Settlement With Predatory Lender Cheats Borrowers a Second Time

May 10, 2002

Settlement With Predatory Lender Cheats Borrowers a Second Time

Class Members Would Be Worse Off Under Settlement Than If Lawsuit Had Not Been Filed, Public Citizen Tells Court

WASHINGTON, D.C. — A proposed class action settlement with the notorious predatory lender Delta Funding Corporation would release the company and its brokers from responsibility for years of fraudulent and deceptive practices through which thousands of homeowners were bilked into illegal mortgages and foreclosures, Public Citizen argued in an objection filed today with the U.S. District Court in New York. The settlement is subject to court approval and should be rejected, Public Citizen said.

Delta and its brokers allegedly targeted low-income and minority neighborhoods and pressured homeowners to take loans that they could not afford, writing illegal fees and penalties and high interest rates into the loans, according to lawsuits filed in 1999 and 2000 by the New York Attorney General’s office and the U.S. Department of Justice. When borrowers were unable to keep up with payments, the company often foreclosed on their homes. Delta settled those lawsuits, denying wrongdoing but agreeing to close scrutiny from the agencies.

The class action settlement would award the approximately 10,000 class members an average of $50, although the vast majority could expect only between $5 and $20. Although it provides more significant awards to certain class members, that category is so narrowly defined as to be almost empty.

The settlement also would bar class members from suing over predatory lending practices in future foreclosure proceedings – effectively releasing Delta from responsibility for its illegal actions. This is particularly damaging because so many low-income and elderly class members are at serious risk of foreclosure.

“This settlement is appalling. It puts class members in an even worse position than if the lawsuit had never been brought,” said Public Citizen Litigation Group attorney Amanda Frost, who wrote the objection. “These people were victimized already by Delta’s illegal mortgages. They should not be victimized again through this unfair settlement.”

Public Citizen filed the objection to the lawsuit on behalf of several class members who have chosen to opt out of the settlement, including Lucille Hardin, an 84-year-old widow who entered into a series of mortgages with Delta and was unable to keep up her loan payments, and the New York Association of Community Organizations for Reform Now (ACORN), many of whose members are class members who would be harmed by the settlement.

Another serious flaw with the settlement is that it lets Delta decide what type of relief each class member deserves, the objection said. For example, Delta can choose whether class members’ awards should be paid out of two different funds, one of which is capped at $1.15 million and a second that is not capped. It is in Delta’s financial interest to categorize as many class members as possible under the capped fund.

The class counsel did the borrowers a disservice in agreeing to the settlement, in part by arguing that the borrowers would not have done well in court litigation against Delta. But the U.S. District Court found in 1998 that the plaintiffs’ case was strong, and Delta’s illegal practices have been well-documented by advocacy groups such as South Brooklyn Legal Services that work in the low-income communities the company targets.

“If the court allows this settlement, the only winners are Delta and its brokers,” Frost said. “They’ve made millions by deceiving borrowers, and this lets them off with barely a slap on the wrist.”

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To read a declaration by Josh Zinner, Esq. in support of the objection, click here.