New tack in fighting mortgage fraud: suit names banks as defendants

A Monroe County (Pa.) homeowners association filed a $1.5 billion lawsuit against two developers, two appraisers and 25 financial institutions last week in federal court in Pennsylvania.

The County, the second fastest growing in the state, has been beset by allegations of mortgage fraud, with developers alleged to have lured poorer New York city area renters to new homes worth far less than the loans the buyers were talked into signing on to.

An eight-month study released last week by state officials found staggering foreclosure statistics in the area; of some 6,100 homes in various stages of foreclosure there (one of five in Monroe County) many of the homes are occupied by former renters from Brooklyn and Queens.

The latest lawsuit claims the defendants, including the lenders as institutions, colluded to violate various state and federal laws, including requirements for a good-faith estimate of total closing costs.

The attorney for the plaintiffs said that buyers were misled by not being informed of the additional cost of escrowed real estate taxes, homeowner's insurance and mortgage insurance. He told the Allentown Morning Call that the servicing lenders to whom the loans were sold were duped, too.

"The builder knows, the mortgage broker knows, the bank knows, but they want the deal," the attorney said. "They were fodder so a builder could get money."

So far, three appraisers have lost their licenses and several others have been disciplined in conjunction with the state's investigation into mortgage fraud practices in the area.