As mentioned in a previous article, it can be very difficult for homeowners facing foreclosure to file certain claims in court when the bank holding their loan has gone bankrupt and been taken over by the Federal Insurance Corporation. Deposits. Federal statute and case law provide the FDIC with broad immunity from a variety of claims that borrowers may bring with respect to loans held by the failed institution.
However, there are also a number of exemptions to the broad immunity enjoyed by the FDIC. Four of them are significant and worth examining here, as they can be used by homeowners in foreclosure to file claims against the FDIC or successor financial institutions.
The first is called factum fraud and refers to any case where one party to a transaction reasonably relied on a misrepresentation by the other party. The falsehood will be about the nature or essential terms of the contract. Examples include tampering with a document or forgery. Neither the FDIC nor its successor institutions are immune from claims of deed fraud, so homeowners can take these issues to court.
Second, Truth in Lending rescission claims are still allowed despite FDIC immunity protection. In fact, the Truth in Lending Act provides that a borrower’s rescission rights continue regardless of the assignment of the loan or to whom the loan is assigned. This means that even if the lender defaults and the government takes over the note, termination may still be an option if the other requirements in the statute are met. The FDIC receivership of the bank’s assets will not affect the claim.
In addition, the FDIC has no immunity protection against any transaction that is null. The federal statute granting immunity to the FDIC is intended to protect the government’s interest in the assets it acquires from failed banks. However, avoiding a void transaction does not create an interest in an asset, and immunity protection cannot be extended to assets in which the FDIC does not have a valid interest. In cases such as factum fraud, the transaction can be declared null, for example.
Lastly, there is a rule called the FTC Principal Rule that was designed to protect credit consumers from due course principal immunity as granted to the FDIC. However, for this rule to apply, an FTC Cardholder Notice must be included in the consumer credit agreement. It will be included in many transactions related to a sales transaction. This could be a home improvement contract or other similar agreement. If the notice is included in the contract, the FDIC immunity may not apply.
While earlier defenses to FDIC broad immunity have survived in most cases, other claims have survived in a smaller number of cases. These include issues such as breach of contract, lack of consideration, challenges to the validity of a lien, housing problems, unreasonable foreclosure sale, and state statutes regarding Unfair and Deceptive Acts and Practices. Homeowners should do their own legal research to determine if their claims can survive, or consult with a competent foreclosure attorney.
When homeowners discover that they have become government mortgage customers, falling into foreclosure can become extremely difficult. While the FDIC has taken some steps to help borrowers stop foreclosure, the agency is given broad immunity from many claims that may have been used to defend against losing the home in the first place. Therefore, borrowers should educate themselves on issues related to FDIC home loan servicing and foreclosures.
