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Mortgage Lawsuits News | Mortgage Litigation Index
Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.

Mortgage Compliance Challenged in Court

Recent mortgage compliance litigation activity

Aug. 17, 2011


portrait of Sam Garcia

In the war between borrowers and lenders, the latest litigation includes attempts to stop foreclosures and rescind mortgages well after they were closed. Lenders are being accused of violating federal mortgage requirements, and some borrowers claim they were never given the required disclosures.

Texas borrower Etta Lowery claims that she thought the home-equity loan she closed on in December 2003 was a fixed-rate mortgage, a decision from the U.S. Court of Appeals, Fifth Circuit, said. The loan was brokered by Will Bend Mortgage Co. to Capital One Mortgage, which reportedly informed her in December 2009 that the loan was an adjustable-rate mortgage.

The Texas court ruled in favor of Capital One and Dovenmuehle Mortgage Inc., finding that Lowery was given the required three-day rescission right as required by the Texas constitution. It also found that her right to rescind under the Truth in Lending Act expired in 2006.

But the appeals court granted a motion for Lowery to file a corrected reply brief.

Karen Cappuccio claims that she sought to refinance a 6.38 percent first mortgage and an 11.2 percent second mortgage into a 5 percent consolidated loan through mortgage broker Prime Capital Funding LLC, a copy of a decision said. A package was reportedly submitted to Countrywide Bank, N.A., for 4.75 percent and 5.00 percent. Another package was submitted to First Magnus Financial for an 11.5 percent, 20-year loan.

Countrywide reportedly came back with a 4.75 percent adjustable-rate mortgage that had a 9.95 percent ceiling. First Magnus returned a 13.477 percent rate for a 15-year balloon. She closed in November 2006 on the loans, but claims she wasn't given any copies of the closing documents or any explanation about them.

Cappuccio was awarded $40,000 against Countrywide for common law fraud and statutory fraud in a September 2008 jury trial. She was also awarded $50,000 for violations of the adverse action notice requirement of the Equal Opportunity Act. After First Magnus sold the loan to E*Trade Mortgage Corp., E*Trade sought a dismissal.

On Tuesday, the U.S. Court of Appeals, Third Circuit, vacated the judgment of the District Court and remanded for further proceedings.

The Fourth District Court of Appeals of California reversed a lower court's decision that option-ARM disclosures used by Home Loan Center Inc. were adequate. The appeals court noted that "plaintiffs adequately alleged fraud and section 17200 causes of action."

"The judgment is reversed," the decision stated. "The trial court is directed to overrule defendant's demurrer to the second amended complaint."

A summary foreclosure judgment in favor of Whitney National Bank was reversed by the District Court of Appeal of Florida, First District, in favor of Leo C. Chen, Ho N. Lin and Stephanie Lin. The court reversed the judgment against the Lins because the bank allegedly violated the Equal Credit Opportunity Act by discriminating on them based on their marital status. The Lins alleged that although Ho Lin qualified on his own, they forced Mrs. Lin to execute a guaranty on the commercial real estate note.

"Whether the trial court erred in granting summary judgment against Stephanie Lin in light of her affirmative defense that Whitney's predecessor-in-interest violated the Equal Credit Opportunity Act, 15 U.S.C. §1691, in securing her personal guaranty of the loan that is the subject of the complaint," the decision stated. "We agree with appellants that there are disputed issues of material fact on this affirmative defense and, therefore, we reverse the judgment against Stephanie Lin."

JPMorgan Chase & Co. announced in April that it agreed to settle a class action lawsuit over financial protections that are due military borrowers under the Servicemembers Civil Relief Act. Chase said that the settlement follows several programs recently launched to help military and veteran customers.

The agreement, subject to court approval, calls for Chase to make $27 million in benefits available to military customers -- including $12 million directly to the class and $15 million set aside for additional damages on a case-by-case basis as determined by a special master.

"We are sorry and regret the mistakes our firm made on mortgages for members of the military," said head of Chase Home Lending Frank Bisignano in the announcement.

A petition filed by John R. Hock and Doreen T. Zic-Hock challenging an order requiring a $400,000 bond as a condition of claim in an HEL was dismissed because it failed to show irreparable harm not remediable on appeal. The borrowers, who closed on their loan in 2006, defaulted in 2009 and faced a foreclosure by Legacy Bank of Florida.

The petitioners unsuccessfully alleged that the bank forged their signatures on the mortgage and failed to provide TILA disclosures and a notice of right to rescind.

A South Carolina court ruled against Springleaf Finance Corp. in July that more than 9,000 borrowers were entitled to damages of between $1,500 and $7,500 each under a law in the state, FINalternatives reported. Parent Fortress Investment Group acquired 80 percent of the company last year from American International Group for $125 million -- and the judgment could eat up half of the Springleaf's current value.

No. 09-4055, opinion filed Aug. 16, 2011 (U.S. Court of Appeals, Third Circuit).

CLARENCE E. BOSCHMA et al., Plaintiffs and Appellants, v. HOME LOAN CENTER, INC., Defendant and Respondent.
No. G043716, filed Aug. 10, 2011 (Court of Appeals of California, Fourth District, Division Three).

JOHN R. HOCK, individually, and DOREEN T. ZIC-HOCK, individually, Petitioners, v. LEGACY BANK OF FLORIDA, a Florida banking corporation, Respondent.
Case No. 4D10-3872, April 20, 2011 (
District Court of Appeal of Florida, Fourth District).

Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Before that, he worked in mortgage lending for two decades.

[email protected]

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