New York State Attorney General Eric Schneiderman on Friday
sued three major U.S. banks, accusing them of fraud for using an electronic
mortgage database that resulted in deceptive and illegal practices.
Schneiderman filed the lawsuit against Bank of America Corp
(BAC.N), Wells Fargo & Co (WFC.N) and JPMorgan Chase & Co (JPM.N) in New
York state court in Brooklyn.
The lawsuit is over the banks' use of MERS, the Mortgage
Electronic Registration System the industry created in the mid-1990s to track
the ownership and servicing of residential mortgage loans.
Schneiderman claims the system is plagued by inaccuracies.
The lawsuit also names MERS and its parent as defendants.
"The mortgage industry created MERS to allow financial
institutions to evade county recording fees, avoid the need to publicly record
mortgage transfers and facilitate the rapid sale and securitization of mortgages
en masse," Schneiderman said.
Schneiderman's lawsuit claims that banks saved $2 billion in
recording fees by using MERS.
The suit also said the use of MERS resulted in the filing of
improper NY foreclosures and created "confusion and uncertainty" over
property ownership interests.
Over 70 million mortgage loans, including millions of
subprime loans, have been registered in the MERS system, rather than in local
county clerks' offices, according to the lawsuit.
Schneiderman is seeking to stop the banks from filing New
York foreclosure actions in MERS name, and executing false or defective
mortgage assignments in state foreclosure proceedings. He is also seeking to
obtain the profits the banks obtained through MERS, along with other damages.
JPMorgan spokesman Patrick Linehan declined to comment on
the lawsuit. Wells Fargo spokesman Ancel Martinez said the company was
reviewing the lawsuit. Bank of America spokesman Rick Simon declined comment.
Merscorp and its subsidiary MERS comply with the law and
mortgage regulations, spokeswoman Janis Smith, a spokeswoman said in a
statement.
"We refute the attorney general's claims and will
defend the case vigorously in court," Smith said.
MERS was sued by Delaware in October and similarly accused
of deceptive practices that led to unlawful shortcuts in dealing with the
foreclosure crisis.
MORTGAGE SETTLEMENT NEARS
Schneiderman filed the suit in his capacity as New York
attorney general, but he also serves as co-chair of a working group President
Barack Obama formed last month to investigate misconduct in the pooling and
sale of risky home loans.
Schneiderman is also a central figure in widely publicized
negotiations to reach a federal-state settlement with the top U.S. banks over
mortgage abuses.
A key question is whether holdouts, including Schneiderman
and California Attorney General Kamala Harris will join the settlement.
Danny Kanner, a spokesman for Schneiderman, declined comment
on what Friday's lawsuit may mean for the prospects of the settlement, which
could be announced as soon as next week.
In exchange for up to $25 billion, the banks are expected to
resolve state and federal lawsuits about servicing misconduct and faulty
foreclosures. The states have until Monday to decide whether to sign on.
A draft settlement circulated to the states would have
released the banks from liability for their use of MERS - claims at the heart
of the new lawsuit.
The New York lawsuit suggests Schneiderman and other
attorneys general opposed to the settlement may have been successful in working
to narrow the broad releases of liability.
Last week Schneiderman told Reuters that the releases in the
settlement had "become narrow enough" so that a "full
investigation" by the new mortgage crisis unit could move forward.
However, Schneiderman said last week he was not yet ready to
sign on to the settlement.
On Thursday, California AG Harris told Reuters that she is
not focusing on the Monday deadline for states to sign up.
"I'm less concerned with the timeline than the
details," Harris said on the sidelines of a Harvard Women's Law Association
conference in Boston.
Harris said any settlement should address the priorities she
has previously laid out, like enforcement.
She also said she was aware of Schneiderman's lawsuit
against banks over MERS, but that MERS was less of a priority in the scope of
California's mortgage problems than it was in other states.
"But we support that MERS work," she added.
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