Defending Securities Law Claims Stemming From Mortgage Documentation Issues

In the fall of 2010, allegations surfaced that a number of U.S. mortgage servicing companies may have bypassed legally required steps to foreclose on a home. These allegations indicated that employees of some of the major loan servicers signed, and in some instances, back-dated thousands of documents, representing that the employees had personal knowledge of facts about mortgages that they did not, in fact, know to be true. Allegations also have been made that the irregularities may extend to the mortgage origination and pooling process. These allegations have resulted in litigation by investors in the mortgage-backed securities (MBS) market against various players in the loan securitization industry.

Early lawsuits have named securitization sponsors and depositors as defendants. ¹See Complaint for Rescission and Damages, Federal Home Loan Bank of Chicago v. Banc of America Funding Corp., No.10CH45003 (Ill. Ch. Div. Oct. 15, 2010) (hereinafter “FHLB of Chicago Complaint”); Amended Complaint for Rescission and Damages, The Charles Schwab Corp. v. BNP Paribas Securities Corp., No. CGC-10-501610 (Cal. Sup. Ct. Aug. 2, 2010) (hereinafter “Schwab Amended Complaint”); Complaint and Jury Demand, Cambridge Place Inv. Mgmt. Inc. v. Morgan Stanley & Co., No. 10 2741 (Mass. Sup. Ct. Jul. 9, 2010) (hereinafter “Cambridge Place Complaint”). In its complaint, Cambridge Place Investment Management Inc. separated defendants into two groups—the Wall Street Bank Defendants and the Depositor Defendants. As alleged in the complaint, the Wall Street Bank Defendants sponsored the loan pools that were packaged and sold to investors. By contrast, the complaint defines the Depositor Defendants as special purpose vehicles (“SPVs”) that were created as part of the securitization process to acquire and securitize the loans for sale to investors. Loan pool servicers and trustees of securitization trusts are also possible defendants depending on the claims and facts at issue. At present, the parties who have filed lawsuits are primarily institutional MBS investors ²See FHLB of Chicago Complaint, supra n. 1; Schwab Amended Complaint, supra n.1; Cambridge Place Complaint, supra n. 1. and bond insurers, ³See Complaint, MBIA Ins. Corp. v. Morgan Stanley, No. 29951-10 (N.Y. Sup. Ct. Dec. 6, 2010) (hereinafter “MBIA Complaint”); Complaint, Ambac Assurance Corp. v. Countrywide Home Loans Inc., No. 651612-10 (N.Y. Sup. Ct. Sept. 8, 2010) (hereinafter “Ambac Complaint”). however private MBS investors should not be ruled out, and recently state attorneys general have filed actions as well.

In lieu of (or prior to) the formal filing of a lawsuit, MBS investors could seek to demand that financial firms honor their repurchase obligations and buy back troubled loans. At least one investor group has already done this, via a letter from their legal counsel, requesting that the securitizers buy back billions of dollars worth of failed loans that the group alleges were purchased on the basis of faulty documentation and threatening legal action if the securitizers refuse to do so.

MBS investors have a number of different remedies and legal theories under which they have proceeded against the financial institutions involved in the potential document irregularities, including securities fraud, common law fraud and negligent misrepresentation and breach of contract and representations and warranties. This article focuses primarily on the potential securities law implications of the loan document irregularities, beginning with the U.S. Securities and Exchange Commission’s (“SEC”) response to the reported irregularities and concluding with thoughts on what the future may hold for MBS litigation.

