Citigroup Folds By Settling Suits, Coughing Up Homeowner Legal Fees Arising From Dubious Loan Document Challenges In Consumer Bankruptcy Cases

Bloomberg reports:

• Citigroup Inc., the third-largest U.S. bank, settled or lost at least five claims in 2010 brought by borrowers who accused the bank of filing fraudulent mortgage documents provided by a Texas firm.(1)

• In the most recent settlement in December, a bankrupt homeowner in Wappingers Falls, New York, challenged Citigroup’s use of a mortgage “assignment,” which shows the transfer of ownership of a mortgage. It was signed by an employee at Orion Financial Group Inc., a Southlake, Texas, firm that provides document services to lenders.(2)

• The document was “of fraudulent nature and questionable origin,” the borrower’s attorney, Linda Tirelli, wrote in an August objection to the bank’s claim at U.S. Bankruptcy Court in New York. Citigroup created and filed the assignment after proceedings began because it otherwise couldn’t prove its right to collect the debt, she wrote in an e-mail. The bank denied the allegations and didn’t admit liability in the settlement.

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• In the Wappingers Falls case, Citigroup said it was owed about $390,000 from a mortgage on a property in Chapter 13 bankruptcy. The bank filed an assignment prepared by Orion to back the claim. This document claimed another lender had assigned the loan to CitiMortgage on June 24, more than three weeks after the bankruptcy began.

• In settling the borrower’s objections, the bank didn’t admit wrongdoing. It paid Tirelli’s $35,000 legal fees, reduced the mortgage principal by $29,000 and chopped the interest rate almost in half, to 3 percent.

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• A lender such as Citigroup may settle to avoid scrutiny of its foreclosure practices during litigation, said April Charney, a senior attorney with Jacksonville Area Legal Aid in Jacksonville, Florida, who instructs lawyers on representing consumers in foreclosure and bankruptcy cases.

• “They’re afraid of going through the process,” she said. A risk-based analysis may focus on the question, “Do I risk going in front of the judge and getting an order that is going to beam around the whole world?” she said.

For more, see Citigroup Settles Fraud Cases Tied to Texas Mortgage Assigner.

(1) Reportedly, 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. According to the story, 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 and it still faces claims tied to an Orion-prepared assignment in a case at U.S. Bankruptcy Court in Aberdeen, Mississippi.

(2) Orion is based in Southlake, Texas, a city about 30 miles northwest of Dallas and provides “mortgage assignment, lien release and document retrieval services” to the mortgage industry, according to its website, the story states.