MANHATTAN (CN) - Former Mets centerfielder Lenny Dykstra claims Washington Mutual persuaded him take out a loan he could not afford so it could seize his property when he defaulted. Dykstra says he needed a loan to buy Wayne Gretzky's home in California for $17.4 million.
Dykstra, a fan favorite known as "Nails" and "The Dude," sued JP Morgan Chase & Co., which acquired WaMu when it collapsed, for predatory lending.
According to the federal complaint, Brian Minco, a WaMu loan representative who is not a party to this action, said he could procure a loan for $17.5 million with interest-only payments of about $48,000 a month.
Dykstra says WaMu reneged on the deal without warning and capped the loan at $12 million.
To proceed with the transaction, Minco helped Dykstra get a second loan to cover the shortfall from First Credit Bank, a "hard money" lender, according to the complaint.
Dykstra says this piggy-back loan was for $8.5 million on 12 percent interest. He says First Credit required him to take an extra $3 million and pay off loans on commercial property he owned in Simi Valley, so the bank could take a first position mortgage on that property.
Instead of making $50,000 a month in payments, Dykstra had to pay $134,400 -$10,000 more than his monthly income of $125,000
"Under any reasonable debt underwriting standards, there was no possibility that the Dykstras could qualify for the WaMu loan in the scenario created by Mr. Minco," according to the complaint.
Dykstra claims Minco persuaded him to do it by promising that WaMu would refinance the piggy-back loan within 60 days of closing. But he says WaMu reneged again, and did not refinance the loan.
"Plaintiff could not conceive that the defendant would knowingly structure a transaction designed to fail, without intending to rectify the situation for the sake of its borrower and its own position as a creditor in the transaction," the complaint states.
Dykstra says the transaction created debt obligations "well beyond the plaintiff's means" and was "designed to fail" so the bank could take control of the collateral after he defaulted.
This type of lending is known as "equity stripping" because it is based on collateral rather than plaintiff's ability to repay, according to the complaint.
Dykstra seeks punitive damages for fraud, negligent misrepresentation and breach of fiduciary duty. He is represented by Moshe Mortner.
Dykstra filed for bankruptcy in July 2009. After his baseball career ended, he want into finance, and helped launch The Players Club, a glossy magazine aimed at high-earning pro athletes.
He filed for bankruptcy during foreclosure proceedings on the house he bought from Gretzky, according to news reports at the time.
Dykstra, a lifetime .285 hitter, also stole 285 bases. He was runner-up for National League MVP in 1993 with the Phillies, and hit a famous lead-off home run in the World Series against the Red Sox in 1986, which the Mets won.