Ally Financial/GMAC Mortgage fraud exposes thousands of foreclosures to scrutiny

home in foreclosureNormally, the phrase "mortgage fraud" evokes images of borrowers lying on their loan applications or, more recently, foreclosure rescue scams. You don't often hear about the bank perpetrating the fraud. Until now.

Ally Financial's home loan unit, GMAC Mortgage, has a 13-person team dedicated to processing and signing all the foreclosure and eviction paperwork. The head of that team was tasked with reviewing all the files, ensuring that foreclosures were factually and legally justified, reviewing all documents for accuracy and signing them in front of the notary.

But -- you guessed it -- that ain't exactly how it went down. In a couple of wrongful foreclosure lawsuits, this exec testified that due to the massive numbers of documents he was required to hand-sign, the most he could ever do was glance at the names, glance at a few numbers and sign thousands and thousands of papers. Then, they were all bundled up and shipped off to a notary somewhere off-site.

While Ally Financial claims this matter is more in the vein of a "serious technicality," the reality is that he said he reviewed the docs and the files, and he didn't. He said he signed them in the presence of a notary, and he didn't. No one -- not even the foreclosed homeowners' attorneys -- is suggesting that this individual exec had any sort of malicious intentions, but the bottom line is that the bank's business model set him up to perform a task which was humanly impossible: signing 10,000 documents by hand, every month.

That certainly doesn't excuse the fraud, but consumer advocates would say the blame for these robo-signing foreclosure mills lies more with the bank than with the man. To wit, a Chase Home Loans executive recently made a nearly identical admission in a very similar fact scenario.

In fact, this practice was so widespread that Ally Financial has halted all foreclosures, foreclosed owner evictions and resales of foreclosed homes in 23 states, until it can sort this all out. If you're in the midst of the foreclosure process and Ally Financial/GMAC Mortgage has been processing your foreclosure, check the list below to see if you may be affected.

If you lost your home to foreclosure anytime in the last five years, take note. This may affect you, even if your home was not financed with a GMAC Mortgage; Ally Financial services loans and processes foreclosure documents for hundreds (no typo) of other banks.

1) Decide whether you even want your home back. It is possible -- not a given -- that some courts will reverse some foreclosures where the documents were clearly signed and processed incorrectly, but much less likely for homes that have already been resold to an innocent buyer.

In reality, though, it might not be advantageous to get the home back, even if you can. If a reversal will put you back in ownership of a home with tens of thousands of dollars of negative equity and six months behind on your mortgage, it might make sense to keep on keeping on with recovering your life, your finances and your credit from the trauma of the foreclosure.

However, if your finances have improved significantly since your foreclosure and/or you have other reasons reversing the foreclosure makes sense, this "issue" could open a door for you to challenge your foreclosure. Read on.

2) Touch base with a local real estate attorney who specializes in wrongful foreclosure cases.
If foreclosed homeowners can prove that the banks' behavior was fraudulent, unfair and/or deceptive, the potential remedies range from statutory fines under state law all the way to reversing the foreclosure. Take your papers with you to your consultation; it's fairly simple for an attorney to determine whether your documents were signed by the individual "robo-signers" at issue.

And don't be surprised if you get a class action notice in the mail sometime soon -- read it, and talk with a local attorney of your own about whether and/or how to respond.

3) If you recently lost your home to foreclosure and still live there, or you are in contract to buy a foreclosed home, find out if your eviction or sale is subject to the Ally Financial moratorium. If your state is on this list, you may want to touch base with your real estate broker or agent, quick-like.

If your purchase of a home is affected, your closing date will be extended, but you'll also be offered the option to cancel and recoup your deposit. If you're in the process of being evicted from a home you formerly owned, the eviction will be frozen pending further notice.

The states at issue are:

New Jersey
New Mexico
New York
North Carolina
North Dakota
South Carolina
South Dakota
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