This is a true story involving one of my clients. This is not about one of my mortgage customers. This is a client who hired me as an expert witness. He brought me aboard to help clear up a mess created when he sought and was approved for a mortgage refinance via an out-of-state lender he found on the Internet.
We’ll call my client Jed (not his real name). He determined that it was time to refinance and take advantage of the lowest mortgage interest rates in history. He searched the Internet, found a lender and applied for a plain vanilla, no-cash out, rate-term refinance. In other words, he simply wanted to shorten his loan from 30 to 15 years and get a lower interest rate.
Everything on the Internet is true… Right?
Jed found an out-of-state Internet lender who, for discussion purposes, we’ll call KwikNEZeeLoans.k0d (KNEZL)*. Jed researched KNEZL as best he could prior to submitting his refinance loan application. Not surprisingly, the information Jed was able to gather on the Internet about KNEZL was positive. Indeed, they have a high powered CEO who, prior to founding this company, had an impressive track record with one of the original Internet mortgage lenders. As we all know, everything on the Internet is true.
The initial interest rate offered was great! Almost unbelievably great, as the rate offered was 2.5% while most others were quoting rates in the range of 2.75/2.875% for Colorado at the time of his loan application.
Rate increase was not surprising.
Sufficient groundwork has been established, so let’s jump to one of the endings – indeed, the most obvious ending. You are quite right, perceptive reader; Jed did not get the initially promised deal. He ended up with an interest rate of 2.75%. Although a great rate, it’s not the rate initially offered. However this was not the most disturbing problem and the rate bump wasn’t really a huge surprise.
Was this attempted theft by conversion?
Let us now get to the real thrust of this story, and why Jed hired me in the first place. Jed paid his original lender the August payment. Jed’s loan with the Internet lender closed in August. The payment to Jed’s original lender was shown on the HUD1 Settlement Statement at closing as a credit to reduce the principal balance. In fact, it was not credited to the principal so he paid, in essence, an unearned bonus to the Internet lender in the amount of his entire monthly mortgage payment – principal, interest, taxes and insurance in the amount of about $2,500.00. Note that this amount was disclosed, just not credited in fact for Jeb’s benefit. Had this error not been corrected, it is conceivable this could be considered theft by deception and may have required a lawsuit to resolve. On such a lawsuit, it is possible the damages could have been trebled as well as having all legal fees paid. In such a situation as this, where an expert is required, it is typical for the expert fees to be paid along with all other legal fees including attorney fees and court costs.
Or just an honest mistake?
On the surface, one could have observed this Internet lender casually pocketed Jed’s August payment and only properly credited it for him when two events occurred. First, I had been retained to investigate the transaction. And second, upon my strong suggestion, Jeb filed a complaint with the Consumer Financial Protection Bureau (“Bureau”). The Bureau is perceived as being the nine hundred pound gorilla charged with protecting consumers of virtually all financial services conducted in the United States.
I am truly hopeful this oversight was not done as a normal course of business by this Internet lender. If this was deliberate, such activity is outrageous as very few customers would ever notice such deceptive accounting as the correct amount was printed on the Settlement Statement. As such, all appeared to be straightforward and honest.
The rest of the story.
Jeb’s loan closed in August 2012. He was concerned that the August payment he made to his former lender prior to the closing was not reflected on his final statement from the previous lender. The funds appeared to have vanished. He began writing letters to his new lender and his former lender attempting to get an accounting of his missing money. He received no responses from anyone. His phone calls were likewise ignored. Out of exasperation he called me in late October and explained the situation. I suggested that rather than engage me, just yet, he should go around all the middle people and write directly to the CEO of his new lender to see if he could get satisfaction. By the time he hired me in early December, he still could not get a response from his new lender. After four months he was fed up with getting the complete brush off. He was quite ready for me to document the problem(s) in order to file a lawsuit and force the issue into open court. For what it’s worth, KNEZL reimbursed Jed for my fees.
Jed is very detail oriented and a sophisticated borrower.
He knew something was wrong, just not what it was. Rightly, he sought the help of an expert to help find exactly what was wrong. Frankly, though, no one should have to hire an expert to audit the closing trail to assure that the promised refinance was delivered as promised.* KwikNEZeeLoans.kod (KNEZL) is a fictional name created entirely from my imagination. Image attribution Financially Speaking™ James Spray, MLO, CNE, FICO Pro CO LMO 100008715 | NMLS 257365 | January 11, 2013 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.