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Fair Debt Collection: 11.8.1.2 Actual Damages and Settlement of Consumer’s Underlying Debt

A consumer’s damages claim may be used to leverage a reduction of the collector’s debt claim against the consumer. Canceling or reducing the underlying debt, if owed, can provide meaningful relief to the client, since the amount of the debt may well exceed the damages recoverable for debt collection abuse. Be mindful, however, as to whether a cancellation or reduction of a debt is taxable income to the consumer.

Fair Credit Reporting: 14.6.4.1 Importance of Resolving Credit Reporting Issues

There is no better time to clear up a consumer’s credit record than when settling a lawsuit with a creditor that has furnished negative information on the consumer.92 As a matter of routine, practitioners should demand that all settlements related to credit accounts include a provision dealing directly with what the creditor should and should not report to a CRA.

Fair Credit Reporting: J.1 Introduction

This appendix contains several sample complaints with Fair Credit Reporting Act and other related claims. Perhaps just as critically, it also includes model language to be used in settlements over debt litigation designed to address credit reporting consequences (Appx.

Mortgage Lending: 13.11.4 Non-Monetary Elements of Settlement Agreements

Settlement agreements can address other interests of the parties beyond compensation. These other terms can be valuable and provide expanded opportunities for reaching a mutually acceptable arrangement. But they may also be useless or even harmful if not carefully negotiated and drafted. For example:

Mortgage Lending: 13.12.1 Overview

The mortgage industry and other corporate parties often ask for confidentiality as a condition of compliance with discovery requests, settlement, or granting loan modifications.639 Consumers occasionally seek confidentiality as well, but less often. A confidentiality request may take the form of a contractual agreement between the parties, a request for the court to enter a stipulated protective order the parties have agreed to, or a motion for a protective order in response to a discovery request.

Mortgage Lending: 13.12.2 The Cost of Confidentiality in Settlement

Some parties see a confidentiality agreement as the price of settlement. Other times, after a settlement has been informally negotiated and accepted by both sides, the creditor attempts to add a confidentiality clause to the written version of the agreement.689 But confidentiality is never an automatic requirement, even in an offer of judgment.690 Confidentiality agreements involve substantial and complex issues.

Mortgage Lending: 13.12.4 Ethical Obligations of Counsel

In addition to the practical factors affecting confidentiality agreements, attorneys for all parties must consider the ethical implications.721 State rules of professional conduct usually limit the contents of a confidentiality agreement. Some states have issued opinions prohibiting specific practices.722 But all states have rules that can reasonably be interpreted to place limits on what attorneys may request or agree to.

Mortgage Lending: ALABAMA

Ala. Code §§ 5-19-1, 5-19-4, 5-19-7

Scope: Consumer credit transactions made by licensed lenders secured by real property (see §§ 5-19-1, 5-19-4, 5-19-31).

Net Tangible Benefit Requirement for Refinancings: None.

Ability to Repay: None.

Loan Counseling: None.

Disclosures: None.

Negative Amortization: None.

Mortgage Lending: ALASKA

Alaska Stat. §§ 06.20.250, 06.60.350, 45.45.010

Scope: Some provisions limited to loans made by covered lenders as defined in §§ 06.20.010, 06.60.010, 06.60.380, other provision applies more broadly.

Net Tangible Benefit Requirement for Refinancings: Yes, within 12 months after date covered mortgage loan is closed (§ 06.60.350).

Ability to Repay: None.

Loan Counseling: None.

Disclosures: None.

Negative Amortization: None.

Limits on Points and Fees: None.

Mortgage Lending: ARIZONA

Ariz. Rev. Stat. Ann. § 6-114

Scope: Covered secondary mortgages as defined in § 6-114.

Net Tangible Benefit Requirement for Refinancings: None.

Ability to Repay: None.

Loan Counseling: None.

Disclosures: None.

Negative Amortization: None.

Limits on Points and Fees: None.

Prepayment Penalties: None.

Balloon Payments: Payments greater than twice smallest payment prohibited.

