Home Foreclosures: 12.10.2.7 New Jersey
N.J. Stat. Ann. §§ 17:11C-76, 17:11C-81 (West)
N.J. Stat. Ann. §§ 17:11C-76, 17:11C-81 (West)
N.C. Gen. Stat. §§ 24-12 to 24-17; N.C. Gen. Stat. § 24-1.2A (home equity loans)
North Carolina limits second mortgage loan amounts to not exceed $25,000. Interest may not exceed the greater of either 1 1/2 % per month or the annual Federal Discount Rate plus five percent. Fees may not exceed two percent of principal less the amount of any existing loan by that lender to be refinanced, modified, or extended. The statue requires an itemized closing statement. Violation is a misdemeanor.
Ohio Rev. Code Ann. §§ 1321.51 to 1321.60 (§§ 1321.57, 1321.571, 1321.58, 1321.591) (second mortgages and home equity loans)
7 Pa. Cons. Stat. § 6125(b)
Under the Pennsylvania statute, interest rates cannot exceed 1.85% per month. Origination fees cannot exceed three percent of the original principal amount. Delinquency charges are allowed up to twenty dollars or ten percent of each payment, whichever is greater, for a payment that is more than fifteen days late.
Tex. Fin. Code Ann. §§ 342.001–342.009, 342.301–342.308 (West)
Under the Texas statute, the maximum allowed interest rate is ten percent per year. If the interest rate is less than ten percent, the loan is not subject to this chapter. Additional interest for default may not exceed five cents for each one dollar of a scheduled installment. The statute limits deferment interest.
Vt. Stat. Ann. tit. 9, § 41a(b)(7)
Under the Vermont statute, the maximum interest rate is eighteen percent per year.
Va. Code Ann. §§ 6.2-304, 6.2305, 6.2-327, 6.2328
W. Va. Code § 31-17-8 and 31-17-12(d) (Secondary Mortgage Loans)
Under the Wes Virginia statute, the maximum rate of interest is eighteen percent per year. The statue places limits on charges, fees. Violations can result in $2000 fine.
Chapter 9, supra, discusses using bankruptcy to prevent a foreclosure. Traditionally, chapter 13 bankruptcy has presented a powerful tool for dealing with certain junior mortgages.
Many consumer claims presented in this chapter as useful tools to defend against second mortgage foreclosures unfortunately come with the downside that they have short statutes of limitations.
The Federal Housing Administration, a part of the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) (formerly the Farmers Home Administration) make, insure, or guarantee loans, mostly on behalf of low- to moderate-income individuals.1 These types of mortgages have gained a significant share of the mortgage market as underwriting standards for conventional loans have tightened.
The National Housing Act requires lenders to engage in loss mitigation upon the default or imminent default of an FHA-insured mortgage.7 While the Department of Housing and Urban Development (HUD) does not guarantee an alternative for foreclosure for every FHA-insured borrower, lenders must review all loans for possible alternatives to foreclosure.8 A lender may proceed to foreclosure only after ensuring that it has met all of its servicing obligations and the loan is at least three months past due.
FHA-insured lenders may not initiate foreclosure without completing specific loss mitigation steps found in federal regulations.18 These regulatory requirements were incorporated into the terms of most FHA-insured promissory notes and the mortgages.19 For many years, the note and mortgage stated that lenders should not proceed with foreclosure without first satisfying FHA’s regulations.
The specific steps that FHA-insured lenders must take for loans in default are found at 24 C.F.R. §§ 203.500 through 203.681. The face-to-face meeting requirement has received the most attention, primarily due to significant lender noncompliance.
Courts have consistently held that borrowers may raise lender noncompliance with the FHA loss mitigation regulations as a defense to a foreclosure lawsuit.93 Even courts that have rejected affirmative breach of contract claims for lender noncompliance with FHA regulations have generally acknowledged borrowers’ right to assert noncompliance as a shield against foreclosure.94 There are strong policy reasons for allowing this defensive use of the regulations.
Before setting out the specific steps lenders must take for a borrower in default, HUD emphasizes their mandatory nature at 24 C.F.R.
The mandatory loss mitigation steps start with the notice requirement in 24 C.F.R. § 203.602: “The mortgagee shall give notice to each mortgagor in default on a form supplied by the Secretary or, if the mortgagee wishes to use its own form, on a form approved by the Secretary, no later than the end of the second month of any delinquency in payments under the mortgage.”
The focus of most FHA litigation is the face-to-face meeting requirement found at 24 C.F.R. § 203.604(b):
Unlike the face-to-face meeting requirement, the periodic evaluation regulation at 24 C.F.R. § 203.605 is significantly underutilized in the case law. The regulation states, in part: “Before four full monthly installments due on the mortgage have become unpaid, the mortgagee shall evaluate on a monthly basis all of the loss mitigation techniques provided at § 203.501 to determine which is appropriate.”
Under 24 C.F.R. § 203.606, “[b]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements of this subpart have been met.” Lenders must not only take the steps listed in the regulations but must also complete these actions within the required time. These timing rules are supposed to ensure early evaluation of options to avoid large delinquencies. Courts should be more willing to uphold these timing requirements if advocates can show how the delay impacted the borrower.
For the most part, the regulations regarding the specific loss mitigation options do not provide much detail and leave most of the specifics to handbooks and mortgagee letters. The regulation on reinstatement, however, does provide some guidance. Under 24 C.F.R.
Advocates should keep in mind that the CFPB’s RESPA and TILA mortgage servicing rules apply with full force and effect to FHA-insured loans. HUD’s Handbook makes this clear:
On the other hand, the Maryland Court of Appeals in Wells Fargo v. Neal explained that borrowers could raise the noncompliance as a defense in equity to stop foreclosure sales.123 While a court considering evaluating such an equitable defense would look to who had clean hands, the court held the borrower’s payment default would not end the analysis. “Under the doctrine of clean hands . . .
Foreclosures have historically been actions in equity.390 Despite extensive statutory regulation of foreclosures today, most states’ laws continue to recognize the equitable character of the foreclosure process. This is true even when the foreclosure is by power of sale, through provisions granting the mortgagor the right to petition the court to enjoin the foreclosure sale.391
Courts have differed on whether noncompliance should be considered as a failure of a condition precedent to foreclosure or an equitable defense, and in some jurisdictions, this difference can have an impact on litigation issues, such as which party has the burden of proof for establishing compliance (or non-compliance) with the regulations.116 For borrowers with mortgage contracts that do not incorporate FHA regulations, it will be crucial to make equity-based arguments in order to avoid claims that the presence of c