Predatory Lending and Unfair Trade Practices in Mortgage Loans: A Legal Analysis, Slides of Civil Law

Download Predatory Lending and Unfair Trade Practices in Mortgage Loans: A Legal Analysis and more Slides Civil Law in PDF only on Docsity! Litigating Claims Under the Unfair Trade Practice’s Act and Common Law Claims Docsity.com Introduction • Predatory Lending: the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against. • Subprime Lending: lending at a higher rate than the prime rate. “Subprime loans” refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. It may or may not reflect credit status of the borrower as being less than ideal and may not even reflect the interest rate on the loan itself. • Car loans, payday loans, credit cards, mortgage loans Docsity.com WHEN • Statue of Limitations: – Private (not state) action must be commenced within 6 years of the UTPA violation – Can argue that period begins when reasonable person would have been put on notice concerning the unfair or deceptive act Docsity.com What Consumers Must Prove and Do o Consumer must show: o Loss of money or property o Transaction involved primarily personal, family, or household purpose o Business benefited from violation when seeking restitution • Must send demand letter for relief 30 days prior to filing an action for damages. (See Kilroy v. Northeast Sunspaces Inc., et al., 2007 ME 119, 930 A.2d 1060.) Docsity.com • What Consumers can Receive – Damages or – Equitable Relief (Rescission, Void Contract) – Injunction – Restitution • Must show loss of money or property and benefit on violator – Attorneys fees (!) (But see Kilroy, 2007 ME 119, ¶15, 930 A.2d at 1064.(denial of fees possible remedy for failure to send demand notice.)) Docsity.com • Commonwealth v. Fremont Investment and Loan, 897 N.E. 2d 548 (MA Dec. 2008) • Lender’s combination of four loan characteristics into single loan package was considered presumptively unfair (1) the loans were ARM loans with an introductory rate period of three years or less; (2) they featured an introductory rate for the initial period that was at least three per cent below the fully indexed rate; (3) they were made to borrowers for whom the debt-to-income ratio would have exceeded fifty per cent had Fremont measured the borrower's debt by the monthly payments that would be due at the fully indexed rate rather than under the introductory rate; and (4) the loan-to-value ratio was one hundred per cent, or the loan featured a substantial prepayment penalty (defined by the judge as greater than the “conventional prepayment penalty” defined in G.L. c. 183C, § 2) or a prepayment penalty that extended beyond the introductory rate period. Docsity.com – Examples: – Not providing material information (failing to state material fact) – Making false advertising claims – Use of high pressure sales tactics – Deprivation of various post-purchase remedies (American Financial Services v. FTC, 767 F.2d 957, 979 (1985)) Docsity.com – Violation must be substantial – Must not outweigh any countervailing benefits to consumers or competition that the practice produces – Must be an injury that consumers themselves could not have avoided (Suminski v. Maine Appliance Warehouse Inc., 602 A.2d 1173 (Me. 1992); State of Maine v. Weinschenk et al., 2005 ME 28, 868 A.2d 200) Docsity.com • Darling, v. Western Thrift & Loan, 600 F.Supp.2d 189 (Feb. 2009): a genuine issue of fact exists with regard to whether the Darlings were misinformed about the existence or nature of the YSP and that such misinformation would be material. Docsity.com • MacCormack v. Brower, 2008 ME 86: “[t]he definitions of ‘unfair’ and ‘deceptive’ are questions of fact, and whether a particular act or practice is ‘unfair’ or ‘deceptive’ is determined on a case-by- case basis.” Docsity.com • Potential UTPA claims for predatory lending cases: – Failure to disclose disadvantageous terms, costs, fees, and the nature of the loan – Failure to disclose to consumer any fact relating to the loan transaction, disclosure of which may have influenced consumer not to enter into the transaction – Inflating income to qualify buyer – Inflating appraisal value to qualify for loan – Failure to disclosure changes in terms of loan: Bait and switch – Failure to consider consumer’s ability to repay the loan – Intentionally and knowingly placing consumer in a loan product that consumer could not afford – Misrepresentations and non-disclosures of material facts. Docsity.com • But see: • Good v. Altria Group, Inc. 502 F.3d 29 (1st Cir.2007) : regarding cigarette manufacturer's liability under UTPA: “conduct is exempt from the [Maine] Unfair Trade Practices Act where it is subject to specific standards left to the enforcement of an administrative agency, not merely those circumstances in which the agency's regulatory scheme is generally extensive' or detailed.” Docsity.com  Provencher v. T&M Mortgage Solutions 2008 WL 2447472 (DCt. Me. June 18, 2008) : discussed Good v. Altria Group, Inc. and indicated that Good required the District Court to construe First of Maine Commodities