Lend America probe could drag down other firms

Federal officials are investigating complaints that Lend America failed to pay off the old loans of its refinance borrowers, part of a fraud probe that could draw other companies into the quagmire surrounding the Melville lender's shutdown this month.

Scores and possibly hundreds of borrowers now have liens against them from their original lenders and from Lend America, whose license to make federally insured loans was revoked two weeks ago. By one count, Lend America left at least $9 million in refinances unfunded.

"I could not believe they had the audacity to send me a bill for something that they never paid off," said Amanda Gray of Colonial Heights, Va., who's been calling Lend America about her Nov. 14 refinance and was told the loan would be funded - before the company closed.

Under federal law, borrowers get three days after the closing to rescind the refinancing. On the fourth day or so, most lenders "extinguish" the old loans with a wire transfer of funds.

But Lend America was "routinely" late paying, as long as two months after the closing, charging their clients fees for being ostensibly late in paying them and generating extra interest on loan money that should have been sent out, according to civil suit documents filed by the U.S. Department of Housing and Urban Development.

Company higher-ups held weekly meetings to decide which refinance loans would be funded, HUD said, and told customer service to give complaining borrowers a standard response: "We'll trace the check."

A HUD spokesman said locating the "logjam" in funding is tough because so many parties are involved in the closing. Company officials could not be reached for comment, but spokesman John Lovallo said, "Many issues, like this issue, are currently being correctly resolved as the company winds down its operations."

A state Supreme Court judge in Mineola granted a temporary order last week, freezing Lend America's assets, in response to a suit from EAM Land Services, one of the title insurance firms that worked with the lender and seeks funding for borrowers.

The Syosset firm reviewed its September and October cases with Lend America and found that 66 borrowers, all out of state, are still owed $9 million, its suit said. But EAM's majority owner, president Eric Fein, said he's learned that Lend America has only $5 million in the bank.

Fein also said Lend America duped him by supplying "fraudulent" proof of payoff, including overnight shipping labels and the fronts of checks.

Ex-employees said late funding complaints were not uncommon over the years, and executives gave staff vague excuses.

Mike Lafoon's $183,000 refinance closed in mid-November. The Virgina resident said Lend America told him not to pay the original lender his November mortgage because the new loan would do that. Using what would have gone to the mortgage, Lafoon said, he paid bills racked up during a disability, then got calls from his original lender that he had defaulted. "I had to look into my kid's eyes," he recalled, "and said, 'You're not getting a Christmas.' "