Bank of America denies misleading Nevada homeowners

By Steve Green

Thursday, Feb. 24, 2011 | 9:50 a.m.

Bank of America on Wednesday denied allegations by Nevada's attorney general that it's been harming homeowners by leading them to believe they can modify their mortgages -- and then foreclosing on them.

Attorneys for the bank filed their first legal response to a Dec. 17 lawsuit filed by Attorney General Catherine Cortez Masto, who charged Bank of America had misled and deceived consumers about mortgage modifications and short sales and that some Nevada consumers had depleted their savings by making mortgage payments based on the false hope they'd be keeping their homes

Another development Wednesday, however, may lead to resolution of this and similar lawsuits filed around the country.

The Wall Street Journal, citing unidentified sources, reported the Obama administration is advocating a settlement over mortgage-servicing problems nationwide involving Bank of America and other large servicers such as Wells Fargo and J.P. Morgan Chase.

The administration wants a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, the newspaper reported.

If there's a universal settlement, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines for servicing violations or to fund a similar amount of loan modifications for distressed borrowers, the journal said.

In the meantime, the Cortez Masto suit against Bank of America will continue and on Wednesday attorneys for B of A and its subsidiaries moved it from Clark County District Court to federal court -- and signaled numerous defenses they intend to employ under federal law.

"Defendants strongly contest the allegations in this lawsuit," said the filing by attorneys with the Washington, D.C., law firm O'Melveny & Myers LLP and the Nevada law firm Lionel Sawyer & Collins -- which coincidentally has offices in office buildings called the Bank of America Plaza in Reno as well as the Bank of America Plaza in Las Vegas.

Among the bank's defenses: Resolution of the lawsuit will require interpretation of the federal Home Affordable Modification Program (HAMP), which was created by the U.S. Treasury Department as part of the Emergency Economic Stabilization Act of 2008. Much of Cortez Masto's lawsuit involves B of A's "alleged violations of HAMP's rules pertaining to requirements that borrowers be delinquent on their loans or at risk of default to quality for certain loan modifications," the B of A filing said.

"An important federal question that will be necessary to answer in resolving the claims of the individual borrowers that the Attorney General’s office purports to represent is whether defendants, at the time they allegedly told the borrowers that they needed to be delinquent in order to obtain a HAMP modification, met HAMP’s requirement that the borrowers be evaluated and judged not at risk of imminent default," the bank filing said.

"Defendants dispute that their conduct violates HAMP," the B of A filing said.

The bank also disputed the state's allegations that it violated the federal Fair Debt Collection Practices Act by misrepresenting to credit agencies that some borrowers were delinquent on loan payments. B of A suggested that as a loan servicer, it may not be defined under the act as a "debt collector" and may not be covered by the debt collection practices law.

"This is a substantial and disputed question of federal law," the bank's attorneys wrote.

In seeking permission to move the case to federal court, the bank also argued there are numerous other lawsuits pending around the country over the same issues and that the federal court system is best suited to resolve these cases.

"There is a strong federal interest in ensuring that national banks are not subjected to inconsistent regulation through state tort action; that banks’ obligations under federal law are construed uniformly; and that these inherently federal issues are adjudicated in a federal forum," the filing said.

Bank of America and its subsidiaries service some 192,000 residential mortgages in Nevada with unpaid principal balances topping $35 billion, the filing said.

Bank of America's codefendants in the case are BAC Home Loans Servicing LP; ReconTrust Company N.A.; Countrywide Financial Corp., Countrywide Home Loans Inc. and Full Spectrum Lending Inc.