Florida has ranked first nationally in mortgage fraud for the last two years, according to the Mortgage Asset Research Institute. Since its inception in late September, the Federal-State Mortgage Fraud Initiative has resulted in 102 people being charged with mortgage fraud related crimes that have resulted or were intended to result in the issuance of more than $131 million in mortgage loans, the U.S. Attorneys Office said recently.
Defendant or Victim?
You may also be the victim of “predatory lending”. Predatory lending is a term used in lending contracts. Lenders following predatory lending practices, target vulnerable consumers like women or those who do not qualify for conventional loans. Predatory lending has one of the following characteristics:
1. The target group will be mainly the elderly or those with very low income.
2. The cost or loan terms at closing are not what you initially agreed to.
3. Aggressive sales tactics.
4. Repeated refinancing options over short periods of time enabling the lender to collect additional/penalty fees. This strips the homeowners’ equity from their homes.
5. The lending will not be in tune with the borrower’s ability to repay. The lender’s focus will be foreclosure.
6. The borrower is blind to many underlying truths.
7. There may be a lot of misrepresentations on the nature of loan, the amount of payment.
8. The transaction will be packed with high fees which will be hidden from the borrower’s eyes.
The aggressive sales tactics trick borrowers, mostly the uninformed groups, into accepting unfair loan terms. The federal remedies available to victims of predatory lending are: the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), the Home Ownership and Equity Protection Act (HOEPA), which is a 1994 addition to TILA, the Equal Credit Opportunity Act (ECOA), the Fair Housing Act, and the Federal Trade Commission Act. State remedies can be found in State Unfair and Deceptive Trade Practices Acts, common law fraud and unconscionability, and Special State Anti-predatory Lending Statutes.
Wherever there is a pool of low-income homeowners or other groups of individuals who are financially vulnerable, the potential for greedy mortgage companies or con-artists to step in looms large. While the actions of these companies may not always be illegal, the result can be the same: the homeowners may lose their home and the professionals who supposedly ‘helped them’ end up profiting. These helpers are predators – seeking their prey from the elderly, the sick, the poor. Predatory lending practices can leave victims homeless and defeated, stripped of self-respect and hope, their credit ruined.
The definition of predatory lending involves who really benefits in the mortgage transaction. The fact that the homeowner does NOT benefit is what turns a legal mortgage into a predatory lending practice which can and should be reported. There are many resources where one can report mortgage fraud and predatory lending. If uncertain whether a mortgage action is legal, or actually fraud or a form of predatory lending, then one should still report it and find out for sure. In many cases only a fine line divides actual fraud from an ethical and legal transaction.
Steering & Coercing
Predatory Lenders use quite a number of different abusive practices when putting together a subprime loan. The possible targets for these practices are the elderly, low-income, or minority homeowners who, in many cases, would actually qualify for a regular prime loan. Fannie Mae estimates that possibly up to 50% of the subprime refinanced loans could have been prime loans – saving the borrowers thousands of dollars in fees and interest rates. The abuse of subprime loans in minority neighborhoods is evidenced by a government study in an African-American neighborhood showing over 51% of the refinanced mortgages being subprime, compared to only 9% in predominantly white neighborhoods. Borrowers are often subjected to very aggressive sales tactics to steer them or coerce them into refinancing when it isn’t in their best interest. Many states are attempting to set up predatory lending laws to avert this type of activity.
Excessive Fees
A refinanced mortgage can be packed with excessive fees and/or unnecessary fees. A regular mortgage usually will have loan fees below 1% of the total loan amount. A predatory mortgage can have loan fees in excess of 5%. These excessive costs are tucked into the loan amount so the lender can easily disguise them, and these fees can put thousands of the homeowner’s dollars into the predator’s pockets. This practice falls within the definition of predatory lending.
Insurance and Other Unnecessary Products
Predators often add insurance and other unnecessary products to the loan amount. The insurance they either insist on or intimidate the borrower into buying can include regular mortgage insurance, fire and hazard insurance, life insurance, disability insurance, homeowner’s insurance, and health insurance. The insurance can be extended to include all family members, not just the borrowers themselves. The premium for these items is also added onto the loan amount where the cost is not easily spotted by the borrower. And, of course, the predator earns large commissions every year on the premiums paid. A variation of this happens when three or five years of premium are paid in advance.
Abusive and Abnormal Prepayment Penalties
Only about 2% of normal conventional mortgages have a prepayment penalty that might be difficult to meet. Up to 80% of subprime mortgage have an abusive prepayment penalty. Why? This is one more way the predators can gouge an unsuspecting homeowner. The prepayment penalty is a fee the lender requires the borrower to pay if the borrower should pay off the mortgage loan early. The subprime borrower usually has less-than-perfect credit when originally taking out the mortgage, and the prepayment penalty is hidden in the fine print. Over the next few years the borrowers may manage to improve their credit and want to obtain a new mortgage that has lower interest and lower payments. However, the prepayment penalty on the original mortgage (which often equals 5% of the original loan) is so high that it eats up any equity the homeowners have built up and can even leave them owing more money. Homeowners often are trapped into keeping the original, high-interest mortgage. This is also another case where the lender gives a kickback to the mortgage broker for helping to include the high prepayment penalty in the mortgage. In the future, when the homeowner has to pay the prepayment penalty, the mortgage broker pockets more money.
Because the predators using high prepayment penalties channel the borrowers into subprime loans, the honest conventional lenders lose a great deal of prime loan business. This indirectly affects the fees they need to charge their regular prime borrowers. Everyone loses when predatory lenders have their way.
Loan Flipping
Another form of predatory lending practices occurs when Con-Artists find a homeowner whom they can talk or coerce into refinancing their mortgage, even though the homeowner gains nothing from the transaction. The process is called loan flipping. While the transaction might put a few thousand dollars into the homeowner’s bank account, this amount is easily eaten up by the excessive fees, higher interest rate, and prepayment penalties of the new mortgage. A serious danger with loan flipping occurs when a balloon payment is inserted into the fine print. While the homeowners originally may have had twenty or thirty years to pay on the mortgage, under the loan flipping they might be signing for a two, three, or five year balloon payment. At the end of that time they need to find a way to refinance the house again or lose it completely. Of course, the ‘expert Con-Artists’ will be only to glad to do another loan flip and refinance it for them – once again pocketing thousands of dollars in the process and leaving the homeowner with even less equity in the property than before.
