How to Sue Your Lender for Predatory Lending Practices

Ok, so here’s my disclaimer: I’m not an attorney and not qualified to give you legal advice. I’m writing this post because I work with homeowners and attorneys all the time to help people fight foreclosure, and I know how it works, or at least how it’s supposed to work. However, please consult an attorney for legal advice specific to your situation.

First, check out this article that appeared in last week’s New York Times from Gretchen Morgenson. The judge in the case wiped away the entire loan debt!

This article brings me to my next point: the entire discussion around the mortgage mess, including loan modifications, has matured quite a bit over the last six or so months. We all know how loan mods work and hear the statistics every day about how the lenders and our government aren’t doing enough to help homeowners.

I’ve been saying this all along, but you need a big stick to get the lender to pay attention to you. And that big stick is a lawyer with lawsuit papers with the lender’s name on them.

This is where things are headed because there are more and more court cases talking about how a homeowner sued a lender and wound up owning their home free and clear because the lender didn’t do things correctly when the loan closed, or couldn’t produce the note, or any other number of things.

And, the other day I received the following comment from a reader, and I’m sure there are lots of you out there wondering the same thing, so I thought I’d write this post.

The comment reads as follows:

“Hi Christine:

I see if they can’t produce the note, or have other missing clauses in my loan, that I can fight it? This is amazing!!! I need more information however. I paid $100 to speak to an attorney here in Vegas, but he won’t file anything for under $3500, which I don’t have, and until I’ve been served with foreclosure paperwork.

If I have not been served with foreclosure paperwork yet, should I file a Produce the note request in court? If not, when should I? Have you heard of any Litton Loan customers who this strategy has worked for? Do I have grounds to file for a quiet title if they cannot produce the note, or are found after a loan audit, to have fraudulent paperwork? And lastly, how do I find out if MERS is the entity trying to foreclose.

Thanks Christine! You are an angel!!!!” (His words, not mine!)

It occurred to me after I read this comment that I’ve never done a post that explained exactly the steps for beating the lender to the punch when it comes to saving your home from foreclosure. So here’s everything I currently know about how to go about suing your lender for predatory lending.

The first step is to figure out what you want to do with the property. If you think you want to keep the property, get a loan audit. Get this piece done as early as you can so that you can be in a strong position long before the lender files for foreclosure or sends you a notice of trustee’s sale.

I’ve been doing loan audits for nearly a year now and find problems in 98% of the mortgage audits I perform. Some common things the lenders consistently screw up are miscalculated APR’s, undisclosed finance charges and missing disclosures required under TILA and RESPA.

I would caution you to get a REAL audit from a live person who has experience auditing files. They don’t necessarily need to have been a mortgage broker (in fact, I’d discourage you from using anyone affiliated with the mortgage industry to modify your loans) to be auditing, but I do think a legal or accounting background is important to understand the issues.

By the way, if your auditor uses software to audit documents, beware. I’ve been testing computerized software called Compliance Ease and if I were an attorney, I would not base a lawsuit on the findings of the software because it only focuses on a few narrow categories. Be sure to ask your auditor if a trained human is looking over the docs or if they’re just putting numbers into some software. I’ve audited some files manually and ran them through the software and on several occasions they have been in complete conflict.

The point is, until your loan has been audited, you won’t know how much leverage you have. Today I audited a client’s paperwork whose servicer is Aurora Loan Services and found a $10,800.00 broker fee paid outside of closing. (See this post for more about Aurora Loan Services.) The broker on this loan understated this woman’s finance charge fees by a whopping $9,500.00. Do you think this woman has a LOT of leverage to file a lawsuit against the lender for predatory lending? Absolutely.

Or, your audit might show that you have some leverage, but maybe not enough for you to justify spending the money for a full blown lawsuit, so you might want to hire an attorney to obtain a loan modification for you. It all depends on your desired outcome and, the documents.

Let’s say for the moment that you find gross violations of TILA and RESPA, and you’ve decided to file a lawsuit. You’ll need to find a lawyer who understands how to file these lawsuits and who is relatively aggressive and fired up. This is really important because the bank is going to roll out the big guns and hire the most expensive law firm in town to represent them, and your attorney can’t be intimidated by going up against a bank.