differently than it had in Keatinge v. Biddle and Wyman v. Prime Discount Sec. (“Good has interpreted the Maine [UTPA] statute [contrary to the way the District Court did in Keatinge and Wyman so it is no longer appropriate to apply section 208(1) of the UTPA to entire industries or professions]”) • Where consumer did not seek to hold the defendants liable under the Unfair Trade Practices Act for complying with a specific regulatory standard, the defendants would not be exempt from the Act Docsity.com WHERE – Consumers can bring action in: • Small Claims Court ($4500 or less) • District Court • Superior Court • Combined with Federal Claims, in Federal District Court or Bankruptcy Court Docsity.com – Facts/Claims: • Disparity in bargaining power: borrowers unsophisticated with regard to financial matters, creditor sophisticated and experienced entities, which sought to profit directly from the evident disparity in bargaining power. • Borrower had no reasonable opportunity to understand terms of contract: limited English, education, etc. • Terms of the loans so oppressive and unreasonably favorable to creditor. • Terms of loan changed at last minute. • Creditor induced borrower into loan knew, or reasonably should have known, that the borrowers were incapable of repaying, with total disregard of their ability to pay and without regard for the consequences to them of entering into the loan. • Absence of meaningful choice for borrower. Docsity.com • Fraudulent Inducement to Contract – Defendant provided a false statement of material fact – That defendant knew or should have known was false or acted in reckless disregard of whether it was true or false – That induced the plaintiff to enter into the contract – That proximately caused injury to the plaintiff when acting in reliance of that statement (Letellier v.Small, 400 A.2d 371, 376 (Me. 1979); Veilleux v. National Broadcasting Co., et al. 206 F.3d 92 (1st Cir. 2000)) See also MCCC §9-401 Docsity.com Tort Liability • Negligence – A duty of care owed by the defendant to plaintiff – Breach of that duty of care by defendant – Injury to the plaintiff and – Defendant’s breach caused the plaintiff’s injury Docsity.com • Intentional Infliction of Emotional Distress – The defendant’s conduct was extreme and outrageous (goes beyond all possible bounds of decency) – The conduct was intentional and reckless and – The conduct actually caused severe emotional distress (Curtis v. Porter, 2001 ME 158, ¶10, 784 A.2d 18) Docsity.com • Intentional Interference with Contractual Relations – Contractual relationship – Defendant’s knowledge of the contract – Intent to interfere – Existence of damages suffered by the plaintiff – Eg: Lenders failure to provide accurate payoff figure for refinancing out of predatory loan (Rutland v. Mullen, 2002 ME 98, ¶13, 798 A.2d 1104) Docsity.com Civil Conspiracy to Commit a Tort • Not recognized as independent tort • An agreement between two or more parties to deprive a third party of legal rights or deceive a third party to obtain an illegal objective • Must share a general conspiratorial objective – Eg: All defendants (real estate agent, mortgage broker, lender) acted in concert to inflict a wrong against and injure plaintiff by providing a mortgage that was unconscionable and that they knew the plaintiff could never repay, to obtain a substantial, excessive profit which caused the plaintiffs to suffer substantial damages. (See Cohen v. Bowdoin, 288 A.2d 106 (Me. 1972) Docsity.com Remedies under TILA • 15 USC 1640(a) • Statutory Damages $200-$2000 • Actual Damages • Costs • Attorney Fees • Rescission for lack of material disclosures Docsity.com Home Ownership and Equity Protection Act of 1994 (HOEPA) • TILA Amendment That Limits Cost-related Terms In Covered High-cost Home Equity Loans – 15 USC § 1602(aa); 1639 (Federal) – 9-A M.R.S.A. § 8-103 (F-1); 206-A (Maine- refers to Fed. statute) – Refinance loans only Docsity.com HOEPA Triggers • Pre-10/1/02 loans: annual percentage rate (APR) must exceed by more than 10% the yield on treasury securities having comparable maturities at the time the loan was made • Post-10/1/02 loans: the APR on first lien mortgages must exceed the yield on comparable maturities by 8%. The APR for junior liens remains at 10%. Docsity.com Real Estate Settlement Procedures Act (RESPA) – 12 USC §§ 2601 – 2617 – Protect from unnecessarily high settlement charges and abusive practices Docsity.com Remedies under RESPA – Statutory remedies for servicer obligations, kickbacks, and title company violations – Look to UDAP/ Maine UTPA: 5 M.R.S.A. §§ 206- 216 – SOLs 1 year; servicer obligations 3 years Docsity.com Benefits of Defending Foreclosure and Bringing Affirmative Claims in Bankruptcy • Automatic Stay • Opportunity to cure a home mortgage in default up to the sale of property under 11 USC §1322 (c)(1) . In Re Stephens, 221 BR 290, 293 (Bankr.D.Me 1998). • Bring claims and defenses in response to creditor’s proof of claim • Bankruptcy court generally more familiar with federal consumer protection and state lending laws Docsity.com