The recent admission by a major mortgage lender that it had filed dubious foreclosure documents is likely to fuel a furor against hasty foreclosures, which have prompted complaints nationwide since housing prices collapsed.
A house in Bridgeport, Conn. GMAC says it has foreclosed on homes without proper documents.
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Lawyers for distressed homeowners and law enforcement officials in several states on Friday seized on revelations by GMAC Mortgage, the country’s fourth-largest home loan lender, that it had violated legal rules in its rush to file many foreclosures as quickly as possible.
Attorneys general in Iowa and North Carolina said they were beginning separate investigations of the lender, and the attorney general in California directed the company to suspend all foreclosures in that state until it “proves that it’s following the letter of the law.”
The federal government, which became the majority owner of GMAC after supplying $17 billion to prevent the lender’s failure, said Friday that it had told the company to clean up its act.
Florida lawyers representing borrowers in default said they would start filing motions as early as next week to have hundreds of foreclosure actions dismissed.
While GMAC is the first big lender to publicly acknowledge that its practices might have been improper, defense lawyers and consumer advocates have long argued that numerous lenders have used inaccurate or incomplete documents to remove delinquent owners from their houses.
The issue has broad consequences for the millions of buyers of foreclosed homes, some of whom might not have clear title to their bargain property. And it may offer unforeseen opportunities for those who were evicted.
“You know those billboards that lawyers put up seeking divorcing or bankrupt clients?” asked Greg Clark, a Florida real estate lawyer. “It’s only a matter of time until they start putting up signs that say, ‘You might be entitled to cash payment for wrongful foreclosure.’ ”
The furor has already begun in Florida, which is one of the 23 states where foreclosures must be approved by courts. Nearly half a million foreclosures are in the Florida courts, overwhelming the system.
J. Thomas McGrady, chief judge in the foreclosure hotbed of St. Petersburg, said the problems went far beyond GMAC. Four major law firms doing foreclosures for lenders are under investigation by the Florida attorney general.
“Some of what the lenders are submitting in court is incompetent, some is just sloppy,” said Judge McGrady of the Sixth Judicial Circuit in Clearwater, Fla. “And somewhere in there could be a fraudulent element.”
In many cases, the defaulting homeowners do not hire lawyers, making problems generated by the lenders hard to detect.
“Documents are submitted, and there’s no one to really contest whether it is accurate or not,” the judge said. “We have an affidavit that says it is, so we rely on that. But then later we may find out that someone lost their home when they shouldn’t have. We don’t like that.”
GMAC, which is based in Detroit and is now a subsidiary of Ally Financial, first put the spotlight on its procedures when it told real estate agents and brokers last week that it was immediately and indefinitely stopping all evictions and sales of foreclosed property in the states — generally on the East Coast and in the Midwest — where foreclosures must be approved by courts.
That was a highly unusual move. So was the lender’s simultaneous withdrawal of important affidavits in pending cases. The affidavits were sworn statements by GMAC officials that they had personal knowledge of the foreclosure documents.
The company played down its actions, saying the defects in its foreclosure filings were “technical.” It has declined to say how many cases might be affected.
A GMAC spokeswoman also declined to say Friday whether the company would stop foreclosures in California as the attorney general, Jerry Brown, demanded. Foreclosures in California are not judicial.
GMAC’s vague explanations have been little comfort to some states.
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