A California mortgage lender claims it had no fiduciary responsibility to the borrower on a loan it brokered because it funds its own loans. But a trial court and appellate court disagreed and awarded nearly $100,000 to the borrower.
Tonya Smith obtained a $700,000 mortgage in 2006. The loan was used to pay off a first and second mortgage so Smith could obtain a home-equity line of credit.
The loan was brokered through Home Loan Funding Inc. While the company acted as a mortgage banker in some cases, it also brokered loans to wholesale lenders such as Washington Mutual and World Savings Bank — both companies that no longer exist.
Smith found the company through an advertisement she received.
While her loan officer, Anthony Baden, reportedly did not have a mortgage brokers license, she claims that he acknowledged he was a mortgage broker who could “shop the loan” for the best deal.
She testified that she trusted Baden completely.
She initially desired only a HELOC, but Baden allegedly told her she didn’t qualify and suggested she refinance her existing loans even though she had a prepayment penalty on the first mortgage. He promised to find her the best deal.
The best deal, it turned out, was an adjustable-rate mortgage with a whopping margin of 3.85 percent and prepayment penalty — despite promises throughout the process that the loan would not have such a penalty, court records indicate.
An expert witness testifying on behalf of Smith said that the margin was “astronomical” and indicated that she should have qualified for a loan with a 2.2 percent margin. He also noted that the yield spread premium paid as a result of the high margin and prepayment penalty was “greatly enhanced.”
So Smith sued.
The trial court found that Home Loan Funding acted as a loan broker and therefore breached a fiduciary duty to the borrower. Baden was found to have misrepresented both the terms and the ultimate advisability of the loan.
Smith was awarded $21,908 in damages for the prepayment penalty, $72,187 for the overpriced loan and $26,342 in attorney’s fees.
Home Loan Funding appealed the decision, claiming it was exempt from mortgage broker requirements because it acted only as a direct lender.
In its decision, the Court of Appeals of California, Second District, Division Six, reduced the judgment by $21,908 — the amount of the prepayment penalty.
But the rest of the damages were affirmed.
TONYA SMITH, Plaintiff and Respondent, v. HOME LOAN FUNDING, INC., et al, Defendants and Appellants.
2d Civil No. B219372, filed Feb. 24, 2011 (Court of Appeals of California, Second District, Division Six).
*case information obtained from Leagle.com
