First Major State Lawsuit Filed Over ‘Robo-Signing’
major U.S. banks and the nation's state attorneys general, Massachusetts has filed the
first major lawsuit over so-called "robo-signing" foreclosure processing.
Attorney General Martha Coakley filed suit against Bank of America [BAC
7.36
0.23
(+3.23%)
], JP Morgan Chase [JPM
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(+0.8%)
], Citi [C
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(+2.83%)
], Ally Financial and Wells Fargo [WFC
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0.80
(+2.75%)
], as well as the MERS corp (Mortgage Electronic Registration System, Inc.)
The
Attorney General alleges these five entities, "engaged in unfair and
deceptive trade practices in violation of Massachusetts' law by:
Pervasive use of fraudulent documentation in the foreclosure process,
including so-called "robo-signing", foreclosing without holding the
actual mortgage, corrupting Massachusetts land recording system through
the use of MERS, and failing to uphold loan modification promises to
Massachusetts homeowners."
The
suit seeks civil penalties and restitution for slleged harm to
borrowers, in addition to compensation for state registration fees that
were allegedly avoided. The lawsuit also seeks, "to hold the banks
accountable through permanent injunctive relief to provide a solution
for prior unlawful foreclosures and to require that the banks, going
forward, register assignments and other documents in accordance with
Massachusetts law."
When
asked how much the banks could have to pay out if they lose the suit,
Coakley responded, "I can't give you a number, but I can tell you it
will be a lot of money."
While
several lawsuits have been filed surrounding the subprime mortgage mess
that resulted in the biggest housing crash since the Great Depression,
this is the first state suit over alleged fraudulent documentation in
foreclosure processing. The state of Nevada recently made foreclosure
documentation fraud a criminal act.
The
big banks are currently in negotiations with state attorneys general
and the federal government over a settlement that could cost those banks
$20 billion. Those talks, however, have been going on for over a year,
with Massachusetts, New York and Delaware attorneys general no longer
participating, and California's attorney general the main hold out. This
now hits the banks in addition to that potential settlement.
"We
are disappointed that Massachusetts would take this action now when
negotiations are ongoing with the attorneys general and the federal
government on a broader settlement that could bring immediate relief to
Massachusetts borrowers rather than years of contested legal
proceedings,” a spokesman from JP Morgan Chase tells CNBC.
"We
have been cooperating with the Attorney General as she has looked into
these matters, and believe we have operated appropriately in compliance
with existing laws," said a Citi spokesman.
Meanwhile
Iowa Attorney General Tom Miller, who is spearheading the 50 state
negotiations, issued a release saying he was informed of AG Coakley's
decision. "She also indicated that she'll evaluate the joint
state-federal settlement we're negotiating, which we hope to reach
soon."
foreclosureCoakley,
however, today criticized the banks: "I believe that the banks have
failed to offer meaningful and enforceable relief to homeowners for
their deceptive practices."
This new lawsuit could be just the beginning of a slew of state suits against the banks if no multi-state agreement is reached.
"To
us, this is all about politics," claims Jaret Seiberg, of the
Washington Research Group. "Massachusetts Democrats are all getting into
election mode even though State Attorney General Martha Coakley is not
facing re-election. This action will generate significant attention for
Coakley and will help energize the Democratic base."
Seventeen
major banks are already facing a lawsuit from the Federal Housing
Finance Agency over mortgage securitization issues during the housing
boom and the resulting losses to Fannie Mae and Freddie Mac.