Homeowner May Sue for Lending Fraud by Mortgage Insurer, Seventh Circuit Rules


In a case based on the federal Truth in Lending Act (TILA) and Illinois Consumer Fraud and Deceptive Business Practices Act, the Seventh Circuit has ruled that a victim of a bait-and-switch scheme for title insurance may sue his lender. Doss v. Clearwater Title Co., No. 07-2400 (7th Cir. Dec. 24, 2008). Charles Doss refinanced his mortgage in 2004, using a company called The Loan Arranger that did indeed arrange a loan for Doss with Franklin Financial Company. Franklin asked Doss to get title insurance, which he did through Clearwater Title Company.

Clearwater turned out to be an unlicensed company with a secret affiliation with The Loan Arranger. Doss was told via closing documents that the title insurance cost was $500, but was actually charged $1,470. In late 2006, Doss sued all three companies plus JP Morgan Chase, which held his mortgage, and Saxon Mortgage Services, Inc., which serviced it. However, Chase and Saxon had filed for foreclosure against Doss earlier in that year, and in response to the lawsuit, filed papers claiming that Doss had no claim because he had already sold his home. Doss replied that their quitclaim deed was a forgery and that indeed, he had filed documents showing he was still the owner. The trial court sided with Chase and Saxon and dismissed the homeowner’s claims.

Doss appealed; while the appeal was pending, an Illinois trial court found that the property had not changed hands. The Seventh Circuit first examined the claim by Chase and Saxon that the trial court had no jurisdiction under the TILA because Doss had sold the property. That was irrelevant, the court said, because the question was whether Doss had actually sold the property. On the dismissal itself, the Seventh found that the trial court should have treated the sale allegations by Chase and Saxon as a motion for summary judgment, which would have given Doss a chance to present and support his own assertions. This would have led the trial court to conclude that there was indeed a genuine issue of material fact in the case and continued the litigation, the opinion said.

Thus, both the TILA claim and the state claims that were dismissed alongside should be reinstated, the appeals court concluded. The court reversed and remanded the decision. Along the way, it noted that defendant Franklin was in a state of ambiguity. Clearwater and The Loan Arranger had settled with Doss, but the court had entered default judgment against Franklin. Franklin moved to set it aside, but that motion was mooted when the trial court dismissed the case. The appeals court, expressing no opinion on the motion’s merits, pointed out that the default judgment was still in place.

Violations of the Truth in Lending Act are a type of billing fraud — one that may go unnoticed because of the complexity of loan documents. Federal TILA claims are on the rise, due in part to the financial crisis in the mortgage industry. Consumer protection law firm Lubin Austermuehle represents consumers who have been harmed by violations of the TILA or other types of billing fraud, including unauthorized charges on bills from hotels, health clubs and more. Based in Oak Brook, Illinois and Chicago, our Oak Brook and Chicago civil litigation lawyers represent clients from all over the Chicago area including Naperville, Aurora, Highland Park, Northbrook, Wilmette, Wheaton, Joliet and Waukegan and throughout Illinois and nationally. To speak with us about a possible violation of your own rights as a consumer, you can contact us through our Web site for a free consultation.

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