Out-of-state lender not bound by points cap, justices decide in appeal of lawsuit
Alabama's Supreme Court decided a mortgage dispute Friday in favor of a company accused of violating state consumer-finance laws, a case lenders feared could affect many home loans.
The 7-0 decision for United Companies Lending Corp. reverses a ruling by Mobile County Circuit Judge Chris Galanos in a lawsuit brought by Michael McGehee of Mobile, the disabled father of four.
Justices disagreed with Galanos' finding that home mortgage loans should be held to a state cap of 5 discount points.
United charged McGehee 8 discount points, or $2,972, when it gave him a $34,800 home mortgage at 14 percent interest. His lawsuit claimed that the Louisiana-based company violated Alabama's consumer-credit laws, known as the "Mini-Code."
But the justices said United "is entitled to an exemption" to the cap as an approved mortgagee under the provisions of the National Housing Act, even though McGehee's loan was not federally insured.
Business groups are pushing "Mini-Code" legislation that would wipe out many lawsuits like McGehee's. The legislation failed in a January special session but was revived for the ongoing regular session.
Galanos had also shocked the mortgage market with his finding that home mortgage companies licensed by the U.S. Department of Housing and Urban Development to make HUD-backed loans also needed to be licensed by the state to make traditional mortgages. United wasn't licensed in Alabama.
After the ruling, McGehee's attorney, Skip Finkbohner of Mobile, said Friday had become a "sad day for Alabama consumers."
He said a class action involving more than 900 people would be dismissed as soon as United files a request.
"The consumers in Alabama are fair game on mortgage points," Finkbohner said. "What it means is it's a license to steal."
But the high court said having the HUD approval exempted United from the Mini-Code's 5-point cap, even if it was not making HUD loans.
Hamp Boles of Birmingham, an attorney for the Alabama Bankers Association, said the decision would not likely affect efforts to push the Mini-Code bill through the Legislature.
Jerry Spencer, the association's director, said that although the decision eased some concerns, the justices would be asked April 1 to rehear a Mini-Code case dealing with credit life insurance.