Service Members Reach $2.2M Class Action Settlement With CitiMortgage

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CitiMortgage Inc. said that it agrees to a $2.2 million class action settlement from a class action lawsuit alleging that the bank violated the Servicemembers Civil Relief Act by charging former service members more than the six percent interest rate as required under the law.

Plaintiff Raymond Wray has filed a motion asking a South Carolina federal court to certify the proposed class, appoint class counsel and grant preliminary approval to the class action settlement.

The $2.2 million class action settlement agreement was reached weeks following a Justice Department decision that CitiMortgage will pay $15 million to service members whose homes were foreclosed-upon.

The CitiMortgage class action settlement gives the 4,300 proposed class members $150 each, with $1.6 million going to attorneys fees.

Wray filed this class action lawsuit, alleging that CitiMortgage adopted administrative polices and procedures when calculating interest rates for service members, which violated the SCRA.

“SCRA mandates, in a relevant part, that: ‘An obligation or liability bearing interest at a rate in excess of 6% per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6% […] during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage,'” court documents state.

Wray claims in his CitiMortgage class action lawsuit that he purchased a home in North Carolina in June 1997 and took out a loan for $68,800 with Ameritrust Mortgage Corporation with a 12.99%  yearly rate to be paid with his fixed-rate mortgage.

Ameritrust was later assumed by CitiFinancial Mortgage Company, which as later assumed by CitiMortgage.

Wray joined the U.S. Army in September 1999 and continued to serve in the Army until March 2013. In September 2002, Wray asked that CitiFinancial make it so that his loan complied with the SCRA. As a result, CitiFinancial reduced Wray’s monthly mortgage payment to $418.36.

“This reduction, made retroactive to February 1, 2002, gave Wray an effective 6 percent interest rate by re-amortizing Wray’s outstanding balance as if it were a loan bearing a stated rate of 6 percent,” the class action lawsuit explained.

However, after CitiMortgage assumed CitiFinancial in 2006, “CitiMortgage began applying an ‘interest subsidy’ method to Wray’s loan instead of the 6% stated rate method previously used by CitiFinancial,” the class action lawsuit claimed.

“Under the subsidy method, CitiMortgage calculated the difference in interest from Wray’s contractual interest rate and a 6% rate and CitiMortgage paid the difference,” Wray alleges.

“In September 2012, CitiMortgage stopped applying the subsidy method to Wray’s Loan and instead re-amortized Wray’s outstanding balance as if the loan had a stated rate of 6%.”

“Wray alleges the subsidy method violated the SCRA by effectively charging him interest in excess of 6 percent on his monthly mortgage payment and thereby reducing his principal balance more slowly than would have been the case had CitiMortgage continued to apply the stated rate method,” the CitiMortgage class action lawsuit stated.

“Wray alleges he enjoys substantially less equity in his home than he would enjoy if CitiMortgage had continued applying the stated rate method.”

However, “CitiMortgage disputes Wray’s claims, denies that subsidy fails to comply with the SCRA, and contends that Wray reduced his principal balance faster under the subsidy method than he would have if the stated rate method had been applied,” the class action lawsuit states.

Those service members who are receiving compensation through the Justice Department are not disqualified from benefiting from this class action settlement.

The class is represented by Richard A Harpootlian and Christopher P Kenney of Richard A. Harpootlian Law Office.

Citi is represented by B. Rush Smith III and Sarah B. Nielsen of Nelson Mullins Riley & Scarborough LLP and Lucia Nale, Debra Bogo-Ernst and Christopher Comstock of Mayer Brown LLP.

The CitiMortgage Class Action Lawsuit is Raymond Wray v. CitiMortgage Inc., Case No. 3:12-cv-03628-CMC, filed in the U.S. District Court for the District of South Carolina, Columbia Division.