1 DISCRIMINATION ISSUES IN HOME SALES AND REAL ESTATE OWNED PROPERTIES © West Tennessee Legal...

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DISCRIMINATION ISSUES IN HOME SALES AND REAL

ESTATE OWNED PROPERTIES©

West Tennessee Legal Services, Inc.2010

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Predatory Lending

Predatory lending is: A mortgage loan made with no regard or insufficient regard for the ability of the borrower to repay, and which;

(A) Is unreasonably costly to the borrower -(1) Inflated or unnecessary start up and closing fees, including appraisal, underwriting, broker's commission, and discount points;

AND (2) Interest rate (typically well above the minimum buy rate, with YSP Yield spread premium kicked back).

AND/OR

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Predatory Lending

(Continued):(B) Supports a credit system that promotes inequality and poverty. Elements of such loans include:

(1) Stated income loans,(2) Nonqualifying loans,(3) Subprime ARMs,(4) Harsh pre-payment penalties,

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Predatory Lending

Elements of such loans include (Cont.):(5) Short term balloon payments,(6) Negative amortization,(7) Loan flipping (equity stripping),

and(8) Overly aggressive and/or deceitful

sales practices.

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Predatory Lending

• Targets vulnerable consumers and/or neighborhoods

• No regard for ability to meet obligation

• Potentially strips the equity from borrowers and leads to foreclosure

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Potential Victims

• Homeowners with high equity and credit problems who need cash

• Elderly households• Low-income households• Minority households• Households in financial crisis caused by

health problems, job loss, death of spouse or major home repairs

• Homeowners who lack financial management skills

• Homeowners with sub-par credit histories

CASES• Sandra Williams v. Tommy Lewis; Home Boys, LLC; Action Realty,

Inc.; Haltom Investments, LLC; Francie Krogman Mello; Appraisal Services Group, Inc.; Terri Jackson; Wells Fargo Home Mortgage, Inc,; Wells Fargo Bank, NA; and John Does 1, 2, 3, and 4

• Madie McCurry v. Tommy Lewis; Home Boys, LLC; Action Realty, Inc.; Haltom Investments, LLC; Paulette Denise Stringfellow; Appraisal Services Group, Inc.; Terri Jackson; Wells Fargo Home Mortgage, Inc,; Wells Fargo Bank, NA; and John Does 1, 2, 3, and 4

• Tenita J. Jones and Quintin Glenn v. Tommy Lewis; Haltom Investments, LLC; Home Boys, LLC; Assured Equity, Inc.; Argent Mortgage Company, LLC; Ameriquest Mortgage Company; AMC Mortgage Services, Inc.; Wells Fargo Bank, NA; America’s Servicing Company; Connie G. Turner; Neisha R. Cupples; and David H. Huey

• Liddell K. Ratler v. Tommy Lewis; Haltom Investments, LLC; Wells Fargo Bank, NA; Wells Fargo Home Mortgage, Inc.; Terri Jackson; Home Boys, LLC; B & F, Inc.; and M. Lance Floyd

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COMMONALITY OF DEFENDANTS

• Tommy Lewis: as seller; real estate agent with Action Realty and then Haltom Realty; owner of Home Boys, LLC; and arranger of loans (also mortgagee in 1 loan)

• Home Boys: LLC “fixed-up” the houses at the direction of Tommy Lewis

• Haltom Investments, LLC, d/b/a Century 21 Action Realty: successor in interest to Action Realty for whom Tommy Lewis worked in both incarnations

• Wells Fargo Bank, NA: as originator in 3 cases and obtained the loan from Ameriquest in 1 loan, and d/b/a America’s Servicing Company in 1 case

• Wells Fargo Home Mortgage, Inc.: directly named in 3 cases• Terri Jackson: in 3 cases, as employee/agent of Wells Fargo• Appraisal Services Group, Inc.: in 2 cases

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COMMONALITY OF PLAINTIFFS

• African-American: Williams, McCurry, Jones/Glenn• Homes located in predominantly African-

American neighborhoods: Williams, McCurry, Jones/Glenn

• Persons with disability income in 3 households and Defendant Lewis was aware of same: Williams, Ratler, Jones/Glenn

• Plaintiffs were or household contained persons with disabilities/difficulty understanding business matters and Lewis was aware of same: Williams, Ratler, Jones/Glenn

• Plaintiffs had poor credit history and this was known to defendants.

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• Defendant Lewis paid off or said he would pay off loans in order to better qualify plaintiffs for a loan: Williams, Ratler, McCurry

• All loan application documents contained falsehoods and all were prepared by Lewis or at his behest.

• All incomes were inflated by Lewis on applications.

• All loans were variable rate; none of the plaintiffs understood what an ARM was and none received the pre-closure disclosure documents required by Reg. Z.

