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Housing
Laws that Can Protect You from Foreclosure

There are many defenses to foreclosure. Most of them involve looking back at the events that happened at the time the loan was made. Two of the most important defenses available to homeowners are the New Jersey Consumer Fraud Act and the Federal Truth in Lending Act.

THE NEW JERSEY CONSUMER FRAUD ACT AND PREDATORY LENDING

The New Jersey Consumer Fraud Act (CFA) protects consumers—including homeowners—from unfair and deceptive acts by merchants, including lenders. The law prohibits the following:

The act, use, or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived, or damaged thereby. . .

A court may find that the lender violated the New Jersey Consumer Fraud Act and that your mortgage is not valid if you were the victim of predatory lending. Predatory lending has been defined by the New Jersey courts as:

A “mismatch between the needs and capacity of the borrower…[T]he loan does not fit the borrower, either because the borrower’s underlying needs are not being met or the terms of the loan are so disadvantageous to that particular borrower that there is little likelihood that the borrower has the capability to repay the loan.” (Associates Home Equity Services v. Troup, 343 N.J. Super. 254, 267 (App. Div. 2000); Nowosleska v. Steele, 400 N.J. Super. 297 (App. Div. 2008).

These cases stand for the idea that some loans can be considered predatory because they are wrong for a particular borrower. For example, if a homeowner on a fixed income plans to stay in his or her home for a long period of time, an adjustable rate loan with a low introductory interest rate would be wrong for that particular borrower if the interest rate will increase the monthly payment to an unaffordable level in a short period of time.

Other loans can be considered predatory because the loan terms themselves are unfair. For example, some people argue that any loan that is based on the value of the property instead of on the borrower’s ability to repay the loan is inherently unfair.

Some examples of violations of the CFA that a court might consider to be predatory lending include:

  • The loan payments were not affordable at the time the loan was made. For example, if a homeowner’s only income is Social Security of $1,200 a month and the lender sold the homeowner a loan where the monthly payments were $1,100 not including taxes or homeowner’s insurance, those payments were clearly not affordable.
  • A lender lies to a homeowner and tells the homeowner that s/he doesn’t qualify for a fixed rate mortgage. Instead the broker sells the homeowner an adjustable rate mortgage, and promises to refinance the loan on better terms in a few years. Then the lender fails to follow through on that promise.
  • A homeowner wanted to consolidate debts to lower monthly payments but, instead of giving the homeowner a home equity loan, the lender refinanced a good, low-rate mortgage with a larger mortgage with a higher interest rate.
  • A homeowner received an advertisement offering a low interest rate mortgage but received a mortgage that had a low teaser rate and then adjusted to a higher rate.
  • A homeowner refinanced, but the current loan is worse than the one the homeowner had before.
  • The terms of the loan are so bad, as is the case with many payment option ARMs, that foreclosure is inevitable.

If you think you were the victim of predatory lending

If you think you were the victim of predatory lending, you may have a defense or a counterclaim under the New Jersey Consumer Fraud Act. You may also have claims against a mortgage broker or other people involved in selling you your mortgage loan. Victims of predatory lending can ask the court to prevent the lender from foreclosing if the lender violated the Consumer Fraud Act. If the court finds that the lender violated the Consumer Fraud Act, the homeowner can also ask the court for money damages in the amount of three times the amount that the homeowner lost.

How to describe violations of the CFA in an Answer

If you think that you were a victim of Consumer Fraud, you must give very specific, detailed facts in your Answer to explain what happened to you. You should consult an attorney if possible. Or, if you are not able to afford an attorney, review the resources listed under Represent Yourself in this section.

VIOLATIONS OF THE FEDERAL TRUTH IN LENDING ACT

The Truth in Lending Act (TILA) requires the lender to disclose the terms of the mortgage to the homeowner at the time a loan is made. TILA is designed to give homeowners an accurate explanation of the cost of the loan. 15 U.S.C. Section 1601 et seq.

Cancellation of the mortgage (rescission)

TILA provides extra protection for borrowers who are refinancing a mortgage. In a refinance, every borrower has three days to cancel the loan for any reason at all. When the lender misstates certain information, TILA extends the right to cancel the loan for up to three years. Cancellation of the mortgage or rescission is very significant. It means that the mortgage is void and the lender cannot foreclose on the property.

If a homeowner has a right to rescind the mortgage and does so in writing, the lender must return to the homeowner all of the closing costs of the mortgage and all of the interest the borrower has paid on the mortgage. At that point, the homeowner must offer the lender the remaining balance of the loan. If the borrower has both TILA violations and claims under the Consumer Fraud Act, it is possible—in the best of circumstances—that the amount the borrower must offer can be very low or—less often—even nothing at all. The homeowner may be able to refinance the lower balance, or the court may order a fair repayment schedule.

Identifying violations of TILA

Some violations of TILA are easy to discover. For example, TILA requires the lender to give each homeowner two copies of a Notice of Right to Cancel. This notice explains the time limit for cancellation and where to send the cancellation notice. The lender must give two copies of the Notice of Right to Cancel to anyone whose name is on the deed, even if that person is not listed as a borrower on the mortgage.

