COLUMBIA, S.C. (CN) - J.P. Morgan Chase Bank falsely claimed that it had forgiven thousands of consumer mortgage debts that the bank already had sold, to try to shirk its responsibility to a consumer-relief settlement with Uncle Sam, the United States and 19 states claim in a recently unsealed year-old case.
The federal government, 19 states and the District of Columbia sued J.P. Morgan in Federal Court under the False Claims Act on May 6, 2013, claiming the bank got credit without providing consumer relief.
The relator, Laurence Schneider, claims he bought thousands of mortgages from J.P. Morgan before the bank sent letters to those consumers, claiming that their debts had been forgiven.
The complaint cites a consent judgment entered against J.P. Morgan after the government's 2012 complaint against the banking industry for fraudulent and unfair mortgage practices "which cost consumers, the federal government, and states billions of dollars."
The banks settled in April 2012, and part of the terms of that settlement was J.P. Morgan had to dish out $4 billion in consumer relief in the form of loan forgiveness and refinancing.
According to the complaint, the bank gets credits toward its obligation by forgiving and modifying loans.
"Before the Consent Judgment was entered into, Chase, eager to get distressed assets off its books, sold a significant amount of its mortgage obligations to avoid the burden and bad publicity associated with the residential foreclosure process," the complaint states. "Between 2006 and 2013, Relator bought the rights to thousands of mortgages owned and serviced by Chase. Numerous borrowers with mortgages Chase had sold to the Relator received loan forgiveness letters from Chase."
The complaint adds: "Relator, through his contacts at Chase, has been made aware that on Sept. 30, 2012, approximately 30,000 debt forgiveness letters were sent to borrowers by Chase. On Dec. 13, 2012 another 10,000, and on Jan. 31, 2013 another 8,000 letters were sent. These letters represented to consumers that, pursuant to the terms of the national mortgage settlement agreement, they were discharged from their obligations to make further payments on the mortgage, which Chase stated it had forgiven."
The letters, according to the complaint, were robo-signed by the bank, and sent out to get credits under the terms of the consent judgment.
"However, Chase was not entitled to all of the credits, because Chase no longer owned many of the loans it forgave or forgave loans that were not eligible for relief," the complaint states.
Schneider and the government say the bank offered to buy back the mortgages at a discount or send retraction letters to consumers, but that "Chase has not submitted to the Government anything correcting Chase's erroneous claim for credit for forgiveness of loans that it did not own and, to this day, claims credit for the loans it forgave despite no longer owning such loans."
The complaint adds: "The defendants concealed their conduct and disseminated false and misleading statements to mortgage holders and the U.S. Government and the States which agreed to the Consent Judgment."
Schneider and the federal government are joined by California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Rhode Island, Tennessee, Virginia and the District of Columbia.
The plaintiffs are represented by Richard Harpootlian, who could not be reached for comment Tuesday.