A Florida-based mortgage company filed claims—under RESPA, TILA, FTC, FDCPA, ECOA, Dodd-Frank, and the FHA—against a large U.S. bank, alleging that the bank satisfied part of an $8.2 billion settlement burden it owed to the American government as restitution for the bank’s previous misconduct in the mortgage industry by “forgiving” loans which it did not actually own.
In 2012, the bank was fined $5.3 billion by the government for its previous fraudulent activities and contributions to the 2008 financial crisis—only $1.1 billion had to be paid in cash, and the other $4.2 billion would be satisfied if the bank reduced the amounts homeowners owed on loans, modified loan terms, and took other affirmative steps to keep Americans in their homes. The following year, the government released another settlement, in which it required the bank to relieve another $4 billion in consumer debt.
The bank claimed to have “cancelled” debt owed on numerous mortgage loans in satisfaction of the debt forgiveness portion of its settlements. However, Plaintiff alleges that the bank had previously sold those “forgiven” mortgages to various third-party investors years earlier, and that the bank had conspired with a document-processing company to have paperwork created which asserted that the bank still owned the loans.
The mortgage company—who bought discounted distressed mortgages from the bank and offered borrowers reduced mortgage payments—alleges that through a series of “misrepresentations,” the bank “fraudulently” sold it “toxic” loans plagued with legal defects and improper terms and never provided the appropriate documentation proving the company’s ownership of the loans. Plaintiff also claims that the bank continued to collect borrowers’ payments on some of the loans it had sold the company, yet disclaimed ownership whenever code-enforcement issues with mortgage property ever arose. Plaintiff further alleges that the bank hid the “toxic” loans’ non-compliance with federal mortgage regulations from the Federal Government by claiming ownership over them—using the withheld ownership documentation—and “forgiving” the mortgages. The bank allegedly sent letters to numerous homeowners, purportedly absolving them of debt on loans which they had previously sold to other mortgage companies, and then reported the loan “forgiveness” to the government in order to satisfy its debt relief burden.
In its Proposed Fourth Amended Complaint, Plaintiff further alleges that the bank hired a processing company to file “false” lien releases in various counties, and that the processor engaged in the same “robo-signing” processes that the bank had previously been fined by the government for using.
Seeking recompense for these allegations and more, the owner of the mortgage company filed two lawsuits in federal court alleging fraud on the bank’s part—one in New York on behalf of his company, and one in Washington, D.C. on his own behalf. Because the mortgage company’s case was excluded from the bank’s federal settlements, the Justice Department is able, but probably unlikely, to pursue it.
The cases referenced are Mortgage Resolution Servicing, LLC. v. JP Morgan Chase Bank, N.A. et al, case no. 1:15-cv-00293-LTS-RWL in the Southern District of New York and Schneider v. JP Morgan Chase Bank, N.A. et al, case no. 1:14-cv-01047-RMC in the District of Columbia District Court.