SEC Response to Reported Mortgage Document Irregularities

In October 2010, in response to the reports of potentially widespread mortgage documentation irregularities, the SEC Division of Corporation Finance sent an illustrative letter containing disclosure guidance to the Chief Financial Officers of a number of the public companies that might be affected by the irregularities. The purpose of the letter was to “remind [companies] of disclosure obligations that [they] should consider… in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures.” ⁴U.S. Securities and Exchange Commission, Sample Letter Sent to Public Companies on Accounting and Disclosure Issues Related to Potential Risks and Costs Associated with Mortgage and Foreclosure-Related Activities or Exposures, October 2010, available at http://www.sec.gov/divisions/corpfin/guidance/cfoforeclosure1010.htm (hereinafter “SEC Sample Letter”). Even before the recent reports of foreclosure document irregularities, the SEC was conducting an extensive study of the asset-backed securities (“ABS”) markets in response to concerns arising out of the turmoil in the subprime mortgage and ABS markets during the credit crisis. As a result of that review, in April 2010, the SEC announced proposed new regulations for ABS which provide for, among other things, enhanced disclosure and reporting for all public offerings of ABS. See Asset-Backed Securities, 17 C.F.R. §§200, 229, 230, 232, 239, 240, 243, & 249 (April 2010). Under the current ABS rules, information about the loans in an ABS pool is required only at the pool level. The new proposed rules would require ABS issuers to file with the SEC information about the specific loans in a pool, including information relating to the terms of the loan, the underwriting of the loan, credit information about the borrower, and characteristics of the property securing the loan. Specific disclosure requirements for residential mortgage-backed securities will also be required and are currently in the proposal stage. Further, in October 2010, the SEC released additional proposed rules on ABS representations and warranties. See Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 17 C.F.R. §§229, 240 & 249 (October 2010). The proposed regulations would require ABS issuers to disclose, both at issuance and on an ongoing basis, all fulfilled and unfulfilled asset repurchase requests for all of an issuer’s ABS trusts over a five-year period (including repurchase requests made prior to the effective date of the new rules). The October 2010 letter was not meant to be an exhaustive list, and the SEC cautioned CFOs that additional disclosures may be required depending on a company’s particular circumstances.

In the letter, the SEC suggested that CFOs consider disclosure of the impact of various representations and warranties regarding mortgages made to purchasers of the mortgages or to purchasers of mortgage-backed securities, such as government-sponsored entities, private-label MBS investors, financial guarantors, and other loan purchasers and provided a detailed list of representations and warranties that could warrant disclosure, including:

• ownership of the loan;

• validity of the lien securing the loan;

• the absence of delinquent taxes or liens against the property;

• the process used to select the loan for inclusion in a transaction;

• the loan’s compliance with any applicable loan criteria established by the buyer, including underwriting standards;

• delivery of all required documents to the trust; and

• the loan’s compliance with applicable federal, state and local laws. ⁵Id., supra n. 4, at 1-2.

In addition to the above disclosures, the SEC reminded CFOs of their disclosure obligations under Item 303 of Regulation S-K, which requires issuers to include in the Management’s Discussion and Analysis section of their Form 10-Qs and 10-Ks, any known trends or any known demands, commitments, events or uncertainties that the company reasonably expects to have a material favorable or unfavorable impact on its results of operations, liquidity, and capital resources. ⁶Id., supra n. 4, at 2. Further, CFOs were reminded that Item 303 also requires disclosure of legal proceedings, including proceedings known to be contemplated by governmental authorities. ⁷Id.

With respect to securitization-related disclosures, the SEC advised CFOs to “provide clear and transparent disclosure regarding your obligations relating to the various representations and warranties that you made in connection with your securitization and whole loan sales.” ⁸Id. In particular, CFOs were instructed that filings should include a discussion of any foreclosure review, as well as any potential delays in completing foreclosures. ⁹Id. To that end, the SEC requested that CFOs consider the following points in preparing their Form 10-Qs and subsequent filings:

• risks and uncertainties associated with potentially higher repurchase requests as a result of any foreclosure review process and any changes to the methodology or processes used to estimate any repurchase reserve;

• litigation risks and uncertainties related to any known or alleged defects in the securitization process, including any potential defects in mortgage documentation or in the assignment of the mortgages;

• litigation risks and uncertainties related to any known or alleged breach of the pooling and servicing criteria, including potential defects in the foreclosure process;

• risks and uncertainties associated with any agreements or understandings, including for indemnification and settlement, with title, mortgage and bond insurers regarding coverage;

• potential effects of defects in the securitization process or improper application of the pooling and servicing criteria on the valuation and any possible impairment of the company’s mortgage servicing rights;

• potential effects of defects in the securitization process or improper application of the pooling and servicing criteria on the recognition or impairment of servicing advances, and related effect on the company’s liquidity; and

• potential effects of changes in the timing of sales of loans, other real estate owned, and mortgage-backed securities resulting from such issues to the company’s liquidity and any related effects on the valuation and impairment of these assets. ¹⁰Id., supra n. 4, at 2-3.

The quarterly reports filed in November 2010 by some of the major U.S. mortgage services indicate that CFOs are heeding the SEC’s guidance and including the suggested disclosures in their filings. ¹¹See Citigroup, Inc., Form 10-Q for the Quarterly Period Ended Sept. 30, 2010, at 204 (Nov. 5, 2010) (reporting that Cambridge Place Investment Management, The Charles Schwab Corporation, the Federal Home Loan Bank of Chicago and the Federal Home Loan Bank of Indianapolis have filed actions related to underwriting irregularities in RMBs), available at http://www.sec.gov/Archives/edgar/data/831001/000104746910009274/a2200785z10-q.htm ; Bank of America Corp., Form 10-Q for the Quarterly Period Ended Sept. 30, 2010, at 60 (Nov. 5, 2010) (reporting purported class action lawsuits and actions by individual investors alleging material misstatements and omissions, including statements regarding the underwriting standards pursuant to which the underlying mortgage loans were issued, in offering documents for more than $375 billion in mortgage-backed securities), available at http://www.sec.gov/Archives/edgar/data/70858/000095012310101545/g24513e10vq.htm; JP Morgan Chase & Co., Form 10-Q for the Quarterly Period Ended Sept. 30, 2010, at 192 (Nov. 9, 2010), available at http://www.sec.gov/Archives/edgar/data/19617/000095012310102689/y86142e10vq.htm. Significant attention must be given to these required disclosures because of the possibility that the disclosures will later prove to be misleading or incomplete, thus providing potential plaintiffs with another basis for alleging securities fraud claims against financial institution defendants.

Mortgage Document Irregularities and the Securities Laws

Although the initial public focus was on foreclosure documentation irregularities, the possibility of document irregularities in mortgage transactions has expanded beyond their significance to foreclosure proceedings. Moreover, because a large number of the mortgages potentially affected by these irregularities were put into securitization pools, there is potential for securities fraud lawsuits by investors in those pools against the financial firms that sponsored them.

Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (“Exchange Act”) provide the most common cause of action for securities fraud for private litigants. To state a claim under Section 10(b) and Rule 10b-5, MBS investors must prove: (1) a material misstatement or omission; (2) made with scienter; (3) in connection with the purchase or sale of a security; (4) reliance by the purchaser on the misstatement or omitted information; and (5) economic loss to the investor caused by the misstatement or omission. ¹²See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-342, 73 U.S.L.W. 4283 (2005).

MBS investors have a high burden to state a securities fraud claim under Section (10)(b) and Rule 10b-5 in connection with the alleged mortgage document irregularities. Under recent Supreme Court precedent, ¹³See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 77 U.S.L.W. 4387 (2009) (holding that “[th]e pleadings standard that Rule 8 [of the Federal Rules of Civil Procedure] announces does not require detailed factual allegations, but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Indeed, a complaint will not suffice if it merely makes “naked assertions” that are “devoid of further factual content.”); Bell Atlantic v. Twombly, 550 U.S. 544, 570, 75 U.S.L.W. 4337 (2007) (holding that to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.”). allegations of securities fraud must be pled with particularity. As a result, private investor Rule 10b-5 lawsuits have met with little success for many pleading-related reasons, including the inability of plaintiffs to establish scienter. ¹⁴See, e.g., Sharenow v. Impac Mortgage Holdings, Inc., No. 09-55533, 2010 WL 2640195 (9th Cir. June 29, 2010) (dismissing class securities fraud charges where investors’ allegations of Impac’s inferior underwriting were not enough to create the inference that Impac and its executives issued false statements either intentionally or recklessly); Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial Bank of Commerce, 694 F. Supp. 2d 287 (S.D.N.Y. 2010) (dismissing claims that Canadian Imperial Bank misled investors about its mortgage-backed holdings and its ties to its hedging counterparty where investors failed to allege that defendants profited from the misstatements or that they had access to specific information that would have put them on notice that their statements were incorrect). Other defenses that have been effective include establishing the lack of materiality of the misrepresentation or omission and lack of loss causation (i.e., that the misrepresentations were the direct cause of the investor’s losses). Loss causation has proven effective because losses caused by unforeseeable external factors, such as unexpected new industry-specific conditions like the housing market crash, are not recoverable even if there was a material misrepresentation or omission. As the foregoing indicates, potential defendants have a number of defenses they can assert in the face of a securities fraud claim, however, it is unclear at this early stage how Rule 10b-5 claims based on the current mortgage document irregularities will play out.

