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Home Foreclosures: 12.8.4 Prejudice or Harm to the Borrower

The prejudice or harm aspect of laches is likely to present more challenges to the advocate, and a creative approach can be helpful. The determination of prejudice is fact-specific, and no fixed standards define the term. As a general rule, the prejudice element looks at whether the party asserting the harm changed position in a way that would not have occurred if the claimant had acted promptly to enforce its claim.193 In the foreclosure context, borrowers must show that the loan owners’ delay placed them in a less favorable position.

Home Foreclosures: 12.8.5 Laches and Non-Judicial Foreclosures

Courts have authority to enforce equitable principles to bar exercise of a contractual power of sale in a mortgage or deed of trust.205 Although applied most often as a defense to a stale judicial proceeding, laches can also be the basis for declaratory relief, for example, to obtain a declaration that a mortgage lien is discharged.206 Finally, laches can be applied to reduce the amount of a monetary claim.

Home Foreclosures: 12.9 State Law Foreclosure Requirements

A second mortgage holder should be held to the same standards of compliance with applicable state foreclosure laws as a first mortgagee. A second mortgagee must have a valid mortgage with the borrower and be able to prove that the borrower defaulted, prove the amounts alleged owed by the borrower, and follow the applicable foreclosure procedures.

Home Foreclosures: 12.10.2.1 Connecticut

Conn. Gen. Stat. § 36a-498a

Connecticut limits prepaid finance charges for second mortgage loan to eight percent of principal amount. The statute also places limits on demanding full repayment prior to maturity.

Conn. Gen. Stat. § 36a-498b

This section provides Connecticut’s requirements for the release of secondary mortgage. The statute also requires the provision of notice of outstanding loan obligation within two business days of request from mortgagor.

Home Foreclosures: 12.10.2.3 Massachusetts

Mass. Gen. Laws. ch. 140, § 90A

Under this Massachusetts statute, lenders cannot charge an interest rate greater than an amount equivalent to 1.5% per month computed on unpaid balances before default and for six months after continuing default and for a period after the expiration of six successive months of continuing default a rate of interest greater than one percent a month computed on unpaid balances.

Mass. Gen. Laws. ch. 140, §114B

Home Foreclosures: 12.10.2.6 New Hampshire

N.H. Rev. Stat. Ann. § 397-A:16-a

New Hampshire’s statute allows any interest rate agreed upon in the note between borrower and lender. Following the sixth month of any period in which a loan has been in continuous default, the lender may charge not more than 1.5% per month on any unpaid balance. Charges may not exceed eighteen percent per year simple interest on an outstanding balance. Certain information is required on the note. Any second mortgage made in violation is discharged if principal only is paid off. The statute refers to a “licensee.”

Home Foreclosures: 12.10.2.8 North Carolina

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.

Home Foreclosures: 12.10.2.10 Pennsylvania

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.

Home Foreclosures: 12.10.2.11 Texas

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.

Home Foreclosures: 12.10.2.14 West Virginia

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.

Home Foreclosures: 6.1 Introduction

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.

Home Foreclosures: 6.2.2 The HUD Loss Mitigation Program

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.

Home Foreclosures: 6.2.3.1 Introduction

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.

Home Foreclosures: 6.2.3.2.1 In general

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.

Home Foreclosures: 6.2.5.1 Introduction

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.