Massachusetts Attorney General Martha Coakley sued five of the nation’s largest banks Thursday over allegations of illegal foreclosures and deceptive mortgage servicing practices, saying she no longer could wait for the outcome of multi-state negotiations with the banks that have dragged on for more than a year.
“This suit seeks accountability against the banks for both cutting corners and also rushing to foreclose on homeowners without following the rule of law,” Coakley said at a news conference. “We say today, ‘Enough is enough.’ ”
The complaint, filed in Suffolk Superior Court, names the same banks whose foreclosure practices caused a national uproar last fall and triggered state and federal investigations: Bank of America, Wells Fargo, J.P. Morgan Chase, Citigroup and GMAC, now known as Ally Financial.
The lawsuit also names Reston-based Mortgage Electronic Registration Systems and its parent company, MERSCORP, whose vast computerized registry helped lubricate the housing boom by allowing banks to quickly and cheaply transfer the ownership of loans.
The Massachusetts suit accuses the banks of foreclosing on homes without holding the mortgage note, undermining the state’s land recording system by using MERS, failing to live up to loan modification agreements with troubled homeowners and filing fraudulent documents.
“There is no question that the deceptive and unlawful conduct by Wall Street and the large banks played a central role in causing this economic crisis,” Coakley said, adding that while some banks might be too big to fail, “we believe they are not too big to have to obey the law.”
In statements on Thursday, the firms named in the lawsuit denied wrongdoing and vowed to “vigorously” defend themselves against the allegations.
“We are disappointed that Massachusetts would take this action now when negotiations are ongoing with the attorneys general and the federal government on a broader settlement that could bring immediate relief to Massachusetts borrowers rather than years of contested legal proceedings,” said a spokesman at J.P. Morgan Chase, reflecting a common sentiment among the banks.
Coakley’s suit again calls into question the fate of settlement negotiations between the banks and a coalition of state attorneys general and federal officials. Those talks, which have gone on for more than a year, have been beset by disagreements over how much the banks should pay for their misdeeds and to what extent any settlement should release the firms from future claims.
States such as California, New York and Delaware have backed away from the talks, complaining that the pending settlement would let the banks off too easily. Coakley said months ago she was losing confidence in the talks, particularly as it related to releasing banks from claims related to MERS.
“Certainly we don’t rule out that some agreement can be reached. . . . [But] we have come to believe that it’s taken too long, and the signals to us are that we would not get the relief we sought in Massachusetts,” Coakley said Thursday. “We felt it was important to move forward.”
Iowa Attorney General Tom Miller, the leader of the 50-state settlement talks, has been trying to get key states such as California back on board. He said in a statement Thursday that he still hopes to secure Coakley’s support, too. “We’re optimistic that we’ll settle on terms that will be in the interest of Massachusetts,” Miller said.
It remains unclear how the banks will respond to Coakley’s suit. It could spur them to settle more quickly in hopes of avoiding costly litigation in various states. On the other hand, it could make a settlement less likely if the banks decide to dig in and fight in court.