Coleman v Crossroads Lending

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Case 0:09-cv-00221-PJS-FLN Document 1

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

Margaret J. Coleman, Plaintiff, v. Crossroads Lending Group, Inc., Great Northern Financial Group Inc., and First Commercial Bank, Defendants.

Civil Action No. _____________

COMPLAINT AND DEMAND FOR JURY TRIAL

I. INTRODUCTION 1. Plaintiff brings this action seeking rescission and damages in connection

with a predatory home mortgage loan originated by Defendant Crossroads Lending Group which carried an interest rate of 14.99% and an annual percentage rate of more than 16%. Plaintiff’s claims arise under the Truth in Lending Act and Home Ownership and Equity Protection Act. II. JURISDICTION 2. Jurisdiction is conferred on this Court by 15 U.S.C. § 1640(e). III. PARTIES 3. Plaintiff Margaret J. Coleman is a 68-year-old woman who lives with her

15-year-old granddaughter, a 19-year-old woman with special needs, and 22-year-old who was formerly her foster child in a single family home she has owned for nearly 40

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years at 1184 Marshall Avenue, St. Paul, Ramsey County, Minnesota (“Ms. Coleman’s home”). At all relevant times, Ms. Coleman’s home was her principal dwelling. 4. Defendant Crossroads Lending Group, Inc. (“Crossroads”) has been

licensed as a mortgage originator by the Minnesota Department of Commerce since February 7, 2006. At all relevant times, it regularly extended consumer credit which was payable by agreement in more than four installments and for which the payment of a finance charge was required. Crossroads’ principal place of business is 300 Coon Rapids Boulevard, Suite 100, Coon Rapids, Anoka County, Minnesota, though at the time of the transaction it was 13911 Ridgedale Drive, # 475, Minnetonka, Minnesota 55305. 5. Defendant Great Northern Financial Group Inc. (“Great Northern”) is a

Minnesota corporation whose principal place of business is 300 Coon Rapids Boulevard, Suite 100, Coon Rapids, Anoka County, Minnesota. Great Northern has been a licensed mortgage originator in Minnesota since 1992. 6. Defendant First Commercial Bank (“First Commercial”) is a commercial

bank chartered by the State of Minnesota and supervised by the Federal Reserve Board. First Commercial’s principal place of business is 8500 Normandale Lake Boulevard, Suite 110, Bloomington, Hennepin County, Minnesota. IV. FACTS 7. In early 2006, Ms. Coleman was seeking to refinance her then-existing

home mortgage to obtain funds to help a family member pay legal bills. She got the name of a loan officer through a friend. When she contacted the loan officer, she
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provided him with information regarding her income and expenses, and she told him the reason she was seeking to refinance. The loan officer ultimately told Ms. Coleman that he could not assist her, but that a man named Thomas Whiteis would help her obtain a loan to meet her needs. The loan officer told Ms. Coleman to attend a closing with Mr. Whiteis on February 1, 2006. 8. As instructed by the loan officer, whose name she does not recall, Ms.

Coleman attended a closing on February 1, 2006, at the offices of 1st Advantage Title and Crossroads, 13911 Ridgedale Drive, Suite 475, Minnetonka, Minnesota. 9. The February 1st closing was conducted by Mr. Whiteis; it was the first

time Ms. Coleman had met or spoken to Mr. Whiteis. 10. Ms. Coleman did not receive any documents related to her mortgage loan

prior to the February 1st closing. 11. When Ms. Coleman saw a document that stated the amount of her monthly

payment under the loan would be more than $2,200, she told Mr. Whiteis she could not afford the payments. Mr. Whiteis told her that she would only need to make two payments on the loan and, that after two payments were made, he would give her a new loan with payments she could afford. 12. Ms. Coleman is financially unsophisticated and has trouble understanding

documents related to her finances. She believed Mr. Whiteis intended to help her, and she signed the documents he instructed her to sign at the closing.

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13.

As a result of the closing, Ms. Coleman obtained a loan in the original

principal amount of $180,000.00, which was evidenced by a Balloon Note (the “note”) and was secured by a mortgage against Ms. Coleman’s home. The note was payable on its face to Crossroads and the mortgage listed Crossroads as the secured lender. Copies of the note and mortgage are incorporated herein and attached as Exhibits A and B, respectively. 14. According to the note, the loan carried an annual interest rate of 14.99%.

