Countrywide wants McGraw's case moved to federal court

Kelly Holleran Sep. 19, 2008, 1:40pm


CHARLESTON, W.Va. (Legal Newsline) - Countrywide has requested more time in a case West Virginia Attorney General Darrell McGraw brought against it last month over mortgage loans made to homebuyers.

The company would also like to see the case removed to federal court.

In a Sept. 16 filing, it has stipulated it be allowed until Oct. 3 to respond to a complaint filed Aug. 12 in Putnam Circuit Court by McGraw.

In a separate filing, Countrywide gave five reasons why the case should be removed to federal court.

First, the company claims the case involves questions of federal law including whether the company violated a mandate that requires it to disclose certain facts to consumers before making a loan.

The court will also be charged with determining whether the West Virginia Legislature authorized McGraw to bring the claim, the "Notice of Removal" states.

Because Countrywide is acting under a federal officer, the case should be moved to federal court, according to the second reasoning in the removal.

Both the Department of Housing and Urban Development and the Department of Veterans Affairs regulate federal programs that promote the availability of mortgage loans to some people through mortgage insurance, the removal states.

Countrywide claims mortgage loans are also federally insured.

Under its third basis for removal, Countrywide claims the suit is a class action.

"It is a representative action brought by one party (the State) on behalf of others (West Virginia consumers)," the removal states.

Fourth, Countrywide claims the case should be removed from circuit court based on bankruptcy laws.

Since some of the suit's claimants have declared bankruptcy, claims belong to the estates of the bankrupt borrowers, according to the removal.

"To the extent a debtor in a pending or previous bankruptcy case has raised claims similar to those raised in this case, the claims are part of the estate or are already at issue in bankruptcy cases," the removal states.

Last, Countrywide claims that because federal court has supplemental jurisdiction over the claims, the case should be removed from circuit court.

In the Aug. 12 suit McGraw brought against the company, he claims Countrywide sold loans with "risky, unconscionable terms."

Some loans were made with little or no documentation to prove the consumer could pay the loan, according to the suit.

Other adjustable rate mortgage loans offered "an initial, or 'teaser' interest rate, that lasts for only 2 - 5 years and then adjusts to a higher unaffordable rate," the suit states.

McGraw claims some were pay option loans that allowed consumers to make monthly payments less than the interest that had accrued.

Some consumers were not required to put any money down on their homes. After 15 years of steady monthly payments, they owed a balloon payment of almost the original amount borrowed, McGraw said.

"Frequently, consumers either were not told about or did not understand these risky, unconscionable products or terms," the suit states. "If consumers did question these loans or terms, they were simply told they could refinance later."

McGraw is not alone in filing a suit over loans made to homeowners.

Other prominent state attorneys general such as Jerry Brown of California, Richard Blumenthal of Connecticut, Bill McCollum of Florida and Lisa Madigan of Illinois have filed similar suits in recent months.

West Virginia consistently has posted one of the lowest foreclosure rates in the country during the national crisis.

The Federal Trade Commission is investigating Countrywide's loan-servicing practices, while the federal Department of Justice also has lawsuits against it pending.

Bank of America bought Countrywide for nearly $2.5 billion when it was the largest mortgage lender in America.

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