Six Theories to Stop Foreclosures
By L. Jed Berliner, Massachusetts Mortgage Attorney on Aug 31, 2008 in Foreclosure Defense, Mortgage Issues, Mortgage Issues In Bankruptcy, respa
Here are six arguments to stop a foreclosure:
1. The Truth In Lending Act (four states have their own approved versions; in MA it is the Consumer Credit Cost Disclosure Act) allows for rescission, if there are defective disclosure. Rescission requires repayment of the principal amount borrowed, less all payments made. In the old days, maybe two years ago, one could refinance and make this tender payment obligation. Not so anymore, with declining home values.
Following rescission, a Chapter 13 bankruptcy filing might allow payment of a small dividend for this tender obligation, instead of a 100% tender repayment. This argument has won at the MA bankruptcy court level but has not been successful in Maine, Puerto Rico, and elsewhere.
2. There is an untested argument that a mortgage note needs to be endorsed per UCC and cannot simply be assigned.
3. Your state’s Unfair and Deceptive Practices Act (UDAP) might permit rescission. In Massacusetts, Superior Court Judge Gant ruled in his Fremont Mortgage case that the Massachusetts UDAP is presumed to be violated where a mortgage (1) has an adjustable interest rate which adjusts within three years, (2) includes introductory teaser rate at least 3% lower than fully indexed rate, (3) application has the overall debt debt to income ratio of 50%+ if the fully indexed rate is used, and (4) has a 100% LTV, or substantial prepayment penalty, or any prepayment penalty extending beyond the introductory period.
No remedy was stated in the opinion, but rescission is a likely outcome (and is authorized under the UDAP), which brings us back to # 1 and whether tender is an absolute 100% or a Ch 13 dividend. It’s possible that monetary damages would be awarded, and if multiplied then the damages could be enough to save the home.
4. Section 506 (d) of the U.S. Bankruptcy Code can void a mortgage in the absence of a good mortgage assignment, hoping that a good assignment won’t be obtained before a final ruling issues from the court and hoping that the absence of a proper assignment is considered the type of meritorious failing that is within 506-d’s scope. Whenever 506 is mentioned, we should never forget Dewsnup’s lesson that it doesn’t always say what we think it says.
5. There’s always the oral he said/she said fraud, “they promised to refinance me into a fixed mortgage in two months.”
6. Inflated appraisal, and/or inflated income falsified by the lender’s sales staff (and not by a broker, who’s long gone): Equitable rescission would be the remedy, hopefully, and that brings us back to # 1 about a 100% tender obligation or a Chapter 13 bankruptcy dividend. Again, as with # 3 it’s possible that monetary damages would be awarded, and if multiplied then the damages could be enough to save the home.
I practice in Massachusetts, which is not a judicial foreclosure state. A foreclosure can only be stopped by a Ch 13 or a preliminary injunction, with the debtor having the burden of proof on a likelihood of success, etc, for the latter. It is far easier to stop a foreclosure in a judicial foreclosure state, and there are many more grounds to do so.
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