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Mortgage Lending: 4.17.6 Remedies

Servicers, mortgagees, and mortgage insurers can be liable for violations of the HPA. But the Act limits the definition of “mortgagee” to the original mortgage holder at consummation.774 “Servicer” is defined by reference to RESPA’s definition.775 An assignee of the mortgage or note may, therefore, be liable for violations if they also service the loan.

Mortgage Lending: 14.7.2 Requirements for Enforceability of Agreements

Courts have generally interpreted the requirements of enforceable agreements listed in section 1823(e) rigidly, requiring an “explicit” writing in the bank’s official records, or an “express written agreement” between the banking institution and the borrower.513 The Tenth Circuit, in Federal Deposit Insurance Corp. v.

Mortgage Lending: 3.2.5 Appraisals

A determination of the current fair market value of the client’s home is important for determining what claims the borrower may be able to assert as well as what outcomes are realistic for the borrower to expect. When dealing with abusive lending, property flipping, foreclosure rescue scams, or any other case involving the value of real estate, it is also a good idea to obtain an estimate of the home value at the time of the transaction (called a retrospective appraisal). This may be vital when alleging appraisal fraud or other misconduct related to the valuation.

Mortgage Lending: 9.2.1 FHA and VA Insured Loans

The Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) are authorized to insure loans for the purchase or improvement of houses and manufactured homes.8 State interest rate ceilings are preempted for these loans, unless a state opts out.9 For FHA-insured loans, the statute provides for preemption of state law applicable to the “amount of interest,”10 whereas the VA statute provides that, for VA-insured loans, preempt

Mortgage Lending: 11.7.6.1 Appraisals

None of the state land installment contract statutes contain provisions requiring appraisal of the property that is the subject of the contract. Only one state, Minnesota, requires covered sellers to give buyers a notice that highly recommends that the buyer obtain an independent, professional appraisal of the property to learn what it is worth.237 Illinois requires sellers to tell buyers that they may obtain an independent inspection and appraisal.238

Mortgage Lending: 9.6.5.1 State Law

Before 1980, states typically had a general usury law, found either in the state constitution or in a state statute that created a generally applicable cap on interest rates. But the general usury statute usually applied to few consumer credit transactions. Instead, most states had numerous “special” usury statutes that made exceptions for particular types of transactions, such as second mortgage loans and bank installment loans. These special usury statutes allowed higher rates but also placed additional restrictions on the loans.

Mortgage Lending: 9.8.4 National Banks

An adjustable rate loan originated by a national bank is subject to an additional requirement if the loan meets two criteria: it has a term exceeding one year, and it is secured by the consumer’s principal dwelling.

Mortgage Lending: 9.8.5 Federal Savings Associations

When making an ARM, a federal savings association must use an index that is readily available and independently verifiable.347 It must be a regional or national index, except that, until 2011,348 the federal banking regulator had the authority to excuse compliance with this requirement.349 Adjustments to the rate must correspond directly to the index.350 Unlike the ARM rule applicable to nati

Mortgage Lending: 9.10.5 HOEPA Loans

The Home Ownership and Equity Protection Act (HOEPA), enacted to curb equity-skimming in high-cost home equity lending, prohibits prepayment penalties.452 As originally enacted, its protections applied only to closed-end home equity loans that met one of two alternative cost thresholds, one based on the APR and the other on the total amounts of points and fees charged in the transaction.453

Mortgage Lending: 9.10.1 Background

A prepayment penalty is a fee that a borrower is contractually obligated to pay if a debt is paid off prior to its scheduled retirement date.

Mortgage Lending: 11.2.2 Comparison to Lease with an Option to Buy

A lease with an option to buy can look very similar to a land installment contract, but the rights of the prospective homeowner will vary greatly depending on whether the agreement is a lease with an option to buy at some future date or a land installment contract. For example, prospective homeowners under a lease with an option to buy usually will not have the right to cure a default or insist that the seller foreclose rather than utilize a summary eviction proceeding.

Mortgage Lending: 11.2.4 Is a Land Installment Contract a Mortgage? The Restatement Approach

Although, historically, the courts routinely enforced forfeiture clauses in favor of the seller,62 courts have more recently viewed such forfeiture clauses with skepticism. Partially due to that change, as well as the use of mortgage law as a more common analytic framework and the uncertainty engendered by land installment contracts, the Restatement (Third) of Property (Mortgages) takes the position that a contract for deed creates a mortgage.63

Mortgage Lending: 11.3.1 Recording the Contract

The typical land installment contract is silent on the issue of whether the contract can or should be recorded in the local land records office. Although some contracts forbid recording, these provisions may be void as against public policy. Sellers typically prefer not to record the contract: a recorded contract can be a cloud on the title in the event of a forfeiture, and it may hinder the seller’s ability to refinance any outstanding mortgages for the duration of the land installment contract.

Mortgage Lending: 11.2.1 Comparison to Short-Term Executory Contracts for Sale

The most common method of selling real property is when a buyer and seller enter into an executory contract for the sale of land in order to establish their rights and liabilities during the (usually) short period of time between the date of the bargain and the date of the closing. The buyer will often make a down payment on the purchase price to the seller, with the balance due at closing.

Mortgage Lending: 11.3.4 Prepayment by Purchaser

In some states, courts have held that the land installment contract buyer has no right to prepay the full purchase price unless the contract or statute permits prepayment.86 The justification for this rule is that the limitation on prepayment “provide[s] vendors with a fixed cash flow over a certain period of time ‘with minimal taxation and with interest.’ ”87

Mortgage Lending: 11.7.6.3 Recordation

A number of states require that land installment contracts be recorded.241 Of these, Illinois, Maine, North Carolina, Ohio, and Texas specifically provide that the seller is responsible for recording the contract.242 In Texas the seller is required to record the contract within thirty days after the contract’s execution, and failure to comply makes the seller liable to the buyer for $500 per year in liquidated damages plus the buyer’s reasonable attorney fees.

Mortgage Lending: 11.4.5 Condition of the Property

Land installment contract buyers often purchase properties that contain serious defects of which they were unaware. Even worse, the seller may misrepresent the condition of the property, perform cosmetic “repairs” before the contract is executed, or lie about the existence of city inspection reports revealing housing code violations.121 As a result, buyers are shackled to properties worth less than the sales price and in need of expensive repairs to make the homes safe and livable.

Mortgage Lending: 11.6.2 Rescission

Rescission, like forfeiture, allows the seller to regain possession of the property and retain a portion of the payments made. Rescission differs from forfeiture, however, in that the seller is restricted to retaining that portion of the buyer’s payments equal to the fair rental value of the property, a fact question likely to be hotly disputed, particularly when, as is often the case, the initial condition of the property is substandard.