Mandatory Arbitration
Another practice that falls within the definition of predatory lending happens when a lender hides words in the fine print that make it illegal for the homeowner to take legal action against the lender. The borrowers sign away their rights to sue the lender for any fraud, predatory actions or illegal actions. The only right the borrowers have is to take their grievances to arbitration. The arbitration process is totally in the hands of the lenders, usually conducted in secret without the borrowers having adequate representation. Although the borrowers can usually have legal counsel, they find it difficult to find anyone who will represent them because the lawyers are not guaranteed payment of their fees in arbitration like they are in court. Many arbitration cases are handled over the phone and when a small individual is pitted against a large corporation and the proceedings are confidential with no stenographic or written record of the facts, the borrower is at a true disadvantage. Most arbitration decisions are binding and the borrowers cannot appeal them.
More than 50% of the lenders are now including mandatory arbitration in their loan documents, and the borrowers remain unaware of the implications. Lenders favor arbitration because it eliminates a borrower’s rights to do a class-action suit against the lender. The Fair Credit Reporting Act and the Truth in Lending Act have no bearing in an arbitration situation, only if one can go to court. And, some lenders keep their right to go to court but prohibit the borrower from doing so. The fees for arbitration can also be more expensive than filing a small claims court suit. Overall, the borrowers who sign a mandatory arbitration contract are bound to a very lopsided arrangement that rarely is in their best interest.
The major arbitration administrators that a borrower can utilize are the National Arbitration Forum, the American Arbitration Association (ADR), and Jams Endispute.
Predatory Lending Laws
Predatory lending laws are slowly being integrated into the legal systems of the federal government and the individual states. More than 35 states have already placed a legal limit on the maximum prepayment penalty that a homeowner should have to pay, and over half of the states have taken steps to limit predatory lending practices during the last five years. While the definition of predatory lending varies in each state, the awareness that individual citizens need to be protected by predatory lending laws is growing.
As more and more homeowners become aware that they have the right to report mortgage fraud and predatory lending, and policy makers, consumer advocates and civil rights leaders take stronger action against the Con-Artists specializing in predatory lending practices, then the elderly, minorities and those with less income are less likely to be prey for predators. Politicians on every level are becoming more aware of the need for predatory lending laws as the Con-Artists multiply, ultimately costing citizens billions of dollars. Organizations like the Center for Responsible Lending, the National Association of Mortgage Brokers, the Mortgage Bankers Association (MBA), and the American Bar Association actively work to promote predatory lending laws. They also know that educating the public is one of the strongest deterrents to mortgage fraud and predatory lending practices. These organizations are committed to providing this education.
TRUTH IN LENDING
A. Overview
1. Congress passed TIL to remedy fraudulent practices in the disclosure of the cost of consumer credit, assure meaningful disclosure of credit terms, ease credit
shopping, and balance the lending scales weighted in favor of lenders. Beach v.
Ocwen, 118 S.Ct.1408 (1998), aff’g Beach v. Great Western Bank, 692 So.2d
146,148-149 (Fla.1997), aff’g Beach v. Great Western, 670 So.2d 986 (Fla. 4th DCA
1996), Dove v. McCormick, 698 So.2d 585, 586 (Fla. 5th DCA 1997), Pignato v.
Great Western Bank, 664 So.2d 1011, 1013 (Fla. 4th DCA 1996), Rodash v. AIB
Mortgage, 16 F.3d 1142 (11th Cir.1994).
2. TIL creates several substantive consumer rights. §1640(a)(1) gives consumers
actual damages for TIL errors in connection with disclosure of any information.
§1640(a)(2)(A)(iii) gives consumers statutory damages of twice the amount of any
finance charge, up to $2,000.00 for errors in connection with violations of §1635 or error tolerance. See Beach, 692 So.2d p.148-149, Kasket v. Chase Manhattan Bank, 695 So.2d 431,434 (Fla.4 DCA 1997) [Kasket I,] Dove, p.586-587, Pignato, p.1013, Rodash, p.1144. 2 See also §1605(f)(1)(A).
3. §1635(a) allows a consumer to rescind home secured non-purchase credit for any reason within 3 business days from consummation. If a creditor gives in accurate required information, TIL extends the rescission right for 3 days from the date the creditor delivers the accurate material TIL disclosures and an accurate rescission notice, for up to three years from closing. Pignato, p.1013 (Fla. 4th DCA 1995) (“TILA permits the borrower to rescind a loan transaction until midnight of the third business day following delivery of all of the disclosure materials or the completion of the transaction, whichever occurs last.”]. See also: Beach, cases, supra, Rodash, Steele v Ford Motor Credit, 783 F.2d 1016,1017 (11th Cir.1986), Semar v. Platte Valley Fed. S&L, 791 F.2d 699, 701-702 (9th Cir. 1986).
4. HOEPA loans (Also called a §1639 or Section 32 loan.) TIL requires additional
disclosures and imposes more controls on loans that meet either the “T-Bill Trigger” or “Points and Fees Trigger” set forth at §1602(aa). §1639, Reg Z 226.31 & Reg Z 226.32, require the creditor for a §1602(aa) loan to give additional early [3 days before consummation] disclosures to the consumer and prohibits loans from containing certain terms [i.e. a prohibition on certain balloon payments]. It also has a special actual damage provision at §1640(a)(4). (HOEPA can make a lender a TIL creditor for the first HOEPA loan). (The trigger for Florida’s Fair Lending Act is based on the HOEPA triggers. This may affect a many loans and may provided post 3 year rescission. See: Fla. Stat. §494.00792(2)(d)).
5. Zamarippa v. Cy’s Car Sales, 674 F.2d 877, 879 (11th Cir. 1982), binding in
Florida under, Kasket II, holds: “An objective standard is used to determine
violations of the TILA, based on the representations contained in the relevant
disclosure, documents; it is unnecessary to inquire as to the subjective deception or misunderstanding of particular consumers.”
6. In 1995, Congress created a defensive right to rescind when a lender sues a
consumer to foreclose the mortgage. See §1635(a) & (i)[1995], Reg. Z 226.23(a)(3)
& (h) [1996]. The §1635(i) amendment triggers the consumer’s defensive right to
rescind when the creditor overstates the amount financed by more than $35.00, or errs in the Notice of Right to Cancel form, and the claim is raised to defend a
foreclosure. See also Reg Z 226.23(h).
