Understanding Mortgage Litigation

For most people, the purchase of a home is an exciting, memorable experience. The sense of accomplishment after a closing is fantastic, especially for families purchasing their first home. Unfortunately, home purchasing can be filled with fraud, aimed at making more money off of the homebuyer. Homebuyers and homeowners are most vulnerable during the often confusing process of obtaining a mortgage loan or refinance. Lawsuits accusing mortgage companies of improper charges and overpriced insurance policies are not uncommon.

Mortgage litigation traditionally centered on six areas of fraud: escrow account improprieties, private mortgage insurance fraud, title insurance, settlement charges, document fees and prepayment penalties. Now, with the melt-down of the housing market, homeowners are taking a second look at he terms of their loan agreements and discovering other frauds, usually based on a combination of the traditional six areas of fraud and fraud based on qualification for loans perpetrated by loan officers and banks to be able to close more "deals."

Escrow accounts are setup by mortgage companies as a way for homeowners to pay for taxes and insurance. Homeowners add money to this account, which the mortgage company uses to pay for taxing authority bills. The account balance is supposed to be reduced during the year. Often, however, the mortgage company fails to reduce the account, and it begins to hold too much of the homeowner's money that he or she is not eligible to use.

When a potential homeowner puts down less than 20 percent of a loan amount, private mortgage insurance is usually required. When the homeowner has reached 20 percent equity in his or her house, the mortgage company is required to notify the borrower that he is eligible for cancellation of the private mortgage insurance. Often, the lender fails to notify the homeowner that he has reached the equity level or requires him or her to use one of the mortgage company's appraisers to verify the borrower has reached 20 percent equity. The homeowner ends up paying higher fees.

Controversy also surrounds title insurance policies, especially when a homeowner is refinancing a mortgage loan. During refinancing, a homeowner should be issued a reissue rate title insurance policy that is usually half the cost of the original policy. Agents sometimes fail to inform a homeowner of the discount and charge a normal rate in order to increase their sales commission.

The markup of third party charges and improper document preparation fees are other areas of mortgage litigation. Lenders and settlement agents may mark up third party charges such as courier fees and credit reports in an effort to increase profits. Unfortunately, many of these charges are undisclosed to the homeowner at the time of closing. Lenders may also charge a borrower for the preparation of loan documents, which is prohibited in many states.

Consumers have also filed lawsuits over excessive prepayment penalties. Some states require a prepayment penalty when refinancing or paying off a loan. The fee varies depending on the mortgage amount and state law. Lenders have been accused of charging excessive prepayment fees to unsuspecting borrowers.

Lastly, there has been outright fraud when loan officers have resorted to various means to get otherwise unqualified borrowers loans which the never could afford. These Lenders used everything from misstated income to falsified property appraisals to secure loans. Bad loans which have drained homeowners and put tens of thousands into foreclosure.

If you have been a victim of mortgage fraud or believe you may have been, call our office for a consultation.