Suing Your Mortgage Bank for Predatory Lending After the Statute of Limitations Has Run
There are many homeowners who are still dealing with the ripples of the mortgage crisis from the mid-2000’s and who have mortgages with high adjustable rates and other predatory terms. Sometimes these banks are seeking to foreclose under the Massachusetts foreclosure law, Chapter 244, Section 14 of the Massachusetts General Laws.
Homeowners need a defense to predatory lending. The Massachusetts predatory lending standards says that a mortgage loan is unlawful if the lender “knew or should have known that the homeowner would be unable to pay this mortgage.”
But the Massachusetts statute of limitations for fraud is three years, and the statute of limitations under the Consumer Protection Act, called Chapter 93A, is four years. If you received your mortgage longer ago than that, banks will likely argue that no matter what they did, it’s too late to seek compensation for predatory lending. Are they right?
Probably not. Massachusetts recognizes a theory of recovery called recoupment. This is a legal theory that allows someone to raise defenses against a bank or other business even if the statute of limitations for those claims has passed. Recoupment is an equitable doctrine that allows you set off your claims against what someone is trying to recover from you. In this case, it is used against banks who foreclose.
For instance, one case in the First Circuit Court of Appeals, called Bolduc v. Beal Bank, states that even though foreclosure might be non-judicial, and there is no actual lawsuit filed against the homeowner, the homeowner can still file a lawsuit in recoupment to stop a predatory lender.
Another case from the Massachusetts Supreme Judicial Court called May v. SunTrust implies that homeowners may be able to assert claims against predatory lenders in recoupment. The Court writes that “the right of recoupment contains no time limitations on assertion of the right. This accords with the common-law understanding of recoupment as a defensive mechanism whereby a defendant may, at any time, assert claims against the plaintiff in reduction of the plaintiff’s claims when those claims arise out of the same transaction; it is an offsetting of liabilities within a transaction.”
In other words, Massachusetts law allows a defendant (a homeowner) to assert claims against the plaintiff (the bank) for predatory lending, at least to the extent that the claims offset the defendant’s (homeowner’s) liability.
A homeowner’s claim in recoupment for predatory lending does have some limitations, however. A homeowner is probably not entitled to recover money damages, costs, or attorney’s fees. All the homeowner is entitled to do is offset the amount of the mortgage, or potentially seek a loan modification.
So, even though some options for dealing with predatory lenders are cut off, homeowners still have the option to file a lawsuit in recoupment.
Our office has handled multiple predatory lending lawsuits and can provide a no-risk case evaluation if you feel you were unfairly treated by your mortgage lender.