In a handful of cases around the country, Citigroup has reached settlements with homeowners who accused the bank of filing fraudulent mortgage documents [1] to prove its legal standing to collect the debt in bankruptcy proceedings, Bloomberg reported today.
The cases put a twist on recent efforts by banks to patch over problems created because lenders and securitizers were sloppy with documentation during the housing bubble. These homeowners alleged that Citigroup’s mortgage assignments—a key document produced whenever the ownership of a mortgage changed hands—were flawed because they were dated after the bankruptcy was filed.
Mortgage assignments, as we’ve noted [2], are sometimes processed in-house by mortgage servicers, but may also be contracted out to companies, in this case a Texas company called Orion Financial Group. (Orion has not been accused of wrongdoing, but told Bloomberg it does not “create fraudulent documents.”)
In the settlement agreements with homeowners, Citigroup did not admit wrongdoing but agreed to cover their legal costs and slash their interest rates. In a few cases, the bank also reduced the amount outstanding on mortgages. Here’s Bloomberg:
Citigroup paid almost $82,000 in opponents’ legal costs when settling challenges to four bankruptcy claims that used Orion letters in 2010, according to agreements filed with federal bankruptcy courts in New York and Arkansas. The bank reduced interest rates on the remaining debt by an average of 49 percent, while cutting the outstanding mortgage balance in three cases by a combined $55,000, the filings show.
A Citigroup spokesman told Bloomberg that it reaches settlements in cases for “a variety of reasons, usually so both parties can avoid the expense of ongoing litigation.”
Read on.
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