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Financial Services Law Insights and Observations

California Federal Magistrate Judge Grants Class Certification in TILA Case Against Mortgage Broker

State Issues

On January 22, a California federal magistrate judge granted class certification in a case against a California mortgage broker accused of fraud (based on concealment of relevant facts) and of violating the federal Truth in Lending Act (TILA) and California’s Unfair Competition Law. Lymburner v. U.S. Fin. Funds, Inc. No. C-08-00325 (N.D. Cal. Jan. 22, 2010). The plaintiff, who obtained an IndyMac Bank 5-year fixed payment adjustable rate mortgage from the defendant mortgage broker in November 2006, alleged that the loan closing documents omitted certain information regarding interest rates and the applicability of negative amortization. In certifying the class, the judge determined that there was a class of as many as 121 borrowers, all with common issues of fact regarding disclosures in the loan documents. The court rejected the defendant’s argument that the claims of the proposed class were not “typical” because the availability of rescission would have to be examined individually for each class member. Additionally, the court found that there were common questions of law and fact predominant among the class members because (i) regarding the TILA claim, there was only one version of the loan documents, and (ii) regarding the fraud claim, the allegations regarded the disclosures on the loan documents of all of the class members – not individual representations made about the disclosures. Additionally, the court rejected the defendant’s argument that the plaintiff’s claims were subject to an “unclean hands” defense because the plaintiff misstated her income on the loan application. The court reasoned that the presence of this possible defense was not a basis to deny class certification.

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