Plaintiffs may also assert Rule 10b-5 claims against financial firms relating to those firms’ use of third-party due diligence firms. Before purchasing a pool of loans to securitize, financial firm sponsors often hired a third-party due diligence firm to review the loans to ensure that the loans in the pool adhered to the firm’s underwriting guidelines and complied with state, federal and local laws. The financial firm sponsor selected the sample of the total loan pool – usually 10 percent ¹⁵See Congressional Oversight Panel November Oversight Report, Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation, at 38 (Nov. 16, 2010) (hereinafter “November 2010 Congressional Report”) (citing Financial Crisis Inquiry Commission, Testimony of Keith Johnson, former president of Clayton Holdings, Transcript: Impact of the Financial Crisis - Sacramento, at 183 (Sept. 23, 2010) available at http://fcic.gov/hearings/pdfs/2010-0923-transcript.pdf).—to be reviewed by the due diligence firm. For their part, due diligence firms characterized the loans as meeting the guidelines, not meeting the guidelines, or not meeting the guidelines but having compensating factors. The loans that did not meet the guidelines were returned to the sellers unless the financial firm sponsors waived their objections to those loans. At least one due diligence firm found that, from the first quarter of 2006 to the second quarter 2007, only 54 percent of the loans they sampled met all underwriting guidelines. ¹⁶See November 2010 Congressional Report, supra n. 15 at 38-39 (citing Financial Crisis Inquiry Commission, All Clayton Trending Reports: 1st Quarter 2006 – 2nd Quarter 2007, Impact of the Financial Crisis – Sacramento (Sept. 23, 2010) available at http://fcic.gov/hearings/pdfs/2010-0923-Clayton-All-Trending-Report.pdf). This low rate of compliance, and the fact that only 10 percent of the pool was reviewed, indicated that there were likely other non-compliant loans in the pool. But due diligence on a larger sample of the pool to identify non-compliant loans was not required by the financial firms that sponsored the securitization. Rather, allegations have been made that the sponsors used the rate of the non-compliant loans to negotiate a lower price for the pool of loans and then sold these loan pools to investors without disclosing the due diligence results in the prospectus. In defending those claims, financial firms should be able to rely on disclosures in the prospectuses regarding underwriting exceptions.

MBS investors may seek other remedies under the Securities Act of 1933 (“1933 Act”). For those MBS investors who purchased securities in registered offerings, Section 11 of the 1933 Act provides for a cause of action for false or misleading statements in the registration statement against the issuer of the security, as well as the special purpose vehicle, the underwriters and the auditors. Additionally, Section 12(a)(2), which also applies to registered offerings, provides for a cause of action for other misleading communications made during the registered offering process. Section 11 and 12(a)(2) claims do not require a plaintiff to plead scienter, reliance or loss causation, thus MBS investors who are able to proceed under these sections face a substantially reduced burden of proof. Indeed, to allege an actionable misstatement under either Section 11 or Section 12(a)(2), MBS investors must assert that the relevant offering materials: (1) contained an untrue statement of a material fact; (2) omitted to state a material fact required to be disclosed; or (3) omitted to state a material fact necessary to make the statements contained in the offering materials not misleading. ¹⁷See In re WorldCom Sec. Litig., 496 F.3d 245, 248-249 (2d Cir. 2007); see also New Jersey Carpenters Vacation Fund v. Royal Bank of Scotland Group, PLC, 720 F. Supp. 2d 254 (S.D.N.Y. 2010) (likening issuer liability under Section 11 for securities that are sold pursuant to offering documents that contain material misstatements or omissions to strict liability and allowing claims to go forward based on allegations that the mortgage originators systematically disregarded underwriting guidelines and finding that the risks associated with the underwriting guidelines were not otherwise adequately disclosed in the offering documents).

