The ABCs of Mortgage

Foreclosure Defense

Real Estate Institute

November 14, 2008

Amber Hawkins, Esq.

Mark Ireland, Esq. .

Four Basic Tools You

Need for Going on Offense

Truth In Lending Act (“TILA”)

Foreclosure By Advertisement Statute

Minnesota “Equity Stripping” Laws

Minnesota’s New Anti-Predatory Lending

Laws

EARLY IS BETTER

The earlier you look at the documents

and go on “offense” the better.

--Why?--

One of the most powerful legal claims is a

Truth In Lending Act violation, and it is

arguably extinguished after the Sheriff’s Sale

has occurred. See Saygnarath v. BNC Mortgage, 2007 WL 1141495 (D.

Minn. 2007); But see Walker v. Contimortgage, 232 B.R. 725 (Bankr. N.D. Ill. 1999)

TRUTH IN LENDING ACT

The Truth In Lending Act (“TILA”) is the

most powerful tool you have to stop a

foreclosure.

WHY?

The remedies provided under TILA are so

powerful that they completely change the

leverage and dynamics of a foreclosure, because

the mortgage is immediately VOID.

RESCISSION

If appropriate TILA and HOEPA disclosures are not

made, or if prohibited terms are included in a HOEPA

loan, the consumer can rescind a loan for up to 3 years

from the date of consummation unless the property has

been earlier sold or transferred. 15 U.S.C. §§ 1635(a),

1635(f).

Upon rescission, a consumer is not liable for any

finance or other charge under the mortgage loan

and any security interest given by the consumer is

void. 15 U.S.C. § 1635(b); Regulation Z, 12 C.F.R. §

226.23(d). Rescission can be made against any

assignee of the loan. 15 U.S.C. § 1641(c).

Spotting A TILA Violation

First, does TILA rescission apply to your

client’s mortgage?

Was the mortgage refinancing an earlier

mortgage? If not, the TILA rescission right

does not apply.

Did the refinancing occur within the past

three years? If not, the three year statute of

limitations period has passed.

Three Day Right To Cancel

Did every person (husband and wife)

each receive two notices of a right to

cancel?

If they received the notice, were the

dates calculated correctly?

Exclude Sundays and Holidays.

Cannot be blank, i.e. Ameriquest

Cannot “waive” right at closing, unless there

are special circumstances

Calculation of the Finance

Charge and Amount Financed

Every charge on a HUD-1 itemized

disclosure is either a “finance charge” or

an “amount financed.”

The purpose is to disclose to the

consumer the cost of obtaining credit

rather than paying cash.

Errors and Tolerances

For a person who is in foreclosure, a

mere $35 error is enough to trigger the

right to rescind.

Overdisclosures are unlimited and not

actionable.

You need to go through and categorize

each charge as either a Finance Charge

or Amount Financed by looking at Reg Z

Sec. 226.4 and Commentary.

Red Flags and Things To

Look Out For…

In order for title company closing costs

and title insurance to be excluded, they

generally have to be “bona fide and

reasonable.” See Reg Z Sec. 226.4

(c)(7) (list of fees)

Examples of items that may not be

bona fide and reasonable…

Was the homeowner charged a settlement or closing fee of $200

or more and a document preparation fee of $100 or more?

Was the notary fee more than $50? Did they charge for a mobile

notary?

Did the credit report cost more than $15?

Did the appraisal cost more than $350?

Was the amount charged for title insurance reasonable?

Did they charge for an “expedited” courier or processing fee?

Foreclosure By

Advertisement

A violation of this statute gets you time,

and perhaps the tort of wrongful

foreclosure or a breach of good faith and

fair dealing claim.

Foreclosure by advertisement is a

privilege, not a right. Therefore the

statutory requirements are strictly

enforced, and any error voids the notice

of Sheriff’s Sale or the Sheriff’s Sale

itself.

See Spencer v. Annan, 4 Minn. 542, 543 (1860); Graybow-Daniels Co. v.

