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MODEL STATE FORECLOSURE RESCUE FRAUD PREVENTION ACT
January 18, 2008
1. Title; Declaration of Purpose
1.1. This Chapter shall be known as the “Foreclosure Rescue Fraud Prevention Act.”
1.2. This Act shall be liberally construed to effectuate its purpose, which is to prevent
homeowners who are facing foreclosure from becoming the victim of persons who
purport to help save the home while actually taking title to the home and the
1.3. The legislature finds that when a homeowner transfers title to the home as part of a
foreclosure rescue transaction, the homeowner’s intent is merely to provide security for
the loan of money to avoid foreclosure, not to transfer the home to the rescuer. The
purpose of this law is to require that all foreclosure rescue transactions comply with
lending laws; to provide a mechanism to restructure foreclosure rescue transactions and
other equitable mortgages from a transfer of title into a loan to conform with the
homeowner’s intentions; to define and forbid certain unfair foreclosure rescue
transactions; to set out factors that put a potential purchaser or lender on notice to inquire
as to the rights of a person in possession of the property; and to set out remedies for a
violation of the Act.
2.1. "Bona fide purchaser or lender."
2.1.1. “Bona fide purchaser or lender” means anyone acting in good faith who purchases
property, as defined in this Act, from the grantee for valuable consideration or
makes a mortgage loan to the grantee or a subsequent bona fide purchaser, provided
that he or she had no prior notice of the homeowner's continuing interest, equity or
right to possess the property, of the facts deeming the deed or conveyance to be an
equitable mortgage, or of any violation of this Chapter.
2.1.2. In addition to any other grounds for notice under state or federal law, a purported
bona fide purchaser or lender is on inquiry notice as to the rights of any person in
possession of the property if the purchaser or lender, or his or her agent, has notice
(i) that the property is or was in foreclosure or default, or was within the previous 12
months, and (ii) one or more of the following factors applies:
thBoston Office: 77 Summer Street, 10 Floor, Boston, MA 02110, (617) 542-8010 Fax (617) 542-8028
18.104.22.168.the total consideration paid to the homeowner, as described in section 5.6.1,
was less than 82% of the fair market value of the property;
22.214.171.124.the homeowner intends to remain or has remained in the property after
126.96.36.199.the grantee who seeks to sell or mortgage the property does not intend to live
or is not living in the property after acquiring title;
188.8.131.52.the property was transferred from the homeowner through a quit claim deed or
power of attorney, or without a formal closing;
184.108.40.206.the grantee seeks a purchase money loan and the purported bona fide lender
failed to review the purchase and sale documents governing the grantee’s
acquisition of the property;
220.127.116.11.encumbrances remain or will remain on the property for which the
homeowner could be liable after transfer of title;
18.104.22.168.any payments made upon the transfer of title from the homeowner (i) are
characterized as payoffs of liens or other encumbrances not on the title, (ii) are
due to the homeowner but are assigned to another person; or (iii) violate the
Real Estate Settlements Procedures Act, 12 U.S.C. ? 2601 et seq. ;
22.214.171.124.the grantee is an inter vivos trust created after the default or foreclosure; or
126.96.36.199.the purchaser or lender has any other reason to know that the deed or
conveyance is an equitable mortgage or that the homeowner intends to retain
title to or possession of the property.
2.2. “Foreclosure” means the state law process by which a person with a security interest in
residential property may foreclose on that security interest.
2.3. “Foreclosure rescue transaction.”
2.3.1. “Foreclosure rescue transaction” means a transaction that meets all of the
188.8.131.52.property subject to this Act is conveyed by a homeowner to a grantee;
184.108.40.206.the property is, or was at the time of the foreclosure rescue transaction, in
default or foreclosure;
220.127.116.11.the transaction is designed, intended or promoted by the parties as a means to
avoid or delay actual or anticipated foreclosure proceedings against the
property while permitting the homeowner to maintain a legal or equitable
interest in the property conveyed, including, without limitation, a lease interest,
a right to possession, an option to acquire the property, or other interest in the
property conveyed; and
18.104.22.168.the grantee enters into the transaction for compensation or gain or for potential
or contingent compensation or gain.
2.3.2. A transaction shall not be deemed to be a foreclosure rescue transaction merely
because it provides the homeowner up to three months beyond the transfer date to
vacate the property, provided that it is clear from all of the circumstances that the
homeowner has no expectation of remaining in the property beyond the date to
2.3.3. The term “foreclosure rescue transaction” includes any contract, agreement, or
arrangement, or any term thereof, between a grantee and a homeowner that is
incident to a foreclosure rescue transaction.
