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STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

                  Plaintiffs, 

            v. 

DYLAN MORTGAGE INCORPORATED (formerly known as Chase Mortgage Brokers, Inc.), HOMEGOLD, INC. (formerly known as Emergent Mortgage Corp.), ASSOCIATES FINANCIAL SERVICES OF AMERICA, INC., and EQUICREDIT CORPORATION OF AMERICA, 

                  Defendants.

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(New Hanover County)

                  Plaintiff, 

            v. 

CLARENCE M. CAVINESS, HOMEGOLD, INC. (formerly known as Emergent Mortgage Corp.), and ASSOCIATES HOME EQUITY SERVICES, INC., 

                  Defendants.

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(Duplin County)

Plaintiffs allege and say as follows:

NATURE OF ACTION

      1. Plaintiffs contend that defendants Dylan Mortgage Incorporated, which was at all relevant times doing business as Chase Mortgage Brokers, Inc. (hereinafter, "Chase"), and HomeGold, Inc., which was at all relevant times doing business as Emergent Mortgage Corp. (“Emergent”), acted unlawfully in connection with mortgage loans made to plaintiffs.  Plaintiffs contend that Chase violated G.S. 75-1.1 by placing plaintiffs in mortgage loans with high rates of interest in order to enable Chase to obtain payment of “premiums” or kickbacks from Emergent in connection with the loans, by entering into an agreement with Emergent to receive such premiums, and by actually receiving such premiums.  Plaintiffs contend Emergent violated G.S. 75-1.1 by agreeing to pay such premiums, and by paying such premiums, to Chase.

      Plaintiffs further contend that Chase and Emergent violated North Carolina law by failing to provide plaintiffs with the disclosures required by North Carolina law, and by having Chase charge fees that were deceptive, unfair, duplicative, imposed without adequate commercial justification or disclosure, and in excess of the fees permitted by North Carolina law.

      Plaintiffs further contend Chase was plaintiffs’ mortgage broker, and accordingly owed plaintiffs duties of loyalty, of full disclosure, to act in good faith and to make reasonable efforts to determine and obtain a suitable loan for plaintiffs, and owed plaintiffs the duty to act as plaintiffs’ fiduciary; and that Chase violated these duties.  Plaintiffs further contend such conduct also violates G.S. 75-1.1, that the payment of fees to Chase constitutes unjust enrichment, and that Emergent caused or contributed to Chase’s violation of duty and shares Chase’s liability.

      Emergent is alleged to be jointly and severally liable for all actions of Chase alleged herein.  Associates Financial Services of America, Inc. (“Associates”) and EquiCredit Corporation of America (“EquiCredit”) are named as defendants because they are the owners of the named plaintiffs’ mortgage loans and, upon information and belief, are or have been assignees of numerous class members’ loans, and as such are liable on plaintiffs’ claims regarding such loans.

      Plaintiffs seek also injunctive relief prohibiting defendants from pursuing foreclosures or seeking to obtain deeds in lieu of foreclosure from members of the plaintiff class without first affording plaintiffs the relief to which they are entitled by reason of the matters alleged herein.

      PARTIES 

      2. Named plaintiffs Janice H. and Isaiah Tomlin (“the Tomlins” or “Mr. and Mrs. Tomlin”) and Constance A. Wiggins (“Mrs. Wiggins”) are citizens and residents of New Hanover County, North Carolina, who entered into home mortgage loans with Chase through Chase’s office in Wilmington, North Carolina.  Named plaintiffs Moses and Eva Kennedy (“the Kennedys” or “Mr. and Mrs. Kennedy”) are citizens and residents of Davidson County, North Carolina, who entered into home mortgage loans with Chase through Chase’s office in Greensboro, North Carolina.  Named plaintiffs David Roland Seymour, Jr. and Letha K. Seymour (“the Seymours” or “Mr. and Mrs. Seymour”) are citizens and residents of Beaufort County, North Carolina, who entered into home mortgage loans with Chase through Chase’s office in Greenville, North Carolina. Named plaintiff Ronnie Moore (Mr. Moore”) is a citizen and resident of Pitt County, North Carolina, who entered into home mortgage loans with Chase through  Chase’s office in Greenville, North Carolina.

      3. Plaintiffs seek certification of this case as a class action.  The plaintiff class for which class certification is sought consists of those natural persons:  (a) who entered into a home mortgage loan transaction with or through Chase at any time within four years of the date of the filing of the original complaint in this action; and (b) which home mortgage loan was secured by real property located in North Carolina.  The class members and the named plaintiffs are referred to herein collectively as “plaintiffs.”

