The ABCs of Mortgage
Real Estate Institute
November 14, 2008
Amber Hawkins, Esq.
Mark Ireland, Esq. .
Four Basic Tools You
Need for Going on Offense
Truth In Lending Act (“TILA”)
Foreclosure By Advertisement Statute
Minnesota “Equity Stripping” Laws
Minnesota’s New Anti-Predatory Lending
EARLY IS BETTER
The earlier you look at the documents
and go on “offense” the better.
One of the most powerful legal claims is a
Truth In Lending Act violation, and it is
arguably extinguished after the Sheriff’s Sale
has occurred. See Saygnarath v. BNC Mortgage, 2007 WL 1141495 (D.
Minn. 2007); But see Walker v. Contimortgage, 232 B.R. 725 (Bankr. N.D. Ill. 1999)
TRUTH IN LENDING ACT
The Truth In Lending Act (“TILA”) is the
most powerful tool you have to stop a
The remedies provided under TILA are so
powerful that they completely change the
leverage and dynamics of a foreclosure, because
the mortgage is immediately VOID.
If appropriate TILA and HOEPA disclosures are not
made, or if prohibited terms are included in a HOEPA
loan, the consumer can rescind a loan for up to 3 years
from the date of consummation unless the property has
been earlier sold or transferred. 15 U.S.C. §§ 1635(a),
Upon rescission, a consumer is not liable for any
finance or other charge under the mortgage loan
and any security interest given by the consumer is
void. 15 U.S.C. § 1635(b); Regulation Z, 12 C.F.R. §
226.23(d). Rescission can be made against any
assignee of the loan. 15 U.S.C. § 1641(c).
Spotting A TILA Violation
First, does TILA rescission apply to your
Was the mortgage refinancing an earlier
mortgage? If not, the TILA rescission right
does not apply.
Did the refinancing occur within the past
three years? If not, the three year statute of
limitations period has passed.
Three Day Right To Cancel
Did every person (husband and wife)
each receive two notices of a right to
If they received the notice, were the
dates calculated correctly?
Exclude Sundays and Holidays.
Cannot be blank, i.e. Ameriquest
Cannot “waive” right at closing, unless there
are special circumstances
Calculation of the Finance
Charge and Amount Financed
Every charge on a HUD-1 itemized
disclosure is either a “finance charge” or
an “amount financed.”
The purpose is to disclose to the
consumer the cost of obtaining credit
rather than paying cash.
Errors and Tolerances
For a person who is in foreclosure, a
mere $35 error is enough to trigger the
right to rescind.
Overdisclosures are unlimited and not
You need to go through and categorize
each charge as either a Finance Charge
or Amount Financed by looking at Reg Z
Sec. 226.4 and Commentary.
Red Flags and Things To
Look Out For…
In order for title company closing costs
and title insurance to be excluded, they
generally have to be “bona fide and
reasonable.” See Reg Z Sec. 226.4
(c)(7) (list of fees)
Examples of items that may not be
bona fide and reasonable…
Was the homeowner charged a settlement or closing fee of $200
or more and a document preparation fee of $100 or more?
Was the notary fee more than $50? Did they charge for a mobile
Did the credit report cost more than $15?
Did the appraisal cost more than $350?
Was the amount charged for title insurance reasonable?
Did they charge for an “expedited” courier or processing fee?
A violation of this statute gets you time,
and perhaps the tort of wrongful
foreclosure or a breach of good faith and
fair dealing claim.
Foreclosure by advertisement is a
privilege, not a right. Therefore the
statutory requirements are strictly
enforced, and any error voids the notice
of Sheriff’s Sale or the Sheriff’s Sale
See Spencer v. Annan, 4 Minn. 542, 543 (1860); Graybow-Daniels Co. v.
Pinotti, 255 N.W.2d 405, 407 (Minn. 1977) (recognizing foreclosure
statutes and their strict requirements have been virtually unchanged since
the late 1800s, and that early cases are still good law).
Pre-Requisites for Foreclosure By
Minn. Stat. § 580.02 (2006)
To entitle any party to make such foreclosure, it is requisite:
(1) that some default in a condition of such mortgage has occurred, by which the
power to sell has become operative;
(2) that no action or proceeding has been instituted at law to recover the debt then
remaining secured by such mortgage, or any part thereof, or, if the action or
proceeding has been instituted, that the same has been discontinued, or that an
execution upon the judgment rendered therein has
been returned unsatisfied, in whole or in part;
(3) that the mortgage has been recorded and, if it has been assigned, that all
assignments thereof have been recorded; provided, that, if the mortgage is upon
registered land, it shall be sufficient if the mortgage and all assignments thereof
have been duly registered.
Requisites for Foreclosure
Minn. Stat. § 580.04 (2006)
Each notice shall specify:
(1) the name of the mortgagor, the mortgagee, each assignee of the mortgage, if any, and the
original or maximum principal amount secured by the mortgage;
(2) the date of the mortgage, and when and where recorded, except where the mortgage is
upon registered land, in which case the notice shall state that fact, and when and where registered;
(3) the amount claimed to be due on the mortgage on the date of the notice;
(4) a description of the mortgaged premises, conforming substantially to that contained
in the mortgage;
(5) the time and place of sale;
(6) the time allowed by law for redemption by the mortgagor, the mortgagor's personal
representatives or assigns; and
(7) if the party foreclosing the mortgage desires to preserve the right to reduce the
redemption period under section 582.032 after the first publication of the notice, the notice
must also state in capital letters: "THE TIME ALLOWED BY LAW FOR REDEMPTION
BY THE MORTGAGOR, THE MORTGAGOR'S PERSONAL REPRESENTATIVES OR
ASSIGNS, MAY BE REDUCED TO FIVE WEEKS IF A JUDICIAL ORDER IS ENTERED
UNDER MINNESOTA STATUTES, SECTION 582.032, DETERMINING, AMONG
OTHER THINGS, THAT THE MORTGAGED PREMISES ARE IMPROVED WITH A
RESIDENTIAL DWELLING OF LESS THAN FIVE UNITS, ARE NOT PROPERTY USED IN
AGRICULTURAL PRODUCTION, AND ARE ABANDONED."
The most common area to attack a
foreclosure notice is if there is a dispute
related to the amount owed and you can
Equity Stripping or
“Foreclosure Rescue Scams”
Was the homeowner in foreclosure, and then sold their
home with the agreement that they would be able to
purchase the property back at a later date? You may
also ask if the person made an agreement with a
“foreclosure rescue” company or worked with a
If yes, then there is likely to be a Minn. Stat. Sec. 325N
Minnesota’s New Anti-
Predatory Lending Statute
First, make sure the law applies.
Was the mortgage originated on or after
August 1, 2007?
Was the mortgage originated by a non-bank
lender, meaning not a federal or state
chartered bank or credit union?
Does the loan negatively amortize, meaning that, if the consumer makes
the minimal monthly payment, the amount of the balance owed goes up,
Is there a prepayment penalty?
Does adding together the origination fee, broker fee, document
handling/processing fee, and/or Yield Spread Premium (YSP or POC)
exceed 5% of the loan?
Had the homeowner refinanced more than once in the past three years?
(potential churning/no-tangible-benefit violation)
Did the consumer receive independent counseling prior to refinancing a
“special mortgage,” meaning a mortgage made by a non-profit, like
Habitat for Humanity, or government agency, like the City of Minneapolis?
Chapter 13 Bankruptcy, automatic stay of
Minnesota Consumer Protection Statutes