WASHINGTON -- Massachusetts Attorney General Martha Coakley is suing five of the nation's biggest banks for deceptive foreclosure and mortgage modification practices, her office announced Thursday. Coakley's suit signals her formal departure from ongoing settlement negotiations between those banks, the Obama administration and a coalition of other state AGs over faulty foreclosure procedures.
"The single most important thing we can do to return to a healthy economy is to address this foreclosure crisis," Coakley said in a statement Thursday. "Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law. Our action today seeks real accountability for the banks illegal behavior and real relief for homeowners."
The lawsuit, filed against Bank of America, JPMorgan Chase, Wells Fargo, Citibank, Ally Financial and the Mortgage Electronic Registration System in Suffolk Superior Court, targets banks' using fraudulent paperwork in the foreclosure process, foreclosing without actually holding the mortgage, corrupting the local land recording system and failing to uphold promises of loan modifications.
Until now, Coakley had participated in settlement negotiations led by Iowa Attorney General Tom Miller and the Obama administration. The talks kicked off last fall when it came to light banks were using phony documents and forged signatures -- a process dubbed "robo-signing" -- to foreclose on thousands of borrowers.
New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden became outspoken critics of the talks this summer, insisting Miller sought too narrow a settlement that would release the banks from liability for too much wrongdoing. Miller's focus has been robo-signing and mistreatment of struggling homeowners seeking modifications, but not potential fraud in the way loans were given to borrowers or sold to investors, or in the way banks use MERS to shuffle mortgage documents. The settlement would not encompass the 50 percent of all home mortgages owned by government-backed mortgage giants Fannie Mae and Freddie Mac, according to sources close to the talks.
The deal sought by Miller would force the five banks to reform the way the service mortgages and to fork over $25 billion worth of help for homeowners, mostly in the form of principal reductions and modifications. Some who already lost their homes would be eligible for small restitution payments.
Coakley said in a Thursday conference call with reporters that Miller could still reach an agreement, "but it's taken too long and the signals we have received are that we won't get relief that we seek."
In a Thursday statement, Miller said Coakley had told him of her decision. "She also indicated that she'll evaluate the joint state-federal settlement we're negotiating, which we hope to reach soon," Miller said. "Attorney General Coakley indicates that she is open to joining our settlement effort if the terms adequately address the needs of the people of Massachusetts. We're optimistic that we'll settle on terms that will be in the interests of Massachusetts."
Danny Kanner, a spokesman for Schneiderman, praised Coakley in a statement. "Attorney General Schneiderman is encouraged by Attorney General Coakley's action today, and looks forward to their continued work to hold those responsible for the mortgage crisis accountable and provide meaningful relief to struggling homeowners."
Attorneys general in California and Nevada have also distanced themselves from the settlement talks in recent months. In August sources said Coakley was among the AGs pushing for tougher treatment of the banks.
"The lawsuit follows more than a year of negotiations with the banks over a 50-state settlement focused around the issues of fraudulent documents, including 'robo-signing,'" Coakley's office said in its release. "AG Coakley had made clear that she would not sign on to an agreement with the banks if it included broad liability release regarding MERS and other issues or if she did not believe the banks had come to the table with an offer in the best interest of Massachusetts."