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District of Columbia Issues Guidance on Foreclosure Law Compliance
On November 29, the District of Columbia Department of Insurance, Securities and Banking (DISB) announced it had issued a November 24 bulletin informing licensed residential mortgage lenders and mortgage borrowers of the enactment of a new emergency law requiring mortgage lenders to go through six months of mediation with a homeowner before proceeding with a foreclosure. The law, titled the Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010, requires lenders to send homeowners a form to opt in or out of mediation when the homeowners receive foreclosure notices from the lenders. Borrowers who opt in will enter mediation with their lender and have 90 days, in addition to the 30 days they had to decide whether to opt in or out, to reach a settlement. Mediation will be guided by foreclosure mediators, and the program will be administered by DISB. The law became effective immediately upon the signature of Mayor Adrian Fenty on November 17 and will expire on February 15, 2011.
Rhode Island Considers New Surety Bond and Minimum Net Worth Requirements for Mortgage Loan Originators
On November 5, Rhode Island’s Department of Business Regulation (DBR) proposed the adoption of Banking Regulation 6 (BR 6) entitled "Surety Bond and Minimum Net Worth Pursuant to the Secure and Fair Enforcement Mortgage Licensing Act of 2009," which would implement statutory requirements for mortgage loan originators regarding surety bonds and minimum net worth. The DBR maintains that the new regulation will protect Rhode Island consumers by reserving funds for those injured by mortgage loan originators and by ensuring that mortgage loan originators are financially stable. Under Section 5 of the new regulation, mortgage loan originators that originate between $1 and $10 million per year would be required to file a minimum $10,000 surety bond with the DBR while originators that originate more than $10 million per year would be required to file a surety of at least $15,000. The exact bond requirements would vary yearly based on a formula tied to the amount of mortgage loans originated in Rhode Island in the preceding year. According to the regulation, the surety bond must be continuous and will be used for the benefit of Rhode Island consumers injured by the mortgage loan originators, but the requirement can be fulfilled by utilizing the surety bond of the mortgage loan originator’s licensed lender or loan broker. Section 6 of the new regulation would impose a requirement that applicants for a new license must demonstrate a minimum net worth of $10,000 for annual volume of Rhode Island loans originated in an amount up to $10 million, and $25,000 for volume of Rhode Island loans originated in an amount greater than $10 million. Applicants must maintain this minimum net worth continuously and cannot rely on the net worth of their employers to satisfy the requirement. The DBR may waive or modify the requirement if it deems it appropriate based on written evidence. The DBR is currently accepting written and oral comments on the new regulation, and it will hold a public hearing to consider the adoption of the new regulation.
North Carolina UDAP Claim Preempted by FCRA
On October 29, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of false credit reporting claims made under Article 1 of the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), agreeing with the lower court that those claims were preempted by the Fair Credit Reporting Act (FCRA). Ross v. Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, No. 08-1851, 2010 WL 4261819 (4th Cir. Oct. 29, 2010). In Ross, plaintiff sued her mortgage servicer for false reporting of credit information in violation of FCRA and the NCUDTPA. Plaintiff, who was living in the property secured by the loan and making the loan payments, was not an obligor on the loan. Nonetheless, when the loan went into default, defendant reported negative credit information to credit reporting agencies (CRAs). The district court awarded summary judgment to the defendant, dismissing plaintiff’s FCRA claim on statute of limitations grounds, and plaintiff’s NCUDTPA claim on the basis of FCRA’s preemption provision, 15 U.S.C. § 1681t(b)(1)(F) ("No requirement or prohibition may be imposed under the laws of any State (1) with respect to any subject matter regulated under ... (F) section 1681s2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies...."). Plaintiff appealed the preemption ruling, and the Court of Appeals affirmed. According to the court, "[plaintiff’s] NCUDTPA claim ... runs into the teeth of the FCRA preemption provision. Her claim concerns [defendant’s] reporting of inaccurate credit information to CRAs, an area regulated in great detail under §§ 1681s-2(a)-(b)." The court also rejected plaintiff’s argument that her NCUDTPA claims fell under FCRA’s preemption exemption for claims based on "malice or willful intent to injure," finding that plaintiff did not provide sufficient proof of such malice or willful intent to injure. To the contrary, "[t]he record is replete with evidence that [defendant] made a regrettable but honest mistake and took action to remedy this error once [plaintiff] brought it to [defendant’s] attention." According to the court, "[b]anks make mistakes, which include errors in their records. And while we would hope that these errors could be held to a minimum and corrected the first time they are brought to the bank’s attention, the failure to do so does not necessarily constitute malice."
New Jersey Permits Compensation for Mortgage Solicitor or Origination Activity if Licensee Was Authorized at Time of Activity
On October 26, the Commissioner of the New Jersey Department of Banking and Insurance (the Department), issued Bulletin 10-29, which provides guidance on licensees’ and former licensees’ ability to pay and receive compensation for residential mortgage solicitor or loan origination activity. According to Bulletin 10-29, the Department construes the Residential Mortgage Lenders Act as permitting compensation to be paid and received when the activity took place in full while the person paying or receiving the compensation was duly authorized under a then-existing license, registration, or order. The compensation is considered to have been paid or received at the time of the activity, regardless of the date of the actual payment or receipt of such compensation.
