Thursday, September 21, 2023
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Homeowners May Nail Citibank on Fraud

SAN JOSE, Calif. (CN) - Citibank must face claims that it defrauded homeowners by padding the fees they charge on the delinquent accounts, a federal judge ruled.

Gloria Stitt is the lead named plaintiff in a class action against Citibank and Citimortgage for violations of federal anti-racketeering law, conspiracy to violate RICO, unjust enrichment, and fraud.

They say Citi colluded with subsidiaries, affiliates and vendors on a profit-making scheme to "unlawfully mark up default-related fees." The vendors allegedly padded fees "often by 100% or more," but never informed borrowers of the markups or profits.

The borrowers also claim Citi routinely assessed fees that were unnecessary, such as ordering monthly property inspections although inspections were not needed. One class member's home was allegedly inspected more than 30 times in three years.

Citi moved to dismiss the complaint, but U.S. District Judge Yvonne Gonzalez Rogers pruned only the RICO claims on Thursday. She gave the prospective class 21 days to try again with an amended complaint.

The bank argued that its actions followed the terms of the mortgage agreements and represented normal business practices.

In preserving the borrowers' fraud claim, the court pointed to several authorities that imposed a duty to disclose material information, such as mark-ups, on lenders. Jurors could find that Citi's failure to itemize "delinquency expenses" and mark-ups on mortgage statements could be characterized as fraud, according to the ruling.

The court declined to determine if the mortgage agreements protected Citibank from the unjust enrichment claim, stating a decision on the issue was "premature for the court."

There were no "specific factual allegations," however, to demonstrate that Citibank's actions were the conduct of an enterprise and racketeering activity, as defined by RICO, Rogers said.

The borrowers offered vague allegations regarding the possible structure of an enterprise but no explanation of how the various groups worked together to defraud borrowers in default, according to the ruling.

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