Allstate Corp. sued Citigroup, the parent company of CitiBank and CitiMortgage, and Deutsche Bank AG claiming that the banks hid the risks on more than $385 million of mortgage backed securities that it bought.
According to a report by Reuters, Allstate is among a growing number of companies that are suing banks that the insurance giant believes misled it about the safety of mortgage debt that went bad during the housing and foreclosure crises. Allstate has also sued Bank of America Corp. and JP Morgan Chase & Co., in similar lawsuits to recover losses on more than $1.8 billion of securities.
In the lawsuit filed on Friday in the New York state court, Allstate alleges that it bought more than $200 million of mortgage-backed securities from Citigroup and more than $185 million from Deutsche Bank. Allstate claims that it had been led to believe that it was buying highly rated, safe securities, most of which carried triple-A ratings backed by high-quality loans. Allstate alleges, though, that both Citi and Deutsche Bank knew that the loan pools were “toxic” and filled with loans to borrowers who were likely to, and often did, default on their mortgage loans. As a result, Allstate claims that it resulted in significant losses to the insurer.
In the lawsuits, Allstate is seeking to undo the securities purchases that took place between 2004 and 2007, or in the alternative to recover its lost principal and interest.
Lawsuits by investors like Allstate are just part of a growing trend of claims against banks that began securitizing risky mortgage loans. Citi already faces class action lawsuits against it by homeowners who are alleging that the bank misled and mismanaged their loan modification requests under the federal government’s HAMP program.
Attorney Andrew Garcia, your SouthCoast Business Attorney, is a principal of Phillips Garcia Law. Locally he has appeared live on WBSM-AM radio and nationally on NBC’s Today Show and Fox’s Fox & Friends program. If you are interested in learning more about his Business Legal Planning services, just contact him at email@example.com or by calling (508) 998-0800.