NY Vs First Horizon

New York Attorney General Eliot Spitzer recently filed a lawsuit against First Horizon Home Loan Corp. — a subsidiary of First Tennessee National Corp. — for illegally threatening to foreclose on a home located in East Greenbush that had already been paid off, according to the filing.

The case stems from a $27,000 loan that homeowner Richard Hall obtained from Mechanics Exchange Savings Bank in 1974 for the purchase of the property, the attorney general’s office (AG) reported. The 25-year loan carried an interest rate of 8.5% and was to be paid in monthly payments of $201.31.

The mortgage was assigned several times, first to Dime Savings Bank of New York around 1983, then to Sunbelt Mortgage Corp. — now known as First Horizon — in 1993, the lawsuit said. The transfer to First Horizon occurred in 1995, at which point Hall authorized the bank to debit the monthly payment directly out of his checking account.

Despite that Hall made the last of 300 timely payments required to fulfill the loan in October 1999, First Horizon continued to debit the monthly amount from his account, said the AG. Hall reportedly mistakenly assumed the mortgage term was 30 years.

In May 2003, Hall received a notice from First Horizon informing him that, due to an error by Mechanics Savings in 1974, his payments should have been $16 more per month. The bank advised the homeowner that the maturity date of the loan was being extended to March 2010, which required him to pay an additional $25,163.75, Spitzer’s office reported.

According to the lawsuit, the consumer notified First Horizon to cease debiting his account in September 2003 — when he had already overpaid $9,461.57 from the amount required under the mortgage. The Irving, Texas-based lender responded by threatening to foreclose on the home if they did not receive $12,320.49 within a 30 day period, reported the AG office.

In an e-mailed statement to MortgageDaily.com, First Horizon said that it had reached a settlement with the consumer — Hall would be reimbursed for any payments he made after the loan reached the original maturity date and the remaining balance caused by the “inherited” mistake would be absorbed.

However, the case is still pending, said AG office spokesman Brad Maione.

“Horizon knew, or had reason to know, that it had no right to take the actions set forth,” Spitzer said in the lawsuit — which seeks civil penalties against the bank for illegal and deceptive practices, among other things.

In the AGs announcement, Spitzer also directly challenged the national bank regulating agency, which issued a directive in November 2002 as a beginning effort to preempt state enforcement of consumer protection laws and last month issued final regulations on this matter.

“The case also underscores the misguided policies of the Office of the Comptroller of the Currency (OCC), which has directed national banks to ignore state regulators attempting to enforce long-standing consumer protection laws,” Spitzer said in the announcement.

The attorney general’s office reported that before the lawsuit was filed it had attempted to resolve the situation with First Horizon. However, bank officials said they could not discuss the matter because a directive issued by the OCC advised its officials not to talk to state attorneys general.

According to First Horizon’s statement, “managers were negotiating with the customer and his attorney to settle the loan when the lawsuit was filed. As soon as we were contacted by the OCC, senior First Horizon managers responded quickly, saying that although the loan had not been paid off, the mistake was not the customer’s,” and that it would absorb the remaining balance and provide Hall with reimbursement.