7. Florida defers to the FRB’s interpretation of TIL and its own regulations. Beach, 692 So.2d p.149, Pignato, p.1013, Kasket, I p.434. The U.S. Supreme Court requires deference to the FRB’s interpretations of the Statute and its own regulations. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 560, 565-570 (1980). TIL is remedial, so courts expansively and broadly apply and interpret TIL in favor of the consumer. Rodash, p. 1144; Schroder v. Suburban Coastal Corp., 729 F.2d 1371, 1380 (11th Cir. 1984); Kasket II, W.S. Badcock Corp. v. Myers 696 So.2d 776, p. 783 (Fla. 1st DCA 1996) adopting Rodash, p.1144: “TIL is remedial legislation. As such, its language must be liberally construed in favor of the consumer.”
8. Pignato, p. 1013 also holds: “Creditors must strictly comply with TILA. Rodash, 16 F.3d at1144; In re Porter, 961 F.2d 1066, 1078 (3d Cir. 1992). A single violation of TILA gives rise to full liability for statutory damages, which include actual damages incurred by the debtor plus a civil penalty. 15 U.S.C.A. §§
1640(a)(1)(2)(A)(i).Moreover, a violation may permit a borrower to rescind a loan
transaction, including a rescission of the security interest the creditor has in the
borrower’s principal dwelling. 15 U.S.C.A. §§1635(a).” See also the Beach cases.
This is in harmony with W.S. Badcock, p. 779, which holds: “Violations of the TILA are determined on an objective standard, based on the representations in the relevant disclosure documents, with no necessity to establish the subjective misunderstanding or reliance of particular customers.”
B. Assignee Liability
1.§1641(a)(1) and §1641(e)(1)-(2) provides that assignees are liable for §1640(a)
damages if the disclosure errors are apparent on the face of the disclosure statement and other documents assigned. Congress statutorily designated the TIL disclosure statement, the TIL notice of right to cancel, and any summary of the closing costs as documents assigned. See §1641(e)(2).
2. §1641(c) provides that assignees are liable for §1635 rescission regardless of the
apparent on the face of the “documents assigned” standard for damages claims.
Belini v. Washington Mut. Bank, FA, 412 F.3d 17, p. 28 (1st Cir. 2005).
3. You must make sure that you rescind as to the correct “creditor.” See: Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir. 2002).
4. Assignees are also liable under Florida’s Fair Lending Act. See Fla. Stat.
§494.00793.
C. Right to Rescind
1. Each consumer with the right to rescind must receive one [1] copy of the correct TIL Disclosure Statement and two [2] copies of a correct Notice of Right to Cancel form. If not, the consumer can rescind for up to 3 years after closing. See: Reg Z 226.23(a)(3), fn 48; Beach v. Ocwen, 118 S.Ct.1408 (1998), aff’g Beach v. Great Western Bank, 692 So.2d 146,148-149 (Fla.1997), aff’g Beach v. Great Western Bank, 670 So.2d 986 (Fla. 4th DCA 1996); Rodash v. AIB Mortgage, 16 F.3d 1142 (11th Cr.1994); Steele v Ford Motor Credit, 783 F.2d 1016 (11th Cir.1986), all binding here under Kasket v. Chase Manhattan Mtge. Corp., 759 So.2d 726 (Fla. 4th DCA 2000) (11th Circuit cases on federal TIL issues are binding on Florida courts).
2. The error must be a “material error” which is defined at Reg Z 226.23 fn 48: “The term “material disclosures” means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total payments, the payment schedule, and the disclosures and limitations referred to in sections 226.32(c) and (d).”
3. A HOEPA loan requires additional disclosures 3 days before consummation. See: Reg Z 226.31(c)(1) (“The creditor shall furnish the disclosures required by section 226.32 at least three business days prior to consummation of a mortgage transaction covered by section 226.32.”). The failure to deliver the HOEPA forms is an additional TIL material disclosure which extends the right to rescind for violations. See: Reg Z 226.23(a)(3): “The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures,[fn]48 whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation….” See also fn 48 above.
4. Florida’s Fair Lending Act is based on the HOEPA triggers and appears to adopt TIL right to rescind without the 3 year limit. See: Fla. Stat. §494.00792(2)(d). This theory has not been tested in any appellate court.
5. Most creditor’s closing/underwriting files will have a signed acknowledgment that the consumer received 2 copies of the TIL notice of right to cancel. Under TIL 15 U.S.C. 1635(c) this creates a rebuttable presumption of receipt: “Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.” Once the consumer’s affidavit or interrogatory answer or deposition stares that the consumer did not receive the 2 notices, this rebuts the presumption of receipt in the acknowledgment and presents a question of fact for trial. See: Cintron v. Bankers Trust Company, 682 So.2d 616 (Fla. 2nd DCA 1996).
6. The critical issue is what did each consumer receive not what is in the creditor’s underwriting or closing file. Make sure that the TIL Right to Rescind form is correctly filled out and the loan closed on the date it purports to have closed. If the lender directs the consumer to deliver the notice of right to cancel form to a post office box, this should extend the right to rescind.
D. Material Errors
1. The TIL Disclosure Statement “Federal Box” will contain the following “material information”. These numbers are taken from the Norwest v. Queen Martin trial memorandum:
Annual Percentage Rate
11.227%
Finance Charge
$176,073.12
Amount Financed
$70,708.16
Total of Payments
$246,781.28
PAYMENTS: Your payment schedule will be:
Number of Payments Amount of Payments When Payments Are Due – 359
685.52- PAYMENT AMOUNT
679.60-LAST PAYMENT
Monthly beginning 10/01/99
2. At the bottom of the TIL Disclosure Statement, usually just inside the bottom part of the federal box, you will see a place for the creditor to place an “X” next to: “‘e’ means an estimate;” and a second box to place an “X” next to: “all dates and numerical disclosures except the late payment disclosures are estimates.” Estimated disclosures violate TIL.
3. If no Reg Z 226.18(c) required Itemization of Amount Financed (not a material
disclosure error) one “work backwards” to determine how the creditor arrived at the TIL disclosures. First, one must deduct the $70,708.16 “amount financed” from the face amount of the note. Let us assume this note was for a $76,500.00 loan. Therefore the creditor had to use $5,791.84 as the total of “prepaid finance charges.” The disclosures are interrelated. If one multiplies the monthly payment amounts by the number of payments, and adds the sums, this equals the total of payments. Adding the finance charge to the amount financed equals the total of payments. The annual percentage rate is the percent of these figures, based on 360 monthly payments, using either the American or actuarial method. In order to arrive at the disclosed $70,708.16 “amount financed.” Then one must examine the charges” to determine the items from the HUD-1 that the creditor included in the $5,791.84 prepaid finance charges to determine if $5,791.84 correct reflects all the prepaid finance charges. See: §1638(a)(2)(A); Reg Z 226.18(b): “The amount financed is calculated by: (1) Determining the principal loan amount or the cash price (subtracting any downpayment); (2) Adding any other amounts that are financed by the creditor and are not part of the finance charge (usually not applicable); and, (3) Subtracting any prepaid finance charge.”
