A mortgage class action is a lawsuit against the mortgage industry in the US, where a group of plaintiffs with individual claims are certified as a class to pursue mortgage loan claims. It is a popular tool for consumer disputes, but banks and mortgage companies have fought against it. Some courts have allowed class certification, while others have not. The feasibility of the mortgage class action is a question that could be addressed by the US Supreme Court for a final decision.
A mortgage class action is an established civil lawsuit against the mortgage industry. A group of plaintiffs with individual claims is certified as a class so they can pursue mortgage loan claims in a court case. While theoretically possible in any jurisdiction that allows class actions, this type of case is specific to the United States, developed in response to the housing boom of the early 2000s and the subsequent recession and housing crisis that occurred at the end of the decade.
Class action certification is a popular tool for consumer disputes in the United States. Individual plaintiffs, who may not have a cause of action on their own that would justify the cost of litigation, are aggregated and their issue is contested by a representative case. Judgment potential has increased to accommodate the entire group. This way, the court gets some consistency and efficiency in deciding a case instead of having a multitude of cases winding their way through the system in various jurisdictions.
The mortgage industry had not been the focus of major class action before the US housing crisis in the late 2000s. When the lax mortgage standards and unscrupulous lending practices that drove the housing boom turned into a widespread consumer defaults, borrowers have thought about using the Truth in Lending Act to write off mortgages with deceptive adjustable rates and clerical errors in loan documents. The ability of individual borrowers to exercise their rights under the law was sporadic, and experienced lawyers tested class action mortgages as a way to obtain wholesale compensation.
Banks and mortgage companies have fought aggressively against the notion that a mortgage class action is a suitable vehicle for individual redress under the Loan Truth Act. Some courts have agreed. The remedy in this type of class action would require cancellation of the loan and repayment of all interest, costs and fees associated with the loan. A single court case purporting to establish this type of liability in a different class would make it much easier for consumers to get loan forgiveness, but it would be a major blow to the mortgage industry.
Some U.S. state and federal courts have allowed class certification of a mortgage class action, while other federal and appellate courts have not or have reversed previous decisions. The fulcrum is whether the court believes a class representative can adequately understand the multitude of possible individual circumstances that could surround a loan made and subsequent default. No such case in the United States has yet found its way to trial. The feasibility of the mortgage class action is a question that could be addressed by the US Supreme Court for a final decision.
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