Our team has uncovered a large variety of unlawful or abusive practices. The following examples were recently outlined and used by lawyers who later filed lawsuits based on the findings in our audits.
Ultimately, we are looking for things that can result in relief for a troubled homeowner or victim of predatory lending. We immerse ourselves in the mortgage transaction. The easiest way to understand why we do this is given by the Mortgage Banker’s Association publication on how to successfully win mortgage lawsuits(1):
Fully understand the underlying loan transaction, and the defense will make itself clear
RESPA regulates disclosures, settlement practices, and affiliated business arrangements. Several recent RESPA violations found were undisclosed affiliations between real estate agents, lot developers, and lenders. The violations showed the errant lenders tried to hide relevant and important information about properties with hidden defects or other faults sold to unwitting buyers.
TILA regulates disclosures of the ‘material terms’ of the mortgage. Recent audits have uncovered multiple violations of TILA enabling overturning of the mortgage contract. Some violations discovered were purposefully and repetitively perpetrated by the same lenders who were tried in previous state lawsuits. They continue to deliberately mislead and trap borrowers.
ECOA regulates the process of mortgage application and equality among applicants. Recent audits have uncovered multiple instances of ECOA violations where minority and other applicants were not allowed to provide a completed loan application, or were discriminated against by racially targeting and policies.
HOEPA and other High Cost Loan Acts
HOEPA and many state High Cost Loan Acts regulate maximum rates and fees that may be charged, and provide special disclosures that must be provided for higher cost loans. Recent audits have found that many lenders did not accurately calculate loan costs and failed to provide proper disclosures.
Fraudulent Loan Documents
It is not uncommon for signatures and initials for documents not provided to borrowers to appear fraudulently signed at a later date. It is fairly common for lenders or a title & escrow company to affix addendums and additional loan documentation to a Deed of Trust or Note after it is signed which a borrower has never seen or acknowledged.
HMDA regulates disclosures and requires lenders to request race and gender information from home mortgage applicants to prevent discrimination. Many audits have found lenders deliberately chose to unlawfully bypass HMDA and other regulations by falsely stating home mortgages were for commercial purposes.
Fraudulent appraisals, fraudulent title and escrow fees, fraudulent promises, fraudulent non-disclosure, and many other types of fraud have all been found in recent audits.
Unconscionable Acts of deliberate infliction of economic damage to borrowers and deliberate repeat of illegal lending acts have been found in recent audits. Unconscionable mortgage terms and arbitration agreements have also been found.
Equity stripping and other predatory lending to fragile borrowers and new homeowners who clearly could not afford the payments has also been found. Recent audits have found multiple cases where lenders gave loans they knew could not be repaid for the purpose of foreclosing and stripping a person’s equity.
Negligent misrepresentation is the failure to use normal care. This results in making a false statement by the delinquent party. Negligent misrepresentation is often found multiple times in the same loan file due to lax standards and rushed loans. Negligent representation of appraisal values, costs, and other important facts plague many loans. Many files have appraisal values and methods which were carelessly misrepresented.
We also look for signs of borrower fraud. It is always useful to know if you can’t win a lawsuit because the borrower was fraudulent.
Breach of Contract
A mortgage is a contract. Investors and lenders often buy mortgage contracts from dozens to hundreds of sources and use software to monitor and execute that contract. Unfortunately, software is often incapable of understanding different terms on hundreds of different types of mortgages. We have found many construction loans also have a high incident of breach of contract as they are overseen by inadequately trained personnel.
Breach of Fiduciary Duty and Negligence
A party to the mortgage transaction typically has a duty of normal care. Some parties with special influence, duties, or knowledge have a duty of extreme care. Failure to provide normal or extreme care which results in damages to the borrower is often negligence or a breach of fiduciary duty. We have found negligence ranging from:
- Failing to disclose known property flips
- Breach of fiduciary duty when a lender passed off a foreclosing property to a new owner without disclosing the pitfalls and why it was foreclosing
- Failure to disclose known defects
It is not uncommon for the appraiser, real estate agent, and a seller to hide defects or inflate the value of the property together. One of the most convoluted conspiracies I unraveled was a financial institution that hired a mortgage broker to sell a loan to a person they had already denied to buy one of their foreclosing construction projects at an inflated value. To obtain comparables, and later refinance that loan to a government agency, that same financial institution used an affiliated appraiser and obviously fraudulent property sales of its own properties in the neighborhood. Of course, no one told the new buyers of the inflated value or that the interest costs during the foreclosure left the construction project with insufficient funds to finish the house.
There are a lot of other things we have found and continue to find. What we are looking for are things that may ultimately grant peace and relief to a troubled family.