• April 8, 2009

The so-called subprime mortgage meltdown has not only resulted in the shutdown of hundreds of mortgage lenders and mortgage brokers in Minnesota and across the country. Another consequence has been a rash of enhanced state and federal laws intended to crack down on what were viewed as sharp practices by the mortgage lending industry that harmed homeowner borrowers and, more broadly, their communities.

An earlier post on this blog highlighted The New York Times’ recognition of Minnesota at the forefront of such changes.

In that context, it is noteworthy that Judge Tunheim, U.S. District Court, D. Minn., granted Accredited Home Lenders’ motion to dismiss a putative class action brought by plaintiffs represented by Richard Fuller, plaintiffs’ counsel with considerable experience in litigation against the financial services industry. Plaintiffs’ claims did not appear particularly compelling and the plaintiffs’ bar might consider careful case-picking in the present economic environment, which would favor them if they do not overreach.

Plaintiffs’ arguments were (1) breach of contract due to the lender’s alleged treatment of loan proceeds as loan principal rather than interest, which, Plaintiffs argued resulted in an “effective interest rate” higher than the disclosed interest rate; (2) fraud due to the lenders’ failure to disclose the borrowers qualified for a lower interest rate, due to the “effective interest rate” argument, and for the lender’s alleged failure to indicate that they were not acting as Plaintiffs’ agent, (3) breach of fiduciary duty, and (4) unjust enrichment.

Judge Tunheim dismissed, but gave Plaintiffs 30 days leave to amend but, if Plaintiffs persist with the claims even similar to those in their original complaint, they face a uphill climb to survive a second motion to dismiss.

Weller v. Accredited Home Lenders, Inc., Civ. File No. 08-2798 (JRT/SRN).

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