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Suit Against Broker Disregards Disclosures

AZ Couple backed by ACORN

June 19, 2007

WASHINGTON correspondent for MortgageDaily.com

An elderly couple has sued an Arizona mortgage broker, alleging he reneged on a promise to make their first four mortgage payments. They allege they didn't read their disclosures because they relied on verbal statements by the broker -- who claims he told the couple they did not qualify for the loan.

"I'm not in the business to write checks to make people go away for something I didn't do wrong," Turner Roberts, the owner of Arizona Discount Mortgage LLC, told MortgageDaily.com in a telephone interview.

The broker advertises a loan with a 5.5 percent fixed-rate and the first four payments rebated to the home owner for owner-occupied homes. Roberts said he can make the deal by sharing his yield spread premium with qualified borrowers.

Expecting to get those loan terms, Anne and Edward Easton contacted the company about refinancing loans held on their disabled son's and disabled daughter's homes. Mrs. Easton said they obtained a $135,000 loan on a house valued at $230,000 and a second loan two weeks later for $115,000 for a house appraised at $190,000.

But, when a loan officer for the broker went to the address given for the first loan, he was reportedly told by the Eastons they did not live at the address supplied for the first loan and was given the couple's home address about three miles away.

Roberts said that, under Fannie Mae rules, a property has to be owner-occupied. He said the couple's income and credit scores were not a problem as they both had very high scores and substantial assets.

Because the Easton's could not qualify for the loan and told the loan officer they wanted the lowest possible payment, the loan consultant suggested an adjustable-rate mortgage with a payment option.

Roberts said the Easton's were informed verbally they could not obtain the loan that included the "four payments for free" feature. He also said the couple was provided and signed all the mandated written disclosures including the good faith estimate, the Truth-In-Lending statement, the CHARM booklet, etc. that also put them on notice they were not getting the loan they had originally requested.

"We disclosed, disclosed, disclosed," he said.

But, Mrs. Easton, a retired hotel reservations clerk, relayed a different scenario.

She said she and her husband, a retired New York state trooper, were indeed given Option ARMs with prepayment penalties and negative amortization. She said they were not given an explanation of the loan terms and were not told they could not get the loan they wanted. She said she was only recently made aware that she could not get the loan she wanted.

When the Eastons could not get Arizona Discount Mortgage to reimburse them the first four payments due under the two loans, they sued in Arizona's small claims court and filed a complaint with the Arizona Department of Financial Institutions.

A copy of the complaint indicates they were assisted by the consumer advocate group Association of Community Organizations for Reform Now, or ACORN.

Roberts said he couldn't rebate the first four loan payments because he doesn't get the same yield spread premium for the loan the couple obtained.

Roberts said his company did not do anything wrong and pointed out that the Eastons repeatedly signed and were given several mandated disclosures. In response, Mrs. Easton said neither she nor her husband read the loan papers because they relied upon the loan officer's explanation.

Roberts believes a court finding for the Eastons could be troubling for the industry. If the court finds in favor of the Eastons, then it will set a precedent that what the consumer believes controls and that what is put in writing does not matter.

But the precedent setting value of a case filed in small claims court is extremely limited because small claims lawsuits are rarely, if ever, recognized as legal authority by other courts.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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