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Lawsuits Contend Texas Home Equity ARMs Illegal

Class Actions filed against Option One, Ameriquest

June 8, 2005


photo of Paula Parisot
Paula Parisot

Separate class action complaints have been filed against two major subprime companies by Texas borrowers alleging their adjustable rate home equity mortgages are unlawful in the state.

According to copies of complaints filed in March against Option One Mortgage Corp. and Ameriquest Mortgage Co., a 1997 amendment to the Texas Constitution (House Joint Resolution 31-HJR31) allowed homeowners to obtain loans using the equity in their homes, with certain stipulations in place to protect the homeowners.

"Among other things, a home equity loan, as stated in Article 16 Section 50 (L), is required to be repaid in substantially equal successive periodic installments," the complaint states. "The intent of these provisions...were to insure that payments were substantially equal over the terms of the loan."

Both complaints claim that the adjustable rate home equity loans offered by Ameriquest and Option One are not compliant with the amendment, indicating, "the Note has an adjustable rate feature that allows the lender to modify payments."

The plaintiffs allege that both lenders were aware of the deficiencies of the note and are requesting the court to certify the action as a "class action," grant "Injunctive Relief" against both lenders, prohibiting collection of the home equity loans in question, or a conversion to a fixed rate interest; and a "Declaratory Judgment" that the Notes be deemed illegal contracts and forfeited, or converted to a fixed rate interest; equitable restitutions, pre-judgment costs, attorney fees, and other relevant relief.

Linda Morehouse, one of the two plaintiffs named in the lawsuit against Ameriquest declined to comment, and neither plaintiffs' attorneys responded to a request for a statement.

"Option One acknowledges that it is the defendant in the lawsuit Vines et al v. Option One," an Option One representative said in an emailed statement to MortgageDaily.com. "The case has not been certified as a class action case."

The Irvine, Calif.-based lender said it filed a motion to dismiss the case.

"Option One believes that the Plaintiffs' case is without merit and that the company will prevail," the company added.

Orange, Calif.-based Ameriquest didn't reply to MortgageDaily.com's statement request.

Paula Parisot is a MortgageDaily.com feature reporter and a blogger at CloserBlog.com who has also worked in the mortgage industry.

e-mail Paula at: [email protected]

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