Press "Enter" to skip to content

1st Cir. Holds FCA Does Not Require Lender to Propose Pre-Foreclosure Restructuring Plan

mortgage lawThe U.S. Court of Appeals for the First Circuit recently held that the federal Farm Credit Act does not require a lender to propose a restructuring plan of its own before pursuing foreclosure remedies.

A copy of the opinion in Puerto Rico Farm Credit, ACA v. Eco-Parque del Tanama Corp. is available at:  Link to Opinion.

The borrowers defaulted on a loan extended by the lender. The loan was subject to the FCA, 12 U.S.C. 2001 et seq., which sometimes requires the lender to restructure a loan rather than foreclose.

The borrowers applied to restructure the distressed loan, but the lender rejected the application. The lender eventually brought this foreclosure action, and the trial court ultimately granted summary judgment for the lender and denied the borrowers’ motion for reconsideration. The borrowers timely appealed.

The First Circuit began its analysis by recounting that a lender need not accept a plan of restructuring that the borrower cannot perform because the FCA only requires restructuring when it would cost the lender no more than foreclosure. 12 U.S.C. § 2202a(e)(1); 12 C.F.R. § 617.7415(d).

Absent unusual circumstances not present here, the Court determined that a failed attempt at restructuring followed by foreclosure would likely cost the lender here more than would foreclosure alone.

The borrowers countered that the lender was required to propose its own restructuring plan after it denied the borrowers’ restructuring application. In response, the First Circuit acknowledged that the FCA does “not prevent a qualified lender from proposing a restructuring plan for an individual borrower in the absence of an application for restructuring from the borrower.” 12 U.S.C. § 2202a(d)(2).

However, the Court also reasoned that a grant of permission does not require a lender to propose a restructuring plan of its own, much less to do so when the borrower’s financial circumstances reveal no basis for concluding that a reasonable restructuring is possible.

There being no other preserved challenge to the trial court’s finding that the lender properly considered and rejected the requested restructuring, the First Circuit affirmed the trial court’s grant of summary judgment in favor of the lender.

The borrowers’ subsequent motion for reconsideration in the trial court focused on their assertion that the lender should have estimated a higher cost of foreclosure in comparison to the cost of restructuring. However, given the fact that the borrowers demonstrated no ability to perform their obligations under the proposed restructuring, the First Circuit held that any challenge to the lender’s estimate of the transactional costs of foreclosure could not change the outcome.

Accordingly, the First Circuit also affirmed the trial court’s denial of the borrowers’ motion for reconsideration.

Print Friendly, PDF & Email

The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.