Vermont claims HomeSide Lending illegally used money from Vermont customers' escrow accounts to pay legal fees incurred defending a nationwide escrow suit.

In a suit against HomeSide and BankBoston Corp., its former owner, Vermont charges that $30,000 was illegally deducted from Vermont residents' accounts.

Deductions were taken from accounts of 900 Vermont residents to help pay a $8.5 million attorney's fee award in a national class action filed in Alabama, according to the office of the Vermont attorney general.

Escrow disputes usually focus on allegations that a lender has put too much money in escrow accounts or charged too much interest, said Daniel Krasner, senior partner at Wolf, Haldenstein, Adler, Freeman & Herz, New York. "This kind of a proceeding, saying they've deducted too much for the legal fees-this is the first time I've heard of that. It sounds strange indeed."

The Vermont case stems from a 1991 class action in the Circuit Court of Mobile County, Ala. In that case, borrowers did indeed claim that HomeSide and BankBoston were requiring them to put too much money in their mortgage escrow accounts, according to the current lawsuit, filed in Chittenden Superior Court, Burlington, Vt.

HomeSide and BankBoston lost that case and, according to the Vermont attorney general's office, decided to deduct $8.5 million in attorneys' fees directly from the escrow accounts of nearly 300,000 consumers across the United States, including 900 people from Vermont.

HomeSide was bought by National Australia Bank in February. HomeSide's chairman, Joe K. Pickett, moved to Melbourne at the end of April to oversee global mortgage operations for National Australia. HomeSide said its goal is to duplicate its American servicing system in Australia, New Zealand, northern England, and Ireland-all areas where National Australia has a retail presence.

Jacksonville, Fla.-based HomeSide said it would seek dismissal of the Vermont lawsuit. The suit "asserts no wrongdoing by HomeSide with respect to its current escrow accounting practices," Homesaid said.

In a written statement, HomeSide added that it was "dismayed that the Vermont attorney general would rehash issues that were resolved in a court- approved settlement more than four years ago."

Vermont's complaint calls the result of the Alabama case "an out-of- state national class action gone bad." The complaint also argues that it was illegal to force Vermont consumers to pay for attorney's fees.

The deduction of fees from escrow accounts of Vermont residents violated both the Vermont Consumer Fraud Act and Vermont's mortgage escrow account law, according to the complaint.

It also argues that the Alabama court had no jurisdiction over Vermont residents, because they were not adequately represented in Alabama and did not receive fair notice of the nature and amount of the deduction.

Vermont's complaint also asked that the Superior Court return the money deducted from the accounts of Vermont residents and impose civil penalties of up to $10,000 for each violation of the Consumer Fraud Act.

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