4. The Norwest/Martin Trial memo has a great deal of detail with respect to the
specific charges and violations.
F. Truth in Lending Remedies
1. §1635(b) and Reg Z 226.23(d)(1-4) rescission; and, 2) §1640 damages.
2. Semar v. Platte Valley Federal S & L Ass’n, 791 F.2d 69 (9th Cir. 1986) is the
leading case used by virtually all courts to impose TIL’s §1635(b) and Reg Z
226.23(d)(1-4) rescission remedy in a non-§1639, non-vesting case.
3. Semar, interpreted Reg Z 226.23(d)(1) “Effects of rescission: When a consumer
rescinds a transaction, the security interest giving rise to the right of rescission
becomes void and the consumer shall not be liable for any amount, including any
finance charge.” The Semar, Court accepted the consumer’s rescission formula under Reg Z 226.23(d)(1), added all the “finance charges” listed on the HUD-1, plus the 2 $1,000.00 maximum statutory damage awards ($1,000.00 for the initial error and $1,000.00 for the improper response to rescission, increased to $2,000.00 in 1995), plus all the mortgage payments made, then deducted this sum from the face amount of the Semar, note to arrive at the net debt owed the creditor.
4. §1640(a)(2)(A)(iii) Statutory Damages $2,000.00 for initial errors and $2,000.00
for the improper response to rescission. See: 15 U.S.C. §1635(g); 15 U.S.C. §1640
(a)15 U.S.C. §1640(g); Gerasta v. Hibernia Nat. Bank, 575 F.2d 580 (5th Cir. 1978),
binding in the 11th Circuit under Bonner. (TIL statutory damages available for initial TIL error and improper response to demand to rescind).
5. §1640(a)(1) Actual Damages for any errors: Hard to prove need to establish
“detrimental reliance” on an erroneous disclosure.
6. §1640(a)(4) Enhanced HOEPA Damages: §1640(a)(4) enhances the damages: “in the case of a failure to comply with any requirement under section 1639 of this title, an amount equal to the sum of all finance charges and fees paid by the consumer, unless the creditor demonstrates that the failure to comply is not material.”
5. Equitable Modification under §1635(b) and Reg Z 226.23(d)(4). Williams v.
Homestake Mortg. Co., 968 F.2d 1137 (11th Cir. 1992) allows for equitable
modification of TIL, Burden on lender to prove facts that justify the equitable
modification. If not, Florida courts must follow Yslas v. D.K Guenther Builders, Inc.,
342 So.2d 859, fn 2 (Fla. 2nd DCA 1977), which holds:
“The statutory scheme to effect restoration to the status quo provides that within ten
days of receipt of the notice of rescission the creditor return any property of the
debtor and void the security interest in the debtor’s property. The debtor is not
obligated to tender any property of the creditor in the debtor’s possession until the creditor has performed his obligations. If the creditor does not perform within ten days of the notice or does not take possession of his property within ten days of the tender, ownership of the creditor’s property vests in the debtor without further obligation.” [emphasis added].
The 2nd District recently reaffirmed Yslas in Associates First Capital v. Booze, 912
So.2d 696 (Fla. 2nd DCA 2005). Associates, involved a partial §1635(b) and Reg Z
226.23(d)(1-4) rescission because the consumer refinanced with the same creditor,
and the refinance included an additional advance of credit. In the Associates, the
consumer can rescind only the additional advance. Important here, the Associates, consumer argued, and the Court agreed that the lender failed to perform a condition precedent to equitably modify TIL by failing to respond to his rescission notice within 20 days, as required by §1635(b) and Reg Z 226.23(d)(2):
“If a lender fails to respond within twenty days to the notice of rescission, the
ownership of the property vests in the borrowers and they are no longer required to pay the loan. See § 1635(b); Staley v. Americorp Credit Corp., 164 F. Supp. 2d 578, 584 (D. Md. 2001); Gill v. Mid-Penn Consumer Disc. Co., 671 F.Supp. 1021
(E.D.Pa. 1987). However, because 12 C.F.R. § 226.23(f)(2) provides only a partial
right of rescission where there is a refinancing, when the Lender failed to respond to the notice of rescission within twenty days, ownership of only the property subject to the right of rescission — the $994.01 loaned for property taxes — vested in the Borrowers without further obligation.” Associates, p. 698.
G. Truth in Lending Supplements State Remedies & Both Apply
1. Williams v. Public Finance Corp., 598 F.2d 349, rehearing denied with opinion at 609 F.2d 1179 (5th Cir. 1980), binding here under Bonner, holds that a consumer can get both TIL damages and usury damages because state usury laws and the Federal Truth in Lending Act provide separate remedies to rectify separate wrongs based on separate unrelated statutory violations. The 5th Circuit rejected the creditor’s “double penalty” argument by holding that if it accepted the argument, it would give special lenient treatment to the creditor when his loan violates 2 separate statutes, one state and one federal, designed to remedy 2 separate wrongs “Moreover, we eschew an analysis of these statutory cases limited by the common law doctrines of compensation for breach of contract. These cases involve penal statutes, and we are compelled to enforce their clear and direct commands whether or not they seem to be overcompensating in a contract or tort analysis. There is nothing inherently wrong, excessive, or immoral in a borrower receiving two bounties for catching a lending beast who has wronged him twice — first, by sneaking up on him from behind, and then by biting him too hard. The private attorney general who exposes and opposes these credit wolves is not deemed unduly enriched when his valor is richly rewarded and his vendor harshly rebuked. Nor does the state’s punishment for the usurious bite interfere with Congress’s punishment for the wearing of sheep’s clothing.”
“We have come, or gone, a long way from Shakespeare’s ancient caution, “Neither a borrower, nor a lender be.” In today’s world borrowing and lending are daily facts of life. But that a fact becomes diurnal does not mean it has been cleansed of its dire potential. We still heed the Bard’s advice, but in our own modern way — by strict regulation of the strong and careful protection of the weak and unwary. While the well-intended efforts of our many sovereigns may at times sound more like discordant and competing solos than mellifluous duets, we, as judges, must restrain our impulse to stray from the score.” Williams, 609 F.2d pg. 359-360.
