Massachusetts Attorney General Martha Coakley filed the lawsuit today against the three banks, as well as Wells Fargo & Co. (WFC) and Ally Financial Inc., in state court in Boston. She accused the banks of engaging in unfair and deceptive trade practices in violation of state law.
“The stakes could not be higher at this stage of the game,” Coakley said at a press conference in Boston. “The foreclosure crisis continues to be at the root of the economic mess that we find ourselves in and our inability to turn it around.”
State attorneys general across the U.S. have been negotiating a possible settlement with the five banks that would resolve a probe into foreclosure practices that began more than a year ago following disclosures that faulty documents were being used to seize homes.
State and federal officials are aiming to reach a deal that would provide mortgage relief to homeowners and set requirements for the ways mortgage servicers conduct home foreclosures and interact with borrowers.
Coakley today blamed the banks for failure to reach a deal, saying they hadn’t offered “meaningful and enforceable relief” to homeowners for harm they have caused. With a settlement still out of reach more than a year after all 50 states announced their investigation into bank practices, Coakley said, she decided to file her lawsuit.
“They have had more than a year to show they’ve understood their role and the need to show their accountability for this economic mess, and they failed to do so,” she said.
In September, California Attorney General Kamala Harris said she was withdrawing from the talks, saying a proposed settlement was “inadequate” and would allow too few California homeowners to stay in their homes.
John Stumpf, chairman and chief executive officer of San Francisco-based Wells Fargo, said in a CNBC interview today that he’s disappointed the lawsuit was filed.
“We’ve worked hard to come to an agreement that I think would be good for the country and good for housing,” he said. “We can work through that better together than working it out in court.”
‘In Good Faith’
Gina Proia, a spokeswoman for Detroit-based Ally, said its GMAC Mortgage unit, which was named as a defendant, will fight the lawsuit and has worked “in good faith” with Coakley’s office during the past year to discuss mortgage servicing and ways to assist borrowers.
Iowa Attorney General Tom Miller, who is leading negotiations with the banks for the states, said today in a statement from his office that he’s optimistic a settlement will be reached “on terms that will be in the interests of Massachusetts.”
Coakley said the banks moved to seize Massachusetts homes when they had no legal authority do so because they didn’t hold the mortgage on the properties. Failure to obtain valid mortgage assignments before foreclosure has affected titles to “hundreds, if not thousands, of properties” in the state, she said.
The banks also deceived and misled homeowners about loan modifications, the attorney general said in a statement. The servicers “often strung along borrowers for months” in trial modifications before rejecting their attempts to modify loans, according to Coakley.
Banks are also accused of engaging in “robosigning,” in which foreclosure paperwork is signed without verification of the information in the documents. The practice was also used in the transfer of mortgages, Coakley said.
“If we do not do this, we are stuck in this downward spiral of more foreclosures in a way that is totally counterproductive to the economy,” she said at the press conference.
The lawsuit also names Merscorp Inc., which runs a mortgage registry used by banks, as a defendant. According Coakley, the banks undermined the public land record system through the use of the registry, which tracks servicing rights and ownership interests in mortgage loans. Merscorp spokeswoman Karmela Lejarde said in an e-mail that the system complies with Massachusetts law.
Tom Kelly, a spokesman for New York-based JPMorgan, said the bank is disappointed Massachusetts sued while settlement negotiations with state and federal officials continue.
“We continue to believe that collaborative resolution rather than continued litigation will most quickly heal the housing market and help drive economic recovery,” Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in a statement.
Citigroup hasn’t had time to review the lawsuit, Mark Rodgers, a spokesman for the New York-based bank, said in an e- mail. The company has been cooperating with the attorney general, he said.
The case is Commonwealth of Massachusetts v. Bank of America N.A., 11-4363, Suffolk County Superior Court (Boston).
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