STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE

Transcription

1 STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE HARRY O. LUTZ AND PAULA G. LUTZ; Hon. Case No. v ONE WEST, a successor in interest to INDYMAC BANK, F.S.B.; TITLE SOURCE, INC.; THE MORTGAGE EXCHANGE, INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. / JASON Q. WILSON (P59284) WILSON LAW GROUP, PLC Attorney for Plaintiffs 2000 Town Center Suite 1900 Southfield, MI (248) / COMPLAINT NOW COME the Plaintiffs HARRY O. LUTZ AND PAULA G. LUTZ (hereinafter referred to collectively as Plaintiffs ), by and through WILSON LAW GROUP, PLC and for their Complaint allege as follows: JURISDICTION 1. Plaintiff's Harry and Paula Lutz are residents of the City of Plymouth in the County of Wayne for the State of Michigan. 2. IndyMac, FSB was a California Corporation, doing business in the State of Michigan.

2 3. Upon information and belief, Defendant One West is the successor in interest to IndyMac, FSB. 4. Defendant Stewart Michigan Title is a Michigan Corporation, doing business in the County of Oakland in the State of Michigan. 5. Defendant Mortgage Exchange Inc. is an Illinois Corporation, doing business in the State of Michigan. 6. Defendant Title Source Inc. is a Michigan Corporation, doing business in the State of Michigan. 7. Upon information and belief, the acts, omissions, and transactions relating to the subject matter for this Complaint occurred in the County of Wayne in the State of Michigan. 8. Plaintiffs' former residence at Tournament Drive Northville Michigan, hereinafter referred to in this Complaint as the subject property is located in the County of Wayne in the State of Michigan. 9. Plaintiffs' damages are in excess of $25,000. FACTS 10. Plaintiffs herein reaffirm and re-allege allegations from paragraphs 1 through On or about March 15, 2004 (closing date), Plaintiffs entered into a consumer transaction with Defendant IndyMac by obtaining a $750,000 mortgage loan secured by the subject property. 12. The loan on the subject property was a cash out refinance in the amount of $750, Upon information and belief, the terms of the first loan on the subject property mandated a 30 year repayment on Option ARM terms with a fixed payment for one year. 14. Upon information and belief, the Option ARM terms of the first loan offered the Plaintiffs various repayment options:

3 a. Minimum payments, which would cause an increase in the principal balance owed under the loan; b. Interest only payments, which would neither increase nor decrease the principal balance owed under the loan; c. Fully amortized payments, which would cause a decrease in the principal balance owed under the loan;. 15. Upon information and belief, the first loan contained a negative amortization feature wherein the outstanding principle balance would increase for the first five (5) years, up to 110% of the original loan value ($825,000). 16. Upon information and belief, the initial interest rate was an artificially discounted teaser rate of 1.25%. 17. Upon information and belief, Plaintiffs were sold a loan disclosing an interest rate of 1.25%, however, as the loan contains a margin or buffer clause, the initial interest due on the loan was 4.675%. 18. Upon information and belief, the margin rate of 3.45% was excessive and was significantly higher than the industry standard for residential loans. 19. Upon information and belief, the interest rate of the first loan can be changed annually and has a cap of 8.95%, not including the margin of 3.45%. 20. Under the minimum payment option identified above, the initial monthly payment for Plaintiffs was $2, Upon information and belief, abiding by the minimum payment terms, Plaintiffs monthly payment after the initial five (5) year period would be $6, By this point in time, the outstanding balance on the first loan would have inflated to $803, due to the negative amortization feature in the loan terms. 22. Upon information and belief, Defendants knew, or should have known, based upon the

