis, according to RealtyTrac. Lenders repossessed 95,364 properties in August, up 3 percent from July and 25 percent from August 2009.
The number of homes in any part of the foreclosure process - which includes default notices, scheduled auctions and bank repossessions - declined for the seventh month in a row.
The company, which renamed itself Ally earlier this year, spent $160,000 in the second quarter of this year to lobby Congress and the Federal Deposit Insurance Corp. on financial regulation, foreclosure prevention and other issues.
Here's the full list of states that are affected:
Ariana Eunjung Cha
| September 20, 2010; 12:59 PM ET
Categories: U.S. Economy
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