NEW YORK (Reuters) ? New York State Attorney General Eric Schneiderman on Friday sued three major U.S. banks, accusing them of fraud for using an electronic mortgage database that resulted in deceptive and illegal practices, including false documents in foreclosure proceedings.
Schneiderman, co-chair of a new mortgage crisis unit under President Barack Obama, filed a lawsuit against Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N) and JPMorgan Chase & Co (JPM.N) in New York state court in Brooklyn.
MERS, the Mortgage Electronic Registration System, was created in the mid-1990s for tracking mortgage ownership. It is a collaboration of top mortgage servicers, mortgage insurers, and the government entities that hold many of the country's mortgages, Fannie Mae and Freddie Mac.
"The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse," Schneiderman said.
"By creating this bizarre and complex end-around of the traditional public recording system," Schneiderman's lawsuit claims that banks saved $2 billion in recording fees.
Over 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks' offices, according to the lawsuit.
The lawsuit claims the database is inaccurate and seeks to stop the banks from filing foreclosure actions in MERS name, and executing false or defective mortgage assignments in New York foreclosure proceedings.
Schneiderman also is seeking all profits obtained through the fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law.
JPMorgan spokesman Patrick Linehan declined to comment on the lawsuit. Wells Fargo spokesman Ancel Martinez said the company was reviewing the lawsuit and doesn't have "anything to add at this time." Bank of America spokesman Rick Simon declined comment.
Defendants Merscorp and its subsidiary, Mortgage Electronic Registration Systems, Inc (MERS), comply with the law and mortgage regulations, Janis L. Smith, a spokeswoman said in a statement.
"Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders," the MERS statement said. "We refute the attorney general's claims and will defend the case vigorously in court."
(Reporting by Karen Freifeld; Additional reporting by David Henry, Rick Rothacker and Aruna Viswanatha; Editing by Eddie Evans)
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