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August 5th, 2009

Suing Your Lender: Do They Deserve it?

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Thousands if not millions of Americans enjoy McDonald’s coffee each year. How do you feel about the person who sued McDonald’s after they spilled that hot cup of coffee on their lap (did they not know it would be hot)? Well, some say that scenario is similar to when borrowers file law suits against their mortgage lender for selling them a toxic product they didn’t fully understand.

Borrowers have begun suing their mortgage lenders claiming they were knowingly sold a product that the lender knew was destined to fail:

Gary Klein, of the law firm Roddy, Klein and Ryan, sought class-action status for his suits this summer against Bank of America Home Mortgage and Wells Fargo Home Mortgage, saying that hundreds of Massachusetts borrowers ultimately will be unable to afford their mortgages.

“The lending community created these toxic products and masked their effect with complicated loan provisions that borrowers had no chance of understanding,’’ Klein said. “I find that appalling.’’

But not everyone agrees with Klein. Borrowers are entering into a transaction that, more often than not, involves the biggest, most expensive asset they will ever own: their home. The responsibility for understanding and reading the contract you’re presented — and asking questions until you do understand — fall squarely on the shoulders of the borrower.

“You are supposed to act responsibly as an adult when you are signing those contracts,’’ said Keith Gumbinger, VP of HSH Associates. “Why would you go and sign a contract you don’t understand, or when you know you can’t make the payments?’’

We don’t deny that some lenders incorporated deceptive practices when issuing risky home loans. The firm which most notably took the fall for these practices was Countrywide Financial. Deceptive loans were made; we’re not saying they weren’t. But is this growing trend of suing mortgage lenders a constructive one?

The Obama Administration has sought to eliminate such confusion by developing a loan landscape of “plain vanilla products.” The products are intended to be so simple that they are “designed to be read in less than three minutes.”

“But that’s not the answer either,” said Gumbinger. Consumers need to become more invested in their financial lives. You need to ask the right questions, read your contract, and if you can’t understand the terms or conditions, you should engage a professional to work for you, not take the advice of someone with a financial interest in the transaction.

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6 Responses to “Suing Your Lender: Do They Deserve it?”

  1. Mitch Says: August 5th, 2009 at 12:34 pm

    I have no problem with people deciding they want to try to sue lenders for bad contracts. There are now lawyers who are doing forensic loan analysis, and it’s amazing what some of them are discovering as far as some of the invalid provisions in some of these contracts.

    I’m in health care finance, and people will go into the hospital or physician’s office all the time, get services, get these bills and wonder why their health insurance didn’t cover something. It’s easy to say “it’s your responsibility to know what your insurance covers,” but the truth is that, if it’s not your field of expertise, there’s no way you could possibly know everything. You can ask, but there’s nothing saying a lender is going to tell you the truth either.

    Course, if lenders want it that way, consumers can start asking question after question and taking up the lenders time. Not many transactions will get done, and lenders can’t throw out everyone who asks what might be considered too many questions. However, after buying my present house, you can bet that if I do it again I’ll be spending 3 hours or so asking specific questions of my lenders, and taping it all for proof later on.

  2. Tim Manni Says: August 5th, 2009 at 12:53 pm

    Mitch,

    Great hearing from you. While I do agree with many of your points (”if it’s not your field of expertise, there’s no way you could possibly know everything,” “there’s nothing saying a lender is going to tell you the truth either.”), I can see this becoming a real runaway problem, can you not?

    Loan products like Option ARMS work for certain people in certain scenarios, they are def. not for everyone, I agree. I do have a problem with lenders (who fully understand these products) who put people into loans where they know it may not be a good fit.

    I think there is blame on both sides of the coin. But if consumers start using this avenue (suing) as another way to get out of their loan obligation, I have a problem with that.

    Thanks for sharing your POV,
    Tim

  3. Lucia Says: August 5th, 2009 at 1:33 pm

    I’m an appraiser who performs retroactive reviews for lenders that loaned during the 2006-2007 peak of the market and have had to foreclose on those properties. I’ve found no significant fault with the original appraisers work or valuations. My experience during that time was that many borrowers were strongly motivated to refinance repeatedly and would press their lenders to shop for appraisers who would help raise their values. My reputation as an honest and “disinterested third party” was smeared during those years by unhappy borrowers. Sadly, many have lost their homes to foreclosure.

    Lawsuits against lenders have very little merit if any at all. If borrowers don’t read their contract or hire a lawyer to untangle the language, they have neglected their responsibility as party to the contract.

  4. Tim Manni Says: August 5th, 2009 at 1:42 pm

    Hey Lucia,

    If you read the Boston Globe story which I linked to, there’s a comment following the story that claims the gentleman, who’s picture appeared in the story, has refinanced his home 10 times in five years! Granted, we haven’t verified that info (which the commenter says they attained from public records), but if it’s the case, he took out hundreds of thousands in loans…where did that money go?

    Borrowers need to be responsible. Spend the couple hundred bucks to make sure you’re couple-hundred-thousand-dollar loan is what you are expecting.

    Great hearing from you, thanks for writing in,
    Tim

  5. Gertrude Says: October 1st, 2010 at 10:06 am

    My husband has been asking me for several months to find a lawyer who will represent us in sueing our mortgage company. We have been denied every government assisant program their is since may of 2009 and now we are twelve months behind due to being unemployed. We asked for assisants before we both became unemployed. My husband is back working and I am still looking. What should we do?

  6. Tim Manni Says: October 5th, 2010 at 12:03 pm

    Gertrude,

    Well if your lender refuses to enroll you in a mandatory program that you qualify for, then that’s one thing. But you have to find out for sure if you even qualify for these govt programs. A lawyer would certainly be able to help.

    Keep me posted,
    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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