      4. Chase is a corporation organized and existing under the laws of North Carolina, and has offices in North Carolina, with its principal place of business in New Hanover County.  At substantially all times relevant to this action, Chase held itself out to the public as “Chase Mortgage Brokers, Inc.”  Using this name Chase conducted the business of acting as a mortgage broker, placing its clients with loans from Emergent and other lenders, and provided application processing services related to home mortgages, and did so with plaintiffs.  Chase is a debtor in a proceeding under the Bankruptcy Code, Title 11 of the United States Code, having filed its petition after the commencement of this civil action.

      5. Defendant Emergent is a corporation licensed to do business in North Carolina.

      6. Defendant Associates is a North Carolina corporation.

      7. Defendant EquiCredit is a corporation engaged in business in North Carolina and is subject to the jurisdiction of the North Carolina courts.

FACTUAL ALLEGATIONS CONCERNING

THE INDIVIDUAL PLAINTIFFS' CLAIMS

      8. On March 30, 1998, Mr. and Mrs. Tomlin closed a mortgage loan procured for them by Chase through its offices in Wilmington, North Carolina.  The loan refinanced an existing mortgage and was secured by a new first mortgage on their home at 2013 Creecy Avenue in Wilmington, North Carolina.  Mr. and Mrs. Tomlin received loan proceeds of $44,616.42, and were obligated to repay a loan in the amount of $55,120.  The charges imposed on Mr. and Mrs. Tomlin in connection with the loan included the following:

Underwriting fee to Chase   175.00

Processing fee to Chase   200.00

Appraisal Review fee to Chase   25.00

Document Preparation fee to Chase   175.00

Tax Service fee to Emergent   61.00

Flood Certificate fee to Emergent   16.00

Loan Origination fee to Chase   $5,512.00 

      9. The terms of Mr. and Mrs. Tomlin’s loan required monthly payments by them in the amount of $625.85, and since the closing of this loan they have regularly made these payments.

      10. Contemporaneously with the closing of the Tomlin’s loan, their loan was transferred to Emergent, and the Tomlins made the payments on their loan to Emergent until on or about October 26, 1998, when their loan was transferred to Associates.  Since this second transfer they have made their loan payments to Associates.  Upon information and belief, Associates presently holds the Tomlin’s loan.

      11. On September 17, 1997, Mrs. Wiggins closed a mortgage loan procured for her by Chase through its offices in Wilmington, North Carolina.  The loan refinanced an existing mortgage and was secured by a new first mortgage on her home at 216 South 13th Street in Wilmington, North Carolina.  Mrs. Wiggins received loan proceeds of $23,885.02, and was obligated to repay a loan in the amount of $28,000.  The charges imposed on Mrs. Wiggins in connection with the loan included the following:

Underwriting fee to Chase   175.00

Processing fee to Chase   200.00

Appraisal Review fee to Chase   25.00

Document Preparation fee to Chase   175.00

Tax Service fee to Emergent   61.00

Flood Certificate fee to Emergent   16.00

Loan Origination fee to Chase   $2,800.00 

      12. The terms of Mrs. Wiggins’ loan required monthly payments by her in the amount of $288.33, and since the closing of this loan she has regularly made these payments.

      13. Contemporaneously with the closing of Mrs. Wiggins’ loan, her loan was transferred to Emergent, and she made the payments on her loan to Emergent until on or about October 31, 1997, when her loan was transferred to EquiCredit.  Since this second transfer she has made her loan payments to EquiCredit.  Upon information and belief,  EquiCredit presently holds Mrs. Wiggins’ loan.

      13A. On July 15, 1997, Mr. and Mrs. Kennedy closed first and second mortgage loans procured for them by Chase through its offices in Greensboro, North Carolina  The first mortgage loan was secured by a first lien deed of trust on Mr. and Mrs. Kennedy’s home at 507 Martin Luther King Drive in Thomasville, North Carolina.  Mr. and Mrs. Kennedy received proceeds from the first mortgage in the amount of $47,312.50, and were obligated to repay a first mortgage loan amount of $54,000.  The charges imposed on Mr. and Mrs. Kennedy in the first mortgage loan included the following:

Appraisal Review Fee to Chase   $25.00

Document Prep. Fee to Chase   175.00

Underwriting Fee to Chase   175.00

Processing Fee to Chase   200.00

Loan Origination Fee to Chase   4,896.00

Loan Discount to Chase   544.00

Tax Service Fee to Emergent   59.00

Flood Fee to Emergent   22.00 

      13B. The “loan discount” did not represent a charge for reducing the interest rate charged to Mr. and Mrs. Kennedy, but rather was a fee imposed by Chase for making the second mortgage.  Chase imposed this fee, falsely labeled it a “discount” fee, and charged it as a fee associated with the first mortgage, all of which was done pursuant to a standard procedure followed by Chase for the purpose of attempting to circumvent limits on fees that could lawfully be charged in connection with mortgage loans secured by a borrower’s residence.

