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Financial Services Law Insights and Observations

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  • Texas Passes Bill Targeting Debt Cancellation Agreements

    State Issues

    On June 17, Texas Governor Rick Perry signed into law H.B. 2931, which adds a new subchapter to the Texas Finance Code (Code) relating to debt cancellation agreements made in connection with retail installment contracts that include insurance coverage as part of a retail buyer’s responsibility to the holder. Among other things, the bill sets forth mandatory agreement provisions and requires all agreements to be submitted to the Texas Office of the Consumer Credit Commissioner for prior approval. The bill also enumerates requirements and restrictions applicable to the refunding of a debt cancellation agreement fee. H.B. 2931 takes effect on September 1, 2011.

  • Nevada Governor Signs Bill Regulating Foreclosure and Loan Modification Consultants

    State Issues

    On June 10, Nevada Governor Brian Sandoval signed into law A.B. 308, which regulates foreclosure and loan modification consultants (but which do not include national banks, federal thrifts, regulated lenders, or their affiliates and agents). The law prohibits any payment to a consultant before a homeowner signs a written mortgage assistance agreement, requires consultants to maintain written records for two years, and obligates consultants to implement specific quality control and complaint tracking procedures. The law also requires consultants to make certain disclosures (including the identity of and the limitations on the role of the consultant) and provide notices to a homeowner. Finally, the law prohibits any person from assisting a consultant when the person knows or reasonably should know that the consultant is in violation of this law. A.B. 308 becomes effective on July 1, 2011.

  • Maine Amends Regulations Implementing the Federal SAFE Act

    State Issues

    On June 10, Maine Governor Paul LePage signed into law LD 290, which amends Maine’s regulations implementing the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) of 2008. LD 290 relates to good faith failures to comply, credit sales, and persons exempt from SAFE. Under LD 290, an originator’s good faith failure to comply with the Act does not affect the validity or enforceability of the underlying mortgage. Additionally, "credit sales" are defined as "the sale of a dwelling or residential real estate . . . in which credit is extended by the seller and either the debt is payable in installments or a finance charge is made," and are generally excluded from covered "residential mortgage loans." Lastly, LD 290 clarifies that certain individuals who qualify for exemptions under HUD rules based on minimal dealings with residential mortgage loans are exempt from the provisions of the Act.

  • Alabama Modifies Late Fee Restrictions Under Consumer Credit Act

    State Issues

    On June 9, Alabama HB 3 went into effect, amending § 5-19-4 of the Alabama Consumer Credit Act (Mini-Code, which does not apply to real estate loans where the creditor is a national bank or federal thrift, except for prepayment penalties), which sets minimum and maximum late charges that may be imposed on consumer credit transactions. Prior to the amendment, § 5-19-4 allowed lenders to charge the greater of $10 or 5% of the amount of the scheduled payment in default, capped at $100, when a payment on a consumer credit transaction - which includes residential mortgage loans - is ten or more days past due. The amendment increases the dollar limitation to $18, while retaining both the alternative 5% of the amount of the scheduled payment provision and the $100 maximum late charge. This amendment brings the Mini Code and Small Loan Act into accord regarding the charging of late fees.

  • Nevada Amends Regulations Implementing the Federal SAFE Act

    State Issues

    On June 4, Nevada Governor Brian Sandoval signed into law Assembly Bill 283 (AB 283), which revises Nevada’s regulations implementing the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 relating to continuing education, criminal and civil liability, and the employment of mortgage agents. Under AB 283, mortgage agents, bankers, brokers, and employees of such entities that (i) are not residential mortgage loan originators, (ii) are not otherwise required to register with the Nationwide Mortgage Licensing System & Registry (NMLS), and (iii) have not voluntarily registered or renewed with NMLS are exempt from all regulations promulgated by the Commissioner of Mortgage Lending relating to continuing education requirements. Assembly Bill 283 requires that non-exempt licensees dedicate at least three hours per year to continuing education specific to Nevada laws and regulations per year, as well as an additional two hours of continuing education classes related to ethics. In addition, AB 283 insulates investors who only provide money to acquire a beneficial interest in a mortgage loan from criminal or civil liability resulting from an act or omission committed by a mortgage broker. Finally, AB 283 updates the provisions relating to the licensing and regulation of mortgage agents to clarify the responsibilities of those who hold a certificate of exemption and those who sponsor mortgage agents.

  • Vermont Adds Individual Licensing Requirement for Loan Modification Activities

    State Issues

    The Vermont Legislature recently amended the Vermont Licensed Lender Act, Vt. Stat. Ann. tit. 8, § 2201, to require loan modification employees of mortgage loan servicing companies to obtain individual mortgage loan originator licenses to continue their loan modification efforts for loans serviced by the loan servicing company. The statute defines "loan modification" as an adjustment or compromise of an existing residential mortgage loan and excludes a refinancing transaction. This provision takes effect on July 1, 2011.

