CitiGroup foreclosure assignments raise eyebrows

After being accused by borrowers of filing fraudulent mortgage documents, Citigroup Inc., the third-largest bank in the U.S., settled or lost at least five of the latter claims in 2010.

In the company's most recent December of 2010 settlement, a bankrupt homeowner in New York challenged against the bank’s use of a mortgage “assignment,” which displays the transfer of ownership of a mortgage. The transfer was signed by Orion Financial Group employee. The Texas firm specializes in document services to lenders.

"(The document was) of fraudulent nature and questionable origin,” the borrower’s attorney wrote in objection to Citigroup’s claim at U.S. Bankruptcy Court. The attorney continued to say the disputed lending company established and submitted the assignment after proceedings began because it otherwise would not have been able to prove its right to collect the debt. Citigroup denied the allegations and failed to acknowledge liability in the settlement.

Top attorneys general in 50 states are investigating the financial industry’s application of mortgage assignments as part of a broader concern into faulty foreclosure methods, according to a spokesman for Iowa's attorney general. A Massachusetts court ruled last month that two foreclosures by other financial institutes were invalid because assignments presented in those cases did not to prove the chain of ownership of the mortgage, sending financial stocks down.

Judges in bankruptcy court are skeptical as to when mortgage servicers claim to have assignments, said a U.S. Bankruptcy Court judge in an interview. They have been inundated with concerns from a Wilmington bankruptcy lawyer, and potentially a few other attorneys.

“They’ve got to show me more than their swearing that they have the right,” he said. “They’re going to have to connect up the dots back to the note and the security agreement, which would be the mortgage.”

The executive with the CitiMortgage subsidiary explained to Congress that the company reorganized foreclosure operations last year, in an effort to avoid the faulty affidavit-signing practices that required industry peers to temporarily put a hold on home seizures.

Citigroup dished out nearly $82,000 in opponents’ legal costs when settling challenges to four bankruptcy claims that used Orion letters in 2010, according to agreements filed with New York and Arkansas federal bankruptcy courts. The filings show that Citigroup reduced interest rates on the remaining debt by an average of 49 percent, while slashing outstanding mortgage balance in three cases by a combined $55,000.

“It doesn’t strike me as something that lenders do every day of the week,” said a bankruptcy law professor at UNC in Chapel Hill. “It does raise some questions about the practices.”

A spokesman for Citigroup said it does not comment on individual claims. The company continues to use Orion for assignment letters, he said. While borrowers continue to dispute the bank’s use of assignments, they have not accused Orion of doing wrong.

“We don’t create fraudulent documents,” said Orion CEO. Orion's documents reveal which company may hold the note and can be based on information from the bank, he added.

Citigroup declined to comment on how often the bank relies on Orion or other document providers for assignments. Documented records can not be searched electronically in most of the counties across the U.S. In Dallas County, where documents are available online, Orion prepared at least 14 assignments transferring mortgages to Citigroup since the start of 2009.

In the case pertaining to Wappingers Falls, Citigroup claimed it was owed about $390,000 from a property mortgage. The company filed an assignment prepared by Orion to support the claim. This questionable document had said another lender had assigned the loan to CitiMortgage more than three weeks after the bankruptcy began.

While settling the borrower’s objections, Citigroup failed to admit any wrongdoing. The bank paid the defendant's $35,000 in legal fees, dropped the mortgage principal by $29,000 and lowered its interest rate by almost 50%.

Massachusetts Supreme Court upheld a voiding of two 2007 foreclosures carried out by financial institutions because the companies failed to show that they possessed the mortgages at the time of the seizures. The banks had backed claims with so- called blank assignments completed after foreclosure sales.

A lender such as Citigroup may elect to avoid scrutiny of its foreclosure practices during litigation, said one of the top lawyers with Jacksonville Area Legal Aid, who instructs attorneys on representing consumers in foreclosure and bankruptcy cases.

Orion is a “mortgage assignment, lien release and document retrieval services” to the mortgage industry, according to its website. Citigroup also partners with Orion for assignments in foreclosures, the bank's CEO said.

Citigroup is still dealing with claims connected to assignment prepared by Orion regarding a case at U.S. Bankruptcy Court in Mississippi. In that case, the judge disallowed the bank’s initial claim to a property in a city about 20 miles south of Memphis, Tennessee. The borrower later asked the court to force the bank to prove whether it has rights to the loan. Citigroup filed a response last month, disputing the demands of the borrower. The company expects to hear a response from the defendant's Salt Lake City real estate lawyer.