Homeowners File Lawsuit Against Mortgage Lenders

April 15, 2011 (Powerhomebiz.com) On April 7, 2011 Ford & Huff filed a lawsuit in Federal Court in Las Vegas, Nevada on behalf of homeowners in the 9th Circuit (including California, Nevada, Arizona, Washington, Oregon, Idaho, Alaska, Hawaii and Montana). The lawsuit attacks the underlying loan documents due to the lack of a meeting of the minds between the borrower and the lender on an material term: namely, the borrower did not understand what a loan servicing company was and how key it would be to their future status as a borrower.

It is well-settled law that for a contract to be enforceable and valid, the parties to the agreement must have a mutual understanding of all material terms—often called a “meeting of the minds.” In the last decade, lending banks knew they were going to sell theirs loan into a securitization (meaning the monthly income stream from the homeowner would pay out to investors who purchased bond securities).Homeownersdid not understand what a loan servicing company was or the impact the securitization would have on their relationship with their lender.

In fact, securitization meant that homeowners would not have a continuing relationship with their lender at all. And the loan servicing company would not have the authority nor the economic motivation to assist a homeowner should the need arise. The shift from a lender to a loan servicer is the defining aspect of securitization. Lenders knew it; homeowners had no idea of what was about to happen.

The lawsuit, dubbed “Peerless” by Ford, is so called after a landmark case in 1864 regarding the purchase of bales of cotton coming on a ship called Peerless. Unfortunately, there were two ships named Peerless and the buyer and seller meant different ships when signing the agreement—one arriving in October and one arriving in December. The Court determined that there was never a “meeting of the minds,” and ruled the contract null and void. This principle has been upheld in numerous court decisions up to today, and is a universally considered a foundational principle in contract law.

“The unique and powerful thing about this lawsuit”, stated Ford, “is that it is based on well settled principles, adapts them to a very current and relevant issue, and keeps the argument simple and elegant.”

Ford contends in the complaint that due to securitization, loan servicing companies were created to collect payments from homeowners, harass homeowners if they became delinquent, and to foreclose when they deemed it appropriate. Significantly, the contracts with servicing companies include enormous fees for preforming services, with foreclosure being the penultimate service, but give loan servicers little authority and no incentive to work out payment plans or approve loan modifications. Because of this securitization structure, servicing companies are foreclosing on homeowners in record numbers against the economic interest of the loan in total.

In the traditional model, the lender maintained a financial interest in every loan, and the borrower could expect that in times of trouble, the lender would be a partner and would have an incentive to work with them to successfully complete payments over time, even if it required temporary payment arrangements or loan modifications.

This model worked well for many years, and still works well for lenders who follow it, as both parties have a chance to succeed. It reflects the reality that over a 30 year period of a typical home mortgage, nobody can predict all of the circumstances that will be encountered, but each party has the incentive to make it to the end. When banks securitize their home mortgages, they gain an advantage in the relationship by being paid immediately in full, sometimes multiple times. They also lose all economic interest in the homeowner and have no incentive or financial interest in the loan. The investors who purchase the loan, purchase an interest in ! large pools of loans, and have no individual knowledge of any specific homeowner in the pool.

The servicing companies earn their largest fees if they are able to foreclose, and, says Ford. “anyone who listens to the news or reads the headlines knows they are doing that (foreclosing) in record numbers, and are earning millions to do it.”

This loan servicing company relationship was not understood by homeowners, and most would never have accepted it if given a choice. This constitutes the “missing of the minds” that is the basis of the homeowners’ lawsuit.

“If homeowners were given an opportunity to understand what they were getting into, able to make a choice between a loan servicing company relationship or a relationship with a bank who maintained an economic interest in the loan, there would be no issue,”said Ford.

Ford’s firm, Ford & Huff, has also filed a suit in the 10th Circuit on behalf of homeowners in Utah, Wyoming, Colorado, Kansas, New Mexico and Oklahoma, and is preparing a suit for homeowners in the 11th Circuit (Florida, Georgia and Alabama). Additional suits are anticipated in other federal circuits or state courts where appropriate.

For additional information or a sample copy, Contact: (all Contact information)
Contact: Adam Ford/Matthew Crane
Ford & Huff LC
801-407-8555
adam.ford@gmail.com/matthew.crane@fordhuff.com
http://www.fordhuff.com