TILA also requires the lender to list the deadline for cancellation on the Notice of Right to Cancel. Sometimes, the lender fails to do so or miscalculates the date.

If either of these things happened to you when you refinanced, you have the right to rescind (cancel) the loan for three years from the date of the loan.

Other violations of TILA are harder for most people to discover. These include inaccuracies in the finance charge, the annual percentage rate (APR), or the payment schedule. An attorney who specializes in this area of law can do the math to determine whether the lender violated the Truth in Lending Act.

Sending a letter canceling (rescinding) the mortgage

If you think your lender violated the Truth in Lending Act and you want to rescind the mortgage, you must send the lender a letter. If you have the legal right to cancel the mortgage and you do so, you may raise that as a defense to foreclosure. You can find a sample rescission letter and instructions in the Foreclosure Forms section.

SHOWING THAT THE LENDER DOES NOT HAVE THE RIGHT TO FORECLOSE

Standing: Who has the legal right to foreclose on your property?

If you have been served with a foreclosure complaint, you may not recognize the name of the plaintiff. Chances are high that your original lender did not keep your loan. Your original lender may have sold your loan to another company. Often, mortgage loans are pooled together, and interests in the pools are sold as investment securities. The pool of loans is held in trust for the investors by a trustee. That trustee is often the plaintiff.

The company that has been collecting your mortgage payments is probably not the company that owns your mortgage. The company that collects your mortgage payments is usually a “servicer,” a company hired by the owner of your mortgage as a debt collector.

A court should not grant a foreclosure judgment to a company that cannot prove it owns your loan. In order for the lender to have the legal right to foreclose, it must be the “holder” of your note, and it must have received an “assignment” of the mortgage.

If you have never heard of the plaintiff before your received the foreclosure complaint, you should write that information in your Answer. You can ask the court to make the plaintiff prove that the mortgage debt belongs to that plaintiff, and that this plaintiff really has the right to foreclose.

The Fair Foreclosure Act

The right to cure the default on your loan and reinstate your mortgage

One of the most important rights that New Jersey’s Fair Foreclosure Act gives the homeowner is that it requires the lender to give the homeowner the opportunity to cure a default at any stage of the foreclosure process up until entry of final judgment. Curing the default means paying the amount that you owe and reinstating the mortgage.

Notice of Intention to Foreclose

One of the most important protections that the Fair Foreclosure Act gives the homeowner is that it requires the lender to send the homeowner a Notice of Intention to Foreclose before the lender can file a foreclosure complaint. The Notice of Intention to Foreclose advises the homeowner that he or she is behind with the mortgage payments, and gives the homeowner at least 30 days to cure the default. The Notice of Intention to Foreclose must also give the homeowner some other important information that the borrower may need in order to resolve a dispute.

Checklist: Notice of Intention to Foreclose

If you did not receive a Notice of Intention to Foreclose, the court should deny the lender the ability to foreclose. If you did receive a Notice of Intention to Foreclose, check it against the list below. If the lender left out any of the required information, the court should deny the lender the ability to foreclose. If you think that the lender violated the Fair Foreclosure Act in either of these ways, you must tell the court in your written Answer.

If the court is made aware that the lender did not send the homeowner a Notice of Intention to Foreclose, or if the Notice of Intention to Foreclose did not meet the requirements of the law, then the court must dismiss the foreclosure complaint. If the Complaint is dismissed, the lender must comply with the law by sending the homeowner a proper Notice of Intention to Foreclose before it can file a new foreclosure Complaint.

If you did receive a Notice of Intention to Foreclose, the court should dismiss the foreclosure complaint if the Notice is missing any of these things:

  • The particular obligation or security interest.
  • The nature of the default: does the lender identify why it claims a right to foreclose (e.g., that you failed to make certain monthly payments)?
  • That you have a right to cure the default.
  • The amount that you have to pay in order to cure the default.
  • The date by which you have to pay the arrears in order to avoid foreclosure proceedings.
  • The name, address, and phone number where you should send your payment.
  • A statement that, if you do not pay the amount that you owe, the lender can begin foreclosure proceedings against you in court.
  • A statement that, if the lender does begin foreclosure proceedings, you will still have the right to cure, but you will also owe court costs and the lender’s attorney’s fees.
  • Whether you have the right to transfer the property to someone else and have that person cure the default.
  • That you are advised to seek an attorney.
  • A statement that, if you are not able to find an attorney, you can call the New Jersey Bar Association or the Lawyer Referral Service in your county.
  • A statement that, if you can’t afford an attorney, you can call your local Legal Services office.
  • A statement that financial assistance might be available to help you cure the default
  • The name and address of the lender.
  • The telephone number of a representative of the lender that you can contact if you don’t think you are in default or if you think you owe less than the amount the lender claims is due.

Note: The Notice of Intention to Foreclose should give you the name and address of the holder of the note and mortgage. It should also tell you the name and address of a representative of the holder whom you can contact in the event of a dispute. These will often be two different entities. If the plaintiff on the foreclosure complaint was not identified in the Notice of Intention to Foreclose, you should write that in your Answer.

3/30/2012