May 19, 2024


Mad about real estate

Suing Your Mortgage Lender

     First, it should be noted that lawsuits are not fun. The process is costly and consuming. For this reason alone, only cases that have merit and a likely payoff should be brought. Not only is this a good idea, it is also the law. Frivolous lawsuits are not just disfavored; they can result in a vexatious litigant paying the other side’s attorneys’ fees, and for the lawyer, disciplinary action. Now, with that out of the way, here are some frequent claims that give rise to successful lawsuits.

     Federal lending laws are the primary source that governs lending institutions with respect to mortgage transactions. A well publicized example is 15 U.S.C. § 1601 et seq. better known as Truth In Lending Act (“TILA”). TILA was passed in 1968. Joseph Barr, then Under Secretary of the Treasury, noted in testifying before a Senate subcommittee that “such blind economic activity is inconsistent with the efficient functioning of a free economic system such as ours, whose ability to provide desired material at the lowest cost is dependent on the asserted preferences and informed choices of consumers.”

     TILA “was designed to remedy the problems which had developed.” (Mourning v. Family Publications Svc., Inc. (1973) 411 U.S. 356, 364). Many would argue that TILA has not exactly “solved” the problem as was originally hoped. What is helpful about the law is that it creates strict liability for specific compliance issues for lenders. Particularly, a lender must provide accurate material disclosures. Failure to do so gives a borrower various forms of relief which can include, monetary damages, rescission of their loan, and attorneys’ fees. Many suits have sought relief under TILA, but the results have been largely mixed. TILA claims are relatively easy to bring, but difficult to maintain in state or federal court. Successfully litigating them requires a complete understanding of TILA, the mortgage business, and the associated case law.

     State law claims are also available in lending disputes.  Essentially, a mortgage transaction involves a contract, and as such certain contract laws apply. Additionally, claims for the torts of fraud and negligence are common in these cases. In the event the borrower utilizes the services of a mortgage broker, claims against the lender can be difficult. A plaintiff must show some connection to invoke agency principles and this connection must be beyond the mere relationship status of a lender and a broker. Still, the conduct that has taken place in the mortgage industry has created many instances where a lender can be directly liable for the conduct of the broker.  Additionally, the California Department of Real Estate has setup a recovery fund that will provide a source for relief if a Plaintiff successfully proves a claim of fraud against a licensee. 

     Regardless of the claim, the most important time in a lawsuit is before it is filed.  A lawyer must exercise great diligence in ascertaining the facts and corresponding potential claims. The client must contemplate the effects of a lawsuit and the commitment that is required.  A borrower should be cautious of a lawyer that anxiously encourages bringing suit.  Zealous representation is important, but prudence is critical. Discussing your case with several lawyers is a great way to gain perspective on your options. A client should also be willing to pay for a consultation. It is far better to have a lawyer that can provide objective sage advice, rather than one who views the consultation as a sales opportunity. Sometimes the best advice a lawyer can give you is to not hire a lawyer.