Mass. upholds ruling to halt Fremont foreclosures

BOSTON, May 5 (Reuters) - A Massachusetts court has upheld an injunction to force cash-strapped mortgage lender Fremont General Corp FMNT.PK to halt all foreclosures in the state to give local authorities time to review each mortgage.

Fremont, formerly one of the biggest U.S. subprime-mortgage lenders, must give Massachusetts authorities at least 30 days notice of all foreclosures it intends to initiate on about 2,200 loans it still owns and services in the state.

Massachusetts Attorney General Martha Coakley said in a statement on Monday that the Massachusetts Appeals Court on Friday upheld a preliminary injunction issued by Suffolk Superior Court on Feb. 25 against Fremont Investment & Loan.

The injunction makes it harder for Fremont to unload its portfolio of subprime mortgages and loan-servicing rights on home loans in Massachusetts, one of the nation's hottest real-estate markets before a housing boom peaked in 2005.

Coakley has accused California-based Fremont of engaging in predatory and unfair lending when it made home loans to individuals who could not afford them. Fremont has denied wrongdoing and in March appealed February's injunction.

Cash-strapped Fremont reached a deal last month to sell its investment and loan bank to a California industrial bank to be formed by CapitalSource Inc (CSE.N: Quote, Profile, Research, Stock Buzz) after U.S. regulators ordered Fremont to raise capital or put itself up for sale.

Fremont, based in Brea, California, was one of the 10 largest U.S. subprime-mortgage lenders until the Federal Deposit Insurance Corp ordered it in March 2007 to stop making risky home loans.

"Lenders cannot escape responsibility for their illegal conduct and contribution to the foreclosure crisis in Massachusetts," Coakley said in a statement.

After Fremont gives notice that it intends to foreclose, Coakley then has 45 days to object to any foreclosures that are deemed "presumptively unfair." If she objects, Fremont must get the court's approval to proceed, Coakley's statement said.