Nevada AG questions Bank of America foreclosures, seeks to scuttle settlement

Catherine Cortez Masto

Catherine Cortez Masto

Nevada Attorney General Catherine Cortez Masto hit Bank of America with a new charge Tuesday: That it’s been foreclosing on homes it had no authority to foreclose on.

The allegations were made in an amended complaint in a lawsuit initially filed in December charging the banking giant had harmed struggling Nevada consumers by failing to help them modify their mortgages and had deceived some by leading them to believe their loans would be modified — but then foreclosed on them anyway.

Bank of America has denied those allegations.

The amended complaint, filed in U.S. District Court for Nevada Tuesday, charges that even after the bank was sued in December, it continued to harm by consumers.

“Bank of America’s misconduct in misrepresenting its mortgage modification program continues through the present and has been confirmed in interviews with consumers, former employees and other third parties and through review of relevant documents,” Tuesday’s complaint charged.

In Tuesday’s filing, Masto sought to revoke a 2009 settlement she reached with Bank of America over loan abuses involving its Countrywide Financial Corp. unit, charging the bank has breached the settlement terms.

For instance, the complaint says B of A increased Countrywide consumers’ interest rates and monthly payments, even though the settlement allows only modifications that decrease consumers’ interest rates.

The state also claims the bank required Countrywide borrowers to provide extensive documentation — including pay stubs, tax returns and sworn affidavits — to qualify for modifications, when a streamlined process was supposed to have been in place.

Bank of America on Tuesday denied allegations that it had violated the settlement, called a consent decree.

“While we are continuing to review the attorney general’s amendment, we disagree that there has been any material breach of the consent decree and will continue to vigorously defend this action. Bank of America believes that the best way to get the housing market going again in every state is a global settlement that addresses these issues fairly, comprehensively and with finality,” the bank’s statement said. “Bank of America leads all servicers with more than 148,000 permanent HAMP modifications completed since the program began for a total of more than 895,000 modifications through all available programs since January 2008.”

HAMP stands for Home Affordable Modification Program.

If the settlement is terminated, the state would continue with its initial Countrywide lawsuit charging predatory lending and fraud in originating, marketing and servicing mortgage loans.

Countrywide, for instance, was accused of failing to disclose that low teaser rates in loans would, after a short time, often more than double, leaving homeowners unable to make the new higher payment.

The new complaint asserts broad allegations that the bank’s loan modification process has been understaffed, riddled with technical problems and not oriented to consumers. Employees, for instance, were directed to spend no more than 7 to 10 minutes on average with each customer, not enough time to deal with questions or offer assistance, the state alleges.

“The second amended complaint alleges that Bank of America’s misconduct cuts across virtually every aspect of its operations — from originating to servicing and, all too often, to foreclosing on the loans and homes of Nevada consumers,” a statement from Masto’s office said.

“The state alleges that defendants’ deceptive practices have resulted in an explosion of delinquencies and unauthorized and unnecessary foreclosures in the state of Nevada, stripping homeowners of their assets (including those who do not have loans originated or serviced by defendants, but whose property values have fallen dramatically), dislocating families, blighting neighborhoods and deeply disrupting the state’s housing market,” the statement said.

Most startling in the amended complaint is a charge titled “Bank of America’s deceptions with regard to its authority to collect and foreclose.”

Citing rulings by the Nevada Supreme Court, the complaint says that for anyone to enforce a mortgage note in Nevada, the enforcer must have a properly assigned deed of trust and the note must have been either properly negotiated or validly transferred.

“Valid assignments are needed when a beneficiary of a deed of trust seeks to foreclose on a property,” the Nevada Supreme Court said in one of those rulings last month.

In the case of Countrywide, however, there is “mounting evidence that Countrywide failed to follow the steps required to transfer its notes into securitization trusts,” the amended complaint says.

Virtually all of the loans Countrywide originated were securitized — that is grouped into collateral pools and sold on Wall Street to investment trusts. In Nevada, Countrywide was a huge lender during the mid-2000s real estate boom, originating some 262,000 loans, the state says.

