Troubled Borrowers Sue Mortgage Lenders
6/12/2008
Source: By Patrick Danner, MiamiHerald.com

Some South Florida borrowers who are in default on their home loans aren't waiting around for their lender to begin foreclosure.

They have beaten their lender to the courthouse by filing lawsuits that allege the institutions committed fraud and violated federal lending laws by overstating the borrowers' incomes to qualify them for loans, changing the loan terms just before closing, and failing to disclose the loan costs.

''These [borrowers] are basically sheep among the wolves,'' said Frank J. Ingrassia, a Margate lawyer who last week filed about 25 lawsuits on behalf of the borrowers against various lenders in U.S. District Court in Miami and Fort Lauderdale.

The suits mark the latest salvo against the subprime lending industry, which consumer advocates contend recklessly extended loans to borrowers and fed a buying frenzy that led to the real-estate bust.

Among the lenders named in the South Florida suits are: Citi Residential Lending; Countrywide Home Loans; Fremont Investment and Loan; Greenpoint Mortgage; HSBC Mortgage Services; Saxon Mortgage Services; and SunTrust Mortgage. None had any comment on the suits. The Mortgage Bankers Association also didn't have a comment. (A Citi spokesman said it only began doing business in September, so it didn't originate any loans before then. Two suits against Citi are for loans made prior to 2007.)

Similar suits are being filed around the country, said Ira Rheingold of the National Association of Consumer Advocates in Washington.

''The fact that this was so prevalent shows there was a complete design flaw in the lending process,'' Rheingold said. ``All of these borrowers didn't make the same mistake.''

SIMILAR TACK

Legal Services of Greater Miami is taking a similar tack -- alleging lenders committed fraud -- in defending homeowners in some foreclosure cases, said Carolina Lombardi, a senior attorney for the agency.

An elderly couple living on Social Security, for example, were given a mortgage loan that carried a monthly payment that exceeded their monthly income, she said.

The suits filed by Ingrassia claim the borrowers submitted W-2s and pay stubs as proof of their incomes, yet their incomes were inflated to qualify them for loans. The borrowers didn't learn that until after they ended up in default, Ingrassia said.

The suits also allege that the loan terms were changed, with the borrowers not finding out until closing that the interest rate was adjustable rather than fixed. The interest rates also were higher than what they had been promised, while some loans had prepayment penalties, Ingrassia said.

The borrowers didn't receive the settlement paperwork detailing the loan terms and costs until the closing rather than 24 hours or more in advance, as required by law, the suits allege.

''They were getting a different type of loan product than they had initially been promised during the application process,'' Ingrassia said.

''They were ultimately forced to make a split-second decision when they were confronted with these issues at closing,'' he said.

If they opted not to close, buyers risked losing their deposit or their loan commitment, Ingrassia said.

''What would you do? Most people in that situation would commit to the deal. It's almost like psychological coercion,'' he added.

Ingrassia declined to permit his clients to be interviewed. Efforts to reach some were unsuccessful.

REDRESS SOUGHT

The suits seek unspecified financial damages and to have mortgages rescinded.

If the borrowers prevail, any damages awarded to them could then be used to offset what they owe the lenders. That might allow borrowers to obtain a smaller loan and remain in their property, Ingrassia said.