1.1.4 Important Distinctions When Using This Treatise
The law regulating the origination of mortgage loans can be very complex and a number of distinctions should always be kept in mind:
- ● A number of important federal statutes and regulations concerning mortgage lending have been enacted over the past decade. These laws will only apply to mortgages originated after the relevant effective date. Some of these changes became effective between 2009 and 2013, while others will not become effective until later. When possible, this treatise notes the effective date of each provision.
- ● It is important to carefully sort out the parties to a mortgage loan closing. Was there a mortgage broker? Who did the broker work for; who paid the broker; and what did the broker do? Did the originating lender use its own funds, or did it immediately assign the loan to another lender who supplied the loan proceeds? Were appraisers involved in any fraud? Notaries? Attorneys? Realtors?
- ● Mortgage lending, more than any other area of consumer credit, raises federal preemption issues. Depending on the type of loan and the type of lender, preemption may affect the permissible interest rate or other loan terms. So, when applying state law, federal preemption must always be considered.
- ● Whether state law is preempted, which federal law applies, and even whether the law of some other state applies (other than where the home is located) will often depend on the nature of the originating lender: whether the lender is a national bank, a federal savings association, a credit union, a state-chartered bank, a state-chartered savings association, or a non-depository institution. The nature of the entity holding or servicing the loan only matters if the borrower has claims related to that entity’s own conduct.
- ● Unlike credit sales, in which federal law generally makes an assignee subject to seller-related claims and defenses, it can be a challenge to hold a mortgage assignee liable for the originator’s conduct. The loan holder may even claim holder-in-due-course status. But, in practice, it is far more difficult to obtain this status than is generally recognized, and consumer attorneys should also be mindful of other bases for third-party liability.
- ● In a surprising number of cases the lender is defunct. Then special rules apply in raising claims against the successor to such entity. It is essential to carefully follow the requirements for such claims as set out in Chapter 13, infra.