The American Tort Reform Foundation ("ATR") "Judicial Hellhole" report attacks the justice systems of West Virginia in part due to a decision in the matter of Brown v. Quicken Loans issued by Judge Arthur Recht - an accomplished, well-respected trial court judge and former State Supreme Court Justice. The ATR admits that it, like most observers, have heaped the praises of Judge Recht in the past. One should know that Judge Recht is not the first highly respected jurist to find evidence of Quicken's predatory lending practices. The Honorable Judge John Copenhavor, a Republican appointee to the federal bench, noted similar evidence in his opinion issued earlier this year in the matter styled Bishop v. Quicken Loans.
As one might suspect, Judge Recht's philosophy and judgment have not changed much over the years; he is simply much more informed about the facts of this case after having sat through weeks of hearings and having reviewed hundreds of documents relative to Quicken and its conduct in Brown than the ATR. Apparently, the ATR abandoned its praise of Judge Recht due to its unfettered and uninformed acceptance of Quicken's post trial press release. However, the truth, as reflected in the trial transcript, is altogether different than what Quicken portrays. Had the ATR investigated or even bothered to entertain the consumer's side of the case, it too would know better.
The Brown case is about the predatory and fraudulent practices committed against mortgage consumers by Quicken Loans. The facts of this case place Quicken among the numerous predatory lenders that ran rampant during the last decade and nearly brought down the nation's, if not the world's, economy.
While on the internet, Ms. Brown (now "Jefferson") saw a pop-up ad offering an attractive loan opportunity. After learning that her monthly payment would be much higher than advertised, Ms. Jefferson expressly told Quicken that she was declining the loan and stopped taking Quicken's calls because she felt the quoted monthly payment was more than she could afford.
However, by this time Quicken had already tipped off its go-to appraiser, who had done over 100 other appraisals used in Quicken Loans, with a target loan figure and secured from the appraiser a vastly inflated appraisal. At trial, Quicken offered the following reason for providing the appraiser with an estimated value in the appraisal order: "It gives an appraiser an ability to see what they are going to potentially look at the property at." Whether or not this statement is an admission to influencing appraisers, Quicken plainly conceded that providing such an estimate was unnecessary. Judge Recht correctly found, as confirmed recently by the United States Congress, that there is no bona fide purpose in providing an "estimated" value to an appraiser.
Having secured the bogus appraisal, Quicken was not going to take no for an answer. Quicken developed a plan, as their informal memos showed, to "save" the deal and, more specifically, prevent Ms. Jefferson from going elsewhere. First, Quicken convinced Ms. Jefferson that a separate loan broker, whom she had decided to deal with instead of Quicken, was taking advantage of her. Second, Quicken falsely promised to refinance Ms. Jefferson at a better rate just as soon as this loan and the accompanying debt payoffs were reflected on her credit report. Quicken later refused to refinance the loan as promised. Third, Quicken baited Ms. Jefferson with an additional $27,000 in cash out based on the inflated appraisal.
Quicken charged Ms. Jefferson approximately $9,000 in closing costs, including 4 points or 4% of the loan for what it termed a "loan discount." Discount points are intended to be in exchange for a reduction of the interest rate. But, here, the interest rate was not reduced as represented by Quicken. Instead, the nearly $6,000 in points was actually a premium for which Quicken gave its loan agents unfettered discretion to charge to unsuspecting consumers, like Ms. Jefferson, which premium was then divided between Quicken and its loan agent.
Quicken continued to gouge Ms. Jefferson by converting her prior fixed rate mortgage to a variable rate mortgage of upwards of 16.25% and by nearly doubling her monthly mortgage payment. The total cost of the loan when compared to Ms. Jefferson's combined prior debts was a whopping increase of $358,000. Furthermore, unbeknownst to Ms. Jefferson, the loan contained an exotic feature known as a 40/30 balloon payment that was added to the loan at closing. There was no pre-closing disclosure of the balloon payment and what little disclosure was made at the notary-conducted closing did not comply with West Virginia law, as the due date and amount of the balloon payment was omitted. The loan was closed by a notary public, who had no knowledge of the loan features and could not answer a single question posed by Ms. Jefferson. There were no Quicken employees or agents at the closing which was held at the Jefferson/Brown home, nor were the borrowes represented by an attorney.
Importantly, this was no ordinary balloon note. A balloon payment of $107,000 would be due after Ms. Jefferson made 360 monthly payments ranging from $1,144 to $1,582 and totaling an estimated $550,084. The total finance charge for this Loan was estimated according to federal standards at $520,065, which is nearly four times the amount she borrowed ($144,800). Plaintiffs' expert witness explained the 40/30 product was short-lived, rare, and considered dangerous. Quicken pulled this product entirely in early 2007 - less than a year after it was introduced.
