The Florida attorney general has charged Barnett Banks Inc. and its mortgage lending subsidiary with civil theft and deception in a suit alleging that the institution knowingly over-escrowed borrowers mortgage accounts.

The suit contains some of the harshest allegations against a lender since the rash of over-escrow class action suits began nearly four years ago, and the relief the AG is seeking is also severe--a whopping $10,000 per violation.

Florida Attorney General Bob Butterworth filed the civil complaint in Leon County Circuit Court against Barnett Banks Inc., of Jacksonville, Fla., and its mortgage banking subsidiary, Barnett Mortgage Co., alleging it is currently holding at least $7 million in excess escrow charges and that in some individual cases, its overcharges exceeded $2,200.

Butterworth charged that because Barnett collected excess escrow funds and knowingly failed to return, refund or compensate consumers for overcharges, with the intent to temporarily or permanently deprive ... consumers of the right to property, it has engaged in theft in violation of Florida statutes. He also charged Barnett with deceptive trade practices because it had misrepresented the nature, characteristics [and] qualities of its ... loans.

The complaint seeks customer refunds with interest, and civil penalties of $10,000 per violation under Florida's Unfair and Deceptive Trade Practices Act. Barnett currently services nearly 129,000 residential mortgage loans, and if the suit is successful, the cost to Barnett could exceed $1.3 billion.

In similar recent class-action suits, the costs to lenders weren't nearly that severe. Typical settlement agreements have only required lenders to switch to the aggregate accounting method and repay over- escrowed borrowers with interest.

For instance, a September settlement with San Francisco- based First Nationwide Bank yielded the 25,000 members of the class $7.07 apiece and First Nationwide agreed to dole out no more than $166,771. In an August settlement with PNC Mortgage Corp., the class netted even less--a one-time rebate of between 25 and 50 cents each.

Barnett said it was disappointed in the AGs decision to sue because prior to the complaint filing it was discussing settlement possibilities. We were in talks with [the AG] and ... without warning, they broke off those talks and never told us they were doing so, said Robert Stickler, a Barnett spokesman, adding that before talks ended a settlement of roughly $55 per account was being discussed.

Joe Bizarro, a spokesman for the Florida AG office, said in filing the suit, the AG was simply trying win back illegally held funds for consumers. He also added the suit might also prompt Barnett to implement changes called for by HUD before the April implementation date.

The mortgage industry views the case with both confusion and trepidation. Because the charges against Barnett could also be applied against most other mortgage lenders operating in Florida; there is fear that the AG could use that knowledge to strongarm banks on that and other issues.

But there is also concern that a legal agency would file a suit like this despite the knowledge that the federal government had already taken measures to rectify the situation outlined in the complaint.

When HUD approved an amended Respa regulation Oct. 26 requiring lenders nationwide to convert their escrow procedures to the aggregate accounting method and repay consumers for any excesses, mortgage bankers said they welcomed the change and hoped the new requirements would quell the rash of class-action suits being filed against lenders.

"I'm shaking my head right now," said Shelia Green, director of servicing for the Mortgage Bankers Association. Its disappointing to see something like this happen when we are openly working with the government to implement these changes.

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