Assignee Liability: None.

Mortgage Lending: ARKANSAS

Ark. Code Ann. §§ 23-53-101 to 23-53-106

Scope: High-cost home loans as defined in § 23-53-103.

Net Tangible Benefit Requirement for Refinancings: Refinancing must provide borrower net tangible benefit (§ 23-53-104).

Ability to Repay: Creditor must reasonably believe borrower has ability to repay before making covered loan (§ 23-53-104).

Loan Counseling: Counseling required before making covered loan (§ 23-53-104).

Disclosures: None.

Mortgage Lending: CALIFORNIA

Cal. Fin. Code §§ 4970 to 4979.8, 4995 to 4995.6 (West)

Scope: Covered loans as defined in § 4970.

Net Tangible Benefit Requirement for Refinancings: Refinancing must result in identifiable benefit to consumer (§ 4973(j)).

Ability to Repay: Lender may not make or arrange a covered loan unless lender reasonably believes consumer will be able to make the scheduled payments (§ 4973(f)).

Loan Counseling: None.

Disclosures: Lender must give statutory notice to covered loan borrower (§ 4973(k)).

Mortgage Lending: COLORADO

Colo. Rev. Stat. §§ 5-3.5-101 to 5-3.5-303, 38-40-105(1.7)(a)

Scope: Some provisions limited to covered loans as defined in § 5-3.5-101, others applicable more broadly.

Net Tangible Benefit Requirement for Refinancings: Refinancing of an existing residential mortgage loan must produce reasonable, tangible net benefit to the consumer (§ 38-40-105(1.7)(a)(II)).

Mortgage Lending: CONNECTICUT

Conn. Gen. Stat. §§ 36a-746 to 36a-746g

Scope: High-cost home loans as defined in § 36a-746a.

Net Tangible Benefit Requirement for Refinancings: No lender may make a loan to a borrower that refinances an existing loan unless the high-cost home loan provides a benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the borrower’s circumstances (§ 36a-746e).

Mortgage Lending: DISTRICT OF COLUMBIA

D.C. Code §§ 26-1151.01 to 26-1155.01

Scope: Covered loans as defined in § 26-1151.01.

Net Tangible Benefit Requirement for Refinancings: None.

Ability to Repay: Income, asset, employment verification required; borrower must reasonably be expected to be able to make scheduled loan payments (§ 26-1152.02).

Loan Counseling: Lender must give notice of right to obtain counseling (§ 26-1152.19).

Disclosures: Lender must send borrower a “Red Flag Warning Disclosure Notice” (§ 26-1152.11).

Mortgage Lending: GEORGIA

Ga. Code Ann. §§ 7-6A-1 to 7-6A-13

Scope: High-cost home loans as defined in § 7-6A-2.

Net Tangible Benefit Requirement for Refinancings: No refinancing with a high-cost home loan within five years of original loan when refinancing does not provide reasonable, tangible net benefit to borrower (§ 7-6A-4).

Ability to Repay: Lender may not make a high-cost home loan unless lender reasonably believes consumer will be able to make the scheduled payments (§ 7-6A-5(8)).

Mortgage Lending: ILLINOIS

765 Ill. Comp. Stat. §§ 77/70 to 77/80; 815 Ill. Comp. Stat. §§ 137/1 to 137/175; Ill. Admin. Code tit. 38, pts. 1050, 1075

Scope: High-risk home loans (non-purchase money loans) as defined in 815 Ill. Comp. Stat. § 137/10, or home loans as defined in 765 Ill. Comp. Stat. § 77/73; prepayment penalty limitations apply more broadly.

Mortgage Lending: INDIANA

Ind. Code §§ 24-9-1-1 to 24-9-9-4

Scope: High-cost home loans as defined in § 24-9-2-8.

Net Tangible Benefit Requirement for Refinancings: No refinancing that charges points and fees allowed within four years after making of existing high-cost home loan (§ 24-9-4-2).

Ability to Repay: Creditor may not make a high-cost home loan without regard to repayment ability (§ 24-9-4-8).