July 2009 Archives

Even in this economy, fraudulent mortgage lending is alive and well in Virginia. But with sub-prime lending the principal cause of our present economic woes, targets and tactics have changed dramatically. Lenders are now only interested in credit-worthy borrowers. But that doesn't mean all lenders are worthy. Consumers with good credit who are trying to refi, need to be on the look out for unscrupulous lenders and tactics.

In June and early July, with rates low, consumers with excellent credit had an opportunity to refinance and reduce their interest. Just such a friend told me what happened to him early this month. He was looking to refinance his mortgage, and contacted both a lender and an unrelated loan broker to find out if they were interested in making a loan. To his dismay, both played fast and loose with his business by representing their commitment to his loan, and then watching the market to see if rates would rise or fall after they had made their deal so they could reap more profit or get out of the transaction altogether. My friend had worked in real estate in the 1980s and is a lawyer. He was able to quickly recognize the issues and see through the scam. But common sense, relying on one's intuition, careful observation and a stubborn streak can help you too to avoid being a victim.

Here is my friend's description of what happened in his own words:

I applied for a refinancing with two different mortgage specialists. One a direct lender and one a broker. In both instances they acknowledged my credit history was spotless and I had plenty of net worth and equity in my home to quickly accomplish the refinance. I filled out all of the paperwork, they both had my house appraised. The appraisals reflected plenty of equity in order to refinance. Both were solicitous of the business as they saw it as a slam dunk refi and they would reap the fees with no hassles.

About 10 days after my applications rates spiked upwards. The lender never got back with me despite my calls and emails. Incidentally, he also never cashed my check for the appraisal, even though he had my home appraised. I guess this was their "insurance policy" so to speak. If rates had gone down or stayed the same, the lender would have closed. Since rates went up they walked away.

The mortgage broker was more egregious. Since they offered the lower rate (4.75% with no points), I was more active on them. It was supposed to be a very quick closing. I was told I was fully approved and locked, but after rates spiked and a couple of days before the scheduled closing, they called and told me there had been a mistake. The loan didn't get locked due to a fluke in that the State of Virginia hadn't gotten the title company what they needed in order to issue the commitment and since the lender didn't have the final piece of the package (the title commitment) in a timely manner, the lock was blown. When I informed them that the State of Virginia had nothing to do with the title commitment, they hemmed and hawed. They did come back and tell me they could lock the loan at 5% and would I like to proceed with that. I said no and we have been going back and forth since then. They told me last week they could do it at 4.75%, but there would be a 0.375% point. I said I wouldn't pay it, so they pumped the estimated closing costs by a couple of thousand dollars and tried to backdoor me that way. They also sent me a new application to sign which in the fine print had a lot of exculpatory language to get them out of their previous commitment to me. I crossed it all out (by the way, this was a different application commitment entirely from what I had signed before).

To make a long story short, both the lender and the broker have played a heads they win, tails I lose game. If rates go down or stay the same, they close on their earlier commitment. If rates go up, they wiggle out of it. I plan on not letting this go and will let you know how I come out.

Virginia consumers beware: read your credit card account statements carefully to make sure you understand all of your charges. A stark example of the kind of error computers can generate is one by Visa that frightened 13,000 Visa prepaid cardholders who on Monday found charges like the $23,148,855,308,184,500 charge below on their statements.

Josh Muszynski of Manchester, New Hampshire found the 17-digit debit on his bill, and not surprisingly, he was charged an overdraft fee. His debt exceeded the world GDP and was incurred in one charge at a nearby Mobil gas station.

The same thing happend to Jason Bryant of Memphis, Tennessee, whose overdraft fee was later reversed. The reversal of the charge was not soon enough. Bryant told CNN he would be taking his money out of the bank and keeping it in a safe at home.

Muszynksi asked the Mobile station where he incurred his charge "Can I buy Europe on pump 4?"

Visa later that the said the rogue charges affected "fewer than 13,000 prepaid transactions" and resulted from a "temporary programming error at Visa Debit Processing Services ... [which] caused some transactions to be inaccurately posted to a small number of Visa prepaid accounts."

The company has indicated that the problem has been fixed and that all falsely issued fees have been voided. "Erroneous postings have been removed ... this incident had no financial impact on Visa."

If you are contemplating buying a used Chrysler product you may want to look at other models, and if you currently own a Chrysler product, you may want to consider selling it. Pursuant to Chrysler's bankruptcy, the company will not be held accountable for defective products it manufactured prior to the bankruptcy. As can be seen from a random Google search, product defects can surface years after the vehicle is manufactured and can manifest in a crash ranging from severe burn injuries from a defective part to paralyzing or life ending spinal injuries resulting from a defectively designed roof. Courtesy of Chrysler's bankruptcy, victims will not be able to file suit against the manufacturer for products manufactured prior to the bankruptcy exit date of June 10, 2009.

