The Coming Mortgage Litigation Tsunami

I believe that I've covered it before in passing, but this is, I believe, the first court case in which a court has canceled a loan for deceptive practices.

They plaintiffs thought that they had gotten a loan that was fixed for the first 5 years, but rates went up after the first year:

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The lawsuits filed by attorneys general in California, Florida, and Illinois use much the same theory.

It's based on the 1968 Truth in Lending Act, which requires clear disclosures of terms, and allows for, "rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation."

Needless to say, the banks are freaking, though I would ask why any ethical mortgage banker would have anything to fear.

This one's going to the Supreme Court, where I expect them to rule in a 5-4 split, that only little people have to follow the law.