GMAC, a large mortgage lender, has been foreclosing like mad, apparently without bothering to check its facts. Here is an excerpt from a deposition of GMAC employee Jeffrey Stephen:
Q. So other than the due date and the balances due, is it correct that you do not know whether any other part of the affidavit that you sign is true?
A. That could be correct.
In short, the affidavits might as well be faked. Caught in the act, GMAC has stopped evicting homeowners and foreclosing mortgages in 23 states. Or mostly stopped, anyway.
Believe it or not, there are laws against this sort of thing. It’s just that nobody has bothered to enforce them.
A judge recently said that (PDF link) Dell “has engaged in repeated misleading, deceptive and unlawful business conduct . . . .” The case specifically dealt with Dell’s grandiose promises in its service agreements, on which it did not deliver. Judge: “Dell Has Engaged In Repeated Misleading, Deceptive And Unlawful Business Conduct” | Consumerist
We see a lot of this. Someone comes in for a consultation who is in trouble financially. They can’t afford mortgage payments, and so they come to see me with a story about how their mortgage broker predatorily convinced them to get the mortgage loan. As evidence, they point to their vastly overstated income on the loan application. When they do this, we point to their signature at the end of the loan application.
Was the broker breaking laws and preying on the consumer? Probably. The problem is that the consumer—on paper, at least—was complicit in the fraud, which was perpetrated primarily on the lender (i.e., the bank who actually writes the check), not on the consumer.
The moral? Don’t sign loan applications that overstate your income. If you can’t afford the loan, don’t get it. Mortgage brokers are paid at closing. They don’t care if you ever make a payment on the loan. They are not looking out for your best interests, but for their own. They are paid on commission not (usually) by you, but by the lender.
This is another reason to get an attorney of your own, but the bottom line is don’t overstate your income—or anything else—on a loan application. Instead, buy a cheaper house. Or keep renting until you can actually afford to own.
Fraud is a relatively simple concept, but takes on quite a lot of complex variants. That is why there are fraud laws for every little thing you can imagine. What follows is general information about fraud, with a view towards automobile-related fraud, and varies from state to state.
Fraud consists of the following elements:
I tried to un-lawyerize that, but words like “scienter” are still important in the legal lexicon.
A key concept that is not explicit in the elements is that nobody has to tell anybody anything (except in certain situations not generally relevant to auto fraud). However, if one does choose to disclose a fact, he or she must be accurate. Telling a prospective auto purchaser that a car has front and side airbags, for example, is a misrepresentation if the car does not. Obviously.
It is also a misrepresentation to fail to clarify a statement that is accurate but deceptive. In such a case, the speaker must clarify the statement. An example might be giving the buyer a CarFax report that does not disclose a known accident.
Actively concealing a material fact (rolling back an odometer) counts.
Even if there is no scienter, the misrepresenter may be liable under negligent misrepresentation, where it exists. I’ll get to that just a bit down the page.
Intent does not matter if the deception is “continuous.” For example, if a dealership continually labeled its Brand X cars as getting 200% of their actual mileage, intent towards a particular buyer would be unnecessary.
There is a problem when a first party (manufacturer) makes a misrepresentation to its dealers about the safety rating of its SUVS, for example, and the buyer (a third party) relies on this. Nevertheless, if the manufacturer could reasonable foresee the buyer’s reliance, then the buyer may still sue the manufacturer.
As a practical matter, reliance on a statement of fact is almost always justified. The victim has no independent duty to investigate facts. But if the victim does, he or she may no longer rely on inconsistent statements by the misrepresenter. This could be the buyer obtaining their own CarFax report, for example.
Reliance on an opinion, however, is usually not justifiable, unless the misrepresenter holds himself out as an expert, or is a lawyer making a statement about law to a layperson.
Also, unless you are talking to Bill and Ted, don’t rely on statements about the future. Nobody knows the future. An exception is when the statement of future events may be characterized as a “present interest.” A fixed interest loan over which the misrepresenting dealership has control, for example.
This is a bit different, and won’t make as much sense without a basic understanding of negligence. I’ll try to give you that basic understanding, but there is a lot of gray area. Essentially, you can be negligent only when you owe a duty of care to another, and you breach that duty. Let me get through the elements, and I’ll try to make that more clear.
Negligent misrepresentation only applies to commercial transactions. Which are car sales, of course.
Liability attaches only when the victim’s reliance could or should be anticipated. A misrepresenter is only liable, in other words, to persons to whom the representation was made or to specific persons who the misrepresenter knew would rely on the statement. It may be enough that the misrepresenter could reasonably have foreseen that the statement would be communicated to third parties, as well, but not in most states.
That is a primer on fraud. In the future, I intend to get into some of the federal statutes that also deal with fraud, auto-related and otherwise.