The cases that I’ve seen have typically been filed in Federal courts because TILA and RESPA are federal laws, and because the parties who would be pursued in state court, such as the mortgage broker, title company and real estate appraisers are probably all out of business. However, this is a legal call on the part of your attorney; sometimes the state courts are better from a strategic standpoint.

The next issue to consider is whether you live in a judicial foreclosure state or a non-judicial foreclosure state. If you live in a judicial foreclosure state, the lender will file a lawsuit against you to actually foreclose on your property. If not, the lender will likely send out a Notice of Trustee’s sale and attempt to sell the property on the courthouse steps.

The reason this is important is because if there is already a legal action open, you can go to court and raise all the issues that come out of your loan audit. If you are going to do this yourself, spend some time researching the how-to’s, or hire an attorney who gets its to help you fight the foreclosure.

If you live in a non-judicial foreclosure state, you will most likely need to file a lawsuit against the lender to stop the sale. Here in Arizona, the best time to do this appears to be several months before the actual sale date. If you wait until the last minute, you will likely have to file for a temporary restraining order (“TRO”) to stop the sale.

The TRO route is problematic because many judges are still having a hard time understanding why they should stop a foreclosure sale on the basis of finding $35 or more in undisclosed finance charges from a loan audit. Regulation Z, which implemented the Truth In Lending Act, says that once a judge determines the lender has violated the law, they are required to stop the foreclosure sale and rule no further. In essence, they have no jurisdiction to rule on this matter any further because Reg Z is clear on this issue.

However, statutory law and judge made law are two different things. Many judges view the TRO as retaliatory on the part of the borrower against the lender for foreclosing on the property. So don’t wait until the last minute to file for a TRO!

What I think is a better route is to file a federal lawsuit against the lender for Truth In Lending violations. The best time to do this is around the time you receive a Notice of Default or before you ever get into default status, because it removes the issue of retaliation.

Once the lawsuit is filed, your entire loan balance becomes at issue, and usually payments aren’t made while the dispute is ongoing. (Note: don’t spend this money!)

Once served, the lender’s attorneys are going to file a bunch of motions to try to get the case dismissed. Typically, the big guys here in Phoenix (Snell & Wilmer, Tiffany & Bosco, in case you’re wondering who they are. The partners at Tiffany and Bosco are charging $4k a pop to foreclose on homes and are getting hundreds of these every month from banks!) will file a Motion for Summary Judgment or a Motion to Dismiss. If your case survives the MSD or MD, you will begin the discovery process.

In the cases I’ve seen where the borrowers are represented by competent legal counsel, the judge refuses to dismiss the cases at this point and the parties begin discovery.

At this point, the discovery process is still an unknown. The discovery phase is the part of the lawsuit where the parties share information with each other that is relevant to the case. It can involve millions of pages of documents, e-mails and depositions, all of which have to be read and reviewed by lawyers and paralegals. It will probably be expensive and the banks can afford to spend money on $400 an hour lawyers, so just be prepared.

The lawyers who “get it” (meaning that they represent borrowers) have figured out a new way to structure how they get paid so that borrowers can pursue these lawsuits more affordably.

Typically, if a lawyer does a lot of these cases, they will charge a flat fee up front for around $3,500 and monthly litigation payments from $1,500 – $5,000 that are all inclusive of their fees each month. In theory, if the borrower/plaintiff isn’t making a house payment, they can afford to pay an attorney a monthly payment to represent them.

At this point, this is the most I know about lawsuits and how they proceed under TILA/RESPA. I hope to be involved with an attorney during a discovery phase just so I can see how it unfolds, but I’ll update you all on that when it happens.

Related posts:

1. Produce the Note I get asked a lot of questions about the produce the note argument as it relates to foreclosures. In order...
2. Inaccuracies on Notices of Trustee’s Sale In non-judicial foreclosure states, the foreclosure mill attorneys will usually just send out a Notice of Trustee’s sale instead of...
3. What Are the Signs of Predatory Lending? There are several warning signs of a predatory lender. Although loans with the following signs are not always predatory, they...
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5. Is Lender Reform Coming? Let’s all hope so! Last night I had dinner with Zach Roberts and Aysha Austin from the Paladin Legal Advocacy...
6. Deeding Property to the Lender in Anticipation of Foreclosure I stumbled upon this information last night during a Google search for something else. I am reposting an article from...
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