In handling mortgage foreclosure cases around the country, attorneys and paralegals should be aware that in addition to your state mortgage foreclosure laws, which is the main statute that is relied on by attorneys defending a foreclosure suit, a variety of defenses exist at both at federal and state levels. These statutes, however, focus more on the lending practice of the lender rather than on the ability of the client to pay. Volunteers should therefore pay attention to the nuances between laws listed below and figure out whether the mortgage company has engaged in illegal lending practices.
The available federal and state statutes are:
Truth in Lending Act (TILA). This Act attempts to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms and avoid uninformed use of credit. It also aims to protect the consumer against inaccurate and unfair credit billing and credit card practice.
Home Ownership and Equity Protection Act (HOEPA). This Act is an amendment to TILA. It is enacted to deal with substantive abuses of creditors offering alternative, typically high interest rate, home loans to residents in certain geographic areas. It purports to afford consumers most vulnerable to abuse a safety net without impeding the flow of credit altogether.
Real Estate Settlement Procedures Act (RESPA). This Act aims to effect more effective disclosure to home buyers and sellers of settlement costs. It also seeks to eliminate kickbacks or referral fees and reduce the required amount to be put in escrow by homeowners to insure the payment of real estate taxes and insurance.
Equal Credit Opportunity Act (ECOA). This Act is created to prohibit discriminatory treatment by lenders. Its credit notification provision protects consumers from bait-and-switch tactics.
Illinois Consumer Fraud and Deceptive Business Practice Act (ICFA). This is an Illinois state law that prohibits commercial deceptive and unfair business practice. Where a conduct is within the definition of Uniform Deceptive Trade Practice Act, it is unlawful whether a person has, in fact, been misled, deceived, or damaged. Your state may have similar laws, check with your state attorney general's office.
Common Law Fraud. Unlike ICFA, common law fraud requires proof of reliance. In Illinois, you must show: (1) a false statement of material fact; (2) the party making the statement knew or believed it to be true; (3) the party to whom the statement was made had a right to rely on the statement; (4) the party to whom the statement was made relied on the statement; (5) the statement was made for the purpose of inducing the other party to act; and (6) the reliance by the person to whom the statement was made led to that person's injury. In foreclosure cases, borrowers usually bring a third-party claim against the one who they deal with directly (the contractor, broker, or loan officer).
Breach of Fiduciary Duty. The specific elements are: (1) a fiduciary duty was created; (2) the fiduciary duty was breached; and (3) the breach proximately caused the injury of which the plaintiff complains.
Breach of Contract. The parties to a contract have a duty to honor their obligations, and they also have an implied duty of good faith and fair dealing.
Illinois Interest Act (IIA). This act puts a cap on the maximum percentage a lender can charge per year. The application of this Act to loans secured by first liens was preempted by federal law but is still applicable to loans secured by junior liens.
Illinois "High Risk Home Loan Act" (Senate Bill 1784, Public Act 93-0561) regulates high risk home loans which closed on or after January 1, 2004. This statute is modeled after the federal Home Ownership and Equity Protection Act (HOEPA) but uses lower triggers and includes more protections for homeowners. Loans are defined as high risk if they either: (1) carry an annual percentage rate exceeding the applicable U.S. Treasury security yield by more than 6% (for first-priority liens) or by more than 8% (for junior liens); or (2) include points and fees exceeding 5%. For covered loans, certain terms are prohibited (e.g., single premium credit insurance and call provisions), while others are limited (e.g., prepayment penalties and short-term refinancing). Lenders must give heightened pre-closing disclosures and must offer the opportunity for counseling prior to closing and prior to initiating foreclosure. A knowing violation of the Act constitutes a violation of the Consumer Fraud and Deceptive Business Practices Act, and assignees of loans are subject to liability.
Also helpful is the Predatory Lending Claims Document Review Checklist.
Truth in Lending Act (TILA)
Purpose:
“It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a).
Sources of law:
Regulation Z (12 C.F.R. 226).
