Utah’s attorney general revived a potential billion-dollar battle with Bank of America Corp. over foreclosure practices after two of his predecessors were charged with corruption for abandoning the fight.
The lawsuit is deja vu for U.S. District Judge Bruce Jenkins, who last week allowed Utah Attorney General Sean Reyes to join a homeowner’s case accusing Bank of America unit ReconTrust Co. of illegally foreclosing on Utahans’ homes.
Jenkins expressed puzzlement when outgoing Attorney General Mark Shurtleff bowed out of a similar case two years ago, just months after the judge ruled the suit could head to trial.
Last year, prosecutors provided an explanation: They charged Shurtleff and a deputy elected to succeed him, John Swallow, in a wide-ranging bribery case.
The allegations included charges that they did illicit favors for several businessmen. The two officials allegedly dropped the state’s case against ReconTrust after a homeowner who sued got a mortgage modification. The man had previously contributed to Swallow’s election campaign, prosecutors said.
Shurtleff and Swallow have pleaded not guilty.
The homeowner lawsuit Reyes is joining is based on the “same set of facts” as the one Shurtleff dropped, said Tyler Ayres, an attorney for the plaintiff. Ayres said he estimates ReconTrust illegally foreclosed on at least 8,000 homes worth on average of $250,000, meaning damages may total as much as $2 billion.
He didn’t provide details on how he came by the total. Charlotte, N.C.-based Bank of America says Ayres’ damages estimate is overblown, arguing that the case will affect only 3,000 to 4,000 homeowners.
The lawyer’s “astronomical damages claim is absurd, without a basis in the law, and has never been brought up in the litigation proceedings,” the bank said in a statement last week.
Ayres said that when one of Reyes’s deputies contacted him to discuss joining forces, the state lawyer “wasn’t happy” about Shurtleff’s decision to pull out of the earlier case.
Ayres said he filed his lawsuit after the Utah Supreme Court ruled that ReconTrust broke state law when it failed to use either a title company or a Utah-licensed lawyer to foreclose on homes.
“This happened thousands upon thousands of times,” said Ayres, who’s seeking to bring the case as a class action. ReconTrust “had no right to take those homes.”
ReconTrust argued Utah’s statutes are trumped by federal law, which authorizes the company to “exercise the power of sale for properties,” according to a court filing. The mortgage servicer objected to Reyes joining the case, saying the state’s “sit back and watch tactics” in a lawsuit filed 18 months earlier put the company at an unfair disadvantage.
“The state has offered no explanation for its delay,” ReconTrust said in a court filing.
Reyes said he joined the lawsuit because a ruling for Bank of America may cut “to the center of enforceability and applicability of state law.”
“This particular case could have devastating impact on Utah consumers and Utah law,” he said in a statement. “We are seeking to intervene to ensure that Utah consumers are protected and that Utah law is enforced.”
He declined through a spokeswoman to comment further.
Utah prosecutors say Shurtleff and Swallow met with lawyers and lobbyists for Bank of America in the summer of 2012. They discussed the first ReconTrust lawsuit, which the state joined after homeowner Timothy Bell won a favorable ruling before Judge Jenkins in Salt Lake City.
Bell later organized a campaign fundraiser for Swallow at his home. In October, Bell was accepted into a mortgage modification program that cut $1.13 million from his loan and reduced his interest rate to 2.65% from 7.5%, prosecutors said.
The following month, prosecutors said Swallow told a lawyer in his office that he “may have given Bank of America the impression that if the Bells’ case settled, the state’s intervention in the litigation would cease.”
Shurtleff signed off on the state’s withdrawal from the lawsuit in December 2012. At a hearing in Salt Lake City in January, the judge asked deputies for Swallow to reconsider dropping the case. They declined.
Shurtleff’s lawyer, Richard Van Wagoner, didn’t respond to a call seeking comment. An attorney for Swallow, Stephen McCaughey, declined to immediately comment.