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Defense to Foreclosure – What does UDAP Stand For?

08.31.2009 · Posted in Mortgage Articles

When homeowners originally obtain their mortgage, there are a huge number of players with roles in the qualifying, financing, real estate transfer, and funding process. If any of these companies or individuals collude to defraud the borrowers, or otherwise force them into a loan with severely negative terms, there may be a case to be made for misconduct, unfair lending, or predatory lending, especially in the case of foreclosure.rnrnWith refinance or construction loans, and sometimes with purchase money mortgages, there may be a case of creditor overreaching. This can happen when mortgage companies fund a loan that is in their best interests but provides no real benefit to the borrowers. Lenders that make loans just to generate fees may be engaging in overreaching, and homeowners may have a defense to foreclosure if they received no benefit from the loan.rnrnThere are two main types of creditor overreaching. The first involves circumstances where a mortgage costs substantially more than the benefits the homeowners get from the loan. The second type of overreaching occurs when the terms and conditions were misrepresented, or important disclosures were not given to the borrowers before they took on the loan. Both of these can be evidence of lender misconduct.rnrnMortgage brokers can also be held accountable for misconduct in the mortgage transaction, especially if they are considered an agent of the lender. In these cases, misconduct or misrepresentations by the broker may be raised as defenses to a foreclosure lawsuit or power of sale. As well, brokers who were unlicensed at the time the loan was made may have facilitated a mortgage that is completely void.rnrnAppraisers who take part in defrauding homeowners or lenders can also be held responsible for their actions, and these issues may be raised as defenses in foreclosure. During the real estate bubble, home values were often inflated as much as 1,000% percent above their true market level. Especially in subprime or FHA-insured loans was this practice common, and may represent unfair and deceptive acts and practices.rnrnIn many cases, homeowners may be able to raise defenses based on their state’s Unfair and Deceptive Acts and Practices laws (UDAP laws). Each state differs a little in their definitions of what constitutes these types of actions. However, borrowers may be able to have their loan balance reduced significantly, force a renegotiation of a mortgage through loan modification, or have the mortgage voided or rescinded completely.rnrnOf course, it may also be better to speak with a lawyer who is versed in these types of violations before defending the foreclosure entirely. If homeowners feel that they have been severely taken advantage of by their lender, the broker, the appraiser, or any other party in the mortgage transaction, though, they may wish to research this area of their state law further to determine if the lender has engaged in predatory lending.

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