The Federal Reserve Board’s Official Staff Commentary on Regulation Z (12 C.F.R. 226.36, Supplement I). Ford Motor Credit v. Milhollin, 444 U.S. 555, 565 (1980) (“Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive”).
Substantive requirements:
Clear, conspicuous, and accurate disclosures of loan terms set forth in 12 C.F.R. 226.18 (“Content of Disclosures”). In re Ralls, 230 B.R. 508 (Bankr. E.D.Pa. 1999); In re Cook, 76 B.R. 661 (Bankr. C.D.Ill. 1987).
Every loan charge must be properly disclosed as either part of the “amount financed,” which represents “the amount of credit provided to you or on your behalf,” 12 C.F.R. 226.18(b), or as part of the “finance charge,” which represents “the dollar amount the credit will cost you,” 12 C.F.R. 226.18(d). The “annual percentage rate” (APR) combines the interest rate and additional up-front (prepaid) finance charges to yield the total “cost of your credit as a yearly rate.” 12 C.F.R. 226.18(e). In re Hill, 213 B.R. 934 (Bankr. D.Md. 1997).
The finance charge is computed according to the rules set forth in 12 C.F.R. 226.4 (“Finance Charge”). The finance charge includes “any charge payable directly or indirectly by the creditor as an incident to or a condition of the extension of credit,” 12 C.F.R. 226.4(a), unless a charge is specifically excluded. The most pertinent exclusions in the context of real-estate loan transactions are as follows:
Some real-estate related fees are excluded from the finance charge “if the fees are bona fide and reasonable in amount” (e.g., title, document preparation, credit report, appraisal, and escrow fees). 12 C.F.R 226.4(c)(7). Brannam v. Huntingdon Mortgage Co., 287 F.3d 601 (6th Cir. 2002) (document preparation fee).
Credit insurance premiums are excluded from the finance charge if they are voluntary, if this fact and other specified information is disclosed to the borrower, and if the borrower signs that, having been given these disclosures, s/he still wants the insurance. 12 C.F.R. 226.4(d). In re Duffy, 32 B.R. 497 (D.R.I. 1983).
Taxes and fees “prescribed by law that are or will be paid to public officials,” such as for a release of lien. 12 C.F.R. 226.4(e).
Delivery to each borrower of two copies of a 3-day notice of right to rescind the loan transaction (non-purchase money mortgages only). The notice must meet all the requirements specified in 12 C.F.R. 226.23(b)(1), including setting forth the date the rescission period expires, how to exercise the right, how to contact the creditor, and the effects of rescission. The three-day right to rescind is absolute; unless the borrower waives the right as set forth in 12 C.F.R. 226.23(e), the creditor cannot take any action to undermine that right. 12 C.F.R. 226.23(c). Rodash v. AIB Mort. Co., 16 F.3d 1142 (11th Cir. 1994); Jenkins v. Landmark Mortgage Co., 696 F. Supp. 1089 (W.D.Va. 1988).
The creditor must deliver TILA disclosures to each person whose ownership interest in a dwelling is subject to the security interest, and each such person has the right to rescind. 12 C.F.R. 226.2(a)(11), 226.15(a) and (b), 226.17(d), 226.23(a)(1). Westbank v. Maurer, 658 N.E.2d 1381 (Ill.App. 2nd Dist. 1995).
Remedies:
Failure to deliver a proper 3-day notice of right to rescind triggers an extended right of rescission. 12 C.F.R. 226.23(a)(3). Westbank v. Maurer, 658 N.E.2d 1381 (Ill.App. 2nd Dist. 1995).
Failure to make clear, conspicuous, and accurate material disclosures also triggers an extended right of rescission. 12 C.F.R. 226.23(a)(3). Material disclosures include the: (1) annual percentage rate, (2) finance charge, (3) amount financed, (4) total payments, (5) or payment schedule. 12 C.F.R. 226.23(a)(3) n.48.
There are statutory “tolerances” for the APR and the amount financed and finance charge. Violations are deemed non-material if they fall within these tolerances.
