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Home Foreclosures: 15.3.3.3.5 Legal claims against servicers and mortgagees

With the improvements in HUD’s policies providing protection for spouses, unless there is a separate basis for default on the loan, most non-borrowing spouses should be able to obtain a deferral of the foreclosure status through the MOE program for loans made prior to August 4, 2014, or the deferral period included in the mortgage for loans made after August 4, 2014. However, if such relief is denied, claims against the servicer or mortgagee could be considered.

Home Foreclosures: 15.3.3.4.1 Overview

The most common reason for foreclosure upon a home secured by a reverse mortgage is the maturity of the loan due to the death of the homeowner. Upon the death of the homeowner, the property secured by the reverse mortgage is passed to the borrower’s heirs by will, intestacy, or other state law mechanism and the reverse mortgage becomes payable in full.

Home Foreclosures: 15.3.3.4.2 Procedural defenses

In addition to general procedural prerequisites to foreclosure,165 when maturity occurs and foreclosure proceeds after the homeowner’s death, advocates should consider any applicable state laws that impose additional requirements for foreclosure actions when the borrower is deceased.166 For example, state probate law may require different procedures for foreclosure after the death of the borrower.

Home Foreclosures: 15.3.4 COVID-19 Protections

FHA-insured HECM loans are subject to the protections of the CARES Act and subsequent policies issued by HUD to address the impact of the COVID-19 pandemic.194 The two main categories of relief are the foreclosure moratorium, and COVID-19 forbearance.

Home Foreclosures: 15.4 Raising Origination Claims

Chapter 7, supra, of this treatise explains how to raise origination claims in defense of foreclosure. Generally these claims challenge unfair lending practices used in originating the loan. Unfair lending practices refer both to the substantive terms of a contract and to the process by which the contract is struck and enforced.

Home Foreclosures: 15.5 Raising Discrimination Claims

The Fair Housing Act, the Equal Credit Opportunity Act, and state and local ordinances bar discrimination in mortgage origination and servicing. Various actions by reverse mortgage originators, servicers, and HUD may be subject to challenge under one or more of these laws. For example, foreclosures on non-borrowing spouses are likely to disproportionately harm women, since women are more likely to have been left off the loan (as, often, the younger spouse) and to live longer than a male borrowing spouse.

Consumer Warranty Law: 21.1.1 Scope of This Chapter

This chapter covers warranty issues relating to consumer leases—typically involving motor vehicles, but also such personal property as furniture, medical devices, solar panels, and security devices. This chapter’s focus is the interrelationship of Uniform Commercial Code (UCC) Articles 2A and 2 concerning the consumer’s warranty rights against lessors, retailers, and manufacturers, as well as the impact of the Magnuson-Moss Warranty Act, lemon laws, the federal Consumer Leasing Act, and state deceptive practices (UDAP) statutes.

Consumer Warranty Law: 21.1.2 Types of Consumer Leases

In one common type of lease, the retailer negotiates the transaction, completes the lease paperwork, signs the lease as the originating lessor, and then immediately assigns the lease to a financer. For example, a Nissan automobile dealer will sign a Nissan Motors Acceptance Corp. (NMAC) lease in the dealer’s name and assign the lease to NMAC. While the lease will have NMAC’s name at the top and be on a NMAC form, the original lessor will be the dealer, not NMAC. The Consumer Leasing Act requires that a lease disclose the lessor, and the lease will list the dealer as the lessor.

Consumer Warranty Law: 21.1.3 Consumer Leasing Warranties in a Nutshell

Leasing warranties are somewhat more complicated than sales warranties because leases involve both a sale and a lease. The manufacturer or a dealer sell the property to the lessor and the lessor then leases the property to the consumer. There are warranties that go from the lessor to the lessee, and there are warranties that go from the seller (the manufacturer or a retailer) to the buyer (in this case the lessor). The consumer may be able to take advantage not only of warranties that run from the lessor to the lessee but also of those that run from the seller to the lessor-buyer.