In case the first opinion was unclear on this point, the Williams, rehearing opinion repeated and reaffirmed its “lending wolf” analysis:
“Noting that the effect of appellants’ argument was to ask for “special lenient
treatment to lenders who violate two laws instead of just one,” we rejected the
approach to the question proposed by the appellants and defined our inquiry in the following terms:
[W]e think the real question in this case is a relatively standard one of statutory
interpretation. More specifically, we think the question is whether Congress intended that the TIL Act would apply to loans which violated state usury laws punishable by forfeiture. At the outset we note that no exception for such loans is made explicitly in the TIL Act. Moreover, since the Act is to be construed liberally to effect its remedial purposes, Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740, 748 (5th Cir. 1973), we are generally disinclined to read into the Act an implicit exception which benefits lenders at the expense of borrowers. However, the real test of whether this exception was intended or not must start with the question of whether it serves or disserves the purposes of the Act. In this analysis resides the real focus of our decision. The ILA and TIL Act provide separate remedies to rectify separate wrongs.
The ILA limits what a lender subject to its provisions can charge for the use of its
money; the TIL Act provisions involved here are designed to penalize and deter an independent wrong arising from nondisclosure.[fn5] We did not believe, and do not believe, that it sub serves the purposes of the TIL Act to read into it an implied said, we do not think it especially unfair or unjust to order two punishments for a lender who violates two laws. And more to the point, we think it would be directly contrary to the purposes and policies of the TIL Act to excuse a violator from federal penalty simply because he is also liable for a state penalty, especially where that state penalty may often be less harsh than the federal penalty…….”
“…… Appellants petition for rehearing have taken offense at our characterization of lenders who violate the ILA as “credit wolves” and as wearers of “sheep’s clothing” when they also violate the disclosure provisions of the TIL Act. They suggest that such labels have obscured our analysis of the legal issues here. Such most certainly is not the case. Our analysis was and is based on our perception of the proper construction of the federal and state policies, even though their meshing is not nearly as perfect as we and appellants could wish. Nonetheless, as we read the ILA and the TIL Act, appellants have violated both and are subject to the penalties of both.
Although appellants’ predations may be technical and they may feel we have cried “wolf” too readily, the fact remains that as we read the statutes appellants are guilty of the violations charged.” Williams, 598 F.2d pg. 1181-1184.
H. TILA Defenses
1. Lender’s attorneys like to amend their complaint to allege fraudulent inducement of the mortgage and note in the face of a TIL rescission claim. I have supplied 2 motions to dismiss which address most of the issues when an assignee sues to foreclose then seeks to amend alleging fraudulently inducement of the mortgage.
2. A creditor can only raise statutory defenses to defend a TIL claim. Fraudulent
inducement is not a statutory defense, and therefor prohibited. Purtle v. Eldridge
Auto Sales, Inc., 91 F.3d 797, 801 (6th Cir. 1996).
3. 15 U.S.C. §1640(b) Correction of errors defense If lender discovers the errors he
has 60 days to notify the consumer, adjust the account and provide corrected
disclosures – I have never seen this defense raised
4. 15 U.S.C. §1640(c) Bona Fide error defense – must be a bona fide error, must have a procedure in place to catch and correct the error. Strictly clerical not error in legal judgment. I have seen this defense less than a dozen times non was successful at trial, usually abandoned.
5. Statute of Limitations: Damages have a 1 year limit but you can raise damages by recoupment or set off after the 1 year limit expires, and must allege for each rate change for a variable rate loan disclosure errors. 15 U.S.C. §1640(e).Key Sav. Bank, F.S.B. v. Dean, 695 So.2d 808 (Fla. 4th DCA 1997); Essex Home Mortgage Serv. v. Fritz, 740 So.2d 1224 (Fla. 4th DCA 1999).
6. Rescission has a 3 year limitation which is a statute of repose and cannot be raised after 3 years. See: Beach, cases; 15 U.S.C. §1635(f). There is some question in my mind as to whether the Fla. Stat. §494.00792(2)(d) adoption of 15 U.S.C. §1635(a) but not 15 U.S.C. §1635(f) gives an unlimited right to rescind at least HOEPA loans.
7. Sale of property terminates the right to rescind – signing the sale contract is treated as a sale. See: Dailey v. Leshin, 792 So.2d 527 (Fla. 4th DCA 2001)
IV. FLORIDA FAIR LENDING ACT FLA. STAT. §494.0078 – §494.00797
A. Application
1. Must be a HOEPA Loan Fla. Stat. §494.0079(7)
2. Limited Application only to a “Lender” which means any person who makes a
high-cost home loan or acts as a mortgage broker or lender, finance company, or
retail installment seller. Excludes any entity chartered by the United States Congress when engaging in secondary market mortgage transactions as an assignee or otherwise. Fla. Stat. §494.0079(8)
B. Prohibited Acts – Fla. Stat. §494.00791:
1. Prepayment Penalties prohibited unless within first 36 months after consummation and only if borrower was offered a choice of another loan without a prepayment penalty and borrower was given disclosure at least 3 business days before consummation, the terms of the prepayment penalty, including the benefit the borrower will receive for accepting the prepayment fee or penalty through either a reduced interest rate on the loan or reduced points or fees.
2. Default Interest Rate higher than loan rate prohibited unless in connection with a variable loan.
3. Balloon Payments prohibited
4. Negative Amortization prohibited
5. Collecting more than 2 prepaid payments prohibited
6. Extending credit without regard to the payment ability of the Borrower prohibited as a pattern or practice (equity loans)
7. Payments to a Home Contractor. Only 1 control. Can issue check only to borrower or jointly to Borrower and Contractor, or w/borrower consent to escrow agent with signed disbursal schedule.
8. Due-on-demand Clauses prohibited
9. Refinancing Within an 18-month Period prohibited unless the refinance has a
reasonable benefit to the borrower considering all of the circumstances, including, but not limited to, the terms of both the new and refinanced loans, the cost of the new loan, and the borrower’s circumstances.
10. Prohibited from making an Open-ended Loan to evade the act.
11. Prohibits recommending a default on existing loan as part of the refinance.
12. Prohibits offering or selling a high-cost home loan at the residence of a potential
borrower without a prearranged appointment with the potential borrower or the
expressed invitation of the potential borrower, except for mail solicitations
13. Prohibits certain late payment fees
14. Prohibits a charge to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan on a minimum of one modification, renewal, extension, or deferral per each 12 months of the length of the loan.
