Lawsuit Filed on Behalf of Homeowners Bilked by Lehmann Brothers

A class action lawsuit gets underway Feb. 26 in federal district court in California on behalf of thousands of homeowners who were bilked by one of Wall Street’s top brokerage houses, Lehman Brothers, in a scheme involving financing home mortgages.

A group of plaintiffs from Illinois and New York, however, opted out of the class and filed fraud actions Jan. 21 in Cook County Circuit Court. The lawsuit alleges that Lehman Brothers secured the loans as underwriters despite knowing of the deceptive practices of First Alliance Mortgage Company (FAMCO), the home mortgage lender which extended the loans to homeowners.

Clifford Law Offices represents the 16 individual plaintiffs in the action filed in Chicago. The complaint alleges that FAMCO marketed its loans through a sophisticated campaign of telemarketing and direct mail solicitations generally targeting homeowners with poor credit ratings, the elderly and those who may not be able to qualify for conventional home loans.

These solicitations misled consumers about the existence and amount of the loan origination fees (point) and other fees FAMCO charged which typically amounted to as much as 10 to 25 percent of the loan. Consumers also were misled about the increases in the interest rate and the amount of the monthly payments on adjustable rate mortgages. Lehman Brothers and other financial sources knew of the consumer fraud from the financing of these questionable mortgages.

"These predatory practices are inexcusable and must be stopped," said Robert Clifford, partner at Clifford Law Offices in Chicago. "It is clear that Lehman Brothers’ executives not only knew of the deceptive practices that resulted in thousands of innocent people risking the loss of their homes, but they facilitated it so that it would continue to occur."

FAMCO was sued by the Federal Trade Commission (FTC), the attorneys general of the states of Illinois, Arizona, California, Florida, Massachusetts and New York, AARP and private attorneys for unfair lending claims in federal court in California where FAMCO has filed for bankruptcy protection. The federal bankruptcy court in Santa Ana, Cal., recently approved a $60 million settlement one of the largest consumer protection recoveries by the FTC.

The class action in California is against Lehman Brothers and related entities for their involvement in the mortgage scheme. The lawsuit filed in Cook County alleges common law fraud and consumer fraud against Lehman Brothers and others who funded and financed the predatory loans made by FAMCO.

The class action lawsuit in Santa Ana, Cal., is scheduled to proceed before a jury Feb. 25. The plaintiffs in the class action are represented by Richard Scruggs and Donald Barrett of Mississippi.