OneWest Bank pays 7 figures in mortgage fraud case
September 11, 2013By DANIEL BLACKBURN
A San Luis Obispo County couple has received a million-dollar-plus settlement and title to two houses in a case that is likely to result in more lawsuits by people who lost property to mortgage lenders after the bursting of the housing bubble.
Greg and Irene Rigali of Shell Beach sued OneWest Bank, IndyMac Mortgage Services, U.S. Bank and GSR Loan Mortgage Trust after their home and a rental property in Grover Beach were foreclosed. At the time, the Rigalis were negotiating with OneWest Bank to modify their mortgages, sources familiar with the case said.
The case turned on a mortgage practice known as “dual tracking.” Under the practice, lenders work with borrowers who are in default but, at the same time, pursue foreclosure.
At the short end of the seven-figure settlement agreement were two nationally known individuals, billionaire Steve Mnuchin, principal owner of OneWest Bank; and Rik Tozzi, a prominent Alabama attorney specializing in banking litigation and “complex cases in difficult or dangerous jurisdictions,” according to his website.
Both Mnuchin and Tozzi came to San Luis Obispo in May for a hearing on a motion to declare OneWest Bank the winner in the Rigalis’ suit. But instead of granting OneWest’s motion for summary judgment, San Luis Obispo Superior Court Judge Charles S. Crandall said that the case should go to trial. The Rigalis had presented enough of a case to be able to have a jury decide their claims of fraud, wrongful foreclosure, unfair business practices, quiet title, and intentional infliction of emotional distress.
After Judge Crandall ruled for the Rigalis and before the next formal court proceedings, OneWest settled. The terms of the settlement are confidential and neither the Rigalis nor their attorneys would comment for this article.
The Rigali’s case had its beginnings about five years ago. Greg Rigali, a former L.A. County sheriff’s deputy, and his wife retired to a small but comfortable and beautifully situated residence in Shell Beach after their adult children left home. A while after that, the Rigalis acquired a rental property in Grover Beach.
It was about that time, while the Rigalis began making college plans for their adopted daughter, that they got solicitations from the holder of their Shell Beach mortgage, IndyMac Federal Bank, inviting them to modify the mortgages on both the home and the rental residence.
That invitation included allowing the Rigalis to suspend or reduce payments on their properties during the run-up to the loan modification.
While the Rigalis were negotiating on the mortgage modifications, IndyMac Federal Bank failed in what would be the fourth-largest bank failure in U.S. history. What was left of IndyMac was acquired in March 2009 by a Mnuchin-led group of private investors for $1.55 billion.
The newly christened OneWest Bank picked up with the Rigalis where IndyMac Federal Bank had left off and negotiations on the modification proceeded.
“Because you are a valued customer, we want to help you stay in your home. Reduce your monthly payment of principal and interest and bring your loan current,” read the new solicitation from OneWest Bank. “We propose to permanently modify your mortgage, bring past-due payments current, and provide you with an affordable monthly payment.”
The Rigalis’ court filings “alleged they were led to believe, by representatives of several banks over a period of years, that their $560,000 loan would be modified. They believed they had entered into several forbearance agreements with several but related banks.”
And so, the Rigalis worked with bank officials for the modification, following every requirement called for by OneWest loan officers, their court filings said. But as that took place, other OneWest officials were moving toward a quiet foreclosure of the valuable beach properties.
The Rigalis were making payments in accordance with a June 2009 agreement with the bank. That included a one-time payment of $3,444.06. OneWest Bank cashed the check even as it pursued foreclosure.
A month later OneWest Bank assigned the Rigali’s trust deed to U.S. Bank.
In September 2009, to the Rigali’s complete surprise, a trustee’s sale of their beach house was conducted, with U.S. Bank the only bidder.
A notice of foreclosure was posted on the couple’s home’s door while Irene Rigali was en route home from what she thought had been a successful meeting with bank officials.
Shortly thereafter OneWest Bank refunded the Rigali’s $3,444.06 check, and the Rigalis filed their lawsuit.
The Rigalis were represented by two local attorneys, Maria L. Hutkin and Jude J. Basile. Jane Heath of San Luis Obispo teamed with Southern California lawyers Marissa Prayongratana and Thomas Agawa to present OneWest’s case.
OneWest filed a motion for summary judgment, a legal maneuver in which a judge can end a case by ruling that there are no real contested issues in the lawsuit.
Mnuchin and Tozzi then attended the May hearing to learn firsthand Crandall’s decision. Crandall, however, denied their motions, setting the stage for trial.
Crandall wrote in his denial of the motion that “the facts before the court are sufficient to defeat summary judgment” of most of OneWest Bank’s assertions, and he concluded that the Rigalis produced enough proven evidence to show that they could prevail in a jury trial.
OneWest quickly offered a settlement, sources said.
But the Rigalis did not want to settle. They wanted to take their case to trial; they wanted a public airing of their complaints, and their attorneys so informed the court.
The Rigalis felt assured the facts of their case would prevail, sources familiar with the suit said.
Recent legislative measures “provide an important lens” for the court to look through, wrote Crandall in denying OneWest’s motion.
The judge was referring to the banking practice of dual tracking, in which a borrower in default seeks a modification while the institution continues at the same time to pursue foreclosure. By the time the borrower learns what is happening, it is usually too late to prevent the foreclosure.
As a California appellate court decision several years ago noted, “For homeowners struggling to avoid foreclosure, this dual tracking might go by another name: the double-cross.”