Online lender Quicken Loans Inc. sued California in federal court Tuesday, challenging a state law that prevents lenders from charging interest until the day before a mortgage is officially recorded.
The Livonia, Mich., company claimed federal law, which allows interest to be charged as soon as loan funds go into escrow, takes precedence over the state statute. It was the same argument that Wells Fargo & Co. made this month in a lending-practices dispute with the California Department of Corporations.
The Quicken suit, filed in U.S. District Court in Sacramento, names as a defendant the state's corporations commissioner, Demetrios A. Boutris. It seeks a decree that federal law preempts state law governing mortgage interest payments, and asks the court to order Boutris to stop enforcing the state law.
An analysis by the state Senate Finance Committee in 2000 found that borrowers typically ask for funds to be deposited into escrow the day before a home loan is scheduled to close because most county recorders record loans at 8 a.m. In such cases, lenders would start getting interest immediately.