Without realizing it, the Torralbas had taken a $74,000 “down payment assistance” loan from the man, Pablo Curiel, who now wanted them to pay $679 a month.
“With so much sacrifice, we tried to get ahead, all for the possibility of this man to come and take the house that we are paying with such effort,” said Prospero Torralba, a 36-year-old construction worker. “It was no fair.”
The Torralbas are one of nine families suing Mr. Curiel and the brokers and real estate agents who arranged mortgages for them. The suit, filed in federal district court here, claims that Mr. Curiel and his associates did not properly disclose and translate the terms of the loans for the families, most of whom spoke limited English, in violation of federal and state laws. They also claim that the defendants sought out Hispanics, violating a federal housing law.
Mr. Curiel, who did not have any dealings with the borrowers when the loans were made, has sued the agent and broker involved.
As the housing boom turns to bust, hundreds of lawsuits are being filed on behalf of borrowers who legal advocates say were shoehorned into homes beyond their means with creative and onerous mortgages.
The culprits, these people assert, are brokers, agents, lenders and others who earned lucrative fees from the loans. Immigrants and minority borrowers are particularly dependent upon real estate professionals because they may not speak fluent English or understand the complex loan terms and documents, which can certainly confound native speakers as well.
California law requires that contracts be translated into one of five languages if the negotiations were primarily conducted in those languages. But legal specialists say the statute and court rulings are unclear on who is obligated to provide disclosure and what documents must be translated.
“On the ground, there is no actual translation occurring,” said Kevin Stein, associate director of the California Reinvestment Coalition, a nonprofit advocacy group for low-income borrowers. He said there was no way to know how many borrowers had been harmed, but he added that lending to minorities surged during the boom, with many people receiving high-cost loans.
Lawyers for the Torralbas assert that the family was never told about a third loan from Mr. Curiel, in addition to two from Washington Mutual, a mortgage for $446,000 and a revolving line of credit for $89,000. (The bank is not named as a defendant.) All the documents signed by the family were in English. Mr. Torralba acknowledges speaking the language but says he is not fully conversant. His lawyers say the negotiations of his home purchase and mortgage were primarily in Spanish.
Some other families were not told of the loans from Mr. Curiel until a few days before closing or just after closing, according to the lawsuit. Families that resisted claim that their broker, Linda Tran, and real estate agent, Norma Valdovinos, told them that they would lose their deposits — usually a few thousand dollars that accounted for most of their savings. Some said they went ahead after being assured by Ms. Tran and Ms. Valdovinos that they would be able to refinance in a few months.
The families are being represented by the Law Foundation of Silicon Valley, a nonprofit legal assistance group, and Greenberg Traurig, a large national firm that is working pro bono.
Ms. Tran, Ms. Valdovinos and their lawyer did not return phone calls seeking comment. In legal filings, they have denied the claims, saying that they had explained the terms of the loans and that some borrowers, including Mr. Torralba, spoke English. They have argued that the case should not proceed because statutes of limitations have run out or because the court lacks jurisdiction.
Mr. Curiel, the lender and a 67-year-old retired insurance agent, is suing Ms. Tran, and her associates, arguing that they failed to provide proper disclosures to the families.
Mr. Curiel’s lawyer, Michael Stone, said his client got to know Ms. Tran as an investor who bought private loans made to home buyers by the sellers. Ms. Tran offered him new loans on similar terms and offered to take care of the paperwork, Mr. Stone said, but Mr. Curiel did not realize he would be providing a third loan to borrowers. Public records show Mr. Curiel as a lender on more than 200 private loans in Northern California.
Mr. Stone said that Mr. Curiel was willing to settle with the borrowers.
The nine families bringing the suit are all natives of Mexico; many have been living in California for decades. Most work in construction or as cashiers, janitors, painters and gardeners. Many had good credit scores and some had been homeowners before.
They borrowed $600,000 to $950,000. The amount was divided into three loans, and the loan documents provided to two of the lenders made no mention of the third debt to Mr. Curiel, according the lawyers representing the families. In many cases, the other lenders were Countrywide Home Loans and Washington Mutual. Both companies declined to comment.