Monthly payments in the amount of $2,274.56 were set to begin on March 1, 2006 and essentially covered just the interest accruing on the loan. The loan was structured so that, on February 1, 2011, after paying more than $134,199.04 in monthly payments over five years, Ms. Coleman would owe a balloon payment of $179,966.94, just $34.06 less than the original principal amount of the loan. 15. According to the HUD 1A Settlement Statement Ms. Coleman received at

the closing, the loan’s $180,000.00 principal was distributed as follows: $93,254.99 $12,000.00 $29,819.50 $14,327.77 $ 2,072.44 $12,749.92 $15,775.00 $180,000.00 to Citi Financial to Patricia Hughes to the City of St. Paul to Jasmine Keller, United States Bankruptcy Trustee to “Payoff Judgment American ACC & AD” “settlement charges” cash proceeds to Ms. Coleman total

A copy of the HUD 1A Settlement Statement detailing these charges is incorporated herein by reference and attached as Exhibit C.

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16.

The payment to Citi Financial satisfied Ms. Coleman’s existing mortgage,

and the payment to Patricia Hughes satisfied the outstanding legal bill for services provided to Ms. Coleman’s family member. Other than these charges, Ms. Coleman did not request or authorize payment to any of the remaining payees. 17. The payment to the City of St. Paul satisfied multiple home improvement

loans that Ms. Coleman had obtained from the City in 2000 and 2002. These loans were 100% forgivable as long as Ms. Coleman remained in her home for at least ten years following consummation. After ten years, the mortgages provided that the liens would be released without any payment from Ms. Coleman. 18. At the time she obtained the February 1, 2006 loan, Ms. Coleman had no

intention to repay the City of St. Paul loans because she intended to stay in her home for the duration of the ten-year period on each loan. 19. At the time Ms. Coleman obtained the February 1, 2006 loan, she did not

intend to pay the remainder of the amount owed to her bankruptcy plan in a lump sum, and she believed she was under no obligation to do so as long as she was making her regular monthly payments as provided in the plan. 20. Ms. Coleman is unaware of any judgment or lien owed by her to “American

ACC & AD” and, in fact, having recently emerged from a bankruptcy she believed herself to be judgment free. 21. No judgment lien in favor of “American ACC & AD” was ever recorded

against Ms. Coleman’s home.
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22.

Ms. Coleman is unsure of whether she received the entire $15,775.00

indicated as paid to her on the settlement statement, or whether she received only a portion of that amount. 23. Of the $12,749.92 in settlement charges associated with the loan, $8,835.50

was for various loan fees paid to Crossroads, including: $ 1,800.00 $ 5,400.00 $ $ $ $ 350.00 150.00 400.00 300.00 “loan origination fee” “loan discount fee” “document prep fee” “underwriting fee” “commitment fee” “admin fee” (indicated as paid to “Crossroads Financial” rather than “Crossroads Lending Group”) “appraisal fee” “Credit Report” “Flood Cert. fee” “courier fee” total fees paid to Crossroads

$ 350.00 $ 39.00 $ 18.00 $ 28.50 $ 8,835.50 24.

Upon information and belief, several of these charges constituted unearned

fees for which no or nominal services were provided, were unreasonable in relationship to the services provided or were not bona fide or reasonable. 25. In addition to the fees paid to (or retained by) Crossroads, $1,086.00 of the

settlement charges were paid to 1st Advantage Title Company for various purported settlement services, including:
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$295.00 $145.00 $150.00 $60.00 $55.00 $171.00 $60.00 $150.00 $1,086.00

“Settlement fee” “Title Search” “Title Exam” “Plat drawing” “ARM/Balloon Endorsement” “Draft Quit Claim Deed and RE” “Recording Service Fee” “Courier Fee” total settlement charges for services by 1st Advantage Title Company

26.

