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1st Metropolitan Sale

Net branch battling litigation as it agrees to sale

May 13, 2009

By JERRY DeMUTH


As it closes branches, reduces headcount and battles litigation in three states, 1st Metropolitan Mortgage has agreed to be acquired by a Texas firm.

The net branch operation has agreed to be acquired by Dallas-based Hestia Financial Inc., a spokeswoman told MortgageDaily.com today. 1st Metropolitan, which has also operated as Empire Equity Group Inc., will become part of Hestia-subsidiary Mirad Financial Group based in Escondido, Calif.

"The deal was just signed," the spokeswoman explained. "It's subject to regulatory approval, which is expected in 60 to 120 days."

1st Metropolitan, which was founded in 1983 by current Chief Executive Officer Daniel H. Jacobs, was acquired by Empire Equity Group in 2002. The company, a MortgageDaily.com advertiser, has faced hard times lately.

The Charlotte, N.C.-based firm closed 111 branch offices in January and February, leaving only 74 branches still open, the spokeswoman said. The closings left the company with 675 employees, including 484 loan officers. Employment had previously been as high as 1,000, according to the company's Web site and Web profiles.

The contraction also left the company with licenses in just 35 states. It once had been licensed in all 50 states.

On March 2, 1st Metropolitan paid $1 million to Flagstar Bank, which sued for breach of contract after it failed to repurchase a loan as demanded by Flagstar. That suit had been filed against Empire Equity Group, d/b/a 1st Metropolitan, on May 2, 2008. The judgment against Empire had been ordered on January 30 and had been unsuccessfully appealed on Feb. 23.

In April and May, two former employees filed wage complaints against 1st Metropolitan with the Michigan Department of Energy, Labor and Economic Growth -- alleging failure to pay full wages as required under the state's fair wages act, a department spokesman told MortgageDaily.com.

"Those complaints are under investigation," the spokesman said.

A year ago, the department's Office of Financial and Insurance Regulation settled a complaint regarding marketing and sales that had been filed against 1st Metropolitan, another department spokesman said.

Two civil suits alleging predatory lending, one in California and one in Pennsylvania, also are pending.

In the Pennsylvania case, filed March 12, plaintiff Iris O. Chambers charged that 1st Metropolitan and others "engaged in predatory mortgage lending" by which she "suffered significant loss." She was originally provided a good faith estimate by another defendant that reflected a 30-year adjustable-rate mortgage with an initial rate of 8.625 percent. The disclosure indicated the loan adjusted after five years with a maximum rate of 13.625 percent and no prepayment penalty.

But Chambers didn't qualify for those terms and was referred to an agent for 1st Metropolitan, also a defendant in the suit.

At the closing for the 1st Metropolitan loan, Chambers, according to the suit, found that the loan was a 40-year ARM with an initial rate of 10.9 percent and a maximum rate of 17.9 percent. In addition, her income was listed as $8,350 per month although she was unemployed -- with her only income being $750 a month in child support.

Because she needed a home and could not afford to lose her $23,077 down payment, she went through with the closing, according to the suit.

Alleging violations of the Equal Credit Opportunity Act, the Pennsylvania Unfair Trade Practices and Consumer Protection Law and breach of fiduciary duty, Chambers seeks three times the loss she suffered plus attorney fees and costs.

In the California case, filed March 13, plaintiff Debra Fuentes charges breach of contract, breach of covenant of good faith and fair dealing, violation of the Truth in Lending Act and of the California civil code, and fraud. 1st Metropolitan also is charged with refusing to "validate and make a full accounting and required disclosures as to the true finance charges and fees."

Fuentes claims her ARM had an unlawful teaser rate. She alleges the defendants blocked her from obtaining a workout on her loan and cited a $206,000 decline in the value of her home, which she purchased for $455,000.

The suit further alleges that 1st Metropolitan committed fraud when the company promised her a new mortgage that would combine the amount of her first mortgage and a second mortgage made by Homecomings Financial Network when they "knew that these representations were false or made them with reckless disregard for their truth or falsity."

Fuentes is seeking compensatory and punitive damages and attorney's fees and costs.

An Early Neutral Evaluation Conference on the suit had been set for April 17 but was canceled after 1st Metropolitan and other defendants filed a motion for judgment on March 26.

In June of last year, New Jersey Attorney General Anne Milgram filed suit against 1st Metropolitan and others, alleging violations of the state's Consumer Fraud Act and RICO Act. 1st Metropolitan was accused of fraud by collecting broker fees through the processing of fraudulent mortgages.


Iris O. Chambers v. Chesapeake Mortgage Funding LLC, et al [Chesapeake Mortgage LLC, Empire Equity Group Inc., d/b/a 1st Metropolitan Mortgage, and Tamara Zambito]
1:2009cv00461, filed March 12, 2009

Debra aka Debbie Fuentes v. Deutsche Bank Trust Americas, et al [Homecomings Financial Network, First Metropolitan Mortgage, All Those Claiming Interest in Real Property located as 4169 Florida Street, San Diego, California, and Does 1-20 inclusive]
3:2009cv00502, filed March 13, 2009

Flagstar Bank FSB v. Empire Equity Group Inc. [d/b/a 1st Metropolitan Mortgage and Chicago Title Insurance Company]
2:2008cv11868, filed May 1, 2008

.


Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]
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