Suing Your Lender: Do They Deserve it?by Tim Manni
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.