With homeowners upside down on their properties and the foreclosure boom kicking off in earnest; you knew it was only a matter of time before the lawsuit engine kicked in to high gear. CNN Money reports on the phenomenon picking up steam as individual home owners start suing the crap out of their mortgage broker, lender, and anyone else involved in the transaction that winds up costing them their home.
It’s going to be a good time to be a real estate attorney. The ones I know are so busy they are turning down business left and right. The cases primarily revolve around the following:
- Violation of the Truth-In-Lending act for failure to provide clear and understandable disclosures. These will be popular in Option ARM lawsuits.
- Fraud or misrepresentation. These will be popular in cases surrounding stated income loans.
- Valuation and cash back schemes. Loan officers, appraisers and title/escrow units work together to provide extra cash at closing by over valuing the property. These will be popular in cases where people are upside down in their homes.
The article is worth the read. Here is one of my favorite excerpts; the one where loan originators are called idiots. Sad, but true in far to many cases:
“Most claims will be against mortgage brokers for putting them into loans where they shouldn’t have been,” said Dan Mulligan, a California-based real estate attorney.
One reason that borrowers often did not understand the terms of their mortgages according to Jo Carillo, a property law professor with the University of California, Hastings College of Law, was the novelty of many of these loans.
“Many originators had no experience explaining them,” she said. “It appears to be hard to explain the true costs.”
According to Carillo, some bad advice from mortgage originators may have been made in good faith. Caught up in red-hot housing markets, overly exuberant brokers and loan officers told clients not to worry about concerns like their ARMs resetting; they could always refinance and, anyway, interest rates were bound to fall.
Here’s my take on the lawsuits - sue away. I hate lawsuits, they scare the crap out of me and are inordinately expensive and time consuming; but in this country we love suing, so if you feel disenfranchised you should at least talk about your options with an attorney.
I will argue, however; that many of the loans going bad now were written and produced with the complicity of the borrower. Stated income loans usually require the borrower to sign off on the income; if that’s not complicit then I need a new dictionary.
Whether loan originators were idiots (they were), brokers were dishonest (they were), borrowers were caught up in the exuberance (they were), lenders were after the quick and maximum profit (they were), the government let it all happen unchecked (they did), the real issue is who got scammed and screwed, and who is looking for a way out after trying to game the system and losing. Is there any true way to separate the cheats from the cheated? It will be a long, expensive process for the courts to figure out; one home owner at a time.
What are your thoughts on the lawsuits - how many will we see; which types will prevail, how long will they go on, and can they become class action in nature?
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[Source: Blown Mortgage]
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