Massachusetts lender required to seek court approval before foreclosures

Nick Rees Dec. 10, 2008, 3:47pm

Martha Coakley (D)

BOSTON (Legal Newsline) -- Court approval will be needed for a Massachusetts subprime lender to foreclose on structurally unfair loans, following a unanimous decision by the Supreme Judicial Court.

The decision affirms a Superior Court order that bars Fremont Investment & Loan affirms the use of the Consumer Protection Law's application to subprime lending.

The Supreme Judicial Court's ruling noted that Fremont had been given ample notice that its conduct was unfair based on numerous prior warning by state and federal regulators that Fremont was violating the Predatory Home Practice Act.

Fremont also did not make any effort to determine if borrowers could fulfill the payment schedule of the terms of the loan. The loans were instead made with the belief that housing prices would increase and borrowers could refinance before higher payments began.

The court found that logic, which it called "unsupportable optimism" to be "unreasonable and unfair to the borrower," the attorney general's office said.

"In affirming the ruling of the Superior Court earlier this year, the SJC today confirmed what we have alleged for some time: that we have a likelihood of proving that it is illegal for subprime lenders to issue loans that they knew borrowers likely could not pay and, therefore, would predictably lead to foreclosure," Attorney General Martha Coakley said.

A preliminary injunction, the first in the nation restricting foreclosure based on unfair or deceptive loan origination misconduct, was issued February 25, 2008, following an October 5, 2007, lawsuit filed in Suffolk Superior Court by the Democratic attorney general.

The injunction requires Fremont to provide advance notice of intent to foreclose on any home mortgage loans and requires that Fremont work with the office of the attorney general to modify or restructure loans that are presumptively unfair to avoid foreclosures when possible.

The injunction was expanded on March 31, 2008 to extend its protection to purchases of Fremont Massachusetts loans and to the servicing obligations on those loans.

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