Masto alleges Bank of America violated consent judgment

Jessica M. Karmasek Sep. 1, 2011, 9:30am


CARSON CITY, Nev. (Legal Newsline) - Nevada Attorney General Catherine Cortez Masto this week requested permission to amend a previous complaint against Bank of America and its subsidiaries to add more claims relating to mortgage origination and servicing.

Masto's amended complaint continues to assert violations of the consent judgment entered into between the State and Countrywide to resolve Countrywide's liability for fraudulent mortgage lending, marketing and servicing, including:

- Failing to provide loan modifications to eligible borrowers;

- Failing to make decisions on loan modifications, on average, within 60 days of receiving requests from Nevada consumers; and

- Initiating or proceeding with foreclosures while consumer's modifications requests were pending.

The amended complaint also contains new allegations that Bank of America violated the consent judgment, namely that it:

- Increased consumers' interest rates and monthly payments, even though the consent judgment allows only modifications that decrease consumers' interest rates, actually leaving consumers worse off; and

- Required consumers to provide extensive documentation -- including pay stubs, tax returns and sworn affidavits -- to qualify for modifications, despite the consent judgment's promise of streamlined modifications.

The attorney general's amended complaint also alleges that Bank of America engaged in "deceptive practices" by falsely:

- Promising consumers that their trial modifications would be made permanent if and when they made their required payments, but then failing to convert those modifications;

- Assuring consumers that their homes would not be foreclosed while their requests for modifications were pending, but going ahead with foreclosures anyway; and

- Representing whether consumers were eligible for modifications, whether and on what terms they had been approved for modifications, and why their modification requests had been declined.

The amended complaint notes interviews with Bank of America consumers, former employees and other third parties that confirm that the modification process was understaffed, wrought with technical problems and not oriented to customers.

The complaint also asserts that Bank of America directed employees to spend no more than 7-10 minutes on average with each consumer, leaving them no time to fully or accurately answer questions or provide explanations or offer assistance.

Masto says Bank of America's misconduct cuts across "virtually every aspect of its operations" -- from originating to servicing and to foreclosing on the loans and homes of Nevada consumers.

"Countrywide misrepresented the nature and terms of their mortgage loans, ensnaring Nevada consumers in loans that they did not understand and could not repay. When consumers defaulted on these loans, Bank of America misrepresented whether, when and how they would modify these loans," according to the attorney general's complaint.

"When they failed to deliver this promised relief, Bank of America provided to Nevada consumers, recorded and filed with Nevada courts fraudulent documents as they moved, sometimes without authority to foreclose on homes that never should have been bought."

Masto further alleges that the bank's deceptive practices have resulted in an "explosion" of delinquencies and unauthorized and unnecessary foreclosures in Nevada, stripping homeowners of their assets, dislocating families, blighting neighborhoods and deeply disrupting the state's housing market.

The attorney general also goes after Countrywide, a Bank of America subsidiary, in the amended complaint.

Masto alleges that Countrywide failed to disclose and affirmatively misrepresented that loans like its Payment Option Adjustable Rate Mortgages, or Option ARMS, and Hybrid Adjustable Rate Mortgages, or Hybrid ARMS, were originated at low teaser raters, in effect only for a short time, and that payment on these loans would increase dramatically -- often more than double the original rate -- when the teaser period expired or the loans reset or recast.

In addition, the attorney general says Countrywide did not disclose that consumers who made only a minimum payment, based on that low teaser rate, would experience negative amortization, which would cause them to fall deeper in debt.

These features, which made the loans unaffordable, created the need for many Nevada customers of Bank of America to seek loan modifications, the Attorney General's Office explained.

Based on both the original and new violations, Masto added a new request for relief -- that the court find Bank of America to have materially breached the consent judgment, allowing the State to terminate the judgment.

The Attorney General's Office says it considers the defendants' disregard for their duties under the consent judgment "so pervasive" that they constitute a material breach warranting dissolution of that judgment.

Upon terminating the consent judgment, Nevada would be released to pursue its original claims against Countrywide for consumer fraud in originating, marketing and servicing mortgage loans.

State of Nevada v. Bank of America Corporation is currently pending in the Nevada District Court before Chief Judge Robert C. Jones.

Masto has said she is going to be "cautious" about whether to sign onto a rumored $20 billion settlement with the nation's five largest mortgage servicers -- Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. -- especially if it could impact her state's own litigation.

From Legal Newsline: Reach Jessica Karmasek by email at

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