Attorney General and Democratic candidate for governor Jerry Brown has stepped into the growing controversy over potentially fraudulent foreclosures by issuing a cease-and-desist letter demanding a halt to all foreclosures by Ally Financial, the renamed GMAC:

California officials today demanded that Ally Financial Inc. stop foreclosing on homes in the state, citing reports indicating the big mortgage lender is violating the law.

The cease-and-desist letter, issued by Attorney General Jerry Brown, came as officials in several other states began investigating Ally’s operations.

The controversy stems from a Florida court case in which an Ally official reportedly testified that he signed thousands of documents in foreclosure cases without even reviewing the homeowners’ loan documents.

Over at Naked Capitalism, Yves Smith, who has been following the story of Ally/GMAC’s growing scandal involving tens of thousands of foreclosures in Florida that may have been fraudulent, explains why this is so significant:

So it appears the Brown argument is at least that the robo signers are the ones affirming that the banks tried contacting the borrower, when they are in no position, legally or practically, to do so. But this potentially opens a much bigger can of worms, that the robo signers may have been providing cover for the failure to make the required effort.

Naked Capitalism has a good overview of the problem, where a single Ally/GMAC official, Jeffrey Stephan, signed legal documents used to foreclose on homeowners indicating he had personal knowledge of the situations in each foreclosure, including that Ally/GMAC had the legal right to foreclose.

Activists in Florida have long been suspecting that Ally/GMAC and others have been foreclosing on properties they didn’t even own, unfairly evicting people from their homes and ruining their finances. It is beginning to appear that mortgage fraud wasn’t something the lenders were doing before the crash, but a basic business practice they have continued well into the recession.

Kudos to Jerry Brown for standing up to the banks and mortgage lenders on behalf of Californians against these fraudulent practices.