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Mortgage company sues owners of 400 Georgetown homes over titles

Mortgage company sues owners of 400 Georgetown homes over titles
The owners of 400 homes in a Williamson County neighborhood got a shock recently after receiving a federal lawsuit that said the land they had bought as far back as the 1990s really wasn't theirs.

JB Mortgage Co. started suing all the homeowners in the Crystal Knoll Terrace neighborhood near Georgetown in late October, claiming there was a lien against their titles. The Georgetown school district had illegally foreclosed on the neighborhood land in 1990 before it was developed, the lawsuit says.

At the time, the federal government owned the property and never consented to the foreclosure, which made it illegal according to federal statute, the suit says. The district later sold the land to developers, who started building the neighborhood about 1991.

But all the deeds, the lawsuit says, are null and void.

David Armbrust, an Austin real estate attorney not involved in the case, said it was very unusual for a mortgage company to claim there was a title defect on so many homes. "I've been in practice for 40 years and done a lot of real estate," he said, "and never heard or seen anything close to this."

According to the suit, the federal government still had a $5.2 million outstanding loan on the property that it had assumed in 1990 after the initial buyers defaulted on their payment to a savings and loan company that later failed. The government sold the loan to a private company in 1996, which then passed it on to other companies before it was sold to JB Mortgage in 2009.

JB Mortgage claims in its lawsuit that Crystal Knoll Terrace homeowners are now liable for the $5.2 million loan - plus 10 percent interest compounded annually since 1990. The total amount the mortgage company is asking for is more than $60 million.

The neighborhood features neatly kept houses up to 2,000 square feet. Home sale prices average $184,975, according to www.austinhomelistings.com.

About a dozen angry homeowners named in the suit met on the front lawn of Mike Grant's house in the Crystal Knoll Terrace neighborhood one afternoon last week.

"We are innocent people, and we are getting thrown out of our houses," said Margie White, one of the homeowners.

Karen Miller, who owns five homes in the neighborhood, said she was going to comfort another homeowner who was 91 years old and "about to have a heart attack" after getting sued.

Grant, the president of the Crystal Knoll Terrace Homeowners Association, said residents with title insurance need to contact their title companies because the companies would hire attorneys to represent them in the case.

"This is a pretty good textbook case as to why people should buy title insurance," said Armbrust, the real estate lawyer. Title insurance, in most cases, covers up to the price an owner paid for the property. It doesn't cover appreciations in property value.

Homebuyers in Texas aren't required to buy title insurance but most lenders require it, said Ben Gonzalez, a spokesman for the Texas Department of Insurance.

Marc Pollack, an attorney for JB Mortgage, said the investment company is "not trying to throw anybody out of their houses."

"Right now what we've got to do is have a court determine our lien is valid so their title insurance companies are required to pay off the lien," he said.

Pollack said that JB Mortgage hasn't decided what to do with homeowners who have no title insurance.

The mortgage company didn't sue the school district because it doesn't own the property anymore, Pollack said. The Georgetown school district didn't respond to a request for comment.

The problems began when a company called the Jefferson Group purchased the then-undeveloped 94-acre tract in 1985 with a $5.5 million loan from the Lincoln Federal Savings and Loan. The Jefferson Group never paid the loan back, the lawsuit says.

The savings and loan failed in 1990 and was taken over by the Resolution Trust Corporation, which was run by the federal government.

Resolution Trust then sued the Jefferson Group and won judgments against it that eventually were paid off except for about $5.2 million, the lawsuit said. But Jefferson Group also didn't pay the property taxes on the land, so the school district filed a foreclosure suit in October 1990 against Jefferson Group and Resolution Trust, the lawsuit said.

The Georgetown school district won the foreclosure suit and gained control of the property, according to the suit.

JB Mortgage first sued six of the homeowners in Crystal Knoll Terrace neighborhood in 2013. The lawsuit was dismissed in March 2014 because a six-year statute of limitations had expired, according to a motion from the U.S. District Court in the Western District.

The 5th U.S. Circuit Court of Appeals, however, ruled in favor of JB Mortgage in July 2015, saying that if the Georgetown school district had sold the land in violation of a federal statute, then the statute of limitations wouldn't apply, according to the court's ruling.

The opinion from the appeals court said that when the school district filed the tax-foreclosure lawsuit in 1990, the Resolution Trust Corp. appeared at the trial "but apparently did not argue" that under the federal statute its consent was required for the district to foreclose on the land.

"What makes this lawsuit against the homeowners even more interesting is that RTC was notified about the foreclosure and didn't object," Armbrust said. "The RTC didn't say yes, but it didn't say no so it makes it kind of cloudy."

The appeals court, according to its ruling, sent the case back to the district court to decide whether or not the federal government gave its consent to the school district to foreclose on the land. The case is still pending.

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