Homeowners whose mortgages fizzled fight back with class-action lawsuit

When Luis Armando Benito purchased the home on Cherry Canyon Avenue in October 2004, the Las Vegas real estate market was still skyrocketing toward the stratosphere.

The four-bedroom, two-bath home's $475,000 price was high, but Benito was able to secure an adjustable rate mortgage with surprising ease from Indymac Bank. It appeared his dream of home ownership had become a reality.

A few months later, Benito was aroused from his reverie. It's a story that's become hauntingly familiar in a state that leads the nation in home foreclosure. When Benito's ARM came due and his interest rate went up, his mortgage payment doubled.

He didn't give up without a fight. He swore he hadn't been made aware of the potential danger of taking out an ARM. He spent hours on the phone attempting to get help from the mortgage company. He wasted money on a company claiming to be able to negotiate with the bank.

Making Benito's efforts infinitely more difficult was the fact Indymac was closed by the Office of the Thrift Supervision on July 11, 2008. The Federal Deposit Insurance Corp. was appointed receiver. (Indymac's loans are now serviced by Indymac Mortgage Services, a division of OneWest Bank.)

His dream became a nightmare, and his home was foreclosed on through a trust deed of sale in November 2008. A month later, the home was re-sold for $265,451. Although Benito tried to fight the foreclosure, he was evicted in late May.

Today, Benito and other locals with Indymac mortgages are fighting back -- and making progress. They have joined a federal class-action lawsuit against Indymac Mortgage brought by attorneys Matthew Callister and Brooke Bohlke. Their clients' homes range in value from $150,000 to more than $1 million.

Among many allegations, the attorneys contend OneWest "breached the loan agreements/contracts by failing to disclose the following: APR, method of determining the finance charge, balance, actual finance charge, total payments, amount financed, number of payments, and due dates. OneWest breached the loan agreements/contracts by doubling Plaintiffs mortgage payments when the mortgage 'arms' came due."

Although they come from vastly different backgrounds, the homeowners share a common story of how creatively they were qualified for their loans. Some of the loan documents contained more fiction than a Stephen King novel.

One homeowner who earned $160,000 a year saw that figure placed in the gross "earnings-per-month" category. Another with a job paying $16 per hour somehow managed to qualify for a $380,000 house.

Most were buried after their ARM doubled their monthly payment.

When they sought to renegotiate their loans, according to the complaint, they were met with a wall of indifference. When the company went into receivership and changed hands, it was nearly impossible to find someone in authority to take a call.

"This explains why no one can get through on the phones," Callister says.

The multibillion-dollar federal bailout of the mortgage industry compels banks to negotiate with homeowners and modify loans. Callister says, "If you take federal bank bailout funds, you must participate in the mortgage modification program."

Problem is, those Troubled Asset Relief Program checks cleared long before the banks were prepared to renegotiate thousands of home loans. And no one in authority in Washington stopped the clock as people lost their homes across the country. There simply hasn't been enough pressure from Washington to ensure a speedy process. The longer mortgage companies delay renegotiating, the more homeowners get buried.

At least in this case, some Southern Nevada homeowners refuse to be steamrolled.

In September, U.S. District Judge Philip Pro signed a stipulation extending the preliminary discovery process another 90 days. Indymac/OneWest will have until Jan. 15 to reply. Meanwhile, all action against the more than two-dozen homeowners battling it out with a mortgage giant is frozen.

The list of homeowners taking action grows as they learn about the lawsuit.

"Somebody's got to bite the bullet and say, 'We're going to freeze foreclosures on single family homes,'" Callister says. "If it takes the court system's intervention, then so be it."

Once a troubled Indymac borrower learns of the lawsuit, Bohlke says, "We've been able to stop foreclosures with 24 hours' notice."

With about 1,000 Indymac mortgage loans heading into default in Southern Nevada alone, the phones at the law office figure to keep ringing for some time to come.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith.