Revenge Of The 'Robosigners'

NEW YORK (TheStreet) -- Banks may want to reconsider their outsourcing practices.

The country's biggest lenders are holding the bag for trillions in bad mortgage debt that was originated by outside brokers then packaged and sold off by third- party asset managers. In both instances, banks are being held accountable for the actions of their "partners" to the tune of billions in possible liability.

Now the final step in the mortgage death spiral -- foreclosures -- could end up costing banks even more grief as a result of outside contractors.

The most current legal mess is the practice of "robosigning," in which employees blindly signed thousands of foreclosure documents under oath without having verified any information.

Consumer advocates and foreclosed-upon homeowners provided dozens of foreclosure and court documents to TheStreet. The documents indicate that misrepresentations and apparent forgeries occurred in states across the country, from Colorado to Georgia. At times, an individual presented himself as a representative of several companies. In other cases, nearly identical - though illegible - signatures appear for different attorneys at an array of law firms.

The names of several top banks appear in the paperwork, though they often farmed out the foreclosure proceedings to small default servicers that operate locally in the states.

"We started instructing people to pull their documents from the clerk of the court," says Anne Batte, who runs a foreclosure-assistance group in Georgia called Operation Restoration. "And the more we instructed, the more we saw. Nearly every document I have seen has been improperly signed."

"Nearly every document I have seen has been improperly signed,"

-- Anne Batte, Operation Restoration.

Richard Cordray, Ohio's attorney general, filed suit against GMAC on Wednesday, seeking up to $25,000 for every violation of proper documentation practices. Cordray is also seeking restitution for affected consumers; the financial impact of that request is still "vague," he says, until the discovery process gets under way.

"It was the first case in which one individual - and we suspect it was much broader than that - acknowledged in a deposition signing tens of thousands of affidavits where he claimed to have personal knowledge - and he's saying this under oath in a court - but in fact he didn't know the first thing about the information in the affidavit," Cordray said in an interview with TheStreet on Thursday. "It is an outright fraud."

Attorneys general in more than two dozen states are now investigating or prosecuting foreclosure proceedings at major lenders like Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), U.S. Bancorp (USB) and PNC Financial Services (PNC). BofA, JPMorgan and another major mortgage servicer, GMAC, also known as Ally Financial, have agreed to halt foreclosures as they work to get their arms around the problem.

Cordray called his attack on GMAC "a very significant lawsuit with significant consequences." His office has asked other banks to halt foreclosure proceedings in Ohio, saying there are indications that Bank of America and JPMorgan Chase employees acted similarly. He has also requested information from the two other leading mortgage servicers, Wells Fargo and Citigroup (C).