Although Sections 11 and 12 of the 1933 Act provide for strict liability for false and misleading statements in offering documents and other offering-related communications, defendants do have a few defenses available to them. First, to the extent defendants can establish that the plaintiff had knowledge of a falsity or omission in the registration statement, this is an affirmative defense to any Section 11 claim. A defendant may also effectively defend against a Section 11 claim if it can establish a loss causation problem – i.e., that the plaintiff’s damages were caused by other factors besides the misrepresentation or omission. Due diligence and good faith are also defenses available to all Section 11 defendants except issuers. With respect to defending Section 12(a)(2) claims, that section provides an affirmative defense if the defendant can prove that he or she did not know, or by using reasonable care could not have known, of any falsity or omission.

Current MBS Litigation Landscape

Despite the substantial media attention surrounding the alleged mortgage documentation irregularities and the speculation that an onslaught of litigation against financial firms would follow, the number of lawsuits filed by MBS investors in the wake of the revelations has been relatively minimal. Many of the handful of recent cases filed by Institutional MBS investors since July 2010 were filed in state courts and allege causes of action under state and federal securities laws, common law and contract law. ¹⁸See FHLB of Chicago Complaint, supra n. 1 (alleging violations of various provisions of the Illinois Securities Law and common law negligent misrepresentation); Cambridge Place Complaint, supra n. 1 (alleging violations of various provisions of the Massachusetts Uniform Securities Act); Complaint, Federal Home Loan Bank of Pittsburgh v. J.P. Morgan Securities Inc., No. GD09-16892 (Pa. Ct. Comm. Pleas Sept. 23, 2009) (alleging violations of Sections 11, 15 and 12 of the 1933 Act, violations of the Pennsylvania Securities Act of 1972 and fraud and common law negligent misrepresentation).

Given the failure of much of the credit crisis and subprime-related litigation, it is not surprising that investors are choosing to file state securities laws claims in state courts where they do not have to meet heightened federal pleading standards and where state securities law precedent may be more favorable. For their part, the financial firm defendants are aggressively fighting state court jurisdiction and have petitioned to remove the suits to federal court. ¹⁹See Defendants Wells Fargo Asset Securities Corp. & Wells Fargo Bank, N.A.’s Notice of Removal, The Charles Schwab Corp. v. BNP Paribas Securities Corp., No. CV-10-4030 (N.D.Ca. Sept. 8, 2010); Notice of Removal, Federal Home Loan Bank of Chicago v. Banc of America Funding Corp., No. 10-cv-7560, (N.D. Ill. Nov. 23, 2010). Ordinarily, defendants face no difficulty removing claims based on federal law where complete diversity between the parties exists and every defendant desires removal. Removal to federal court may prove difficult for those actions alleging only state law based claims, ²⁰Under the “well-pleaded complaint” rule, the plaintiff is the master of the claim, and “he or she may avoid federaljurisdiction by exclusive reliance on state law.” See Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987); see also City of Chicago v. Int’l College of Surgeons, 522 U.S. 156, 163 (1997) (“If the basis for removal is the presence of a federal law claim, the ‘well-pleaded complaint’ rule requires that the federal question appear on the face of the complaint, rather than in an anticipated defense.”). however, unless there is an independent basis for removal, such as federal question or for claims “relating to” a bankruptcy action. ²¹See 28 U.S.C. §1452(a): “A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit’s police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under 28 U.S.C. §1334.” 28 U.S.C. §1334 provides: “(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all civil proceedings arising under title 11; (b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11;” see also
Newby v. Enron, 511 F. Supp. 2d 742, 764 (S.D. Tex. 2005) (under the bankruptcy exception, a defendant may seek removal of wholly state-law claims regardless of whether there is diversity between the parties).

