PHOENIX (CN) - Bank of America violated a consent judgment it signed almost 2 years ago to provide loan modifications and help relocate borrowers, the Arizona attorney general claims in Superior Court. Attorney General Terry Goddard says BofA "has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole," and continued to make misrepresentations and foreclose on homes despite the terms of the settlement.
The consent decree, signed March 13, 2009, "resolved allegations that Countrywide [Financial Corp.] engaged in consumer fraud in its mortgage lending practices," Goddard says in his complaint in Maricopa County Court. Bank of America acquired Countrywide on July 1, 2008.
Goddard claims Bank of America has continued to misrepresent "to Arizona consumers whether they were eligible for modifications of their mortgage loans, when Bank of America would make a decision on their modification requests, whether Bank of America had approved their modification requests, why Bank of America declined their modification requests, and whether and when Bank of America would foreclose upon their homes."
Since the consent judgment was filed, the bank has "initiated foreclosure proceedings or moved eligible borrowers toward foreclosure while their requests for loan modifications are pending, despite the bank's commitment to halt foreclosures during that time," the state claims.
BofA also left consumers in limbo for months, sometimes for more than a year, while making decisions on modifications - a decision typically made within 60 days - and failed "to use its best efforts to secure investor approval of potential modifications," the complaint states.
Goddard says many Arizona homeowners stopped making mortgage payments in an attempt to qualify for help while others waited "for months for - or never received - answers on their modification requests, all the while fearing that they would lose their homes; many actually lost their homes."
Some borrowers were led to believe they would be able to receive modifications and keep their homes, and continued making payments, while others lost willing buyers who could have mitigated their losses by buying the homes.
Had homeowners known they would lose their homes despite making payments, some would have "sought short sales or other foreclosure alternatives or simply allowed their homes to be foreclosed, saving the money from the additional payments for other necessary expenses," the complaint states.
"Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis," Goddard said in a statement. "It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole."
The Attorney General's Office notified Bank of America on April 9 that the bank was in breach of the consent judgment. Bank of America denied it, and has not informed Goddard's office of any change in its practices, the complaint states.
Goddard says his office has had to repeat its requests for responses to consumer complaints numerous times. On Aug. 25, 2009, Goddard asked BofA for a second time to respond to 10 consumer complaints, including "two that were 2 months past an extension to reply requested by Bank of America."
Goddard says that some of the bank's responses have been inadequate, "as they either fail to answer the allegations of the complaint, provide only partial information or response, or provide nothing more than a form letter unrelated to the issues alleged."
Goddard says he has received hundreds of complaints that Bank of America has repeatedly deceived homeowners about the loan modification process, including claims that borrowers "must be delinquent on their mortgage payments in order to be considered for loan modifications, even though delinquency is not a condition of federal programs or Bank of America's own loan modification programs."
The bank led consumers to believe it would not foreclose upon their homes while modification requests were pending or while homeowners were making trial modification payments, and claimed it had approved loan modifications when it had not, the complaint states.
The state claims that Bank of America would convert consumers to permanent modifications "if and when they made the payments required by trial modification agreements, although many consumers who successfully completed their trial periods have not received permanent modifications."
Bank of America has the second-lowest rate of converting borrowers from temporary trial modifications to permanent modifications - 27 percent - according to the Department of the Treasury. It also has 32,000 "aged trials," or trial modifications that have been pending for more than 6 months, four times more than that of its nearest competitor, JPMorgan Chase.
Arizona's lawsuit, citing an October issue of the Department of Treasury's Servicer Performance Report, claims Bank of America has the "worst speed to answer homeowner calls and worst call abandon rate, indicating that call centers are unable to handle the volume of consumer calls."
The bank also has a higher than average complaint rate and the "worst time for resolving third-party complaints," the complaint states.
Nevada Attorney General Catherine Cortez Masto has filed a similar complaint against Bank of America.
Goddard wants Bank of America held in contempt for violating the consent judgment and ordered to pay restitution, civil penalties, attorneys' fees, and costs of investigation.
He also seeks $25,000 for each violation of the consent judgment and up to $10,000 for each violation of the Arizona Consumer Fraud Act.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.