THOMAS A. JENKINS [92213]
DANIEL J. MULLIGAN [103129]
660 Market Street, Third Floor
San Francisco, California 94104
Telephone: (415) 982-8500)
Facsimile: (415) 982-8515
Attorneys for Plaintiffs
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re: FIRST ALLIANCE MORTGAGE COMPANY, a California corporation; Defendants. ____________________________ | Bankruptcy Nos. SA00-12370LR SA00-12371LR SA00-12372LR SA00-12373LR Chapter 11 Proceeding Adv. Proc. No. _____________ CLASS ACTION COMPLAINT FOR RESCISSION BASED UPON FRAUD AND VIOLATIONS OF THE TRUTH IN LENDING ACT AND HOME OWNERSHIP AND EQUITY PROTECTION ACT JURY TRIAL DEMANDED |
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Plaintiffs Jacqueline Bowser and Irene Huston allege as follows:
PRELIMINARY STATEMENT
1. This complaint seeks redress for the fraudulent and unlawful lending practices of debtor First Alliance Mortgage Company and its parent and affiliate companies (hereafter, collectively, "First Alliance") and Lehman Brothers, one of Wall Street's largest brokerage houses which has raised money for First Alliance and that holds an investment stake in First Alliance. Collectively, these defendants have engaged in a pattern and practice of targeting low-income, credit-impaired minority and elderly homeowners and inducing them to enter into illegal, unfair, discriminatory and fraudulent high-cost mortgage loans, which defendants have reason to know these borrowers either cannot repay or can repay only through extreme personal and financial privation.
2. The business of these defendants is the sale and financing of high-cost mortgage loans to individual homeowners. By means of an elaborate sales pitch - known as "The Loan Officer's Track to Run On" or "The Track" - defendants induce low-income, minority and elderly or credit-impaired homeowners to enter into such mortgage loans by, among other things, convincing such homeowners that the new mortgage debt will result in lower monthly obligations than the homeowners previously had. In many situations, however, the homeowners' monthly obligations are not decreased; in addition, defendants' loans leave homeowners in a worse financial position, ultimately exposing them to loss of their homes through foreclosure or, if they are more fortunate, to refinancing out of the First Alliance loans at the expense of substantial loss of equity in their homes, often their only asset. Defendants earn substantial profits from their high-volume, high-cost loan business.
3. The mortgage loans issued by defendants rarely exceed the full value of the homes by which they are secured; as a consequence, loan defaults and ultimate foreclosure do not significantly erode defendants' profitability. For this reason, defendant will often approve mortgage loans without regard to the homeowners' ability to repay the debt.
4. In the process of selling high-cost mortgages to targeted borrowers, First Alliance charges excessive and, at times, illegal fees. Such fees consume as much as 25% of the total loan and typically are paid out of the loan proceeds before any money ever reaches the homeowner. In addition to the grossly excessive and/or illegal loan fees, First Alliance loans often include unconscionable and illegal terms.
5. In California and other states, defendants solicit and market a substantial portion of these high-cost mortgage loans in minority neighbor-hoods, thereby disproportionately affecting racial minority homeowners - specifically African-American and Hispanic homeowners.
6. In California and other states, defendants solicit and market a substantial portion of high-cost mortgage loans to elderly home-owners.
7. In bringing this action, plaintiffs seek relief on behalf of all homeowners whose high-cost First Alliance loans were marketed to them using deceptive and/or unlawful tactics. Plaintiffs also seek relief on behalf of homeowners who are at risk of being targeted and victimized in the future by defendants' illegal lending practices.
8. Plaintiffs' federal claims arise under the Truth-in-Lending Act, 15 U.S.C. §§ 1601, et seq. ("TILA") and the Home Ownership and Equity Protection Act, 15 U.S.C. §§ 1635 and 1639, et seq. ("HOEPA"). Plaintiffs also seek damages based upon fraud for themselves and other members of the plaintiff class.
