Two recent lawsuits, one residential and one commercial, illustrate the liabilities that lenders face when issuing verbal or written loan commitments. In one of the cases, a former professional athlete alleges he was a victim of predatory lending on a $12 million loan.
Former New York Mets outfielder Lenny Dykstra filed a $100 million lawsuit in U.S. District Court for the Southern District of New York on March 17 against JPMorgan Chase & Co. He and his wife, Terri Dykstra, originally signed a note on March 26, 2007, with Washington Mutual Bank, which was acquired by JPMorgan after its failure. The couple was purchasing a Thousand Oaks, Calif., property from hockey legend Wayne Gretzsky and his wife Janet for $17.4 million.
The plaintiff said he advised WaMu originator Brian Minco that monthly income from promissory notes secured by car wash businesses was $125,000 and that his monthly obligations were $50,000. Dykstra was seeking a 100 percent loan-to-value loan with monthly payments less than $50,000 -- including principal, interest, taxes and insurance. A $17.5 million negative-amortization loan was approved with a $48,000 monthly payment.
But just before Aug. 31, 2007, closing, according to the complaint, WaMu advised Dykstra that it could only fund a $12.0 million loan. He made the deal work by obtaining an $8.5 million, 12 percent, hard-money second lien from First Credit with $3.0 million of the proceeds going towards the payoff of loans on a Simi Valley, Calif., commercial property which was also used as security.
WaMu allegedly got Dykstra to sign on to the loan terms -- even though his new payments exceeded his stated income by $10,000 -- because Minco allegedly promised that WaMu's underwriters had already agreed to refinance the second lien within 60 days of closing. The former baseball professional said he trusted Minco's promise due to their special relationship and because the loan officer had arranged the second lien for him.
But WaMu didn't refinance the second lien -- forcing Dykstra to unload personal assets -- including the promissory notes -- at steeply discounted prices and leaving him insolvent, according to the lawsuit. The plaintiff claims that JPMorgan violated the Home Ownership and Equity Protection Act amendment to the Truth-in-Lending Act and Regulation Z by putting him into loans that he had no chance of repaying.
The Court of Appeals of Washington, Division II, reversed a lower court summary judgment in favor of defendant Senator LLC in a lawsuit filed by Hoss Mortgage Investors Inc. Senator is the owner of three commercial properties in Yakima, Wash., according to a copy of the judgment published by Leagle. The properties are security for an $0.9 million loan from Fairway Commercial Mortgage and two loans for $1.6 million from Aspen Yak LLC -- all of which were due in December 2007.
Senator applied for three refinance loans with Hoss in July 2007, and deeds and HUD-1 Settlement Statements were executed on all three properties in favor of Hoss . But only two of the loans were funded -- though Hoss kept all of the deeds it held on the properties. So Senator held up the final closing and withdrew its escrow monies -- prompting the lawsuit on the basis of breach of contract and breach of warranty.
Senator filed two motions for partial summary judgment. In one motion it argued that Hoss' inability to fund the loans within 30 days voided its ability to recover fees, though this motion was denied. The second motion, which argued that it bargained with the plaintiff to fund three loans as a single transaction, was successful, however.
But the appeals court disagreed, reversed the decision and remanded the case for trial.
The dismissal of a lawsuit filed by Maria E. Siller and Clayton Siller against Option One Mortgage Corp. was overturned on March 9 by Court of Appeals of California, Fourth Appellate District, Division One, according to a copy of the decision published by Leagle. The plaintiffs allege violations of TILA and other mortgage regulations because their mortgage broker promised them $27,000 in cashout proceeds, but they only received $15,000.
Lenny Kyle Dykstra, Plaintiff, -against- JP Morgan Chase & Co., Inc., Defendant.
Case No. 10 CIV 2413 WHP, March 17, 2010 (U.S. District Court for the Southern District of New York).
MARIA E. SILLER et al., Plaintiffs and Appellants, v. OPTION ONE MORTGAGE CORPORATION, Defendant and Respondent.
Case No. D054366 (Court of Appeals of California, Fourth Appellate District, Division One).