BOSTON (Legal Newsline) - A preliminary injunction obtained by Massachusetts Attorney General Martha Coakley against two subprime lenders has been affirmed by the Massachusetts Appeals Court.

Option One Mortgage Corp., and American Home Mortgage Servicing, Inc., the current servicer of Option One loans, were prohibited by the preliminary injunction, issued by then-Judge Ralph D. Gants in Suffolk Superior Court last November, from initiating or advancing foreclosure on mortgage loans that are found to be "presumptively unfair."

"We are pleased with the court's decision, but we are most pleased that, for nearly a year, the court's preliminary injunction has helped ensure that no unnecessary foreclosures take place with respect to Option One loans," Coakley said.

"Our office has worked with the current loan servicer to achieve reasonable workouts, which serve the interests of borrowers, the public, as well as the holders of these loans."

The injunction, which affects as many as 9,700 Massachusetts loans originated by Option One, requires that the Attorney General's Office be given advance notice prior before foreclosing on any such loan. If the attorney general objects, approval must be obtained from the court before foreclosing on the loan.

Option One and its parent company, H&R Block, Inc., are alleged to have originated thousands of risky subprime loans in Massachusetts with reckless disregard to the state of a borrowers ability to afford their loan payments. This practice helped contribute to Massachusetts' current foreclosure crisis, Coakley says.

Option One and H&R Block, alleged to have engaged in unfair and deceptive conduct, sold extremely risky loan products to consumers in Massachusetts that the company knew or should have known were destined to fail.

The complaint also alleges that black and Latino borrowers were discriminated against with higher points and fees charged to close their loans than similarly situated white borrowers. Black and Latino consumers are also alleged to have sales of predatory loan products marketed towards them by the defendants.

For those loans that are considered presumptively unfair as they pose an unreasonable risk of default and foreclosure, Option One is required to direct AHMSI not to foreclose without first giving the Attorney General's Office 45 days to object. During the 45-day period, the attorney general can object to the foreclosure going forward if it is determined that the loans were so risky as to be unfair or were originated using unfair or deceptive acts or practices.

If the Attorney General's Office objects to a foreclosure, the parties, under the preliminary injunction, are given 15 days to resolve their differences and discuss alternatives.

If a mutually agreeable resolution is not reached during that time, AHMSI may only proceed with a foreclosure if it receives approval from the court. No foreclosures to date have gone forward over the Commonwealth's objection.