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Mortgage Lending: 13.9.4.1 Class Arbitration

The ability to seek classwide relief in arbitration is significant because many creditors fear class arbitration more than class actions in court. Interpretation of an arbitration requirement as allowing classwide arbitration dramatically strengthens the consumer’s position, perhaps more so than if the arbitration clause were found unenforceable, which might allow the consumer to bring a class action in court.

Mortgage Lending: 13.9.4.2 Conducting an Individual Arbitration

When an enforceable arbitration agreement forecloses class arbitration, class action litigation in court, and individual litigation in court, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. While this forum is not preferred, under some circumstances consumers may achieve good results, particularly if the selected arbitrator has an open mind on consumer claims.

Mortgage Lending: 13.10.3 Not Applicable to Consumer Protection Claims

A number of cases have also held that there is no notice and cure requirement prior to bringing a statutory consumer protection claim, such as a state deceptive practices act (UDAP) claim.594 The UDAP claim exists separate and apart from any contract between the parties and therefore does not involve a duty owed under the mortgage agreement. In Gerber v.

Mortgage Lending: 13.10.4 Not Applicable to Loan Servicers

Notice and cure provisions in a deed of trust may bind the borrower and the lender in certain circumstances, but they may not bind the borrower and the loan servicer.607 The actual language in the section refers only to the “Borrower” and the “Lender.” Assignees of the mortgage agreement, on the other hand, may be able to invoke the notice and cure provision, just as the original party to the contract could.608

Mortgage Lending: 13.10.5 Pleading and Procedure

A mortgage holder may also waive the affirmative defense relating to the notice and cure provision when it does not preserve that defense in its answer to the complaint, because the failure to assert an affirmative defense in a responsive pleading waives the defense.610

Though the lender is required to plead the notice and cure provision defense in their answer, some courts consider it inappropriate to consider the defense on a motion to dismiss.611

Mortgage Lending: 13.10.7 Timing Issues

Sometimes the timing of the borrower’s suit can preclude application of the notice and cure provision. In Mathis v. Nationstar Mortgage,613 the defendants foreclosed on borrower’s property prior to borrower’s suit. According to Alabama law, a foreclosure extinguishes a mortgage contract. The borrower argued that the provision required notice before suit, not before foreclosure, so at the time of suit, the provision no longer applied to the borrower’s claims.

Mortgage Lending: 13.11.1 Introduction

The vast majority of litigation in the United States ends in settlement, rather than proceeding to a trial. On the one hand, settlements can allow more flexibility and creativity in crafting relief that will meet the parties’ needs. On the other hand, an incomplete or poorly drafted settlement can result in unintended consequences, including tax liability, unworkable confidentiality requirements, loss of eligibility for public benefits, and continued litigation over enforcement of the agreement.

Mortgage Lending: Listing of Provisions

Title 12. Banks and Banking

Chapter 13. National Housing

Subchapter II. Mortgage Insurance

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12 U.S.C. § 1709-1a. State constitutional and legal limits upon interest chargeable on loans, mortgages, or other interim financing arrangements; applicability; covered arrangements

Mortgage Lending: 12 U.S.C. § 1709-1a. State constitutional and legal limits upon interest chargeable on loans, mortgages, or other interim financing arrangements; applicability; covered arrangements

(a) The provisions of the constitution of any State expressly limiting the amount of interest which may be charged, taken, received, or reserved by certain classes of lenders and the provisions of any law of that State expressly limiting the amount of interest which may be charged, taken, received, or reserved shall not apply to—

Mortgage Lending: Listing of Provisions

Title 24. Housing and Urban Development

Subtitle B. Regulations Relating to Housing and Urban Development

Chapter II. Office of Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development

Subchapter B. Mortgage and Loan Insurance Programs under National Housing Act and Other Authorities

Part 203. Single Family Mortgage Insurance

Mortgage Lending: § 203.20 Agreed interest rate.

(a) The mortgage shall bear interest at the rate agreed upon by the mortgagee and the mortgagor.

