Nationstar Mortgage LLC has been sued over allegations that one of its star branch managers prodded borrowers into bad investments, committed mortgage fraud and failed to maintain proper compliance. The company is also accused of operating without a license.
Cindy Kelly was a branch manager for Nationstar in San Diego in 2006, an announcement from Ackerman, Cowles & Associates said. She was allegedly generating a high level of sales for the company, which changed its name from Centex Home Equity Co. LLC when it was acquired by Fortress Investment Group LLC in 2006 from Centex Corp.
Beginning in 2005, the plaintiffs claim Kelly and other branch employees inflated income, falsified employment information and fraudulently claimed on 1003 applications that the loans were owner-occupied, according to a complaint filed this month in San Diego Superior Court on behalf of 12 borrowers. The borrowers either signed blank applications, or their signatures were forged on loan documents.
In some cases, Kelly allegedly forged property deeds so that title would be unknowingly conveyed to third parties.
Loans were made without regard for the borrowers’ ability to repay, the lawsuit alleges. This went on for four years.
The borrowers claim that Kelly told them that the proceeds from their home-equity lines-of-credit from CHEC were being invested in high-return investments. She did this without a securities license and with the help of her employees at the company.
But instead of investing the money, she allegedly just passed on the proceeds to Stonewood Consulting — a fraudulent investment firm. Borrowers were told that properties were being purchased with their proceeds, and Stonewood would make the mortgage payments until the property was flipped.
By 2005, borrowers were complaining that their loan terms were unclear and their investment returns were far from what Kelly promised, the lawsuit indicates. Kelly began avoiding contact with the disgruntled borrowers. Branch employees refused to listen to the borrowers’ concerns.
“The corporate defendants went into a self-protective mode and did not disclose that they knew that Kelly was offering investments through Nationstar/Centex,” the complaint says.
Attorneys for the plaintiffs allege Centex was not properly licensed to offer mortgages in California, and it was selling securities without a license.
Because of her strong sales activity, Kelly was not terminated by Centex Home Equity for several months following the discovery of her activities, the complaint says.
“Upper management had discussed the volume of business being suddenly brought in by Kelly, but the origin of the business was not questioned and sales/profits were deemed to be more important than figuring out whether Kelly was engaged in negligent misrepresentation, loan fraud, negligent or intentional violations of the Truth In Lending Act, or other violations,” the complaint says.
The plaintiffs claim losses were in the millions. They seek compensation for ruined credit, restitution for lost money and the rescission of all debt owed to Nationstar. Attorney’s fees, court costs and an award of $25,000 per plaintiff is also sought.
Fortress spokeswoman Lilly H. Donohue did not respond to a request for a statement.
Mark Richter, et al., v. Nationstar Mortgage, LLC, et al.
Case No. 37-2008-00092170-CU-BT-CTL, Sept. 22, 2008 (San Diego Superior Court)
