In a handful of cases around the country, Citigroup has reached settlements with homeowners who accused the bank of filing fraudulent mortgage documents to prove its legal standing to collect the debt in bankruptcy proceedings, Bloomberg reported today.

The cases put a twist on recent efforts by banks to patch over problems created because lenders and securitizers were sloppy with documentation during the housing bubble. These homeowners alleged that Citigroup’s mortgage assignments—a key document produced whenever the ownership of a mortgage changed hands—were flawed because they were dated after the bankruptcy was filed.

Mortgage assignments, as we’ve noted, are sometimes processed in-house by mortgage servicers, but they may also be contracted out to companies, in this case a Texas company called Orion Financial Group. (Orion has not been accused of wrongdoing but told Bloomberg it does not “create fraudulent documents.”)

In the settlement agreements with homeowners, Citigroup did not admit wrongdoing but agreed to cover their legal costs and slash their interest rates. In a few cases, the bank also reduced the amount outstanding on mortgages. Here’s Bloomberg:

Citigroup paid almost $82,000 in opponents’ legal costs when settling challenges to four bankruptcy claims that used Orion letters in 2010, according to agreements filed with federal bankruptcy courts in New York and Arkansas. The bank reduced interest rates on the remaining debt by an average of 49 percent, while cutting the outstanding mortgage balance in three cases by a combined $55,000, the filings show.

A Citigroup spokesman told Bloomberg that it reaches settlements in cases for “a variety of reasons, usually so both parties can avoid the expense of ongoing litigation.”  

The documents from these cases get into some of the technicalities. Take this case in New York, in which Citigroup’s mortgage unit, Citimortgage, filed this proof of claim. Both the promissory note and the mortgage produced were agreements between the borrower, Replique D’Amelio, and the lender, Home Loan Center. Citimortgage also included an assignment of mortgage, dated June 24, 2010, to prove that ownership of the mortgage had been transferred to Citimortgage.

The homeowner’s attorney objected, however, questioning the validity of the mortgage assignment and noting that bankruptcy proceedings had started June 2, 2010—before the supposed transfer of ownership was executed.

“The assignment of mortgage is an attempt to perfect a lien after the commencement of the case and therefore is voidable by this Court,” attorney Linda Tirelli argued in a motion objecting to Citimortgage’s proof of claim.

Rather than produce an original assignment to prove its claim, the company chose to settle. Though the cases cited by Bloomberg took place in bankruptcy courts inNew York and Arkansas, they bear similarity to a recent ruling in Massachusetts. In that case, the state’s highest court voided two foreclosures because neither U.S. Bank nor Wells Fargo could produce an original assignment or evidence of an original assignment when it sought to foreclose on two Massachusetts properties.

The Massachusetts court, as we noted, ruled that “confirmatory assignments,” or assignments produced after a foreclosure had been attempted, were insufficient to prove the bank’s legal standing to foreclose unless there was sufficient evidence of an earlier assignment.