Can We Sue Credit Card and Mortage Companies?

[crh3675]

That's only a rhetorical question but brings in some thought. The reason for this post is because my family and I were living in a moderate income area as one of the higher incomes over 4 years ago.

We lived in a townhome that I paid only $97,000 for in Montgomery County Maryland. Our mortgage was $780 per month. We were living quite well with such low expenses.

When the economy "boomed" and housing prices went up, we, as did many, got excited when we learned our piddly townhome was worth $225,000! Of course, sell, sell sell! And we did, within 1 week of our listing.

I always kept clean credit, above a 740 and could get approved for ANYTHING. Based on my credit alone with only an income of $72,000, I got approved for a $375,000 loan for a new home. If you do the math, you will find that a purchase of that cost easily takes up more than 51% of my monthly income: $4500 monthly take home after taxes vs $2300 mortage.
The loan to income ratio for a mortgage or rent should be no more than 35% of an monthly income. We had $750 in car loans per month at this time as well.
THIS LOAN SHOULD HAVE NEVER BEEN APPROVED!

Seeing as we moved into a much bigger house, we needed to furnish the house. We had money from our townhome so that helped a lot. But that went quickly. Maybe we overspent a little but we were so excited about our first single family home.

After a year, we got a letter from our lender offering a Home Equity Loan. More money? Inexpensive payments? Sure, we could use that to do some things in the house or even pay off some bills; so we did.
THIS LOAN SHOULD HAVE NEVER BEEN APPROVED!

So at that point we have a $352,000 mortgage(minus our initial deposit for the home) plus a $52,000 HELOC. That HELOC was used to payoff some older debts and do some work to our house. So, we now are up to a $404,000 obligation.

Since my credit was so excellent, we had credit card companies sending us 2-3 pre-approval notices per day. Most were thrown away but we kept a couple as they had good benefits.

We used the credit cards for "impulse" shopping and things we really didn't need; most people do. However, never during that time did a credit card company do a review and say "Gee, they sure are racking up a lot of debt." Instead, they were increasing our limits exponentially, $5 - $10k every couple of months.
NONE OF THESE CARDS SHOULD HAVE EVER BEEN APPROVED!

Ultimately, so caught up in "living our dream" in our first single family and with plenty of naive spending, we managed to charge-up over $64,000 in credit cards.

NOT ONCE DID A SINGLE CREDIT CARD COMPANY SAY "STOP". And why should they? They are making so much money on interest, they don't care.

I actually had to call a card and tell them to drop the limit from $27,000 to $5,000. Ultimately, it all caught up with us -- and quick. Not only did it all catch up, we had a lightening strike at our house which killed the internet, tv and cable for a week. Since I was doing some additional consulting work to help pay off these debts, I lost a week of work (about $500). To make things worse, during that week, I lost my 2 consulting gigs since I could not revive files that were fried on my laptop and backup server.

Everything snowballed after that with the economy being hit hard. And now, I have a $397,000 mortgage to pay, $64,000 in credit cards and extra bills from certain companies that insisted that we pay for damaged equipment from the lightening strike.

Note: Managing credit is a huge responsibility and I don't need anyone telling me that we were stupid and irresponsible as I am aware of how we got here. What I am looking for is an answer to:

"Can we sue credit card and mortgage companies for negligent lending?"

Maybe "negligent" isn't the word but I hope you understand.

[magyar123]

Short answer: You can try but don't be surprised if you don't get anywhere in your suit. Your lenders based their lending decisions on the financial information that you provided to them at the time.

[banca rotta]

Chances are even if you were to win which I doubt very much, they don't have any money anyway to pay you.

[Flamingo]

The problem with your scenario which is also the scenario of many, many other families in this country, is that the negligence does not lie only with the mortgage or credit card companies, it also lies with the borrower(s). Many folks just do not want to own up to the fact that they are in the position they are in for just not being good at finances and don't know how to manage money. It's the typical American scenario - live big, live well and live beyond your means. This economy will change all this as we all can see. We are realizing you just cannot live beyond your means or expect the ride to last forever. There was a Letter to the Editor in our newspaper the other day from someone who was livid that their family has lived within their means and never overextended with credit or mortgages, paying cash. She questioned why no one is there to help her family as prices rise and values fall but those that lived beyond their means and got into trouble are getting all sorts of help. What picture does that paint? The Letter was excellent and eye opening and it is the view of the folks out there feeling all this also but have been smart in handling their money.