      13C. The second mortgage loan was in the original principal amount of $13,600, and was secured by a second lien deed of trust on the Kennedys’ home.

      13D. The terms of  the Kennedys’ loans required monthly payments by them, and since the closing of these loans they have regularly made the required payments.

      13E. The Kennedys’ first mortgage loan was transferred to Emergent and then to EquiCredit; the  second mortgage loan was transferred to Emergent and then to Associates.

      13F. On September 25, 1997, Mr. and Mrs. Seymour closed first and second mortgage loans procured for them by Chase through its offices in Greenville, North Carolina.  The first mortgage loan was secured by a first lien deed of trust on Mr. and Mrs. Seymour’s home at 898 Main Street, in Pinetown, North Carolina.  Mr. and Mrs. Seymour received proceeds from the first mortgage in the amount of $15,787, and were obligated to repay a first mortgage loan amount of $20,200.  The charges imposed on Mr. and Mrs. Seymour in the first mortgage loan included the following:

Appraisal Review Fee to Chase   $25.00

Document Prep. Fee to Chase   175.00

Underwriting Fee to Chase   175.00

Processing Fee to Chase   200.00

Loan Origination Fee to Chase   1,912.00

Loan Discount to Chase   212.50

Tax Service Fee to Emergent   59.00

Flood Fee to Emergent   22.00 

      13G. The “loan discount” did not represent a charge for reducing the interest rate charged to Mr. and Mrs. Seymour, but rather was a fee imposed by Chase for making the second mortgage. Chase imposed this fee, falsely labeled it a “discount” fee, and charged it as a fee associated with the first mortgage, all of which was done pursuant to a standard procedure followed by Chase for the purpose of attempting to circumvent limits on fees that could lawfully be charged in connection with mortgage loans secured by a borrower’s residence.

      13H. The second mortgage loan was in the original principal amount of $3,750, and was secured by a second lien deed of trust on the Seymours’ home.

      13I. The terms of the Seymours’ loans required monthly payments by them, and since the closing of this loan they regularly made these payments until the loan was paid off.

      13J. The Seymours’ first mortgage loan was transferred to Emergent and then to EquiCredit; the second mortgage loan was transferred to Emergent and then to Associates.

      13K. On November 20, 1997, Mr. Moore closed first and second mortgage loans procured for him by Chase through its offices in Greenville, North Carolina.  The first mortgage loan was secured by a first lien deed of trust on Mr. Moore’s home at 304 Trey Drive, in Greenville, North Carolina.  Mr. Moore received proceeds from the first mortgage in the amount of $94,974, and was obligated to repay a first mortgage loan amount of $102,000.  The charges imposed on Mr. Moore in the first mortgage loan included the following:

Appraisal Review Fee to Chase   $100.00

Document Prep. Fee to Chase   175.00

Underwriting Fee to Chase   175.00

Processing Fee to Chase   200.00

Loan Origination Fee to Chase   3,300.00

Loan Discount to Chase   1,020.00

Tax Service Fee to Emergent   61.00

Flood Fee to Emergent   16.00 

      13L. The “loan discount” did not represent a charge for reducing the interest rate charged to Mr. Moore, but rather was a fee imposed by Chase for making the second mortgage. Chase imposed this fee, falsely labeled it a “discount” fee, and charged it as a fee associated with the first mortgage, all of which was done pursuant to a standard procedure followed by Chase for the purpose of attempting to circumvent limits on fees that could lawfully be charged in connection with mortgage loans secured by a borrower’s residence.

      13M. The second mortgage loan was in the original principal amount of $15,000, and was secured by a second lien deed of trust on Mr. Moore’s home.

      13N. The terms of Mr. Moore’s loans required monthly payments by him, and since the closing of this loan he regularly made these payments until the loan was paid off.

      13O. Mr. Moore’s first mortgage loan was transferred to Emergent and then to Associates Home Equity Services; the second mortgage loan was transferred to Emergent and subsequently transferred.

      14. The named plaintiffs’ mortgages followed the named plaintiffs’ entries into agreements prepared by Chase and titled “Broker Agreement” wherein Chase was granted “the exclusive right for ninety (90) days from this date, to assist me (us) in obtaining a new loan and/or revising any loan.”

      15. At no time did Chase disclose to any of the named plaintiffs Chase’s business practices, motivations or contractual commitments, or the effect thereof on the named plaintiffs.  (These undisclosed business practices, etc., are specifically identified in subparagraph 71(a), below.)

