Thursday, August 25, 2011

If I have an Option ARM Loan, do I have a Case against my Bank for Fraud?

Depending on what the loan documents say, homeowners with Option Arm loans may have a case against their lender for fraud. Loan documents which fail to clearly disclose that making the scheduled monthly payments will result in negative amortization may be deceptive and fraudulent. (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230).

Last week the Court of Appeal held in Boschma, that loan documents were deceptive in stating negative amortization could occur rather than stating negative amortization would certainly occur as a result of making the scheduled monthly payments. The Court believed that stating only the possibility of negative amortization as opposed to its certainty was inaccurate and a half-truth. Plaintiffs alleged that if the lender had disclosed to them the amount they would have to pay each month to avoid negative amortization, then they would not have entered into the loan. The Court accepted this allegation as sufficient for pleading the intent to defraud element of a fraud claim.

Homeowners with similar loan documents now have a precedent for a fraud claim against their lender. Thus, borrowers should take a closer look at their loan documents, or have an attorney review them, to see whether the disclosures were accurate and adequate about the consequences of making the scheduled minimum monthly payments.

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