Bank loses lawsuit

Loan terms fooled Cedarburg couple

by Paul Gores

Milwaukee Journal Sentinel — January 16, 2007 — A federal judge in Milwaukee ruled Tuesday that a Cedarburg couple can rescind their adjustable-rate mortgage with Chevy Chase Bank because the bank failed to clearly explain how the loans would work.

U.S. District Judge Lynn Adelman also certified the case as a class-action lawsuit, creating the possibility that others with similar "option ARM" loans from the Bethesda, Md.-based bank can get out of their mortgages.

People who took out the loans will be able to get back closing costs and the payments they made to the bank, said Milwaukee attorney Kevin J. Demet, who represented homeowners Susan and Bryan Andrews of Cedarburg in the case.

"The significance of the ruling, of course, is that all of their documents became invalid because they didn't make the proper disclosures," Demet said.

David Cynamon, a Washington, D.C., attorney representing Chevy Chase Bank, said he couldn't comment Tuesday afternoon because he had just received a copy of the decision.

According to Adelman's decision and order document:

When the Andrewses took out a refinance loan of about $190,000 with Chevy Chase Bank in 2004, they believed the interest rate of 1.95% was fixed for five years, as was the $701 minimum monthly payment. However, that rate turned out to be a "teaser" rate that applied only to the first month, and the rate then increased every month. As a result, an "ever-increasing" portion of the minimum monthly payment was needed to cover interest, and the payment itself soon became insufficient to cover interest that accrued.