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Mortgage Lending: VIRGINIA

Legal Interest Rate: Va. Code Ann. § 6.2-301

Contract Interest Rate: Va. Code Ann. § 6.2-303 (see also Va. Code Ann. §§ 6.2-304 to 6.2-308 (usury))

Open-End Loans: Va. Code Ann. §§ 6.2-301(C), 6.2-312 to 6.2-313 (open accounts)

Second Mortgage Loans: Va. Code Ann. §§ 6.2-327, 6.2-328

Appraisers: Va. Code Ann. §§ 54.1-2009 to 54.1-2023; 18 Va. Admin. Code §§ 130-20-10 to 130-20-250, 130-30-10 to 130-30-170

Mortgage Lending: WEST VIRGINIA

Legal Interest Rate: W. Va. Code §§ 47-6-5 to 47-6-5c

Contract Interest Rate: W. Va. Code § 47-6-5 (alternative rates for loans and credit sales set by Lending and Credit Rate Board under W. Va. Code § 47A-1-1; alternative bank rate set by Commissioner of Banking under W. Va. Code § 31A-4-30a)

Criminal Usury Cap: W. Va. Code § 46A-5-103

Mortgage Requirements: W. Va. Code §§ 46A-1-101 to 46A-6-110 (§§ 46A-3-104, 46A-4-107) (Consumer Credit and Protection Act); W. Va. Code § 47A-1-3 (lending and credit rate board)

Mortgage Lending: WISCONSIN

Legal Interest Rate: Wis. Stat. §§ 138.04, 138.05

Contract Interest Rate: Wis. Stat. §§ 138.04, 138.05

Criminal Usury Cap: Wis. Stat. § 943.27

Uniform Consumer Credit Code (UCCC): Wis. Stat. §§ 421.101 to 429.301

Residential Mortgage Loans: Wis. Stat. §§ 138.051 to 138.056; Wis. Stat. §§ 428.101 to 428.106 (first lien real estate loans)

Reverse Mortgage Loans: Wis. Stat. § 138.058

Appraisers: Wis. Stat. §§ 458.01 to 458.48

Home Foreclosures: 7.1 Introduction

Defending against foreclosures often means challenging unfair lending practices used in originating the loan. Unfair lending practices refer both to substantive terms of a contract and to the process by which the contract is struck and enforced. It encompasses excessive cost in relation to the value of goods and services purchased; excessive cost of the credit itself; taking financial advantage of vulnerable or unsophisticated borrowers and buyers; and, engaging in unfair or deceptive conduct at any stage of the mortgage loan transaction.

Home Foreclosures: 7.2.1 Creditor Overreaching

Creditor overreaching is one of the most common types of unfair lending practice. Sometimes credit transactions, especially those secured by the borrower’s home, are made at considerable expense and risk to the consumer, but with little or no true benefit. Some creditor overreaching is substantive, as in gross disparities between the price of a product or service and its value; some is procedural, as in misrepresentation about terms or benefits, or a failure to disclose material information.

Home Foreclosures: 7.2.3 Loan Churning

Loan churning, also known as loan flipping, is a form of equity stripping that refers to repeatedly refinancing the homeowner’s mortgage, often in short succession.14 With each subsequent financing the borrower incurs additional fees that are rolled into the new principal balance. Prepayment penalties from the old loan may also be tacked onto the new loan. Brokers and lenders are enriched by the additional fees, but the refinancing rarely provides any real benefit to the borrower.

Home Foreclosures: 7.2.4.1 Introduction

Another unfair lending practice is “packing” loans with expensive credit insurance or debt protection products that have limited or no benefit to the borrower.19 Sometimes borrowers are signed up and charged for these products without their knowledge. Because these products are so profitable to both the creditor and insurance industry, there is enormous pressure to sell these products. Credit insurance can also cause problems for borrowers that knowingly obtain it.

Home Foreclosures: 7.2.4.2 Credit Insurance Basics

“Credit insurance” refers to a group of insurance products sold in connection with a loan, credit agreement, or credit card account. The credit insurance is ancillary to the main product being sold, the loan itself. The credit insurance agreement is a three party transaction involving the borrower, the lender, and the credit insurer. The credit insurer typically sells a group policy to the lender who, in turn, sells credit insurance in connection with the making of individual loans or credit card accounts with borrowers.

Home Foreclosures: 7.2.4.3 Inappropriate Grounds for Denial of Coverage

Denial of a credit insurance claim often leads to foreclosure. The event triggering the borrower’s insurance claim also causes a significant loss of income (e.g., lost employment because of disability or death), and the denial of insurance coverage means that the loan cannot be repaid.

There are at least four ways that a valid credit insurance claim can be improperly denied; the first three involve the lender:25

Home Foreclosures: 7.2.4.4 Available Legal Claims to Challenge Nonpayment of Credit Insurance

Foreclosure is an equitable action, and equity should deny foreclosure where the lender has unclean hands and could have prevented the foreclosure by acting properly.27 While an appeal to equity based on the handling of a credit insurance claim is appropriate, it is also helpful to raise various legal claims, either as an aid to stop a foreclosure or in an affirmative action before a foreclosure is threatened.

