## Facts

- Homeowners Beatrice Troup and Curtis Troup obtained a $46,500 home-improvement mortgage loan from East Coast Mortgage Corporation (ECM) to fund repairs performed by contractor entities associated with Gary Wishnia.
- The loan carried an 11.65% interest rate and points equal to 4% of the loan amount.
- ECM assigned the note and mortgage to Associates Home Equity Services, Inc., which later filed a foreclosure action after the borrowers defaulted.
- The borrowers filed counterclaims and third-party claims alleging predatory and racially discriminatory lending (“reverse redlining”), unfair loan terms, and contractor-related misconduct.
- The borrowers asserted statutory violations including the New Jersey Consumer Fraud Act, New Jersey Law Against Discrimination, the federal Fair Housing Act, 42 U.S.C. § 1981, and federal Truth in Lending Act (including alleged failure to provide a three-day rescission notice).
- The borrowers also alleged omission of the required notice associated with the FTC Holder Rule and sought to hold the assignee responsible for misconduct tied to the home-improvement financing arrangement.

## Issues

1. Whether summary judgment was proper on claims alleging predatory lending, “reverse redlining,” and unconscionable loan terms under state and federal anti-discrimination and consumer-protection laws.
2. Whether otherwise time-barred statutory claims could be asserted defensively in the foreclosure action through equitable recoupment.
3. Whether factual disputes regarding the FTC Holder Rule and the lender–contractor relationship precluded summary judgment, including potential assignee exposure.
4. Whether alleged Truth in Lending Act disclosure and rescission-notice violations could affect the foreclosure when raised defensively.

## Decision

- The Appellate Division affirmed in part, reversed in part, and remanded for further proceedings.
- It held summary judgment was improper on the borrowers’ predatory lending/reverse-redlining theories, unconscionability claims, and Holder Rule-related issues because the record required discovery and factual development.
- It agreed that certain statutory causes of action were time-barred as affirmative claims, but held the alleged violations could be raised defensively in foreclosure under equitable recoupment.
- It permitted further inquiry into what disclosures were provided and whether the transaction structure supported the asserted consumer-credit and contractor-related theories.

## Legal Principles

- Claims that minority borrowers were targeted for credit on harsh terms (“reverse redlining”) can state actionable theories under anti-discrimination statutes and consumer-protection law, depending on proof of discriminatory intent or discriminatory effect and unfair practices.
- Unconscionability in lending is fact-intensive and generally should not be resolved on summary judgment without discovery into borrower circumstances, market context, and the total cost and risks of the transaction.
- Statutes of limitation may bar affirmative damages actions, but equitable recoupment can allow otherwise time-barred claims to be asserted defensively when they arise from the same transaction and are used to reduce or defeat the plaintiff’s foreclosure recovery.
- Where the applicability of the FTC Holder Rule depends on the structure of the consumer-credit transaction and the lender–contractor relationship, genuine fact disputes can preclude summary judgment and may expose an assignee to defenses tied to seller/contractor misconduct.
- Truth in Lending Act violations that are time-barred as affirmative claims may still be relevant defensively through recoupment, subject to proof of noncompliant disclosures.

## Conclusion

The court required further factual development before rejecting predatory lending, reverse-redlining, unconscionability, and Holder Rule theories, and it held that even when limitation periods bar affirmative relief, borrowers may assert related statutory violations defensively in foreclosure through equitable recoupment.


Associates Home Equity Services, Inc. v. Troup, 343 N.J. Super. 254, 778 A.2d 529 (N.J. Super. Ct. App. Div. 2001)