Coakley sues five national banks

Bryan Cohen Dec. 1, 2011, 1:11pm


BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced a lawsuit on Thursday against five national banks for allegedly pursuing illegal foreclosures on properties in Massachusetts, as well as deceptive loan servicing.

The lawsuit was filed Thursday in Suffolk Superior Court against Bank of America, Wells Fargo, JP Morgan Chase, Citi and GMAC. The lawsuit also names Mortgage Electronic Registration System Inc. and its parent, MERSCORP Inc., as defendants.

"The single most important thing we can do to return to a healthy economy is to address this foreclosure crisis," Coakley said. "Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law. Our action today seeks real accountability for the banks illegal behavior and real relief for homeowners."

In the complaint, Coakley alleges that the five entities engaged in unfair and deceptive trade practices in violation of Massachusetts law through the 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 banks allegedly used false documentation in the process of foreclosure, including robo-signing, whereby bank personnel signed affidavits that were untrue or not based on the actual knowledge of the signor. An entity wishing to foreclose on a property is required to demonstrate it has filed an affidavit in compliance with state law. By October 2010, the allegedly flagrant disregard of notary and affidavit process requirements by the banks became widely known.

Filings with various registers of deeds provided to her office revealed the pervasive use of mortgage service employees to sign hundreds of sworn statements and affidavits without personal knowledge of the information contained in those affidavits, Coakley says. In addition, the lawsuit alleges that these practices were not confined to the foreclosure process, but also used in the assignment, transfer and modification of mortgages secured by property in the state.

The five entities also allegedly participated in unlawful foreclosures by commencing foreclosures on mortgages where they were not the holders of those mortgages. The state Supreme Court, in Commonwealth v. Ibanez, recently upheld Massachusetts law and stated that "only the present holder of a mortgage is authorized to foreclose on the mortgaged property."

The complaint alleges that the entities ignored this fundamental legal mandate, proceeding to foreclosure even though they did not hold the mortgage. Thus, the companies had no legal authority to conduct the foreclosure, Coakley says.

The complaint alleges that the banks falsely claimed to be the holder of a mortgage in several foreclosure documents despite failing to obtain a valid assignment of the mortgage.

The complaint also alleges that the banks have undermined the public land record system through the use of MERS, a private electronic registry system. The creation and use of MERS was allegedly adopted by the defendants primarily to avoid land registration and recording requirements, including payment of recording and registration fees, as well as to facilitate sales of mortgage loans.

The use of MERS has resulted in a lack of transparency as to the entities that have the legal authority to enforce mortgages and unfairly hides from borrowers the true identity of the debt holder, Coakley says. Since 1997, more than 63 million home loans have been registered on the MERS system, which accounts for more than 60 percent of all newly originated mortgage loans.

The complaint also alleges that by using the MERS system, the banks unlawfully failed to register assignments of mortgages and transfers of the beneficial interests in mortgages.

Coakley's lawsuit seeks civil penalties, restitution for harm to borrowers and compensation for registration fees that were avoided. The lawsuit also seeks to hold the banks accountable through permanent injunctive relief to provide a solution for prior unlawful foreclosures and requires that the banks, going forward, register assignments and other documents in accordance with state law.

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