Citigroup Inc. last year settled or lost at least five claims by borrowers who accused it of filing fraudulent mortgage documents supplied by a Texas firm.

In a December settlement, a bankrupt homeowner in Wappingers Falls, N.Y., challenged the use of a mortgage "assignment," showing the transfer of ownership of a mortgage. It was signed by an employee at Orion Financial Group Inc., a Southlake, Texas, supplier of document services.

The document was "of fraudulent nature and questionable origin," the borrower's lawyer, Linda Tirelli, wrote in an objection to Citi's claim in U.S. Bankruptcy Court in New York. Citi created and filed the assignment after proceedings began since it otherwise could not prove its right to collect, she wrote in an e-mail. Citi has denied the allegation and did not admit liability in the settlement.

Attorneys general in 50 states are probing the use of mortgage assignments. Last month, a Massachusetts court ruled that foreclosures by Wells Fargo & Co. and U.S. Bancorp were invalid because assignments failed to establish the mortgage's chain of ownership.

Bankruptcy judges are "appropriately skeptical" when servicers claim to have assignments, said Keith Lundin, a U.S. Bankruptcy Court judge in Nashville, Tenn. "They're going to have to connect up the dots back to the note and the security agreement, which would be the mortgage," he said.

Harold Lewis, a CitiMortgage executive, told Congress in November that it had reorganized its foreclosure operations last February, helping it avoid the faulty affidavit-signing practices that forced other lenders to halt home seizures temporarily last year.

Citi paid almost $82,000 in opponents' legal costs when settling four bankruptcy claims that used Orion letters in 2010, according to agreements filed in bankruptcy court. It reduced interest rates on the remaining debt by an average of 49% and cut the outstanding mortgage balance in three cases by a combined $55,000.

A Citi spokesman said it does not comment on individual cases. Citi still uses Orion for assignment letters, he said. Though borrowers have disputed the use of assignments, they have not accused Orion of wrongdoing.

"We don't create fraudulent documents," said Orion CEO Mike Wileman. Orion's documents show which company may hold the note and can be based on data from the bank, he said.

Citi declined to say how often it relies on Orion or other outside document services for assignments. Records are not electronically searchable in most U.S. counties. In Texas' Dallas County, where documents are available online, Orion prepared 14 assignments transferring mortgages to Citigroup since the start of 2009.

In the New York case, Citi said it was owed about $390,000 on a property in Chapter 13 bankruptcy, filing an assignment prepared by Orion to back its claim. This document said another lender had assigned the loan to CitiMortgage on June 24, more than three weeks after bankruptcy proceedings began.

In settling the borrower's objections, Citi admitted no wrongdoing. It paid $35,000 in legal fees, reduced the mortgage principal by $29,000 and chopped the interest rate almost in half, to 3%. Lenders such as Citi may settle to avoid scrutiny of its practices during litigation, said April Charney, a lawyer at Jacksonville Area Legal Aid in Florida who instructs lawyers on representing consumers in foreclosure and bankruptcy cases.

Citi uses Orion for assignments in foreclosures, a spokesman said.

Citi also faces claims on an Orion-prepared assignment in a case in U.S. Bankruptcy Court in Aberdeen, Miss. There, a judge disallowed Citi's initial claim to a property. The borrower later asked the court to force Citi to prove if it had rights to the loan. Citi filed a response last month, opposing the borrower's demands.

"We're going to have to go into litigation to determine who, if anyone, is owed the money and who, if anyone, still has a security interest," said William Fava, the borrower's attorney.

Citigroup has also filed Orion assignments in bankruptcy cases in states that include Maryland and Georgia.

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