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Consumer Class Actions: 1.7.8.2 Manageability

In evaluating which of multiple claims to pursue, keep in mind that it is generally not wise in a class action to raise claims that require proof of different sets of facts. Attorneys should avoid complicating the litigation unnecessarily. It is advisable to limit a class action to one or two basic types of issues that rely on the same facts, same elements of the claims, or the same proof. A class is then more likely to be certified, and the case will then be easier to manage and more efficient to litigate, both for the attorney and the court.

Consumer Class Actions: 1.7.2.4 Mass Arbitration

When both class actions in court and in arbitration are foreclosed, an increasingly common alternative to obtain relief for a large number of consumers or workers is to proceed with a mass arbitration. Mass arbitration involves numerous individual claimants bringing largely identical individual arbitration claims against the same defendant, at the same time, before the same arbitration provider, and through the same lawyers.

Home Foreclosures: 1.2.8 Should the Homeowner File for Bankruptcy to Protect the Home?

Filing bankruptcy triggers an automatic stay for most debtors, freezing the creditor’s ability to foreclose on the home. An emergency filing of a voluntary petition, along with certification of compliance with the 2005 Act’s credit counseling requirement, stays foreclosure;60 other bankruptcy forms must be filed within fourteen days thereafter. The consumer’s attorney should notify the creditor of the automatic stay. Remedies for violation of the stay include recovery of actual damages, attorney fees, and equitable relief.

Home Foreclosures: 1.2.9 Manufactured Home Foreclosures

State law governs whether a manufactured home must be foreclosed upon as real property or repossessed as personalty. If the property is treated as real estate under state law, then foreclosure procedures are the same as those covered in Chapter 5, infra. As with other real estate, a loan workout agreement or modification may be available prior to foreclosure on a manufactured home.

Home Foreclosures: 1.2.10 Real Estate Installment Sales

Real estate installment sales laws in many states provide special consumer protections if the purchaser defaults. Statutory or decisional law may treat real estate installment sales agreements as security agreements in some circumstances. State foreclosure law would then apply.

Home Foreclosures: 1.2.11 Reverse Mortgage Foreclosures

Reverse mortgage loans are a special type of home-secured loan that allows the borrower to convert equity into cash without having to sell the property or make periodic payments. Most reverse mortgages are insured by the federal government and have numerous requirements that must be satisfied before the servicer can foreclose. Reverse mortgage foreclosures are typically triggered by the failure to pay property charges as they come due or by a maturity event such as non-occupancy or death of the homeowner. Questions that advocates should ask include:

Home Foreclosures: 1.2.12 Is the Foreclosure Pursuant to a Property Tax Lien?

If a homeowner’s property taxes are not paid by the date set by statute, the unpaid taxes become a lien on the property. If the tax lien is not satisfied by payment, the taxing authority may initiate the tax sale process. The sale process varies depending on the locality. In some jurisdictions the property is sold; in others a certificate or lien is sold. In other states, no sale occurs at all, and the taxing authority simply takes the property. In all states, however, the taxing authority must follow all statutory requirements.

Home Foreclosures: 1.2.13 Is It Possible to Set Aside the Foreclosure Sale?

Generally, an irregularity in the foreclosure process, including an unconscionably low sales price, may be grounds to invalidate a completed foreclosure sale. If the mortgage was foreclosed upon by power of sale, the homeowner must generally initiate an action to set aside the sale. If the foreclosure was conducted by judicial process, the homeowner may file a motion in the foreclosure action to set aside the foreclosure judgment or to attack the sale. Some states have sale confirmation processes in which objections to the sale must be made.

Home Foreclosures: 1.2.14 Is the Consumer Liable for a Deficiency After the Sale?

If the foreclosure sale price is not sufficient to satisfy the mortgage debt, the lender may be able to obtain a deficiency judgment. Some states have placed restrictions on deficiency judgments, such as requiring that the borrower be given credit for the “fair value” of the property regardless of the foreclosure sale price. Certain states set strict time limits for bringing deficiency claims or set other procedural requirements for pursuit of them. Other states, by statute, do not permit deficiency claims at all after non-judicial foreclosures.

Home Foreclosures: 1.3.1 Overview

The workings of the mortgage markets are a mystery to most consumers. However, for an advocate, a basic understanding of how mortgage markets function and the players involved has become essential to the effective representation of mortgage borrowers.

