Sears named in lawsuit charging mortgage fraud

January 20, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

A Towson law firm representing eight Maryland homeowners filed a class-action lawsuit yesterday against Sears, Roebuck and Co. and a local contractor that managed a home-improvement business under Sears' name, accusing them of tricking customers into signing over second mortgages on their homes.

The lawsuit, filed in U.S. District Court in Baltimore by the firm of Azrael, Gann & Franz on behalf of four Maryland couples, asserts that practices by Sears and other defendants violated federal truth-in-lending, racketeering and fraud laws.

It asks for unspecified compensation, voiding of the mortgage liens and home-improvement contracts and up to $200 million in punitive damages.

Allen L. Schwait, the attorney for the four couples, said the problem came to light last year, when a consumer whom he declined to identify discovered a lien that the defendants held on a house while the consumer was trying to refinance the first mortgage on the property.

Further investigation showed 370 deeds of trust granted to defendants in the case, Mr. Schwait said. All the homeowners who gave deeds of trust to the defendants have been contacted, he said, and he indicated that more plaintiffs could join the class-action suit.

A Sears spokesman declined to discuss the lawsuit yesterday.

"We haven't seen the actual lawsuit; therefore we can't comment on it," said the spokesman, Gordon Jones. "We take these allegations very seriously."

In addition to Sears and the contractor, Congressional Construction Corp. of Fairfax, Va., the lawsuit names as defendants Kenwood Associates Inc. of Potomac, Joseph Swartz of Potomac, NVR Savings Bank of McLean, Va., and the Associates Financial Services Co. Inc. of Irving, Texas.

Congressional is the Sears-authorized contractor that has exclusive rights to use the Sears name to do home-improvement work in the Washington-Baltimore area, Mr. Jones said. Kenwood is a related company that sold financing for home improvements.

Mr. Swartz is an executive of both companies. NVR Savings Bank and Associates Financial Services allegedly purchased loans from Kenwood or financed loans brokered by Kenwood.

The suit said the plaintiffs signed up for work after sales presentations that lasted up to six hours, during which sales representatives from Congressional would join customers for dinner at home.

Interest rates on the financing agreements ranged up to 16.4 percent, far above rates commonly available from banks to creditworthy home equity borrowers.

The plaintiffs also claim Sears and the other defendants denied them their legal right to cancel the contracts within three days.

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