Consumer Warranty Law: 21.2.1 UCC Article 2A on Leases

Article 2A on leases was first enacted in 1987 by the American Law Institute and the Uniform Law Commission (formerly the National Conference of Commissioners on Uniform State Laws (NCCUSL)). The article was controversial, and states began enacting non-uniform versions. In 1990 the Uniform Law Commission significantly amended the official text.

Consumer Warranty Law: 21.2.2 UCC Article 2

UCC Article 2A regulates the relationship of lessor to lessee. Leases also involve the sale of leased goods from manufacturer to retailer and from retailer to financer. These sales by manufacturers and retailers create Article 2 warranties for the benefit of the buyers that lessees may also be able to enforce.

Consumer Warranty Law: 21.2.3 Magnuson-Moss Warranty Act

The FTC has determined and the overwhelming majority of courts also find that the Magnuson-Moss Warranty Act remedies for breach of warranty are available to consumer lessees.16 Thus consumer lessees may have a claim under the Act for actual damages and attorney fees, as set out in more detail in Chapter 2, supra.

Consumer Warranty Law: 21.2.5 Federal Consumer Leasing Act

Consumer leases within the scope of the federal Consumer Leasing Act (CLA) must disclose to the consumer, prior to lease signing, any express warranties made by the lessor or manufacturer with respect to the leased property.17 The disclosure may be brief, such as by a reference to the standard manufacturer’s warranty,18 but the warranty must be identified.

Consumer Warranty Law: 21.2.6 UCC Article 2A Unconscionability

Section 2A-108 of the Uniform Commercial Code (UCC) is a lease unconscionability provision more protective of consumers than section 2-302, the unconscionability provision applying to sales. Section 2A-108 has broader applicability to consumer lease warranty issues than does section 2-302 to consumer sales warranty issues. Sections 2-302 and 2A-108 include almost identical language allowing a court to refuse to enforce an unconscionable contract or provision, such as warranty disclaimers and limitations of remedies.

Consumer Warranty Law: 21.2.7 UDAP Statutes, Tort Law, and State Leasing Acts

Section 2A-104(1)(c) states that leases are subject to state consumer protection statutes and to any final consumer protection decision of a state court existing on the effective date of the Article in that state. In the case of a conflict between Article 2A and the consumer protection statute, the consumer protection statute’s provisions apply.35 Consequently, nothing in Article 2A should be viewed as displacing application of a UDAP statute, consumer leasing statute, or tort law to consumer lease transactions.

Consumer Warranty Law: 21.3.1 Introduction

Article 2A primarily regulates warranties provided by the lessor to the lessee and the lessee’s right to reject or revoke acceptance against the lessor. Warranty rights provided by manufacturers or non-lessor retailers are primarily regulated by UCC Article 2.

Consumer Warranty Law: 21.3.2 Consumer Leases Are Rarely Finance Leases

Article 2A establishes different rights and obligations if a consumer lease meets the definition of a consumer “finance lease” under Article 2A. It is important to understand that consumer leases are rarely consumer finance leases. Lessees have far fewer rights against lessors in finance leases. Commercial cases discussing these limited rights in finance leases have no applicability to virtually all consumer leases.

Consumer Warranty Law: 21.3.3 The Lessor’s Warranties

Under UCC Article 2A, various warranties run from the lessor to a consumer, regardless of whether the lessor is the dealer originating the lease or a financer originating a lease after the consumer has first negotiated with the dealer.

Consumer Warranty Law: 21.3.5 Damages for Lessor’s Breach of Warranty

Article 2A’s basic measure of damages for a breach of warranty is the present value of the difference between the value of the use of the goods as accepted and their value if they had been as warranted.55 This present value is based on the value of use of the goods for the duration of the full lease term.

Consumer Warranty Law: 21.3.6.2 Lessee’s Right to Reject

When goods fail in any respect to conform to the lease contract, lessees may reject the goods, if done within a reasonable time after delivery.58 Acceptance under Article 2A should be interpreted the same as under Article 2, and the lessee must be given a reasonable opportunity to inspect the goods.59