By Micah Maidenberg

October 8, 2010

On September 13, attorneys representing GMAC Mortgage LLC filed a lawsuit in the Circuit Court of Cook County to foreclose on a woman’s home in the 12300 block of S. Wentworth Avenue, in Chicago’s West Pullman neighborhood. The single-story house has a brick exterior and a grassy yard; a few flowers were growing in pots on the stoop the last time the assessor’s office swung by to review the property. By the time GMAC’s lawyers initiated their case last month, the mortgage holder had paid off roughly $7,000 on the original $79,050 loan, according to court documents.

GMAC, which is owned by Ally Bank, is one of the biggest loan servicers in the country. Until recently, it kept remarkably busy this year filing foreclosure suits against Cook County mortgagors like the woman on South Wentworth. Between January 4 and September 24, the company brought 735 foreclosure suits here, a count by Progress Illinois found.

And then in late September, new foreclosure suits filed by the company abruptly stopped showing up in circuit court.

That’s when GMAC/Ally “temporarily suspended” an unspecified number of evictions and post-foreclosure closings, acknowledging the veracity of legal documents it included in foreclosure suits in Illinois and 22 other states was up for debate. The company blamed “procedural errors” in a press release. Soon thereafter, JP Morgan Chase stopped 56,000 of its foreclosures in 23 states. This morning, Bank of America announced it would halt foreclosures sales in all 50 states. PNC Bank said today it would stall “most foreclosures and evictions in 23 states for a month” to ensure its paperwork followed with state laws, according to the New York Times. Up to 35 percent of pending foreclosures in Cook County may be hold in Cook County, the Sun-Times reported.

The extent to which the banks used “robo-signers” who produced shoddy legal documents as they hauled distressed homeowners into court is at the heart of the debate. Robo-signers are said to have blasted through foreclosure paperwork, failing to have notarized, or even read, the affidavits required for a foreclosure proceeding. In depositions, robo-signers have already admitted to signing off on 10,000 — or more — foreclosure affidavits per month. Financial firms used robo-signers as “a way to try to facilitate the process,” the economist Mark Zandi told ABC News. “They’ve been overwhelmed by the foreclosed properties, and this was their way of trying to get through those problems as fast as they could.”

This still-developing turn in the foreclosure saga that has forced families from their homes, blighted neighborhoods, and lowered property values in Illinois and elsewhere over the past several years could mean a spate of homeowner lawsuits, court systems wading through cases based on faulty documents, confusion over ownership of foreclosed properties and as a result, a slowdown in sales of foreclosed homes.

The issue is getting attention in Washington and attorney generals in multiple states have opened investigations. “The same mortgage giants and big banks that fraudulently put people into unfair loans are now fraudulently throwing people out of their homes. They should not be above the law,” Illinois Attorney General Lisa Madigan said in a statement this morning. “Illinois homeowners are legally entitled to a foreclosure process that is transparent, accurate, and fair.” Madigan said that unless loan servicers can ensure that their foreclosure documents are trustworthy, pending foreclosure actions in Illinois should be suspended.

Meanwhile, a national coalition of civil rights organizations — including the Leadership Conference on Civil and Human Rights, the National Fair Housing Alliance, National Council of La Raza, the NAACP, and the Center for Responsible Lending — demanded “an immediate national moratorium on foreclosures.” Noting the disproportionate impact the foreclosure crisis has had on minority communities, the group’s statement said that:

Until lenders demonstrate that they are adhering to all existing laws, regulations, and contractual guidelines related to loss mitigation and foreclosure legal process, lenders in all 50 states should not move forward with any foreclosures.

A moratorium on foreclosures is one that Bob Palmer, policy director for the advocacy group Housing Action Illinois, endorsed in a column published last summer by Progress Illinois. In an interview yesterday, Palmer reiterated that moratoriums on foreclosures can be especially effective when they are used tactically to push the banks toward concrete, long-term solutions for distressed borrowers. But halting foreclosures don’t nessarily drill down the basic problem in the housing market today. The key to a temporary freeze or moratorium is the temporary part, in other words. “Fundamentally, what is needed is the banks need to be doing loan modifications and principal write-downs,” Palmer said.

The latest data on the load modification front isn’t good for Chicagoland. A Woodstock Institute analysis of Treasury Department data published last month found that trial and permanent loan modifications inked through the federal Home Affordable Modification Program (HAMP) were slowing locally — there were 34,576 active trial and permanent loan modifications in the Chicago region in July 2010 compared to 36,208 in November 2009, the analysis found. “It’s clear that, while HAMP has helped thousands of homeowners save their home and achieve an affordable monthly payment, it is not enough to prevent the large number of foreclosures triggered by unemployment and underwater home values,” Woodstock noted.

As for the homeowner on South Wentworth? Assuming GMAC’s foreclosure suit against her isn’t riddled with errors, she may have a tough time fixing her loan. In Housing Action Illinois’ last survey of housing counselors (PDF), GMAC or GMAC subsidiaries were listed as loan servicers that “rarely” agree to workout plans for homeowners.

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