The sale of Countrywide Mortgage to Bank of America absorbed another blow this week as three states took legal action against the lender.

The attorneys general of California and Illinois and the Washington State department that regulates financial institutions all filed lawsuits against Countrywide on Tuesday alleging variations on the theme of mortgage fraud.

According to an article in the Wall Street Journal, California's attorney general Edmund G. Brown, Jr. charged that Countrywide used "misleading marketing practices" to steer home buyers into inappropriate loans and that Countrywide was driven by a desire to boost market share and fill demand from investment bankers for loans that could be packaged into securities. California's filing also names controversial Countrywide Chairman Angelo Mozilo and Countrywide president David Sambol.

The lawsuit also alleges that Countrywide loosened its underwriting standards and then often granted exceptions to those looser standards. "The company's Structured Loan Desk in Plano, Texas, was "specifically set up by Countrywide, at the direction" of Messrs. Mozilo and Sambol, to grant underwriting exceptions, the lawsuit says. In 2006, it processed 15,000 to 20,000 loans a month, the lawsuit says."

Illinois Attorney General Lisa Madigan charged in the civil action she filed in state court that Countrywide used unfair and deceptive practices in the sale of mortgage loans.

In Washington State, the Department of Financial Institutions filed an administrative action alleging that Countrywide engages in discriminatory lending practices.

All three states are seeking restitution for borrowers. The Journal quotes Kurt Eggert, a law professor at Chapman University as saying that, if the courts do grant restitution it "could be a staggering blow against Countrywide." The company "could be required to give back its profit on all those loans and conceivably give back houses on which it has foreclosed."

In addition to the three new lawsuits, other legal problems for Countrywide continue to surface. The company and its top executives are under investigation by the FBI, the Securities and Exchange Commission and other federal agencies for mortgage fraud and are the target of numerous lawsuits from employees, shareholders, and borrowers. Analysts have estimated that Bank of America could face more than $9 billion in write-downs related to Countrywide. Bank of America's Chairman and CEO Kenneth D. Lewis has said in the past that the relatively low price his company is paying for Countryside gives Bank of America "plenty of cushion for potential damages, settlements, and other litigation costs."

Connecticut's attorney general Richard Blumenthal said he too is likely to file a lawsuit as part of a second wave of civil actions brought by states against Countrywide. Among the issues Connecticut would allege is "falsely promising refinancing opportunities and lying to consumers about possible risks," said Mr. Blumenthal. Attorneys general in Florida and Iowa also say they are weighing their options.

Neither Countrywide nor Bank of America had spokespersons available to comment on the suit.