Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Tuesday, May 21, 2024 | Back issues
Courthouse News Service Courthouse News Service

Foreclosed Homeowners Sue Mortgage Giants

LOS ANGELES (CN) - In a federal class action, foreclosed homeowners sued Fannie Mae, Freddie Mac and other "leading providers of residential real estate mortgages," claiming their disregard for underwriting standards caused the mortgage meltdown, which brought more than 930,000 foreclosure filings in the third quarter of 2010 alone.

IndyMac Bank and Countrywide Financial are among the host of mortgage originators named in the 101-page complaint, which seeks damages for the 11 named plaintiffs whose "credit ratings and histories were damaged or destroyed."

"The fraud perpetrated by the originator defendants from 2000 through 2009 was willful and pervasive," the complaint states. "It began with simple greed and then accelerated when said defendants discovered they could not sustain their businesses, unless they systematically and significantly reduced their underwriting standards and created increasingly complex, esoteric, and high-risk loan products to induce plaintiffs and other borrowers into ever larger loans on increasingly risky terms. As the originator defendants knew from no later than 2004, these loans were unsustainable for the borrowers and to a certainty would result in a crash that would destroy the equity invested by plaintiffs and other California borrowers. Further, those actions would cause the high risk pools of mortgages the originator defendants had sold to Real Estate Mortgage Investment Conduits (REMICs) and/or trusts to default on a nationwide scale. ...

"It is now all too clear that this was one of the ultimate high-stakes fraudulent schemes of the last decade. Couched in banking and securities jargon, the originator defendants deceptive gamble with consumers' primary assets - their homes - was nothing more than a financial fraud perpetrated by the originator defendants and others on a scale never before seen."

The complaint adds: "Over the last four years, the United States has been in a foreclosure crisis. In late 2009, a congressional oversight panel noted that one in eight U.S. mortgages was in foreclosure or default.

"For the third quarter of 2010, national foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 930,437 properties in the 3rd quarter. One in every 139 U.S. housing units received a foreclosure filing in that quarter."

The plaintiffs accuse the defendants of "purposefully hindering" mortgage modifications under the Home Affordable Modification Program, "to exploit a given pool of mortgages for maximal profitability."

In addition, the plaintiffs say, Fannie Mae and Freddie Mac foreclosed on properties "knowing that under California Law no default to the holder of plaintiffs' and others notes actually existed."

"In typical mortgage securitizations, mortgages are added together with other mortgages and a pool of mortgages is created. The resultant pool of mortgages is then sold to a trust and/or REMIC which becomes the actual owner/holder of the note and/or mortgage.

"As such, the note-holder cannot enforce the default provisions of said note unless a default to said note-holder exists. ...

"As such the plaintiffs' and others mortgage payments were in fact received by the actual note-holders and no enforceable defaults existed at time of foreclosures."

Lead plaintiff Tom Casault claims that IndyMac made a loan that placed him in "a financial position of extreme likelihood of failure."

Casault describes himself as a "professional real estate investor [who] owned 150 approximately 150 properties across the United States, all of which were mortgaged."

He claims that IndyMac knew that "Conventional underwriting standards at the time would not allow plaintiff to own more than 12 mortgaged properties at once and no cash-out refinance transactions were allowed on investment properties being used as security for a mortgage loan."

The plaintiffs are represented by Khinh Yam of Long Beach.

They seek damages for violations of California's Predatory Lending Law, of the California Business & Professions Code, of the California Civil Code and its Commercial Code.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.