Home Foreclosures: 1.3.2.1 Mortgage Originator

The mortgage loan originator68 is the entity that makes the loan and whose name appears as the lender on the loan note and mortgage.69 The originator may or may not be the party that currently holds the loan and has the right to receive payments on the loan.70

Home Foreclosures: 1.3.2.2 Mortgage Broker

Traditionally, mortgage brokers acted as an intermediary between borrowers and lenders. They did not originate loans. Instead, mortgage brokers were merely middlemen bringing home purchasers or homeowners and lenders together. Brokers operated on behalf of borrowers and attempted to find them the best loans available. This type of arrangement created a special duty on the part of the broker to act in the best interest of the borrower.71

Home Foreclosures: 1.3.2.3 Loan Officer

Loan officers are employees of financial institutions who assist home buyers or homeowners in selecting a mortgage loan product offered by their institutions. They are essentially in-house salespeople for banks or mortgage companies. Until recently, loan officers were not required to be individually licensed (although their institutions would generally be licensed entities). Many loan officers must obtain an individual license after undergoing pre-licensing training and passing an exam.76

Home Foreclosures: 1.3.2.4 Mortgage Electronic Registration System (MERS)

The Mortgage Electronic Registration System (MERS) is an electronic registry and clearinghouse established to track ownership and servicing rights in mortgages. For many home loans, MERS, as “nominee” for the lender, is the mortgage holder of record or the named beneficiary on a deed of trust. MERS typically has no legal or beneficial interest in the promissory note. Prior to 2012, mortgage servicers often initiated foreclosure proceedings in MERS’ name and served documents on borrowers stating that MERS was foreclosing on their homes.

Home Foreclosures: 1.3.2.5 Real Estate Agent

Real estate is often sold through real estate agents or real estate brokers (not to be confused with mortgage brokers, see § 1.3.2.2, supra). They list the property in newspapers, circulars, and computer databases. The agents usually represent the seller of the property.

Home Foreclosures: 1.3.2.6 Appraiser

Originators, or in some cases mortgages brokers, hire an appraiser or appraisal management company (AMC) to determine the value of the property. AMCs are essentially brokers for appraisal services. They administer networks of independent appraisers to perform appraisals.

Home Foreclosures: 1.3.2.7 Closing Agent or Attorney

The mortgage loan closing or settlement is usually conducted by an agent for the lender.81 Often this agent is an attorney. The name and address of the closing agent, also known as the settlement agent, is listed on the HUD-1 settlement statement or “Closing Disclosure.” Homeowners are sometimes under the mistaken impression that the closing agent works for them. This is not surprising since the homeowner pays the agent’s bill for conducting the closing and other pre-closing activity, such as searching title and preparing documents.

Home Foreclosures: 1.3.2.8 Escrow Agent

If all of the monies from the loan proceeds are not distributed at the loan closing, the closing agent is usually responsible for holding the remainder until certain events occur. If it is a home improvement loan, it is common for the remaining proceeds to be paid to a home improvement contractor once work is completed.

Home Foreclosures: 1.3.2.9 Private Mortgage Insurance Companies

Mortgage insurance is common in mortgage transactions involving home purchases. When the borrower’s down payment is less than 20% of the purchase price, private mortgage insurance is generally required. The cost of this insurance is added to the borrower’s monthly payment and escrowed by the lender. If the borrower defaults, the mortgage insurer will pay the lender some of the monies not recouped in the foreclosure process.

Home Foreclosures: 1.3.2.10 Government Mortgage Guarantors

There are special government programs that provide mortgage insurance or guarantees to lenders who make mortgage loans to homebuyers who meet certain criteria. These programs are offered by the federal government (the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development; the Rural Housing Service, which is part of the U.S. Department of Agriculture; and the Department of Veterans Affairs) or by a state housing finance agency. Under these programs, the insurance may cover close to 100% of losses.

Home Foreclosures: 1.3.3.1 Generally

After a mortgage loan transaction has been consummated a new set of players frequently comes onto the scene. The rise of the secondary mortgage market and the securitization of mortgage loans created an entirely different cast of characters that play roles during the lifespan of a mortgage loan.

Home Foreclosures: 1.3.3.2 Secondary Mortgage Market

The secondary market is not a place like Wall Street. Rather, this term describes the phenomenon by which originating lenders sell their loans to buyers (often called investors), usually in bulk. This enables mortgage companies specializing in home equity lending to originate large numbers of loans with a comparatively small capital base. Some originators may obtain a line of credit from a major bank or firm, originate mortgage loans, sell the loans to the secondary market, and repay the credit line.

Home Foreclosures: 1.3.3.3.1 Introduction

The loan owner is the entity that has the present right to receive payments on the note. When the owner is also the mortgagee or beneficiary of a deed of trust, it has the right to initiate foreclosure proceedings upon default by the borrower.87