“Don’t worry about an adjustable loan or negative amortization. Look at how your property has been appreciating! That’s not going to stop; and you’ll always be able to refinance or to sell at a profit.”
Many people have said that or something like it. Most of the time, most of them were wrong. Could they be sued? Of course. You can be sued for just about anything. But, would they lose the law suit? Not necessarily. And that — to most of us, I suspect — is somewhat surprising.
Two recent California Appellate Court decisions deal with law suits where representations about the future value of the plaintiff’s real estate was a central element. The similarity of both of the complaints and the decisions merit discussing them together. One is Cansino v. Bank of America, California Sixth Appellate District, March 26, 2014. The other is Graham v. Bank of America, California Fourth Appellate District, May 23, 2014.
The Cansinos were classic serial borrowers — a species nurtured by the financing climate of the early 2,000s. In 2,000, they obtained a $280,000 mortgage (5 year fixed-rate) on their Milpitas home. In 2002, they refinanced with a $386,000 loan (fixed rate for 3 years). In 2005, they refinanced again for $496,000 (initial rate was 1%; 5 years minimum monthly payments would result in negative amortization). At that time, the lender appraised their home at $620,000. The lenders representatives “told plaintiffs their home would appreciate and they would be able to sell or refinance the home at a later date before having to make higher monthly loan payments or pay an increased principal of $620,000 which would result from negative amortization.”
According to the record, “In 2010,plaintiffs discovered that their home was valued between $350,000 and $400,000.” As of March 2012, the balance due on the loan was approximately $625,000 and the fair market value was approximately $350,000.
The Cansinos filed suit in 2011.
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