Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 10, 1991 TAG: 9103100117
SECTION: VIRGINIA PAGE: E-1 EDITION: METRO
SOURCE: SANDRA BROWN KELLY/ BUSINESS WRITER
DATELINE: LENGTH: Long
The judge stopped the foreclosure, but said Garrison still had to pay a portion of the $6,350 second mortgage she took out in 1984 at what turned out to be a 27 percent interest rate.
Last week, the Virginia Supreme Court told Garrison - "Sally" to some of her family and friends - that she didn't have to pay a dime more on the loan because the lender had included hidden interest and other illegal charges in the loan amount.
It was a unanimous decision, and Garrison learned of it the week of her 50th birthday. The court ruling left Garrison happy, but not gloating.
"I didn't know there were people who would be dishonest, especially with people who didn't have anything," she said Friday at her home in the Hollins area near Tinker Mountain.
Attorney Henry Woodward, director of The Legal Aid Society of Roanoke Valley, said the ruling calls into question "thousands of oppressive second-mortgage loans around the state."
He said Garrison's loan and the handling of it was "a prime demonstration" of what caused the national savings-and-loan collapse, which taxpayers are now bailing out.
Woodward has been Garrison's attorney throughout the case.
When Garrison obtained her second mortgage at the southwest Roanoke County office of the now-defunct Landbank Equity Corp. of Virginia Beach, she thought she would be paying an 18 percent interest rate.
Landbank gave her documents that stated a loan principal of $9,224 at 18 percent. But that principal figure included $2,400 in interest, which should not have been included in the interest rate calculation. If the interest amount was removed from the loan principal, Garrison's rate was more than 27 percent, Woodward said.
The interest deception was just one of the reasons the Virginia Supreme Court ruled that Garrison's loan is void. The court also cited excessive charges for an appraisal on the three-bedroom ranch house Garrison built in 1972 and was buying with a Farmers' Home Administration loan. Landbank charged her $200 for an appraisal that cost $135.
When she signed for the loan, Garrison became another Landbank victim. The company preyed on people who could not easily get credit by more traditional banking routes.
By the time Landbank Equity went bankrupt in 1985, it had made almost $200 million in high-interest loans, some as high as 40 percent.
Landbank's way of doing business was to make loans, sometimes on shaky appraisals to high-risk borrowers, and then sell the loans to other lenders. Some 40 lenders nationwide bought the loans.
First Federal Savings and Loan of South Carolina bought $20 million worth of loans, including Garrison's loan.
The Landbank loans proved to be an unwise investment for all the buyers. Before it was over, some Landbank officials went to jail, one executive committed suicide and thousands of people lost their homes in foreclosure sales because they were unable to make the payments on their loans.
When Garrison could not work and was unable to meet her monthly loan payments of $164, First Federal scheduled her house for auction.
About the same time that Garrison was struggling with her delinquent loan, the state attorney general's office was negotiating a settlement for Landbank borrowers with the company's bankruptcy trustee. When Landbank went bankrupt, owing more than $100 million, its lending practices emerged, and Attorney General Mary Sue Terry got involved.
It was a June 1986 letter from Terry to Garrison outlining the negotiated settlement that made Garrison decide to go to court. The letter said Garrison was eligible for a reduced loan balance and reduced payments, but it warned her that if she took the offer she would have to give up any further right to sue in the case. Terry's letter directed Garrison to a private lawyer or Legal Aid for advice.
Garrison went to Legal Aid, and Woodward told her she could either take the settlement or opt out of it.
"Since I had gone through so much hassle, I told Henry, `Let's go as far as we can,' " Garrison said.
When First Federal began foreclosure proceedings against Garrison's house that November, Woodward asked the county court to stop the foreclosure. The court stopped the sale, and Judge Kenneth Trabue also eliminated the interest charges from the loan, giving Garrison a new, lower balance.
When the bank tried to get Garrison to make payments on the new loan balance, however, Woodward appealed the case to the state court.
Garrison said she never had to testify in court, so she never met the South Carolina banker who is so familiar with her case he speaks of her as if they are old acquaintances.
Both said they hold no ill will against the other.
Milton Futch, executive vice president of First Savings Bank of Greenville, S.C., the former First Federal, said he was glad the Landbank loan dilemma was finally over for his bank.
Futch said he was not part of the banking group that bought the loans and that he has spent a large portion of his work time since 1986 unraveling the mess the loans caused. First Savings lost $12 million on the Landbank loans, including principal, interest and legal costs, Futch said.
Landbank took a long time to unravel for everyone involved.
In her four years of waiting, Garrison said she often forgot the case was still going on.
"But sometimes it would weigh pretty heavy on me. I'd think, `Where will I get that kind of money?'" she said.
It took 2 1/2 years for a federal investigation that resulted in indictments against Landbank officials, on charges ranging from wire fraud and criminal conspiracy to bribery of a state legislator.
In January of this year, Landbank founder William Runnells was sentenced to 40 years in prison on convictions of fraud and conspiracy. His wife, Marika, received a 31-year prison sentence. The sentencing formally closed a trial that started in September and became one of the longest and most complicated in federal court history in Virginia.
by CNB