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					The ABCs of Mortgage
 Foreclosure Defense




           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
     Laws
EARLY IS BETTER

  The earlier you look at the documents
   and go on “offense” the better.

                              --Why?--
    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
   foreclosure.

    WHY?
       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.
RESCISSION
 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),
  1635(f).
 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
   client’s mortgage?
    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
   cancel?
  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
     actionable.
  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
   notary?

  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?
Foreclosure By
Advertisement
  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
  itself.

   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
Advertisement

  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
Notice

  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."
Deficiencies

  The most common area to attack a
   foreclosure notice is if there is a dispute
   related to the amount owed and you can
   establish prejudice.
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
   “foreclosure” consultant.

  If yes, then there is likely to be a Minn. Stat. Sec. 325N
   violation.
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?
Banned Mortgages
    Does the loan negatively amortize, meaning that, if the consumer makes
     the minimal monthly payment, the amount of the balance owed goes up,
     not down?

    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?
Other Tools

  Chapter 13 Bankruptcy, automatic stay of
   foreclosure

  RESPA violations

  Minnesota Consumer Protection Statutes

				
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