'Fraudulent' electronic mortgage registry lawsuit will go ahead

$40bn settlement has not stopped the claim against JP Morgan, BoA and Wells Fargo

Bank of America, Wells Fargo and JPMorgan Chase are part of a $25 billion settlement with the US Department of Justice over mortgage foreclosures, but they remain embroiled in a heated lawsuit over an allegedly fraudulent electronic mortgage registry.

The banks are being sued by the New York State Attorney General over an allegedly restrictive and inaccurate database that may have resulted in unfair foreclosures for many home buyers. The attorney's office has confirmed to Computerworld UK that his lawsuit is still going ahead.

The other parties to the settlement that was announced yesterday - over allegations of unfair foreclosures on US mortgage payers - are Citigroup and Ally Financial, but those companies are not involved in the mortgage registry lawsuit. The settlement is likely to see the banks make billions of dollars of cash payments to around 750,000 homeowners.

BoA, JP Morgan Chase and Wells Fargo, however, are accused in the New York State Attorney's lawsuit that remains of creating and controlling access to a database of mortgage holders in ways that enabled the banks to deceive courts and fraudulently foreclose homes for people struggling to pay their mortgage.

At the same time, they allegedly avoided $2 billion in processing fees by using the system. They have not yet commented on the claims.

They are also open to lawsuits from other states - and yesterday the Department of Justice gave the go-ahead for those states to pursue their own electronic registry claims, if they choose to do so. The US Department of Justice said in a statement that state attorneys had retained their individual claims, and had "also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS)".

MERS was created in 1995 to simplify the recording of mortgage sales and to allow banks to more easily sell on the loans. The system was created in 1995, and contains 70 million loans, including those written by Fannie Mae and Freddie Mac. Nearly half of the loans in the system are currently active.

But as well as being used fraudulently, the database was also "plagued with inaccuracies and errors", according to the complaint.

New York State Attorney General Eric Schneidermann said that employees and agents of the bank used the system to "repeatedly" submit court documents on mortgage holders, "containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have [had]".

"The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitisation and sale of mortgages," said Schneiderman.

"Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law."

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