      16. At no time did Chase discuss with any of the named plaintiffs, and at no times did Chase investigate for any of the named plaintiffs, the merits of alternative forms or sources of funds such as mortgages made available by lenders other than Emergent.

      17. The funds for the named plaintiffs’ mortgages were provided by Emergent pursuant to a so-called “table funding” contractual relationship whereby Chase originated loans for which Emergent provided the loan funds.

      18. The contractual relationship between Chase and Emergent was set out in a written agreement dated October 10, 1996, and which is recorded at Book 2584, Page 0145-0197, in the office of the New Hanover Register of Deeds.  This agreement provided for Chase to deliver borrowers for North Carolina home loans to Emergent; for Emergent to fund these loans; for Emergent to sell the mortgage loans or place the mortgage loans in loan pools for “securitization”; for Chase and Emergent to divide equally all profits realized from the resale or all “excess spread” received in connection with the securitization; for Chase and Emergent to divide equally any losses realized upon the resale; for Chase and Emergent to consult with one another in connection with the disposition of the mortgage loans; and for Emergent to hold Chase’s power-of-attorney for the purpose of facilitating the handling and disposition of the mortgage loans.

      19. As a consequence of the contractual relationship between Chase and Emergent, Chase had an economic incentive to cause borrowers to be placed in mortgage loans with high rates of interest.

      20. The mortgage loans obtained by plaintiffs carried high rates of interest, and plaintiffs paid this interest.

      21. Neither Chase nor Emergent provided any of the named plaintiffs with the disclosures required by regulations promulgated under G.S. 53-241 and contained in the North Carolina Administrative Code.  On information and belief, the other plaintiffs were likewise not provided with such required disclosures. 

      CLASS ALLEGATIONS 

      22. Plaintiffs bring this action as a class action under Rule 23 of the North Carolina Rules of Civil Procedure.  The plaintiff class is defined in paragraph 3, above.

      23. The plaintiff class is so numerous that joinder of all class members is impracticable.  On information and belief, substantially more than 1,000 mortgage loans were made to North Carolina borrowers through Chase during the four years preceding the filing of the original complaint.

      24. Plaintiffs’ claims are typical of the claims of the other members of the Class:  Chase engaged in a standard business practice of charging borrowers increased rates of interest in order to be able to obtain payment of “premiums” or “yield spread premiums” from Emergent; Emergent engaged in a standard business practice of paying such premiums.  In addition, Chase engaged in a standard business practice of charging borrowers fees that were deceptive, unfair, duplicative and in excess of fees permitted by North Carolina law, such as the fees charged to the named plaintiffs; and Chase’s nondisclosures and other alleged failures and practices as described in paragraph 71, were routine business practices of Chase, and the question presented is whether these practices comport with North Carolina law.

      25. Common questions of law and fact exist as to all members of the Class and predominate over questions affecting solely individual members of the Class.  The questions of law and fact common to all members of the Class include:

(a) whether a contract calling for the payment of a premium such as the contract between Chase and Emergent, and the practice of charging borrowers higher interest rates in order to take advantage of such contracts, are permitted under North Carolina law;

(b) whether Chase’s and Emergent’s mortgage disclosure practices violate North Carolina law;

(c) whether Chase’s practices as to the imposition of charges (such as the charges imposed on the named plaintiffs) are permissible under North Carolina law; and

(d) the scope of the duty owed by Chase to the plaintiff class, and whether Chase breached that duty.

      26. Plaintiffs and their counsel will fairly and adequately protect the interests of the members of the class.  Plaintiffs’ counsel are experienced in handling class claims and claims alleging unlawful business practices.  Neither plaintiffs nor their counsel have any interest that would cause them not to pursue this case vigorously.

      27. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

FIRST CLAIM FOR RELIEF

(Violation of G.S. 75-1.1 In Connection With Premiums) 

      28. The allegations of paragraphs 1 through 27 are incorporated herein by reference.

      29. In or about October of 1996, Chase entered into a contract with Emergent whereby Chase was to receive premiums or kickbacks from Emergent as a consequence of the rate of interest provided for in plaintiffs’ mortgage loans.  Moreover, Chase did in fact receive from Emergent payments of premiums or kickbacks, which were paid for Chase’s placing borrowers in loans with interest rates in excess of the market rate of interest for such mortgage loans.

      30. Chase’s contract with Emergent, the receipt by Chase and the payment by Emergent of the premiums or kickbacks, and the charging of interest at rates in excess of the market rate of interest for such mortgage loans, constitute a violation of G.S. 75-1.1, in that such actions were against the established public policy of the State of North Carolina; were in or affecting commerce in North Carolina; were unethical, oppressive, unscrupulous, and substantially injurious to the consumers of North Carolina; had the capacity and tendency to deceive the average consumer; and violated G.S. 53-238(6)’s prohibition against “any transaction, practice, or course of dealing which is not in good faith or fair dealing.”