2.3.4. Parol evidence is admissible to show that a transaction is a foreclosure rescue
2.4. “Formal closing” means an in-person, face-to-face meeting with the homeowner
conducted by and in the office of a closing agent who is not employed by or affiliated
with the grantee to complete final documents incident to the sale or transfer of an interest
in property, or the creation of a mortgage or equitable interest in property, during which
the homeowner must be presented with a completed copy of any settlement statement
required under state or federal law.
2.5. "Grantee" means any person who acquires title to property, as defined in this Act . The
term “grantee” includes the grantee’s representative as defined in this subdivision,
successor in interest, or any person acting in joint venture or joint enterprise with the
grantee. The term “grantee” does not include a person who acquires title as follows:
2.5.1. by a deed as a result of a foreclosure sale;
2.5.2. by a deed in lieu of foreclosure of any voluntary lien or encumbrance of record,
other than a lien or encumbrance created in connection with a foreclosure rescue
2.5.3. at a short sale at which the outstanding obligations against the property, other than
obligations created in connection with a foreclosure rescue transaction or equitable
mortgage, are greater than the fair market value of the property;
2.5.4. at any sale of property authorized by statute;
2.5.5. by order or judgment of any court; or
2.5.6. as a bona fide purchaser or lender as defined in this Act.
2.6. “Homeowner” means a natural person who, at the time of the foreclosure rescue
transaction or the creation of an equitable mortgage, held title to the property as defined
in this Act.
2.7. “In default” means a property whose owner is more than 90 days delinquent on any loan
or debt, including real estate taxes, that is secured by the property.
2.8. “In foreclosure” means a property for which a secured party or taxing authority has
initiated a foreclosure.
2.9. “Property” means residential property, whether real or personal, including
condominiums, modular homes or manufactured or mobile homes, consisting of from
one to six dwelling units at least one of which is occupied or was occupied prior to the
transfer of title to the property by the homeowner as a primary residence.
2.10. "Representative" means a person who in any manner solicits, induces, arranges, or
causes a homeowner to transfer title or solicits any member of the homeowner's family
or household to induce or cause a homeowner to transfer title to the property pursuant to
a foreclosure rescue transaction.
2.11. “Title” includes title to or ownership of the property, as well as ownership of an
interest in the property through a trust document.
3. Equitable Mortgages.
3.1. Every deed or other conveyance of an interest in property that purports to be an absolute
conveyance of title to property but was made as security for the performance of an
obligation, is deemed to be an equitable mortgage. The obligation may have been
created prior to or contemporaneous with the conveyance and need not be the personal
liability of any person.
3.2. Intent that the deed or other conveyance serve as security may be inferred by a
preponderance of the evidence from the totality of the circumstances, including but not
limited to the following factors:
3.2.1. statements of the parties;
3.2.2. the presence of a substantial disparity between the value received by the
homeowner and the fair market value of the property at the time of the transaction;
3.2.3. the fact that the homeowner retained possession of the property;
3.2.4. the fact that the homeowner reserved or was assured an option to repurchase,
retain or regain title to the property;
3.2.5. the fact that the homeowner continued to pay real estate taxes on the property;
3.2.6. the fact that the homeowner continued to pay or to be liable for other
encumbrances on the property;
3.2.7. the fact that the homeowner made post-conveyance improvements to the property;
3.2.8. the nature of the parties and their relationship prior to and after the conveyance.
3.3. Parol evidence shall be admissible to prove that a transaction is an equitable mortgage.
3.4. The grantee of a deed or conveyance that is deemed to be an equitable mortgage is
deemed to be a mortgagee and may not evict the homeowner nor cause the homeowner
to quit involuntarily, other than by foreclosure pursuant to the procedures of state law,
nor may the grantee transfer or encumber any interest in the property. Any such transfer
or encumbrance is void as to anyone but a bona fide purchaser or lender.
3.5. A transaction deemed to be an equitable mortgage must comply with all applicable state
and federal laws governing mortgages in property covered by this Act.
3.6. The provisions of this Chapter are in addition to and do not preclude any rights or
remedies relating to equitable mortgages under common law.
4. Foreclosure Rescue Transactions.
4.1. All foreclosure rescue transactions are conclusively deemed to be equitable mortgages
subject to Section 3 without further proof of the elements of that Section.
4.2. All deeds or other conveyances transferring title to property from a homeowner pursuant
to a foreclosure rescue transaction shall carry the statement on the face of the deed or
conveyance: “This property is subject to the Foreclosure Rescue Fraud Prevention Act.”