4 information available to them, the Plaintiffs would never be able to repay the loan securing their home. 23. The loan on the Plaintiffs' property effectively established a short-term lease, until the payments became so unaffordable that the borrowers would be forced into foreclosure and bankruptcy. The loans were structured in a way that made it so Plaintiffs would never be able to own their home free and clear of debt. 24. Upon information and belief, Defendants stepped outside the bounds of good faith and fair dealing and sold Plaintiffs a loan that was never a viable long-term product for the borrowers. Instead, the Defendants packaged loan vehicles which contained interest only, negative amortization payments, and an excessive kick-back to the mortgage broker. 25. Additionally, the Defendants on the first loan prevented Plaintiffs from buying themselves out of the debt by including a prepayment penalty which was not disclosed and exceeded the rate permitted by MCL c(2)(c). 26. Upon information and belief, Defendants acted intentionally, or with sufficient knowledge, in concealing the implications of the loan's terms to Plaintiffs and as a result, Plaintiffs lost their home to the Defendants in a trap set during the loan origination. 27. The terms of the loan were not clear and conspicuous and were based on flawed underwriting procedures, an understated finance charge, and other undisclosed rates, fees and terms which Defendants did not make clear, or deliberately excluded from the disclosures. 28. Upon information and belief, Defendants intentionally, or with requisite knowledge, failed to properly determine the ability of the Plaintiffs to repay their home loan through use of an approval process that used only stated income and the initial interest-only minimum monthly payment. Had Defendants used an appropriate approval process for determining the Plaintiffs' ability to repay the principle and interest of the loan, Plaintiffs would have never qualified for the loan. 29. Upon information and belief, Defendants failed to adequately disclose the terms of the entire loan transaction, including the negative amortization feature, the interest-only penalty, the

5 prepayment penalty, the finance charges of the loan, the calculation of costs and fees, the kick-backs paid to the originating broker, and the inherent volatility of the loan product packaged and sold by Defendants. The fundamental purpose of the loan was for Plaintiffs to own their home free of debt at the end of the repayment terms, a purpose which was knowingly or intentionally thwarted by Defendants' actions. 30. Upon information and belief, the Truth In Lending Disclosure (TILD), was inaccurate, as it disclosed an adjusted payment of only the fully indexed rate, rather than the highest possible rate on a variable rate transaction. 31. Upon information and belief, the approval for the loan was solely based on the loan-tovalue (LTV) ratio of 75%. At the time of loan origination, Plaintiffs were approved based solely upon stated income and a medium to high-risk credit rating. Further, the Plaintiffs had a debt-to-income ratio (DTI) as high as 55.74%. 32. Upon information and belief, Plaintiffs' high DTI exceeds customary underwriting standards. 33. Upon information and belief, each of the Defendants were agents, principals, employees, employers, and co-conspirators of each and every other Defendant in this Complaint. 34. Upon information and belief, each of the said Defendants is, and at all relative periods of time, acting within the scope and consent of the remaining Defendants. 35. IndyMac was the original mortgage lender on the loan. 36. Stewart Title was the original title company for the loan. 37. Mortgage Exchange was the original broker for the loan. 38. MERS is believed to claim an undetermined interest in subject property, related to the second loan. 39. The Plaintiffs obtained a HELOC in May of 2006, which was used to pay short-term debt in the amount of $77,

6 40. From the date of origination of the first loan to the date of origination of the HELOC, the subject property suffered a significant loss in value, resulting in a new LTV of 88.24%. 41. Upon information and belief, when the negative amortization of the first loan took effect in the fifth (5 th ) year, the current LTV would have become 96.22%, assuming arguendo that the property did not continue to lose value. 42. Plaintiffs' income decreased between the origination date of the first loan and the origination date of the HELOC. At the time the HELOC was issued, even making only the minimum payment available under the terms of their loans, the Plaintiffs' DTI was 72.25%, 43. Upon information and belief, combining the payment values of both the full negatively amortized first loan and HELOC, the Plaintiffs were required to pay $9, per month in loan maintenance alone. Including previously incurred and disclosed debts, the Plaintiffs faced monthly payments exceeding $15,600. The total DTI ratio under this payment structure would equate to %. In laymen's terms, their income would fall short of covering their debts alone, not including standard living expenses. 44. Upon information and belief, Defendants had knowledge of the certainty of default Plaintiffs faced as a result of excessive DTI. COUNT I DEFENDANTS VIOLATED MCL c et seq 45. Plaintiffs herein reassert and re-allege paragraphs 1 through 44 above. 46. MCL c(2)(c) mandates that lenders shall note issue loans with a prepayment penalty in excess of 1% of the total loan value within the first three (3) years of the loan. 47. Defendants packaged a loan mandating a prepayment penalty, effective for the first three years, where if the borrower makes a full or partial repayment, totally more than twenty (20) percent of the original principle amount in any twelve (12) month period. The borrower will pay a prepayment penalty of six (6) months advanced interest on the amount prepaid in excess of twenty (20) percent of the original principle amount.

7 48. Defendants loan was in direct violation of MCL c. 49. The Defendants' violations have directly resulted in damages to Plaintiffs and should be used to rescind the original transaction. Furthermore, upon rescission of the original loan, the Defendants should be required to return all amounts paid under the illegal loan with reasonable interest. Failure to return the amounts paid under the predatory loan will result in unjust enrichment to Defendants. COUNT II DEFENDANTS VIOLATED 15 U.S.C. SECTION 1601 et seq. 50. Plaintiffs herein reassert and re-allege paragraphs 1 through 49 above. 51. Defendants violated 15 U.S.C. Section 1601 et seq. (TILA), by failing to provide Plaintiffs with accurate disclosures which were material to the transaction. 52. Defendants failed to disclose that the quoted 1.5% interest rate was variable and would increase over time. 53. Additionally, Defendants failed to disclose that the loan contained a prepayment penalty, which was in direct violation of MCL c. 54. Defendants' violations resulted in damages to Plaintiffs, including all amounts paid in relation to the transaction, amounts paid in bringing this action for resolution, and any and all other statutory damages arising under TILA, and other statutes herein pled. 55. Any and all statutes of limitations relating to the disclosures and notices, required under TILA, were tolled due to Defendants failure to effectively provide the required disclosures and notices. 56. The Defendants' violations have directly resulted in damages to Plaintiffs and should used to rescind the original transaction. Furthermore, upon rescission of the original loan, the Defendants should be required to return all amounts paid under the illegal loan with reasonable interest. Failure to return the amounts paid under the predatory loan will result in unjust enrichment to Defendants.

8 COUNT III DEFENDANTS VIOLATED 12 U.S.C. SECTION 2601 et seq. 57. Plaintiffs herein reassert and re-allege paragraphs 1 through 56 above. 58. Defendants sold Plaintiffs a federally-regulated mortgage loan, as defined in 12 U.S.C. Section 2601 (RESPA). 59. Upon information and belief, payments made by the lending Defendants to the brokering Defendants on the loan were not reasonably related to the goods, facilities, or services rendered, as required under RESPA. 60. Upon information and belief, Defendant Exchange was paid unearned fees by Defendant IndyMac, resulting in a mutual and wrongful benefit to the Defendants. These unearned fees were not disclosed to Plaintiffs and caused benefit to the Defendants at the expense of the Plaintiffs. 61. Upon information and belief, Defendant Exchange was paid 2.56% of the loan amount in fees, including a mortgage broker compensation of $18,750 from Defendant IndyMac. 62. Upon information and belief, to earn the mortgage broker compensation the broker inflated the interest rate that Plaintiffs were required to pay. 63. Under RESPA, 12 C.F.R. Section 226.4(a), , (c)(1)(iii) and (d), Defendants have enjoyed the benefits of unjust enrichment and unearned fees, as there was no separate fee agreement regarding the excessive mortgage broker compensation paid. 64. Defendants' violations resulted in damages to Plaintiffs, including all amounts paid in relation to the transaction, amounts paid in bringing this action for resolution, and any and all other statutory damages arising under RESPA, and other statutes herein pled. 65. The Defendants' violations should be used to rescind the original transaction. Furthermore, upon rescission of the original loan, the Defendants should be required to return all amounts paid under the illegal loan with reasonable interest. Failure to return the amounts paid under the predatory loan will result in unjust enrichment to Defendants.

