[This is just an ideal analysis of an expert about your loan documents. It may or may not be true in your case. As usual seek a licensed attorney and that too a Nevada licensed attorney's advice in your particular situation.]
Expert Analysis of a Mortgage Loan;
This Loan Should Never Have Been Made
Introduction
1. I have been asked to review the file of the ABC mortgage loan entered into by PLAINTIFF1 and PLAINTIFF2 on July 20, 2009 and provide my opinion regarding the practices exhibited by ABC in the origination and processing of the loan made to the PLAINTIFFS, as well as the financial impact that ABC’s actions had on the PLAINTIFFS.
2. [Statement of Qualifications]
3. My hourly rate for this case is $300, paid to the Office of M———– Law Office. A full list of my publications is included in my resume, which is attached.
4. My opinions in this case are based on a review of the files provided to me by, Counsel to the PLAINTIFFS. These files include loan files provided to counsel by ABC and XYZ, the company that did the title work on the loan; as well as depositions of the PLAINTIFFS, various employees of ABC, the closer of the ABC loan, and the person designated as an expert witness by ABC.
Summary of Findings
ABC’s loan to the PLAINTIFFS on July 9, 2009 should never have been made. The loan provided no benefit to the PLAINTIFFS. It appears that virtually all aspects of the processing of this loan, from application, appraisal, determination of affordability, closing, and underwriting were fundamentally flawed.
• The PLAINTIFFS did not have sufficient income to make the loan payments, and this was apparent in the documents.
• The PLAINTIFFS’ purpose in obtaining the loan – to pay off their other debts – was not achieved. They wanted protection from debt collectors, which they did not get.
• The PLAINTIFFS wanted to maintain their home – for themselves and their son – and this loan resulted in foreclosure and loss of ownership. The Plaintiff 1 is a cab driver, and Plaintiff 2 is a substitute school teacher.
• The loan was based on an inflated value of the house, and there appears to have been no real review of the appraisal which substantiated this inflated value. The appraisal provided was done without any actual and inhouse home inspection.
• The loan was based on a clearly flawed process – in the application, the approval, the processing, the appraisal, the closing, the delivery of federally required disclosures – such that it appears from a review of the file that the entire loan was fraught with serious problems. The documentation provided were not validated or checked by any independent means and agency.
The problems of this loan range from the overarching issue for these borrowers – that the loan was a terribly bad deal for this family – to the highly specific – that there are numerous irregularities in the application, loan approval, underwriting, closing, and disbursement processes. These problems are grouped into the following four categories:
1) The loan was of no benefit to the PLAINTIFFS. Their immediate, mid term and long term financial health were all seriously harmed by the July 20, 2009 loan from ABC.
2) The ABC loan was unaffordable for the PLAINTIFFS. The PLAINTIFFS did not have adequate income to sustain the payments when the loan was made. When the payments increased, due to the force placed insurance, continued payments became impossible.
3) ABC ignored serious red flags apparent in the loan file which indicated that the appraisal of the PLAINTIFFS’ was inflated. The appraisal was flawed, in violation of industry standards, and it appears that this inflation was facilitated and accepted by ABC.
4) The numerous problems in the processing and closing stages of the ABC loan indicate either seriously improper processing standards or outright deception. These problems are evident from the file and would have been caught if prudent underwriting standards had been followed. Report
1) The ABC loan was of no benefit to the PLAINTIFFS.
The PLAINTIFFS’ immediate, mid term and long term financial health were all seriously harmed by the July 20, 2009 loan from ABC. The interest rate on their mortgage increased. The monthly payments increased significantly. The amount their mortgage payments could adjust to based on future interest rates increased considerably. The ABC loan depleted their home equity by thousands of dollars. Their total monthly payments from their mortgage loan plus other scheduled debts increased dramatically. No debt was paid off by the ABC loan that posed any financial threat whatsoever to the PLAINTIFFS. Indeed, the ABC loan only relieved them of paying $97 a month in other debts, yet their mortgage payments increased from $344 to $568. They were immediately and considerably worse off the day the ABC loan was funded, and as time passed the financial damage to the PLAINTIFFS resulting from the ABC loan only got worse.