The APR tolerance is .125% for regular loans and .25% for irregular (variable-rate) loans. 12 C.F.R. 226.22(a).
The finance charge tolerance for defendants in foreclosure actions is $35 (for rescission), 12 C.F.R. 226.23(h), and $100 (for monetary damages), 12 C.F.R. 226.18(d)(1).
The extended right of rescission lasts 3 years from the date of the closing of the loan. 12 C.F.R. 226.23(a)(3). Semar v. Platte Valley Fed. S&L. Assn., 791 F.2d 699 (9th Cir. 1986)
The rescission remedy runs against any assignee: “Any consumer who has the right to rescind a transaction under section 1635 of this title may rescind the transaction as against any assignee of the obligation.” 15 U.S.C. § 1641(c). Mount v. LaSalle Bank Lake View, 926 F.Supp. 759 (N.D.Ill. 1996); Stone v. Mehlberg, 728 F.Supp. 1341 (W.D.Mich. 1989).
Upon rescission, “the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge” (step one). 12 C.F.R. 226.23(d)(1). Within 20 days the creditor must take any action required to cancel the security interest and must return any money paid on the loan (step two). 12 C.F.R. 226.23(d)(2). If and when the creditor does so, the consumer must tender to the creditor the value of the money or property received (step three). 12 C.F.R. 226.23(d)(3). The tender amount is reduced by any amount paid on the loan (unless previously returned). White v. WMC Mortgage, 2001 U.S. Dist. LEXIS 15907, at * 5 (E.D. Pa. July 31, 2001); Williams v. Gelt, 237 B.R. 590, 598-99 (E.D. Pa. 1999). Courts can modify steps two and three of the above rescission process. 12 C.F.R. 226.23(d)(4).
Creditors are also liable for actual damages, statutory damages in the amount of twice the finance charge, up to $2,000, and attorney’s fees and costs. 15 U.S.C. § 1640(a). Failure to respond to the rescission notice as spelled out above results in another violation and an addition award of statutory damages. White v. WMC Mortgage, 2001 U.S. Dist. LEXIS 15907, at * 5 (E.D. Pa. July 31, 2001); Mayfield v. Vanguard Savings & Loan, 710 F. Supp. 143, 145 (E.D. Pa. 1989).
Liability for TILA claims for monetary damages runs against assignees where the violation is apparent on the face of the loan documents. 15 U.S.C. § 1641(a).
Statute of limitations:
1 year for affirmative claims. 15 U.S.C. § 1640(e).
3 years for rescission. Beach v. Ocwen, 523 U.S. 410 (1998)
Unlimited as a defense to foreclosure in the nature of a recoupment or setoff. 735 ILCS 5/13-207. Bank of New York v. Heath, 2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Home Ownership and Equity Protection Act (HOEPA)
Purpose:
“HOEPA, an amendment to TILA, was a congressional response to the substantive abuses of creditors offering alternative, typically high interest rate, home loans to residents in certain geographic areas. The statute was enacted to ensure that consumers most vulnerable to abuse would be afforded a safety net without impeding the flow of credit altogether. H.R. Rep. No. 103 652, at 159 (1994).” Fluehmann v. Associates Financial Services, 2002 U.S. Dist. LEXIS 5755 (D. Mass. March 29, 2002).
Sources of law:
15 U.S.C. §§ 1602(aa), 1639, and 1641(d)(1).
Federal Reserve Board Regulation Z (12 C.F.R. 226), particularly § 226.31 (“General Rules”) and § 226.32 (“Requirements for Certain Closed-End Home Mortgages”).
The Federal Reserve Board’s Official Staff Commentary on Regulation Z. Ford Motor Credit v. Milhollin, 444 U.S. 555, 565 (1980) (“Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive”).
