ALBUQUERQUE, N.M. — The New Mexico Attorney General’s Consumer Protection Division has warned 11 financial institutions—including two CUs—to stop marketing deeds of trust as mortgages, because the two are separate legal instruments with significantly different potential consequences for borrowers.
The New Mexico AG stated the practice may violate the state’s Unfair Practices Act and the Home Loan Protection Act.
Sandia Laboratory Federal Credit Union and New Mexico Educators Federal CU are among the lenders under investigation, a group that also includes First Mortgage Co., New Mexico Bank and Trust, Peoples Bank, JP Morgan Chase Bank, Wells Fargo, Quicken Loans, BOKF Bank of Albuquerque, Bank of America and USAA Federal Savings Bank.
The AG stated that consumers hit hardest by the practice are those who default on their home loans and borrowers transferring home loans in divorce proceedings, following deaths, or in quit-claiming residences.
A mortgage lien gives a lender the legal protection to foreclose on a loan in the event a borrower should default, Assistant Attorney General Karen Meyers told the Albuquerque Business Journal. But the law also provides due process for the borrower, requiring judicial approval of all foreclosure sales. A mortgage, too, allows the borrower to assume title to a property. A deed of trust may not, the AG stated.
In 2006, lenders convinced the New Mexico legislature to include mortgages in the Deed of Trust Act—which is ambiguous on whether judicial approval is required for a foreclosure sale—a mandate that is written into the Home Loan Protection Act.
With the change, instead of a traditional mortgage foreclosure sale overseen by a judge, the revised law authorizes a trustee sale for loans secured under a deed of trust. The law isn’t clear on whether a judge’s involvement is required. The change provided lenders with much more discretion and borrowers with far less due process, Meyers told the Business Journal.
The AG advised the FIs under investigation that it “intends to continue its investigation and seek all appropriate remedies.” However, in a letter to lenders the AG also expressed a willingness to “discuss a pre-litigation agreement to achieve appropriate remedial steps, a comprehensive change of practice and policy, and other appropriate relief.”
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