According to data from Bloomberg, five major banks accused of processing faulty loans and foreclosures reported close to $7 billion in costs during the second half of 2011. Costs associated with these issues are said to have surpassed $72 billion overall, and Detroit based Bank of America accounted for a whopping $41.8 billion of the overall total.

The lenders are reportedly negotiating a massive settlement to conclude all of the investigations and potential business litigation pending in the offices of each state attorney general, with the future possibility of including smaller banks in the agreement as well. Some states appear to be holding out for terms that would provide for the possibility of bringing further litigation against the lenders at a future time.

Other pending litigation involves investment disputes for damages that were triggered by investors who requested refunds after finding flaws in the underwriting of mortgages they purchased. They claim to have discovered false data about home values and borrower incomes in purchased loans. These sales came with promises to buy back defective loans in the event misleading data was uncovered.

Any time there is a concern over the legitimacy of a contract or commercial transaction in Detroit or elsewhere, there is a potential for business litigation. In this circumstance, the projected settlement may reach upwards of $25 billion, a figure that is in addition to the costs already incurred. But the quicker a resolution can be reached, the quicker lenders will have a better handle on the overall cost. Other Detroit businesses that are facing accusations of illegitimate practices may find it helpful to speak with an experienced attorney.

Source: Bloomberg News, "Faulty loans, foreclosures cost $72 billion," Donal Griffin, Feb. 9, 2012