CitiFinancial Mortgage must defend a lawsuit over problems with loan documents, a federal appeals court ruled, in a widening controversy over the quality of legal filings in U.S. foreclosure proceedings.

GMAC, JPMorgan Chase, and Bank of America have all suspended foreclosures or evictions in recent weeks after allegations surfaced of shoddy loan documents in foreclosure cases. Attorneys general from several states are investigating.

Citigroup, however, has not announced any similar action.

In the case decided by the 7th Circuit U.S. Court of Appeals this week, two investors purchased an Illinois mortgage from CitiFinancial for $140,000 in 2001.

But the company never delivered a copy of the underlying note, which doomed the investors’ attempt to foreclose on the property, according to the decision. The investors, Patrick Cogswell and Patrick O’Flaherty, then sued CitiFinancial.

The 7th Circuit reversed a lower court ruling and said the case could be decided at trial.

Vincent Mancini, an attorney for O’Flaherty and Cogswell, said he expected more of these types of decisions as foreclosures work their way through the legal system.

“It just illuminates an existing problem that I think a lot of these financial institutions may be confronted with in the future,” Mancini said.

(Source: CNBC / Reuters)