Credit is based on your standing and record at the time YOU apply for credit. No one stood with a gun at your head to sign the applications. You also, as everyone else, could have said "No," this doesn't feel right - I want to investigate further or do my homework if I can really afford this.

Just because the guy in the carnival booth tries to hawk you over to win the cheap stuffed toy for your child/spouse/significant other, doesn't mean you have to go do it.

What happened to you is that you as others got caught up in the moment and the balloon eventually burst. Many invested well during the good times and are doing well now and some did not jump on the credit train and are doing well. The rest are drowning.

To answer your question in a nutshell, you may find an attorney somewhere willing to take on the creditors and mortgage company(ies) for you but with all the documents you signed and your own admission you could afford it at the time and overspent is not the fault of the creditors or mortgage company. They based their lending on the risk of lending to you and you appeared not to be high risk. Learn from this economy and scenario and I hope things turn around for you. Unfortunately, I don't think you have an easy way out as most of us who went through similar situations have found out.

[crh3675]

Bankruptcy is such a hard option and I hope it doesn't come to that as truthfully, it would do us no better than what we working on now with the credit companies. Can anyone out there say that Bankruptcy was a good option?

In our situation, does anyone have an opinion that it would be a viable helpful option?

[fltoo]

I am mainly responding because of your "other option" question.

Flamingo sugar coated her answer, but I am going to be quite frank. We don't need more frivolous law suits. You are solely responsible for your situation, not the banks or cc companies.

That said, a business associate of mine went another route since there is no way he could file BK due to his career. He owns 4 upside down houses and has 100K in cc debt.

As he is, you need a large salary or lots of cash, must be insolvent so as not to incur income taxes, check out your state garnishment rules, and be able to negotiate without emotion to pursue this option.

He has been quite successful to date....4 months in...

Bank of America settled for .20 on the dollar.
Citi has settled for .20 on the dollar.
One bank settled a home equity loan of 57K for 6K and removed the lien on the property.
He is presently negotiating with mortgage companies holding first liens, one other HE loan, and the rest of his credit cards.

Good luck to you if you pursue this option.

[Flamingo]

Bankruptcy is such a hard option and I hope it doesn't come to that as truthfully, it would do us no better than what we working on now with the credit companies. Can anyone out there say that Bankruptcy was a good option?

In our situation, does anyone have an opinion that it would be a viable helpful option?

fltoo is right - I usually do not sugar coat answers but sometimes I do because some folks just take things the wrong way and come back in anger because when there are financial problems/BK involved, emotions run high and no one wants to face reality even as it bombards them head on. Anyway, as fltoo stated, after you have not paid your bills for a while you can attempt to settle with your creditors. Remember, though, that you will receive a 1099 in the tax year the debt was forgiven for the amount forgiven that you will have to include on your tax returns for that year. Tax wise that may work for you in the long run if you can afford the extra taxes compared to the cost of the forgiven debt. If you can prove you were insolvent at the time of the forgiven debt to the IRS, you won't have to pay taxes; however, to do that I suggest getting a tax professional to review everything because your chances of getting audited if you do that are extremely high.

I just wanted to state to you in my initial postings that we are basically responsible for what we sign. Typical folks in bad financial ways tend to blame everything else or everyone else for their situation. After it is all over, you finally realize it was all your own fault but you can blame society in general for everyone wanting to try to outdo their neighbor and everyone have the best and latest toys or gizmo that comes out and thinking less of you if you don't have it.

Best of luck to you!

[HHM]

I love the mentality (and I am not going to sugar coat it), suing someone over a decision YOU made. No different than the lawsuits against McDonald's for making someone fat. Last I checked, it was the customer that is required to order the double quarter pounder and put it in there mouth.