“Countrywide failed to ensure that these notes were properly assigned or endorsed. Second, Countrywide failed to deliver the original notes to the trusts, or provided notes with incorrect terms, missing riders or missing notary seals,” the amended complaint says.

Investigations and lawsuits around the country have found instances where these problems have resulted in improper foreclosure attempts, the amended complaint says.

“As a servicer, Bank of America and its subsidiaries and agents similarly sought to enforce mortgage notes in Nevada, engaged in collection activity in Nevada, pursued nonjudicial foreclosure proceedings in Nevada, defended foreclosure actions in Nevada and filed proofs of claim in bankruptcy in Nevada in instances in which Bank of America did not have authority to act,” the amended complaint says.

“Bank of America misrepresented, both in communications with Nevada consumers and in documents it recorded and filed, that it had authority to foreclose upon consumers’ homes as servicer for the trusts that held these mortgages,” the complaint says. “Defendants knew (and were on notice) that they had never properly transferred these mortgages to those trusts, (by) failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law.

“Because the trusts never became holders of these mortgages, defendants lacked authority to collect or foreclose on their behalf and never should have represented they could,” the complaint says.

A request for comment was placed with Bank of America on this new allegation, but it wasn’t addressed in the response to Masto’s amended complaint.

The backdrop of the amended complaint is that Masto has been balking at having Nevada participate in a proposed multistate settlement with several major banks over problems with their loan modification and foreclosure programs.

Masto’s concern with the proposed settlement, she told Bloomberg News for a story Aug. 16, is that she’s concerned it could short-circuit her existing lawsuit against Bank of America and affect potential future lawsuits and current investigations.

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  1. I am not at all surprised by the allegations in this article. Bank of America's management from North Carolina is infamous for its arrogance, and in doing business in California has a history of profoundly stonewalling when its employees have seriously done wrong (e.g. trust department employees stealing customer's assets). So everthing in the Attorney General's complaint rings true to me. BofA is likely to use 100 lawyers and paralegals to defend itself from these allegations and I only hope the Nevada Attorney General's Office has the manpower and stomach to prove the specific facts relating to Nevada consumers. That's BoA's standard way to "defeat the enemy". Throw tons of bodies at the case, and litigate with no prospect of settlement until BofA is truly scared of losing a trial. It's too soon for BofA to be scared in this case, so there's a long road for the AG's staff ahead.

  2. It's about time SOMEONE stood up to the banks and from my experience, few deserve the scrutiny as much as Bank of America. Go get em!

  3. "Nevada Attorney General Catherine Cortez Masto hit Bank of America with a new charge Tuesday: That it's been foreclosing on homes it had no authority to foreclose on."

    Green -- good article! It seems our AG may be finally getting to the crux of this biscuit, as you quoted our Supreme Court when it nailed those banks early last month "for anyone to enforce a mortgage note in Nevada, the enforcer must have a properly assigned deed of trust and the note must have been either properly negotiated or validly transferred."

    "Why don't the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them..... in America, it's far more shameful to owe money than it is to steal it." -- an article from the November 25, 2010 issue of Rolling Stone by Matt Taibbi "Courts Helping Banks Screw Over Homeowners"

  4. "They never even returned calls to most customers to tell them how to negotiate a modification and further more, they would not produce the original note to prove they owned the property.."

    rwal2222 -- first, before any entity can "negotiate a modification" it must first own the loan. Second, neither the note nor the deed of trust/mortgage gives the lender/Note Holder title to your property -- all the holder owns is your note and the right to your security pledged for your performance. Last, producing "the original note to prove they owned the property" is a fallacy. You can read all about it in NRS 104 Article 3, which will tell you if the Note Holder ever gave the Borrower/Maker the original note that act discharged it -- the note becomes a dead piece of paper. You would also see the only obligation of the person enforcing the note has is, on your demand, to exhibit the note and give you reasonable evidence of that person's authority to enforce it.

    The real questions every one like you should be demanding written proof of is where's the note, and who's the holder? Good luck getting answers.

    "The note is the cow and the mortgage the tail. The cow can survive without the tail, but the tail cannot survive without the cow." -- the late Professor Chester Smith of the University of Arizona College of Law, as cited in Restatement (Third) of Property, Mortgages 5.4, Reporters' Notes