The PLAINTIFFS were referred to ABC for a home equity loan by collection agencies. PLAINTIFF2 had not previously thought of the idea of obtaining such a loan to pay off their various debts. Yet, after receiving numerous calls from debt collectors on a daily basis for over a year, she succumbed to the suggestion that ABC could “help you with your bills.” So she went to ABC for assistance for her family.
The ABC loan was extremely expensive – based on every measurement. The up-front closing fees were $4,616.66 – which is over 8.3% of the amount loaned. The calculation to determine whether this is a high cost loan under federal law (a HOEPA loan ) yields different results depending upon the treatment of the fees charged by the lender. However, even the most lender friendly view of these fees – which accepts ABC’s designation of the fees as bona fide and reasonable – indicates that the fees charged by the lender exceeded 6.7%. Loans in which the lender charged more than 5% have been considered as predatory for many years in a number of states, including Nevada, and by Fannie Mae and Freddie Mac. In a landmark analysis of the problem, the Departments of Housing and Urban Development and Treasury issued a joint report in 2000 recommending that home loans in which more than 6% was charged up front in fees should be prohibited.
According to PLAINTIFF2’s deposition, the loan application, and ABC’s Conversation log of the initial conversation with PLAINTIFF2, the purpose of this loan was to consolidate the PLAINTIFFS’ debts. The loan application lists some debts. The credit report lists more. With the exception of the loan used to purchase their home, all of the PLAINTIFFS’ debts appear to have been revolving debts, and thus were likely to have been unsecured.
The PLAINTIFFS were delinquent on a number of these debts – so delinquent in fact, that if there had been an attempt to bring these debts to judgment through the courts, some of them may have been time barred due to the statute of limitations. Indeed, if a debt collector had even attempted to collect a time barred debt from the PLAINTIFFS by threatening to sue them if they did not pay the debts, the collector may been found to have violated the Fair Debt Collection Practices Act.
It appears, however, that while there were numerous phone calls to the PLAINTIFFS in vigorous attempts to harass them into paying these debts, there were not any actions filed in the courts against them on these debts. This is likely to be caused by the PLAINTIFFS’ poverty. They were probably either completely or close to being judgment proof for all of these debts. In other words, as these debts were likely unsecured, there would not have been any repossession of property resulting from nonpayment. Furthermore, if these debts had been reduced to judgment, it is very unlikely that any money could have been collected from the PLAINTIFFS to pay the judgment – either by attachment or garnishment. The PLAINTIFFS were just too poor, they had so little assets that West Virginia’s exemptions would have protected those paltry assets, as well as their low incomes, from being available to pay these judgments. As a result, the only way these debts could have been collected was by having the PLAINTIFFS refinance their house and use the equity to pay these otherwise uncollectible debts.
The ABC loan paid off four unsecured debts of the PLAINTIFFS.
• The JCP Credit Bank debt of $1,101.
• The ANBCC debt – in which $4,364 was owed, yet only $3,000 was paid in the refinancing.
• The Elder Beerman debt of $333.
• The WFBB debt of $967.
The JCP Credit Bank Debt. The debt to JCP Credit Bank of $1,101 may well have been time barred – as there are no payments listed on the credit report, and the debt is simply listed as being in collection. The PLAINTIFFS were not making payments on this debt, and a lawsuit to collect the debt may well have been unsuccessful – either because the debt was time barred or because the PLAINTIFFS had so little assets that none could be collected to pay off the judgment. It seems likely that the only reason that this debt was paid off was because it was the collector for this debt that referred the PLAINTIFFS to ABC. As this debt probably could not have been otherwise collected at the point in time that the ABC loan was made, and the PLAINTIFFS were not making payments on it, paying it off with a 30 year adjustable rate note at a minimum rate of $12%, had a completely negative financial impact on the PLAINTIFFS. The cost to the PLAINTIFFS from financing this unnecessary debt in the ABC loan is $4,077.01.
