The Fourth District Court of Appeal in Santa Ana has published a new case allowing homeowners who obtained “Option ARM” adjustable rate loans, which had negative amortization, to sue the lender for misrepresentations and failures to adequately disclose that negative amortization would occur if the borrowers only made the minimum payments. In the case of Boschma et. al. vs. Home Loan Center, Inc., which was filed as a class action, the loan documents contained various disclosures about the adjustable rate and possible negative amortization, but did borrowers only made the minimum payments allowed, that negative amortization would definitely occur. Although plaintiffs alleged that they had suffered damages in the form of lost equity due to the negative amortization, the court noted that it may be difficult for them to prove they could not have avoided the negative amortization simply by paying more each month after they discovered that the minimum payment resulted in negative amortization. There are many similar class action lawsuits filed against similar lenders across the nation.
Homeowner Association’s Annual Election Meetings Are Public Forums
The appellate court in the Fourth District Court of Appeal (Santa Ana) has just published a new decision concerning statements made at a Homeowner Association Annual Election Meeting, that were alleged to be defamatory. At the meeting, a candidate running for the Board of Directors accused a former homeowner and board member of
stealing money from the Association. The former homeowner sued the candidate for various causes of action including defamation. (Slander). The candidate filed a SLAPP motion in response to the lawsuit, claiming that the statement made concerning the plaintiff was made in a public forum and constituted protected activity under CCP section 426.16. The trial court denied the motion.
On appeal, the appellate court reversed, and directed the trial court to grant the motion. The court held that a homeowner association annual election is a public forum and that statements made at such a meeting concerning the qualifications of a candidate running for the board, or concerning the qualifications of an opponent, are protected from legal action, even if defamatory, unless the statements are proven to be made with malice. To establish malice, it is necessary to prove that the statements were made with knowledge of their falsehood or reckless disregard of their falsity. Since the plaintiff was unable to demonstrate malice, the court was directed to grant the motion dismissing the defamation cause of action.
Borrowers Are Suing Banks for Cutting Off HELOC Lines of Credit
A federal district court in Chicago has given the green light to clients of JPMorgan Chase Bank to proceed with a consolidated suit alleging that their equity lines were yanked or reduced illegally, costing them billions of dollars in lost borrowing power. Judge Rebecca Pallmeyer rejected the bank’s motion to dismiss the case, clearing the way for a possible giant class action.
The litigation pulls together eight separate suits seeking class certification filed by homeowners in California, Minnesota, Illinois, Texas, Arizona and Ohio. It is considered a bellwether test of the rights homeowners enjoy under the Truth in Lending Act and state consumer protection statutes when they take out equity lines of credit.
But it also shines light on the controversial computerized tools many lenders use to make quick, inexpensive assessments of property values in lieu of more costly professional appraisals. Suits on similar grounds are pending against other major lenders, including Wells Fargo & Co., GMAC Mortgage and Citibank, according to attorneys.
The plaintiffs’ lawyers not only are challenging JPMorgan Chase’s legal right to rescind or limit credit lines without adequate documentation that property values have dropped “significantly” — as required by the truth in lending law — but are also mounting a side attack against automated valuation models that they contend are frequently inaccurate and unreliable.
The computer valuations used by JPMorgan Chase were found to be “grossly in error,” based on subsequent physical appraisals, said Steven Lezell Woodrow, a partner with Edelson McGuire, the Chicago law firm representing the plaintiffs.
FTC Will Not Enforce MARS Rule Against Realtors in Short Sales
As another major victory for REALTORS®, the Federal Trade Commission (FTC) announced today that it will generally not enforce the Mortgage Assistance Relief Services (MARS) Rule against real estate brokers and agents engaged in short sales. Real estate professionals must nevertheless comply with MARS prohibitions against misrepresentations and other laws prohibiting unfair and deceptive acts. Also, FTC’s forbearance of enforcement is limited to real estate licensees in good standing and acting in compliance with state laws, who assist consumers in negotiating, obtaining, or arranging short sales in the course of securing the sale of the consumer’s home.
In its announcement today, the FTC acknowledged “it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers” with short sales. The FTC will, however, continue to enforce the MARS Rule as to all other providers of mortgage assistance relief services, and also as against real estate professionals doing loan modifications or other types of mortgage assistance relief services.
Next week, on July 21, 2011, the FTC’s rulemaking authority for MARS will be transferred to the new Consumer Financial Protection Bureau (CFPB), but the FTC will continue to enforce the Rule. The CFPB will have the authority to determine whether to change the MARS Rule as it applies to real estate professionals conducting short sales.
The FTC’s News Release is available at http://www.ftc.gov/opa/2011/07/mars.shtm
Lenders May Not Get Deficiency Judgments Against Borrowers in California after Approving Short Sale
In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.
Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.