Capital City Mortgage Settles FTC Charges

A mortgage lender and servicer has settled Federal Trade Commission charges that it deceptively induced consumers into taking loans secured by their homes, overcharged borrowers, and, in some instances, caused consumers to lose their homes. The settlement permanently bans the defendants from future lending fraud and requires them to pay consumer redress and other monetary relief totaling at least $750,000.

In January 1998, the FTC filed a complaint against Washington, DC-based Capital City Mortgage Corporation and its president, Thomas K. Nash, alleging that the defendants deceived consumers about various loan terms, resulting in serious injury to borrowers. According to the FTC, the defendants frequently targeted consumers with fixed or low incomes with offers for loans secured by the equity of the borrowers’ homes, rather than their creditworthiness. The FTC charged that the defendants included phony charges in monthly statements to borrowers, added phony charges to loan balances, forced consumers to make monthly payments for the entire loan amount while withholding some loan proceeds, foreclosed on borrowers who were in compliance with the terms of their loans, and failed to release liens on borrowers’ homes after the loans were paid off. The complaint also charged the defendants with violations of the Truth in Lending Act, the Equal Credit Opportunity Act, and the Fair Debt Collection Practices Act.

The FTC later amended its complaint to include Eric J. Sanne, the former General Counsel of Capital City, charging him with sending letters to borrowers falsely claiming he represented a third-party debt collector, rather than Capital City, and seeking to collect money consumers did not owe. In a May 2004 settlement, Sanne was barred from participating in any debt-collection business and ordered to pay $20,000 in consumer redress. The FTC also amended its complaint a second time, after Nash died in 2002, to substitute Nash’s estate as a defendant and add relief defendants.

The stipulated order requires the defendants to pay $750,000 and set up a $350,000 performance fund that will be available to the Commission or any borrower if Capital City does not comply with the order. It also prohibits Capital City from misrepresenting the terms, conditions, fees, or payment amounts of any loan; failing to disclose all required fees to borrowers at least three days before loan closing or assessing any fee, including interest or real estate taxes, not authorized and disclosed to consumers; misrepresenting that it will not attempt to take or take the title to a borrower’s home while the borrower is in compliance with loan obligations; and misrepresenting that it will maintain accurate loan servicing records that will be available to borrowers.

The order also prohibits the defendants from failing to require sufficient escrow amounts and make timely disbursements of escrow funds; placing insurance on a borrower’s property without first determining whether insurance is already in place and obtaining the borrower’s express consent; increasing the principal amount of any loan or requiring additional security on any loan without the borrower’s consent; failing to disburse loan proceeds to a borrower when the borrower has complied with the terms of the loan; failing to release a lien on property securing a loan within 30 days of the loan payoff; and threatening a consumer’s loan or property title to induce the consumer to pay additional amounts not required by the loan or by law.

In addition, the defendants are barred from violating the Truth in Lending Act and Regulation Z by failing to identify the creditor or the annual percentage rate for a loan; failing to make required disclosures before consummating a consumer credit transaction; failing to make or correct “good faith” disclosures; understating the finance charge or annual percentage rate or overstating the amount financed; failing to disclose accurately the payment schedule or the existence of a balloon payment; making disclosures that do not accurately reflect the legal obligation between the parties; failing to include courier fees, inspection fees, and certified check fees in the stated finance charge; and failing to use required standard loan forms.

The defendants are further barred from violating the Fair Debt Collection Practices Act by misrepresenting that a Capital City employee is instead an independent attorney or third party debt collector; misrepresenting to consumers the amount or legal status of any payment due; and collecting any amount not authorized by law.

The order also prohibits the defendants from violating Regulation B and the Equal Credit Opportunity Act (ECOA) by failing to take written applications for credit; request certain required information regarding race, ethnicity, sex, marital status, and age; inform consumers that this information is collected to monitor compliance with federal laws that prohibit creditors from discriminating against applicants; and provide applicants with a written “adverse action” notice containing the reasons for the action taken and the contact information for the federal agency monitoring Capital City’s compliance with ECOA.

Additionally, the order requires the defendants to provide borrowers with (1) a monthly statement that accurately discloses the total amount of the next payment owed – including fees, identifies the way in which the consumer’s prior payment was applied to the loan, and identifies a method for consumers to dispute the charges; (2) an annual accounting status of the loan as of December 31 each year, identifying the amounts credited toward repayment of interest and principal, amounts credited to other purposes such as late fees, and the status of any escrow account; and (3) at the borrower’s request, records to document any fee and a good faith estimate of the amount required to repay the loan in full.

The order also contains standard recordkeeping and reporting requirements to assist the FTC in monitoring the defendants’ compliance.

The Commission’s amended complaint named Capital City Mortgage Corp.; Marcia C. Fidis, in her capacity as representative of the Estate of Thomas K. Nash; and Eric J. Sanne as defendants. The complaint names Thomas K. Nash Family Trust and Alan W. Nash, in his capacity as trustee; and Nash Marital Trust under Will of Thomas K. Nash and Marcia C. Fidis and Caroline Koestner Nash, in their capacities as co-trustees, as relief defendants.

The Commission vote authorizing staff to file the stipulated final order was 5-0. The stipulated final order for permanent injunction was filed in the U.S. District Court for the District of Columbia on February 23, 2005.

Note: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the stipulated order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. X980026)
(Civ. No. 98cv237)