      31. The actions hereinabove alleged were done willfully.

      32. Chase is liable (or, but for its petition under the Bankruptcy Code, Chase would be liable) for actual damages, for disgorgement of the premiums and kickbacks received from Emergent, for treble damages and for plaintiffs’ attorney fees.

      33. Emergent is jointly and severally liable with Chase for the matters hereinabove alleged for the following reasons, among others.

      34. Emergent’s contract with Chase dated October 10, 1996, required that substantially all loans extended to Chase’s customers be funded by Emergent and transferred to Emergent, and further required that all terms of the arrangement between Chase and Emergent be kept confidential.

      35. The matters hereinabove alleged were done pursuant to agreement between Chase and Emergent, thereby constituting a civil conspiracy between Chase and Emergent.

      36. The matters hereinabove alleged were done in pursuit of a common endeavor undertaken by Chase and Emergent, and (notwithstanding provision to the contrary) constituted a partnership.

      37. As to many of the plaintiffs’ mortgage loans (those defined in 15 U.S.C. § 1602(aa)), Emergent is liable by reason of language in the loan assignments from Chase providing that Emergent is subject to all claims and defenses that the owner could assert against Chase, and by reason of 15 U.S.C. § 1641(d)(1).

      38. Associates is jointly and severally liable for the matters hereinabove alleged with respect to those loans that are or at any time have been held by Associates.

      39. EquiCredit is jointly and severally liable for the matters hereinabove alleged with respect to those loans that are or at any time have been held by EquiCredit.

      40. Such liabilities arise because neither Associates nor EquiCredit can sustain its burden of showing itself to be a holder in due course of such loans.

      41. As to many of the plaintiffs’ mortgage loans (those defined in 15 U.S.C. §1602 (aa)), such liability arises by reason of language in the loan assignments from Chase providing that Emergent is subject to all claims and defenses that the owner could assert against Chase and by reason of 15 U.S.C. § 1641(d)(1).

SECOND CLAIM FOR RELIEF

(Violation of G.S. 75-1.1 In Connection With Disclosures) 

      42. The allegations of paragraphs 1-41 are incorporated herein by reference.

      43. The actions of defendants Chase and Emergent, in failing to provide plaintiffs with the notices required by regulations promulgated under G.S. 53-241, constituted a violation of G.S. 53-238(6)’s prohibition against “any transaction, practice, or course of dealing which is not in good faith or fair dealing” and a violation of G.S. 75-1.1.  Such actions were against the established public policy of the State of North Carolina; were in or affecting commerce in North Carolina; were unethical, oppressive, unscrupulous, and substantially injurious to the consumers of North Carolina; and had the capacity and tendency to deceive the average consumer.

      44. The matters alleged were done willfully.

      45. As a consequence of the foregoing, plaintiffs are entitled to remedies as alleged in paragraphs 32-41.

THIRD CLAIM FOR RELIEF

(Violation of G.S. 75-1.1 In Connection With Fees) 

      46. The allegations of paragraphs 1-27 and in the other claims for relief are incorporated herein by reference.

      47. The fees charged to plaintiffs were deceptive, or capable of deceiving the average consumer in North Carolina, and unfair, in that:  itemized origination fees were imposed which more than adequately compensated Chase and/or the lender for the loan, and additional origination fees often exceeding 10% of the loan amount were also imposed on the borrowers; such additional fees were unjustified and were not for goods or services actually provided; and were not in fact compensation for origination services.  Such additional fees were substantially in excess of the fees customarily charged by other lenders and mortgage brokers; were imposed without adequate commercial justification; were imposed without adequate disclosure as to their nature, their commercial basis and their comparability to fees charged by other lenders and brokers; and were far in excess of the allowable fees under North Carolina statutes.  Charging of the so-called “discount fees” associated with the first mortgages was deceptive and unfair in violation of G.S. § 75 in that fees were not charged for reducing the interest rate, no “discounting” of the interest rate occurred in return for the payment of that fee and the fees were, in reality, fees charged in connection with the making of the second mortgage loan and were in excess of that permitted by law.

      48. The imposition of the fees charged to plaintiffs was done pursuant to a practice and course of business that was not in good faith and fair dealing as required by G.S. 53-238(6), and was done in transactions that were not in good faith and fair dealing.

