JPMorgan Chase & Co., Bank of America Corp. and Ally Financial Inc., defending allegations of fraudulent home foreclosures from customers and Congress, may face the most financial peril from investigations by state attorneys general.
Authorities in at least seven states are probing whether lenders used false documents and signatures to justify hundreds of thousands of foreclosures, and the number of these inquiries will grow, according to state officials and legal experts.
“You’re going to see a tremendous amount of activity with all the AGs in the U.S.,” Ohio Attorney General Richard Cordray said in an interview. “We have a high degree of skepticism that the corners that were cut are truly legal.”
JPMorgan, Bank of America and Ally have curtailed foreclosures or evictions in 23 states where courts have jurisdiction over home seizures.
While homeowners in those states and elsewhere must usually show damages to win a lawsuit, “attorneys general can just sue over deceptive sales practices and get penalties,” said Christopher Peterson, a University of Utah law professor who specializes in commercial and contract law.
In Ohio, penalties include fines of up to $25,000 per violation, with each false affidavit or document considered a violation, according to state law enforcement officials. In Iowa, fines rise to a maximum of $40,000 for each violation.
This penalty would apply to “every instance of an affidavit that was filed improperly or every time facts were attested to that weren’t true,” Cordray said. His counterpart in Connecticut, Richard Blumenthal, has called for a freeze on foreclosures and said the submissions are a “possible fraud on the court.”
Officials in Ohio and Connecticut, along with Florida, Texas, North Carolina, Iowa and Illinois, said they are investigating mortgage foreclosure practices.
Attorneys general in Colorado and California asked Ally’s GMAC unit to halt foreclosures in their states. GMAC and Colorado Attorney General John W. Suthers plan to meet to discuss the matter, said Mike Saccone, spokesman for Suthers.
“We’re talking to them,” Jim Finefrock, spokesman for California Attorney General Jerry Brown, said in a telephone interview about Detroit-based Ally.
Massachusetts Attorney General Martha Coakley yesterday asked GMAC, JPMorgan, Bank of America and Wells Fargo & Co. to suspend foreclosures and evictions in that state.
North Carolina Attorney General Roy Cooper said today he was expanding his investigation into questionable foreclosure tactics to include 14 more lenders. Cooper, who announced earlier he was looking into allegations about GMAC, also asked lenders to stop foreclosures in his state until they can confirm they are complying with laws.
In addition to the investigation of Ally which began last month, Texas Attorney General Jim Abbott on Oct. 4 asked 30 loan servicers operating in his state — including Charlotte, North Carolina-based Bank of America and New York-based JPMorgan — to stop foreclosures pending a review of business practices. Abbott also asked lenders and servicers to halt “all sales of properties previously foreclosed upon” and stop all evictions.
Lenders took possession of a record 95,364 U.S. homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, California-based data seller.
Lenders, loan servicers and even title insurance companies are facing litigation on multiple fronts, said Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor who worked on cases involving bank fraud.
“This is going to become a hydra,” he said in an interview. “You’ve got so many potential avenues of liability. You don’t even know the parameters of this yet.”
Reviews of affidavits and other loan documents that may have been signed without personal examination by the signers should be completed in a few weeks, JPMorgan and Bank of America said last week.
“We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details,” JPMorgan said in its statement. “The affidavits were prepared by appropriate personnel with knowledge of the relevant facts.”
“We don’t believe the procedural errors…
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