California puts Ally Financial on notice over botched foreclosures

California ordered Ally Financial Inc. to prove it was complying with foreclosure laws in the state or stop seizing properties, a reaction to the lender’s suspension of evictions in 23 other states because of botched foreclosure paperwork it filed with courts.

The Detroit company, formerly known as GMAC, didn’t suspend evictions in California because almost all foreclosures here by it and other lenders don’t require a court order.

Still, Atty. Gen Jerry Brown on Friday told Ally to halt foreclosures in the state unless it can prove it is observing state laws.

Brown specifically cited a requirement that lenders, before initiating foreclosure proceedings, must try diligently to contact borrowers to determine eligibility for modifications of home loans written from 2003 through 2007.

California homeowners “are clearly in jeopardy since an Ally Financial official admitted his review of thousands of critical foreclosure documents was really a sham,” Brown said.

Jeffrey Stephan, the head of Ally’s document processing team, has acknowledged in a deposition that he signed affidavits certifying that foreclosure paperwork was correct even though he didn’t read the documents or sign them in the presence of a notary public, as required by state law.

Ally is the fourth-largest U.S. home lender after Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. Brown said 24% of its loans in the first half of this year were made in California.

An Ally spokeswoman, Gina Proia, declined to comment on Brown’s order.

Instead, Proia issued a statement saying Ally believes the information in the affidavits it submits in foreclosure cases — such as the loan’s balance, its delinquency and the validity of the note — was factually correct.

The statement said the company did not believe the “procedural errors” had resulted in any inappropriate foreclosures.

“The company has temporarily suspended evictions and post-foreclosure closings in the 23 states while we conduct a review,” Ally said. “We hope to see the vast majority remediated over the next several weeks.”