      49. Irrespective of whether the imposition of the fees contravened G.S. 53-238(6), the imposition of the fees constituted an unfair and/or deceptive act or practice in or affecting commerce, and violated G.S. 75-1.1, in that such actions were against the established public policy of the State of North Carolina; were in or affecting commerce in North Carolina; were unethical, oppressive, unscrupulous, and substantially injurious to the consumers of North Carolina; and had the capacity and tendency to deceive the average consumer.

      50. The matters alleged were done willfully.

      51. As a consequence of the matters hereinabove alleged, Chase is liable (or, but for its petition under the Bankruptcy Code, would be liable) to return to plaintiffs all consideration paid by plaintiffs and designated as “origination fees” or “loan discount,” plus treble damages and attorney fees.

      52. As a consequence of the foregoing, plaintiffs are entitled to remedies as alleged in paragraphs 32-41.

FOURTH CLAIM FOR RELIEF

(Unjust Enrichment)

      53. The allegations of paragraphs 1-27 and in the other claims for relief are incorporated herein by reference.

      54. Chase was unjustly enriched through its receipt of “origination” fees and “broker” fees from the plaintiffs.

      55. Chase is liable (or, but for its petition under the Bankruptcy Code, would be liable) for the return of all such fees.

      56. Plaintiffs are entitled to remedies as against Emergent, Associates and EquiCredit as alleged in paragraphs 33-41.

FIFTH CLAIM FOR RELIEF

(Usury)

      57. The allegations of paragraphs 1-27 and in the other claims for relief are incorporated herein by reference.

      58. G.S. 24-8 and G.S. 24-10(a) limit the fees that a lender may charge to a borrower such as plaintiffs to a maximum of one percent (1%) of the loan balance, unless additional fees are otherwise allowed by law.  In the alternative, G.S. § 24-10(g) and 24-14 limit the fees that a lender may charge to a borrower such as plaintiffs to a maximum of 2% of the loan balance on certain second mortgage loans.

      59. No other provision of law allows the fees charged to the plaintiffs.

      60. The fees charged to plaintiffs, to the extent they exceed one percent (1%) of the amount of the funds actually loaned, are in violation of Chapter 24 of the North Carolina General Statutes.  The fees charged to plaintiffs with respect to the second mortgages (including, particularly, the so-called “loan discounts” that were charged on the closing statements for the first mortgages), to the extent they exceed one percent (1%) of the funds actually loaned in the second mortgages, are in violation of Chapter 24 of the North Carolina General Statutes.  In the alternative, if G.S. § 24-10(a) is not applicable, fees charged in connection with second mortgage loans, to the extent they exceed 2% of the amount of the funds actually loaned in the second mortgage, are in violation of Chapter 24 of the North Carolina General Statutes.

      61. The charging and collecting of such fees from the plaintiffs was willful and with the corrupt intent to extract from plaintiffs a greater amount than allowed by law.

      62. As a consequence of the foregoing violation of Chapter 24 of the General Statutes, the other defendants who received payments on these loans are liable to plaintiffs in an amount equal to twice the interest and fees that plaintiffs have paid under their mortgages.  Further, plaintiffs are entitled to a discharge of all further obligations to pay interest on the mortgages.  To the extent plaintiffs’ loans were made more than two years preceding the institution of this action, they are entitled to have the interest rate on their loans reduced to the legal rate of 8% and to recover twice the interest they have paid during the two years next preceding the institution of this action.

      63. Emergent, Associates and EquiCredit are also liable for the reasons set out in paragraphs 37-41.

SIXTH CLAIM FOR RELIEF

(Breach of Duty of Loyalty, Etc.) 

      64. By this claim for relief, plaintiffs contend that Chase owed them duties of loyalty, of full disclosure and to act in plaintiffs’ best interest; and that Chase violated these duties; that Emergent is liable for Chase’s breach; and that Associates and EquiCredit are liable for Chase’s breach with respect to mortgage loans now or formerly held by Associates or EquiCredit.

      65. The allegations of paragraphs 1-27 and in the other claims for relief are incorporated herein by reference.

      66. Chase owed plaintiffs duties of loyalty, of full disclosure and to act in plaintiffs’ best interest.  These duties arose as a consequence of the matters alleged in paragraphs 67-70, below.

      67. Chase was the mortgage broker for the plaintiffs.  Chase’s role as plaintiffs’ mortgage broker arose from the business relationship between plaintiffs and Chase, and from some or all of the following facts and circumstances:

(a) Chase’s name, which was used in Chase’s signage, its letterhead, and its advertisements, which identified Chase as “Chase Mortgage Brokers, Inc.” 

(b) Chase’s written agreements wherein such plaintiffs gave Chase “the exclusive right for ninety (90) days from this date, to assist me (us) in obtaining a new loan and/or revising any loan.” 

(c) As to some of the plaintiffs, the designation in the HUD-1 closing statements of Chase as a person receiving a broker fee paid by plaintiffs.  