4.3. If the grantee records any deed or other conveyance transferring title from the
homeowner pursuant to a foreclosure rescue transaction, the grantee shall also document
and record with the County Recorder’s office any legal or equitable interest that the
homeowner retains in the title of the property as described in Section 2.3.3. Failure to
comply with sections 4.2 or 4.3 shall not affect the homeowner’s rights and remedies
under this Chapter.
4.4. Unfair foreclosure rescue transactions are unlawful, void and a violation of ___. A
foreclosure rescue transaction is unfair if it meets any of the following criteria:
4.4.1. The grantee has violated Section 3.4 or 3.5;
4.4.2. The grantee fails to pay the homeowner consideration amounting to at least 82
percent of the fair market value of the property. Consideration includes only those
payments set forth in Section 5.6.1.
4.4.3. The grantee fails to verify that the homeowner has or is likely to have a reasonable
ability to make any payments required under the foreclosure rescue transaction and
to pay for the subsequent reconveyance back to the homeowner of the full title
previously held by homeowner, based upon consideration of the homeowner’s
current and expected income, current obligations, employment status, and other
financial resources (other than the homeowner’s equity in the property that is the
subject of the transaction), as verified by documentation of all sources of income and
corroborated by independent verification.
22.214.171.124.There is a rebuttable presumption that the grantee has not verified reasonable
payment ability if the grantee has not obtained documents other than a
statement by the homeowner of assets, liabilities and income.
126.96.36.199.There is a rebuttable presumption that a homeowner has a reasonable ability to
pay if the grantee demonstrates that at the time the foreclosure rescue
transaction is consummated, the homeowner’s total monthly debts, including
amounts owed under the transaction, do not exceed fifty percent of the
homeowner’s monthly gross income; and the grantee follows the residual
income guidelines established in 38 C.F.R. ? 36.4337(e) and VA Form 26-
6393 or their successors.
4.4.4. The homeowner’s cost to repurchase or to reacquire title to the property exceeds
the consideration paid to the homeowner as set forth in section 5.6.1 by more than
10% if the repurchase is exercised within 24 months of the sale, by more than 15% if
the purchase is exercised more than 24 but within 36 months after the sale, or by
more than 18% if the repurchase is exercised more than 36 months after the sale.
4.4.5. The homeowner remains liable for an existing mortgage loan on the property.
4.4.6. The transaction, restructured as an equitable mortgage pursuant to Section 5, is a
mortgage referred to in 15 U.S.C. ? 1602(aa) [the Home Owner’s Equity Protection
Act] and its implementing regulations; or
4.4.7. The foreclosure rescue transaction is otherwise unfair, deceptive, or commercially
4.4.8. The criteria set forth in this subsection are for purposes of identifying unfair
foreclosure rescue transactions and shall not limit a homeowner’s damages against
the grantee of an unfair foreclosure rescue transaction.
5. Reformation of Equitable Mortgage.
5.1. Voidable Deed. A deed or other conveyance that is deemed an equitable mortgage is
voidable, except as to a bona fide purchaser or bona fide lender, and may be reformed
into an equitable mortgage at any time while the homeowner remains in possession of
the property or within three months after the homeowner’s loss of possession of the property other than by way of foreclosure by a party other than the grantee.
5.2. Demand to Return Title. The homeowner may void a deed or conveyance that is
deemed an equitable mortgage pursuant to Section 3 or 4.1 and demand that the grantee
reform the transaction into an equitable mortgage within the time set forth in Section 5.1
by giving written notice to the grantee or his or her successor in interest. The notice
need not take any particular form and, however expressed, is effective if it indicates the
intention of the homeowner to retain or regain title to the property.
5.3. Recording of Demand to Return Title. If the transaction is a foreclosure rescue
transaction the homeowner may record the demand to return title with the County
Recorder’s office of the county in which the property is located, within the time set forth
in Section 5.1. In order to be recorded, the notice shall contain the name of the
homeowner and the grantee, shall particularly describe the property, and shall cite this
Act. The demand to return title shall expire and shall have no effect on the rights of a
subsequent purchaser or lender if the homeowner has not recorded a lis pendens within
30 days after recording the demand to return title.
