Foreclosure “Workouts” are subject to the Consumer Fraud Act

Many people have contacted me about foreclosure “workouts”.  These workouts have been proposed by lenders or, more often, third parties looking to taking over their property with an agreement to sell it back to them.  The New Jersey courts have repeatedly found many of the “foreclosure rescue” schemes to violate the Consumer Fraud Act – and rightfully so.  The terms are often unconscionable, the interest rates outrageous and  the real chance of getting the property back to be non-existent.  However, the Supreme Court has now also allowed workout agreements with lenders and mortgage servicers to be actionable.  Many courts had not allowed the Consumer Fraud Act to apply because the agreements with banks were construed as “settlements”.  The Supreme Court has recognized that the Consumer Fraud Act should apply so as to discourage banks from collecting excessive attorneys fees, costs, late fees and interest.  The Court was troubled by the banks collecting sums greater than allowed by Orders and Court Rules and forced-place insurance being charged on properties that are already insured.  Gonzalez v Wilshire Credit Corp  Notably, there may also be Fair Debt Collection Practices claims for such actions.

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