Skip to main content

Search

Mortgage Lending: 13.9.2.4 Effective Date and Retroactive Application

There is no question that the TILA limitation on arbitration agreements in mortgage loans applies to any arbitration agreement entered into after June 1, 2013. This subsection considers the enforceability of arbitration agreements entered into before that date. Two issues are examined. First, whether the TILA requirement was effective as of June 1, 2013, or July 22, 2010. Second, whichever date is used, does the provision prevent the current enforcement of arbitration agreements entered into before the effective date?

Mortgage Lending: 13.9.3.1 Introduction

Federal law clearly prohibits mandatory arbitration requirements for virtually all disputes involving mortgage loans extended after June 1, 2013, and courts might also apply the section (e)(3) provision retroactively to older mortgage loans.519 But, even for cases not covered by the federal ban on arbitration in mortgage loans, homeowners still have a number of other challenges to the arbitration requirement.

Mortgage Lending: 13.9.3.3 Proof of an Applicable Arbitration Agreement and Party’s Standing to Enforce That Agreement

When a party seeks to force the consumer into arbitration, that party must produce the actual arbitration agreement to prove there is such a requirement. An arbitration requirement is grounded upon an agreement between parties that delineated disputes must be resolved by an arbitration procedure specified in the agreement. The Federal Arbitration Act (FAA) requires that arbitration agreements be enforced.526 But the federal policy is not that disputes must be arbitrated.

Consumer Arbitration Agreements: 8.7.2.1 General

A challenge to the enforceability of an arbitration agreement is that the high cost of arbitrating the case prevents the plaintiff from having the claim heard. Excessive costs imposed on the consumer can make an arbitration requirement substantively unconscionable. If the costs prevent the consumer’s vindication of federal statutory rights, that is an alternative ground to find the arbitration requirement unenforceable.

Consumer Arbitration Agreements: 8.7.6.1 Class Arbitration

A common arbitration provision specifies that an individual must resolve their dispute through binding arbitration, but may not seek arbitration on a classwide basis. Until 2011, consumers had been achieving great success in convincing courts to strike down such class action bans as unconscionable.

Consumer Arbitration Agreements: 8.8.3 Defendants’ Attempts to Absolve Unfairness After the Fact

Businesses may draft an arbitration clause that is prohibitively expensive for the consumer, but then, when the consumer argues that arbitration costs are unaffordable, reverse course during litigation and offer to pay all or almost all the arbitration fees. This behavior is particularly common in appellate settings or in trial courts when defendants perceive that the court is leaning against them.

Mortgage Lending: 13.9.4.1 Class Arbitration

The ability to seek classwide relief in arbitration is significant because many creditors fear class arbitration more than class actions in court. Interpretation of an arbitration requirement as allowing classwide arbitration dramatically strengthens the consumer’s position, perhaps more so than if the arbitration clause were found unenforceable, which might allow the consumer to bring a class action in court.

Mortgage Lending: 13.9.4.2 Conducting an Individual Arbitration

When an enforceable arbitration agreement forecloses class arbitration, class action litigation in court, and individual litigation in court, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. While this forum is not preferred, under some circumstances consumers may achieve good results, particularly if the selected arbitrator has an open mind on consumer claims.

Mortgage Lending: 13.10.3 Not Applicable to Consumer Protection Claims

A number of cases have also held that there is no notice and cure requirement prior to bringing a statutory consumer protection claim, such as a state deceptive practices act (UDAP) claim.594 The UDAP claim exists separate and apart from any contract between the parties and therefore does not involve a duty owed under the mortgage agreement. In Gerber v.

Mortgage Lending: 13.10.4 Not Applicable to Loan Servicers

Notice and cure provisions in a deed of trust may bind the borrower and the lender in certain circumstances, but they may not bind the borrower and the loan servicer.607 The actual language in the section refers only to the “Borrower” and the “Lender.” Assignees of the mortgage agreement, on the other hand, may be able to invoke the notice and cure provision, just as the original party to the contract could.608

Mortgage Lending: 13.10.5 Pleading and Procedure

A mortgage holder may also waive the affirmative defense relating to the notice and cure provision when it does not preserve that defense in its answer to the complaint, because the failure to assert an affirmative defense in a responsive pleading waives the defense.610

Though the lender is required to plead the notice and cure provision defense in their answer, some courts consider it inappropriate to consider the defense on a motion to dismiss.611

Mortgage Lending: 13.10.7 Timing Issues

Sometimes the timing of the borrower’s suit can preclude application of the notice and cure provision. In Mathis v. Nationstar Mortgage,613 the defendants foreclosed on borrower’s property prior to borrower’s suit. According to Alabama law, a foreclosure extinguishes a mortgage contract. The borrower argued that the provision required notice before suit, not before foreclosure, so at the time of suit, the provision no longer applied to the borrower’s claims.

Mortgage Lending: 13.11.1 Introduction

The vast majority of litigation in the United States ends in settlement, rather than proceeding to a trial. On the one hand, settlements can allow more flexibility and creativity in crafting relief that will meet the parties’ needs. On the other hand, an incomplete or poorly drafted settlement can result in unintended consequences, including tax liability, unworkable confidentiality requirements, loss of eligibility for public benefits, and continued litigation over enforcement of the agreement.

Student Loan Law: 18.5.2.4.5 National Bank Act preemption of students’ state law claims

Private student loans are not regulated by the HEA so there is no HEA preemption of state law claims against private student loan lenders. But federal preemption issues are raised when the private lender is a national bank or federal savings association. This National Bank Act (NBA) preemption, though, does not apply to state-chartered banks and savings associations or to non-depository lenders. For example, the Sallie Mae Bank is an industrial bank with a Utah state charter, and NBA preemption does not apply to it.

Credit Discrimination: 8.2 Advantages of a Discrimination Law Challenge

Discrimination law challenges to unfair credit terms have many advantages over other consumer law causes of action. State unfair and deceptive acts and practices (UDAP) statutes provide effective remedies for unfair credit terms, but a number of UDAP statutes do not apply to creditors or credit, and a number of UDAP statutes only prohibit deceptive, not unfair, practices.9 When credit terms are fully disclosed, it may be difficult to demonstrate that they were deceptive.

Federal Deception Law: 12.4.3.1 State Requirements

A number of jurisdictions have adopted one or more statutes or regulations that specifically require translations of contracts for certain transactions or under certain circumstances.63 However, there is significant variation from state to state.