Pinotti, 255 N.W.2d 405, 407 (Minn. 1977) (recognizing foreclosure

statutes and their strict requirements have been virtually unchanged since

the late 1800s, and that early cases are still good law).

Pre-Requisites for Foreclosure By

Advertisement

Minn. Stat. § 580.02 (2006) To entitle any party to make such foreclosure, it is requisite:

(1) that some default in a condition of such mortgage has occurred, by which the

power to sell has become operative;

(2) that no action or proceeding has been instituted at law to recover the debt then

remaining secured by such mortgage, or any part thereof, or, if the action or

proceeding has been instituted, that the same has been discontinued, or that an

execution upon the judgment rendered therein has

been returned unsatisfied, in whole or in part;

(3) that the mortgage has been recorded and, if it has been assigned, that all

assignments thereof have been recorded; provided, that, if the mortgage is upon

registered land, it shall be sufficient if the mortgage and all assignments thereof

have been duly registered.

Requisites for Foreclosure

Notice

Minn. Stat. § 580.04 (2006) Each notice shall specify:

(1) the name of the mortgagor, the mortgagee, each assignee of the mortgage, if any, and the

original or maximum principal amount secured by the mortgage;

(2) the date of the mortgage, and when and where recorded, except where the mortgage is

upon registered land, in which case the notice shall state that fact, and when and where registered;

(3) the amount claimed to be due on the mortgage on the date of the notice;

(4) a description of the mortgaged premises, conforming substantially to that contained

in the mortgage;

(5) the time and place of sale;

(6) the time allowed by law for redemption by the mortgagor, the mortgagor's personal

representatives or assigns; and

(7) if the party foreclosing the mortgage desires to preserve the right to reduce the

redemption period under section 582.032 after the first publication of the notice, the notice

must also state in capital letters: "THE TIME ALLOWED BY LAW FOR REDEMPTION

BY THE MORTGAGOR, THE MORTGAGOR'S PERSONAL REPRESENTATIVES OR

ASSIGNS, MAY BE REDUCED TO FIVE WEEKS IF A JUDICIAL ORDER IS ENTERED

UNDER MINNESOTA STATUTES, SECTION 582.032, DETERMINING, AMONG

OTHER THINGS, THAT THE MORTGAGED PREMISES ARE IMPROVED WITH A

RESIDENTIAL DWELLING OF LESS THAN FIVE UNITS, ARE NOT PROPERTY USED IN

AGRICULTURAL PRODUCTION, AND ARE ABANDONED."

Deficiencies

The most common area to attack a

foreclosure notice is if there is a dispute

related to the amount owed and you can

establish prejudice.

Equity Stripping or

“Foreclosure Rescue Scams”

Was the homeowner in foreclosure, and then sold their

home with the agreement that they would be able to

purchase the property back at a later date? You may

also ask if the person made an agreement with a

“foreclosure rescue” company or worked with a

“foreclosure” consultant.

If yes, then there is likely to be a Minn. Stat. Sec. 325N

violation.

Minnesota’s New Anti-

Predatory Lending Statute

First, make sure the law applies.

Was the mortgage originated on or after

August 1, 2007?

Was the mortgage originated by a non-bank

lender, meaning not a federal or state

chartered bank or credit union?

Banned Mortgages

Does the loan negatively amortize, meaning that, if the consumer makes

the minimal monthly payment, the amount of the balance owed goes up,

not down?

Is there a prepayment penalty?

Does adding together the origination fee, broker fee, document

handling/processing fee, and/or Yield Spread Premium (YSP or POC)

exceed 5% of the loan?

Had the homeowner refinanced more than once in the past three years?

(potential churning/no-tangible-benefit violation)

Did the consumer receive independent counseling prior to refinancing a

“special mortgage,” meaning a mortgage made by a non-profit, like

Habitat for Humanity, or government agency, like the City of Minneapolis?

Other Tools

Chapter 13 Bankruptcy, automatic stay of

foreclosure

RESPA violations

Minnesota Consumer Protection Statutes