Sunday, September 26, 2010

Northern California Courts rule in Truth in Lending Act cases

The Truth In Lending Act requires lenders to disclose all the material facts of the loan to borrowers.  Here are some recent cases on this statute.

In Amparan v. Plaza Home Mortgage Inc., Judge Jeremy Fogel found that Eneida Amparan adequately alleged fraud against Plaza Home Mortgage Inc., Countrywide Bank, FSB and Washington Mutual Mortgage Securities Corp. This ruling allows the case to proceed into discovery.

According to court documents, Eneida Amparan claimed that Plaza entered into a fraudulent scheme with Countrywide and Washington Mutual under which Plaza marketed an Option Adjustable Rate Mortgage (Option ARM) using deceptive loan documents. As Businessweek explains, an Option ARM is a "Nightmare mortgage" where the debtor has the option of making less than the interest payment on the loan for a period of time, then paying the rest off over the remainder of the loan at a subtaintially higher payment.  Since the mortgagee is paying less than the interest accruing, the loan experiences "negative amortization" and the amount owed actually increases over time.  Ms. Ampran argues that Plaza only told her about the low initial payments and not the larger payments that would come down the road.

Countrywide and Washington Mutual argued that while this may be fraudulent activity by plaza they, as buyers of the mortgage, did not make any false statements to Ms. Ampran.  Judge Fogel dismissed that argument noting that California finds "aiding and abetting" an intentional tort sufficient for liability.  Here, Ms. Amparan argued that Countrywide and Washington Mutual had knowledge of what Plaza was doing and profited from it which is sufficient to plead a claim of fraud.

In Katz v. Cal-Western  Reconveyance Corp., the plaintiff purchased his property secured by a mortgage in 2005, in 2008 he either refinanced the property or adjusted his loan.  He claimed that the disclosures he received at the second event were misleading.  Cal-Western responded stating that TILA primarily applies to the initial transaction and that refinancing has fewer requirements, modification have fewer requirements still.  In a previous motion, Judge Fogel found that this was a modification and not a refinance.  Now Ludge Lucy Koh agreed, stating that there was no obligation to make the disclosures Mr. Katz now says he wanted.  She dismissed the claim with prejudice.

In Harvey G. Ottovich Revocable Trust v. Washington Mutual Inc., the plaintiff alleges that his brother purchased property secured by a mortgage and put that into a trust for the brother.  The brother then stated that Harvey became incapacitated and he took over the trust.  For about a year he attempted to contact the defendants to determine what the trust owed on the property.  He alleges no response until he received a foreclosure notice.  Other than breach of contract, the plaintiffs argue a breach of the Real Estate Settlement Procedures Act (RESPA) which requires lenders to respond to written requests from debtors.  The defendants argue that even if they didn't respond to written requests for information there is no showing that this injured the plaintiffs.  Judge William Alsup disagreed, stating that the plaintiffs alleged they had to pay late fees because of the lack of response which is an injury.  He denied the motion to dismiss.

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