Alert May 06, 2008

Massachusetts Appeals Court Rejects Challenge to Preliminary Injunction Preventing Foreclosure of “Presumptively Unfair” Mortgage Loans Without Court Approval

A single justice of the Appeals Court of Massachusetts recently rejected Fremont Investment & Loan’s appeal of a preliminary injunction limiting the ability of Fremont to foreclose on property in Massachusetts. The Massachusetts Superior Court issued the injunction on February 25, 2008 preventing Fremont from foreclosing on certain categories of “presumptively unfair” loans without court approval, and later modified that injunction to prevent future sales of Massachusetts loans unless the purchaser agreed to be bound by the terms of the injunction. Fremont sought an interlocutory appeal to overturn the injunction. Justice Cynthia J. Cohen first rejected Fremont’s claim that the Superior Court impermissibly expanded the reach of M.G.L. ch. 183C, which governs “high cost” loans. She determined that the lower court simply interpreted the Attorney General’s unfair trade practices claim in light of Chapter 183C, which is permissible under Massachusetts law. The Appeals Court also rejected Fremont’s assertion that the transactions were exempt under M.G.L. ch. 93A, §3 because, although the loan terms at issue were not prohibited by Massachusetts law, Fremont did not identify any law or regulation that affirmatively permitted or approved of the terms used in the loans subject to the injunction. Finally, Justice Cohen declined to overturn the injunction regarding the sale of Fremont’s loans, finding that the potential interference with Fremont’s ability to improve its financial condition by selling its loans did not outweigh the benefits of ensuring that the injunction would apply to foreclosures of loans sold to third parties.  For these reasons, Justice Cohen determined that the Superior Court did not abuse its discretion in granting the injunction and denied Fremont’s single justice appeal in full. Under the Court’s Order, Fremont has until May 15, 2008 to seek review before a full panel. Click here for a copy of Commonwealth v. Fremont Investment & Loan., No. 08-J-118 (Mass. App. Ct. May 2, 2008).