C. Required disclosures for high-cost home loans Fla. Stat. §494.00792
1. Required additional disclosure, format, and timing. Fla. Stat. §494.00792(1)(a).
2. APR and Variable Rate Disclosure. Fla. Stat. §494.00792(1)(b).
3. Notice of Liability to assignees. Fla. Stat. §494.00792(1)(c).
4. Timing – must be 3 days before closing, must change disclosures if terms change, and disclosures can be telephonic. Fla. Stat. §494.00792(2)(a)-(c).
5. Must give TIL 3 day notice of right to cancel form Fla. Stat. §494.00792(2)(d).
D. Assignee Liability Fla. Stat. §494.00793
1. Imposes TIL assignee liability, as does Fla. Stat. §494.00792(1)(c).
2. Reconcile with definition of lender.
E. Right to Cure High-Cost Home Loans. Fla. Stat. §494.00794
1. Consumer has right to reinstate by tendering the amount or performance as
specified “in this section.” Fla. Stat. §494.00794(1)
2. 2 bites of the cure apple – but the trigger is the lender providing 2 notices under the section, not 2 borrower defaults. Fla. Stat. §494.00794(1)
3. Must cure default as provided in the section which shall reinstate the borrower to the same position as if the default had not occurred and shall nullify, as of the date of the cure, any acceleration of any obligation under the security instrument or note arising from the default. Fla. Stat. §494.00794(1)
4. Meeting statutory obligation is condition precedent to foreclosure Fla. Stat.
§494.00794(2).
5. Must deliver notice to cure the default to the borrower at the address of the secured property by postage prepaid certified mail, return receipt requested, which notice is effective upon deposit in the mail. Fla. Stat. §494.00794(1)
6. Notice shall inform the borrower: (a) Of the nature of default claimed; (b)
borrower’s right to cure the default by paying the sum of money required to cure the default. (c) If the amount necessary to cure the default will change during the 45-day period after the effective date of the notice due to the application of a daily interest rate or the addition of late payment fees, as allowed by this act, the notice shall give sufficient information to enable the borrower to calculate the amount at any point during the 45-day period. (d) the date by which the borrower shall cure the default to avoid acceleration and initiation of foreclosure not be less than 45 days after the date the notice is effective, (e) and the name and address and telephone number of a person to whom the payment or tender shall be made. (f) if borrower does not cure the default by the date specified, the creditor may take steps to terminate the borrower’s ownership of the property by requiring payment in full of the home loan and commencing a foreclosure proceeding or other action to seize the home. (g) the name and address of the creditor and the telephone number of a representative for borrower to contact if he disagrees with the creditor’s assertion of a default or the correctness of the creditor’s calculation of the amount required to cure the default.
7. Charging fees or penalty attributable to the exercise of the right to cure a default including pre 45 day notice fees.
F. Enforcement Fla. Stat. §494.00796
1. Forfeit the entire interest charged in the high-cost home loan or contracted to be charged or received, and only the principal sum of such high-cost home loan can be enforced in any court in this state, either at law or in equity. Fla. Stat. §494.00796(1)
2. Appears to adopt the TIL Bona Fide Error Defense – Good faith defense failure
was not intentional and resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to avoid such errors, the borrower has been notified of the compliance failure, appropriate restitution has been made to the borrower, and appropriate adjustments are made to the loan. Bona fide errors shall include, but not be limited to, clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person’s obligations under this section is not a bona fide error. Fla. Stat. §494.00796(2)
3. Remedies are cumulative. Fla. Stat. §494.00796(3)
G. State Law Contractual and Statutory Attorney Fees
1. Most mortgages and notes have unilateral prevailing fees provisions that define costs to include fees. You must read these clauses carefully.
2. Fla. Stat. §57.105(7) makes unilateral fee shifting contract clauses bilateral.
3. Many mortgages have 2 unilateral prevailing creditor attorney fee provisions, both of which define attorney’s fees as part of costs to collect the secured debt:
The Most common Fannie Mae Freddie Mc approved form has the first fee
provision in Paragraph “Seventh” as follows:
SEVENTH: That in case it should become necessary place [sic] this
mortgage and the note secured hereby or either of them, in the hands of an
attorney for collection, the said mortgagor covenants and agrees with the
mortgagee to pay all costs, charges and expenses of such collection,
including reasonable attorney’s fees whether collected by foreclosure or
otherwise.” (Emphasis added).
The second fee provision is located in an unnumbered Paragraph at the
bottom of page 3 of 4 beginning with “PROVIDED ALWAYS,” as follows:
“PROVIDED ALWAYS, and this mortgage is on the express condition, that
if the Mortgagor shall well and truly pay unto the Mortgagee the said sum of
money mentioned in said promissory note referred to herein and secured
hereby …. together with all costs, charges and expenses, including a
reasonable attorney’s fee, which the Mortgagee may incur or be put to
in collecting the same by foreclosure or otherwise, or in protecting the
security of the mortgage, whether by suit or otherwise…..” (Emphasis
added).
4. The most common note form likewise has a unilateral prevailing creditor attorney fee provision, which also defines attorney’s fees as part of the costs of collection:
“DEFAULT: …. We agree to pay all costs of collection, including reasonable
attorney’s fees if collected by or through an attorney, whether or not suit
is instituted.” (Emphasis added).
5. Fla. Stat. §57.105(7) makes unilateral contractual attorney fees bilateral:
“(7) If a contract contains a provision allowing attorney’s fees to a party when
he or she is required to take any action to enforce the contract, the court may
also allow reasonable attorney’s fees to the other party when that party
prevails in any action, whether as plaintiff or defendant, with respect to the
contract. This subsection applies to any contract entered into on or after
October 1, 1988.”
6. Fla. Stat. 59.46 , allows contractual or statutory attorney fees on appeal unless the contract, or statute providing for the payment of fees, here Fla. Stat. §57.105(7), expresses a contrary intent, at Fla. Stat. §59.46:
“59.46 Attorney’s fees. — In the absence of an expressed contrary intent, any
provision of a statute or of a contract entered into after October 1, 1977,
providing for the payment of attorney’s fees to the prevailing party shall be
construed to include the payment of attorney’s fees to the prevailing
party on appeal.” (Emphasis Added).
7. File your Motion for Costs and Fees within 30 days of the judgment.
The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new, temporary Federal Housing Administration (FHA) mortgage insurance program called the HOPE for Homeowners Program (also referred to as the H4H Program). Under the Program, a borrower facing difficulty paying his or her mortgage will be eligible to refinance
into an affordable FHA-insured mortgage. The H4H Program is effective for endorsements on or after October 1, 2008, through September 30, 2011.