Triggers for HOEPA coverage:
APR more than 10% above comparable Treasury security rate (8% on first-lien loans closing on or after October 1, 2002) on the 15th day of the month before the lender received the loan application. 12 C.F.R. 226.32(a)(1)(i); 66 Fed. Reg. 65,617 (2001). “Points and fees” exceeding 8% of the “total loan amount.” 12 C.F.R. 226.32(a)(1)(ii).
“Points and fees” include:
All prepaid finance charges. 12 C.F.R. 226.32(b)(1)(i).
All compensation paid to mortgage brokers. 12 C.F.R. 226.32(b)(1)(ii).
All items paid to the lender or to a lender affiliate. 12 C.F.R. 226.32(b)(1)(iii).
“Total loan amount” is defined as the amount financed (principal minus prepaid finance charges) minus any additional HOEPA fees not already included in the finance charge, e.g., a bona fide and reasonable appraisal fee paid to the lender. Official Staff Commentary 12 C.F.R. 226.32(a)(1)(ii)-1. Lopez v. Delta Funding Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998).
Disclosure requirements:
A special HOEPA disclosure notice must be delivered to the consumer at least three business days prior to the closing of the loan. 15 U.S.C. § 1639(b); 12 C.F.R. 226.31(c). A signed statement to the effect that the consumer received the HOEPA notice creates a rebuttable presumption only. 15 U.S.C. § 1635(c). Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566, at **11-17 (N.D. Ga. Jan. 14 ,2002); Williams v. Gelt, 237 B.R. 590 (E.D. Pa. 1999), Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 448-51 (E.D. Pa. 1998).
The notice must inform the consumer that he need not enter into the loan, and that if he does enter the loan, he could lose his home and any money he has put in it. 15 U.S.C. § 1639(a); 12 C.F.R. 226.32(c)(1).
The notice must also include an accurate statement of APR, monthly payment and balloon payment amount, and maximum payment amount on a variable-rate loan. 15 U.S.C. § 1639(a)(2); 12 C.F.R. 226.32(c)(2)-(4); Official Staff Commentary 12 C.F.R. 226.32(c)(3)-2.
As of October 1, 2002, the notice must also state the total amount
borrowed. 66 Fed. Reg. 65,618 (2001).
Prohibited terms:
The following terms are prohibited (or limited) by the statute and Regulation Z: prepayment penalties, default interest rate, balloon payments, negative amortization, prepaid payments, improvident lending, direct payments to home improvement contractors. 15 U.S.C. § 1639(c)-(h); 12 C.F.R. 226.32(d). Lopez v. Delta Funding Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998) (default interest rate); Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 451-57 (E.D. Pa. 1998) (improvident lending).
Remedies:
Failure to deliver the required HOEPA notice or inclusion of a prohibited term triggers an extended (three-year) right of rescission (described above). 15 U.S.C. § 1639(j); 12 C.F.R. 226.23(a)(3) n.48.; Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566 (N.D. Ga. Jan. 14 ,2002); In re Barber, 266 B.R. 309 (Bankr. E.D. Pa. 2001); In re Jackson, 245 B.R. 23 (Bankr. E.D. Pa. 2000); In re Murray, 239 B.R. 728, 733 (Bankr. E.D. Pa. 1999).
In addition to regular TILA monetary damage remedies (see above),
HOEPA violations give rise to “enhanced” monetary damages under
15 U.S.C. § 1640(a)(4), namely, all payments made by the
borrower. In re Williams, 291 B.R. 636, 663-64 (Bankr.
E.D. Pa. 2003).
As with any TILA violation (see above), the rescission remedy runs
against any assignee of the loan.
15 U.S.C. § 1641(c). In addition, where the loan
documents demonstrate that the loan is covered by HOEPA coverage,
assignees “shall be subject to all claims and defenses with respect
to that mortgage that the consumer could assert against the
creditor.”
15 U.S.C. § 1641(d)(1). This provision mirrors the
FTC Holder Rule and creates assignee liability for all state and
federal claims and defenses. For monetary damages claims under
TILA, it provides an exception to general rule that violations must
appear on the face of the documents. Pulphus v. Sullivan,
No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080, at *64 n.11 (N.D. Ill.
