Arizona's attorney general filed a lawsuit Friday against Bank of America, accusing the state's largest mortgage lender of deceiving borrowers who were trying to obtain loan modifications to keep their homes.
Bank of America violated the state's consumer-fraud laws by not responding to many homeowners' requests for help, rejecting loan-modification applications without supplying sufficient reason and beginning foreclosure proceedings on homeowners at the same time those borrowers were starting loan modifications, according to the lawsuit filed in Maricopa County Superior Court.
"BofA is abusing borrowers systematically," Arizona Attorney General Terry Goddard said. "It showed a blatant disregard for people's rights and practiced blatantly deceptive procedures."
Goddard's lawsuit follows a one-year investigation into the loan servicing and foreclosures practices of the Charlotte, N.C.-based lender, Arizona's largest mortgage holder and servicer. In 2010, nearly 500 consumers filed complaints against the bank with the state attorney general.
Goddard said in one case, attorney general investigators were able to prove the fax number BofA employees were giving customers to send in loan-modification requests and documents was a dead line.
Nevada's attorney general filed a similar lawsuit against the bank on Friday.
Goddard's lawsuit alleges the bank violated a previous consent judgment with the attorney general over mortgage-fraud allegations against Countrywide. BofA bought Countrywide in summer 2009. Later that year, the lender reached agreements with several state attorneys general to modify subprime loans made by Countrywide and to fund consumer-fraud-prevention efforts.
Goddard is calling for BofA to pay $25,000 for each violation of the consent judgment and $10,000 for each violation of the Arizona Consumer Fraud Act. Goddard said it's too early to place a price on the suit or any settlement. He said his office negotiated with Bank of America this week to try to reach a settlement before filing the suit.
Bank of America on Friday described the filing of the lawsuits as hasty.
"We are disappointed that the suits were filed at this time, however, because we and other major servicers are currently engaged in multistate discussions to address foreclosure-related issues more comprehensively," said Dan Frahm, a senior vice president for the bank, through an e-mail statement.
"Bank of America has been a cooperative partner with the attorneys general, has worked with state leaders to evolve programs and resources to broaden assistance to distressed customers," he said. "And we are already under way with further improvements to our processes and programs for Bank of America customers."
The Arizona attorney general's lawsuit describes the experience of more than a dozen Bank of America borrowers. One is Jeff Adams, who filed a complaint earlier this year with the Attorney General's Office over BofA's handling of his loan modification. He requested a modification on the mortgage for his Scottsdale home early last year. By October 2009, he said BofA had lost his paperwork four times, but his loan application was finally approved.
Early this year, Adams received a foreclosure notice despite making his payments on time. He called BofA and said he was told to keep making his payments and ignore the foreclosure notice. In July, someone from Fannie Mae knocked at his door and told him to move out because the mortgage company had foreclosed on it. Adams was able to fight and have the foreclosure canceled because no one had bought his home through the foreclosure auction.
"I felt like I was housejacked," he said. "I am making my payments but am still afraid that another foreclosure notice might come in the mail or at my door."
Goddard's lawsuit, if successful, won't provide compensation for Adams or other BofA loan holders who believe they have been wronged. Goddard said any damages paid by the lender would go toward the state's fund to fight consumer fraud. The lawsuit, though, could help pave the way for Arizona homeowners to file civil lawsuits against BofA, Goddard said. A successful settlement or lawsuit would establish bad practices by BofA.
Goddard said anyone in Arizona who feels he or she was treated unfairly by Bank of America through a loan modification or foreclosure proceeding should contact the Attorney General's Office at www.azag.gov. The lawsuits against Bank of America are the latest sign that homeowners and regulators are getting increasingly impatient with the banking industry.
Many metro Phoenix homeowners trying to avoid foreclosure through federally backed loan modifications are frustrated and angry with lenders over the problems with the process. Borrowers accuse several of the nation's biggest lenders of being unresponsive, requesting the same paperwork multiple times and making mistakes on paperwork and foreclosure actions.
The prosecutors want lenders to standardize their practices to reduce the chances of improper foreclosures and create a fund to help homeowners who have been foreclosed on illegally.