Louisiana Adds Foreclosure and Credit Agreement Provisions
by Louis Danastorg, J.D., M.B.A.
Starting August 1st, 2013, Louisiana’s newly added provisions concerning leases and residential lessee’s (including prospective lessees) right to notification of a foreclosure action come into effect for all lessors in residential leases, even those leasing property subject to a federally-related mortgage loan or receiving housing subsidies, vouchers, or assistance pursuant Section 8 of the US Housing Act of 1937. During, and prior to, entering a residential lease agreement, the lessor shall provide lessee with written notice of any pending foreclosure the residential dwelling may be subject. Louisiana added the provisions to reduce confusion between lessors and lessees when there is a forced sale of a rented residential dwelling. Lessees, as unnamed but otherwise materially affected parties to the foreclosure action, require adequate time to prepare should the new lessor refuse to renew current leases once ownership has transferred.
Once the lessor has received a notice of seizure in a foreclosure action they must notify all lessees of the premises by means of signed writing, within 7 days of receipt of notice, which includes the district court, case name, and docket number. This notice must also disclose that lessee’s are not ordered to vacate the premises, ownership of the building has yet to transfer, and, as such, all lessees are still required to pay rent or any other obligations under individual lease agreements. If one can establish a violation of any of these new provisions, a lessee may file a civil suit against the lessor, entitled to $200 in statutory damages in addition to any other damages or remedies. While the new provisions apply to all lessors in residential leases, federally insured financial institutions asserting their rights as assignee of a lessor or mortgage holder are exempt from the notice requirements.
Louisiana recently enacted provisions providing for judicial actions and defenses by a debtor in an action by a creditor relating to a credit agreement. In an action by a creditor, the debtor may only assert a defense based on the terms and conditions of the credit agreement if the agreement was in writing, contained only express conditions, clearly set forth relevant terms and conditions, and was signed by both parties. Louisiana has limited a debtor’s ability to rely on undocumented and/or unsubstantiated contract terms when defending against creditor claims, providing greater certainty and predictability in creditor-against-debtor actions. This protects both debtors and creditors from any unilateral changes to credit agreements occurring without express consent from each party, requiring agreements comply with the Statute of Frauds.
Louisiana may have built new barriers for debtors in their ability to defend against creditors’ claims, but the new provisions specifically do not apply to consumer credit cards or other types of unsecured, revolving loan accounts. Because secured lines of credit (i.e. mortgages or auto loans) attach the collateral property, granting the creditor a right to repossess the property upon debtor default, Louisiana wants to ensure that all credit agreements and obligations to pay relating to such property will be judicially enforceable as against either party. Excluding revolving credit accounts allows such credit agreements to change or be renegotiated as the creditor-debtor relationship and market economy develop over time. These new provisions do not impact debtors’ right to assert any personal defenses not relating directly to the terms or conditions of the credit agreement, including: forgery, identity theft, mistaken identity, lack of authorization, lack of contractual capacity, or payment of debt.
About the Author:
Louis Danastorg, J.D., M.B.A. is Associate Counsel and Compliance Specialist at Bankers Advisory, Inc. He is a graduate of Vanderbilt University and received his Juris Doctor and Masters of Business Administration at Suffolk University. He can be reached at louis@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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