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• None of the plaintiffs received GFE under RESPA within 3 days of application.

• All properties were over-appraised.• All properties were in poor condition at

closing and repairs by Home Boys were promised.

• All properties had “repairs” by Home Boys but none were satisfactory.

• All properties were in “average to good condition” according to appraisals.

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• None of the plaintiffs paid any money at closing.• Details of the transaction were never explained by

Lewis.• Selected plaintiffs were not advised of the true sale

price of the home: Williams, McCurry, Jones/Glenn• Homes went into foreclosure and/or were foreclosed.• Selected plaintiffs were never shown the house or

only shown house once: Williams, McCurry, Jones/Glenn

• Lewis took back a second mortgage unknown to plaintiff: Jones/Glenn

• Disclosures under TILA or RESPA, Lewis being a creditor under TILA, were not provided: Jones/Glenn

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COMMONALITY OF CAUSES OF ACTION

• RICO: Williams, McCurry, Ratler• Civil conspiracy: Williams, McCurry, Jones/Glenn, Ratler• TN Consumer Protection Act: Williams, McCurry, Jones/Glenn,

Ratler• Fraud and Intentional Misrepresentation: Williams, McCurry,

Jones/Glenn, Ratler• Fraudulent Concealment: Williams, McCurry, Jones/Glenn, Ratler• Negligent Misrepresentation: Williams, McCurry, Jones/Glenn,

Ratler• Conversion: Williams, McCurry, Jones/Glenn, Ratler• TILA & Reg. Z: Williams, McCurry, Jones/Glenn, Ratler• Breach of Fiduciary Duty: Williams, McCurry, Jones/Glenn, Ratler• Breach of Contract: Williams, McCurry, Jones/Glenn, Ratler• Negligent Misrepresentation Resulting in Physical Injury and harm

to Person: Williams• Second TILA/Reg Z count: Jones/Glenn• Common Law Unconscionability: Jones/Glenn, Ratler

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SETTLEMENT• Sandra Williams:

– TOTAL: $22,000– PERSONAL INJURY: $5,000

• Madie McCurry:– TOTAL: $22,000

• Tenita Jones/Quintin Glenn:– TOTAL: $22,000

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Federal Laws and Regulations Protecting Consumers

• The Truth in Lending Act (“TILA”)• The Home Ownership and Equity

Protection Act (“HOEPA”)• Regulation Z (12 C.F.R.§226.1, et seq.)• The Real Estate Settlement

Procedures Act (“RESPA”)• Regulation X (Regulation X (24

C.F.R.§3500.1, et seq.)• Credit Repair Organizations Act

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• The Truth in Lending Act (“TILA”)– 15U.S.C.§1601: Congressional findings

and declaration of purpose– 15U.S.C.§1602: Definitions and rules of

construction– 15U.S.C.§1603: Exempted transactions– 15U.S.C.§1604: Rules and regulations– 15U.S.C.§1605: Determination of finance

charge

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• The Truth in Lending Act (“TILA”)– 15U.S.C.§1606: Determination of annual

percentage rate– 15U.S.C.§1607: Administrative

enforcement– 15U.S.C.§1610: Effect on other laws– 15U.S.C.§1611: Criminal liability for

willful and knowing violation– 15U.S.C.§1631: Disclosure requirements

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• The Truth in Lending Act (“TILA”) – 15U.S.C.§1632: Form of disclosure; additional

information– 15U.S.C.§1635: Right of rescission as to certain

transactions– 15U.S.C.§1638: Transactions other than under

an open end credit plan– 15U.S.C.§1639: Requirements for certain

mortgages (“HOEPA”)

– 15U.S.C.§1639a: Duties of servicers of residential mortgages (“HOEPA”)

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• The Truth in Lending Act (“TILA”)– 15U.S.C.§1640: Civil liability– 15U.S.C.§1641: Liability of assignees

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• Regulation Z (12 C.F.R.§226.1 et seq.)– §226.2 – Definitions– §226.4 – Finance charge– §226.17 – (Closed End Credit) General Disclosure

Requirements– §226.18 - (Closed End Credit) Content of

Disclosures– §226.19 – Certain residential mortgage and

variable-rate transactions– §226.22 - (Closed End Credit) Determination of

APR

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• Regulation Z (12 C.F.R.§226.1 et seq.) Cont.– §226.23 – Right of rescission– §226.31 – General rules– §226.32 – Requirements for certain

closed-end home mortgages (HOEPA)

– §226.33 – Requirements for reverse mortgages

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• Regulation Z (12 C.F.R.§226.1 et seq.) Cont.– §226.34 – Prohibited acts or practices in

connection with credit secured by a consumer’s dwelling that is a non-purchase money transaction

– §226.35 - Prohibited acts or practices in connection with higher-priced mortgage loans (APR exceeding average price offer rate by 1.5 or more percentage points for first lien or 3.5 or more for loans secured by a subordinate lien)

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• The Truth in Lending Act (“TILA”) 15 U.S.C.§1601, et seq.

