Consumer complaint received 2024-09-09
Product: Mortgage — VA mortgage
Issue: Closing on a mortgage — Closing disclosure or other related disclosures
Company: BSI Financial Holdings, Inc. (MD)

COMPLAINT I. INTRODUCTION This complaint is filed against BSI Financial Services ( hereinafter Respondent ) for fraudulent, deceptive, and unlawful practices in the execution and servicing of a mortgage loan. Complainant, [ XXXX XXXX ] ( hereinafter Complainant ), asserts that Respondent failed to provide full disclosure regarding the use of Complainants promissory note to generate funds, a violation of federal laws, including the Truth in Lending Act ( TILA ), as well as fraudulent misrepresentation and breach of contract. This complaint seeks restitution, rescission of the mortgage, and the return of all payments made under the fraudulent mortgage agreement. 
II. PARTIES Complainant is a resident of [ XXXXXXXX XXXX XXXXXXXX  ] and the mortgage loan borrower under the account number referenced above. 

Respondent, BSI Financial Services, is a financial institution servicing mortgage loans in [ Maryland ], and is registered to do business in [ Maryland ].

III. JURISDICTION AND VENUE Jurisdiction and venue are appropriate as Respondent is a financial institution operating under federal regulations and servicing loans in this jurisdiction. This complaint arises under federal statutes including the Truth in Lending Act ( 15 U.S.C. 1601 et seq. ) and relevant federal case law. 
IV. FACTUAL BACKGROUND On or around [ XXXX, XXXX  ], Complainant entered into a mortgage agreement with XXXX for the property located at [ XXXX XXXX XXXX XXXX, XXXX XXXXXXXX XXXX XXXX ]. Complainant signed a promissory note agreeing to repay the loan over a period of time with interest. 

Complainant has recently discovered, based on federal banking publications and analysis, that Respondent did not provide actual consideration in this transaction. Specifically, instead of loaning Respondents own money or depositors funds, Respondent used Complainants promissory note to generate the funds for the loan.

Complainant was never informed of this practice during the loan process, nor did Respondent disclose this fact in the mortgage contract or associated documents, in violation of federal law and contractual obligations.

V. CAUSES OF ACTION COUNT ONE : VIOLATION OF THE TRUTH IN LENDING ACT ( TILA ) ( 15 U.S.C. 1601 et seq. ) The Truth in Lending Act mandates that lenders provide borrowers with clear and complete disclosure regarding the terms and conditions of loans, including the nature of the financial instruments used to create the loan.

Respondent failed to disclose that the loan was funded by the use of Complainants promissory note, a material fact that, if disclosed, would have impacted Complainants decision to enter into the mortgage agreement. The use of Complainants promissory note as an asset violates 15 U.S.C. 1638 ( a ), which requires the lender to fully disclose key loan terms. 

As a result of this violation, Complainant seeks rescission of the mortgage loan pursuant to 15 U.S.C. 1635, along with the restitution of all payments made under the loan, including principal, interest, and associated fees.

COUNT TWO : FRAUDULENT MISREPRESENTATION Respondent knowingly failed to disclose material facts concerning the nature of the loan transaction. Specifically, Respondent did not inform Complainant that the loan would be created using Complainants own promissory note as an asset rather than traditional funding from Respondents reserves or depositors. 

The Supreme Court has ruled that misrepresentation of material facts in contract formation can render the contract voidable. In XXXX XXXX XXXX XXXX XXXXXXXX, 126 U.S. 240 ( 1888 ), the Court held that a contract based on fraud or misrepresentation of material facts is unenforceable. Similarly, in United States v. Throckmorton, 98 U.S. 61 ( 1878 ), the Court ruled that contracts induced by fraud are void.

By failing to disclose the actual source of the loan funds, Respondent misled Complainant into signing the mortgage contract under false pretenses, thus committing fraud. 

COUNT XXXXHREE : BREACH OF CONTRACT In a valid contract, both parties must provide consideration. Respondent did not provide valid consideration because it did not loan its own funds or deposits but instead used the Complainants promissory note to create the loan.

As established in Restatement ( Second ) of Contracts 71, the absence of consideration renders a contract voidable. The U.S. Supreme Court in XXXX XXXX XXXX, 156 U.S. 680 ( 1895 ) affirmed that contracts lacking proper consideration or founded on fraudulent grounds may be declared invalid.

Respondent 's failure to provide consideration and lack of disclosure regarding the use of the promissory note constitutes a breach of contract, entitling Complainant to rescission and restitution. 

VI. FEDERAL RESERVE PUBLICATIONS SUPPORTING CLAIMS Federal Reserve publications confirm the use of promissory notes by financial institutions to create money, supporting Complainants assertion that Respondent did not loan actual funds. These publications include : Federal Reserve XXXX XXXX XXXXXXXX - XXXX XXXX XXXX ( pages 3-4 ) : This document explains how banks create money using borrowers ' promissory notes as assets. The publication explicitly states that banks do not really lend money they create it. 

Federal Reserve XXXX XXXX XXXXXXXX XXXX Banking Basics : This document describes the use of promissory notes as money in modern banking systems. 

Federal Reserve Bank XXXX XXXX XXXX Money, Banking, and Monetary Policy : This publication further explains how promissory notes are utilized by banks to create new funds. 

These publications establish that Respondent 's use of the promissory note to generate loan funds is a common banking practice, yet Respondent failed to disclose this to Complainant, in violation of federal law.