A borrower who paid off high-rate debt she owed with a consolidation loan from Quicken Loans Inc. then only made three payments was awarded more than $2 million by a West Virginia judge. While the judgment seems totally unreasonable, one expert sees little chance of an appeal by Quicken succeeding.
Monique Brown acquired a Wheeling, W.V., property from Lourie Brown Jefferson and her mother in 1993, according to a copy of a brief of petitioner filed this month and provided by Quicken.
But Brown executed a power of attorney that gave Jefferson the authority to borrow against the property and use the proceeds as she saw fit.
In 2003, Jefferson obtained a cashout mortgage for $40,518 from CitiFinancial. After two additional refinance transactions, her balance rose to $67,348. In addition, Citi financed four unsecured loans for more than $17,000, while a tax refund loan from another entity added $3,418 to her debt.
Looking to escape the high-rate loans, Jefferson went online to shop for a loan and began the origination process with Quicken in May 2006. She estimated that her property was worth $250,000, and the property was insured for $328,000.
An appraisal was ordered through TSI Appraisal Services, and the assignment was completed by Dewey Guida of Appraisals Unlimited Inc. The fair market value came in at $181,700.
In anticipation of the loan, Jefferson made a down payment on a $38,000 car.
But Jefferson missed her CitiFinancial payment in June, prompting Quicken to increase up-front costs due to greater risks.
Jefferson closed on a $114,800 loan with Quicken in July 2006. The 3/6 adjustable-rate mortgage had a 40-year amortization and a balloon payment. Proceeds from the transaction paid off $95,442 in debt, leaving her with $40,768 in cash.
The refinance helped cut her combined payments to $1,144 from $1,460.
While the first two payments were made on-time, the third payment was 75 days late. Jefferson claims she became ill and made the one additional payment before resorting to litigation.
Jefferson filed a lawsuit in the circuit court against Quicken, Appraisals Unlimited Inc. and appraiser Dewey Guida. Among claims alleged in the lawsuit were unconscionability, fraud and illegal appraisal. She also alleged an illegal balloon note.
The claims against the appraiser and appraisal firm were resolved in May 2009.
But in continuing her claims against Quicken, Jefferson alleged that the online lender performed an inadequate review of the appraisal.
The circuit court ruled in favor of Jefferson on nearly all counts in February 2010. In the ruling, the court said Quicken raised her payment and converted unsecured debt to secured debt — putting her home at risk. The court also ruled in favor of Jefferson on her claim that a refinance was promised at better terms after she made payments on the loan. The court additionally found that the balloon disclosure didn’t meet West Virginia statutory requirements because it didn’t state the balloon payment amount or due date.
Jefferson was awarded $17,476 in restitution. Her law firm was awarded $495,956 in attorney’s fees.
The judge also canceled her mortgage debt — a move Quicken says disregarded express limits on cancellation of debts imposed by W. Va. Code 46A-5-101(2) and 46A-5-105. The company explained that in order to cancel a debt in the state, the loan must either be regulated or unsecured. Quicken claims the loan was not a regulated loan because the rate was less than 18 percent.
In addition, $2 million in punitive damages was awarded.
The court said that the punitive damages followed standards outlined in Garnes v. Fleming Landfill Inc.
But Quicken questioned the logic used in determining the amount, noting that a Garnes analysis was not performed. It also said that considering attorney’s fees or the cancellation of the debt as part of the basis for the punitive damages was “impermissible.”
Quicken asked that the judgment be set aside and that the amount paid in the appraisal claim previously settled offset the punitive award.
However, the motions were denied without explanation.
So the Detroit-based lender filed an appeal three months ago, calling the principal findings of liability “draconian remedies.”
“To the extent that the appraisal was incorrect or the balloon payment was not properly disclosed, remedies could be fashioned to fully address and cure those violations,” the appeal states. “But the extreme remedy of forcing Quicken Loans to forfeit all of the money that it gave to Mrs. Jefferson has no connection to the alleged violations; it is a baldly punitive measure grossly disproportionate to any actual harm in the case.”
Quicken is asking for a reversal of the trial court judgment and for the punitive damages and debt cancellation to be vacated.
The appeals court is likely to remand the case to the trial court judge to explain his reasoning for the punitive damages, Patton Boggs LLP Partner Anthony Laura said in a telephone interview. But since the punitive damages are within the judge’s discretion, it is unlikely that the punitive award would be reversed.
“They would essentially be vacating the punitive damages … giving the judge another opportunity to do exactly what he did the first time but somehow explain his rationale,” Laura said.
Laura expects that the judge will probably reaffirm the earlier decision, though he’ll probably provide the reasoning behind it.
Some companies in the region have avoided West Virginia because of excessive litigation and a burdensome regulatory environment.
