Cases in Real Estate
is a weekly update on real estate law, with legal principles illustrated and
explained by lawsuits from around the country. The topics are wide-ranging for
appeal to a broad spectrum of readers including lawyers, homeowners, investors
and the general public. Andrea Lee Negroni, a Washington DC
attorney and legal writer with 25 years of experience in financial services and
mortgage law, contributes the case summaries.
Real Cases in Real Estate will learn and be entertained by lawsuits
involving nuisance, trespass, zoning violations, deed restrictions, title
insurance, public utilities, mechanics liens, construction defects, adverse
possession, foreclosure and eviction, divorce and marital property rights,
tenants' rights, and more. Real Cases in Real Estate uncovers the
unpredictable, amusing, and sometimes outrageous disputes between next-door
neighbors, contractors and homeowners, condo boards and residents, real estate
brokers and homebuyers, and zoning administrators and developers.
cited case summary highlights the essential law of the case and explains the
principal legal theories and concepts relevant to the outcome. Plain language
treatment makes Real Cases in Real Estate accessible to lawyers and
follow real estate law professionally or as a hobby, you'll find something new
and useful every week in Real Cases in Real Estate.
for the Week of October 16th, 2012
Homeowners Cannot Avoid
Foreclosure by Claiming "Unconscionability" When They Didn't Read or Understand
their Mortgage Loan Agreement.
The Walters mortgaged their home
in Norwich, Connecticut for a $165,000 loan. The lender declared a default and
demanded the entire balance due. The Walters pleaded special defenses and made
a counterclaim against the lender for "equity stripping" based on what they
claimed was a breach of the lender's duty of good faith and fair dealing in the
The homeowners said the lender's
conduct was unconscionable and oppressive, because where they once had
virtually debt-free homes, they were now in the position of losing the homes in
foreclosure. They argued that the mortgage loans were misleading and they
didn't realize the monthly payments would not amortize the principal of the loan.
The interest rate was 5%, and the loan was "interest only." The Walters'
claimed to be surprised that they needed another loan to pay off the principal
at maturity. They characterized themselves as inexperienced with loans. The
court considered the issue of unfair
surprise, frequently termed as "procedural unconscionability." Unfair
surprise is implicated by "overly harsh contract terms." However, the
Connecticut court held that procedural unconscionability does not supersede the
obligations of a party to read the agreement he signs. Moreover, the Walters
did not claim their 5% interest rate or other loan terms were overly harsh.
The Walters were similarly unsuccessful
in their second special defense, which was based on the doctrine of unclean hands - they claimed the lender attempted to
strip them of their homes by taking advantage of their ignorance and charging
significant fees or an arbitrarily high interest rate. However, they did not
prove the lender's intentional misconduct or that the lender attempted to gain
an improper advantage over them.
In their third special defense,
the borrowers said the lender violated the covenant of good faith and fair
dealing, which presumes neither party will do anything to injure the others'
right to receive the benefit of their agreement. However, the Connecticut
Appellate Court has held that violation of the covenant of good faith and fair
dealing is not a sufficient special defense to a foreclosure action. In
addition, the borrowers did not claim the lender interfered with their rights
under the mortgage agreement. All of the
borrowers' special defenses to foreclosure failed.
Dime Bank Loan
Servicing Corp. v. Walter, 2012 Conn. Super. LEXIS 2124 (August 22, 2012) [enhanced version available to lexis.com subscribers].
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