The ANBCC Debt. The payoff of the debt to ANBCC was similarly bad for the PLAINTIFFS. While the Credit Report is not clear about the most recent payment on this debt, it appears that it was seriously delinquent and that the PLAINTIFFS had not made payment in many months. As PLAINTIFF2 was the sole debtor on this debt, it is unlikely that the PLAINTIFFS’ home would have been subject to attachment to satisfy the judgment. PLAINTIFF2’s income of between $400 and $500 a month would clearly all have been safe from garnishment to satisfy the judgment. In her deposition PLAINTIFF2 indicated that she had never heard of this creditor. Information from the Credit Report reveals that no reports relating to this debt had been made since the previous March, when it was at least four months delinquent; in fact it was at least four months delinquent a year before, in August, 1998. In any event, it appears that at the ABC closing on July 20, 1999, to the extent that there were any disclosures at all to the PLAINTIFFS, the HUD 1 provided to them at that time did not include this debt. Instead, it indicates that the loan for $3,319 to Sears would be repaid. It was only after the loan closing, after the papers were signed by the PLAINTIFFS, that the collector demanded that this debt be included in this loan. The cost to the PLAINTIFFS of financing this otherwise – potentially – uncollectible debt at 12% for 30 years (using the $3,000 amount) was $11,109.02.
This leaves the remaining two debts: one to Elder Beerman for $333 and one to WFBB for $967. Although the Elder Beerman debt appears from the Credit Report to be somewhat delinquent, the PLAINTIFFS had made some payments in recent months of $17. The WFBB debt was also delinquent, but recent payments appear to have been made at a rate of $30 a month.
As the PLAINTIFFS were only making payments on these two debts before the refinancing and not on the other two, the ABC loan only relieved them of making $47 a month in payments for their unsecured debt – which is the combined total of these two payments. In terms of monthly payments the PLAINTIFFS were making before the refinancing and monthly payments they were still required to make after it, their monthly cost thus was only reduced by this $47 a month. However, in the process they paid an additional $4544.66 in points and fees to close the loan, and the base rate of interest on the money owed to purchase their home went from 8.375%, with monthly payments of $343.56, to 12% and payments of $567.79.
Comparing the monthly payments on all debt – regardless of whether the PLAINTIFFS were making the payments – reveals that the PLAINTIFFS monthly payments still increased after the ABC loan was made –
Payments Before ABC Refinancing
Mortgage Loan P & I – $344
Property Ins and Taxes – 66
Minimum payments due on
Unsecured Debt – 561
Total Monthly Obligations $971 Payments After ABC Refinancing
Mortgage Loan P & I – $568
Imputed Property
Ins and Taxes – 66
Minimum payments due on
Unsecured Debt – 411
Total Monthly Obligations $1045
So to pay off $5,041 in unsecured debt – at least some of which was probably uncollectible – the PLAINTIFFS used up a total of $9,945 in home equity. From every vantage point, this loan made the PLAINTIFFS worse off than they were before the ABC loan was financed:
• The monthly payments on home secured debt increased with the ABC loan –
Banc One – $344 ABC – $568
• The monthly payments required of the PLAINTIFFS for all debt increased with the ABC loan –
Banc One – $971 ABC – $1045
• The interest rate applicable to home secured debt increased with the ABC loan –
Banc One – 8.375% ABC – 12%
• The debt secured by the home increased with the ABC loan –
Banc One – $44,790 ABC – $55,200
• The total of payments on their home secured loan increased dramatically with the ABC loan –
Banc One – $123,679 ABC – $204,406
• The risk of further additions to the monthly payments increased with the ABC loan –
Banc One payments would have decreased in September, 2001 to $301
ABC payments could never go lower than they were at the inception of the loan, and would only increase because of a) change from the initial teaser rate for the payments to the fully indexed rate, b) rises in the applicable index for the loan’s interest rate, or c) the force placing of property insurance.
The ABC loan provided no benefit to the PLAINTIFFS. Instead it caused their monthly payments to increase, significantly increased their total debt load, stripped them of thousands of dollars of home equity, reduced their available money because of the drain caused by the high payments, and set their course towards losing their home to foreclosure.
2) The ABC loan was unaffordable for the PLAINTIFFS.
The PLAINTIFFS did not have adequate income to sustain the payments when the loan was made. When the payments increased due to the force placed insurance, their lack of sufficient income made continued payments impossible.
The fact that the PLAINTIFFS lacked sufficient income to sustain the payments on this loan is quite apparent from the loan file. A review of the loan file indicates that ABC either knew that the PLAINTIFFS did not have sufficient income to make the payments, or that this lender simply did not care. Some examples of rather obvious clues to this effect — In the “Conversation Log” which records some of the original risk analyses, the debt ratio is described as “1515/1428 106%.” This indicates two important pieces of information: 1) that in this initial analysis the income for the PLAINTIFFS was considered to be $1428 a month. This is a far different number than the $3125 listed in the Loan Application. 2) That the PLAINTIFFS’ debt load exceeded their income.
