Blog Topic

Mortgage Fraud Cases: Has The Financial Elder Abuse Statute Been ........ ABUSED?
Posted by: Kenny Tan
November 04, 2010

In California, there's a statutory law that protects individuals who are 65 or older  -- that's how "elder" is defined in the Welfare and Institution statute.

There are a few reasons why the statute is attractive to litigation attorneys.

Right To Attorney's Fees 

The plaintiff elder is entitled to recover attorney's fees -- mandatory -- if he or she prevails. Moreover, the right to attorney's fees is practically goes one way only, i.e. if the defendant (abuser) prevails, it would have to prove the suit rises to the level of being frivolous.

Longer Statute of Limitations

The statute provides for a 4-year statute of limitations -- which means some actions that could be barred under the common law due to shorter statute of limitations may still be pursed under the elder abuse statute.

Abuse Of Financial Elder Abuse Law

Predictably litigation attorneys would try to fit a case within the Elder Abuse statutory framework whenever they have clients who were "Elders."

But the Elder Abuse statute does not impose strict liability. While a person who assisted in the "taking" of the Elder's money or property may be held liable under the statute,  at least one court has held that the person who's being accused of "assisting" in the "taking" must have had some intent to take unfair advantage of the Elder.

Take the mortgage industry as an example. Several years ago when subprime mortgage was readily available, many loan providers didn't require income verification. Many elders were retired and didn't have jobs. It would be difficult to qualify for the more conventional loans. So if they needed cash for themselves or family members, they would go to a mortgage broker and ask for a NINA loan where income verification is not required.

Many providers of subprime loans would lure borrowers into signing up for loans that were bound to fail because the borrowers, "Elders" especially, really didn't have the stream of income to make the monthly payment when the initial - and much lower- interest rate began to rise sharply several years later. Consequently, the properties eventually went into foreclosure. 

Lawyers would sue lenders, trustees, beneficiaries, loan servicing companies, as well as mortgage brokers for financial elder abuse among other claims.

While the mortgage brokers may be liable on common law fraud or breach of fiduciary duty if there is evidence of misconduct, but they're usually not liable under the financial abuse statute unless they "took" any money from the elders or "retained" any money that belongs to the elders.

In the mortgage industry, mortgage brokers typically receive yield spread premiums from the lenders and no money from the borrowers. So mortgage brokers did not "take" any money from the elders. At least one case has held that mortgage broker's receipt of yield spread premiums is not a "taking" under the statute. It's also difficult to argue that the mortgage brokers "assisted" in the "taking" just because the elders ended up in a bad loan if the elders knowingly wanted to and did sign up for a NINA loan. 

While there might be other viable claims such as breach of fiduciary duty available to the "Elders", financial elder abuse is not one of them.

This is extremely important to a mortgage brokers defending a suit by the elders because commonly there're practically no other ways for the plaintiff's attorneys to recover attorney's fees against the mortgage brokers since mortgage brokers always never have any written contracts with the borrowers.  

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Who's The Abuser When Elder Lost Home Through Foreclosure? Lender? Elder's Children? Broker? Wall Street? Or Government?
Posted by: Kenny Tan
July 13, 2010

Elder owns a home with a lot of equity. Three years ago, elder's son needed capital for business. Son was referred to a mortgage broker and asked to obtain a "No Docs" loan. Mortgage broker succeeded in getting a "No Docs" loan from a direct lender. Broker didn't speak to the elder, All communications regarding application were made to Son only. Broker knew Elder was on social security with no other income. Broker explained to Son that this was an "interest only" loan fixed for 10 years and then variable and tied to index after 10 years. Broker was able to obtain interest rate which 0.5% below that of the existing mortgage. This was meant to be a cash-out and Son was to receive entire proceeds of the loan. At the time of the loan origination, property still had a lot of equity despite the cash-out. Elder failed to make the mortgage payment. Son didn't help. Lender recorded notice of default. Elder filed suit against lender, mortgage broker, and trustee of the deed of trust.

 The elder abuse statute protects elder against financial abuse. Is there an abuse? If there is, who's the abuser? 

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