Alabama Consumer Lawyer Blog

Opportunity calls out to each of us every day. But, more often than not we fail to hear it. One day in 1998, Lilly Ledbetter of Gadsden, Alabama, heard the clarion call of justice, loud and clear.

For almost twenty years Lilly had been a loyal worker at the Goodyear plant in Gadsden, Alabama. She had risen through the ranks to a supervisory position. She was, in a word, a “company” person.

However, unknown to Lilly until one day in 1998, Goodyear had been treating her with much less loyalty than she had given it. Lilly found out that even though she shared the same pay grade, duties and responsibilities as her male coworkers, she was actually being paid 40% less for the same work.

Such is wrong on many levels. But most importantly to this discussion, it is illegal. A jury found for Lilly and awarded her back pay and damages.

But Goodyear appealed and defended not by professing its innocence but by raising a procedural issue that Lilly should have commenced her suit years earlier when its discriminatory conduct had commenced. Goodyear begged the court to find that its wrongful acts were beyond the statute-of-limitation.

In a sharply divided 5-4 opinion written by Justice Alito, the Supreme Court reversed the jury's verdict and sided with Goodyear. But Lilly Ledbetter’s judicial nightmare ended on Thursday, January 29, 2009, when the President signed the “Lilly Ledbetter Fair Pay Act of 2009.” The act legislatively reverses the Supreme Court decision and clarifies the law so that from this time forward every discriminatory pay check will restart the statute-of-limitation. That seems like common sense to most of us.

“It is fitting that with the very first bill I sign — the Lilly Ledbetter Fair Pay Act — we are upholding one of this nation’s first principles: that we are all created equal and each deserve a chance to pursue our own version of happiness,” the president said.

“Goodyear will never have to pay me what it cheated me out of,” said Mrs. Ledbetter. “In fact, I will never see a cent. But with the president’s signature today I have an even richer reward.”

Now if only Goodyear could be as gracious as Mrs. Ledbetter. Shame on you Goodyear.

Help may be on the way for Alabama consumers facing foreclosure. On Tuesday, January 27, 2009, the House Judiciary Committee voted 21-15 to send a bill designed to help consumers save their homes to the full House.

The bankruptcy reform bill will allow bankruptcy judges to cram-down residential home mortgages. The term "cram-down" in bankruptcy law means the power of a judge to reduce the amount of a mortgage to the value of the property. In the current real estate climate in which many consumers' homes are worth less now than when purchased (and mortgaged), a cram-down is the only thing that makes sense.

Republicans in Congress oppose the Democrats' cram-down mortgage proposal. They disingenuously argue that it will raise interest rates. What they fail to acknowledge is that without a cram-down law, millions of Americans will walk away from their homes leaving the banks to deal with the abandoned property which will still be worth less than the bank loaned the homeowner. The bank's losses are locked in either way.

Understanding that it is better to keep homeowners in their homes, Citigroup, one of the nations largest mortgage lenders, has split with the rest of the mortgage industry and supports the cram-down proposal for all mortgages entered into before the passage of the bill.

I am dismayed that Alabama officials have failed to take any substantive action in response to the foreclosure crisis. The economic and emotional toll that foreclosure is taking on our citizens is enormous. Imagine the emotional scars inflicted on children who lose their homes. We are fortunate that wiser leaders in Washington are now prevailing. Let us hope they act before too many more suffer.

The Truth in Lending Act mandates additional disclosures at closing for ARMs. A list of the required disclosures may be found at 12 C.F.R. § 226.19. In my clients’ case, there were a number of disclosures that were not made. For example, my clients did not receive a copy of the HUD handbook titled “Consumer Handbook on Adjustable Rate Mortgages.” Additionally, my clients were not given a historical example of how interest rate changes could affect their mortgage payments. Most importantly, in my opinion, the lender (and broker) failed to inform my clients that the initial rate of their mortgage was actually higher than the Index rate called for by the adjustable rate note.

In other words, my clients did not receive a “teaser rate” or an interest rate that is lower at the beginning of the loan. Quite the opposite, they received an interest rate that was higher than their rate would have been if it had been set by the Index.

I believe that these failures to disclose, and others too numerous to list, are material failures to disclose and therefore extend the period during which my clients may rescind their loan to three years.

Rescission is a four-step process. First the consumer must give notice that he or she is electing to cancel or rescind their mortgage loan and state the TILA violations they allege to have occurred during the loan process.

Step Two: The lender’s security interest is automatically void and the consumer is relieved of any obligation to pay any finance charges, closing costs or other costs associated with the loan.

Step Three: The Creditor has twenty days from receipt of the notice to return any money and to take actions necessary to reflect the termination of its security interest.

Step Four: Following step-three, the consumer is obligated to tender back to the lender any money given the consumer at the consummation of the loan.

As a practical matter, lenders almost always oppose a consumer’s attempt to rescind a loan. It is at this juncture that the consumer lawyer must be ready to present positive evidence that material disclosures were not made. The better prepared the lawyer, the more likely he will be able to either rescind the loan or extract loan concessions from the lender.

It is important for consumer lawyers to be creative and resourceful during these difficult times. Foreclosures are taking a serious toll on millions of Americans. I will keep you posted on the progress of this rescission action.

The right of rescission is an under utilized and little understood but powerful weapon in the consumer lawyer’s arsenal. Nothing will stop a foreclosure faster than a consumer giving notice of rescission to a mortgage company.

Most lawyers and many consumers are aware of the normal three day "cooling off" period or right to rescind a mortgage. Every consumer receives a notice of the three day right to rescind at the closing of his or her mortgage. But few lawyers know that if the lender (or the lender’s broker) fails to give all the disclosures mandated by the Truth in Lending Act, 15 U.S.C.§ 1635(a), then the right of rescission is extended to three years after the date of the loan.

The power to cancel a mortgage, at the sole option of the consumer, anytime up to three years into a mortgage loan is the “nuclear option” for an embattled consumer. Counsel for mortgage lenders have candidly told me that nothing keeps mortgage lenders up at night more than the prospect of thousands of borrowers attempting to rescind their loans.

I recently filed a rescission action for a couple in Mobile, Alabama. My clients are good people with solid work histories and no prior problems paying their debts but they were victimized by an unscrupulous mortgage broker. The broker convinced them to enter into a high interest Adjustable Rate Mortgage (“ARM”) with the promise that he would refinance them into a fixed rate mortgage in one year. However, he failed to disclose that he was receiving outrageously high fees for brokering the ARM including a “yield spread premium” in the amount of $10,800.

A yield spread premium is a commission paid by the lender to the broker for having obtained a mortgage at an interest rate that is actually higher than the lender would have otherwise offered the loan to that borrower. A lender that pays a yield spread premium of $10,800 has no incentive to refinance a loan a year later at a lower rate.