Bank of America, Morgan Stanley to pay for military foreclosures

A Bank of America Corp. unit will pay $20 million to resolve allegations that it wrongfully foreclosed upon active-duty service members, the U.S. Justice Department said today.

A Morgan Stanley unit also agreed to pay $2.35 million to resolve similar claims.

Countrywide Financial, acquired by Charlotte-based Bank of America in 2008, foreclosed on approximately 160 service members from January 2006 to May 2009 without court orders, violating the Servicemembers Civil Relief Act, the Justice Department said. A complaint filed in U.S. District Court in California alleged Countrywide did not consistently check the military status of borrowers.

"The men and women who serve our nation in the armed forces deserve, at the very least, to know that they will not have their homes taken from them wrongfully while they are bravely putting their lives on the line on behalf of their country," said Thomas Perez, Assistant Attorney General for the Civil Rights Division of the Department of Justice.

Countrywide allegedly foreclosed in instances where it knew, or should have known, about the homeowners' military status. The Department of Justice began investigating after the U.S. Marine Corps referred a case involving a servicemember facing foreclosure by Countrywide.

Under the consent decree, Bank of America will create a settlement fund of $20 million to compensate the servicemembers. The lender has also agreed to pay any additional eligible individuals foreclosed without court orders between June 1, 2009, and Dec. 31, 2010. The decree also requires other corrective actions.

The settlement is the latest Countrywide-related hit for Bank of America, which bought the troubled California-based lender as it verged on collapse. Bank of America is one of the major lenders discussing a possible settlement with state attorneys general over mortgage servicing errors.

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