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N.J. Woman Says Lender Duped Her Into Taking Out Subprime Loan

A homeowner claims in a New Jersey federal court lawsuit that a mortgage broker and a lender scammed her into taking out an expensive subprime mortgage loan.

Noreen Canavan says brokerage firm Equity Source Home Loans LLC and BankUnited violated the Truth in Lending Act by concealing the fact that her refinanced mortgage was a costly subprime loan.

Canavan says the defendants misled her about the loan's interest rate and prepayment penalty and gave her confusing loan papers concerning her home in Bayonne, N.J.

The suit, filed in the U.S. District Court for the District of New Jersey, also names as defendants Equity Source employee Bruce Kelly, notary public Michael Behrens and closing agent Equititle LLC. Equity Source is affiliated with Equititle, according to the suit.

Canavan alleges that Kelly fraudulently misrepresented the terms of the $263,000 loan she took out from BankUnited by telling her it held a fixed 1.95 percent interest rate for the first five years. The application form allegedly said the same thing.

However, Kelly did not tell her that the fixed interest rate was actually for one month only and later would increase to more than 6 percent, the suit says.

Canavan says Kelly and Equity Source told her that the mortgage had no prepayment penalty even though the documents they gave her said the opposite.

She also claims that Equititle sent Behrens to her home July 13, 2006, to conduct the loan closing. She says he did not tell her that the loan's fixed rate would last only one month and that she learned the truth only after receiving two or three monthly payment statements after the closing.

Because the loan offered Canavan no economic benefit because of its high expense, she paid if off by taking out a separate loan with a different lender, according to the suit. However, the defendants charged her a $14,000 prepayment penalty, it says.

BankUnited knew or should have known that its agents were making false statements to convince customers to take out expensive loans, Canavan alleges. However, the bank failed to stop the fraudulent practices, she says.

Canavan is seeking unspecified damages, costs and attorney fees.

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She is represented by John Burke of Koles, Burke & Bustillo in Jersey City, N.J.