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Fourth Circuit Hands Partial Victory to Homeowner Alleging Loan Was Unconscionable - McCauley v. Home Loan Investment Bank

April 5, 2013

Vincent Howard and our Riverside foreclosure defense lawyers were interested to see a lawsuit alleging state-law predatory lending claims against a lender. In McCauley v. Home Loan Investment Bank et al., Charlotte McCauley sued the current holders of her home loan, alleging predatory behaviors when she took the loan out. McCauley, of West Virginia, refinanced in 2006, with an appraisal she said was inflated and a closing she said was rushed, leading to an "exploding" adjustable-rate mortgage. She ultimately declared bankruptcy. Her lawsuit alleged fraud and unconscionability. The district court dismissed the case as preempted by the Home Owner's Loan Act, but the Fourth U.S. Circuit Court of Appeals--where McCauley was supported by consumer protection groups as amici--reversed, finding the fraud claim was not preempted.

McCauley refinanced in 2006 with Ocean Bank. Ocean's appraiser set the home's value at $51,000, which McCauley alleges was grossly inflated for a home worth about $35,700. She further alleges that she was rushed through the closing of her loan, limiting her ability to spot problems--such as the fact that her adjustable interest rate would vary between 9.49 percent and 15.49 percent. After several years of struggle to make her payments, she declared consumer bankruptcy in 2010. She later filed this lawsuit in West Virginia state court, against Home Loan Investment Bank, Ocean's successor, and Deutsche Bank, the current loan holder. She alleged the loan was unconscionable because the closing was hurried, explanations were inadequate, the appraisal was inflated and the terms were unfair. She also alleged fraud in the appraisal. The lenders removed the case to federal court, where it was dismissed as preempted by HOLA and its implementing regulation.

The Fourth Circuit reversed that decision in part and upheld in part, finding that the fraud claim is not preempted. HOLA is a Great Depression-era law granting the Office of Thrift Supervision authority to regulate savings banks. (It was abolished by the Dodd-Frank Act, the Fourth noted, but this took place after McCauley's loan.) OTS made rules intended to clarify when it preempts state laws. After analyzing each of the aspects of the loan McCauley alleges is unconscionable, the Fourth agreed with the district court that all of those activities fell under OTS supervision, and are thus preempted. However, the Fourth disagreed on the fraud claim, which focused solely on the allegedly inflated appraisal. This is not a re-packaged complaint about the OTS-regulated loan-to-value ratio, the court said; it is a complaint about being misled about the components of the LTV ratio. It is more than an alleged failure to disclose; it is an alleged affirmative deception. Thus, the court found that it was a "basic norm... undergird[ing] commercial transactions" and not preempted. It went on to find that she adequately stated a claim and remanded that part of the case to the district court.

Vincent Howard and our Costa Mesa foreclosure defense attorneys are pleased to see this victory for a borrower, partial though it might be. This kind of deception was more common during the housing bubble than you might like to think. Particularly with borrowers who had bad credit, bad English or another perceived disadvantage, some lenders took advantage to offer bad loans with questionable features like the "exploding ARM" McCauley was given. This is absolutely a form of predatory lending. In some cases of predatory lending, Vincent Howard and our San Bernardino County foreclosure defense lawyers can fight back with a lawsuit based on federal predatory lending laws, such as the Truth in Lending Act. When there's no federal violation, we may also be able to sue based on state statutes--such as a California law requiring contracts and negotiations to be in the same language--or common-law causes of action, like in this case.

If you believe you were deceived when you took out your loan and you'd like to fight back, don't hesitate to contact Howard Law, P.C. to discuss your legal options. You can send us an email or call 1-800-872-5925.

Similar articles:

West Virginia High Court Affirms Penalties for Foreclosure Abuses - Vanderbilt Mortgage & Finance v. Cole

Appeals Court Allows Appraisal Fraud Suit to Proceed Despite Forum Selection Clause - Bailey v. ERG Enterprises et al.

West Virginia High Court Affirms Predatory Lending Verdict Against Mortgage Lender - Quicken Loans v. Brown