• On this same Conversation Log, when contact is first made on June 17, 1999, it shows that the loan is contemplated to be a “full doc” loan – indicating that the borrowers were able and willing to provide full documentation of their income. Yet, a few weeks later, on the Comments and Concerns Log, which appears to have been generated on July 12, 1999, the loan has morphed from a fully documented loan into a stated income loan. According to both this document and Mary Quan, the witness proferred by ABC on loan origination issues, one criterion for a stated income loan is a letter from the borrowers stating their income. No such letter appears anywhere in the PLAINTIFFS’ loan file.
• The “Verification of Employment” for PLAINTIFF1 shows income in each of the previous two years of $12,960 for 1997 and $11,818 for 1998. Both of these incomes are far less than the $17,700 ($1475 times 12) shown on the Loan Application. Similarly the only items included as Verification of Employment for PLAINTIFF2 show a biweekly gross income of – at most – $216. Translating that into a monthly income (multiplying by 26 and dividing by 12) yields a monthly income of $468. This is a far different figure that the $1,650 a month noted in the Application.
• All of the critical questions are checked on the Underwriting Approval Sheet, which requires the reviewer to ascertain the information before checking next to each item. The items for Income, Verification of Employment, Current YTD Paystubs, and W-2s Wage Statements for previous year, are all checked. The check mark next to each item is intended to indicate that all of these tasks have been completed. Yet, the underlying documents upon which these tasks were based directly contradict the amount of income stated on the Application.
• The explanation of derogatory credit information in the file – used to explain the delinquencies on some of the PLAINTIFFS’ debts – states that the reason they were late on these payments was “because of the change in my income.” This is an indication that the PLAINTIFFS’ income had decreased recently that should have triggered a further analysis for the reviewer to ascertain sufficient income to make the loan payments.
Stated income loans are generally justified in the mortgage industry because of the difficulty some professions have in documenting income. According to ABC’s witnesses, the standard is to do fully documented loans for salaried borrowers like the PLAINTIFFS. A stated income loan might have been justified for borrowers with both a salary and other income. However, there is no indication anywhere in the PLAINTIFFS’ loan file of any income other than that which is documented in the Verifications of Employment, which show much less income than that stated on the Loan Application.
According to PLAINTIFF2, the real joint income of both of the PLAINTIFFS in 1999 was in the range of $1100 a month (this is probably their net income). This is nowhere close to the $3125 listed on the Loan Application. Indeed, this number is much closer to the $1428 figure listed in initial Risk Notes by AMC. Further, the $1428 figure is almost exactly what they were actually both earning a month.
The PLAINTIFFS obtained the ABC loan to consolidate debts. They went through the time and stress and expense of refinancing their home in order to reduce their monthly payments and keep their home. They believed that the loan would pay-off their debts. Before the ABC loan their monthly payments on their unsecured debt was $561 a month. Their mortgage payment was $344, and their monthly escrow for taxes and insurance was $66.05. Their total monthly payments before the ABC loan equaled $971. Yet after the ABC loan was made, the total monthly payments went up to $1045!
If the ABC loan had indeed paid off all these other debts and had included the amounts required to pay property taxes and insurance, their new monthly payments would have been a total of $568 – the monthly payment for the ABC loan. Instead, to keep up with their unsecured debt payments, the PLAINTIFFS still had to pay an additional $411 a month, plus monthly contributions to property taxes and insurance.
The ABC loan required the PLAINTIFFS to pay more each month than they had previously. This problem of increased monthly payments was considerably exacerbated when ABC added the premiums for force placed insurance. Yet the force placed insurance was itself a problem waiting to happen – PLAINTIFF2 quite specifically asked for escrow in the initial conversation about the loan. Even one of the papers presented to the PLAINTIFFS at closing would lead one to believe that there would be escrow on the loan. As a result, when the force placed insurance was added to the required monthly payments, around August, 2001, this apparently triggered the beginning of the PLAINTIFFS’ serious default problems which eventually led to foreclosure.
