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Originally published Friday, August 5, 2011 at 3:06 PM

State files suit against Bank of America unit in foreclosure mess

The state alleges in the lawsuit filed Thursday that the bank's ReconTrust unit failed to act as a neutral third party in about 10,000 foreclosures in King, Snohomish and Pierce counties.

Seattle Times business reporter

quotes We can certainly trust business to be honest and ethical. Obviously they do not need... Read more
quotes since bank of america &recontrust do not believe they have to follow state the the... Read more
quotes during this lawsuit will they be allowed to continue foreclosures illegally? Read more

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Washington state has taken on a subsidiary of Bank of America, charging it with illegally foreclosing on thousands of homeowners in the last three years.

The state alleges in the lawsuit filed in King County Superior Court on Thursday that the bank's ReconTrust unit failed to act as a neutral third party in every foreclosure it has conducted since June 2008 at the latest. The state estimates ReconTrust has handled 10,000 foreclosures in King, Snohomish and Pierce counties since then.

The complaint also outlined that ReconTrust concealed or misrepresented the actual owner of the debt when conducting foreclosures.

"ReconTrust's illegal practices make it difficult, if not impossible, for borrowers who might have a shot at saving their homes to stop those foreclosures," Attorney General Rob McKenna said in a statement.

McKenna said ReconTrust ignored warnings and refused to provide information requests during the investigation that started more than a year ago.

Jumana Bauwens, a spokeswoman for Bank of America, said ReconTrust operates in compliance with applicable state and federal laws.

"We disagree with the Attorney General's concerns on this issue and will vigorously defend the services of ReconTrust against this challenge," she said.

A nonjudicial state

The lack of regulation over foreclosure trustees most likely was the cause of this issue, said Melissa Huelsman, attorney practicing predatory lending and mortgage fraud laws.

In Washington, lenders are not required to go to court to foreclose when a borrower defaults on a mortgage. Instead, foreclosure trustees — attorneys, title companies or corporations with an office in the state — act on behalf of the lender to sell the property and repay what the borrower owes.

Since July 26, 2009, state law also has required trustees to identify the owner of the loan and the loan servicer and to provide an address and phone number for that servicer.

The complaint alleges that ReconTrust failed to act in good faith and accordance with these laws. McKenna also said the company didn't maintain an office in Washington, which is also required by law. The state is seeking restitution for owners who lost their properties and is asking for penalties of $2,000 per violation.

Confused homeowners

Deb Bortner, consumer services division director for the Washington Department of Financial Institutions, said there has been a lot of confusion over the last three years, especially among those looking to negotiate a loan modification.

"People don't know where to go or what to do," she said, noting that loans are often sold to unknown third parties. "How do you negotiate with someone when you don't know who they are?"

One of those homeowners is Ruby Barrus, a Marysville resident. Barrus said she obtained a mortgage in 2007 with a loan serviced by Bank of America's subsidiary BAC Home Loan Servicing. When she began experiencing financial troubles, she said BAC promised her they wouldn't foreclose on her property while they worked out a loan modification. She then began making trial payments but still received a foreclosure notice from ReconTrust.

"I had never heard of them," she said, adding that she experienced many sleepless nights because of the stress and confusion.

Bortner said things have been improving over the last year and she expects that to continue with new programs the state has put in place.

The Washington State Federal Fairness Foreclosure Mediation Act began on July 22 and is designed to help homeowners and their lenders or servicers avoid foreclosure.

The act requires lenders and servicers conducting more than 250 foreclosures in the state in the previous year to pay $250 for each Notice of Default issued. The fee provides funding for free homeownership counseling, attorneys to prosecute violations of the Washington Consumer Protection Act and foreclosure-prevention outreach.

Lily Sotello, of the Northwest Justice Project, said the state probably hasn't seen the crest of the foreclosure wave. But new legislation and free legal aid for middle- and low-income families should help provide relief in the coming years, she said.

Christine Harvey: 206-464-3263 or charvey@seattletimes.com

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