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Mortgage Lending: 3.2.7.1 Land Records

Local land records can be checked to determine the number of loans a particular lender made in that locality,57 the names and addresses of the affected borrowers, whether a lender has an unusually high number of foreclosures or is repeatedly flipping loans. In property flipping cases, the land records will identify the seller of the property and, in foreclosure rescue cases, the land records will show who acquired title to the property from the borrower. Many land record offices provide public access to their indices over the internet.

Mortgage Lending: 3.2.7.2 Consumer Complaints

Records of consumer complaints to local consumer protection agencies, attorney general offices, and licensing divisions can often be obtained through state freedom of information laws and will show whether similar complaints have been made about potential defendants. Also contact the Better Business Bureau for copies of any complaints. The Federal Trade Commission’s website has a search function that allows users to identify Federal Trade Commission (FTC) complaints filed against any entity.

Mortgage Lending: 3.2.7.3 Newspaper Articles and Internet Searches

It is almost always helpful to search the internet for information about the parties and witnesses involved in a case.61 Public libraries usually have databases of local and national newspaper archives as well as trade journals. It is always worth checking the lender’s home page for insight into the lender’s corporate structure and marketing strategy or relationship to other parties.

Mortgage Lending: 3.2.7.4 Corporate and Business Documents

Every state requires corporations and other businesses to file certain documents at the time the company begins operation in that state and periodically thereafter. The filing typically consists of the articles of incorporation and annual reports. When dealing with corporations, this information is helpful to figure out who stands behind the corporation or business in the event the corporate veil can be pierced or to sue these individuals separately. Further, formal links between the various parties to the transaction can establish a wide net of liability.

Mortgage Lending: 3.2.7.5 Securities and Exchange Commission Documents

Publicly traded corporations must file periodic reports with the Securities and Exchange Commission (SEC).65 Entities that must file with the SEC also include the trusts that are frequently involved in the securitization process. Reports filed with the SEC include information about the financial viability of the company to pay a judgment. They may also provide default and foreclosure data and reveal company policies that may be helpful in proving pattern and practice claims.

Mortgage Lending: 3.2.7.6 Rating Agencies

Credit rating agencies provide opinions on the creditworthiness of particular companies, securities, and obligations, as well as proposed securities. The growth of complex financial products in the mortgage market has meant that the rating agencies play a bigger role in this sector. As a result, the agencies collect a tremendous amount of data related to lenders, servicers, insurers, and other parties involved in mortgage transactions. This data includes both financial and operational information.

Mortgage Lending: 3.2.7.7 Other Lawsuits

Obtaining complete information about other lawsuits (including arbitrations) against the same defendants is not an easy or inexpensive task. But this is an essential part of building your case, to show that the circumstances in your client’s case are not just a mistake or single instance of bad acts; in fact, the bad acts of the loan originator often are part of a deliberate pattern of abuse.

Mortgage Lending: 3.2.7.8 NMLS and State Regulators

The NMLS70 database is a centralized service used by state regulators to track mortgage loan originator licensing and disciplinary information for individuals and entities subject to their jurisdiction. Practitioners should routinely check the names of any mortgage broker, bank loan officer, or licensed lender involved in a consumer’s mortgage transaction in the database.71 Most lenders disclose their NMLS identification number on documents provided to consumers and in advertisements.

Mortgage Lending: 3.2.8.1 List of Items to Ask for in Discovery

Once a case has been filed, additional documents will be available through discovery requests to the lender, mortgage owner, servicer, or other parties. The larger lenders and servicers may have thousands of employees and complex structures. So attorneys may wish to consult with industry experts or more experienced attorneys regarding the most effective way to approach the discovery process. Depending upon the nature of the action, documents to request may include:

Mortgage Lending: 3.2.8.2 Confidentiality/Protection Orders

Frequently defendants argue that materials sought in discovery contain confidential commercial information, and ask for a confidentiality agreement or a protective order before producing the discovery. Because defendants sometimes seek overly broad, sweeping confidentiality provisions, it is generally recommended that practitioners explain to the court why a narrowly tailored arrangement, if any, is more appropriate.