When this loan was made there was no analysis of the PLAINTIFFS’ ability to pay. In fact, as is illustrated above, the approach more closely resembled “burying one’s head in the sand.” ABC ignored the PLAINTIFFS’ income and all the warning signs which should have indicated to any reviewer of the file that this family would have great difficulty making the new, higher monthly payments which would be a result of this mortgage.
When the loan was made three facts could be easily predicted, any one of which would considerably exacerbate the difficulties the PLAINTIFFS would have making these mortgage loan payments:
• The monthly obligations required of the PLAINTIFFS would be greater immediately after the loan was made than it had been before, yet they went through this refinancing to lower their payments.
• The monthly obligations would most likely increase in the first year, because while the PLAINTIFFS had requested that their new loan include escrow and expected that it did, it did not. As a result, the additional cost of premiums for the force placed insurances charged by ABC was entirely foreseeable. Force placed insurance is traditionally much more expensive than homeowner obtained insurance because it includes large commissions to the lenders that sell it. In fact, when the monthly payments for this ABC loan did increase because of the force placed insurance, that triggered the PLAINTIFFS’ first real difficulties maintaining current payments.
• The monthly obligations could likely rise again in September, 2002 because of the adjustable nature of the ABC Note. According to the Note, the initial interest rate was 12%, the interest rate could never decrease beneath 12%, yet it could rise to 18%. The rate was based on the combination of the index from the six month LIBOR, plus a margin of 7.125%. The initial rate for the first three years of the loan was actually a “teaser rate” because it was not fully indexed. In other words, the rate charged was actually less than the combination of the LIBOR rate at the time of the loan, plus the margin in Note. The actual rate at that time would have yielded an interest rate of 12.75% and monthly payments of $599, instead of the payments of $568 that were charged. The critical point is that there is no indication anywhere in the file of an analysis of the PLAINTIFFS’ ability to pay even this fully indexed rate – although this would be the effective rate on the loan even if interest rates did not increase between the time the loan was made and the first change date in October, 2002.
The actual events relating to the applicable interest rate for the October, 2002 payment did not cause a payment increase for the PLAINTIFFS. Indeed interest rates had decreased considerably in the intervening years between the date of the loan and the change date. However, the terms of the ABC loan prevented the PLAINTIFFS from experiencing the benefit of that decrease. Instead of their payments going down, as they would have with an adjustable rate note, the payments stayed the same. So while the PLAINTIFFS’ note placed all the risk of increased interest rates on them, it provided no benefit from decreased interest rates. Indeed, if the Note had allowed for the PLAINTIFFS to experience the benefit of an interest rate decrease, their payments as of October, 2002 would have been lowered to $487.37, and perhaps they would have been able to avoid foreclosure.
3) ABC ignored serious red flags apparent in the loan file which indicated that the appraisal of the PLAINTIFFS’ home was inflated. The appraisal was flawed, in violation of industry standards, and it appears that this inflation was facilitated and accepted by ABC.
The PLAINTIFFS purchased their home on August 20, 1996 for $56,500. There are no discussions anywhere in the Appraisal, or elsewhere in the file, of any improvements they made to the house. Yet, at the outset of the loan application process for the ABC loan, the house seemed to have an assigned value of $70,000. The following notations in the file provide examples:
• On the very first day the loan was considered (June 17, 1999) the amount of the loan was determined to be $53,000 and the loan was planned to be an 80% LTV – which requires a value of the house of at least $66,250.
• On the Conversation Log dated the same day, the house is noted as having a value of $70,000.
• On the Loan Proposal Worksheet, indicating that the appraisal has only been ordered, the value of the house is stated as $70,000.
The Appraisal was completed on July 14, 1999. It states that the value of the house was $69,000. This represents a growth of over 22% in less than three years as measured against the purchase price of the house. That would necessitate a yearly increase averaging over 7%. Yearly increases in house values of this amount indicate an escalating real estate market which does not appear to have been the case in the PLAINTIFFS’ neighborhood.
A growth of over $12,000 in value on a property worth $56,500 in three years time can only reasonably result from either improvements to the house or a hot, sellers’ market. The Appraisal itself indicates that neither was the case. About the market in the PLAINTIFFS’ neighborhood, the appraiser said:
Market values are stable. Marketing times are 3 to 6 months. Demand and supply are in balance. Property values are in an upswing but it is too early to project future growth.
