Capital One Short Sale Fee Class Action Lawsuit

By Sarah Mirando | January 13, 2012

Category: Legal News

By Mike Holter

Angry California homeowners have filed a class action lawsuit against Capital One claiming the lender made them pay thousands of dollars in deficiency contributions after short sales of their homes, even though the state prohibited that in 2010.

According to the Capital One short sale fee class action lawsuit, California law used to mandate that lenders could not obtain a deficiency judgment against a borrower following a foreclosure, but could pursue one following a short sale. As a result, borrowers had little or no incentive to engage in short sales, and the practice was believed to be driving California’s spiraling foreclosure rate. California had the nation’s highest second highest foreclosure rate in July 2010, according to the class action lawsuit.

In an attempt to stem this tide, a new law went into effect on September 30, 2010 that expressly prohibited first mortgage holders from obtaining deficiency judgments following a short sale, and prevented senior lien holders from pursuing a judgment when they agreed to allow the borrower to short sale their dwelling.

“However, it quickly became apparent that where there was a second mortgage, the junior lien holder often refused the lien and the short sale never went through,” the Capital One class action lawsuit states. A second “emergency” law was put into place that also prohibited junior lien holders from obtaining deficiency judgments on short sales.

The law further mandated that “a holder of a note shall not require the trustor, mortgagor, or the maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.”

Despite these laws, Capital One has refused to comply with them and “has illegally required California borrowers to pay the deficiency on their mortgages, in addition to ‘the proceeds of the sale, in exchange for [Capital One’s] written consent to the sale,'” the Capital One short sale fee class action lawsuit states.

The Capital One class action lawsuit is brought on behalf of all California residents who paid deficiencies on their mortgages to Capital One as a requirement of Capital One agreeing to the short sale of their California-based dwellings for a sale price less than the remaining amount of what was owed at the time of sale, from July 15, 2011 to the present.

It is seeking certification as a class action lawsuit; restitution, including disgorgement of profits obtained by Capital One as a result of its unlawful acts; exemplary and punitive damages; injunctive relief; and more.

A copy of the Capital One Short Sale Fee Class Action Lawsuit can be read here.

The case is Roni J. Teson, et al. v. Capital One, N.A., Case No. 30-2011-00534224-CU-BT-CXC, Superior Court of the State of California, County of Orange.