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.”
Coakley, 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.