General Motors sought the same protection in its bankruptcy but was essentially shamed into agreeing to accept liability for any future claims against vehicles built under its old ownership, as long as the incident occurred after July 10, 2009. However, current and pending product liability claims were wiped out by the bankruptcy.

Virginia consumers may not know it, but most of the contracts they sign with credit card companies, banks and retail lenders contain mandatory arbitration provisions that keep any dispute out of the courts. Disputes arising under the contract are resolved by a supposedly neutral arbitrator.

One of the largest arbitration agencies, the National Arbitration Forum, goes so far as to hold itself out to the public as operating like an impartial court system. Yesterday, Minnesota Attorney General Lori Swanson alleged that this is all a lie in a suit filed against NAF contending that it has "extensive ties to the collection industry--ties that it hides from the public."

The lawsuit claims that NAF, while trying to appear impartial, works behind the scenes to convince credit card companies and other creditors to insert arbitration provisions in their customer agreements and to appoint it to decide their disputes. The lawsuit alleges NAF does this to generate business--arbitration filings--which translates to revenue for itself.

How it allegedly did this is through a complicated web of interrelated corporations. Beginning in 2006 and through 2007, Accretive--a family of New York private equity funds--set up two transactions. In the first, it formed several equity funds that invested $42 million in NAF. In the second, three major debt collection law firms--Mann Bracken of Georgia, Wolpoff & Abramson of Maryland, and Eskanos & Adler of California--merged into one large national law firm called Mann Bracken. Accretive then purchased a majority interest in a debt collector called Axiant, which acquired the collections operations of Mann Bracken. Thus, Accretive gained control of one of the largest debt collection enterprises in the country and at the same time became affiliated with NAF. Accretive principals allegedly remained actively involved with NAF. What makes this worse is that in 2006, the NAF processed over 214,000 consumer collection arbitration claims. Of those 125,000, or nearly 60 percent, were filed by the three law firms that became Mann Bracken.

In short, the lawsuit assets complex financial relationship between NAF and the collection industry whose cases its arbitrators decide.

One executive wrote in an email attached to the complaint that "We remain deeply concerned about walling any deal off any deal from Mann Bracken. The shared ownership issue concerns us on many levels." No kidding. He also spoke of a Chinese wall, which presumably would separate Mann Bracken information from NAF, but that would hardly matter if NAF went about selecting arbitrators based on their performance favoring creditors. Unfortunately, the lawsuit suggests that's just what happened when Richard Neely, an NAF arbitrator--and newly retired Chief Justice of the West Virginia Supreme Court of Appeals-- stopped receiving cases after he denied attorneys' fees for creditors believing they were not allowed under West Virginia law.

If you've lost a case in an NAF forum, let me know.

Earlier this year I posted a blog concerning new federal legislation, the Virginia Graeme Baker Pool and Spa Safety Act 15 U.S.C. 8001 et seq. that required pools to have a new drain cover. I have been checking the indoor and outdoor pools that my daughter swims in and so far all pools have complied. However, here in Roanoke, that only consists of the indoor and outdoor pools at the Roanoke Athletic Club and my sister's kids' private outdoor swim club pool owned by our church.

Apparently, some pools across the country still have not gotten the message, even those in metropolitan areas. A recent news article from Arizona found that at least 12 municipal pools did not have the new pool drain covers.

If your child is swimming at a public or private pool, or you have a pool at your home, make sure that you have replaced your old flat pool drain cover to comply with the new federal legislation. This could prevent serious injury or death to your child or a friend's. Be sure to ask the facility or facility owner if the covers have been replaced, and if possible check it yourself!

On June 4, 2009, the Virginia Supreme Court issued a decision that is sure to have tremendous impact on injury victims and their insurers in the state of Virginia. The decision means that injured victims could potentially have a greater amount of uninsured motorist coverage available if the injured victim/insured owns more than one car on any auto policy that covers that victim/insured.

The case of Virginia Farm Bureau Mutual Insurance Company v. Williams, re-opens Virginia law to intra-policy stacking of uninsured motorist coverage. An example of intra policy stacking would be having 2 vehicles on one insurance policy, each with $100,000 in uninsured motorist coverage. Prior to this decision, you likely only had $100,000 in coverage. You now may have $200,000 in coverage, if your policy language meets the criteria in Williams. Virginia law has long allowed auto policy insurers to prohibit intra-policy stacking as long as their policies clearly and unambiguously stated that the stacking was not allowed. In Williams, the Court looked past the language stated in the policy itself and examined the language in the declarations page of the policy. That language differed from an earlier Virginia Supreme Court case. In short, the court found it to be ambiguous and allowed an additional $550,000 in coverage!!

I am sure that the insurance companies will be rushing to correct the language in their policies and declarations pages, to avoid this coverage issue. If you have been involved in a serious or catastrophic injury, and thought or have been told that there may not be enough insurance coverage, you should immediately request a certified copy of your insurance policy and declarations page so that an attorney can examine that for you and assist you in obtaining additional coverage, if necessary.