• Is a disclosure statute: provides consumers with accurate information concerning the cost of credit: considered here “closed-end credit”

• Disclosure “Federal Box” must be given before consummation

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Reg. Z: 12 C.F.R.§226.2:Some Definitions

• 12 C.F.R.§226.2(a)(10): “Closed-end credit means consumer credit other than ‘open-end credit’ . . .”

• 12 C.F.R.§226.2(a)(11): Consumer means a “. . . natural person to whom consumer credit is offered or extended.” For rescission, the term includes “. . . a natural person in whose principal dwelling a security interest is or will be retained or acquired, if the person’s ownership interest is or will be subject to the security interest.”

• 12C.F.R.§226.2(a)(12): Consumer credit means “credit offered or extended to a consumer primarily for personal, family or household purposes.”

• 12 C.F.R.§226.2(a)(17)(v): “A person regularly extends consumer credit only if it extended credit . . . more than 5 times for transactions secured by a dwelling . . . in the preceding calendar year “. . .or “in the current calendar year.”

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• 12 C.F.R.§226.4(a) : “Finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

• 12C.F.R.§226.4(b)(1) – (5): Examples of finance charges: interest, time price differential, and any amount payable under an add-on or discount system of additional charges; service, transaction, activity, and carrying charges, including any charges imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature; points, loan fees, assumption fees, finder’s fees, and similar charges; appraisal, investigation, and credit report fees; premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss;

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• 12C.F.R.§226.4(b)(6) – (10): Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation; premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction; premiums or other charges for insurance against loss or damage to property, or against liability arising out of the ownership or use of property, written in connection with the credit transaction; discounts for the purpose of inducing payment by a means other than the use of credit; charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.

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• Civil Liability: Damages:15 U.S.C. §1640• Actual damages• Statutory damages of not less than $400

or more than $4,000• With enforcement of rescission, costs of

the action and reasonable attorney fees• With failure to comply with requirements

under HOEPA, amount equal to the sum of all finance charges and fees paid by the consumer (if failure to comply is material)

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• The Real Estate Settlement Procedures Act (“RESPA”) 12 U.S.C.§2601, et seq. and 24C.F.R.§3005.7– 3 business days after application

“GFE” Good Faith Estimate: – Usually on a HUD-1– Itemizes every charge associated

with the transaction (ex: points and fees, closing costs, broker’s fees)

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• The Real Estate Settlement Procedures Act (“RESPA”) 12 U.S.C.§2601, et seq.– GFE within 3 business days after application

– Booklet explaining costs– At closing, receive HUD-1– No remedies, but violation may be a

violation of state unfair and deceptive practices act

– Provides for servicer obligations• Must tell borrower about possibility of loan transfer• Must tell borrower when transfer is imminent• Can use to question account

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• The Real Estate Settlement Procedures Act (“RESPA”) 12 U.S.C.§2601, et seq.– Provides for servicer obligations (cont.)

•Must tell borrower about possibility of loan transfer

•Must tell borrower when transfer is imminent

•Can use to question account•Places duty on servicer to property

taxes, insurance, other escrowed monies (can provide remedies for violation)

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• The Real Estate Settlement Procedures Act (“RESPA”) 12 U.S.C.§2601, et seq.– Prohibition of fees for preparation of

truth-in-lending, uniform settlement, and escrow account statements

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• Regulation X (24 C.F.R.§3500.1, et seq.)– §3500.2 – Definitions– §3500.17 – Escrow accounts– §3500.21 – Mortgage servicing

transfers

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• Credit Repair Organizations Act,15 U.S.C. §1679, et seq.– To ensure that prospective buyers of the

services of credit repair organizations are provided with information necessary to make an informed decision regarding purchase

– To protect the public from unfair or deceptive advertising and business practices

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• Credit Repair Organizations Act,15 U.S.C. §1679, et seq.– Covers any transaction where credit is

offered or extended for personal, family, or household purposes

– Credit repair organization means any person who uses interstate commerce or mails to sell, provide or perform (or present same) any service, in return for payment of money or other valuable consideration for the express or implied purpose of

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Additional Causes of Action

• Credit Repair Organizations Act,15 U.S.C. §1679, et seq.– Credit repair organization (definition cont.)

