The Attorneys General of Arizona and Nevada have sued Bank of America for violating consumer protection laws in the loan modification process. The civil lawsuits allege that BofA’s servicer is defrauding homeowners who try to modify their mortgages, telling them they would get a permanent modification and then rejecting their applications and evicting them. In addition, according the the lawsuits BofA is violating a settlement from a 2009 lawsuit against Countrywide, now owned by BofA, to modify loans of homeowners who were victims of predatory lending.
Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them that their loans were being modified, (Arizona Attorney General) Goddard said. Instead, many lost their homes anyway.
“Those people could have used that money for something else,” Goddard told The Associated Press. “They were deceived into continuing to make mortgage payments when they had no hope of saving their homes.”
Nevada Attorney General Catherine Cortez Masto told the AP that the Silver State’s lawsuit was a last resort to try to get the bank to change its ways. It was filed after several discussions with bank managers led to assurances but little more.
“Clearly there is a disconnect between what Bank of America tells me at the management level and what’s happening on the front line,” Masto said.
Nevada and Arizona are two of the four states with the biggest foreclosure problem, along with California and Florida. Both are non-judicial foreclosure states, and so these lawsuits on consumer protection grounds are one of the few ways to defend homeowners abused by servicers. The Arizona suit calls for $25,000 for each violation of the Countrywide consent agreement, and up to $10,000 for each violation of the Arizona Consumer Fraud Act. The penalties sought in the Nevada case have not been specified.
A recent paper by Georgetown law professor Adam Levitin and Tara Twomey of the National Consumer Law Center shows that servicer problems are widespread, and boil down to a serious incentive problem on the part of third-party loan servicers, who make money off of foreclosures and lose money on modifying the loan and keeping it performing.
So Bank of America is not the only bad actor here, though certainly they are following the general servicer trend. And this set of lawsuits could have an impact on other big bank servicers. In addition, this puts more pressure on the servicers at a time when all 50 Attorneys General are undergoing an investigation of servicer practices and foreclosure fraud.
Unfortunately, Terry Goddard (D) is leaving the Arizona AG’s office in January, after running unsuccessfully for Governor. His replacement, Republican Tom Horne, may simply withdraw the lawsuit. But Goddard had little choice, after attempting settlement talks with BofA over this issue for eight months. Nevada’s Attorney General, Catherine Cortez Masto (D), was re-elected in November, so that problem does not exist.