Citigroup, Inc. and Ally Financial, Inc. are facing a lawsuit from homeowners in Kentucky that may have been facing illegal foreclosures. The suit, which has been filed as a civil-racketeering class action on behalf of Kentucky homeowners facing foreclosures. If the homeowners win the suit, they could potentially save their homes from foreclosure.
The lawsuit alleges that the two banks are in the process of foreclosing on homes to which they do not hold title. The entities are foreclosing using the Mortgage Electronic Registration Systems (MERS), a process that was created by the mortgage financing industry to “eliminate the need to prepare and record assignments when trading residential and commercial mortgage loans”. However, the system has, according to the homeowners, enabled the lenders to file foreclosures against homes that they do not have any legal claim to. The lawsuit claims that “the defendants either filed or caused to be filed mortgages through forged signatures.” Furthermore, the foreclosure actions were filed long before either company had acquired any legal interest in the property.
Ally spokeswoman Gina Proia calls the allegations “inflammatory” and “without merit,” and similar cases against banks and MERS were filed and dismissed in Phoenix, Arizona, earlier this year. The plaintiffs were allowed to re-file their complaints, but the original suit was dismissed earlier this year. Some market experts predict that cases like this, along with the recent “robo-signer” frauds that have frozen Bank of America’s, JP Morgan Chase’s and GMAC/Ally’s foreclosures and pre-foreclosures in 23 states, could actually create lender and Wall Street bankruptcies if the issue is not resolved. They are calling it an “economic shock therapy.” Currently, the Kentucky lawsuit is awaiting a hearing.