GMAC, the struggling financing arm of General Motors, whose mortgage arm holds $26 billion of mortgages, just suspended foreclosures in 23 states in a harried, chaotic policy shift.

Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt foreclosures on homeowners in 23 states including Florida, Connecticut and New York.

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

“Corrective action?” The only thing I can think of to elicit that kind of reaction is the noose tightening around foreclosure fraud. Federal investigators have been probing these activities, and the New York Times just ran a major story about foreclosure mills, where loan originators used phony documentation to claim ownership of titles to which they had no claim. Basically, people were getting foreclosure eviction notices from servicers who did not own the home. Rep. Alan Grayson recently petitioned the Florida Supreme Court to halt all foreclosures initiated by three firms in the state, who account for roughly 80% of all foreclosure activity.

Three foreclosure mills – the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern – constitute roughly 80% of all foreclosure proceedings in the state of Florida. All are under investigation by Attorney General Bill McCollum. If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities. This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

I have included a court order, in which Chase, WAMU, and Shapiro and Fishman are excoriated by a judge for document fraud on the court. In this case, Chase attempted to foreclose on a home, when the mortgage note was actually owned by Fannie Mae.

The court order is here, and basically, Shapiro and Fishman lied on behalf of Chase and WaMu to try and kick someone out of a home they didn’t own.

In an indirect response to this, one of these foreclosure mills just withdrew thousands of affadavits in their foreclosure cases. I suspect that GMAC, wary of entangling themselves in this kind of fraud, stopped all their activities to get a handle on the extent of the damage. One of the states where they halted foreclosures was Florida, where Attorney General Bill McCollum has initiated his own investigation on these matters.

FDL has extensively covered the issue of foreclosure fraud, and those articles can be viewed here.

UPDATE: GMAC is now denying this report.