December 2008
Thomas J. Enright, Esq.
The Massachusetts Supreme Judicial Court has upheld a Superior Court order entered against Fremont Investment & Loan which preliminarily enjoined Fremont from foreclosing, without court approval, on certain mortgage loans secured by the borrower’s principal dwelling that the court considered “presumptively unfair.” (See attached PDF for a copy of the decision). The preliminary injunction set forth four characteristics of these “presumptively unfair” loans:
-
The loan is an adjustable rate loan with an introductory period of three years or less
-
The loan has an introductory or “teaser” rate for the initial period that is at least 3% below the “fully indexed rate”
-
The borrower has a debt to income ratio that would have exceeded 50% had Fremont’s underwriters measured the debt at the “fully indexed rate”
-
The loan has a loan to value ratio of 100% or a substantial prepayment penalty or a prepayment penalty that extended beyond the prepayment penalty period
The injunction also requires that Fremont provide the Attorney General with advance notice of a foreclosure sale and, where the loan is found to meet the above criteria, to work with the Attorney General to resolve their differences regarding foreclosure and obtain court approval to foreclose if the loan cannot be worked out. In issuing the preliminary injunction, the Superior Court stressed the importance of home retention, declaring that the “spirit of this decision is simply that Fremont, having helped borrowers get into this mess, now must take reasonable steps to help them get out.” In upholding the Superior Court decision, the Massachusetts Supreme Judicial Court echoed this sentiment, noting that the preliminary injunction requires “that Fremont explore alternatives to foreclosure in the first instance . . . .”
The Superior Court Judge who issued the Fremont decision, Judge Ralph D. Gants, has also issued an almost identical preliminary junction against Option One Mortgage Corporation. Among the slight differences from the Fremont injunction are