The true market value for the subject property was $46,000. During the underwriting process, Quicken ignored obvious flaws in the inflated appraisal of $181,700 and disregarded its own automated appraisal review that revealed twenty areas of concern. Further, Quicken boldly ignored the assessed value of $20,640 for the property in its file. A Quicken director even overruled an employee who briefly suspended the loan for "low appraisal issues." In the end, the inflated value was approved by Quicken, which had every intention of increasing the loan amount the borrowers requested and selling the loan on the secondary market.
Because the Quicken loan exceeded the fair market value of the home by $98,000, refinancing would be virtually impossible. Thus, Ms. Jefferson's fate and the fate of her disabled daughter, who also signed the mortgage, were sealed at the loan closing. If the loan had paid out for the 30 years, the borrowers would have paid more than half of a million dollars on the loan and Ms. Jefferson, at age 72, and Ms. Brown, at age 57, would have to come up with a lump sum payment of $107,000 additional dollars or face foreclosure.
Within months of closing the loan, and after Quicken refused to refinance as promised, Ms. Jefferson underwent surgery on an emergency basis. Ms. Jefferson was required to be off work for a few months. She advised Quicken of the same and asked for assistance. Unfortunately, Quicken was unwilling to work with Ms. Jefferson in any manner and categorically refused to make any loan modifications. Ms. Jefferson and Ms. Brown were forced to hire Bordas & Bordas to file suit and obtain injunctive relief from the trial court to avoid the immediate loss of their home. While the injunction was pending, Ms. Jefferson agreed to pay and did pay without delay $578 per month to Quicken during the extended pendency of the case - the same amount as her mortgage payment prior to refinancing with Quicken.
After years of litigation and having made no settlement offer, Quicken voluntarily waived a jury trial electing to have Judge Recht conduct the 6 day trial and subsequent hearings that began on October 5, 2009. During the trial process, the court heard from numerous witnesses and admitted more than 5,000 pages of material into evidence. In spite of Judge Recht's exclusion of pattern and practice evidence regarding four other Quicken loans to residents of the same County during the same time period, which loans were similarly based on inflated appraisals obtained by Quicken from the same tipped-off appraiser, the court found convincing evidence of Quicken's wrongdoing and ruled in favor of the plaintiffs.
Quicken has since appealed the trial court's 2 million dollar punitive damage award, which was tailored to exact an equitable punishment against Quicken for its wide-ranging misconduct in this case and to deter it from future frauds against West Virginia consumers. Quicken also appealed Judge Recht's declaration that the loan was unconscionable and, therefore, unenforceable as a matter of law. Quicken has now hired its fourth very capable law firm to help it muster an appeal to many of Judge Recht's well-documented findings. Quicken did not appeal, among other things, the trial court's conclusion that it "engaged in unfair methods of competition and unfair or deceptive acts or practices" in the following manners:
- Representing to Lourie Jefferson that she was buying her interest rate down and labeling the entire 4 points or $5,792 as a "loan discount" on the HUD Settlement Statement, when at least 1.5 points or $2,100 was nothing more than pure profit to Quicken;
- Not disclosing to Lourie Jefferson prior to closing that her loan had an enormous balloon payment and then not properly disclosing the balloon payment at closing; and
- Conducting a negligent appraisal review and approving a loan based on a grossly inflated appraisal.
Nor does Quicken take issue with the trial court's finding that it made a mortgage loan in excess of the fair market value of plaintiffs' home in violation of W.Va. Code § 31-17-8(m)(8). Further, Quicken did not object to the trial court's conclusion that it failed to make the "most pertinent disclosure" for this loan - the amount of and due date for the massive balloon payment that Quicken put into the transaction on the eve of closing the loan in violation of W.Va. Code § 46A-2-105(2). Moreover, Quicken has not appealed the trial court's finding that its misconduct rose to a level that warranted a punitive damage award under the standard of "gross fraud, malice, oppression, or wanton, willful or reckless conduct or criminal indifference to civil obligations affecting the rights of others." Finally, Quicken did not appeal the attorney fee award and in agreeing to pay the award admitted that its attorney fees were comparable to the plaintiffs' attorney fees.
Plaintiffs' counsel hopes that ATR in the future would more fully investigate a case before buying into a press release that attacks the judgment and integrity of a good, honest and intelligent judge that has served honorably for decades. One would hope that ATR would in the future at least be sensitive to a case about national lending practices that had the impact of bringing down many American businesses both large and small. The ATR does not state a single positive fact about the Brown case and completely ignores Quicken's conduct in attempting to sell the toxic Brown loan to several financial institutions, which institutions packaged these subprime loans and sold them to investors of mortgage backed securities. In fact, Quicken was still attempting to dump the Brown loan on the open market even after it later obtained a legitimate appraisal of $56,000 - over $125,000 less than the inflated value upon which it sought to profit.
For these reasons, among others, the ATR report is not credible.