The first and biggest loan was a pay-option adjustable rate mortgage. The loan allows borrowers to pay less than the interest due, adding the difference onto the balance so more is owed with each passing month. The interest rate on the loans from Mr. Curiel was 10 percent, with a 15 percent upfront fee added to the principal balance. That loan called for borrowers to make interest-only payments and pay off the full amount in two years.
According to the lawsuit, borrowers were provided disclosures on the terms of the first two loans in English, as is required by federal law but in apparent violation of state law. No such disclosure was provided, in English or Spanish, on the third loan, the suit claims.
To assure that borrowers would qualify, the lawsuit claims that Ms. Tran and her associates exaggerated their incomes and assets using no-documentation loans.
Tomas and Martha Hernandez said Ms. Valdovinos had convinced them that they could afford a $745,000 home in San Jose, even though Mr. Hernandez earned about $4,000 a month and told them he could pay no more than $2,500 a month.
The couple balked after learning that their monthly payments would be $4,660. But Ms. Tran assured them that they would be able to refinance in a few months and reduce the payments to less than $2,900 a month, according to the lawsuit and Mr. Hernandez. They moved into the home two days before Christmas in 2005.
“They said not to worry, that we were in good hands,” Mr. Hernandez said of Ms. Tran and Ms. Valdovinos.
In April 2006, the family sought to refinance after exhausting their modest savings. They now have the following loans: a $596,000 pay-option loan with a prepayment penalty from Countrywide; a second loan for $74,450 from National City with a balloon payment of $57,000 due after 15 years.
The third loan for $108,125 from Mr. Curiel was revealed on the day they signed the loan documents, according to the lawsuit and Mr. Hernandez. The loans included more than $40,000 in fees.
The lawsuit is seeking to have the Curiel loans to the families rescinded, a process in which all payments the homeowners have made thus far, including fees, would be applied toward the principal. Any damages awarded by the court could be applied toward the loan balance.
For some families, that may reduce their debt enough to let them stay in their homes, Kerstin Arusha, the directing lawyer at the Law Foundation of Silicon Valley. The families are behind on payments, but no lenders have foreclosed.
In California, home buyers are not required to have a lawyer present at closing, and none of the nine families had one. But the state affords homeowners some protections not found elsewhere: mortgage brokers here must act in the fiduciary interest of their clients.
Advocates for borrowers say a similar requirement is needed nationally because brokers have a financial incentive to steer borrowers toward higher-cost loans. In Washington, some federal lawmakers have proposed requiring brokers and lenders to make suitable loans that benefit borrowers.
The mortgage industry argues that such a requirement would limit consumer choice and make loans more expensive and harder to obtain. Instead, the industry has advocated the creation of a national registry of brokers, more requirements on loan originators and efforts to improve borrowers’ financial literacy.
Recently, the National Association of Hispanic Real Estate Professionals released a “code of trust” for its members that calls on brokers and agents to look out for their clients’ interests and not steer them into higher-cost loans when they can qualify for more conventional financing. It recommends disclosures be offered in Spanish when possible, but does not require translation.
Some advocates, however, caution that without tougher enforcement, new rules may not make much difference. Even with its fiduciary and language requirements, California has one of the country’s highest rates of new foreclosures.
“The fiduciary duty requirement in California may be good at giving people a remedy,” said Kathleen Keest, senior policy counsel at the Center for Responsible Lending, an advocacy and research organization. “But maybe it’s not been so effective at changing the normative standards in the industry for the simple reason that it exploded too fast.”
Though vowing to fight, Mr. Hernandez said his family’s hopes and goals have been dashed. They came to the United States from Mexico nearly three decades ago. Over the years, he and his wife have worked in agriculture, picking cherries, apples and asparagus. They had three sons here — two have their own families, and one son, 17, still lives with them.
They doubt they will be able to pay for him to go to college, as they had planned. They turn down invitations to visit friends to avoid the embarrassment of not being able to bring something.
“The American dream of buying a home, it may be real for some,” Mr. Hernandez said. “But not for us. And many people are going through the same or worse.”
“Everything was too easy,” he said. “But nothing is easy now.”
