Highest Court in Mass Upholds Injunction Restricting Foreclosure of Abusive ARM Subprime Loans

A recent case from Massachusetts may be worth a look for New York attorneys and homeowners. In the case of Commonwealth v. Fremont Inv. & Loan, 452 Mass 733 (2008), the Massachusetts Supreme Court upheld an injunction restricting foreclosure and considered certain factors that would render a mortgage loan presumptively unfair under that state’s laws, including teaser rates at least 3% lower than the fully indexed rate, ARMS with intro periods of 3 years or less, LTVs of 100%, substantial prepayment penalties, and borrowers with debt to income ratios greater than 50% when the debt is measured at the fully indexed rate.

It’s not New York law, but it does seem to indicate the recent trend in the law to protect consumers from predatory lending on subprime loans. To determine whether a similar type of case could be made under New York law might require reference to several New York laws including the RPAPL, Home Equity Theft Prevention Act, and GBL provisions regarding deceptive acts. It may be that in New York only the Attorney General has the power to seek the broad injunctive relief that was sought in the Fremont case.