April 25, 2003); Dash v. Firstplus Home Loan Trust 1996-2,
248 F. Supp. 2d 489 (M.D.N.C. 2003); Cooper v. First Gov't
Mortgage & Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002);
Bryant v. Mortgage Capital Resource Corp., 2002 U.S.
Dist. LEXIS1566, at **17-22 (N.D. Ga. Jan. 14, 2002); Mason v.
Fieldstone Mortgage Co., U.S. Dist. LEXIS 16415 (N.D. Ill.
2001); Vandenbroeck v. ContiMortgage Corp., 53 F.Supp. 965,
968 (W.D. Mich. 1999); In re Rodrigues, 278 B.R. 683 (Bankr.
D.R.I. 2002); In re Jackson,
245 B.R. 23 (Bankr. E.D. Pa. 2000); In re Barber, 266 B.R.
309 (Bankr. E.D. Pa. 2001); In re Murray,
239 B.R. 728, 733 (Bankr. E.D. Pa. 1999).
Statute of limitations:
1 year for affirmative claims. 15 U.S.C. § 1640(e).
3 years for rescission.
Beach v. Ocwen, 523 U.S. 410 (1998).
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Real Estate Settlement Procedures Act (RESPA)
Purpose:
To “effect certain changes in the settlement process for residential real estate that will result: 1) in more effective advance disclosure to home buyers and sellers of settlement costs; 2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services; 3) in a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance; and 4) in significant reform and modernization of local recordkeeping of land title information.” 12 U.S.C. § 2601(b).
Sources of law:
HUD Regulation X (24
C.F.R. § 3500,
et seq.).
Coverage:
RESPA covers all federally related mortgages, including loans (both purchase-money mortgages and others) secured by the family home. 12 U.S.C. § 2602(1); 24 C.F.R. § 3500.2.
Prohibition against kickbacks and referral fees:
12 U.S.C. §2607(a); 24 C.F.R. § 3500.14(b). RESPA prohibits the giving or receiving of any fee, kickback or other thing of value for the referral of a “settlement service” (defined at 12 U.S.C. § 2602(3) and 24 C.F.R. § 3500.2).
In order to state a claim alleging a violation of this section, one
must demonstrate: 1) an agreement between the parties to refer
settlement service business, 2) the transfer of a thing of value,
and 3) the referral of settlement service business. Shah v.
Chicago Title and Trust Co.,
102 Ill. App. 3d 787, 789; 430 N.E.2d 342, 344 (1st Dist. 1981).
“An agreement or understanding for the referral of business incident
to or part of a settlement service need not be written or verbalized
but may be established by a practice, pattern or course of conduct.”
24 C.F.R. § 3500.14(e).
Yield-spread premiums: A yield spread premium is a fee paid by a
mortgage lender to a mortgage broker for arranging a loan with an
interest rate at a higher amount than the par rate. Payment of
a yield spread premium is not a per se violation of this section,
but may be illegal under RESPA based on a factual inquiry into the
circumstances surrounding the payment. Vargas v. Universal
Mortgage Corp., 2001 U.S. Dist. LEXIS 6696, 6 (N. Dist. Ill.
2001); Culpepper v. Inland Mortgage Corp., 132 F.3d 692 (11th
Cir. 1998).
HUD (the agency charged with interpretative, investigative and
enforcement powers under RESPA) recommends a two-step inquiry to
determine whether a yield spread premium is illegal. First,
one determines whether the payment of the yield spread premium was
for services actually performed; if it is not, then the payment is
an illegal kickback. If the payment was for services actually
performed, then one looks at whether the total compensation paid to
the broker reasonably related to the value of the services; if the
compensation does not reasonably relate to the value of the
services, the payment is a violation of this section. 64 Fed.
Reg. 10080 (1999).
