Maxwell, Chapter 13 Case No. 00-14283-JNF;
Adv.P No. 00-1568, July 16, 2002
VICTORY IN PREDATORY LENDING CASE
in a shocking display of corporate irresponsibility repeatedly fabricated the
amount of the debtor’s obligation to it out of thin air. There is no other
explanation for the wildly divergent figures it concocted in correspondence with
the Debtor and her agents and in pleadings and documents filed with the
Judge Joan Feeney from her memorandum supporting her order in
favor of the debtor.
The Community Enterprise
Project (“CEP”) of the Hale and
Center (“The Center”) regularly
receives calls from low-income homeowners facing foreclosure. Tara Twomey,
who came to the Center as a Skadden Fellow in 1999, responds to these calls,
which are frequently referred by local community groups. Aware that many of
these callers have been victims of unscrupulous lending practices, Ms. Twomey
has developed a protocol for scrutinizing her client’s loans for violations of
federal and state statutes that protect consumers against dishonest and illegal
lending practices by mortgage brokers, lenders and their agents. Eighty-three
year old Ms. Maxwell was one such client.
In 1977, Ms. Maxwell purchased her Dorchester
home for thirty thousand dollars. Her original mortgage was a 30-year fixed
rate loan at 8.5% with monthly payments of $207.63. In 1988, Ms. Maxwell was
approached by a door-to-door salesman who suggested a variety of home repairs
including the installation of new vinyl siding and windows. The salesman
referred Ms. Maxwell and her granddaughter to ITT Financial Services (ITT), a
subsidiary of Aetna Finance, to finance the repairs and consolidate other
outstanding loans. In 1988, Ms. Maxwell received a 15-year fixed rate loan with
an Annual Percentage Rate (“APR”) of 16.78% from ITT in the principal amount of
$137, 611.01. In 1991, ITT refinanced its 1988 loan and provided Ms. Maxwell
and her granddaughter a new loan which ITT said would lower their monthly
payments. However, the new five-year loan had a principal amount of $149,150.00
with an APR of 16%. The 1991 loan was also negatively amortized, that is, the
balloon payment due at the end of the five years was greater than the principle
amount of the loan. The monthly payment of $2005.71 constituted 98.5% of Ms.
Maxwell and her granddaughter’s combined incomes.
Predictably, it was not long before Ms. Maxwell and her
granddaughter realized that they could not make the monthly payments. Afraid of
losing her home, Ms. Maxwell contacted ITT who agreed to lower the monthly
payments to $800, failing; however, to explain to Ms. Maxwell and her
granddaughter that these reduced payment would result in further negative
amortization and increase the amount of the balloon payment when it became due.
In 2001, Fairbanks Capital Corporation, who claimed to be an assignee of the ITT
loan, initiated foreclosure proceedings against Ms. Maxwell and her
granddaughter. At the time,
Fairbanks claimed that Ms. Maxwell
owed approximately $363,000.
Ms. Twomey’s involvement in this case began after Ms. Maxwell had
filed her own Chapter 13 bankruptcy petition to prevent a scheduled foreclosure.
She did not, however, file the required schedules or a Chapter 13 plan. In July
2000, facing the dismissal of her case and a motion from the bank to proceed
with its foreclosure, Ms. Maxwell came to the Legal
Center. The initial assessment of the
case was bleak, in part, due to the lack of documentation for the loan and Ms.
Maxwell’s vague memory. As the story unfolded, it became apparent, however, that
Ms. Maxwell and her granddaughter had been victims of predatory lending
Ms. Twomey first obtained an extension of time to submit Ms.
Maxwell’s remaining schedules and with the assistance of law students, Claire
Connolly and David Dologite, from the Center’s summer program, began researching
potential defenses to
Fairbanks’ motion to proceed with
the foreclosure. The strongest argument to emerge centered on
Fairbanks’ Lost Note Affidavit. Fairbanks, who did not
have the original note, or even a copy, had proceeded against Maxwell on a Lost
Note Affidavit. The initial review of the
Lost Note Affidavit submitted to the court revealed technical deficiencies.
Among other things, the affidavit was dated prior to the date that
claimed to have acquired the note. This defense was sufficient to delay the
hearing on the
Fairbanks’ motion and provided Ms.
Twomey with more time to develop the case. In November 2000, Ms. Twomey filed
an adversary complaint in bankruptcy court on Ms. Maxwell’s behalf asserting
nine causes of action, including violations of Truth-in-Lending (TILA)
violations, Real Estate Settlement Procedures Act (RESPA), Fair Debt Collection
Practices Act (FDCPA), Massachusetts Consumer Credit Cost Disclosure Act,
(MCCDA) and Massachusetts Consumer Protection Act. On May 9, 2002, Judge Feeney heard
arguments on the parties cross-motions for summary judgment on four of the nine
counts, FDCPA, RESPA, MCCCDA and unconscionability.
In an order and Memorandum dated July 16, 2002, Judge Feeney granted partial summary
judgment in favor of Ms. Maxwell finding violations of the Fair Debt Collection
Practices Act, the Real Estate Settlement Procedures Act, and the Massachusetts
Consumer Credit Cost Disclosure act. In her stinging opinion, Judge Feeney also
held that “The 1991 transaction was unconscionable and [took] notice that it
and the 1988 transaction satisf[ied], in all material respects, the paradigm of
predatory lending”. In holding that the 1991 transaction was unconscionable
and that ITT had failed to provide Ms. Maxwell and her granddaughter the
required disclosures under MCCDA, Judge Feeney stated that Ms. Maxwell would be
entitled to rescind the loan by way of recoupment.
Following this decision, the case was resolved favorably in an
out-of-court settlement. Ms. Maxell remains in her home, the mortgage was
discharged, and she received an additional $50,000 from
Fairbanks. For its work, the Center
was paid $75,000 in attorney’s fees.
 See in Re: Maxwell, Chapter 13
Case No. 00-14283-JNF; Adv.P No. 00-1568, July 16, 2002. (There is also a
regular BR cite for this case)
“Recoupment is the common law doctrine that resurrects countervailing claims,
which otherwise could not have been raised. The reasoning is that if recoupment
claims are barred by the relevant statute of limitations, lenders could avoid
the legal consequences of their actions by simply waiting until the expiration
of the relevant limitations period to sue on the borrower’s default, thereby
frustrating fundamental policies of debtor/creditor regulation. Allowing a
creditor to profit from a violation of the law simply because the consumer’s
limitations period had passed, but the creditor’s had not, would obstruct the
purposes of the law.
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