Home Foreclosures: 7.2.4.5 Ban Against Financing of Credit Insurance Premiums

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Truth in Lending Act to prohibit creditors from directly or indirectly financing single-premium credit insurance and debt cancellation agreements.34 The CFPB issued final regulations implementing this ban which were effective on January 10, 2014.35

Home Foreclosures: 7.12 Fiduciary Duty

Traditionally, a credit transaction has been considered an arm’s length transaction in which there has been no special duty read into the creditor-debtor relationship. Most courts, however, have held that the presence of certain factors in the creditor-debtor relationship may give rise to a fiduciary duty.209 A fiduciary owes its principal a duty of loyalty.210 As the agent in a principal-agent relationship, the fiduciary has a duty to act in the best interests of the principal.

Home Foreclosures: 7.13 Unconscionability

The common law contract defense of unconscionability may be applied to stop a foreclosure when either the mortgage terms are unreasonably favorable to the lender or other aspects of the transaction render it unconscionable.217 The doctrine of unconscionability is embodied in common law as well as Article 2 of the Uniform Commercial Code and some non-UCC state statutes.218 In addition, a number of state UDAP statutes prohibit unconscionability in the transactions that fall within their scope.

Home Foreclosures: 7.14 Usury

Federal preemption of state usury laws has limited usury as a possible defense to foreclosure actions. Depending on the circumstances, state usury laws may be preempted by one of several federal laws.224 However, there are still circumstances when usury may provide a viable defense. Examples are second mortgages, lenders not covered by any of the federal preemption laws, or when the state has opted out of the federal preemption provisions.

Home Foreclosures: 7.15.1 Negligence

In general, for plaintiffs to prevail on a negligence claim, they must show: (1) a duty of care owed by the defendant to the plaintiff; (2) breach of that duty by the defendant; (3) injury to the plaintiff; and (4) that the defendant’s breach caused the plaintiff’s injury.

Home Foreclosures: 7.15.2 Estoppel

When various and conflicting promises in the loan origination process were made by a lender, a court may find that the effect of some of the promises is to estop the lender from enforcing others.235 The elements of equitable estoppel generally are: (1) a statement or action by the party against whom estoppel is claimed designed to induce reliance on that statement or action and (2) a changed position by the second party in reliance on the act or statement of the first that results in loss or injury to the second party.

Home Foreclosures: 7.15.3 Unjust Enrichment

Unjust enrichment (or alternatively “money had and received”) is a theory of legal liability based not on contract or statute, but upon equity and justice.237 The elements of an unjust enrichment claim vary by state, but generally are (1) a benefit conferred on the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without making restitution.

Home Foreclosures: 7.15.4 Incompetence

Contracts entered into by persons who are deemed incompetent are generally voidable.238 This basic principle of contract law may be used to invalidate mortgage contracts made by persons who are too young to form valid contracts, or who suffer from temporary or permanent mental incapacity at the time the mortgage is made.239 Mental incapacity can also be grounds for tolling a statute of limitations.240

Home Foreclosures: 7.15.5 Invalid Security Instruments

If the mortgage (or deed of trust) is not a legally enforceable instrument then there can be no valid foreclosure.245 A deed or mortgage that is forged is void ab initio.246 As a result, forgery of a mortgage is generally an absolute defense to foreclosure.247 Similarly, where a deed has been forged and the new title holder then encumbers the property, courts have held both the deed and the mortgages are nullities.

Home Foreclosures: 7.16.1 Assignees of HOEPA Loans

The Home Ownership and Equity Protection Act (HOEPA) allows consumers to raise all claims and defenses against assignees that they could against the original lender of a HOEPA loan, whether or not the HOEPA notice on assignee liability is included in the note.253 This right is not limited to HOEPA claims or to TILA claims, but applies to any claim or defense the consumer has against the originating lender.

Home Foreclosures: 7.2.5 Broker Originated Loans

Mortgage brokers have contributed mightily to the growth of unfair lending practices.43 The classic image of a mortgage broker is of someone, either a firm or an individual, who serves as an intermediary between a prospective borrower and prospective lenders.44 Mortgage brokers market themselves as “knowledgeable professionals” who help consumers navigate “the complex mortgage lending process.” According to one association of mortgage brokers, this may include assisting with the loan applica

Home Foreclosures: 7.2.8 Foreclosure Rescue and Loan Modification Scams

Foreclosure rescue scams revolve around various types of schemes targeted at homeowners already facing foreclosure or who are in financial distress.79 Foreclosure rescue scams typically come in three varieties. The first might be called “phantom help,” in which a rescuer charges outrageous fees for little or no assistance. A common form of this scam is to falsely promise assistance in obtaining a mortgage loan modification for a hefty up-front fee.