On Thursday the Massachusetts Attorney General Martha Coakley sued five US banks for alleged illegal mortgage practices, further destroying hopes of a grand 50-state settlement between state lawyers and banks. This was expected but it’s still a potentially damaging blow to Bank of America, Wells Fargo, JP Morgan Chase, Citi, and GMAC, and to a housing recovery that is yet to even begin.
The contents of the suit should be familiar to FT Alphaville readers — robo-signing, Ibanez violations, Mers, and loan modification failures.
Given Judge Rakoff’s termination of the SEC-Citi settlement earlier this week, it’s been a bad week for those wanting to see the back of financial crisis disputes but, ultimately, a good week for the US legal system, which is finally showing some teeth.
Update (1:51pm, New York time): You can read the full suit here.
Details below, via the press release from the AG’s office.
USE OF FALSE DOCUMENTS TO EXPEDITE FORECLOSURES “ROBO-SIGNING”: According to the complaint, the banks used false documentation in the foreclosure process, including so-called “robo-signing”, whereby bank personnel signed affidavits that were untrue, or not based on the signor’s actual knowledge. An entity wishing to foreclose on a property must demonstrate it has filed an affidavit in compliance with Massachusetts law. By October 2010, the banks’ flagrant disregard of affidavit and notary process requirements became widely known. Filings with various Registers of Deeds provided to the Attorney General’s Office revealed the pervasive use of mortgage service employees to sign hundreds of affidavits and sworn statements without personal knowledge of the information contained in those affidavits. Evidence also suggests these practices were not confined to the foreclosure process, but also used in the assignment, transfer and modification of mortgages secured by property in Massachusetts.
FORECLOSING WITHOUT LEGAL AUTHORITY “IBANEZ VIOLATIONS”: Second, these five entities participated in unlawful foreclosures when they commenced foreclosures on mortgages where they were not the holders of those mortgages. The Supreme Judicial Court (SJC), in Commonwealth v Ibanez, recently upheld Massachusetts law and stated that “only the present holder of a mortgage is authorized to foreclose on the mortgaged property.” The complaint alleges that these entities ignored this fundamental legal mandate and proceeded to foreclosure even though they did not hold the mortgage, and thus had no legal authority to conduct the foreclosure. The banks’ failure to obtain a valid assignment of the mortgage prior to foreclosure has adversely impacted titles to hundreds, if not thousands, of properties in the Commonwealth. The complaint alleges that the banks falsely claimed to be the holder of a mortgage in several foreclosure documents even though they failed to obtain a valid assignment of the mortgage.
UNDERMINING PUBLIC RECORDS “MERS”: Third, the complaint alleges that these banks have undermined our public land record system through the use of MERS, a private electronic registry system. According to the complaint, the creation and use of MERS was adopted by these defendants primarily to avoid land registration and recording requirements, including payment of recording and registration fees, and to facilitate sales of mortgage loans. The use of MERS has resulted in a lack of transparency as to the entities that have the legal authority to enforce mortgages, and unfairly conceals from borrowers the true identity of the holder of the debt. Since 1997, more than 63 million home loans have been registered on the MERS System, accounting for more than 60 percent of all newly-originated mortgage loans. The complaint also alleges that through the use of the MERS system, the banks unlawfully failed to register assignments of mortgages and transfers of the beneficial interests in mortgages.
MISREPRESENTING LOAN MODIFICATION PROGRAMS: Finally, the complaint alleges the banks deceived and misrepresented to borrowers the process, requirements, and availability of loan modifications. The banks publically claimed to be engaged in widespread loan modifications aimed at preserving home ownership and avoiding unnecessary foreclosures. Through the National Homeownership Retention Program, which commenced on November 6, 2008, these banks represented that they would work with borrowers to help them avoid unnecessary foreclosures by reducing monthly mortgage payments to affordable and sustainable levels. The complaint alleges these banks misled borrowers about their eligibility for this program and the amount of relief available, failed to achieve a significant level of modifications, and often strung along borrowers for months in trial modifications that were ultimately rejected.
Related links:
And the financials all went down on Massachusetts – FT Alphaville
Massachusetts Attorney General Signals Likelihood of Nixing “50 State” Mortgage Settlement – Naked Capitalism
The full story of the Ibanez case – FT Alphaville