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Mortgage Servicing and Loan Modifications: 11.12.1 Introduction

Many potential claims related to mortgage servicing or wrongful foreclosure are based on state statutory or common law, so the question of whether some federal law preempts these claims is important. This section provides an overview of preemption of state servicing and foreclosure laws by the National Bank Act (NBA), the Home Owners’ Loan Act (HOLA), the Federal Credit Union Act (FCUA), and regulations promulgated under those statutes.

Mortgage Lending: 3.4 Other Abuses to Look For

This section discusses abuses that primarily occurred before and during the foreclosure crisis that started in 2007. Congress added significant ability-to-repay standards to the Truth in Lending Act in 2010, which were effective by January 10, 2014. As a result, the existence of unsuitable loans should be significantly reduced for covered loans going forward. The amendments are briefly described in § 4.4.1, infra.

Mortgage Lending: 3.3.2 Portion of the Loan Benefiting the Homeowner

First draw up a list of those components that are of value to the borrower. In a purchase money mortgage, the portion of the loan going to benefit the homeowner is primarily just the proceeds to pay for the home and related taxes. One issue in such a mortgage loan is the purchase price of the home, particularly when there are connections between the home seller and the lender, broker, appraiser, or other parties to the closing.76

Mortgage Lending: 5.10.1 Elements of a Fraud Claim

Common law fraud is a powerful claim against those arranging or extending abusive credit. (“Fraudulent misrepresentation,” “intentional misrepresentation,” and “common law fraud” are often used interchangeably.388) Fraud claims are decided by juries, whose judgments about truthfulness and deceit will reflect general community standards.

Mortgage Lending: 5.11.1 Nature of the Duty

The duty of good faith and fair dealing between parties to a contract is based on common law,488 the Uniform Commercial Code (UCC),489 and other laws.490 Unlike unconscionability, which is ordinarily determined by examining the contract’s terms at the time the contract was made, the duty of good faith is imposed on parties to an existing contract491 to prohibit improper behavior in the perform

Mortgage Lending: Introduction

This appendix summarizes the key aspects of state predatory lending laws. It is a quick reference tool for determining if a specified state has a statute that focuses on high-cost mortgage loans and whether that statute covers a particular predatory lending issue. Readers should consult the relevant statutes themselves to obtain a complete understanding of what loans a particular law covers and what restrictions it imposes.

Fair Debt Collection: 15.1.2.2 Preemption by Federal Banking Laws, Higher Education Act, and the Bankruptcy Code

Federal banking laws—the National Bank Act (NBA) and the Home Owners Loan Act (HOLA)—may preempt state tort claims that challenge loan terms as unfair or violative of state law.17 However, the federal preemption regulations explicitly preserve state tort law as long as it is not inconsistent with the powers granted to banks,18 and a tort claim that alleges collection harassment or deception is likely to escape preemption.19 The Dodd-Frank Wall Street Ref

Unfair and Deceptive Acts and Practices: 6.9.1.1 Introduction

A variety of banking practices have been found to be unfair or deceptive. Before bringing a UDAP claim against a federal depository institution, however, it is important to assess whether the claim is subject to preemption by federal banking laws.565

Banking and check cashing practices are discussed in detail in NCLC’s Consumer Banking and Payments Law.566 This section focuses solely on UDAP claims.

Repossessions: 2.3.2.3 Scope of State Consumer Credit Laws

Special care must be given to analyzing the scope of state consumer credit laws.243 It is not always easy to select the right statute covering the client’s particular credit transaction. A credit sale of a television may be covered by the state’s retail installment sales act, but an installment sale of a motor vehicle by a separate motor vehicle financing act. These sales may be covered by neither statute if what appears to be an installment sale is really a cash sale paid for by a loan provided by a finance company.

Repossessions: 14.1.3.3 State Consumer Statutes Governing Leases

State consumer statutes are another important supplement to UCC Article 2A. Most states have enacted laws specifically regulating rent-to-own (RTO) transactions.58 These laws provide only minimal consumer protections and often exempt RTO transactions from coverage by UCC Article 9 or other state consumer credit statutes.

Mortgage Lending: 5.7 State Credit Services Laws

Most states have statutes, often called a Credit Services Organization Act, that deal with abuses by credit repair organizations.188 Most of these laws also apply to organizations that assist or offer to assist consumers in obtaining extensions of credit in return for the payment of money or other consideration.

Fair Credit Reporting: 13.7.2 State Authority Over National Banks and Thrifts

Prior to 2009, the OCC took the position the National Bank Act—which provides that national banks are not subject to “visitorial powers” by state officials236—also prohibited states from suing national banks to enforce consumer protection statutes.237 The OCC promulgated regulations interpreting the NBA which provided that, with respect to national banks, state officials could not “prosecut[e] enforcement actions” or “enforce[e] compliance with any applicable Federal or state laws concerning” “a

Mortgage Servicing and Loan Modifications: 5.2.4 Escrow Requirements

The management of escrow accounts is another area that is typically covered by state servicing statutes. While these statutes often impose requirements for escrow accounts that are similar to those imposed by RESPA,25 it is worth checking whether a state statute may cover matters not addressed by RESPA, or may provide greater rights to the borrower.

Mortgage Servicing and Loan Modifications: 5.9.2 Preemption Under TILA

Similar to RESPA, the federal Truth in Lending Act (TILA) establishes a preemption standard. Generally, TILA does not affect any state law relating to the disclosure of information unless the state law is inconsistent with the federal law, and then only to the extent of the inconsistency.274 This is referred to as “conflict preemption,” as opposed to “field preemption.”275

Mortgage Lending: 5.4.2.2 Definition of Lender

The scope of the term “lender” is important for determining which loans will be covered by a high-cost loan statute.67 Some state statutes define lender broadly enough to include small-scale lenders such as individuals who make just one or two loans.68 Other statutes define the term more narrowly, so that it includes only lending institutions and licensed lenders.69 But even those statutes may place restrictions on loan terms that are applica

Mortgage Servicing and Loan Modifications: 5.2.6 Special Servicing Requirements for High-Cost Loans

Some states have enacted statutes that give protections to homeowners at risk of foreclosure of high-cost home mortgages. These anti-predatory lending laws can be powerful tools for challenging unfair lending practices and defending against foreclosure. The scope and content of these state laws vary widely. While many of the provisions of these statutes deal with loan origination issues, some also impose requirements on the servicing of high-cost loans.

Mortgage Lending: 5.2.1 Overview

Abusive mortgage origination practices can often be challenged under state unfair and deceptive acts and practices (UDAP) statutes.6 Most UDAP statutes make deception and unfairness actionable without the strict elements and proof requirements of common law fraud7 and other tort claims while also offering significantly broader remedies than contract claims.

Mortgage Lending: 5.13 The Role of Industry Standards

An industry standard can take the form of an unwritten rule, a customary practice or norm,600 or a more formalized collection of written requirements published by an industry or trade group. Industry standards are not laws. Instead, they are simply guidelines or structures within which most market players conduct business.

Mortgage Lending: 4.2.1 Introduction

The Real Estate Settlement Procedures Act (RESPA)14 is the primary federal law directly addressing residential mortgage settlements.15 RESPA, originally enacted in 1974, is intended to ensure that consumers in real estate transactions receive timely information about the nature and cost of the settlement process and to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices.”16 To accomplish these goa

Mortgage Lending: 4.2.4.2.1 Subordinate liens

A narrow category of subordinate loans are exempt from the parts of Regulation X requiring the HUD-1 settlement statement, the good faith estimate, the mortgage servicing transfer statement, and the settlement costs booklet.127 To qualify for the exemption, the loan must be: