Thibault v. American Mortgage Network
This is one of a number of cases filed in California state and federal courts raising the issue whether borrowers who entered into option adjustable rate mortgages (Option ARM’s) can state viable causes of action for (1) fraud (based on fraudulent omissions) or (2) violation of the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.)[1] on the theory that their loan documents failed to disclose the essential terms of their loans, namely that their loans were guaranteed to cause negative amortization if the borrowers made payments according to the only payment schedule the lenders gave them before the loans closed. Negative amortization is an increase in a loan’s principal balance that occurs when the monthly payments are insufficient to pay accruing interest. (See Black’s Law Dict. (8th ed. 2004) p. 93, col.2.)
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