Foreclosure Class Actions Pile Up Against Banks

Bank Execs In DC To Defend Practices

CURT ANDERSON, AP Business Writers

November 17, 2010
UPDATED: 12:29 am PST November 18, 2010

NEW YORK -- Foreclosure-fraud class action lawsuits are starting to pile up against major banks across the U.S., threatening a besieged industry with billions more in potential losses. Bank executives are swarming Capitol Hill this week to defend themselves against multiple foreclosure-related investigations, including one by all 50 state attorneys general. Talks are under way in that probe in hopes of reaching a settlement, but that wouldn't extinguish the mounting threat of an avalanche of class actions. A congressional watchdog said in a report issued Tuesday that the foreclosure document debacle could threaten major banks with billions of dollars in losses, further prolong the housing depression and damage the government's effort to keep people in their homes. The class actions, which could be expanded nationally, seek damages for homeowners whose properties were illegally foreclosed upon by banks using fraudulent documents. Suits have been filed in Maryland, New Jersey and Massachusetts that target Bank of America Corp., Wells Fargo & Co., HSBC PLC and JPMorgan Chase & Co. In Florida and Maine, Ally Financial, formerly known as GMAC Mortgage, is also being targeted. Perhaps an even bigger threat are the lawsuits that contend the banks' foreclosure machinery amounted to a racketeering enterprise. One such case, an Indiana lawsuit against Bank of America, was filed under civil Racketeering Influenced and Corrupt Organizations or RICO laws, which allow damages to be tripled. The race is on for the banks to keep the scandal from metastasizing. Crisis management specialists are working around the clock to help banking executives stem the financial and public relations disaster. Shares of Bank of America, the biggest U.S. lender, are already down 21 percent for the year, making it the biggest laggard in the 30 stocks that make up the Dow Jones industrial average. Even if a settlement materializes with the state attorneys general, it won't necessarily stop all the class actions, although it could slow their momentum and limit their scale. A settlement would also help assuage public distrust and outrage that is fueling a consumer backlash against banks. The probe by the state prosecutors amounts to far more than an effort to root out the "robo-signers," whose back-office antics of signing thousands of foreclosure affidavits a day helped trigger the scandal. Lawmakers are also pressuring the banks to re-engineer their entire mortgage and foreclosure process to rid it of what they say is systemic dysfunction. For now, much of the talk in the banks' negotiations with the state prosecutors involves a possible compensation fund, modeled on the one created for victims of the BP oil spill, for people who went through foreclosure proceedings based on faulty documents. Details are still hazy, but a consensus seems to be building that some kind of financial remedy is needed. "It's a preliminary discussion and it's part of several options being considered by this group," said Geoff Greenwood, a spokesman for Tom Miller, the Iowa attorney general whose office is leading the investigation against the banks by the state AGs. Greenwood said the attorneys general have had several meetings by phone and in person with officials of some banks in recent weeks, and they plan to meet with others. However, "We're not close to a deal," Greenwood said. Among other topics being discussed in the talks, prosecutors also want banks to do more home loan modifications and to end something called the "dual-track" process. Under that system, which was put in place at the insistence of investors in mortgage-backed securities, banks put homeowners who are in loan modification programs into foreclosure proceedings at the same time. Citigroup Inc. is not among the banks that have officially suspended foreclosures. But in testimony prepared for a hearing Thursday by a House Financial Services subcommittee, the bank said it was reviewing about 10,000 official foreclosure documents that were executed before February. That's when Citi put in changes to strengthen its foreclosure process. The bank said it expects those affidavits will need to be resubmitted. Citi also said it was reviewing another 4,000 pending affidavits in states that require a judge's approval for foreclosure, which "may not have been signed in the presence of a notary." The bank said it expects to refile those affidavits. Citi said it would not foreclose on those homes during the review. ___ Anderson reported from Miami. AP Business Writers Candice Choi and Pallavi Gogoi in New York and Marcy Gordon in Washington contributed reporting.