Ruling Postponed on Orange Loan Broker Accused by State of Racial Discrimination

A Los Angeles County Superior Court judge Thursday postponed until Monday a ruling on a state regulators’ request that the court take First Alliance Mortgage out of the hands of its management.

The Department of Corporations sued the Orange-based home loan broker Wednesday, accusing it of a longstanding pattern of racial discrimination in its lending practices. The state seeks orders appointing a receiver and forbidding management to tamper with the company’s records.

After seeing the imposing stacks of papers submitted by both sides, Judge Robert M. Mallano said he could not take up the matter until he inspects the filings.

First Alliance and its president and owner, Brian Chisick, told the court in filings that appointment of a receiver would cause employees and investors to lose confidence and “rapidly desert” the company. First Alliance reiterated that the company is innocent of illegal race discrimination.

Among other things, Chisick said that he did not authorize the use of a “never-never land” memorandum to screen out loans to people living in ZIP code areas where blacks predominate and that the memorandum had been “removed” in 1983 from a telephone operations room where company personnel obtained leads to people who might take out loans.

He said that First Alliance’s telephone personnel are told to pursue all leads from prospective borrowers and that the company “does not record or use ethnic information from census tract books as alleged.”

The company said the state’s investigation began about last October, “apparently on the basis of information provided by disgruntled and angry former employees” who brought or wanted to bring claims in connection with their termination of employment.

Outside the courtroom Thursday, defense attorney Paul J. Hall denounced the Department of Corporations for making “outrageous” allegations and for an “unconscionable” refusal to mediate the dispute before going into court. He accused the regulators of “an attempt to put First Alliance out of business in 24 hours.”

Robert N. Kwong, attorney for the department, said the court order and receiver are needed to protect the public from the firm’s “predatory” practices.

The state seeks to revoke First Alliance’s licenses for issuing securities in the form of interests in mortgage loans, as well as its licenses as a consumer finance lender and a commercial finance lender.

Among the evidence submitted to the court by the state and disclosed Thursday were declarations by several former executives of First Alliance attesting to company practices that are the basis of the state’s allegations. Declarations by state investigators and purported copies of the firm’s internal documents were also among the state’s filings.

‘Never-Never Land List’

In one of the declarations filed by the state, a former employee, James S. Gartland, told of seeing in the early 1980s “a list entitled ‘never-never land’ that is given to all (telephone room personnel) and posted in all the telephone carrels.” He added that leads to potential borrowers living in ZIP code areas found on the list were marked “area” to signify that they were to be ignored.

Michael W. Fisher, who said he resigned as a First Alliance loan officer last August, attested that he had personally heard Chisick use derogatory terms for blacks.

The state has also accused the company of misleading investors. In a declaration touching on that issue, Stephen B. Melton, Long Beach branch manager until he resigned in May, 1987, said First Alliance used a set of loan forms called the “monster presentation.”

The presentation purported to show that a borrower could save on interest expense by paying off a first mortgage with a new loan from the firm, Melton said. However, he said, it did not disclose that the new loan was generally at a higher rate of interest and almost always would cost more than it saved.

Proper, Legal Procedures

First Alliance filed declarations by employees who attested to following proper and legal procedures.

Among the declarations filed by First Alliance were those by two of their attorneys, Willie Barnes, who himself was state Commissioner of Corporations in 1975-79, and Stephen Gourley, who was chief deputy commissioner of the department in 1980-83.

Both told of making many efforts since last winter to get the department to outline the complaint that was being drawn up about the firm’s operations and to discuss settlement.