The bank also violated the terms of a 2009 consent agreement requiring the bank's Countrywide mortgage subsidiary to implement a loan modification program, the lawsuit alleges.
Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them their loan was being modified, he said. Instead, many lost their homes anyway.
"Those people could have used that money for something else," Goddard said. "They were deceived into continuing to make mortgage payments when they had no hope of saving their homes."
Goddard said Nevada is expected to file a similar lawsuit later Friday. The two states are among the nation's hardest hit by homeowners defaulting on mortgages as adjustable payments soared, people lost their jobs, and home values collapsed.
The attorney general's office was deluged with consumer complaints and launched an investigation more than a year ago, Goddard said. Settlement talks with Bank of America began in April but ultimately collapsed Thursday.
Goddard, a Democrat, is leaving office in January after an unsuccessful run for governor and will be replaced by Republican Tom Horne. A Bank of America spokesman criticized Goddard for taking action while multistate negotiations on foreclosures were under way.
"We are disappointed that the suit was filed in (Attorney) General Goddard's last days in office, particularly because we and other major servicers are currently engaged in discussions led by Attorney General (Tom) Miller in Iowa to try to address foreclosure-related issues more comprehensively," said the e-mailed statement from Dan Frahm, a senior vice president for the Charlotte, N.C.-based bank. "In addition to our own, ongoing program improvements we have committed to, we believe that is the approach that will best serve Arizonans who need assistance."
Frahm's statement noted that Arizona had been an active participant in those discussions and did not have to go to the expense of lone litigation.
"Bank of America will continue to work towards fair and equitable foreclosure related practices through the multistate Attorneys General process with the goal of getting Arizonans assistance without the cost, delay and uncertainty of this litigation," Frahm wrote.
The lawsuit, filed in Maricopa County Superior Court, alleges that the bank has repeatedly violated terms of the consent agreement. The pact was expected to lead to loan modifications for thousands of Countrywide customers in Arizona, which had the nation's fourth-highest foreclosure rate last month, according to RealtyTrac Inc. But Bank of America, which had acquired Countrywide in July 2008, failed to make timely decisions on modification requests and went ahead with foreclosures, Goddard said.
"The quick summary is they violated our court-imposed agreement as to Countrywide borrowers, and then as to many of Bank of America's borrowers, they committed fraud," Goddard said. "They told them things that they did not do."
The lawsuit asks for contempt citations against the bank for violating the consent agreement. It also seeks restitution for consumers, civil penalties, legal fees, plus $25,000 for each consent agreement violation and up to $10,000 for each violation of the Arizona Consumer Fraud Act.
Bank of America shares rose 9 cents to $12.61 in afternoon trading Friday.