In the case Madura v. Countrywide Home Loans Inc., Full Spectrum Lending mailed borrowers loan documents to sign and the borrowers signed and returned the documents via mail.
(Of the borrowers, the husband signed the loan documents, and the wife only signed to exclude herself from the transaction.) Based on this, Full Spectrum extended a loan of $87,750 that was secured by the borrowers’ principal residence. Five days later, Countrywide Home Loans purchased the loan from Full Spectrum.
Less than eight months after closing the loan, the borrowers sought to pay the loan off in full but were advised by Countrywide Home Loans that a payoff would incur a prepayment penalty of more than $5,000.
The borrowers objected that they had never agreed to a prepayment penalty and demanded to be provided with a copy of the documents Countrywide claimed obligated borrowers to the penalty.
Countrywide allegedly refused to provide such a document but did provide copies of other loan documents purportedly signed by the borrowers.
According to court documents, a forensic document-examiner found that the borrowers’ initials appeared to be forged on the documents that were provided by the lender. Without acknowledging forgery, Countrywide agreed to waive the prepayment penalty but refused the borrowers’ demand to rescind the loan.
The borrowers brought state and federal court claims against Countrywide, alleging forgery and fraud, among other things, and seeking statutory damages for violations of the federal Truth In Lending Act (TILA). At the district court level, the husband’s claims were compelled to arbitration, under the terms of his loan documents.
The wife’s various claims were dismissed for having been already determined in the state court action to lack standing (as a non-borrower), to be barred by the one-year statute of limitations, and to lack damages (inasmuch as the lender had waived the prepayment penalty). …CONTINUED
The appellate court affirmed the district court’s ruling granting the lender’s motion to compel the husband’s claims to arbitration. The Court of Appeals rejected the husband’s argument that he was fraudulently induced to enter into an arbitration agreement, citing the fact that he did not deny having signed the arbitration agreement.
The court did not rule on the husband’s argument that Countrywide’s alleged forgery of two documents within the loan document package invalidated the entire set of documents, including the arbitration agreement; rather, the court determined the issue of whether the entire contract was invalid was a matter that should be arbitrated, citing precedential case law.
The court also rejected the husband’s argument that arbitration would be so expensive as to render it inaccessible to him, referencing the arbitration-fee clause of the lender’s loan document package and the arbitrator’s fee schedule, including fee-shifting provisions that could require husband to pay as little as $125 to initiate the arbitration.
The lower court’s order compelling the husband to arbitrate his claims was affirmed.
Because the wife’s state suit "(1) resulted in a final judgment on the merits; (2) by a court of competent jurisdiction; and (3) was between the same parties as this federal action," the Court of Appeals also affirmed the district court’s dismissal of all of her claims.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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