Lenders ordered to pay $99 million to customers
KANSAS CITY, Mo. --
Three mortgage lenders have been ordered to pay $99 million in punitive damages to Missourians who claimed they were charged illegal fees for second mortgages.
A Jackson County jury on Friday also assessed $5.1 million in actual damages against Residential Funding Co. LLC, Household Finance Corp. III and Wachovia Equity Servicing LLC.
The three companies bought second mortgage loans from a lender that had charged excessive interest and illegal fees under Missouri's Second Mortgage Loan Act, which limits the fees that can be charged with high-interest second mortgages.
The originating lender, Mortgage Capital Resource Corp. of California, went out of business. Its former chief executive, Kenneth C. Ketner of Newport Beach, Calif., is serving 57 months in prison for mortgage fraud and has been ordered to repay banks he swindled out of $9.27 million.
The plaintiffs claimed that the companies knew of Mortgage Capital's fraudulent conduct and continued the practices.
The companies argued that they should be allowed to rely on assurance's from the original lender that it had fully complied with state law.
Residential Funding, which is owned by GMAC Mortgage Group, was ordered to pay $4.33 million in actual damages and $92 million in punitive damages.
"I think the jury felt that Residential Funding really enabled the conduct in question," said attorney J. Michael Vaughan of Walters Bender Strobehn & Vaughan, which represented the plaintiffs.
A spokesman for Residential Funding, Stephen Dupont, said that the company believed the punitive damages were unwarranted. He said Residential Funding's actions were consistent with industry practices and the company planned to appeal.
The jury ordered Household Finance to pay $420,489 in actual damages and $4.5 million in punitive damages. Wachovia Equity Servicing was ordered to pay $374,957 in actual damages and $2.5 million in punitive damages.
The case was filed in 2003 by Blue Springs residents Steven and Ruth Mitchell and St. Louis resident Judith Pickerill.
Because Circuit Judge Justine Del Muro certified the case as a class action, other Missouri residents who obtained second mortgages from Mortgage Capital Resource will be eligible to share in Friday's damage awards. Vaughan said his information indicated that 324 people qualified as members of the plaintiff class.
The case is one of several pending in Jackson County against mortgage companies that allegedly violated Missouri's Second Mortgage Loan Act.
About 10 months ago, one of the suits, against Memphis, Tenn.-based First Horizon National Corp., resulted in a $36.3 million settlement. The settlement covered the claims of more than 4,000 homeowners who obtained second-mortgage loans from First Horizon and Kansas City-based McGuire Mortgage Co. between Nov. 16, 1994, and April 13, 2005.