The biggest mortgage servicers in the country, along with the Mortgage Electronic Registration System Inc., have been named in a lawsuit filed by the Commonwealth of Massachusetts. The companies are accused of using fraudulent documents in the foreclosure process, filing foreclosures without having title to the loans and skirting state recording requirements and fees by utilizing MERS. Also at issue is their handling of loan modifications.
The lawsuit, filed Thursday in Suffolk Superior Court, was announced by Massachusetts Attorney General Martha Coakley.
Named as defendants are units of Bank of America Corp.; Citibank, N.A., and CitiMortgage Inc.; GMAC Mortgage LLC; JPMorgan Chase Bank, N.A.; MERS and parent MERSCORP Inc.; and Wells Fargo Bank, N.A.
“The AG’s lawsuit seeks civil penalties, restitution for harm to borrowers and compensation for registration fees that were avoided,” the press release stated. “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.”
Coakley claims that the defendants engaged in unfair and deceptive trade practices in violation of Massachusetts’ law by using fraudulent documents in the foreclosure process including hundreds of sworn affidavits that were signed by bank personnel without the signors having the personal knowledge that they claimed to have. Coakley alleges that robo-signing went beyond foreclosures to the assignment, transfer and modification of mortgages.
The servicers also allegedly foreclosed without have proper title to the loans. Citing a Supreme Judicial Court decision in Commonwealth v. Ibanez, Coakley alleges that the servicers didn’t have legal authority to file foreclosures because they hadn’t obtained a valid assignment of mortgage before commencing the foreclosures.
“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 statement said.
The lawsuit alleges that the use of MERS undermined the state’s land registry system and avoided recording and registration fees. The system “unfairly” hides the true identity of note holders from borrowers and was used to “unlawfully” avoid registering assignments of mortgages and transfers.
For its part, MERS said that it has not violated any statutes in the state. The Reston, Va.-based firm claims that the Massachusetts Land Court has acknowledged its system and approved of the conduct relating to registered land being challenged by Coakley.
“The complaint filed today, as to the limited allegations that relate to MERS hangs on broad and ambiguous language from a statute that’s over 100 years old,” MERSCORP Vice President for Corporate Communications Janis Smith said in a statement. “We believe it has no applicability to MERS’ business model or its conduct of business in Massachusetts, which has been repeatedly validated by courts in the state.
“We are confident that the MERS System complies with Massachusetts laws.”
The servicers are also accused of deceiving borrowers about the process, requirements, and availability of loan modifications. Borrowers were allegedly misled about eligibility and the amount of available relief, and the level of modifications achieved was insignificant. The defendants allegedly “strung along borrowers for months in trial modifications that were ultimately rejected.”
Coakley noted that she doesn’t plan to sign on to the pending 50-state settlement if it broadly releases the servicers from liability on issues including the use of MERS. Massachusetts’ exclusion from a potential settlement on top of California’s and New York’s possible exclusion from the negotiations casts a shadow over a deal being struck.