Mortgage Lending: 3.3.3 Payments to Third Parties

Next, make a second list of amounts paid (or purportedly paid) to third parties. This includes broker fees, settlement fees, title examinations, document preparation fees, attorney fees, title insurance, recording fees, and insurance. An area of particular abuse that should be carefully considered are amounts paid to mortgage brokers. Broker fees should be disclosed as finance charges. Broker fees always warrant some factual investigation. In the simplest case, there may have been no broker at all and the lender pocketed the fee.

Mortgage Lending: 5.4.1 Overview

State high-cost mortgage laws can be powerful tools for challenging overreaching credit. Studies analyzing the effect of such laws have demonstrated their salutary effect.56 One study indicates that states with strong predatory lending laws see a lower incidence of predatory lending but still retain a robust mortgage lending market.57

Mortgage Lending: 3.3.4 Amounts Pocketed by the Lender

Next, list what the lender pockets. This includes loan origination fees, appraisal fees, underwriting fees, and (of course) interest. The annual interest rate and APR must be considered to see if either is illegal under applicable law, whether they are indicative of a predatory loan, and whether they trigger special TILA or state consumer protections.80 Also consider if there was “upselling” or “loan padding” to make it a bigger loan, thereby increasing the amount of interest the creditor would earn and any percentage based fees.

Mortgage Lending: 5.2.3.1 Overview

The typical UDAP statute prohibits unfair and deceptive acts and practices in broad terms and includes a non-exhaustive list of specific prohibitions.19 Many also prohibit unconscionable acts.20 Some UDAP statutes cover only deception, rather than unfair acts, however, and a few prohibit only a closed list of specific practices, without including a broad, general prohibition. Some UDAP statutes also include specific prohibitions relating to mortgage lending or servicing.

Mortgage Lending: 5.4.2.1 Consumer Purpose

State high-cost home loan laws generally apply to mortgage loans issued for consumer purposes, not business purposes.62 Loans financing the purchase or improvement of investment or other business-related property will typically not be covered.63 To determine the purpose of a loan, however, courts will look to the substance of the transaction and will not treat pro forma documents reciting a business purpose as conclusive.64 A loan made to a l

Mortgage Lending: 5.4.2.3 Purchase-Money Mortgages

A number of state predatory lending laws exclude purchase-money mortgages from coverage.71 In this they follow the lead of HOEPA, which, as originally enacted, did not apply to purchase-money mortgages (a limitation that has since been removed).72

Mortgage Lending: 5.4.2.4 Loan Amount

Some state high-cost home loan statutes set an upper limit on covered loans.75 Pleading the loan amount, along with any other necessary qualifying elements, should reduce the risk of dismissal for failing to show that the transaction is subject to the statute.76

Mortgage Lending: 5.4.2.6 Effective Dates

Because state high-cost mortgage statutes were generally adopted during periods of irresponsible lending, the question of their effective dates is particularly important. A Massachusetts court held that the statute applied to a loan that was closed after the statute’s effective date, even though the consumer applied for the loan before that date.95

Mortgage Lending: 5.4.3.1 Introduction

While state high-cost mortgage statutes vary from state to state, they share certain common features, such as prohibiting certain fees. Depending on the particular state, provisions may also address (to varying degrees) whether there is a net benefit to the borrower, loan churning, the borrower’s ability to repay, negative amortization, prepayment penalties, balloon payments, and loan counseling.

Mortgage Lending: 5.4.3.2 Prohibited Fees

Many high-cost loan statutes ban points and fees above a certain threshold. In other instances the fee trigger and the fee cap are the same, so if a loan exceeds the trigger, it is both covered and illegal.98 Certain specific types of fees, or fees for services not actually performed, may also be prohibited.99

Mortgage Lending: 5.4.3.3 Net Benefit Requirements and Loan Churning

Many high-cost loan statutes prohibit certain loans unless the loan is in the borrower’s best interest or provides the borrower with a cognizable benefit.101 These requirements are intended to address two predatory practices: (1) loan originators (brokers and lenders) who set loan terms to maximize their own income without regard to the impact on the borrower; and (2) loan churning (or flipping)—the practice of convincing homeowners to refinance their mortgages frequently so the originator can earn more fees and commissions, even when there