The state Attorney General's office sued Bank of America on Friday, accusing it of defrauding its mortgage customers.
In a complaint filed in Maricopa County Superior Court, the state charges the bank, the largest servicer of home loans in Arizona, with engaging in practices which led to hundreds of people being ousted from their homes even as they were being told their mortgages were being modified.
"The complaints that have come into the Attorney General's office, the evidence we have amassed in a year-long investigation shows a systematic disregard for their borrowers," said Attorney General Terry Goddard.
What makes the situation even worse, Goddard said, is that Bank of America signed a consent decree two years ago promising to improve how it treats its mortgage customers, most of whom at that time had been inherited after the bank acquired Countrywide Financial Corp.
"What they have done in these cases is not done what they said they would do," he said. Sometimes homeowners would not get a timely response; other times, Goddard said, the bank would not respond at all.
Goddard said he has worked to negotiate a deal with the bank for several months. But he said that the bank has been unwilling to provide the kind of relief he believes is necessary, especially considering the violations of the earlier consent decree.
In a prepared statement, B of A Vice President Dan Frahm chided Goddard, whose term is up in two weeks, for filing his "expensive, go-it-alone litigation" rather than working with counterparts from other states for a nationwide settlement of foreclosure issues. Frahm said those national talks are designed to result in "fair and equitable foreclosure practices."
Goddard said he and the Nevada attorney general, who also filed suit Friday, went to Iowa this week in a last-ditch effort to work out something to provide immediate consumer relief.
"They didn't want to make it enforceable," he said.
"At that point, we had nothing to lose," Goddard said. "We got a consent judgment against them two years ago and they haven't lived up to that."
Allegations in the lawsuit include:
• Inconsistent statements given by bank personnel to homeowners about the status of their loan or refinancing;
• Shuffling homeowners among many different people rather than a single point of contact;
• Failing to provide reasons why a loan modification request was rejected.
Goddard's biggest complaint is the use of a "dual track" process, getting homeowners to keep making mortgage payments with assurances their loans were being modified while starting foreclosure proceedings.
"That's highly deceptive and highly destructive of the financial integrity of the borrower who, if they know as a certainty they're going to be foreclosed, is not going to continue to make mortgage payments," Goddard said.
"They're going to save that for something else, so they can find somewhere else to live. But deceptively, Bank of America, on many, many occasions, continued to accept mortgage payments while they continued to process individuals for foreclosure and, in fact, were ready to sell the house."
Goddard said his investigators even found situations where the bank continued to demand and accept mortgage payments even after the home had been sold but before the original owner was evicted.
Faye Weber, one of the people identified by Goddard as a victim of the bank, told how she sought modification of her loan from Countrywide in April 2008. Weber, who said she had never missed a payment, said she complied with each request for documents.
Weber said she was told in October by Bank of America she had been pre-approved for the modification, and made her mortgage payments for October through January only to get a letter in January to be in court.
"It was an eviction," she said, with the judge giving her until Feb. 22 to get out of her Mesa home.
"They're still hounding me," Weber said. "They're saying that according to their records, I am the owner of that house. But it's been empty since February (2009)."
Goddard also said that while the bank's own website promises a response on home loan modifications within 90 days, "we've had people in the process for over a year."
He said some of the practices by the bank appear to be a deliberate maneuver to avoid working with homeowners. For example, he said some of the people who were in charge of answering calls from borrowers had "little or no training. Our investigation has shown that was not uncommon and, in fact, people that had no financial background whatsoever were put on the phones to answer questions."
"The main statement they were given, the main objective was to terminate the calls within six or seven minutes," he said. "I would submit that's not a helpful guideline."
Goddard said even if he wins the lawsuit, that won't help those already evicted: Once a home has been sold to a third party in foreclosure, there is no way to reverse that deal.
The sole exception, he said, is if the property was purchased by the mortgage holder in a credit bid and retains title.
What Goddard said he can get is $25,000 for each violation of the earlier consent decree and $10,000 per violation of Arizona's Consumer Fraud Act.
How many violations there are, he said, is unclear.
Goddard said his office has received between 300 and 400 specific complaints. But he said there likely are many other former homeowners who, having lost the fight with the bank, simply walked away.