The Massachusetts Appeals Court just issued its decision in Moronta v Nationstar Mortgage. The case arose when a borrower whose home had been foreclosed and who was then being evicted, counter-claimed on several grounds, including a consumer protection violation claim under MGL c.93A that the lender knew or should have known that the borrower would be unable to repay the loan that was granted. The trial court granted Nationstar's motion for summary judgment on the grounds that there was no issue of material fact and that Nationstar was entitled to judgment as a matter of law. The Appeals Court disagreed and returned the case to the trial court for further action.
The Appeals Court held that there was a "genuine issue of material fact whether [lender] should have recognized at the outset that borrower was unlikely to be able to repay the refinanced loans at issue" which is the standard set by the Supreme Judicial Court for finding a violation of 93A.
The decision is worth reading if only for background on how the mortgage industry worked during the boom years. The Appeals Court latched onto the terms of the new loan intended to "rescue" the borrower from the terms of the initial loan of which he was in default. The new loan was for 30 years, but the payments were amortized over 50 to reduce the monthly payment amount. This left a balloon payment due at the end of 30 years equal to 90% of the amount of the initial indebtedness, despite the borrower having payed 30 years of monthly payments. While the Appeals Court did not rule that this was a 93A violation as a matter of law, it did say it created a question of fact that was appropriate for further judicial inquiry.