Prohibition against unearned fees and fee splitting:
12 U.S.C. §2607(b); 24 C.F.R. §3500.14(c). RESPA prohibits the giving or receiving of “any portion, split or percentage of any charge made or received for the rendering of a settlement services in connection with a transaction involving a federally related mortgage loan other than for services performed.” The regulations further state that, “A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.”
Recently the Seventh Circuit issued a decision holding that a fee for
which no service was performed does not violate section 2607(b)
unless the unearned fee is shared with a third party.
Echevarria v. Chicago Title & Trust Co., 256 F. 3d 623 (7th Cir.
2001). However, following the Echevarria decision, HUD issued
a policy statement clarifying its interpretation of Section 2607(b)
in which it stated, “HUD believes that Section 8(b) [12 U.S.C. §
2607(b)] of the statute and the legislative history make clear that
no person is allowed to receive any portion of charges for
settlement services, except for services actually performed.”
66 Fed. Reg. 53052, 53058.
Remedies:
Private right of action for violation of § 2607 (Illegal referral fee or kickback and fee splitting). Statutory damages: person charged for the settlement service can recover an amount equal to “three times the amount of any charge paid for such settlement service,” plus attorney’s fees and costs. 12 U.S.C. § 2607(d).
Private right of action for violation of § 2605 (Servicing
requirements and administration of escrow accounts). Actual
damages for each failure to comply, additional damages for a pattern
and practice of noncompliance, plus attorney’s fees and costs.
12 U.S.C. § 2605(f).
Statute of limitations:
1 year for affirmative (kickback and fee-splitting) claims. 12 U.S.C. § 2614.
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Equal Credit Opportunity Act (ECOA)
Purpose:
Created to prohibit discriminatory treatment by lenders. ECOA’s credit notification provision requires lenders to notify consumers, within 30 days of receiving a completed application for credit, of what action is being taken on that application. This provision is intended to protect consumers from bait-and-switch tactics: “The [credit notification provision] was designed to avoid bait by a small loan for home improvements and switch to a large loan clearing title for a first mortgage. The practice of the lender was not to give notice of the counteroffer when it had a de facto completed application for the smaller loan and knew it was impracticable. Instead, the lender created the fiction that it was accepting an offer which the lender itself had created for the larger loan.” Newton v. United Cos. Fin. Corp., 24 F. Supp. 2d 444, 462 (E.D. Pa. 1998).
Sources of law:
Federal Reserve Board Regulation B,
12 C.F.R. 202, and Official Staff Commentary.
Substantive requirements:
Creditors sometimes offer a consumer certain credit terms only to change them later, usually at closing, perhaps by claiming that they were unable to obtain the promised terms and then offering new terms. To prevent lenders from taking advantage of consumers in this way, ECOA requires notification of the creditor’s action within 30 days of receipt of the application. The idea behind the notice requirement is that “if creditors know they must explain their decisions will they effectively be discouraged from discriminatory practices.” Jochum v. Pico Credit Corp. 730 F.2d 1041, 1043 (5th Cir.1984).
Specifically, the ECOA regulations provide that “[a] creditor shall
notify an applicant of action taken within 30 days after receiving a
completed application concerning the creditor’s approval of,
counteroffer to, or adverse action on the application.” Reg.
B,
12 C.F.R. § 202.9(a)(1)(i).
An application for credit is considered “complete” when the creditor
receives, through its exercise of due diligence, the last piece of
information regularly obtained in the loan application process.”
Dufay v. Bank of Am. N.T. & S.A., 94 F.3d 561, 564 (9th Cir.
1996) (citing12 C.F.R. § 202.2(f).) In other words, an
application is complete when a creditor has enough information to
determine whether or not the consumer qualifies for a loan.
Newton v. United Cos. Fin. Corp., 24 F.
Supp. 2d 444, 461 (E.D. Pa. 1998).
If the action taken by the creditor is an “adverse action,” then the
notification must be in writing.
12 C.F.R. § 202.9(a)(2). If the creditor rejects
the application and such rejection is coupled with a counteroffer
accepted by the consumer, then there has been no “adverse action,”
and the creditor can give oral (versus written) notification.
