What is a Mortgage Class Action?

A mortgage class action is a consolidated civil lawsuit against the mortgage industry. A group of plaintiffs with individual complaints are certified as a class so they can pursue claims regarding mortgage loans in one court case. Although theoretically possible in any jurisdiction that allows class actions, this type of case is particular to the U.S., developed to respond to the housing boom of the early-2000s and the subsequent recession and housing crisis that occurred later in the decade.

Class action certification is a popular consumer litigation tool in the U.S. Individual plaintiffs, who may not have a cause of action on their own that would justify the cost of litigation, are aggregated and their issue litigated by a representative case. The potential judgment is increased to accommodate the entire group. In this way, the court achieves a certain amount of consistency and efficiency in deciding one case instead of having a multitude of cases winding their way through the system in various jurisdictions.

The mortgage industry had not been the focus of major class action suits prior to the U.S. housing downturn of the late 2000s. When the lax mortgage standards and unscrupulous loan practices that drove the housing boom morphed into widespread consumer default, borrowers contemplated using the Truth in Lending Act to cancel mortgages with deceptive adjustable rates and material mistakes in loan documents. The ability of individual borrowers to exercise their rights under the law was sporadic, and savvy lawyers tested the mortgage class action as a way to achieve wholesale redress.

Banks and mortgage firms have aggressively fought against the notion that a mortgage class action is a suitable vehicle for individual redress under the Truth in Lending Act. Some courts have agreed. The remedy in this type of class action would call for loan cancellation and the return of all interest, costs, and fees associated with the loan. A single court case that would purport to establish this type of liability across a diverse class would make it much easier for consumers to obtain a loan cancellation, but would be a monumental blow to the mortgage industry.

Some U.S. courts at the state and federal level have allowed class certification of a mortgage class action, while other courts at the federal and appellate levels have not or have overturned previous decisions. The linchpin is whether the court believes that a class representative can adequately encompass the multitude of possible individual circumstances that might surround a loan award and subsequent default. No case of this sort in the U.S. has yet found its way to judgment. The viability of the mortgage class action is an issue that might be taken up by the U.S. Supreme Court for a final decision.