• Improving consumer’s credit record, credit history, or credit rating

• Providing advice or assistance to consumer with regard to any activity or service above

• Doesn’t include– Nonprofit exempt under 501(c)(3)– Creditor to whom debt is owned working with

consumer– Any depository institution or credit union debt

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Additional Causes of Action• Racketeer Influenced and Corrupt

Organizations Act: 18 U.S.C.§1961 et seq.– Elements:

• Conduct outlawed by predicate criminal acts: must take place through the wires

• The product of an enterprise– Association in fact:

» Common purpose» Relationship among those associated in the

enterprise» Longevity sufficient to permit these associates to

pursue the purpose of the enterprise• Through a pattern• Of racketeering activity• That resulted in injury

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Additional Causes of Action• Civil Conspiracy

– Elements:• An agreement (formation/operation)• By 2 or more persons• To perform an overt act/s• In furtherance of the common design or

purpose• To accomplish an unlawful purpose by

unlawful means• Resulting in damage or injury to another

from such acts

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Additional Causes of Action• State consumer protection act (Tennessee

Consumer Protection Act: T.C.A.§47-18-101, et seq.)– Defendants willfully engaged– In unfair or deceptive act/s or trade practices– Resulting in an ascertainable loss of money or

property, real, personal, or mixed– (treble damages possible)

– Elements vary by content of the statute

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Additional Causes of Action• Fraud and Intentional Misrepresentation

– Elements• In intentional misrepresentation with regard

to a material fact • Made knowingly or without belief in the truth

or recklessly without regard to its truth or falsity

• The plaintiff reasonably relied upon the representation and suffered damage as a result

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Additional Causes of Action• Fraudulent Concealment

– Elements• Concealment with silence that amounts to

fraud: a duty to disclose– A previous duty to disclose due to a fiduciary

relationship between the parties– One or more parties expressly reposes a trust and

confidence in the other– A contract or transaction that is intrinsically

fiduciary and calls for perfect good faith

• Resulting in injury

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Additional Causes of Action• Negligent Misrepresentation

– Elements• The defendant is acting in the course of business,

profession, or employment, or in a transaction in which he has a pecuniary interest; and

• The defendant supplies faulty information meant to guide others in their business transactions; and

• The defendant fails to exercise reasonable care in obtaining or communicating the information; and

• The plaintiff justifiably relies upon the information and suffers injury as a result.

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Additional Causes of Action• Conversion

– Elements• The appropriation of another’s property to

one’s own use and benefit• By the intentional exercise of dominion over

it• In defiance of the owner’s rights.

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Additional Causes of Action• Breach of Fiduciary Duty

– Elements• Existence of a fiduciary duty• Breach of the duty• Resulting in injury that was proximately

caused by the breach

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Additional Causes of Action• Breach of Contract

– Elements• Existence of a contract• Breach of the contract• Resulting in damages which are a result of

the breach

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Additional Causes of Action• Unconscionability

– Elements• A contract where -

– “The inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on one hand, and no honest and fair person would accept them on the other”

» Haun v. King, 690 S.W.2d 896, 872(Tenn. Ct. App. 1984)• Consider the contracts “setting, purpose, and effect”

– Taylor v. Butler, 142 S.W.3d. 277, 285(Tenn. 2004), quoting Restatement (Second) of Contracts § 208, cmt. a (1981))

• Conduct so clearly outrageous, oppressive, and of unfair surprise to plaintiff, as evidenced on the face of loan documents associated with the loan, as to be unconscionable.

• As a result of defendant’s action, plaintiff suffered injury

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Predatory Lending: A Fair Lending Issue

• The Fair Housing Act calls for equal treatment in terms and conditions of housing opportunities and credit regardless of race, religion, color, national origin, gender, family status, or disability.

• The Equal Credit Opportunity Act required equal treatment in loan terms and availability of credit for all of these categories, as well as age and marital status.

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Predatory Lending: A Fair Lending Issue

• Targeting minority or elderly households for marketing of higher priced and unequal loan products.

• Treating individuals of protected classes differently than comparably credit-worthy whites in the loan process.

• Policies and practices that have a disparate impact on protected classes.

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Pre-purchase Counseling

• Available through HUD approved housing counseling agencies at little or usually no cost

• Sources of funding for provision of counseling– HUD housing counseling as local or affiliate of a HUD

approved intermediary– CDBG funding to assist low and moderate income

persons– RHED funding (rural Housing and economic development

through HUD)– Rural Housing funding for service delivery

• For foreclosure and default counseling– All of the above– NeighborWorks funding through Congressional

Appropriation to an intermediary

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Contact Numbers

HUDFive Points Plaza, 40 Marietta

St.16th Floor,Atlanta, GA 30303-28061.800.440.8091

Tennessee Human RightsCommission710 James Robertson ParkwayAndrew Johnson Building,Ground FloorNashville, TN 372191.800.251.3589

West Tennessee Legal Services, Inc.

210 West Main StreetJackson, TN 38301731.426.1309

Tennessee Fair HousingCouncil107 Music City Circle,Suite 318Nashville, TN 37214615.874.2344

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