Citigroup Settles Fraud Cases Tied to Texas Mortgage Assigner

Citigroup Settles Fraud Cases
A Citi logo appears on a sign above a Citibank branch in the ground floor of Citigroup Inc. headquarters in New York. Photographer: Daniel Acker/Bloomberg

Citigroup Inc., the third-largest U.S. bank, settled or lost at least five claims in 2010 brought by borrowers who accused the bank of filing fraudulent mortgage documents provided by a Texas firm.

In the most recent settlement in December, a bankrupt homeowner in Wappingers Falls, New York, challenged Citigroup’s use of a mortgage “assignment,” which shows the transfer of ownership of a mortgage. It was signed by an employee at Orion Financial Group Inc., a Southlake, Texas, firm that provides document services to lenders.

The document was “of fraudulent nature and questionable origin,” the borrower’s attorney, Linda Tirelli, wrote in an August objection to the bank’s claim at U.S. Bankruptcy Court in New York. Citigroup created and filed the assignment after proceedings began because it otherwise couldn’t prove its right to collect the debt, she wrote in an e-mail. The bank denied the allegations and didn’t admit liability in the settlement.

Attorneys general in 50 states are investigating the industry’s use of mortgage assignments as part of a wider probe into faulty foreclosure methods, according to Geoff Greenwood, a spokesman for Iowa attorney general Tom Miller. Last month, a Massachusetts court ruled that two foreclosures by Wells Fargo & Co. and U.S. Bancorp were invalid because assignments presented in those cases failed to prove the chain of ownership of the mortgage, sending financial stocks down.

Connect the Dots

Bankruptcy judges are “appropriately skeptical” when mortgage servicers claim to have assignments, said Keith Lundin, a U.S. Bankruptcy Court judge in Nashville, Tennessee, in an interview.

“They’ve got to show me more than their swearing that they have the right,” he said. “They’re going to have to connect up the dots back to the note and the security agreement, which would be the mortgage.”

Harold Lewis, an executive with the CitiMortgage subsidiary, told Congress in November that the bank reorganized foreclosure operations last February, helping it avoid the faulty affidavit-signing practices that forced peers such as JPMorgan Chase & Co. to temporarily halt home seizures last year.

Citigroup paid almost $82,000 in opponents’ legal costs when settling challenges to four bankruptcy claims that used Orion letters in 2010, according to agreements filed with federal bankruptcy courts in New York and Arkansas. The bank reduced interest rates on the remaining debt by an average of 49 percent, while cutting the outstanding mortgage balance in three cases by a combined $55,000, the filings show.

Raising Questions

“It doesn’t strike me as something that lenders do every day of the week,” said Melissa Jacoby, a bankruptcy law professor at the University of North Carolina in Chapel Hill, referring to the size of the concessions. “It does raise some questions about the practices.”

A spokesman for Citigroup, Mark Rodgers, said it doesn’t comment on individual cases. The company continues to use Orion for assignment letters, he said. While borrowers have disputed the bank’s use of assignments, they haven’t accused Orion of wrongdoing.

“We don’t create fraudulent documents,” said Orion Chief Executive Officer Mike Wileman. His firm’s documents show which company may hold the note and can be based on information from the bank, he said. “Sometimes the evidence is circumstantial,” he wrote in an e-mail.

Court Records

Rodgers declined to say how often the bank relies on Orion or other outside document providers for assignments. Records aren’t electronically searchable in most of the more than 3,000 counties across the U.S. In Texas’s Dallas County, where documents are available online, Orion prepared at least 14 assignments transferring mortgages to Citigroup since the start of 2009, a search of records there shows.

In the Wappingers Falls case, Citigroup said it was owed about $390,000 from a mortgage on a property in Chapter 13 bankruptcy. The bank filed an assignment prepared by Orion to back the claim. This document claimed another lender had assigned the loan to CitiMortgage on June 24, more than three weeks after the bankruptcy began.

In settling the borrower’s objections, the bank didn’t admit wrongdoing. It paid Tirelli’s $35,000 legal fees, reduced the mortgage principal by $29,000 and chopped the interest rate almost in half, to 3 percent.

“We reach settlements in cases for a variety of reasons, usually so both parties can avoid the expense of ongoing litigation,” Rodgers, the bank spokesman, said in an e-mail.

Massachusetts Ruling

In Massachusetts, the state Supreme Court upheld a voiding of two 2007 foreclosures carried out by San Francisco-based Wells Fargo and Minneapolis-based U.S. Bancorp because the companies hadn’t demonstrated that they held the mortgages at the time of the seizures. The banks had backed claims with so-called blank assignments completed after foreclosure sales.

A lender such as Citigroup may settle to avoid scrutiny of its foreclosure practices during litigation, said April Charney, a senior attorney with Jacksonville Area Legal Aid in Jacksonville, Florida, who instructs lawyers on representing consumers in foreclosure and bankruptcy cases.

“They’re afraid of going through the process,” she said. A risk-based analysis may focus on the question, “Do I risk going in front of the judge and getting an order that is going to beam around the whole world?” she said.

Orion is based in Southlake, Texas, a city about 30 miles northwest of Dallas. It provides “mortgage assignment, lien release and document retrieval services” to the mortgage industry, according to its website. Citigroup also uses Orion for assignments in foreclosures, Rodgers said.

Initial Loss

Citigroup is still facing claims tied to an Orion-prepared assignment in a case at U.S. Bankruptcy Court in Aberdeen, Mississippi. In that case, the judge disallowed the bank’s initial claim to a property in Olive Branch, a city about 20 miles south of Memphis, Tennessee. The borrower later asked the court to force the bank to prove whether it has rights to the loan. Citigroup filed a response last month, fighting the borrowers’ demands.

“We’re going to have to go into litigation to determine who if anyone is owed the money and who if anyone still has a security interest,” said William Fava, the borrower’s attorney.

Citigroup has also filed Orion assignments in bankruptcy cases in states including Maryland and Georgia.

“Do they really have the right to enforce anything in this bankruptcy?” said Ryan Starks, an attorney for borrowers in Georgia, in an interview. “Or are they just clearing up the paperwork?”

Mortgage Business

Citigroup serviced $602 billion of mortgages in the fourth quarter of 2010 and is the fourth-largest mortgage servicer in the country, according to Inside Mortgage Finance, a trade publication.

Lewis at CitiMortgage testified to Congress in November about the bank’s overhaul of foreclosure practices. The company was still reviewing 10,000 affidavits that were executed before the overhaul, and about 4,000 affidavits may not have been signed before a notary and may be resubmitted, he said.

Citigroup doesn’t anticipate refiling any assignments, and hasn’t had to refile any prepared by Orion, said Rodgers, the spokesman.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE