A West Virginia judge awarded punitive damages of $2.2 million and attorneys fees of nearly $600,000 to a homeowner who claimed Quicken Loans Inc. gave her a predatory loan in 2006.
The case of Lourie Jefferson, a nurse who paid $35,000 for a duplex in 1988 and ended up being charged $520,065 after refinancing her loan with Quicken, serves as a stark example of the risks of mortgage lending.
"This case was one of the more confusing, confounding and complex cases both factually and legally that has ever been before this court," Circuit Court Judge Arthur M. Recht of Ohio County, W.Va., wrote last week.
The judge ruled in March 2010 that Quicken had engaged in fraud by promising to refinance Jefferson's loan later, and then refusing to do so.
He also found that Quicken made false and misleading statements and engaged in unfair and deceptive practices by not lowering Jefferson's interest rate, even though she had paid nearly $9,000 in closing costs to buy her rate down, and by not disclosing that the loan had a "40/30" feature with a $107,015 balloon payment due after 30 years.
Even the $181,700 appraisal on the home was fraudulent, the judge ruled, since it exceeded the property's market value of $46,000 at the time of the refinancing.
Paula Silver, a Quicken spokeswoman, said the company planned to appeal what she called a "gross miscarriage of justice." No compensatory damages were awarded in the case.
Appraisers are certainly not new to controversy. A new book from the Appraisal Institute seeks to address best practices in a particularly contentious area of valuation.
At 666 pages, "Appraising Conservation and Historic Preservation Easements" is the culmination of years of research, the industry association said, after Internal Revenue Service scrutiny of such valuations. Series by The Philadelphia Inquirer in 2002 and The Washington Post in 2004 prompted IRS and congressional investigations into how conservation and historic preservation easements are donated to charity, the association said.
Written by Richard J. Roddewig, a real estate appraiser and land use and zoning attorney, the book examines the valuation of conservation and historic preservation easements "from the contradictory perspectives of the IRS, the courts, easement-holding organizations and appraisers," the association said.
According to the National Trust for Historic Preservation, a conservation or preservation easement is a legal right given by a property owner to a nonprofit or government entity to protect a property's value. A conservation easement refers to measures to protect land, while preservation easement protects property with historical or architectural significance.
Subsidies promoting homeownership have been harshly criticized in the wake of the housing crisis. But a senior research economist at the Federal Reserve Bank of Cleveland says taxpayer-funded assistance should focus on diminishing down payments rather than lowering interest costs.
The most common subsidy is the deductibility of mortgage interest for taxpayers to the tune of $780 billion over the next five years, writes O. Emre Ergungor, a senior research economist at the Cleveland Fed.
The government should shift its attention to down-payment assistance as a cheaper way to sustain homeownership and reduce the likelihood of defaults, he argues.
While a 1% interest rate subsidy would create 74,000 additional homebuyers, Ergungor found that down-payment assistance of just $3,200 could attract 541,000 new homebuyers.
Down payments provide homeowners with equity, giving them more incentive to maintain their property, yet more flexibility if they need to sell, Ergungor wrote.