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Citigroup, Inc (NYSE: C) and Ally Financial Inc. have been accused falsifying foreclosures on loans by conspiring with Mortgage Electronic Registration Systems Inc. in a lawsuit brought forth by a group of Kentucky homeowners.

The suit, which was filed as a civil-racketeering class action in federal court, accuses banks of foreclosing on homes when they did not hold the title to the properties by colluding with Mortgage Electronic Registration Systems (MERS). The suit was filed on behalf of all Kentucky homeowners.

The suit accused banks of filing for foreclosures with forged signatures and by filing foreclosure actions before they had any legal interest in the properties they took action on. The suit also alleges that banks have falsely claimed to own mortgages on homes that they had filed foreclosure actions upon. The suit is one of many against banks and MERS saying that the foreclosure process allows for wrongful foreclosures.

“Defendants have filed foreclosures throughout the state of Kentucky and the United States of America knowing that they were not the ‘owners’ or beneficiaries of the loan they filed foreclosure upon,” said the complaint filed on September 28th in federal court.

Ally spokeswoman Gina Proia told Bloomberg News that, “The allegation is inflammatory and without merit and we intend to defend our position fully in a court of law.” Citigroup did not comment on the case.

Citigroup Inc. (Citigroup) is a global diversified financial services holding company. The Company provides consumers, corporations, governments and institutions with a range of financial products and services. As of December 31, 2009, Citigroup had approximately 200 million customer accounts and did business in more than 140 countries. Citigroup operates through two primary business segments: Citicorp, consisting of its Regional Consumer Banking (RCB) businesses and Institutional Clients Group (ICG), and Citi Holdings, consisting of its Brokerage and Asset Management (BAM), Local Consumer Lending (LCL), and Special Asset Pool (SAP). In April 2010, Barclays PLC acquired Italian credit card business of Citibank International Bank plc. In May 2010, the Company announced the creation of a new Collateral Management Services unit within its Securities and Fund Services business.

Shares of Citigroup, Inc (NYSE: C) traded down 1.47% during mid-day trading on Monday, ending the day at $4.03.