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Massachusetts to Robo-Signers: Not So Fast

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The attorney general of Massachusetts announced Monday that she is opening her own investigation into the mortgage industry for allegedly failing to file proper mortgage documents during the housing boom, which may have led companies to foreclose and evict families from their homes illegally.

Coakley’s investigation will add another front to the ongoing “robo-signing” scandal.

“We are currently investigating creditor misconduct in connection with unlawful foreclosures, including failure to establish the right to start a foreclosure as well as filing false or misleading documents with registries in the Commonwealth,” Attorney General Martha Coakley wrote in a letter to local deeds officials.

[Related: Consumer Advocates Sue for Big Banks’ Robo-Signing Records]

The investigation will focus on the Mortgage Electronic Registration System (MERS), a private registry operated by the mortgage industry to track loans that are bundled and sold as securities. In some cases, mortgage companies filed loan and deed documents with MERS but not with the appropriate government offices.

If those homes later were sold or fell into default, proving ownership can be a tricky and expensive legal process. Mortgage servicers, most of which are owned by major banks including Wells Fargo and Bank of America, allegedly overcame this hurdle by typing up fake documents, and assigning employees to forge their signatures thousands of times a day.

Those fake documents were then presented to courts in foreclosure proceedings if they were real. (Hence the term “robo-signer.”)

[Related: Senate Dems Urge Regulators To Go Tougher on Mortgage Middlemen]

Coakley is one of 50 state banking officials pursuing a joint investigation against mortgage servicers that resulted from the robo-signer scandal. That nationwide effort has bogged down recently. Some state regulators, including Oklahoma AG Scott Pruitt, say it’s straying from its original mission as a criminal investigation into a de facto legislative effort that is writing new rules for the entire industry.

Others, including Coakley, say the proposed agreement between regulators and the nations largest mortgage servicers fails to do enough to penalize the industry and force it to abide by state laws.

“We have made clear that Massachusetts will not sign on to any global agreement with the banks if it includes a comprehensive liability release regarding securitization and the MERS conduct,” Coakley said in her letter. “We strongly believe that these investigations must continue and responsible parties must be held accountable in order to fully protect homeowners and return to a healthy economy.”

Her study will begin next week, Coakley said, when she plans to ask local deeds officials to turn over some mortgage documents.

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Image: Wirawat Lian-udom, Flickr.com

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