Class action filed against home lender

By Marilyn Tennissen | Nov 19, 2007

David Dodge

An Arizona couple has filed a class-action suit against a Texas lender for improperly charging interest on residential loans.

Timothy and Jessica Lauricella of Gilbert, Ariz., brought a complaint individually and on behalf of class members against Countrywide Home Loans Servicing, a Texas limited partnership. The class action seeks redress for Countrywide's alleged practice of improperly retaining unearned per diem interest on conforming Fannie Mae and Freddie Mac residential loans and VA-guaranteed residential loans which are repaid by the borrower before scheduled maturity.

A "conforming loan" is a residential mortgage loan eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corp. (Freddie Mac) based on principal amount of the loan, loan-to-property value ratio, interest rate and other characteristics. The 2007 principal amount limit for a conforming single-family loan is $417,000 for most of the U.S.

The class action was filed in federal court in the Sherman Division of the Eastern District of Texas on Nov. 14 on behalf of all persons who have been charged unearned per diem interest at payoff before scheduled maturity since Oct. 1, 2003.

According to the original complaint, Countrywide Home Loans Servicing LP, a wholly-owned subsidiary of Countrywide Home Loans Inc., services hundreds of thousands of conforming and VA-guaranteed residential mortgage loans throughout the United States.

Borrowers prepay their home mortgage loan when they sell their home, refinance an existing mortgage through a new loan or prepay their loan in full while their existing promissory note still has an unpaid principal balance.

When CHL is advised that a borrower intends to prepay his mortgage loan before its scheduled maturity date, CHL issues the borrower or the closing agent a written "Payoff Demand Statement." This statement is a uniform, computer-generated demand indicating the "Total Payoff Due on Loan" which must be received by the lender before the lender will release the lien securing borrower's existing mortgage. Without that lien release, the house may not be sold or refinanced, because the new lender cannot obtain a first-mortgage lien against the borrower's collateral property.

Then, at the closing of the borrower's home sale or mortgage refinancing, based upon the payoff amount the lender demands on its Payoff Demand Statement, the settlement agent collects the money required to pay off and release the existing mortgage. At or immediately after the closing, the settlement agent forwards the demanded payoff amount to the lender to satisfy the existing mortgage.

CHL's computer-generated Payoff Demand Statement demands per diem interest on the unpaid principal amount through the last day of the payoff month.

"However, Class Members pay off their conforming and VA-guaranteed loans serviced by defendant every banking day," the complaint states. "The problem is, defendant does not always refund the Class Members' unearned interest, which defendant demands and collects through the last day of the payoff month.

"When it receives the Total Payoff Due on Loan, the loan is satisfied, and defendant knows that interest on the promissory note has ceased, because no principal remains outstanding. Defendant is aware that when it receives per diem interest 'accruing' beyond the note satisfaction date, that extra money still belongs to the borrower. It never belongs to the defendant. Defendant's Payoff Demand Statement states that if 'Countrywide receives funds greater then [sic] what is required to pay off your loan, we will automatically process the overage within 30 days of payoff.' Nevertheless, rather than returning unearned per diem interest to its borrowers, defendant improperly keeps this money for itself."

On behalf of themselves and all those similarly situated, plaintiffs seek damages and the return of excess unearned per diem interest improperly retained by defendant.

According to the original complaint, on Nov. 1, 2003, the Lauricellas executed a home loan with Ryland Mortgage Company secured by a first- lien deed of trust on their home in Gilbert, Ariz. Servicing rights on the loan were subsequently transferred by Ryland to CHL. On Oct. 15, 2004, Plaintiffs refinanced their loan serviced by defendant, with a new mortgage loan from New Century Mortgage Corporation.

Prior to closing of the New Century refinancing, Countrywide prepared and sent the settlement agent a "Payoff Demand Statement" for plaintiffs' loan and a "Payoff Demand Statement" to Prime One Mortgage Corporation, the mortgage broker for plaintiffs' new refinance loan from New Century.

On the Payoff Demand Statement which Defendant sent to Prime One, it demanded $284,319.74 as the "Total Payoff Due on Loan No. 22581802", stating that "interest from 10/01/2004 to 11/01/2004 would be $48.3 188 per day."

At the closing of Plaintiffs' refinance loan on Oct. 15, 2004, the settlement agent collected and disbursed the new loan proceeds to various parties, including $284,319.74 to Countrywide as demanded for release of its lien.

The plaintiffs claim that on Oct. 22, 2004, Countrywide executed a "Deed Release and Reconveyance", acknowledging that "said Note or Notes, together with all other indebtedness secured by said Deed of Trust have been fully paid and satisfied."

Interest on all Fannie Mae and Freddie Mac conforming and VA-loans accrues "until" the day the promissory note principal is paid off. Interest accrues up to, but does not include, the day defendant receives the note payoff. Accordingly, Fannie Mae explains that loans like plaintiffs' "require interest paid for each day of the month up to, but not including the day of payoff."

"This case involves every Fannie Mae and Freddie Mac conforming promissory note and VA-guaranteed promissory note for which defendant received and did not refund unearned per diem interest when the loan was paid off," the suit states. "Because Countrywide received the plaintiffs' loan payoff on Oct. 21, 2004, the date the payoff funds were wired to defendant, Oct. 20, 2004, was the last day interest accrued under plaintiffs' promissory note. Interest accrued only up to, but did not include, the principal payoff date. Therefore, when it received the $284,319.74 wire transfer, defendant received 11 days of unearned per diem interest. At $44.3 188 per day (the per diem interest amount indicated on defendant's Payoff Demand Statement) defendant demanded and received $487.51 extra from the proceeds of plaintiffs' new refinance loan. On information and belief, defendant never returned the unearned interest to plaintiffs after their note was paid off. Therefore, defendant owes plaintiffs at least $487.51."

The attorneys say a class action is proper in that the class consists of thousands of persons residing in the United States and thus is "so numerous that joinder of all members is impracticable."

Plaintiffs claim that:

  • Defendant has a duty to return all unearned per diem interest to plaintiffs and other Class Members;
  • Defendant breached its duty by failing to return the unearned per diem interest, and by keeping the money for itself;
  • Defendant's breach damaged each Class Member in the amount of the excess unearned per diem interest Defendant improperly charged and retained from that Class Member.

    Plaintiffs are represented by David W. Dodge of Dodge & Associates PC in Dallas and attorneys from the Bonnett, Fairbourn, Friedman & Balint law firm in Phoenix, Ariz.

    The case has been assigned to U.S. District Judge Richard Schell.

    Case 4:07-cv-00516-RAS

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