1.2.5 Analyze the Loan for Origination Claims
Often, defending against foreclosure means challenging unfair lending practices used in originating the loan. Borrowers that have been subjected to unfair lending practices may have a number of state and federal statutory claims as well as common law claims that may be asserted in response to foreclosure. These claims and defenses are reviewed briefly in Chapter 7, infra, and discussed in more detail in NCLC’s Mortgage Lending (3d ed. 2019), updated at www.nclc.org/library.
Advocates should consider whether the borrower has claims under the Truth in Lending Act (TILA). TILA is primarily a disclosure statute, but it also has significant substantive requirements for certain loans. It can be extremely important in predatory lending cases. Its remedies can be useful and powerful, particularly where the right to rescind the transaction applies. Another federal law that contains substantive limitations is the Real Estate Settlement Procedures Act (RESPA).
Several states and localities have enacted home loan protection laws. These provide broader protections than those contained in HOEPA and are an additional source of remedies for the distressed homeowner. Since borrowers of color, older homeowners, and women are often targeted for high-cost loans, fair lending, fair housing, and civil rights statutes provide a source of potential challenge to abusive mortgage lending. One of the most vital and widely available statutory tools in cases of predatory lending is the state unfair and deceptive practices acts (UDAP) statute, which generally prohibits unfair or deceptive business practices. Federal and state RICO statutes may be available when homeowners have been subjected to a broadly defined range of “racketeering activity” or to the collection of an “unlawful debt.” Finally, state door-to-door solicitation acts and licensing laws may be raised against various parties to a home loan transaction.
Common law theories, including equitable considerations, in the home loan context may be used to address creditor overreaching even where a specific federal or state statute has not been violated. Unconscionability may be used to attack the practices of making unaffordable loans, flipping, and charging outrageous fees. Traditional common law theories of fraud and misrepresentation play powerfully to juries. Breach of fiduciary duty claims are available against brokers who steer borrowers to predatory lenders, and, in limited circumstances, may also be available against lenders. Similarly, lenders may be vulnerable to claims for interference with contractual relations where they seduce brokers into arranging loans based on the brokers’ own interest rather than the interests of the brokers’ client-borrowers.
Statutes of limitations can be obstacles to claims focused on loan origination abuses. Federal statutes, such as RESPA and TILA, have express limitation periods for various claims. Advocates should consult the relevant NCLC manual sections that discuss statutes of limitations under these statutes. See NCLC’s Truth in Lending § 12.2 (10th ed. 2019) (TILA) and Mortgage Servicing and Loan Modifications § 3.14 (2019), updated at www.nclc.org/library (RESPA servicing claims chart). State statutes and common law claims likewise have limitation periods that may affect loan origination claims. To the extent the borrower can assert origination claims as a form of recoupment, either as part of the defense of a judicial foreclosure or as an objection to a bankruptcy proof of claim, this may overcome certain statute of limitations problems. See NCLC’s National Consumer Law Center, Truth in Lending § 12.2.5 (10th ed. 2019), updated at www.nclc.org/library, and Unfair and Deceptive Acts and Practices § 11.2.5 (9th ed. 2016), updated at www.nclc.org/library. Finally, advocates should be prepared to address arguments that assignees do not have liability for the loan originator’s misconduct. See § 7.16, infra.