The banks had sought to dismiss a lawsuit involving the short sale
of homes, according to a Reuters report. According to the lawsuit, Wells and Citi reported thousands of short sale
s – in which a home is sold for less than the mortgage is worth and the bank agrees to accept the proceeds as settlement – as foreclosures or bankruptcies.
The inaccurate reports damaged borrowers’ credit, and the banks failed to correct the reports when notified of the error, according to the lawsuit. The suit also seeks damages from credit reporting agency Experian, which plaintiffs claim failed to ensure the accuracy of the reports and didn’t investigate properly when notified of errors by borrowers.
Both Citi and Wells had asked that the suit be dismissed, saying the case was without merit, according to Reuters. However, U.S. District Judge Janis Sammartino said the plaintiffs had offered enough facts to lend credence to their claim.
The mortgage units of Wells Fargo and Citigroup will have to face allegations that they falsely notified credit reporting agencies that thousands of homeowners were bankrupt or in foreclosure.