States Balk at Banks Foreclosure Deal

By Kevin Chiu

A move by five of the U.S. largest banks to reportedly limit their liability over illegal foreclosures is being rejected by at least three states now investigating lenders for their Martha Coakley roll in the robo signing scandal. Massachusetts Attorney General Martha Coakley added the state’s name to the growing list of states refusing to sign on to any agreement worked out by negotiators from state Attorneys General offices in all 50 states investigating illegal foreclosures limiting lenders’ financial liability.

The lenders are in negotiations with Attorneys General in an effort to reach a nationwide settlement in the robo signing scandal, in which bank servicing representatives admitted to illegally signing foreclosure paperwork without first confirming the legal ownership of homes and other properties.

“Massachusetts will not sign on to any global agreement with the banks if it includes a comprehensive liability release regarding securitization and the MERS conduct,” Coakley said in a letter sent to county assessors. Mortgage Electronic Registration Systems (MERS) is a nationwide company that records mortgage titles through its national electronic system with county recorder offices across the country.

Courts have been overloaded with cases from individuals undergoing foreclosures challenging the legality of their cases in many states, charging that bank servicing companies did not possess the original mortgage paperwork required to enforce a legal foreclosure. New York and Delaware’s top prosecutors have already voiced reservations over agreeing to any settlement that includes a release of liability for banks. Federal officials and state attorneys general are working on an agreement with the nation’s five largest banks, which are the subject of the investigations, Bank of America, JP Morgan Chase & Co., Citigroup Inc., Wells Fargo and Ally Financial Inc.

Iowa Attorney General Tom Miller

A settlement would work out solutions for at least part of the massive foreclosure crisis between banks and homeowners who have been wrongfully foreclosed, and provide direction for bank servicing standards for those currently in the foreclosure pipeline. Any agreement would also include financial payments for homeowners that have been illegally foreclosed. But the longer the negotiations drag on the less likely it is that a deal could be worked out, according to analysts.

Iowa Attorney General Tom Miller is leading the 50 state investigation. “In many cases a loan modification is in everybody’s best interest, the homeowner, the investor, servicer and the national economy,” Miller said in a statement pushing for the agreement. “I know it’s worth our best efforts to save as many homes as we can.”

Victims of wrongful foreclosures would benefit from a settlement with states providing relief to homeowners across the U.S. where communities have been rocked by foreclosures. A settlement could require banks to increase the number of loan modifications, including principal reductions before any foreclosure proceedings are initiated and include remedies for homeowners who have already lost their homes illegally.