Ally Financial Inc., JP-Morgan Chase & Co., and Bank of America Corp., defending allegations of fraudulent home foreclosures from customers and Congress, may face the most financial peril from investigations by state attorneys general.
One such case was filed Wednesday in Lucas County Common Pleas Court by Ohio Attorney General Richard Cordray. He sued Ally Bank, claiming its GMAC Mortgage unit committed fraud and violated state consumer law by filing false affidavits in foreclosure proceedings.
Authorities in at least seven states are investigating whether lenders used false documents and signatures to justify hundreds of thousands of foreclosures, and the number of these inquiries will grow, according to state officials and legal experts.
"You're going to see a tremendous amount of activity with all the AGs in the U.S.," Mr. Cordray said Wednesday. "We have a high degree of skepticism that the corners that were cut are truly legal."
The fraud came to light, he said, after a GMAC em-ployee, Jefferey Stephan of Sellersville, Pa., testified in a foreclosure case out of Maine that from 2006 to 2010, he signed thousands of affidavits without verifying the content.
In his suit, Mr. Cordray asks the court to order all foreclosure proceedings pending in Ohio to be stopped. He asks for civil penalties of $25,000 for each false affidavit or document considered a violation, and he seeks restitution to consumers.
He has asked for meetings with four other banks - JPMorgan, Bank of America, Wells Fargo, and Citigroup - to find out more about their foreclosure processes.
JPMorgan, Bank of America, and Ally have curtailed foreclosures or evictions in 23 states where courts have jurisdiction over home seizures.
Although homeowners in those states and elsewhere usually must show damages if they are to win a lawsuit, "attorneys general can just sue over deceptive sales practices and get penalties," said Christopher Peterson, a University of Utah law professor who specializes in commercial and contract law.
In Iowa, fines sought can be as much as $40,000. In Connecticut, Attorney General Richard Blumenthal has called for a freeze on foreclosures and said the submissions are a "possible fraud on the court."
Officials in Ohio and Connecticut, along with those in Florida, Texas, North Carolina, Iowa, and Illinois, said they are investigating mortgage foreclosure practices.
Attorneys general in Colorado and California asked Ally's GMAC unit to halt foreclosures in their states. GMAC and Colorado Attorney General John W. Suthers plan to meet to discuss the matter, said Mike Saccone, spokesman for Mr. Suthers.
Massachusetts Attorney General Martha Coakley asked GMAC, JPMorgan, Bank of America, and Wells Fargo & Co. this week to suspend foreclosures and evictions in that state.
North Carolina Attorney General Roy Cooper said he was expanding his investigation into questionable foreclosure tactics to include 14 more lenders.
In addition to the investigation of Ally that began last month, Texas Attorney General Greg Abbott this week asked 30 loan servicers operating in his state - including Bank of America and JPMorgan - to stop foreclosures pending a review of business practices.
Mr. Abbott also asked lenders and servicers to halt "all sales of properties previously foreclosed upon" and stop all evictions.
Lenders took possession of a record 95,364 U.S. homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, Calif., firm that monitors real-estate statistics.
Lenders, loan servicers, and even title insurance companies are facing litigation on multiple fronts, said Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor who worked on cases involving bank fraud.
"This is going to become a hydra," he said. "You've got so many potential avenues of liability. You don't even know the parameters of this yet."
Reviews of affidavits and other loan documents that may have been signed without the signers having personally examined them should be completed in a few weeks, JPMorgan and Bank of America said last week.
"We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details," JPMorgan said in its statement. "The affidavits were prepared by appropriate personnel with knowledge of the relevant facts."
A call to a Bank of America spokesman wasn't immediately returned.
Gina Proia, a spokesman for Ally, said, "We don't believe the procedural errors in these affidavits led to inappropriate foreclosures."
Some lenders have acknowledged that employees may have completed court affidavits without confirming their accuracy. In December, a GMAC employee said in a deposition in a foreclosure case filed in West Palm Beach, Fla., that his team of 13 people signed about 10,000 documents a month without verifying their accuracy.
Patrick Madigan, an Iowa assistant attorney general, said, "My suspicion is that this will wind up being an industrywide issue. Many companies were using robo-signers."
Multiple lawsuits filed by homeowners allege that lenders have been using falsified documents to foreclose on homes, at times when they don't even hold titles to the properties.
Lawyers for some home-
owners blame Mortgage Electronic Registration Systems Inc. of Reston, Va., which handles mortgage transfers between member banks. Multiple lawsuits contend that the system allows false foreclosures and muddies ownership of titles. The company has denied any wrongdoing.
Borrowers in the average foreclosure case haven't made a payment in more than a year, said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. More than 5 million homes are in the process of foreclosure, so millions of people are living mortgage-free right now, he said.
"The question is what kind of deals the plaintiffs' attorneys will reach with lenders," Mr. Cecala said. "If someone hasn't made any mortgage payments in a year, are we really going to give them a home just because someone screwed up the paperwork?"