A recent lawsuit against Delta Financial Corp. has renewed a familiar debate over the foreclosure practices of mortgage lenders.
The complaint, filed in late November, alleges that the Woodbury, N.Y., lender enticed low-income borrowers to take out larger and larger loans, ultimately forcing homes into foreclosure.
Consumer groups and lawyers for the plaintiffs contended that such lenders reap inflated fees and interest rates, then foreclose on the loans while there is still enough equity to reap a profit.
As other lenders have done, Delta officials questioned the premise, saying that putting homes into foreclosure to reap a profit "doesn't make any sense" financially.
The suit against Delta names Bankers Trust Co. of Calif., as trustee for Delta Funding Home Equity Loan Trust, a fund to which Delta has sold loans since 1995.
The case is unusual in that the plaintiffs, who are seeking class-action status, are arguing that the Truth-in-Lending Act requires rescission of the loans in question. The suit also seeks to hold secondary holders of these loans-investors in Delta securities-responsible if the loans are found to be illegal.