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Ohio Goes to Court

Ohio became the first state to level a civil fraud suit against a major servicer, claiming the company misled courts in hundreds of foreclosure cases by filing fraudulent affidavits.

Separately, Senate Banking Committee Chairman Richard Shelby called Wednesday for federal regulators to investigate improper foreclosure practices at banks.

In Ohio, Attorney General Richard Cordray on Wednesday announced the suit against GMAC Mortgage and its parent Ally Financial Inc., as well as GMAC employee Jeffrey Stephan, whose deposition brought to light the practice of "robo-signing" affidavits without verifying the information or having a notary present.

The lawsuit, filed in Lucas County Common Pleas Court, is seeking a permanent injunction to prevent GMAC from proceeding with any pending foreclosures in the state. The suit is also asking for civil penalties of up to $25,000 per violation as well as an unspecified amount of restitution.

Additionally, Cordray sent letters to JPMorgan Chase & Co. and Bank of America Corp. asking the banks to suspend foreclosure proceedings. He also requested meetings with Wells Fargo & Co. and Citigroup Inc. to discuss their foreclosure affidavit procedures.

The actions come two weeks after GMAC halted foreclosure sales and evictions in 23 states, including Ohio, to review the cases and ensure no errors were made after discovering problems with the way affidavits were executed.

JPMorgan Chase and B of A have also halted foreclosures in those states — where the procedure is handled by courts — because of similar problems with documents.

GMAC spokeswoman Gina Proia would not comment on the lawsuit specifically, but said the company is "confident that we have not inappropriately foreclosed on any borrower."

Other attorneys general, including those in Connecticut, North Carolina, Illinois and Iowa have opened investigations into the foreclosure practices at GMAC. North Carolina's AG expanded the investigation to 14 other lenders on Wednesday.

Experts anticipate more legal fallout in the coming weeks, possibly even federal investigations. On Wednesday, U.S. Attorney General Eric Holder was quoted by Dow Jones as saying the Department of Justice is looking into the matter.

California Weighs In

The pressure on servicers is also heating up in states where foreclosures are handled outside of court.

California State Assemblyman Ted Lieu, a Democrat from Torrance, has asked two state regulatory agencies to temporarily halt foreclosures for 60 days and launch an investigation into the practices of mortgage servicers even though California is a non-judicial foreclosure state.

Lieu sent letters Tuesday to the commissioners of the state's Department of Financial Institutions and Department of Corporations, asking that they adopt the temporary moratorium in California "so they can investigate whether the lenders in California are failing to follow the law."

Lieu authored a California law that prohibits lenders from recording notices of default on mortgages made between Jan. 1, 2003, and Dec. 31, 2007, unless the lender contacts or tries diligently to contact the borrower to determine eligibility for a loan modification. A notice of default must include a declaration of compliance with that law.

"California does have laws that also require certifications by the lender before a foreclosure can proceed," Lieu said in the letters.

In California, when a homeowner does not cure a default, a notice of sale is recorded and published, and the property is then auctioned off to the highest bidder.

Also on Tuesday, Texas Attorney General Greg Abbott sent a notice to 30 mortgage servicers ordering a freeze on foreclosures and a review of possible faulty affidavits used in that nonjudicial state. Abbott said that if affidavits and other documents such as assignments of deeds of trust were found to be invalid it would be a violation of Texas state law.

Florida Sales Slow

Meanwhile, in Florida, a judicial foreclosure state, the servicers' moves to slow foreclosures are already being felt.

Half of all the foreclosure auctions scheduled for Tuesday in Palm Beach County were cancelled, according to a report in the Palm Beach Post. That's well above the 30% usual rate of cancellations, the paper said.

Of the 150 properties scheduled for auction, 75 were cancelled, with more than 30 of those called off just before the auctions were set to begin.

The report said lawyers have been scurrying to pull foreclosed properties from auction after the announcements from GMAC, JPMorgan Chase and B of A.

Case in point: An attorney for the Florida Default Law Group, representing JPMorgan Chase, stopped 27 foreclosure sales in less than 15 minutes, the Post reported.

Wait a Minute …

However, at least one foreclosure sale in Florida that should have been stopped many months ago was not.

Jason Grodensky, a Fort Lauderdale man who owned his home free and clear of a mortgage, learned his house had been foreclosed upon by Bank of America in July, the Sun Sentinel reported last month. B of A spokeswoman Jumana Bauwens said the Charlotte banking company has apologized to Grodensky and is in the process of fixing the mistake.