Dorsey v. Citizens & Southern Financial Corp., 678 F.2d 137
(11th Cir. 1982); Diaz v. Virginia Hous. Dev. Auth., 117 F.
Supp. 2d 500 (E.D. Va. 2000); Newton v.
United Cos. Fin. Corp., 24 F. Supp. 2d 444
(E.D. Pa. 1998).
Remedies:
Actual damages, punitive damages up to $10,000, equitable relief, attorney’s fees and costs. 15 U.S.C. § 1691e.
Statute of limitations:
2 years for affirmative claims. 15 U.S.C. § 1691e(f).
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA)
Purpose:
“Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, or the use or employment of any practice described in Section 2 of the ‘Uniform Deceptive Trade Practices Act’, approved August 5, 1965, in the conduct of any trade or commerce are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby.” 815 ILCS 505/1.
Sources of law:
In construing ICFA § 2, “consideration shall be given Section 5(a) of
the Federal Trade Commission Act [15 U.S.C. § 45] and the federal
courts relating to Section 5(a) of the Federal Trade Commission
Act.”
815 ILCS 505/2.
Substantive requirements:
Prohibits commercial deception, requiring proof of: (1) a deceptive act or practice; (2) an intent by the defendant that plaintiff rely on the deception; and (3) that the deception occurred in the course of conduct involving trade or commerce. Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 75, 643 N.E.2d 734 (1994). Plaintiff must also allege that he suffered some harm which was proximately caused by the deception. Id.
Prohibits commercial unfairness, requiring proof that: (1) the
challenged practice offends public policy; (2) is immoral,
unethical, oppressive, or unscrupulous; or (3) causes substantial
injury to consumers. Robinson v. Toyota Motor Credit Corp.,
201 Ill. 2d. 403, 417-18 (2002).
ICFA can be used to challenge a wide range of predatory lending
practices, including improvident lending, see, e.g., Fidelity
Financial Services v. Hicks, 214 Ill. App. 3d 398 (1st Dist.
1991), and “bait-and switch” practices, see, e.g., Chandler v.
American General Finance, 329 Ill. App. 3d 729 (1st Dist. 2002).
Knowing violations of a number of other consumer protection statutes
constitute automatic violations of ICFA.
815 ILCS 505/2Z.
Making loans which violate state anti-predatory lending regulations
may also violate ICFA’s prohibition against unfair or deceptive
acts. Specifically, the Illinois Office of Banks and Real Estate
(OBRE) issued anti-predatory lending regulations covering loans
closing as of May 17, 2001. These regulations are based on
HOEPA (see above), but use lower triggers and impose greater
restrictions. Refinance and home equity loans are defined as
high-risk if fees exceed 5% or if the APR exceeds 6% above the
comparable Treasury rate (8% for junior liens). Borrowers must
be given pre-closing notice of loan counseling; prepayment
penalties and balloon payments are limited; financed fees are capped
at 6%; and various other loan terms are prohibited or limited.
38 Ill. Adm. Code 345.
Remedies:
Actual damages, punitive damages, equitable relief, attorney’s fees and costs. 815 ILCS 505/10a.
Statute of limitations:
3 years for affirmative claims. 815 ILCS 505/10a(e).
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Common Law Fraud
Substantive requirements:
Unlike ICFA, common law fraud requires proof of reliance. Specifically, to prove common law fraud, you must show: (1) a false statement of material fact; (2) the party making the statement knew or believed it to be untrue; (3) the party to whom the statement was made had a right to rely on the statement; (4) the party to whom the statement was made did rely on the statement; (5) the statement was made for the purpose of inducing the other party to act; and (6) the reliance by the person to whom the statement was made led to that person's injury. Siegel v. Levy Organization Development Co., 153 Ill. 2d 534, 542 43, 180 Ill. Dec. 300, 607 N.E.2d 194 (1992).
in many predatory lending cases, borrowers can allege common law
fraud against the party with whom they dealt directly (the
contractor, broker, or loan officer). In the foreclosure
context, this is usually done via a third-party claim.