5.4. Obligation to Return Title. Within 20 calendar days after receipt of a demand to return
title, the grantee shall reconvey title to the homeowner, subject to any equitable
mortgage pursuant to 5.5 and 5.6 but free and clear of any encumbrances other than tax
or utility obligations for which the homeowner would have been responsible had title not
5.5. No Prior Tender Required; Recording of Equitable Mortgage. The homeowner’s
right to void the deed or other conveyance and demand return of the title, and the
grantee’s obligation to return title, may not be conditioned on the homeowner’s
repayment of any funds. The recording of the reconveyance may be accompanied by a
Notice of Equitable Mortgage asserting a mortgage in the amount due pursuant to
Section 5.6 as follows:
“Notice of Equitable Mortgage. Notice is hereby given that ______ hereby asserts
an equitable mortgage of $_________against this property pursuant to the
Foreclosure Rescue Fraud Prevention Act.”
If the amount of the equitable mortgage asserted by the grantee does not conform to the
requirements of Section 5.6, the homeowner may bring an appropriate action to dispute it
5.6. Obligations Under the Equitable Mortgage. If the grantee has paid any money to or
on behalf of the homeowner, that money shall be deemed and held an equitable mortgage
5.6.1. The following shall be deemed the principal of the equitable mortgage:
188.8.131.52.Any money paid to the homeowner;
184.108.40.206.Any money paid on behalf of the homeowner that reduced the homeowner’s
legal obligations secured by the property to persons unaffiliated with the
220.127.116.11.Any money paid on behalf of the homeowner to a person unaffiliated with the
grantee that was necessary to prevent a foreclosure of the property.
5.6.2. All other fees, charges, interest or other costs paid by the homeowner as part of
the transaction or for which the homeowner is obligated shall be treated as interest
and charges on a loan of money secured by a lien on a home under state and federal
law. If the equitable mortgage is an unfair foreclosure rescue transaction as defined
in this Act, all such fees, charges, interest or other costs are void and must be
refunded by the grantee to the homeowner.
5.6.3. Any payments that the homeowner has made in connection with the transaction
deemed to be an equitable mortgage, including but not limited to any fees, charges,
interest, rent, or other payments, shall be deemed payments on the equitable
mortgage for purposes of state and federal law.
5.6.4. The balance of the equitable mortgage shall be further reduced by any damages or
statutory penalties owed by the grantee to the homeowner under this section or any
other state or federal law governing the transaction.
5.7. Payment of the Equitable Mortgage.
5.7.1. After the grantee has complied with Section 5.4, the homeowner shall either
tender the full balance of the equitable mortgage to the grantee within 120 days, or
make monthly payments to the grantee for one year in an amount based on a 30-year
amortization of the amount due pursuant to Section 5.6.1, followed by payment of
the remaining balance in full. Until paid, the balance on the equitable mortgage
accrues interest at the legal rate from the date of the grantee’s compliance with
Section 5.4. The court shall not shorten the time for tender or condition the
grantee’s obligations under Section 5.4 on tender by the homeowner.
5.7.2. The homeowner’s failure to repay the balance of the equitable mortgage shall not
invalidate the voiding of the deed or conveyance nor the reconveyance of the
property. If the homeowner fails to repay the equitable mortgage as set forth in
Section 5.7.1, the grantee may recover the balance of the equitable mortgage by way
of foreclosure pursuant to the procedures of state law.
6. Actions for damages or equitable relief. A homeowner may bring an action for the
recovery of damages, declaratory or equitable relief for a violation of this Act. The court may
award to a prevailing homeowner actual damages plus reasonable attorneys' fees, costs and
expenses. The court may increase the award to an amount not to exceed three times the
homeowner's actual damages if the court deems such award proper. Any action brought
pursuant to this Act shall be commenced within six years after the date of the alleged
violation; provided, however, that a court may grant relief to void or otherwise reverse
transfer of title from the homeowner only if the action is filed within the time set forth in
7. Stay of Eviction Action.
7.1. A court hearing an eviction action against the homeowner must stay the eviction action,
without imposition of a bond, if the homeowner has commenced an action asserting a
violation of this Act, or has made a prima facie case that the eviction plaintiff is merely a
mortgagee of an equitable mortgage and has no right to evict. Any court with jurisdiction
over claims related to the equitable mortgage or foreclosure rescue transaction may issue
a stay of any eviction action on the same grounds.
7.2. A prima facie case consists of a showing that the homeowner conveyed title to the
property while the homeowner was in foreclosure or default; that the homeowner
retained possession of the property subsequent to conveying title; and that the
homeowner was given or assured an opportunity to retain or regain title to or possession
of the property. Parol evidence is admissible to make this showing.
7.3. The stay expires upon the latter of:
7.3.1. the failure of the homeowner to commence an action in a court of competent
jurisdiction pursuant to this Act within 90 days of the issuance of the stay, or
7.3.2. the issuance of an order lifting the stay by a court hearing claims related to the
equitable mortgage or foreclosure rescue transaction.