Teran Real Estate
David versus Goliath II

Mortgage Lending: The Largest Consumer Fraud in the World

by Andrew Peck

After 6 years of litigation, on May 3rd 1999, I won a satisfying victory in a battle with Lomas Mortgage USA. My claim was that they had for years attempted to defraud me by the use of accounting chicanery, over funding my "Escrow Account," money that was entrusted to them each month and set aside in order to pay the taxes and insurance on my home. This year, we had finally reached the time when a trial date had been set. Although Lomas settled without an admission of wrongdoing, the fact that they accepted a payment of $75,000. to settle my mortgage which by their tally was owing over $125,000., speaks for itself.

Mortgage lending is subject to extensive legislation meant to protect borrowers. Despite this, lenders use their positionof power and money to cheat homeowners of hundreds of millions of dollars each year. Many schemes are used, one of the mostflagrant and widespread has been the illegal padding, or "overfunding" of mortgagors (borrowers) escrow accounts.

My battle began in 1990 after I read in the Wall Street Journal an article on the banks' illegal profiteering from escrow overfunding. I spent some time analyzing my account and found the bank was indeed keeping hundreds of dollars of my money that they were not entitled to. I wrote to the bank: they denied it saying "It's figured by the computer." I then hired a CPA to prepare an analysis of the account, which the bank also ignored.

At that point, in frustration, I began making my mortgage payments for the full amount due, less the illegal amount the bank was demanding. Lomas arrogantly replied that they would accept nothing less than their calculation, and returned my checks. They never again accepted my monthly payments, which were sent faithfully each month for the next 7 years. They began an action to foreclose on my home, and I answered with a counterclaim detailing their fraud.

During the course of the litigation, Lomas was hit with a class action suit for the same illegal escrow mishandling; they lost that case, and proceeded to go bankrupt. I had opted out, separated myself from the class action in order to have my day in court, since there were some issues unique to my case that needed to be addressed. After Lomas Mortgage went bankrupt, my mortgage was sold to California Federal Bank (CalFed), which proved itself just as arrogant and foolish. CalFed spent more years refusing payment. A bonus for me was that Lomas and CalFed paid all my property taxes and insurance for the seven years even though they were not accepting any money from me.

If the banks actions make no sense at all, ending up with a loss of over $50,000., plus probably at least $10,000. in legal fees, is there any explanation for why they would do that? I have not been able to verify it, but I believe the loss doesn't really matter to them because they can look to Uncle Sam to bail them out with tax dollars.

Was there any benefit gained from this lengthy task other than personal financial gain? Recently, legislation was passed outlawing this particular method of cheating by lenders. I cannot say my little lawsuit did it , but in combination with a letter writing campaign and the wide publicity given to the class action against the infamous Lomas Mortgage, it may have helped outlaw this practice. Nonetheless, in my work as a real estate broker, I still encounter many instances of what appears to be lenders lining their pockets by taking unethical if not illegal advantage of borrowers .