(b) Interest shall be payable in monthly installments on the principal amount of the mortgage outstanding on the due date of each installment.

Mortgage Lending: § 203.21 Amortization provisions.

The mortgage must contain complete amortization provisions satisfactory to the Commissioner, requiring monthly payments by the mortgagor not in excess of his reasonable ability to pay as determined by the Commissioner. The sum of the principal and interest payments in each month shall be substantially the same.

Mortgage Lending: § 203.22 Payment of insurance premiums or charges; prepayment privilege.

(a) Payment of periodic insurance premiums or charges. Except with respect to mortgages for which a one-time mortgage insurance premium is paid pursuant to § 203.280, the mortgage may provide for monthly payments by the mortgagor to the mortgagee of an amount equal to one-twelfth of the annual mortgage insurance premium payable by the mortgagee to the Commissioner.

Mortgage Lending: § 203.25 Late charge.

The mortgage may provide for the collection by the mortgagee of a late charge, not to exceed four per cent of the amount of each payment more than 15 days in arrears, to cover servicing and other costs attributable to the receipt of payments from mortgagors after the date upon which payment is due.

[41 Fed. Reg. 49,734 (Nov. 10, 1976).]

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Mortgage Lending: § 203.27 Charges, fees or discounts.

(a) The mortgagee may collect from the mortgagor the following charges, fees or discounts:

(1) [Reserved.]

(2) A charge to compensate the mortgagee for expenses incurred in originating and closing the loan, provided that the Commissioner may establish limitations on the amount of any such charge.

(3) Reasonable and customary amounts, but not more than the amount actually paid by the mortgagee, for any of the following items:

Mortgage Lending: Listing of Provisions

Title 24. Housing and Urban Development

Subtitle B. Regulations Relating to Housing and Urban Development

Chapter II. Office of Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development

Subchapter B. Mortgage and Loan Insurance Programs under National Housing Act and Other Authorities

Mortgage Lending: § 201.13 Interest and discount points.

The interest rate for any loan shall be negotiated and agreed to by the borrower and the lender, and such interest rate shall be fixed for the full term of the loan and recited in the note. Interest on the loan shall accrue from the date of the loan, and shall be calculated on a simple interest basis. The lender and the borrower may negotiate the amount of discount points, if any, to be paid by the borrower as part of the borrower’s initial payment.

Mortgage Lending: § 201.14 Payments on the loan.

The note normally shall provide for equal installment payments due weekly, biweekly, semi-monthly or monthly. The note may provide for either or both of the first and final payments to vary in amount but not to exceed 1½ times the regular installment. Where the borrower has an irregular flow of income, the note may be payable at quarterly or semi-annual intervals corresponding with the borrower’s flow of income. The first scheduled payment after the borrower’s initial payment shall be due no later than two months from the date of the loan.

Mortgage Lending: § 201.15 Late charges to borrowers.

(a) Imposition of late charge. The note may provide for imposition of a late charge unless precluded by State law. The late charge may be imposed only for installments of principal and interest which are in arrears for the greater of 15 calendar days or the number of days required by applicable State law before such a charge may be imposed. Late charges must be billed to the borrower or reflected in the payment coupon, and evidence of any late charges that have been paid must be in the loan file if an insurance claim is made.

Mortgage Lending: § 201.17 Prepayment provision.

The note shall contain a provision permitting full or partial prepayment of the loan without penalty, except that the borrower may be assessed reasonable and customary charges for recording a release of the lender’s security interest in the property, if permitted by State law.

[56 Fed. Reg. 52,430 (Oct. 18, 1991); 61 Fed. Reg. 19,797 (May 2, 1996).]

Mortgage Lending: Listing of Provisions

Title 38. Veterans’ Benefits

Part III. Readjustment and Related Benefits

Chapter 37. Housing and Small Business Loans

Subchapter I. General

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38 U.S.C. § 3709 Refinancing of housing loans

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Subchapter III. Administrative Provisions

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