(d) The absence of any disclosure that Chase was acting in an adversary relation to plaintiffs. 

      68. As the mortgage broker for plaintiffs, Chase owed plaintiffs fiduciary duties, including the duties of  loyalty, of full disclosure, and to act in a manner that would afford plaintiffs the opportunity to obtain loans on the terms best suited to plaintiffs needs.

      69. Chase owed plaintiffs duties of good faith and fair dealing pursuant to G.S. 53-238(6).

      70. These duties of good faith and fair dealing included duties of loyalty, of full disclosure, and (absent agreement to the contrary) to act in plaintiffs’ best interest.

      71. Chase breached these duties in the following respects:

(a) Chase failed to disclose to plaintiffs numerous matters that Chase was under a duty to disclose.  These wrongful nondisclosures included the following, all of which were material: 

(i) That Chase had a business practice of discouraging its loan originators from offering Chase’s clients loans from third party lenders not affiliated with Chase. 

(ii) That Chase’s motive in discouraging loan originators from offering clients loans from third party lenders not affiliated with Chase was to earn additional money for Chase, including an effort to create or preserve income to Chase from Emergent of approximately $160,000 to $300,000 per month, derived from the sale or securitization of loans having interest rates in excess of the rates required by the market.  

(iii) That from and after October 10, 1996, Chase was under a contractual obligation to Emergent to cause substantially all of Chase’s clients to procure mortgage loans originated by Chase with funds provided by Emergent in loans which were to be transferred to Emergent.  

(iv) That Chase’s fees were substantially higher than most other lenders or mortgage brokers. 

(v) That Chase, as a matter of business practice, did not refer its clients to lenders who would simply extend second mortgages without requiring plaintiffs to refinance their first mortgage loans. 

(vi) That loans as described in the immediately preceding subparagraph were widely available to sub-prime borrowers. 

(vii) That the consequence of the plaintiffs refinancing their first mortgage loan, rather than simply obtaining an additional second mortgage, was to significantly increase the dollar amount of Chase’s fees, since most of Chase’s fees were calculated as a percentage of the gross loan amount, including the amount refinanced. 

(viii) That the interrelationship of the foregoing business practices, in conjunction with the exclusivity provision in Chase’s “Broker Agreement,” was to foreclose plaintiffs from being presented a loan with the lowest transaction costs, fees and interest. 

(ix) That Chase’s various fees charged in connection with the origination of the loan (the “underwriting fee,” “processing fee,” “appraisal review fee” and “document preparation fee”) were fees that covered all of the functions associated with originating a mortgage loan, and that the “origination fee” was therefore a fee charged for the same services as were covered by the specific fees. 

(x) That the individual Chase employee with whom the plaintiffs were consulting regarding their loan would receive compensation equal to a percentage (40% to 50%) of the amount charged to plaintiffs as a broker fee, origination fee or discount fee, and that such individual therefore had an economic incentive to cause plaintiffs to pay the highest possible amount of fees. 

(xi) That the so-called “loan discounts” charged on first mortgages to those plaintiffs who obtained both first and second mortgages from Chase were not fees charged for reducing the interest rate, but rather were fees charged in connection with making the second mortgage, and were charged in this manner in an attempt to circumvent legal limits on fees that could be charged in connection with mortgages. 

(b) Chase failed to attempt to place members of the plaintiff class in second mortgage loans while leaving existing first mortgages intact, thereby depriving members of the plaintiff class of the opportunity to consider the form of mortgage loan that would result in the fewest fees and lower overall interest charges. 

(c) Chase had a general business practice of discouraging its loan originators and other employees from offering its clients loans from third party lenders.  Chase followed this business practice in connection with loans to members of the plaintiff class. 

(d) Chase proffered and obtained plaintiffs’ execution of written “Broker Agreements” granting Chase the exclusive right to obtain new loans for plaintiffs or revise existing loans.  These exclusive agreements were wrongful in at least two respects: 

(i) It was unfair and a breach of duty for Chase to propose and to enter into an exclusive relationship, in light of the ways (hereinabove alleged) in which Chase, as a matter of general business practice, failed to act in its clients’ best interests. 

(ii) It was unfair and a breach of duty for Chase to propose and enter into an exclusive relationship without having first disclosed to members of the plaintiff class the matters alleged in paragraph 71(a). 

      72. As a consequence of such breaches, Chase is liable (or, but for its petition under the Bankruptcy Code, would be liable) to return to plaintiffs all consideration paid to Chase by plaintiffs, or for such alternative damages as a court deems appropriate.

