Financial Institutions

Lender Fraud: Negative Amortization Loans

By on September 12, 2011 - Comments off

Boschma v. Home Loan Center, Inc., (Fourth District, August 10, 2011) — Cal.Rptr.3d —-, 2011 WL 3486440, 11 Cal. Daily Op. Serv. 10, 237, 2011 Daily Journal D.A.R. 12,103

A couple who refinanced their existing home loan utilizing an “Option ARM” filed an action against the lender, alleging that the defendant’s loan documents failed to adequately and accurately disclose the essential terms of the loan, and that the plaintiffs would suffer negative amortization if they made monthly payments according to the payment schedule provided prior to the closing of the loan. Asserting causes of action for fraud and violations of Business and Professions Code section 17200 et seq., the plaintiffs alleged that the defendant utilized a “teaser” interest rate of 1.25 percent for the first month of the 30 year loan which bore no relation to the actual cost of credit, and that the payment schedule did not clearly indicate it was based upon the teaser rate rather than the APR listed on the loan.

The trial court sustained the defendant’s demurrer to the second amended complaint without leave to amend, finding that the loan documentation adequately described the nature of Option ARMs, and that the loan documents showed detailed, highlighted and repeated warnings regarding the interest rate changes, adequacy of payments to cover both principal and interest, and the prospect of the negative amortization. The court of appeal reversed, rejecting the defendant’s contention that strict compliance with the federal Truth in Lending Act (TILA, 15 U.S.C. § 1601 et seq.) provides a safe-harbor from such claims: Read the rest »


Mortgage Qualification Determinations: Fraudulent Misrepresentations

By on December 6, 2010 - Comments off

Perlas v. GMAC Mortgage, LLC, (First District, August 11, 2010) 187 Cal.App.4th 429, 113 Cal.Rptr.3d 790, 10 Cal. Daily Op. Serv. 10,254, 2010 Daily Journal D.A.R. 12,466

A man and a woman whose property was foreclosed upon when they were unable to make the payments on their property loan and a home equity line of credit filed suit against GMAC Mortgage, LLC, a commercial mortgage lender, asserting causes of action for fraudulent misrepresentation and fraudulent concealment. The plaintiffs alleged that at the time the defendant prepared and tendered documents for the loan and credit line, it was not possible for them to make the payments called for, but by preparing and tendering the documents to the plaintiffs, the defendant represented that they could in fact make the payments. The plaintiffs further alleged that the defendants failed to disclose to them that they could not possibly afford the payments called for in the loans, and that the qualification for the loans was based upon a fabricated inflated income.

The trial court sustained the defendants demurrer without leave to amend and the court of appeal affirmed, holding that the plaintiffs could not amend to state a cause of action for fraudulent misrepresentation or fraudulent concealment: Read the rest »


Financial Institutions: E-Mail Scams

By on June 2, 2010 - Comments off

Chino Commercial Bank v. Peters, (Fourth District, May 25, 2010) —Cal.Rptr. 3d —-, 2010 WL 2044682, 10 Cal. Daily Op. Serv. 6502

A bank customer who was victimized by a “Nigerian-style” email scam, was sued by his bank for $458,782.60, the total of three wire transfers made to China at the customer’s request after depositing fraudulent checks from third parties. When the bank sought to attach the customer’s assets, he asserted that he had been duped into participating in an email check cashing scam by a person who claimed to be a citizen of Malaysia seeking assistance in transferring funds from third parties in the United States and Canada who owed him money. The defendant had agreed to deposit the checks in his account and then wire transfer the funds in exchange for fifteen percent of the money, and the bank had confirmed that two of the checks had cleared before wiring the sums. However, all three checks were eventually dishonored and the account was overdrawn in the amount of $458,782.60.

The trial court granted a right to attach against the defendant’s property, reasoning that the customer had been negligent and therefore had the burden of proving that the bank had been negligent. The court of appeal affirmed, holding that under the California Uniform Commercial Code the customer had the burden of proving that the bank acted negligently, and that he had failed to do so: Read the rest »