In addition, liability for common law fraud can be extended, e.g.,
from the broker to the lender, if the lender knowingly accepted the
“fruits of the fraud.” Moore v. Pinkert,
28 Ill. App. 2d 320, 333, 171 N.E. 73 (1960);
Pulphus v. Sullivan, No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080,
at **61-62 (N.D. Ill. April 25, 2003). This distinguishes
common law fraud from an ICFA claim, which cannot be brought against
a third party merely because that third party knowingly accepts the
benefits of another’s fraud. Zekman v. Direct American
Marketers, Inc. 182 Ill. 2d 359 (1998).
Remedies:
Actual damages, punitive damages, equitable relief. Lucas v. Downtown Greenville Investors Limited Partnership, 284 Ill. App. 3d 37 (2nd Dist. 1996).
Statute of limitations
5 years for affirmative claims. 735 ILCS 5/13-205.
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Breach of Fiduciary Duty
Substantive requirements:
The specific elements here are: (1) a fiduciary duty was created; (2) the fiduciary duty was breached; and (3) the breach proximately caused the injury of which the plaintiff complains. Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 53, 205 Ill. Dec. 443, 643 N.E.2d 734 (1994). Did the broker establish a position of trust to act in the best interest of the borrower (even if it tried to disclaim its duty through a standard-form document)? Did the broker subsequently violate that duty? For example, brokers often secure a loan at a higher-than-par rate and pocket a yield-spread premium (essentially a commission on the higher rate) from the lender. Though the borrower may see the term “yield-spread premium” on the loan documents, the borrower has no idea what this means. Such facts may give rise to a claim of breach of fiduciary duty.
Remedies:
Actual damages, equitable relief.
Statute of limitations:
5 years for affirmative claims. 735 ILCS 5/13-205.
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Breach of Contract
Substantive requirements:
The parties to a contract have a duty to honor their obligations thereunder, and they also have an implied duty of good faith and fair dealing. Saunders v. Michigan Avenue National Bank, 278 Ill. App. 3d 307, 315, 662 N.E.2d 602 (1st Dist. 1996). Did the broker or lender fail to live up to its contractual duty? Did it frustrate the borrower’s ability to perform on (or reinstate) the contract? If so, it may have breached the contract or its duty of good faith and fair dealing, which is implied in every contract. Hill v. Harris Bank, 329 Ill. App.3d 705, 710 (1st Dist. 2002).
Remedies:
Actual damages, specific performance.
Statute of limitations:
10 years for affirmative claims. 735 ILCS 5/13-206.
Unlimited as a defense to foreclosure in the nature of a recoupment
or setoff.
735 ILCS 5/13-207.
Bank of New York v. Heath,
2001 WL 1771825, at *1 (Ill. Cir. Oct. 26, 2001).
Illinois Interest Act (IIA)
Substantive requirements:
“The percentage of the principal amount of the loan represented by all of such charges shall first be computed, which in the case of a loan with an interest rate in excess of 8% per annum secured by residential real estate, other than loans described in paragraphs (e) and (f) of Section 4, shall not exceed 3% of such principal amount.” 815 ILCS 205/4.1a. Section 4.1a has been ruled pre-empted by federal as to loans secured by first liens (decision on appeal in U.S. Bank National Assoc. v. Clark, 01-2535), but § 4.1a still applies to loan secured by junior liens.
Remedies:
Statutory damages in “an amount equal to twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater,” plus attorney’s fees and costs. 815 ILCS 205/6.
Statute of limitations:
For affirmative actions, 2 years after the earlier of the last scheduled payment date or the date the loan is fully paid off. Unlimited as a defense to foreclosure. 815 ILCS 205/6.
Source for this Article
http://www.illinoislegalaid.org/index.cfm?fuseaction=home.dsp_content&contentID=1536
Other Legal Aid Help
http://www.illinoislawhelp.org/
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