New York Amends Law to Prohibit Fees for Payment by Mail or Receipt of Paper Billing Statement
On October 20, the Governor of New York signed into law amendments to New York General Business Law Chapter 556, prohibiting businesses from charging additional rates or fees, or a differential in rate or fee associated with payment on an account, when a consumer chooses to pay by U.S. mail or to receive a paper billing statement. The new Section 399-zzz does not prohibit a business from offering a credit or other incentive to consumers to elect a specific payment or billing option. Each violation of the new Section is deemed a deceptive act and practice. The amendment takes effect on April 18, 2011.
New York Gives Borrowers Right to Recover Attorneys’ Fees in Foreclosure Proceedings
On October 20, the Governor of New York signed into law the Access to Justice in Lending Act, which grants borrowers the right to recover reasonable attorneys’ fees and/or expenses from the mortgagee in a foreclosure of a residential property. Under the new Section 282 of New York’s real property law, if a residential mortgage permits the mortgagee to recover attorneys’ fees and/or expenses as a result of the borrower’s failure to perform any covenant or agreement in the mortgage, then the mortgage is construed to contain a reciprocal right on behalf of the borrower to recover reasonable attorneys’ fees and/or expenses if the mortgagee fails to perform any covenant or agreement in the mortgage. The borrower may recover such fees and expenses in successful defense of a foreclosure action, by counterclaim, or in a separate action against the mortgagee. Waiver of rights under the new Section 282 is void as against public policy.
NY Banking Department Issues Industry Letter Clarifying Section 590(2)(b-1) of Banking Law
On October 20, the New York State Banking Department (Department) issued a mortgage banking industry letter confirming that an exempt organization, such as a bank, savings bank or credit union, is considered a mortgage loan servicer when it collects principal and interest payments on loans it holds in portfolio, as well as when it services loans for third parties. Consequently, those organizations are required to notify the Banking Department of that fact and to comply with the Conduct of Business Rules for Mortgage Loan Servicers. The letter clarified the requirements of Section 590(2)(b-1) of the Banking Law, which provides that an exempt organization that makes and services mortgage loans is not required to register as a "mortgage loan servicer," though it must (i) notify the Superintendent that it is acting as a "mortgage loan servicer," and (ii) comply with any regulation applicable to mortgage loan servicers promulgated by the Banking Board or prescribed by the Superintendent with respect to mortgage loan servicer.
Maryland Court of Appeals Approves Emergency Rule on Screening Foreclosure Documentation and Special Master Reviews
On October 19, the Maryland Court of Appeals approved Emergency Rule 14-207.1 and amendments to Maryland Court Rules 1-311 and 14-207, authorizing Maryland courts to adopt procedures to screen pleadings and documents, including affidavits, filed in foreclosure proceedings for compliance with legal requirements. Where a court has reason to believe an affiant in a foreclosure proceeding (i) may not have read or personally signed an affidavit, (ii) did not have a sufficient basis to attest to the accuracy of the facts in the affidavit, or (iii) failed to appear before a notary, the court may order the party to show cause why the affidavit should not be stricken, and why the action should not be dismissed. The Rule also empowers courts to order affiants and notaries to testify under penalty of perjury as to the circumstances of the signing of the affidavits, and provides that special masters may be appointed to screen foreclosure documents, and to conduct the proceedings in which affiants or notaries may be required to testify. Plaintiffs have 30 days to demonstrate compliance if a pleading or affidavit is questioned. If a party attempts to amend, supplement, or confirm a previously filed affidavit or pleading, the party must serve the new document on all parties and their attorneys, regardless of whether the original affidavit or pleading required service. Finally, attorneys who submit an improperly signed pleading or paper, or one signed with intent to defeat the purposes of the rule requiring an attorney signature, may have the pleading or paper stricken and be subject to discipline. The new Rules took effect for all new actions commenced on or after October 20, 2010, and "insofar as practicable to all actions then pending."
New California Statute Restricts Mortgage Deficiency Judgments
On September 30, the California legislature approved a statute prohibiting deficiency judgments in cases where the holders of first deed of trust or first mortgages consent to a sale of a dwelling for less than the remaining amount of indebtedness due at the time of the sale. Based on the holder’s written consent, the holders cannot collect any deficiencies and must fully discharge the remaining amount of debt. The statute applies to first mortgages or first deeds of trust for dwellings that are 4 units or less. The mortgagee can seek compensation, if the mortgagor commits fraud in the sale of the property or causes damage to the property.
New York Extends Credit Lien Protection for Credit Line Mortgage Advances from 25 to 30 Years
The Governor of New York recently signed a statutory amendment extending the lien protection for future advances made under a credit line mortgage from 25 years to 30 years. Subdivision 2 of section 281 of New York’s real property law had provided that a credit line mortgage may secure the original indebtedness and indebtedness created by future advances within 25 years after the recording date of the credit line mortgage. The statutory amendment, Chapter 529 of the New York Laws of 2010, changed the credit lien protection period to 30 years, effective upon enactment.