BankAmerica Corp. and Great Western Financial Corp. face a potential class action by California homeowners who allege the two failed to live up to their end of thousands of mortgage agreements.
Millions of dollars are at stake in the case, according to a homeowners' attorney. As many as 575,000 people may have been harmed by the institutions' actions, he said.
The case affects borrowers who paid off their loans after April 1993.
Two lawsuits contend that BankAmerica and Great Western each failed to deliver documentation to a trustee in a timely manner and that the trustee, in turn, failed to reconvey title to property owners within a time limit.
Attorneys for the homeowners said that their clients have collectively paid BankAmerica and Great Western millions in fees for reconveyance services that were either not done on time or at all.
Titles are routinely held by trustees on behalf of lenders and borrowers until a mortgage is fully paid.
Under California law, lenders are supposed to deliver documentation that a mortgage has been paid off to trustees within 60 days.
The trustees are supposed to return title to the property owners 21 days thereafter.
Borrowers usually pay a $65 fee to their lenders to cover the cost of documenting the paid-off loan and title reconveyance.
The law also says that lenders who fail to meet the 60-day deadline can be fined $300 for each violation.
A homeowner lacking title could be prevented from selling the property or taking another loan against it. Some plaintiffs in the BankAmerica case did not find out about the problem until they wanted to sell their homes, said their attorney.
"We hope this lawsuit will send a message to all banks that such behavior is not tolerated under the laws of our state," said Peter Bezek, an attorney for the homeowners.
Reconveyance is regulated at the state level, and laws vary widely, said lawyers, who added that the California statute is particularly progressive because it imposes a penalty.
At a hearing this month, a California Superior Court judge said he may grant class-action status in the case but that the plaintiffs must first come up with a list of potential class members. The judge gave them until Nov. 26 to compile a list.
Complicating matters is another battle between lenders and borrowers in California's Court of Appeals.
That case is examining whether the law clearly spells out a 60-day deadline for lender compliance or whether it leaves room for interpretation.
The appellate court is expected to take up the matter again next month.
"There needs to be greater clarification of the statute," said Mitchel Kider, a Philadelphia lawyer who has represented other lenders in California in reconveyance disputes. Those suits have been dismissed.
"The battle is not so much whether the California Legislature had the right to set the time frame as it is a battle of whether the lenders actually violated it," he said.
Spokesmen for BankAmerica and Great Western said their institutions have followed California law governing reconveyances.
"Our policy is to comply with all statutes," said Michael Zampa, a spokesman for San Francisco-based BankAmerica. "We have yet to hear of any homeowners who have been harmed."
"It is certainly Great Western's policy to fully comply with the law and the state statutes," said Richard Swinney, associate general counsel at the Chatsworth-based thrift.
The lawsuit was originally filed in 1993 against 40 California banks, thrifts, and lending companies, but a judge ultimately split the cases into separate actions.
The current case links lawsuits against BankAmerica-Coldiron v. BankAmerica-and Great Western-Baron v. Great Western.
The two lawsuits were coordinated by the judge to simplify fact- gathering and court proceedings, the attorneys said.
