Citigroup Inc. and Ally Financial Inc. units have been sued by homeowners in Kentucky for allegedly conspiring with Mortgage Electronic Registration Systems Inc. to falsely foreclose on loans.

The lawsuit, filed as a civil-racketeering class action on behalf of all Kentucky homeowners facing foreclosure, also names as a defendant Mers in Reston, Va., the company that handles mortgage transfers among member banks.

The suit claims that through Mers the banks are foreclosing on homes even when they don't hold titles to the properties.

"Defendants have filed foreclosures throughout the state of Kentucky and the United States of America knowing that they were not the 'owners' or beneficiaries of the loan they filed foreclosure upon," the homeowners wrote in their complaint filed Sept. 28 in federal court in Louisville.

The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.

The lawsuit is one of multiple cases against Mers and banks alleging that the process allows wrongful foreclosures.

Several of these cases, combined in a multidistrict litigation in Phoenix, were dismissed Sept. 30, with the judge allowing the plaintiffs to re-file their complaints.

Karmela Lejarde, a spokeswoman for Mers; Mark Rodgers, a spokesman for Citigroup; and Jim Olecki, a spokesman for Ally, did not have immediate comments.

The Kentucky suit claims Mers and the banks violated the Racketeer Influenced and Corrupt Organizations Act, a law originally passed to pursue organized crime.

"Rico comes in because the fraud didn't just happen piecemeal," Heather Boone McKeever, a lawyer for the homeowners in Lexington, Ky., said in a phone interview Monday. "This is organized crime by people in suits, but it is still organized crime. They created a very thorough plan."

The suit, which includes claims of fraud, also names as defendants other banks, real estate law firms and document-processing companies.

In the Phoenix litigation, U.S. District Judge James A. Teilborg found that the mortgage banks properly named Mers as the nominee for the original lenders and that the plaintiffs did not include enough detail in their allegations that the banks formed Mers to conspire to deprive homeowners of their property.

Last year, the Kansas Supreme Court found that Mers' relationship to the lenders is "akin to that of a straw man" and that it did not have rights over the mortgage at issue.

"Having a single front man, or nominee, for various financial institutions makes it difficult for mortgagors and other institutions to determine the identity of their lenders and mortgagees," the Kansas court said.

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