According to a recent decision of the Massachusetts Supreme Judicial Court (“SJC”), an assignee of a lender that originates a home mortgage loan may be liable for the originating lender’s predatory lending practices, although a mere servicer of the loan may not be liable absent a showing that the servicer is also an assignee of the loan. In its July 12 ruling, the SJC considered whether a lender, by virtue of its status as assignee of a residential mortgage, or a loan servicer could be liable for violations by the loan originator of the Massachusetts Consumer Protection Act, the Massachusetts Predatory Home Loan Practices Act, or the Massachusetts Borrower’s Interest Act. The case involved borrowers who defaulted on a refinance loan with a monthly payment approximately $600 higher than the borrowers’ total monthly income. The loan was subsequently transferred into a securitized pool of loans and the assignees foreclosed on the mortgage. The alleged predatory lending practices included the lender’s processing of the loan as a stated income loan (notwithstanding its receipt of documentation of the borrowers’ much lower actual income), the borrowers’ unawareness that their household income was inflated on the loan application, and the lack of a condition requiring the borrowers to demonstrate their ability to make mortgage payments that would be more than 150% greater than their then current payment. The SJC reversed the Superior Court’s summary judgment decision in favor of the foreclosing lender on all claims, stating that the foreclosing lender’s status as an assignee did not shield it from liability for acts of the originating lender. However, the SJC affirmed summary judgment in favor of the servicer, stating that the servicer was not shown to be an assignee and that there was no alternative theory for its liability.
Nutter Notes: The SJC stated that a mortgage that is unconscionable, and therefore unenforceable, does not become enforceable merely because it is assigned. The unconscionability of the loan terms was based in part on alleged violations of the Massachusetts Consumer Protection Act, the Massachusetts Predatory Home Loan Practices Act, and the Massachusetts Borrower’s Interest Act. Under the Massachusetts Consumer Protection Act, Chapter 93A of the General Laws of Massachusetts, a lender may be liable for the origination of a home mortgage loan in circumstances where the lender should have reasonably recognized at the outset that the borrower would not be likely to be able to repay the loan. The Massachusetts Predatory Home Loan Practices Act, Chapter 183C of the General Laws of Massachusetts, requires a lender, in connection with a high-cost home mortgage loan, to make a reasonable determination that one or more of the borrowers will be able to make the scheduled payments to repay the loan based on a consideration of the borrower’s income, obligations, employment status, and other financial resources other than the borrower’s equity in the home. The Massachusetts Borrower’s Interest Act, Chapter 183, Section 28C of the General Laws of Massachusetts, prohibits a lender from knowingly refinancing a home loan that was consummated within the prior 60 months unless the refinancing is in the borrower’s interest, as determined by statutory criteria and in accordance with the implementing regulations of the Division of Banks at 201 C.M.R. 53.00.