  • Florida Amends Mortgage Loan Originator Licensing Requirements in Alignment with S.A.F.E. Act

    State Issues

    Last week’s InfoBytes incorrectly reported on a Florida bill signed into law on May 31 by stating that the law amends provisions of Florida’s mortgage licensing law such that in-house loan processors must secure an individual mortgage loan processor license. Although Florida law previously required persons acting solely as loan processors to secure a loan originator license, the new legislation actually relieves in-house loan processors from individual licensing in Florida. Specifically, the bill excludes in-house loan processors from individual licensure, so long as the individual (i) is an exclusive employee of a single mortgage broker or a mortgage lender, (ii) under direct supervision and instruction of a licensed Florida loan originator, and (iii) engages in loan processing only (i.e., receiving, collecting, distributing, and analyzing information for processing a mortgage loan or communicating with consumers to obtain information necessary to process a mortgage loan (not including offering or negotiating or counseling consumers about mortgage loan rates or terms)). Contract (i.e., independent) loan processors remain subject to loan originator licensure in certain circumstances. This amendment brings Florida’s law more in line with the federal Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E.) and other state jurisdictions with respect to treatment of mortgage loan processors. As previously reported, the bill additionally requires mortgage lenders to submit reports of their financial condition to the NMLS registry and to authorize the NMLS registry to obtain a credit report for each of the mortgage lender’s control persons in order to renew a mortgage lender license. The bill becomes effective July 1, 2011. 

  • Texas Adds Statutes Regarding Scope and Validity of Corrected Instruments

    State Issues

    On May 28, the governor of Texas signed Senate Bill 1496, which added new sections regarding instruments that correct recorded original instruments to the Texas statutes. These new provisions provide that a correction instrument may correct an ambiguity or error in a recorded original instrument of conveyance to transfer real property or an interest in real property, including an ambiguity or error that relates to the description of or extent of the interest conveyed. The legislation states that a correction instrument may make nonmaterial corrections, such as corrections to legal descriptions, names, dates, or facts relating to the acknowledgment or authentication, but the person executing the document must disclose in the instrument the basis for the person’s personal knowledge of the facts relevant to the correction of the recorded original instrument of conveyance. A correction instrument may also make material corrections, such as adding a buyer’s disclaimer, a mortgagee’s consent or subordination, or additional land; removing land from a conveyance; or accurately identifying a lot or unit number that was inaccurately identified in the recorded original instrument of conveyance. While this legislation is slated to be effective September 1, 2011, a correction instrument that substantially complies with the statutory provisions recorded before that date will be given effect.

  • Oklahoma Amends Telephone Solicitation Statutes to Include Cellular Telephone Calls and Text Messages

    State Issues

    On May 26, Oklahoma’s Governor approved legislation amending provisions of the Oklahoma Consumer Protection Act and its Telemarketer Restriction Act to address the rapidly increasing use of text messages for commercial solicitation. The new law modifies relevant statutory definitions and expands existing consumer protections related to commercial telephone solicitation to include cellular telephone calls and text messages made by automatic dialing devices without the use of a live operator. The legislation also instructs the Attorney General to expand the do-not-call registry to include an opt-in list of consumers who would do not want to receive any unsolicited telemarketing text messages.

  • U.S. District Court Rules Non-Judicial Foreclosure of MERS Mortgage Violated Oregon Trust Deed Act

    State Issues

    On May 25, Judge Panner, ruling for the U.S. District Court for the District of Oregon, granted the plaintiff’s request for a declaratory judgment that the defendants violated the Oregon Trust Deed Act, ORS 86.735(1), in pursuing non-judicial foreclosure of their loan without recording all assignments of the trust deed. Hooker v. Northwest Trustee Services, Inc., Civ. No. 10-3111-PA (D. Or. May 25, 2011). In this case, the plaintiffs had obtained a loan from GN Mortgage, LLC in 2005. At that time, a trust deed was recorded naming the Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary, "solely as nominee for Lender and Lender’s successors and assigns." The note was subsequently assigned several times, and MERS tracked the new lenders in its system. No assignments of the deed of trust were recorded. When the plaintiffs defaulted on their loan in 2009, MERS assigned the deed of trust to Bank of America and appointed Northwest Trustee Services as successor trustee, and Northwest executed a notice of default and election to sell. The assignment of the trust deed, appointment of successor trustee, and notice default were then recorded. After the plaintiffs filed suit, the defendants attempted to correct the documents by having the current lender appoint the trustee, and new documents were recorded. However, the court ordered the defendants to submit a complete chain of title. The MERS records submitted by the defendants indicated a chain of title beginning with Guaranty Bank, with no indication of how Guaranty Bank obtained the loan from GN Mortgage. The court noted that under Oregon law, only the beneficiary of the deed of trust may invoke the power of sale, not merely a nominee for the lender. GN Mortgage (or its successor in interest), as the lender of record, was the beneficiary of the trust deed. The court then noted that under Oregon law, a trustee could invoke the power of sale only if "any assignments of the trust deed by the trustee or the beneficiary ... are recorded in the mortgage records." The court held that tracking the successive assignments of the deed of trust by MERS was insufficient to protect the interests of the homeowner and violates the Oregon Trust Deed Act, because the assignments of the trust deed were not recorded as required by law. 

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