Mortgage lenders ordered to pay $99 million in punitive damages
A Jackson County jury Friday ordered three mortgage lenders to pay $99 million in punitive damages to Missouri residents who claimed they were charged illegal fees for second mortgages.
The jury, which had assessed $5.1 million in actual damages against the three companies earlier in the day, reconvened in the afternoon and handed down the punitive damage awards. Collectively, the awards are among the highest assessed by a Jackson County jury in recent years in a commercial case.
The mortgage companies — Residential Funding Co. LLC, Household Finance Corp. III and Wachovia Equity Servicing LLC — bought second mortgage loans from a lender that had charged excessive interest and illegal origination, loan discount, underwriting, processing, document preparation and legal fees under Missouri’s Second Mortgage Loan Act. The plaintiffs claimed that the companies knew of the lender’s fraudulent conduct and “stepped into its shoes.”
Missouri’s Second Mortgage Act limits the types and amounts of fees that can be charged in connection with high-interest second mortgage loans.
The defendants argued that they were entitled to rely on the originating lender’s assurance that its loans fully complied with state law.
The originating lender, Mortgage Capital Resource Corp. of California, is no longer in business. Its former chief executive, Kenneth C. Ketner of Newport Beach, Calif., was sentenced last year to 57 months in prison for mortgage fraud and ordered to repay banks he swindled $9.27 million.
Hit hardest by Friday’s jury’s verdict was Residential Funding, which is owned by GMAC Mortgage Group and 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 was disappointed by the jury’s decision.
“We believe the punitive damage award is unwarranted and out of line considering that our company acted consistent with industry practices,” he said.
“Therefore, we plan to appeal. The loans in question were originated by Mortgage Capital Resource and deceptively sold to our company. Residential Funding Co. promptly severed its relationship with Mortgage Capital.”
The jury also 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.
Lawyers and officials with those companies could not be reached for comment.
The case was filed in 2003 by Blue Springs residents Steven and Ruth Mitchell and St. Louis resident Judith Pickerill.
The Mitchells obtained a 15-year, $21,000 mortgage loan from Mortgage Capital, according to the lawsuit. They said they were charged 10.85 percent interest and $2,850 in upfront fees.
Pickerill obtained a 15-year, $29,600 loan. She said she was charged 11.6 percent interest and fees totaling $2,551.
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 a total of 324 Missourians qualified as members of the plaintiff class.
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