9 COUNT V NEGLIGENCE 66. Plaintiffs herein reassert and re-allege paragraphs 1 through Defendants owed a duty to Plaintiffs to provide a loan vehicle which would not put them directly into harm's way. 68. Defendants, to satisfy this duty, should have performed a diligent and meaningful underwriting process for the origination of the Plaintiffs' loan. 69. Defendants failed to perform a diligent underwriting process in the origination of Plaintiffs' loan. 70. Defendants owed a duty to advise or notify Plaintiffs of their likelihood of defaulting on the loan, where the Defendants knew or should have know that defaulting on the loan was likely to occur. 71. Defendants breached this duty by approving the Plaintiffs for a loan which maximized the Defendants profits, violated consumer protection statutes, and was originated with no regard for the Plaintiffs. 72. Defendants breached their duties to Plaintiffs by issuing the subject loan, and have caused damages to Plaintiffs in an amount exceeding $25,000. The Defendants' negligence should be used to rescind the original transaction. Furthermore, upon rescission of the original loan, the Defendants should be required to return all amounts paid under the illegal loan with reasonable interest. Failure to return the amounts paid under the predatory loan will result in unjust enrichment to Defendants. COUNT VI UNJUST ENRICHMENT 73. Plaintiffs herein reassert and re-allege paragraphs 1 through Defendants directly benefited from the origination of a loan to Plaintiffs, which called for compensation to the Defendants either at origination or over the life of the loan. 75. Plaintiffs expected in return for the Defendants benefit a loan vehicle that was

10 accurately and thoroughly disclosed, not directly adverse to their long-term financial health, and not calculated in a manner which would lead to inevitable default. 76. The Defendants received significant compensation for issuing Plaintiffs an inequitable loan transaction which directly violated consumer protection statutes. 77. These violations are a demonstration of Defendants disregard of the principals of good faith and fair dealing. 78. As a result of the Defendants actions, Plaintiffs had a forced sale of their home. 79. Defendants retained all the benefits under the loan at the expense of Plaintiffs. 80. The Defendants' violations have directly resulted in benefits being retained by the Defendants at the expense of Plaintiffs. Defendants should be required to return all amounts paid under the illegal loan with reasonable interest. Failure to return the amounts paid under the predatory loan will result in unjust enrichment to Defendants as the benefits were obtained through violations of consumer protection laws.

11 PRAYER FOR RELIEF 81. Plaintiffs herein reassert and re-allege paragraphs 1 through Plaintiffs request the rescission of the original loan, with the return of all amounts paid under the mortgage, plus reasonable interest. 83. Plaintiffs request further, that Defendants be required to pay all costs, fees, and expenses associated with the foreclosure of the subject property, as the foreclosure was a result of the Defendants failure to properly underwrite the loan sold to Plaintiffs and the Defendants failure to properly disclose the terms of that loan. 84. Plaintiffs request further, that Defendants be required to pay all costs, fees, and expenses associated with this litigation. Respectfully Submitted: WILSON LAW GROUP, PLC JASON Q. WILSON (P59284) WILSON LAW GROUP, PLC Attorney for Plaintiffs 2000 Town Center Suite 1900 Southfield, MI (248) PROOF OF SERVICE Pursuant to MCR 2.107(D) the undersigned certifies that a copy of the foregoing document was served upon the attorneys of record of all parties to the above cause at their respective business addresses as disclosed by the pleadings of record herein on of 2010, by Hand Delivery Overnight Mail X U.S. Mail Express Mail Facsimile Further, I declare under penalty of perjury that the statement above is true to the best of my information, knowledge and belief. Joseph M. Jacoby