Law School Case Brief
Commonwealth v. Fremont Inv. & Loan - 452 Mass. 733, 897 N.E.2d 548 (2008)
Mass. Gen. Laws ch. 183C, § 1 et seq., the Massachusetts Predatory Home Loan Practices Act (Act), prohibits a lender from making a "high-cost home mortgage loan" unless the lender reasonably believes at the time the loan is made that the borrower will be able to make the scheduled payments to repay the home loan based upon a consideration of the borrower's current and expected income, current and expected obligations, employment status, and other financial resources other than the borrower's equity in the dwelling which secures repayment of the loan. Mass. Gen. Laws ch. 183C, § 4. That section further states, however, that a borrower is presumed to be able to repay the loan if the borrower's debt-to-income ratio, calculated based on the fully indexed rate associated with an ARM loan, does not exceed 50 percent of the borrower's verified monthly gross income. The Act prohibits a high-cost home mortgage loan from containing any provision for prepayment fees or penalties. Mass. Gen. Laws ch. 183C, § 5. That chapter expressly provides that a violation of the statute constitutes a violation of Mass. Gen. Laws ch. 93A, § 1 et seq. Mass. Gen. Laws ch. 183C, § 18(a).
The Commonwealth, acting through the Attorney General, commenced a consumer protection enforcement action against the mortgage company, claiming that it, in originating certain "subprime" mortgage loans in Massachusetts, acted unfairly in violation of the Massachusetts Predatory Home Loan Practices Act. The trial court granted a preliminary injunction in favor of the Attorney General after concluding that in originating home mortgage loans with four characteristics making it almost certain that the borrower would default, the mortgage company had committed a Massachusetts Predatory Home Loan Practices Act unfair act or practice. On appeal, the state supreme court affirmed the granting of the preliminary injunction by the trial court and ordered that the case be remanded to the trial court for further proceedings.
Did the trial court judge abuse his discretion in granting the preliminary injunction?
The state supreme court found that (1) the record supported the conclusion that the mortgage company, in originating such loans, acted unfairly in violation of Mass. Gen. Laws ch. 93A, § 2, (2) the trial court properly found that because borrowers were unlikely to be able repay the loans, the loans violated the Massachusetts Predatory Home Loan Practices Act, Mass. Gen. Laws ch. 183C, § 4, and, thus, also violated Mass. Gen. Laws ch. 93A, § 2, (3) the mortgage company did not show any authority permitting the alleged unfair practice, and (4) the preliminary injunction served the public interest.
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