Regarding the improvements, none are noted on the Appraisal, instead, value was deducted because of the condition of the house:
There are no repairs needed that were noticed by this Appraiser. 25% was deducted for physical depreciation because of the actual and effective age of subject. Quality of construction is average, general condition is good.
The loan file indicates that the Title Commitment from NREIS was faxed on July 16, 1999, presumably to ABC. On the face page, this document shows that the house was purchased on August 20, 1996 for $56,500. So the ABC reviewer had the critical information indicating an unexplained, significant growth in the value of the PLAINTIFFS’ house.
A close examination of the Appraisal itself reveals another problem. For example, the drawn floor plan, which is a critical part of any appraisal, does not include any measurements for the second floor. One result of this omission is that the total square footage of the house was determined to be different than previously.
Industry standards require that there be a review of the appraisal which is separate from the loan production underwriting. In this loan, this review presumably is evidenced by the “Branch Appraisal Review Report.” It is not clear what day this report was produced, but it was presumably after the Appraisal was completed on July 14 and before the closing. It is only notable for what is not on this report:
• No question is raised about the unexplained 22% growth in value in just three years.
• No questions are raised about the omission in the Appraisal of measurements for the second floor.
From the lax standards of review applied to the Appraisal, and the fact that no questions were even raised about the potential that the Appraisal was inflated, it appears that ABC really did not care what the real value of the house was. In fact, according to ABC’s witness Eric Printemps, the loan to value requirement for a stated income loan like the PLAINTIFFS was a 70% ratio. Yet, a waiver was granted to allow their loan to be based on an 80% LTV. ABC did not require any additional procedures or safeguards when this exception was made. It appears that there was one critical question that ABC looked at in determining whether a loan would be made – whether the borrowers have a history of paying their mortgage payments on time:
Q. Can you tell me what things you would have been looking for, you, even if you can’t tell me the specific criteria, what was important in approving a loan?
A.. The borrower’s mortgage history.
Q. Okay. Anything else?
A. Well, that probably would have been the No. 1 factor.
ABC made this loan to the PLAINTIFFS despite many indications that the property was not worth the appraised amount.
4) The numerous problems in the processing and closing stages of the ABC loan indicate either seriously improper processing standards or outright deception. These problems are evident from the file and would have been caught if prudent underwriting standards had been followed.
As was discussed in Section 1 of this Report, the PLAINTIFFS fully intended for all of the other debt to be consolidated and paid off with this ABC loan. That section details how the cost of this loan far exceeded any savings in monthly payments from the loans that were paid off. These are real substantive problems with the loan made to the PLAINTIFFS. There are also a myriad of issues with the way the loan was made to them – problems with the procedure of making the loan. Some of these problems are —
• It appears that the loan the PLAINTIFFS received was different – and more expensive – than the loan described in the July 9 RESPA and TILA disclosures: The differences are:
• The loan described in the July 9, 1999 documents has an interest rate of 11% – rather than the 12% they were actually provided.
• The loan described in the July 9, 1999 documents had monthly payments of $533.30 – rather than the actual $567.79.
• The loan described in the July 9, 1999 documents called for total closing costs of $4073 – rather than the $4616.66 actually charged.
• Comparing the difference between the loan promised and the loan provided: the loan actually provided would cost the PLAINTIFFS $12,416.40 more over the course of the loan, ignoring any increase in interest rate.
• The PLAINTIFFS say that the loan closer was at their home for only ten minutes or so, they were not given the opportunity to review the documents prior to signing them, and that the loan documents were not left at their home after the closing.
There is also a glaring set of problems associated with the HUD 1s and the Summary of Debts and Disbursements in this file. There are three separate sets of these documents in the loan file. Two sets were provided to the PLAINTIFFS’ counsel by the title company. Two sets were provided in response to discovery requests by ABC. One set from each overlapped. This multiplicity of sets indicates 1) potential violations of both the federal Truth in Lending Act and the Real Estate Settlement Procedures Act, 2) complete disregard of the wishes and intentions of the PLAINTIFFS, 3) serious violations of industry standards in the closing and processing of loans. This is a chart explaining the three sets of documents –-
Set 1
Set 2
Set 3
Date on documents
no date on HUD 1
Summary is dated 7/19/99
HUD 1 dated 7/27/99
Summary dated 7/28/99
no date on HUD 1
Summary is dated 7/22/99
Signed or initialed
signed
initialed
signed
Total Settlement Charges Shown
$4,616.66
$4,544.06
$4,616.66
Debt to Sears Paid?
