__________________________________________________________

Avoiding and Defending Against Claims of Discrimination and Predatory Lending Based On HMDA Data

__________________________________________________________

ACI Defense Forum on HMDA June 14-15, 2005, The Westin Embassy Row

Washington, DC

Frank A. Hirsch, Jr. NELSON MULLINS

GlenLake One, 2nd Floor 4140 Parklake Avenue Raleigh, NC 27612 Telephone: 919-329-3853 Fax: 919-329-3898 Email: frank.hirsch@nelsonmullins.com www.nelsonmullins.com

Atlanta • Charleston • Charlotte • Columbia • Greenville • Myrtle Beach • Raleigh • Winston-Salem • Washington, DC

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Digest of Recent Cases 2005 3/29/05 Coveal v. Consumer Home Mortgage Inc., 2005 WL 704835 (E.D.NY 2005)

(plaintiff’s effort to bring predatory lending claim against mortgage broker, seller, lender, appraiser and attorneys for violation of TILA, ECOA and New York UDAP statue dismissed with leave to amend the ECOA claim if facts support the invocation of the fraudulent concealment doctrine).

2/3/05 Beard v. Worldwide Mortgage Corp., 354 F. Supp. 2d 789 (W.D.TN 2005)

(borrower sued multiple defendants alleging a predatory lending scheme in violation of RICO, the FHA, TILA and RESPA [as well as civil conspiracy]; on motion to dismiss held that plaintiff had no claim under FHA, TILA or RESPA but did state a RICO claim and civil conspiracy claim).

2004 5/19/04 United States v. Old Kent Financial Corp. (Fifth Third Bank), 2004 WL

1157779 (E.D.MI 2004) (settlement agreement- DOJ Civil Rights Division brought claims of Title VIII of the Civil Rights Act of 1968 [Fair Housing Act] and ECOA alleging racial discrimination in the marketing solicitation and extension of credit for business and residential real estate loans in Detroit [redlining]; the compromise called for Fifth Third to open 3 branches in Detroit over the next 3 years, implement a marketing and outreach program; hire 3 new business lending originators in Detroit, fund a minimum of $100,000 a year for 3 years to implement a small business planning and education program, and invest $3 million in subsidized loan incentives to Detroit residents/businesses with at least 2/3 directed at small business loans, and provide HMDA data and annual reports for 3 years to the DOJ).

5/04/04 Munoz et al. v. International Home Capital Corp., 2004 U.S. Dist. LEXIS

26362 (N.D. of CA 2004) (Spanish-speaking borrowers allege predatory and discriminatory loan practices under FHA, ECOA, RESPA, and state predatory lending law; court found borrowers had averred sufficient facts of “reverse redlining” under the FHA, could maintain their claim under ECOA even though some were given loans, and had stated sufficient claims of illegal kickbacks or referrals under RESPA., as well as sufficient claims under CA laws; claims for fraud and unconscionability were dismissed; decision relies on definition of prima facie case of redlining established in Matthews (2002, below)).

3/22/04 Powell v. American General Finance, Inc., 310 F. Supp. 2d 481 (N.D. NY

2004) (pro se borrower filed claims of race and gender discrimination against AGF, Household, Citifinancial and other defendants alleging CRA, ECOA, and FHA violations. Defendants’ motions to dismiss granted because plaintiff had not stated sufficient predicate facts).

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1/28/04 Miller v. Pacific Shore Funding, 92 Fed. Appx. 933, 2004 WL 144138 (4th

Cir.Md.2004) (putative class action for excessive mortgage fees as constituting predatory lending in violation of Maryland’s UDAP and Secondary Mortgage Loan Law; case dismissed based on statue of limitations, standing and insufficient allegations).

2002 12/9/02 Equicredit Corp. of New York v. Turcios, 300 A.D. 2d 344, 752 N.Y.S. 2d

684, (Sup. Ct. 2002) (attempted counterclaim in a foreclosure action based on alleged reverse redlining targeting low income minorities based on ECOA and FHA dismissed because plaintiff’s theory was that they did not have the ability to repay the loans and thus they lacked an essential element of an ECOA or FHA claims that they could qualify for the loans in question).