THIS LOAN SHOULD HAVE NEVER BEEN APPROVED!

How about, THIS LOAN SHOULD NEVER HAVE BEEN APPLIED FOR!

[FLBK7]

i love the mentality (and i am not going to sugar coat it), suing someone over a decision you made. No different than the lawsuits against mcdonald's for making someone fat. Last i checked, it was the customer that is required to order the double quarter pounder and put it in there mouth.

How about, this loan should never have been applied for!

bingo.

[Flamingo]

I love the mentality (and I am not going to sugar coat it), suing someone over a decision YOU made. No different than the lawsuits against McDonald's for making someone fat. Last I checked, it was the customer that is required to order the double quarter pounder and put it in there mouth.



How about, THIS LOAN SHOULD NEVER HAVE BEEN APPLIED FOR!

LOL! That's great!

[chloe0724]

I need to chime in on this. I work for a large bank. Have been in baking my entire working life. Even with working in the industry, I got into the same trouble as the OP.

I know how easy we were extending credit to people. We were doing mortgages for people with an 80/20 loan and a DTI of 51%. The money was too good for banks and other lenders to look the other way. I even remember when we gave you a credit card at your mortgage closing where the rate was tied to your mortgage rate just for you to buy furniture.

I know fully that myself and everyone else out there that took advantage of the easy credit has the bulk of the responsibility, but (knowing from working on the other side) banks pushed the hard sales line and basicly were giving credit cards and mortgages away.

Today, the bank I work for has done a complete 180. Now, in order to get a mortgage, you need at least a 740 credit and can have no more than 35% DTI and depending on what zip code yo live in , you need as much as 35% down.

And no, I don't think suing the companies would do any good. As stated before, you signed a contract and based on how the world worked at that time, you were given the vredit.
The blame goes both ways.

[Flamingo]

(big posting snip...) And no, I don't think suing the companies would do any good. As stated before, you signed a contract and based on how the world worked at that time, you were given the vredit.
The blame goes both ways.

Sure it does...the banks/brokers are in business to make money and anyone in retail, sales or banking can tell you that is what they are in business for and with the deregulation that took place over the past eight years, anyone would take advantage of that; BUT, many folks today just lack the financial/monetary skills/education to realize that if they spend more than what they make, or if they don't have enough savings put away in case of a job loss to pay those high bills, that they could be in trouble. Then they blame everyone else but themselves. That's an undeniable fact as we all have been through it or see it on here. So besides suing the creditors/lenders, we could possibly sue our parents for not teaching us financial skills, our schools/colleges for not providing enough financial educational courses and the government for deregulation.

What has happened all around is that this country went on a big dollar ride with some folks making out well and continuing to do well while others saw what was happening a few years ago and started making changes to their portfolios and getting out of stocks and quit buying while others not knowing what was going on hit rock bottom. Now is the time to sit down with your children and explain how it all works and that it is their fault if they mess it up.

I had to laugh at what I heard on TV yesterday - I think it was on Jay Leno or one of the other late night shows and repeated on another program - "AIG - stands for Association in Greed." Sums it all up very nicely.

[fltoo]

Ok, so the blame works both ways now. Is this like being just "half" responsible?

Let's get back to the McD scenario. You sue them for making you fat because you ate the cheeseburger every day. Sure, it is your fault for eating it, but McD shares the blame because they advertised and gave you, "buy one burger, get one free."

[HHM]

I don't mean to imply the companies have no blame, but you really can't blame them for the decisions of the consumer. Companies of all types make products available, but it is up to the individual to decide to use those products. Short of actual deception or danger, a person cannot really get around their personal responsibility for the choices they make by blaming a company that made a product available.

[chloe0724]

So besides suing the creditors/lenders, we could possibly sue our parents for not teaching us financial skills, our schools/colleges for not providing enough financial educational courses and the government for deregulation. 

What if our parents didn't know any better? I know that the consumer always had the choice, but hindsight is always 20/20. So much of the world saw only a potential for growth and never saw this coming.