Building walls against fraud

A refinancing gone wrong turned Ed and Lisa Kivel from consumers in search of the best mortgage interest rate to consumer activists in search of justice. When the Kivels realized that Minnesota law gave them little recourse from a lender they consider unscrupulous, they set about changing it.

They spent three years and more than $25,000 sharing their story of inflated mortgages, lies and falsified documents with anyone who would listen. In that time, their crusade has grown from a complaint filed with the Commerce Department to hours of testifying at the Legislature.

The fruits of their fight -- a bill making mortgage fraud a punishable crime and allowing Minnesotans like the Kivels to pursue legal action -- is making its way through the House and Senate. It is one of three predatory-lending bills before the Legislature this year, the first of which, a bill banning high-risk mortgages and requiring mortgage brokers to confirm that borrowers can afford their loans, was signed by Gov. Tim Pawlenty on Friday.

A crusade is born

The trouble began when Ed Kivel, 44, noticed that the loan amount for their Baytown Township home, outside of Stillwater, was $4,500 higher than they'd asked for, an increase without authorization or explanation.

"We didn't need any money out of it at all," said Kivel, who was refinancing in 2004 to take advantage of historically low interest rates.

When he asked the WealthSpring Mortgage broker to change the loan amount back to $325,000, the broker said the loan was turned down because of hazardous materials in their soil discovered during an appraisal. (No such appraisal ever has surfaced, and the state Health Department, in a letter to the broker, refuted those claims.)

Then came evidence that lender ABN Amro approved the loan only to later deny it at the broker's request.

Kivel believes that once he noticed the inflated loan amount, the broker -- who he suspects of planning to pocket the extra cash -- was trying to get out of the loan. "I think it speaks to the old adage 'how do you steal a million dollars without getting caught?' " Kivel said. "Steal a dollar from a million people."

An engineer at 3M, Kivel, with the help of his wife, Lisa, gathered documents in order to prove their case. Their 3,000 pages of research fill an office in their home. They sent copies of their investigation and their story to legislators, the media, to anyone who would listen. They even enlisted their youngest of three children, Shauna, now 12, to help; her brother and sister are in college.

The maze of justice

Why didn't the Kivels just walk away?

During the few weeks they realized the loan wasn't going to go through, interest rates had risen sharply -- from 4.75 percent to more than 5.5 percent -- higher than the rate on their original loan.

That stung, but for the Kivels, who have excellent credit and could have refinanced anywhere, it was no longer about money. "People are losing their houses" because of shoddy mortgage deals, Ed Kivel said. "It's just not right." His family's experience shows that predatory lending doesn't just happen to low-income or financially strapped individuals. Having the means and the fortitude, they fought for change.

First, they filed a complaint through the Department of Commerce.

Kivel said that after sending "tons" of documents to the department over several months, his calls went unanswered and he never received a progress report. (The department recently reopened his case.) Frustrated, they hired a lawyer and sued WealthSpring, convinced a binder of documents they considered damning would make a rock-solid case.

They lost.

"The case was dismissed as not having any standing or legitimacy," said Dick Anderson, an executive vice president for WealthSpring Mortgage, who wouldn't discuss substantive issues in the suit.

Shocked, the Kivels learned they had an insurmountable case under Minnesota law. Minnesotans have a very limited right to argue in court that a lender or broker has violated mortgage-fraud laws. Individuals have to convince the court that the fraud that happened to them also happened to other homeowners, a difficult proposition.

"This bill will give them the right to sue, to basically act as the attorney general has the right to act -- to look into and discover other actions by that broker that may be fraudulent or improper," said Rep. Joe Mullery, DFL-Minneapolis, chief author of the House's enforcement bill.

It would also enable homeowners to sue for damages and attorney's fees.

Supporters of stronger consumer protection laws say damages not only help individuals "be made whole when they are harmed, but they also act as a deterrent to the behavior in the first place," said Ron Elwood, an attorney who sat on Attorney General Lori Swanson's predatory-lending task force.

Settling for change

Refusing to give up, and convinced their lender was at fault as well, the Kivels sued ABN Amro under a federal law. The company did not return calls for comment.

The matter eventually was settled out of court for $40,000, with ABN Amro not admitting wrongdoing. After taxes, $25,000 in legal fees, and the amount they would have saved through refinancing, the Kivels still lost money.

But the settlement satisfied the family because it did not include a confidentiality clause; the Kivels had permission to shout their story from the Capitol steps.

In 2004 and 2005, there wasn't much interest in the Kivels' story. "This wasn't in the headlines at all," he said. Though often frustrated, he never thought of giving up. "You'd have to know me a little bit," Kivel explained. "They don't get the last word. They lied, they cheated, they don't get to win."

Fast-forward to last year, when mortgage fraud and predatory-lending problems surfaced with the rise of foreclosures.

His story gained traction. Kivel contacted members of the attorney general's predatory-lending task force and began making the rounds, from speaking at community meetings, to testifying before the Legislature.

"He fought back even though the system was stacked against him," said Prentiss Cox, a former assistant state attorney general and University of Minnesota law professor. "He's the citizen hero of the year."

Kara McGuire • 612-673-7293 • kara@startribune.com