10/11/02 Williams v. Countrywide Home Loans, Inc., 2002 WL 31270283 (Ohio App. 6

Dist. 2002) (class action certified where female borrowers brought discriminatory lending claim against Countrywide on the basis of sex and familial status and plaintiff’s expert used HMDA data to establish numerosity of the class. The plaintiffs alleged that Countrywide discriminated by refusing to consider female income, when co-applicants for a mortgage loan, because the worker would be on maternity leave at the time the loan closed. The plaintiffs sought declaratory relief, compensatory and punitive damages, and attorneys’ fees under Ohio’s Fair Housing Statute).

7/17/02 Paschal v. Flagstar Bank, 295 F. 3d 565 (6th Cir. 2002) (jury trial finding racial

discrimination via experts on mortgage lending discrimination and econometrics expert analyzing HMDA data for violation of the FHA, the Civil Rights Act and awarding $125,000 in compensatory damages upheld on appeal even though the bank was not allowed to offer into evidence positive CRA performance evaluations conducted by the OTS or similarly situated loan applicants the bank had loaned money to).

6/21/02 ACORN v. Household International, Inc., 211 F. Supp. 2d 1160 (N.D.CA

2002). (arbitration agreement denied effect as unconscionable in ACORN’s predatory lending case on behalf of a putative class of California moderate income homeowners under California statutes, and California law on fraud, deceit, negligent misrepresentation and unjust enrichment; plaintiffs alleged Household engaged in a targeting of homeowners struggling with high credit card debt to trick them into consolidating the card debt into high-cost loans secured by their homes and trap them into the mortgages by exceeding LTV thresholds such that borrowers could not refinance with Household’s competitors).

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6/14/02 Jones v. Ford Motor Credit Co., No. 00 CIV 8330, 2002 WL 88431 (S.D.NY 2002) rev’d on other grounds, 358 F. 3d 205 (2d Cir. 2004) (ECOA provides for discrimination claim based on either disparate impact or disparate treatment).

3/22/02 Johnson v. Equicredit Corporation of America, 2002 WL 44899, (N.D.IL 2002)

(plaintiff’s claims of discriminatory lending in violation of RESPA and the Illinois UDAP Statute by Bank of America and Equicredit in Chicago survive motions to dismiss and state claims under ECOA, FHA and the Illinois UDAP statute for Equicredit targeting minority neighborhoods for loans with unfair credit terms).

2/8/02 Matthews v. New Century Mortgage Corp., 185 F. Supp. 2d 874 (S.D.OH

2002) (reverse redlining class action stated claims under ECOA, Ohio’s FHA, TILA, RICO and for civil conspiracy. Reverse redlining requires four proof elements: (1) a member of a protected class; (2) application for and qualification for loans; (3) loans granted on “grossly unfavorable terms”; and (4) that the lender continues to provide loans to other applicants with similar qualifications but on significantly more favorable terms; or alternatively, that the lender “intentionally targeted” borrowers for unfair loans on the basis of race, sex or marital status).

2001 7/25/01 Associates Home Equity Services, Inc. v. Troup, 343 N.J. Super. 254, 778 A.

2d 529 (N.J. 2001) (counterclaim in foreclosure action alleging reverse redlining by the original lender in violation of the FHA, TILA, the Civil Rights Act, and the Illinois UDAP and anti-discrimination statutes; cannot be dismissed without the plaintiff having an opportunity to conduct discovery on the reverse redlining claim).

2000 9/29/00 Hargraves v. Capital City Mortgage Corp., 140 F. Supp. 2d 7 (D.DC 2000)

(African American borrowers brought action against mortgage company under RICO, FHA, ECOA, Section 1981, and UDAP statute for unfair and predatory loans based on both targeting and a disparate impact type of reverse-redlining; this presented a genuine fact issue precluding summary judgment; some ECOA claims later dismissed for lack of standing, 147 F. Supp. 2d 1 (D.D.C., 2001), parties settled; Capital City also sued by FTC, FTC’s motion to prevent enforcement of settlement from Hargraves was denied).

6/15/00 Honorable v. Easy Life Real Estate System, 100 F. Supp.2d 885 (N.D.IL, June

15, 2000) (African American plaintiffs sought to buy rehabbed homes offered for sale by the defendant in a predominantly black area on the West side of Chicago claimed that the selling practices of the defendant violated Civil Rights

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Sections 1981-1982 and the FHA by taking unfair advantage of unsophisticated first time buyers via racial targeting. Plaintiffs’ exploitation theory stated a jury issue and defendant’s motion for summary judgment denied).

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