AG Martha Coakley sues major US banks over foreclosures

By Jenifer B. McKim, Globe Staff

Massachusetts Attorney General Martha Coakley today sued five major US banks for allegedly illegally seizing properties, filing fraudulent foreclosure documents and failing to help struggling borrowers who could have stayed in their homes if they had been allowed to make lower mortgage payments.

The lawsuit, filed in Suffolk Superior Court, targets Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co, Citigroup Inc., and GMAC, a subsidiary of Ally Financial Inc. It also names the private mortgage recording company known as Mortgage Electronic Registration System, Inc. and its parent company as defendants.

“Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law,’’ Coakley said. “Our action today seeks real accountability for the banks’ illegal behavior and real relief for homeowners.”

The suit is the first major legal action taken against the nation’s biggest banks since settlement negotiations began last year between the lenders and a multistate alliance of attorneys general. The talks started after state attorneys general launched an investigation into allegations of fraudulent and sloppy foreclosure-related practices.

Coakley said she was prompted to sue because the negotiations have stalled. The banks have failed to offer any meaningful restitution, she said, but want broad immunity from liability for the nation’s foreclosure crisis.

“They have had more than a year to show they understood their role and their need to show accountability for this economic mess and they failed to do so,’’ she said. “Whether through the courts or negotiations, we will accept only one result, obtaining accountability from these banks and getting real relief for homeowners.”

Iowa Attorney General Tom Miller, who is leading the talks between the federal government and banks, said he hopes to reach a settlement soon that Coakley would find acceptable.

“We’re optimistic that we’ll settle on terms that will be in the interests of Massachusetts,” Miller said.

Lenders, however, said they were disappointed about the litigation at a time when negotiations are moving forward. They vowed to fight allegations of wrongdoing.

“GMAC Mortgage believes it has strong legal and factual defenses against these claims and will vigorously defend its position in court,” said Gina Proia, chief communications officer for parent company Ally Financial.

Chase officials said in a statement that settlement talks “could bring immediate relief to Massachusetts borrowers rather than years of contested legal proceedings.”

Citigroup officials said they had not yet had time to review the suit. “We believe we have operated appropriately, in compliance with existing laws, and will defend our actions vigorously,’’ the company said in a statement.

Wells Fargo said Coakley’s suit will not help Massachusetts homeowners or the economy. “While we will vigorously defend ourselves in the Massachusetts case, Wells Fargo will continue our work with state and federal authorities to develop housing remedies across the country,’’ the bank said in a statement.

A Bank of America spokesman said the lender plans to keep negotiating with federal regulators. “We continue to believe that the collaborative resolution rather than continued litigation will most quickly heal the housing market and help drive economic recovery,’’ said spokesman Lawrence Grayson.

Like the banks, MERS officials said they had done nothing wrong. “The company has not engaged in or facilitated any violation of the Commonwealth’s statutes, including its consumer protection provisions,” said Janis Smith, ira vice president for corporate communications.