Yes – $3,319
No
No
Debt to Triad Financial Paid?
No
Yes – $3,000
Yes – $3,000
Stated Disbursement to PLAINTIFFS
$72.60
$464.20
$391.60
Matches TILA Disclosure
yes
no
yes
Matches Actual Disbursements to PLAINTIFFS of $464.20
no
yes
no
Provided to PLAINTIFFS’ counsel by –
Title company
HUD 1 is provided by both Title company and ABC
Summary is provided only by ABC
ABC
Bates Stamped
1003, 1004
1001, 237, 238, 243,
196, 198
I do not know what actually happened here – why there are so many different versions of HUD1s with matching Summary of Debts and Disbursements – not one of which matches both the actual disbursements and the TILA disclosures. Clearly, there is some funny business going on.
Firstly, the Summary of Debts and Documents itself is very misleading. It appears that the entire purpose of this document is to mislead the borrower into believing that all of the debts listed are to be repaid in the ABC loan. There is no independent need for this document, other than to contradict and confuse the borrower. The actual disbursements from the loan are already listed – as they are required to be – on the right hand column of the HUD 1. Indeed, most people looking at the ABC document Summary of Debts and Disclosures would think that all of the debts listed were to be repaid. It is only on very close analysis, and comparing each line of this document with the list of disbursements of loan proceeds on the HUD 1, that one can determine that only four of the listed debts are to be repaid in the ABC loan.
The analysis of what happened in this loan process is assisted by the information provided the PLAINTIFFS’ Counsel by ABC’s Counsel in response to the questions that were raised about the payment to Triad Financial. It appears from this information that Triad Financial found out that their debt was not scheduled to be repaid in the ABC loan. It looks like they called PLAINTIFF2 and complained about this and she told them she thought they were to be paid. PLAINTIFF2 clearly understood that all of the debts were going to be repaid. Triad was thus able – after the closing – to demand that their loan be paid off. The loan that had been scheduled to be paid off to Sears was then dropped from the list of pay offs, and replaced with the Triad’s debt. The PLAINTIFFS did not appear to have any knowledge that one debt was being swapped for another.
Based on all this documentation, I can surmise what may have happened –
• The documents I have titled Set I were probably those that were actually signed by the PLAINTIFFS at closing on July 20. These documents indicate that the loan to Sears will be paid off, and that the PLAINTIFFS will receive cash of only $72.60. These documents match the TILA disclosures provided.
• The documents titled Set II were prepared after closing (they are dated July 27) in response to the change in debts to be paid off, from the Sears debt to the Triad Financial debt. The disbursements shown in these documents appear to match the actual checks written by the Title company. These disbursements, however, do not match the TILA disclosures provided to the PLAINTIFFS.
• The documents titled Set III were also prepared after closing. Despite the fact that they are dated July 22, it is likely that they were actually prepared some time after this date, and possibly after actual disbursements of the proceeds. These documents match the TILA disclosures, however, they do not match the actual disbursements.
There is no cohesive set of documents here. The HUD 1 that matches the TILA disclosures does not match the Summary of Disbursements which actually matches the real disbursements made by the Title Company. This lack of consistency, the multiplicity of documents, the failure of these documents to match the real events in this loan, are all strong indications that the processing and closing and disbursement of proceeds of this loan violated industry standards.
Conclusion
This report has described numerous problems indicated on the paperwork in the PLAINTIFFS’ loan file. All of these problems would have been caught with careful underwriting – as they are simply apparent from a careful review of the loan file itself. To sum up, and describe the problems embedded in this loan which are evident from a close review of the file, these issues would have been caught by underwriters intent on ensuring that the loan be a) the loan offered and agreed to by the borrower, b) one which provides real benefit to the borrower, and c) in compliance with prudent lending standards.
This is a loan which should have never been made. The PLAINTIFFS were hurt financially by it by every possible measurement. Standard industry practices, and even ABC stated practices, were violated.