In addition to the fees set forth above, 1st Advantage Title Company

charged Ms. Coleman $550.00 for title insurance. 27. According to the settlement statement, Ms. Coleman also paid 1st

Advantage Title Company approximately $759.00 to cover mortgage registration tax and government recording fees. On information and belief, several of the recording fees were not actually paid to public officials and/or Crossroads required the services, imposed the charges or retained a portion of such fees. 28. One of the documents Ms. Coleman signed at the February 1, 2006 closing

was entitled “Notice of Right to Cancel.” It informs Ms. Coleman that she has three business days to cancel the transaction without cost. It lists the date of the transaction as January 31, 2006 and the deadline for her to exercise her right to rescind as February 3,

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2006, three business days later. A copy of the Notice of Right to Cancel is attached and incorporated herein as Exhibit D. 29. The Notice of Right to Cancel informs Ms. Coleman that in order to

exercise her right to cancel, she must send written notice to “Great Northern Mortgage Group, Inc., 300 Coon Rapids Boulevard, Suite 100, Coon Rapids, Minnesota 55433.” 30. Several of the documents and disclosures in Ms. Coleman’s loan

documents list Great Northern as the “lender,” though Ms. Coleman is unaware of what, if any, role Great Northern played in the origination of her mortgage loan. 31. Another document purportedly presented to Ms. Coleman at the closing is a

notice entitled “Home Ownership and Equity Protection Act of 1994 Federal Truth-inLending Disclosure” (hereinafter the “HOEPA notice”). A copy of this notice is attached and incorporated herein as Exhibit E. 32. Among other things, the HOEPA notice states that: a. b. c. Ms. Coleman is borrowing $180,000.00 at a fixed interest rate; The annual percentage rate on her loan is 16.413%; Regular monthly payments under the loan will be $2,274.56 for 59 months; and d. On the 60th month, a balloon payment in the amount of $179,966.94 will be due. 33. At the bottom of the HOEPA notice, it states that the signor acknowledges

that he or she originally received a completed copy of this notice not less than three (3)
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business days prior to signing the other loan documents. Ms. Coleman’s signature on the HOEPA notice is dated the same day as the closing, February 1, 2006. Ms. Coleman had not received the HOEPA notice or any other loan document prior to the closing. 34. Another document provided to Ms. Coleman at closing was a “Federal

Truth-in-Lending Disclosure” (hereinafter “TILA disclosure”). Among other things, the TILA disclosure states that the annual percentage rate on the loan is 16.413%, the amount financed is $171,339.62, and the finance charge is $142,826.36. A copy of the TILA disclosure provided to Ms. Coleman is incorporated herein and attached as Exhibit F. 35. The TILA disclosure lists Great Northern, not Crossroads, as the lender on

Ms. Coleman’s loan. 36. At the closing, Mr. Whiteis held himself out as the president of 1st

Advantage Title Company. He notarized Ms. Coleman’s signature on her mortgage and other documents that were signed at the closing. See Ex. B. 37. Crossroads purportedly assigned the mortgage to First Commercial Bank

on the day of closing or shortly thereafter. An assignment dated February 1, 2006 from Crossroads to First Commercial Bank was recorded with the Ramsey County Recorder’s Office on August 17, 2006. The assignment was signed by Thomas Whiteis as vice president of Crossroads. A copy of the February 1, 2006 assignment is incorporated herein and attached as Exhibit G. 38. A second assignment from Crossroads to First Commercial Bank is dated

February 6, 2006 and is likewise signed by Mr. Whiteis as vice president of Crossroads.
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A copy of the February 6, 2006 assignment is incorporated herein and attached as Exhibit H. 39. Ms. Coleman never received any kind of monthly statement or invoice

telling her where to make payments on the mortgage; though Mr. Whiteis contacted Ms. Coleman by telephone after the closing and asked her to send the payments to him, personally. 40. Ms. Coleman never made a mortgage payment to Mr. Whiteis, though she

believes some of her closing proceeds may have been retained by him for the purpose of satisfying the first two mortgage payments. 41. On December 19, 2008, Ms. Coleman, through her attorney, sent notice to

