The following article is reprinted from Basis Points® , Vol. 4, Issue 1, Copyright © 2005, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

NOTE: As Basis Points® will be withdrawn from publication after its January, 2005 issue, this will be the last featured article in The Compliance Wizard.

A statute of limitations only works to bar claims if it is not tolled on equitable principles. These principles can include that loan documents for a transaction involving a Spanish-speaking borrower were not provided in Spanish.

In 1997, Sara Gonzalez and her domestic partner bought a home in East Palo Alto, California for $125,000. Two years later, Gonzalez, who earned about $2,400 per month and neither read nor spoke English fluently, refinanced her home with Ameriquest Mortgage Company. Gonzalez agreed to a $165,000 loan with monthly payments of $1,350.

Beginning in 2001, Helio Regalado and Rudy Larin, both mortgage brokers for Ameriquest, repeatedly spoke to Gonzalez, in Spanish only, about refinancing her loan. Upon learning that Gonzalez needed $25,000 to purchase her domestic partner's interest in the home when they split up, Larin and Regalado used this information to convince Gonzalez to refinance. They told Gonzalez that she could obtain the $25,000 while only increasing her monthly payments marginally with no additional costs.

When Gonzalez received the Good Faith Estimate of her refinanced loan, it disclosed a loan amount of $200,000, more than $9,000 in additional, previously undisclosed costs, and a $1,609 monthly payment. Gonzalez proceeded to closing on the loan but received no closing documents.

A few days after the closing, Gonzalez received a settlement statement disclosing a loan of $299,000 with a total monthly payment of $2,490, an amount that exceeded her monthly income. No one translated the documents into Spanish, and no one attempted to explain them in Spanish. When Gonzalez asked if she needed a lawyer, Larin and Regalado said she did not. When Gonzalez requested copies of the loan documents, Ameriquest insisted that she pay for them.

Gonzalez defaulted on the loan, and Ameriquest threatened to foreclose. Gonzalez later sued Ameriquest, Larin, and Regalado for violations of the Fair Housing Act, the Equal Credit Opportunity Act, the Truth in Lending Act, and state law stemming from their actions in connection with this loan transaction. Ameriquest filed a motion to dismiss.

The U.S. District Court for the Northern District of California declined to dismiss Gonzalez's claims against Ameriquest. Ameriquest argued that a heightened pleading standard governed Gonzalez's Fair Housing Act and ECOA claims, which meant that Gonzalez had to plead that she is a member of a protected class, that she attempted to engage in a real estate transaction for which she was qualified, that the defendant refused to engage in the transaction with her, and that the defendant engaged in such transactions with other parties with similar qualifications. The court rejected this contention, finding that for federal trial courts within the Ninth Circuit, the standard for pleading discrimination claims is no higher than the pleading standard for other claims, a standard that requires a plaintiff to give a defendant a fair notice of her claims. Gonzalez met this standard.

Gonzalez claimed that Ameriquest extended her a high-fee loan, as defined by Regulation Z, and that Ameriquest tacked on a prepayment penalty even though TILA prohibits a prepayment penalty for a high-cost loan. The court found that Gonzalez sufficiently pleaded a TILA claim.

While the one-year statute of limitations could have barred the claim, the court applied the doctrine of equitable tolling to stop the statute from running because Ameriquest never provided the loan documents to Gonzalez in Spanish. In a decision filed one month later in the same case, the court issued an order granting Gonzalez's motion for a preliminary injunction to stop Ameriquest from initiating foreclosure proceedings against her home.

For more information, look for Gonzalez v. Ameriquest Mortgage Company, 2004 WL 2472249 (N.D. Cal. March 1, 2004), and 2004 WL 2480661 (N.D. Cal. June 3, 2004).

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