As mentioned above, there are a number of legal theories, in addition to securities fraud, that could apply to the alleged mortgage document irregularities, including claims for common law fraud, negligent misrepresentation, breach of contract and breach of representations and warranties contained in the securitization transaction documents (i.e., pooling and servicing agreements or “PSAs”). ²²See FHLB of Chicago Complaint, supra n. 1 (including count for negligent misrepresentation); MBIA Complaint, supra n. 3 (including counts for common law fraud and breach of contract); Ambac Complaint, supra n. 3 (including counts for fraudulent inducement, breach of contract, breach of representations and warranty, and breach of repurchase obligation). Given the higher burden of proof for alleging securities fraud, some may question why investors would choose to pursue securities fraud claims as opposed to other theories. Common law fraud, misrepresentation, breach of contract and representations and warranties claims are not without their own obstacles, however. For example, many PSAs include a provision limiting private investor action in the case of breaches of representations and warranties to certificate holders with some minimum percentage of voting rights – often 25 percent. ²³See November 2010 Congressional Report, supra n. 15, at 29-30 (citing Buckingham Research Group, Conference Takeaways on Mortgage Repurchase Risk, at 2 (November 4, 2010)). To the extent investors do not hold 25 percent of the voting rights of a particular pool, their breach of representation and warranty claims will not survive the motion to dismiss stage. ²⁴See Decision and Order on Defendants’ Motion to Dismiss Complaint, Greenwich Fin. Serv. v. Countrywide Fin. Corp., No. 650474/08, at 6-7 (N.Y. Sup. Ct. Oct. 7, 2010) (dismissing complaint where plaintiffs failed to comply with PSA requirements for commencing litigation, including aggregating with 25 percent of the certificate holders). This may be one reason why some investors have chosen to bring claims for securities law violations instead of reps and warranty claims, despite the higher burden of proof.

Another potential defense that financial firms may assert against investors bringing common law misrepresentation and other tort claims against them is that that investors should not be able to assert claims for fraud, negligent misrepresentation, or other torts, when the language in the PSA makes clear that the repurchase or replacement of a defective loan is the “sole remedy” for a breach of originators’ or underwriters’ representations and warranties. ²⁵Opinion and Order of Court, Financial Home Loan Bank of Pittsburgh v. JP Morgan Securities, LLC, No. GD09-16892, at 29-30 (Pa. Ct. Comm. Pleas November 29, 2010). A recent decision in Financial Home Loan Bank of Pittsburgh v. JP Morgan Securities LLP rejecting this argument and allowing the plaintiff’s common law misrepresentation claims to proceed, however, indicates that some courts might not agree. ²⁶Id. Nevertheless, given the relative sophistication by all parties to these transactions, the courts should give weight to the terms and limitations set forth in their contracts.

Future of MBS Litigation

Any litigation stemming from possible mortgage document irregularities will involve complex legal issues, numerous parties (many of whom took on multiple roles in the securitization process) and substantial cost and time. Potential financial institution defendants are expected to aggressively litigate any repurchase demands or other claims based on allegations of faulty documentation. Consequently, we anticipate that the majority of private litigation will come from institutional investors in MBS who have the resources and expertise to pursue this type of litigation. Moreover, a new registry created by RMBS Clearing House which provides a confidential databank for the purpose of identifying and organizing certificate holders into groups that can meet PSA threshold requirements is helping solve some of the collective-action problems investors face in bringing representations and warranties claims. ²⁷See November 2010 Congressional Report, supra n. 15, at 30.

In addition to private investor litigation, the financial institutions involved in the alleged mortgage document irregularities could face action by the SEC. After the reports of possible faulty documentation emerged, the SEC initiated a review of the mortgage securitization process and of certain market participants for potential securities law violations, which review is still ongoing. In the event the SEC finds evidence of violations, this could lead to additional securities fraud lawsuits by private investors.

Finally, the attorneys general for all 50 states are currently pursuing a joint investigation into foreclosure fraud allegations and AGs for Nevada and Arizona filed suits in December 2010 alleging violations of state consumer fraud and deceptive trade practices statutes. Consequently, the threat of future consumer protection-related lawsuits stemming from the alleged mortgage document irregularities exists.