About a dozen Massachusetts homeowners who did business with Blue Hub Capital say the non-profit failed to adequately disclose its terms for shared-appreciation mortgages, which they say reduce their ability to refinance and stuck them with high monthly payments.
Representatives for the homeowners claim they thought they were being rescued from foreclosure when Blue Hub bought their houses from their original mortgage holder, then sold them back with a more affordable mortgage.
In the process, however, the homeowners say they unknowingly signed up for a separate, second mortgage known as a shared- appreciation mortgage – a home loan where a lender offers a homeowner a lower interest rate and lower monthly payments in exchange for a share of the homes’ future, appreciated value.
In a hot housing market, that can mean hefty money for Blue Hub.
Court documents show that in at least three instances, the Roxbury-based company made thousands of dollars claiming 50 percent or more of clients’ home appreciation, a portion that lawyers for the homeowners said is far larger than normal for shared appreciation mortgages seen elsewhere in the country.
The funds generated from the home-equity sharing, Blue Hubs attorney Sara Jane Shanahan said in court, are reinvested back into the non-profits’ efforts to keep people from losing their houses.
“This is about helping people stay in their homes and not get foreclosed on and evicted. And that’s what happened here,” said Shanahan, in oral arguments before Superior Court Judge Michael Ricciuti in Boston.
Later, after court, Shanahan elaborated on that argument.
“Their old debt was written off and released by the prior mortgage holder. They were given a new, first mortgage that was in line with the value f the property, and in line with their ability to make monthly payments,” she told GBH News. “We’re confident that the program has been very beneficial to people and that all the disclosures were made in accordance with the law, and we’re hopeful that the court will rule in our favor.”
Jeffrey P. Wiesner, an attorney representing the homeowners, argued that Blue Hub’s disclosure practices for shared appreciation mortgages misrepresent the financial picture for borrowers by telling them there’s no balloon payment — a one-time, larger than usual payment typically due at the end of a loan — and there’s no negative amortization — interest that accrues in a way that increases the loan balance. That, he said, violates the federal Truth In Lending Act and the Massachusetts Consumer Credit Cost Disclosure Act.
“The fact that there was a shared appreciation mortgage as part of the overall package meant that those statements are false,” he told GBH News after court Tuesday.
Wiesner also argued that Blue Hub violated the Predatory Home Loan Practices Act by issuing high cost loans without providing borrowers legally required special protections including getting them an independent advisor. That, he said, makes the mortgages unenforceable.
When asked by Judge Ricciuti whether the disclosures that borrowers sign at closing show the percentage of sharing they’re required to give Blue Hub, Shanahan acknowledged they do not, but said customers do receive formulas that can be used to calculate appreciation and sharing.
“It’s not going to be a fixed number,” Shanahan said. “And in fact, it’d probably be confusing to have a bunch of numbers on the form that would all be hypothetical.”
Hours before the court proceedings, some of the homeowners in the case protested in front of the Beacon Hill building where Massachusetts Attorney General Andrea Campbell works.
Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, passed out flyers accusing Campbell of failing to address Blue Hub’s targeting of low-income and minority homeowners and failing to oppose legislation that would make the company’s shared-appreciation mortgages explicitly legal.
The legislation is housed within a Senate amendment to the $2.86 billion economic development bill pending in the Legislature.
In a statement, a spokesperson for Campbell said she “takes any allegation of predatory lending practices seriously,” and has relayed her unease with the proposed legislation.
“Our office is monitoring developments in this case against Blue Hub Capital,” the statement said. “Our office has serious consumer protection concerns with the legislative language referenced in these flyers, including giving an exemption to any industry from our consumer protection laws, and we have expressed those concerns to the Legislature.”
State Senators Barry Finegold, Michael Rodrigues and Peter Durant, the three conference committee negotiators, were not immediately available for comment.
Back in Suffolk Superior Court, as arguments concluded, Judge Ricciuti said he appreciated the arguments very much and that he would take the case under advisement, but offered no hints about time lines for ruling on multiple requests for summary judgment.
If the judge does not rule in either party’s favor, there will be a jury trial.
