California orders Ally Financial to stop foreclosures in state
California attorney general Edmund G. Brown Jr. demanded that Ally Financial stop foreclosures in the state if it could not "immediately prove" its compliance with the law.
The order comes four days after Ally said it had found a "technical" problem with documents it submitted in support of them. An employee of Ally's GMAC mortgage unit, Jeffrey Stephan, admitted in sworn depositions that he signed off on 10,000 documents a month without reading them.
"I'm taking this action to protect California homeowners facing the tragedy of foreclosure," Brown said in a statement. "They are clearly in jeopardy since an Ally Financial official admitted his review of thousands of critical foreclosure documents was really a sham."
State attorneys in Illinois, Iowa and Texas have also announced they are investigating the matter.
Ally -- in which the U.S. Treasury holds a 56 percent stake after a $17 billion federal bailout -- said on Monday that it had initiated a temporary moratorium on evictions and sales of repossessed homes in 23 states while it reviewed individual cases. The 23 states on the company's list are those that require a court order for foreclosures.
States that do not have that requirement -- including California, Maryland and Virginia, as well as the District -- were not on that list. The Washington Post reported Friday that Stephan had also signed off on documents in the other 27 states and that in at least some cases those documents appeared faulty.
California is home to among the regions hit hardest by foreclosures. Brown's cease-and-desist order is likely to have a negative impact on the company's bottom line because in the first half of 2010, California mortgages accounted for nearly a quarter of the $26 billion in home loans that Ally originated.
Ariana Eunjung Cha
| September 25, 2010; 12:32 PM ET
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