Grounds For Emergent’s Liability

      73. The allegations of paragraphs 33-37 are incorporated herein by reference.

      74. Moreover, Emergent knew of the matters hereinabove alleged and lent substantial assistance to Chase in connection with such matters, thereby engaging in assisting the breach of fiduciary duty.

Grounds for Associates’ and EquiCredit’s Liability

      75. The allegations of paragraphs 38-41 are incorporated herein by reference.

(Violation of G.S. 75-1.1 In Connection With Matters Alleged in Sixth Claim For Relief) 

      76. The allegations of paragraphs 1-27 and in the other claims for relief and, in particular, the allegations of the Sixth Claim For Relief, are incorporated herein by reference.

      77. The matters alleged in paragraphs 66-72 constitute a violation of G.S. 75-1.1, and Chase is liable (or, but for its petition under the Bankruptcy Code, would be liable) for treble damages and plaintiffs’ attorney fees.

      78. Emergent, Associates and EquiCredit are liable for the matters alleged herein for the reasons set out in paragraphs 73-75.

EIGHTH CLAIM FOR RELIEF

(Injunctive Relief) 

      79. The allegations of paragraphs 1-27 and in the other claims for relief are incorporated herein by reference.

      80. Plaintiffs are without adequate remedy at law, and there is substantial likelihood that irreparable injury will result to plaintiffs without injunctive relief from this Court.

      81. Plaintiffs are entitled to an injunction prohibiting defendants from commencing foreclosure proceedings, or from taking any other action adverse to plaintiffs’ interest in their  property, including but not limited to making requests for deeds in lieu of foreclosure, until plaintiffs are accorded the relief to which they are entitled under this complaint and their loans are recalculated taking into consideration such relief, or until defendants have complied with such provisions as the court deems necessary to protect the interests of plaintiffs.

      PRAYER FOR RELIEF 

      WHEREFORE, plaintiffs, individually and on behalf of the class, pray:

      1. That this case be allowed to proceed as a class action;

      2. That plaintiffs and the class be awarded monetary and injunctive relief as hereinabove requested;

      3. That the costs of this case and attorney fees for plaintiffs be taxed against defendants; and

      4. That the Court award such other relief as it deems just and proper. 

PLAINTIFFS REQUEST TRIAL BY JURY. 

This the ___ day of February, 2003. 
 

                                    Melinda Lawrence, N.C. State Bar No. 8363

                                    Patterson, Harkavy & Lawrence, L.L.P.

            Post Office Box 27927

                                    Raleigh, NC  27611

                                    919/755-1812 

      Mallam J. Maynard, NC State Bar No. 10999

                                    14 Jacksonville Avenue

                                    P.O. Box 941

                                    Wilmington, NC 28402

                                    910/762-8734 

                                    Michael D. Calhoun, NC State Bar No. 8209

                                    Gulley & Calhoun

                                    Post Office Box 3573

                                    Durham, NC  27702

                                    919/683-1584 

                                    J. Jerome Hartzell, NC State Bar No. 7775

                                    Hartzell & Whiteman, L.L.P.

                                    2626 Glenwood Ave., Suite 500

                                    Raleigh, NC  27608

                                    919/571-8300 

                                    Carlene McNulty, N.C. State Bar No. 12488

                                    North Carolina Justice

                                      & Community Development Center

                                    Post Office Box 28068

                                    Raleigh, NC  27611

      919/856-2161

CERTIFICATE OF SERVICE

      I hereby certify that I served the foregoing document on defendants by delivering a copy of the same to counsel for defendants, via e-mail and first-class mail, postage prepaid, addressed as follows:

Matthew P. McGuire, Esq.

Frank Hirsch

Hunton & Williams

Post Office Box 109

Raleigh, North Carolina  27602

mmcguire@hunton.com

fhirsch@hunton.com 

Attorneys for HomeGold, Inc. 

John H. Culver, Esq.

Kennedy, Covington, Lobdell & Hickman, L.L.P.

Hearst Tower 47th Floor

214 N. Tryon Street

Charlotte, North Carolina  28202

jculver@kennedycovington.com 

Attorneys for EquiCredit Corporation of America 

Robert E. Harrington, Esq.

Robinson, Bradshaw & Hinson, P.A.

101 North Tryon Street, Suite 1900

Charlotte, North Carolina  28246

rharrington@rbh.com 

Benjamin B. Klubes, Esq.

Robyn C. Quattrone, Esq.

Skadden, Arps, Slate, Meagher & Flom, LLP

1440 New York Avenue, N.W.

Washington, DC 20005-2111

bklubes@skadden.com 

Attorneys for Associates Financial Services of America, Inc. 

      This the ____ day of February, 2003. 

                                    _____________________________________ 

                                    Melinda Lawrence 

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