Crossroads, Great Northern, and First Commercial Bank informing them of her decision to rescind the February 1, 2006 mortgage loan transaction. A copy of the notice is incorporated herein and attached as Exhibit I. 42. As of the date this lawsuit is filed, Defendants have failed to take any steps

to release the security interest or take any other measures to effectuate Ms. Coleman’s rescission. V. LEGAL CLAIMS COUNT I TRUTH-IN-LENDING ACT RESCISSION 43. 44. Ms. Coleman incorporates the above paragraphs by reference herein. When entering into a consumer credit transaction that is secured by a

consumer’s principal dwelling, the Truth in Lending Act, 15 U.S.C. § 1601, et seq.
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(“TILA”), requires that creditors disclose certain key loan terms to consumers. 15 U.S.C. §§ 1602(f)-(h), 1602(u), 1638(a)-(b); 12 C.F.R. §§ 226.17-.18. 45. Disclosures that are deemed “material” include the disclosure of the annual

percentage rate, finance charge, amount financed, total of payments, and payment schedule. 15 U.S.C. §§ 1638(a) and 1602(u); 12 C.F.R. § 226.23(a)(3) n48. 46. When entering into a consumer credit transaction that is secured by the

consumer’s principal dwelling, TILA also provides that the consumer has the right to rescind the transaction for three business days following consummation of the transaction. 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(a). 47. A creditor must clearly and conspicuously disclose the consumer’s right to

rescind and provide the appropriate model form, or a “substantially similar notice,” for the consumer to use in exercising this right. 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(b). 48. If the creditor fails to provide material disclosures or notify the consumer of

his or her right to rescind in conformity with TILA and it implementing regulations (“Regulation Z”), a consumer has a continuing right to rescind the transaction for up to three years unless the property has been earlier sold or transferred. 15 U.S.C. §§ 1635(a), 1635(f); 12 C.F.R. § 226.23(a)(3). 49. Upon rescission, a consumer is not liable for any finance or other charge

under the rescinded loan and any security interest given by the consumer is void. 15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d).

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50.

Within twenty days of receiving the consumer’s notice of rescission, the

creditor must return to the consumer any money that has been given to anyone in connection with the mortgage loan and must take any action necessary or appropriate to reflect the termination of the security interest taken in connection with the transaction. 15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d). 51. Under TILA, a consumer is entitled to rescind a mortgage loan as against

an assignee of the original lender. 15 U.S.C. § 1641(c). 52. TILA applies to Ms. Coleman’s mortgage loan because Crossroads and

Great Northern regularly extended consumer credit for which a finance charge was imposed and the loan was for personal, family or household purposes. 53. other things: a. Defendants failed to provide her with proper notice of her right to rescind the transaction. The Notice of Right to Cancel provided to Ms. Coleman incorrectly lists the closing date as January 31, and also incorrectly lists the deadline for Ms. Coleman to exercise her right to rescind as February 3, 2006. Since Ms. Coleman’s closing occurred on February 1, 2006, her right to rescind expired on February 4, 2006. b. Defendants under disclosed the amount of the finance charge Ms. Coleman incurred in connection with the loan.
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Ms. Coleman had a continuing right to rescind her loan because, among

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54.

On December 18, 2008, Ms. Coleman effectively rescinded her loan by

sending Crossroads, Great Northern, and First Commercial Bank notice of her rescission as provided under Reg. Z, 12 C.F.R. § 226.23(a)(2). 55. As a result of Ms. Coleman’s exercise of her right to rescind the

transaction, Ms. Coleman is not liable for any finance or other charge imposed under the loan; Defendants must return all payments made by Ms. Coleman to anyone in connection with the transaction; and Defendants must release the security interest taken in Ms. Coleman’s home as a result of the loan. 15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d). 56. Defendants have failed to effectuate Ms. Coleman’s timely rescission, and

Ms. Coleman has suffered damages and injury as a result. COUNT II HOME OWNERSHIP AND EQUITY PROTECTION ACT RESCISSION 57. 58. Ms. Coleman incorporates the above paragraphs by reference herein. In 1994, Congress passed the Home Ownership and Equity Protection Act

(“HOEPA”) in an attempt to prevent some predatory lending practices targeted at vulnerable homeowners. HOEPA is codified as part of the TILA (mainly at 15 U.S.C. §§ 1602(aa), 1639 and 1641(d)) and it regulates high costs home mortgage loans where either the “annual percentage rate” exceeds the yields on comparable treasury securities by more than 8 percentage points or where the total points and fees exceed 8 percent of the total loan amount. 15 U.S.C. § 1602(aa); 12 C.F.R. § 226.32(a).

