Chicago Bank Sued for Poor Underwriting

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MORTGAGE EXPERT
12 · 07 · 07

The plaintiff in lawsuit against an Illinois bank alleges the bank is liable for fraud committed by partners of an elderly borrower. But the bank says the claims are frivolous and suggests the timing of the lawsuit is politically motivated.

Broadway Bank is fighting allegations in court this week that it ignored Loren Billings’ mental incapacity and phony loan documents in order to make a $1 million loan against her home — money that her business partners allegedly used for their own purposes.

“The allegations found in this lawsuit involving Broadway Bank are unsubstantiated and without merit,” the Chicago-based bank said in a statement. “This lawsuit, filed by Loren Billings’ son, Terrence Kasprazak, and not by Loren Billings, is fraught with baseless claims and factual errors.”

Kasprazak filed the lawsuit in Cook County Circuit Court on his mother’s behalf in 2006, claiming that she was duped by the bank and by her business partners.

Kasprazak said in court documents that the partners persuaded Billings to invest in a foreign currency arbitrage account purportedly managed by one of the three partners in 2001. Billings was 83 at the time.

Peter King, Billings’ attorney, told MortgageDaily.com that Billings put $50,000 in the account. He said Billings received a statement after only eight months indicating that her investment had grown to $993,343.38.

“The account was a fiction,” King wrote in the complaint.

Billings never received any money from it, he said.

King said the trio then arranged for the woman to accompany them to the bank to get a $1,000,000 loan against her only real asset, a building she and her husband purchased 30 years ago and in which she still lives. 1134 W. Washington Street also houses the Museum of Holography, which Billings and her late husband founded.

The business partners met Billings through the museum, King said, feigning interest in holography — her life’s work. “They showered her with candy, flowers and caviar,” the attorney said about the woman and two men.

King claims the bank was provided false financial statements and tax returns.

“There were red flags all over the place,” he said, adding that there were inconsistencies in the information provided. He noted the typed financial statement in the bank’s loan file inflated her income and assets and did not jibe with a handwritten financial statement.

And, just days before closing, King said the bank sent a letter to Billings stating that it had concerns based on the discovery of significant problems in the credit histories of the three co-borrowers and the discovery that two of them had previously been reported for suspected fraudulent activity.

The loan closed in September 2002, holding Billings individually liable for the $1 million loan. The bank required that $200,000 immediately be placed in an escrow account at the bank King said the bank requested this be done because it understood that Billings could not make the payments on the note.

The three business partners did not sign the note.

Shortly after closing, Billings signed checks totaling $602,000. King noted in the complaint that the payees were not in Billings handwriting.

Billings said the loan terms were oppressive. “At a time when the prime rate was 4.75%, Broadway Bank charged 9.75% on this loan,” he wrote in court documents.

“When fraud is staring you in the face, you can not ignore it and when you become a participant under those circumstances, you can profit or benefit from it,” King said. “You’ve got to dig a little deeper. You can’t just approve the loan.”

King wants the court to invalidate the note and the mortgage on the basis of fraud and mental incapacity. Under Illinois law, legal agreements made by a mentally incapacitated person are not enforceable.

The bank pointed out in its statement on the lawsuit that Billings has not been declared mentally incompetent. It also said that neither Broadway Bank executives nor the settlement company that handled the closing noticed any signs that Billings was mentally impaired.

The bank also said it had been receiving regular payments on the loan until Kasprazak filed the lawsuit and wondered whether the filing of the litigation had anything to do with the bank loan officer who approved the loan declaring his candidacy for state office.

Finally, the bank asked why Kasprazak hasn’t sued the trio mentioned in the complaint.

King said the bank has formally declared the loan to be in default.

Kasprazak v. Broadway Bank is being tried without a jury and is expected to continue into next week.

“We are confident that the judge will rule in our favor,” Broadway said.

Mortgage Expert

Mortgage Daily Staff

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