The ABCs of Mortgage Foreclosure Defense

1. The ABCs of Mortgage Foreclosure Defense Real Estate Institute November 14, 2008 Amber Hawkins, Esq. Mark Ireland, Esq. .

2. 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

3. 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)

5. 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.

6. 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).

7. 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.

8. 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

10. 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.

16. 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.

17. 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)

18. 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?

19. 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.

20. 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).

21. 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.

22. 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."

23. 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.

24. 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.

25. 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?

26. 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?

27. Other Tools Chapter 13 Bankruptcy, automatic stay of foreclosure RESPA violations Minnesota Consumer Protection Statutes