This mortgagee letter provides HUD-approved servicing mortgagees with servicing and loss mitigation guidance on the new H4H Program. The information, directions and guidance provided in the mortgagee letter reflect statutory requirements and the standards, policies and regulations
adopted for the H4H Program by the Board of Directors of the H4H Program.
I. Background
At origination of an H4H mortgage, the borrower will execute a Shared Equity note and mortgage (SEM) in favor of HUD with a fixed dollar amount inserted for initial equity. Likewise at origination, the borrower will execute a Shared Appreciation note and mortgage (SAM) in favor of HUD representing a fifty percent (50%) interest in future appreciation of the mortgage property.
The SEM and SAM mortgage documents will be recorded as second and third priority liens, respectively, against the property. Initial equity is calculated as the difference between the H4H mortgage original balance and the appraised value at the time of the H4H loan origination. Based on the date of a sale, disposition
or refinance, HUD is entitled to a percentage of the initial equity pursuant to the schedule as stated in the SEM.1 Upon sale or disposition of the mortgaged property; HUD is also entitled to receive fifty percent (50%) of any appreciation. Appreciation is defined as the growth, if any, in the value of the property between the time the borrower takes out the H4H mortgage and the time the
borrower sells the property. HUD may share its 50% interest in future appreciation with a subordinate lien holder(s) who meet specific criteria for the H4H mortgage.
Following the funding of the H4H mortgage, the originating lender (Originator) will record the H4H, SEM and SAM mortgage documents in the public records of the county in which the property is located and will deliver the original SEM and SAM notes and original recorded mortgage documents to HUD. The recording of the mortgages should enable the Originator to register the H4H, SEM and SAM notes and mortgages on the Mortgage Electronic
Registration System (MERS);. The SEM and SAM will be serviced by HUD through its contractor, C&L Service Corporation/Morris-Griffin Corporation (Contractor).
H4H mortgages will be serviced in accordance with the servicing policy for other FHA insured forward mortgages as described in HUD Handbook 4330.1 REV-5 and any mortgagee letters that update this handbook, except as otherwise provided in this mortgagee letter.
II. Prohibition Against Subordinate Financing
Under the H4H Program, borrowers are prohibited from taking out new subordinate liens for the first five years of the mortgage except when necessary to ensure maintenance of property standards. Therefore, during the first five years of the mortgage, FHA will permit a junior lien only if the proceeds are essential to preserve and protect the property, and:
· The condition to be repaired represents a health and safety hazard and/or the failure to make the repair will cause the property condition to deteriorate;
· The cost of the proposed repair is reasonable for the geographic market area as
determined by HUD’s residential property management contractor;
· The repairs are not primarily cosmetic or represent routine maintenance;
· The financing is a closed-end loan under Federal Reserve Board’s Regulation Z;
· The financing does not reduce the amount of the government’s equity share in the property;3 and
· The new total debt does not exceed 95 percent of the property’s new appraised value.
HUD will not subordinate equity or appreciation sharing notes to any subordinate financing – either within the first five years or thereafter – except liens as described above or for FHA loss mitigation actions (mortgage modifications and partial claims).
Should a borrower need to obtain a loan for property repairs, the borrower should contact HUD in care of its Contractor at the address at the end of this mortgagee letter and provide information documenting the need for the repairs, repair cost estimates and a current appraisal prepared by a FHA roster appraiser.
During Year 1 100% of equity is paid to FHA
During Year 2 90% of equity is paid to FHA
During Year 3 80% of equity is paid to FHA
During Year 4 70% of equity is paid to FHA
During Year 5 60% of equity is paid to FHA
After Year 5 50% of equity is paid to FHA
Contractor is subject to change. Mortgagees will be notified of any changes via future mortgagee letters.
The sum of the unpaid principal balance and accrued interest on the H4H mortgage and the original principal balance of the new mortgage debt is less than the sum of (i) the appraised value of the property after completion of the proposed repair and (ii) HUD’s share of the new equity created upon origination of the H4H mortgage as if a sale of the property occurred on date of
origination of the new mortgage debt.
III. Refinancing
In the event of any refinance of the H4H mortgage, the borrower must pay to HUD its full equity interest as stated in the SEM. H4H mortgages may not be refinanced using the FHA streamline process. Refinance into another conventional loan product is permitted subject to the following restrictions:
Refinance to Access Equity
No earlier than 12 months from the date of closing on the H4H mortgage, HUD will subordinate its SAM to a refinance if:
· The refinance results in a 30 year amortizing fixed-rate loan with a principal and interest payment that is lower than the P&I payment due on the existing H4H mortgage,
· The proceeds from the refinance are sufficient to pay off the percent of initial equity due to HUD, and
· The cash received by or on behalf of the borrower is limited to the borrower’s initial equity as stated in the SEM and any earned equity the borrower has accrued by paying down the principal balance of the loan.
Refinance to Access Appreciation
No earlier than five years from the date of closing on the H4H mortgage, HUD will allow a refinance if:
· The cash received by or on behalf of the borrower from the refinance is limited to the initial and earned equity and no more than twenty-five percent (25%) of the appreciation accrued since origination of the H4H mortgage, and
· The borrower consents to a modification of the SAM that specifies that HUD is entitled, upon the sale or other disposition of the property, to a fixed dollar amount equal to fifty percent (50%) of the appreciation (as adjusted for capital improvements as described below) that accrued between origination of the H4H mortgage and the date of the refinance, as well as fifty percent (50%) of any future appreciation that may accrue between the date of the refinance and sale of the property.
Additionally, if the H4H mortgage is being refinanced into a new FHA loan, the borrower must; (i) meet all standard eligibility and qualifying guidelines for FHA mortgage insurance, (ii) have made all of his or her mortgage payments during the previous 12 months, within the month due, and (iii) be current for the month due.
Upon receipt of any request to subordinate the SAM to a refinance, HUD shall determine its equity interest based on the number of years since origination of the H4H mortgage and shall provide the amount required to pay off the shared equity mortgage to the refinance lender. If the borrower is requesting an appreciation refinance, HUD will, based on a new appraisal performed by a FHA roster appraiser and provided by the refinance lender, calculate the total appreciation (as adjusted for capital improvements) accrued since origination and multiply that amount by twenty-five percent (25%) to determine the maximum amount of appreciation the borrower may obtain from the refinance transaction.
