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Mortgage Lender Hit With State Lawsuit

Courts: Irvine's bankrupt First Alliance accused of lies, charging excessive fees, escalating monthly payments.


First Alliance Corp., the bankrupt mortgage lender besieged by numerous actions nationwide, was slapped with a state lawsuit accusing it of luring thousands of low-income borrowers into loans with excessive fees and monthly payments.

The consumer-protection lawsuit, filed Monday in Los Angeles County Superior Court by Atty. Gen. Bill Lockyer, charges the Irvine lender with lying about loan terms, especially exorbitant up-front fees and escalating monthly payments.

"This unfair business practice placed thousands of California homeowners, many elderly, at risk of losing their homes," Lockyer said in a statement.

The suit accuses First Alliance, its First Alliance Mortgage Co. unit, and founder Brian Chisick and another executive of misrepresentation and unlawful business practices. It seeks restitution for the borrowers, a court order prohibiting future violations, and at least $1 million in fines.

Its practical impact was unclear because First Alliance shut down last year and has been liquidating its assets during proceedings in U.S. Bankruptcy Court in Santa Ana. And consumer groups contend the action provides little help and comes too late.

Reached by telephone, Chisick refused to talk and hung up. First Alliance's bankruptcy lawyer, William Lobel, couldn't be reached for comment.

First Alliance became a central symbol of predatory lending practices for groups pressuring the government to clean up the so-called sub-prime industry, which loans money to borrowers with bad or spotty credit.

Facing a wave of lawsuits and investigations in a half-dozen states, the company filed for bankruptcy protection more than a year ago. The Federal Trade Commission filed its own suit against the defunct lender last October, characterizing the action as part of a national crackdown on predatory lending.

Targeting homeowners with considerable equity in their houses, First Alliance set loan fees that ranged from 10% to 25% of the loan amount, often exceeding $10,000 for an $87,000 loan, the average amount of a First Alliance loan, the lawsuit alleges. Most borrowers with good credit pay 1% to 3% in fees.

The suit contends that First Alliance loan officers were carefully schooled in a misleading 13-step presentation known as The Track, devised by Chisick and First Alliance Mortgage vice president Patty Sullivan. Sullivan, a co-defendant in the action, couldn't be reached for comment.

Officials at the Greenlining Coalition, a San Francisco advocacy group for the poor, said Lockyer's suit appears to add little to the actions already pending.

Greenlining lawyer Robert Gnaizda encouraged Lockyer to sue other predatory lenders or Lehman Bros., the investment bank that provided a $100 million line of credit and other support to First Alliance.

"We're critical of regulators who pile on," Gnaizda said. "When they do something they initiate, we're proud of them."

Sandra Michioku, a spokeswoman for Lockyer, said it would be "speculative" to discuss other potential defendants. She said many of the individual complaints charging First Alliance with unfair business practices have been thrown out, so Lockyer wanted to be sure those charges were pressed.


Times staff writer Marc Ballon contributed to this story.

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