The refinancing boom has spurred a rash of class actions that could cost the home loan industry millions of dollars. The suits are over seemingly small errors in disclosure of financing costs that at the extreme could result in rescission of some of the loans.
"It has the lending community petrified," said Laurence E. Plait, a partner at Brownstein, Zeidman & Lore, Washington, which is defending several lenders in class actions.
Several Truth-in-Lending suits have reportedly been filed in Illinois since June, along with one in Florida. The suits contend that lenders did not properly disclose fees, particularly courier fees, upon refinancing of home loans.
Mr. Plait says the suits could cost lenders "billions" under a worst-case scenario.
Limit on Recission
That's because the law allows borrowers to rescind a loan if disclosure of costs was improper. Thus, lenders could be required to refund all fees and interest payments on a closed loan and cancel the mortgage. But they have only three years to request rescission. Because interest rates have risen, rescinding of loans is not now viable but it could become so if rates decline again.
Sources say Edelman & Combs, a Chicago law firm that has filed many class actions, including some related to mortgage escrow payments, is responsible for the suits. The firm did not respond to repeated calls for comment.
In Florida, a class action was filed by Edelman & Combs and Charles M. Baird, a Miami lawyer.
The suit is based on Rodash vs. AIB Mortgage, a case in the U.S. Court of Appeals in Florida March. In 1991, Martha Rodash refinanced her home loan to pay for medical treatment of multiple sclerosis. The court found that AIB did not comply with the Truth-in-Lending Act. AIB disclosed a $22 Federal Express charge and a State of Florida intangibles tax of $204 as "amount financed" instead of "finance charge."
... of requiring every creditor ... to compute and state the cost of that credit in a precise, uniform manner, thereby enabling consumers to compare the cost of credit," wrote Daniel A. Edelman, of Edelman & Combs, in a letter to the Federal Reserve.
The class is approaching others who refinanced loans in the past few years to join and recover penalties mainly as a result of how courier charges were disclosed to them. Claims of violation must be brought within three years.
Long Process
Edelman's class action is at the preliminary stages. Lawyers say the suit is at the beginning of a two-year to four-year litigation process.
Last month Brownstein, Zeidman & Lore sent letters to 500 banking clients warning them about the class. One of them, Suncoast Savings and Loan Association, Hollywood, Calif., was sued last month.
But Wendy M. Mitchler, the bank's general counsel, said Suncoast stands to lose no more than $240,000. She added that the right to return loans would not be much of a blessing to borrowers in today's interest-rate environment.A Typical CastDetails of a class action overTruth-in-Lending Case #: 941500-CIV-MarcusFiled: July 22Court: U.S. District Court for theSouthern District of FloridaName: Theo Guilfoy v. SuncoastSavings and Loan AssociationLawyers for the plaintiff: CharlesM. Baird, Miami, and Edelman &Combs, ChicagoLawyers for the defendant:Brownstein, Zeidman and Lore,WashingtonSize of class: At least 100
