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Eighth Circuit Finds Lender's Conduct Violated Missouri Mortgage Law - Washington et al. v. Countrywide Home Loans Inc.

August 8, 2011

Our Chino foreclosure defense lawyers have written here before about the numerous accusations of wrongdoing against Countrywide Home Loans, Inc. The now-defunct lender, which was purchased by Bank of America several years ago, has been accused of fraud when originating loans, foreclosing and even charging fees and interest to borrowers. That last issue was behind the allegations against Countrywide in Washington et al. v. Countrywide Home Loans, Inc., an Eighth U.S. Circuit Court of Appeals decision. The decision allowed a proposed class-action suit to go forward against Countrywide under Missouri's Second Mortgage Loan Act. The suit alleges that Countrywide charged unauthorized fees and interest to a class of Missourians who took out second mortgages.

Lead plaintiffs Jerry and Golda Washington took out a second mortgage from Countrywide in 2005. Before that loan closed, Countrywide sent them a closing statement on a federal form, notifying them of increased fees to be included in the loan's principal: a loan discount, a settlement/closing fee, a processing fee and prepaid interest. They signed the form, but five days later, the federal government notified Countrywide that the loan discount and settlement/closing fee should not have been charged. Countrywide added the amount of those charges to the disbursement it paid the Washingtons, but never notified them of the change or sent them a new form. It also did not reduce the principal on the loan. They later sued, arguing that all four charges violated the Missouri Second Loan Act. The trial court granted summary judgment on the two repaid fees, arguing that they suffered no loss because of the repayments. It also granted summary judgment on the other two fees, ruling they were not barred by the MSMLA. The Washingtons appealed.

The Eighth Circuit reversed on all counts. It first considered the repaid fees for the loan discount and the settlement/closing fee. It conceded that the fees themselves were repaid to the Washingtons, but found that the Washingtons still were not made completely whole because they paid interest on the amount repaid in the two days before the repayment happened. That was enough to meet the burden under the MSMLA that claimants must suffer "any loss of money," the appeals court said. Furthermore, Countrywide's argument that the Washingtons voluntarily paid it by signing the HUD form was unavailable as a matter of Missouri caselaw. However, it declined to grant summary judgment on appeal because neither party moved for summary judgment on appeal.

The Eighth next looked at the fees that had not been repaid. Countrywide argued that the processing fee was permitted under Missouri laws that regulate how much lenders may charge in closing fees. However, the Eighth said, the Missouri Court of Appeals had recently rejected similar arguments in another mortgage fees case, Mitchell v. Residential Funding Corp. In that case, the appeals court decided that fees should be identified by how they were described on the HUD form, not how the lender wished to re-characterize them after being sued. Finally, the Eighth found that the prepaid interest charge was also illegal because, if the processing fee was illegal, there was nothing on which to charge interest. Thus, it reversed the district court and remanded the case for more proceedings.

As Orange foreclosure defense attorneys, we're pleased to see the federal courts applying state consumer protection laws so strongly. Consumer protections are most often found in the states, but thanks to the international nature of major mortgage lenders, more and more mortgage cases are ending up in federal court (even when they're not class actions). Of course, Missouri law applies only in Missouri, but this decision could be a guide for the Eighth Circuit or other federal appeals courts that are aasked to apply state consumer protection laws to unfair mortgage fees cases, which are a small but growing trend. In states with strong consumer protection laws, our Temecula foreclosure defense lawyers hope Countrywide borrowers and other victims of questionable loan practices are able to use those laws to recover unfair fees or even reverse unfair loans.

Howard Law PC represents Californians who are considering legal action to stop a preventable or wrongful foreclosure. To tell us your story and learn more about your legal options, send us a message online or call 1-800-872-5925 today.

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