Ind. Homeowner Seeks Class Action Status In Suit Alleging Lender Declined Loan Mod Request W/out Giving Written Reason; 3rd Suit Filed By Chicago Firm

In Hammond, Indiana, the Northwest Indiana Times reports:

• As the Obama Administration tries to heal the sickly housing market by pressing lenders to modify loans for struggling homeowners, a Gary couple is taking their personal mortgage fight with GMAC into Hammond federal court. A lawsuit filed [last week] seeks class-action status for borrowers who sought loan modifications from GMAC but were denied the modifications without being given a written reason for the denial.

• The suit seeks an injunction against GMAC as well as attorney fees and damages from the economically bruised lender. [Consumer rights and class action] Chicago lawyer Daniel Edelman filed the lawsuit on behalf of Robert and Brenda Cole, of Gary's Miller neighborhood. Edelman said the Coles took out a "predatory" loan through the now-defunct Ameriquest. The couple suffered through a "last minute" interest rate hike and bogus fees, Edelman said. Edelman said the loan was later taken over by the mortgage arm of Detroit-based GMAC, a lending firm that has now taken three federal bailouts. In June 2008, the Coles applied through GMAC for a loanmodification. GMAC never responded to the request, the suit claims. "A request for (modification) is an application for credit and needs to be appropriately treated as such," Edelman said. [...] The Cole suit is one of three modification-denial suits Edelman has filed in midwestern federal courts.

• Lenders should expect a trend toward this kind of litigation, said Louis Pizante, an expert in real estate law compliance and CEO of the California-based Mavent Inc.(1)

For the story, see Gary couple sues GMAC over loan (Expert thinks suit could be start of trend; GM credit arm denied modification with no written reason).

For the lawsuit, see Cole v. GMAC Mortgage, LLC.

(1) According to the story, Pizante pointed toward a December directive issued by the Federal Reserve Board explicitly stating that, under the Equal Credit Opportunity Act, lenders must issue "adverse action notices" to borrowers when a modification request is declined. Damages for these sorts of suits are capped at $10,000, and class-action damages can't go above $500,000, Pizante said. But federal law provides for attorney fees in these cases, Pizante said. The right of the consumer's attorney to recover his/her legal fees from the lender, through a court order, in the event of a successful lawsuit is generally recognized as the element in these types of cases that "puts the teeth" into the law.

For the Federal Reserve Board directive, see CA 09-13: Mortgage Loan Modifications and Regulation B's Adverse Action.