IV. Capital Improvements
Upon receipt of a written request from a borrower, the calculation of accrued
appreciation in the mortgage property may be reduced by an amount equal to seventy-five percent (75%) of the actual expenditure for capital improvements completed at the borrower’s expense after origination of the H4H mortgage, subject to the following conditions:
· The combined total cost of the capital improvements claimed must be equal to or greater than $2,500,
· The borrower must submit original or legible copies of paid invoices itemizing the work completed,
· The work must be of a nature that significantly changed and enhanced the value of the property including but not limited to room additions; full roof replacement; complete exterior painting, siding or stucco; full kitchen renovation; major landscape renovation; patio or deck additions; in-ground swimming pools,
· Expenses, including but not limited to interior décor (paint, flooring, window and wall coverings); landscape maintenance (mowing, tree trimming or removal, reseeding, planting, fertilization) or normal maintenance or replacement of appliances, systems, and fixtures may not be included, and
· There will be no allowance for “sweat equity”.
V. Default and Loss Mitigation
Mortgagees shall follow the same documentation and reporting guidelines when providing loss mitigation to borrowers with H4H mortgages that apply to FHA-insured mortgages. HUD’s Loss Mitigation Program allows for the following special considerations when evaluating an H4H borrower for loss mitigation.
Loss Mitigation Options
· Special Forbearance – follow existing Program guidance.
· Loan Modification – HUD will subordinate the SEM and SAM to any modification of an H4H mortgage completed in accordance with HUD’s Loss Mitigation Program.
· Partial Claim – a partial claim note does not require subordination of the SEM and SAM.
· Pre-Foreclosure Sale – the lender will include the total dollar amount of the SEM in the total debt calculation for the negative equity ratio calculations in addition to any existing Partial Claim. Net proceeds must fit into the eighty-two percent (82%) requirement and up to $2,000 can be used to pay off any junior property preservation lien. If a junior property preservation lien does not exist, the borrower is not eligible for the $2,000.
· Deed-In-Lieu (DIL) – HUD will accept a DIL subject to the SEM and SAM liens and will allow up to $2,000 to be used to satisfy a junior, property preservation lien.
VI. Impact of First Payment Defaults
Section 257 of the National Housing Act prohibits HUD from paying an insurance claim on any H4H loan where there was a first payment default (the borrower did not make at least one full payment within 120 days from the date of settlement). Though HUD is unable to pay claims for insurance benefits on these loans, they remain insured and they must be serviced in accordance with
the HUD’s servicing and loss mitigation guidance. Lenders must remit the portion of the annual mortgage insurance premium due each month.
Prior to filing any claim for insurance benefits, the lender must verify that the loan did not experience a first payment default as defined herein.
Loss Mitigation
Borrowers must be considered for and offered all appropriate loss mitigation options.
However, the lender may not file a claim for loss mitigation incentives, reimbursement of loss mitigation expenses, partial claim advances or forgiveness of principal and interest associated with pre-foreclosure sales, DIL, claim without conveyance or conveyance claims. These restrictions apply to loans with first payment defaults:
· Partial Claim – Lenders are encouraged but not required to offer a loss mitigation option similar to a partial claim. HUD may subordinate the SEM and SAM to a partial claim advance note in favor of a lender if the advance generally complies with FHA Loss Mitigation Program guidance. However, HUD is unable to reimburse the lender for the advance.
· Pre-Foreclosure Sale (PFS) – the lender is required to offer eligible borrowers the opportunity to participate in a Preforeclosure Sale Program with terms similar to that proscribed by FHA, however, the lender is not required to pay the borrower a consideration or to advance funds for satisfaction of junior liens as provided in the FHA Loss Mitigation Program. When a PFS generally complies with HUD guidance, HUD may release its SEM and SAM liens to accommodate the loss mitigation action.
· DIL – Lenders are required to utilize the DIL option when appropriate. When a DIL generally complies with HUD guidance, HUD may release its SEM and SAM liens to accommodate the loss mitigation action.
Voluntary Termination of Insurance
Section 229 of the National Housing Act, as implemented by the H4H Regulations, provides that the Secretary shall terminate any insurance contract upon request by the mortgagor and the mortgagee. In the event the borrower and mortgagee mutually request termination of insurance and the request is granted, annual mortgage insurance premiums will no longer be due and payable to HUD. However, the borrower will not be entitled to a refund of any upfront mortgage insurance premium received by HUD and will remain obligated for the shared equity and appreciation mortgages, that can be discharged only as provided in other sections of this guidance.
VII. Sale and Payoff
Upon sale or other disposition (transfer of title without sale) the borrower must satisfy both the SEM (if not already satisfied through refinance) and the SAM. Upon receipt of a payoff request, HUD will calculate the respective payoff amounts in the manner described herein and issue a payoff
demand to the closing agent. Also, HUD will determine if there are prior subordinate lien holders who are entitled to a portion of any appreciation.
HUD shall receive out of net proceeds its initial equity amount as stated in the SEM note. If net proceeds are less than HUD’s share of the initial equity due to a deduction for allowable closing costs, then net proceeds will be shared as follows:
· First, HUD shall receive from the net proceeds its proportionate share (as determined using the schedule stated in the SEM) of any closing costs deducted from initial equity.
· Second, the remaining net proceeds (if any) will be distributed between HUD and the mortgagor according to the schedule stated in the SEM.
HUD shall accept net proceeds that are less than HUD’s share of initial equity as payment in full of the SEM note subject to the following conditions:
· The sale represents an arms-length transaction with no identity of interest between the parties,
· The sale price was based on a current appraisal performed in accordance with the Uniform Standards of Professional Appraisal Practice and acceptable to HUD, and
· The net proceeds from the sale are equal to or greater than eighty-eight percent (88%) of the
appraised value or such other value as may be approved by HUD based on circumstances beyond the control of the borrower.
Correspondence
All correspondence and mortgagor inquiries as noted above related to servicing H4H mortgage should be directed to:
U.S. Department of HUD
c/o C&L Service Corporation / Morris-Griffin Corporation
2488 East 81st Street, Suite 700
Tulsa, Oklahoma 74137
Any questions regarding this mortgagee letter may be directed to HUD’s National Servicing Center at (888) 297-8685 or hsg-lossmit@hud.gov. This guidance is effective immediately.
LINKS TO RECENT RELATED ARTICLES
PREDATORY LENDING LAWSUITS
http://money.cnn.com/2009/10/08/news/economy/Predatory_lending_lawsuits_increase/index.htm
MORE PREDATORY LENDING LAWSUITS
http://www.tortdeform.com/archives/2009/04/more_predatory_lending_lawsuit.html
COUNTRYWIDE LAWSUIT SETTLEMENT
http://www.consumeraffairs.com/news04/2008/10/countrywide_settlement.html
WELLS FARGO PREYED ON POOR
http://www.msnbc.msn.com/id/22557579/