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59.

Ms. Coleman’s high cost mortgage loan was covered under HOEPA

because the annual percentage rate, identified by Defendants as 16.413%, exceeded the rate on comparable treasury yields - about 4.4 % at the time of consummation - by more than 8 percentage points. 60. In addition to the disclosures required by TILA for all consumer credit

transactions that are secured by a consumer’s principal dwelling, HOEPA requires additional disclosures to protect consumers from the consequences of high cost home mortgage loans. Among them, lenders must provide a special disclosure at least three (3) business days prior to consummation of a HOEPA loan warning the consumer of the consequences of the mortgage and identifying “the annual percentage rate” and “the amount of the regular monthly payment.” 15 U.S.C. §§ 1639(a)-(b); 12 C.F.R. § 226.32(c). 61. Failure to abide by the special disclosure requirements for loans covered by

HOEPA is considered a failure to provide material disclosures under TILA, and gives rise to an extended right of rescission. 15 U.S.C. §§1602(u), 1639(a)-(b); 12 C.F.R. § 226.23(a)(3) n48. 62. Ms. Coleman had a continuing right to rescind her loan under TILA and

HOEPA because Defendants failed to provide her with the special, early warning disclosure required by HOEPA at least three business days before the closing. 63. While TILA provides that a consumer’s rescission is effective against any

assignee of the mortgage loan, in the case of a mortgage covered under HOEPA an
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assignee is liable for all the claims and defenses that the borrower could assert against the original lender. 15 U.S.C. § 1641(d)(1). 64. First Commercial, as assignee of the high cost mortgage loan, is liable to

Ms. Coleman as provided under TILA and HOEPA. 15 U.S.C. §§ 1640(a), 1641(a), (c) and (d). 65. On December 18, 2008, Ms. Coleman effectively rescinded her loan by

sending Crossroads, Great Northern, and First Commercial Bank notice of her rescission as provided under Regulation Z, 12 C.F.R. § 226.23(a)(2). 66. Defendants have failed to effectuate Ms. Coleman’s timely rescission, and

Ms. Coleman has suffered damages and injury as a result.

VI. PRAYER FOR RELIEF WHEREFORE, Plaintiff prays for the following relief against Defendants: 1. Declare that Plaintiff is not liable for any finance or other charges in

connection with the February 1, 2006 loan. 15 U.S.C. § 1635(b). 2. Order that Defendants return to Plaintiff all money paid by Plaintiff to

anyone, including Defendants, in connection with the February 1, 2006 loan. 15 U.S.C. § 1635(b). 3. Declare that the security interest in Ms. Coleman’s home created under the

transaction is void, and Order that Defendants take all actions necessary to terminate the security interest in Plaintiff’s property created by the February 1, 2006 loan. 15 U.S.C. § 1635(b).
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4.

Award Plaintiff $4,000 in statutory damages against Defendants for their

failure to honor Plaintiff’s valid rescission. 15 U.S.C. § 1640(a)(2)(A)(iii). 5. Award Plaintiff actual damages in an amount to be determined at trial. 15

U.S.C. § 1640(a)(1). 6. Award Plaintiff costs of this action and reasonable attorney’s fees. 15

U.S.C. § 1640(a)(3). 7. Temporarily enjoin Defendants from prosecuting any foreclosure

proceedings against Ms. Coleman’s property while this litigation is pending. 8. Dated: Award such other and further relief as the Court deems just and proper. January 30, 2009 BEST & FLANAGAN LLP

By: s/ Daniel R. Tyson Daniel R. Tyson (# 0111557) Best & Flanagan LLP 225 South Sixth Street, Suite 4000 Minneapolis, MN 55402-4690 (612) 349-5698 THE LEGAL AID SOCIETY OF MINNEAPOLIS By: s/ Amber M Hawkins Amber M. Hawkins (#0285961) Home Ownership Protection Project Legal Aid Society of Minneapolis 430 First Avenue North, Suite 300 Minneapolis, MN 55401-1780 (612) 746-3791

ATTORNEYS FOR PLAINTIFF MARGARET COLEMAN

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