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Financial Services Law Insights and Observations

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  • District Court shuts down mortgage relief operation; issues $18.4 million judgment

    Courts

    On December 30, the FTC announced that the U.S. District Court for the District of Nevada had, on December 5, granted its motion for summary judgment in an action against a mortgage loan modification operation (operation) for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule (MARS Rule). The January 2018 complaint alleged that the operation had engaged in unfair or deceptive acts or practices when it “preyed on financially distressed homeowners” by making false representations in advertising that its mortgage relief services could prevent foreclosures and “substantially lower” mortgage interest rates, as previously covered here. Additionally, the complaint charged that the operation used “doctored logos” in correspondence with consumers to give the impression that it was “affiliated with, endorsed or approved by, or otherwise associated with the federal government’s Making Home Affordable loan modification program,” and similarly claimed affiliation or “special arrangements” with the holder or servicer of the consumer’s loan. The court agreed with the FTC’s allegations, finding that the operation violated the FTC Act and the MARS Rule. The court entered a monetary judgment against the operation of over $18.4 million as equitable relief, which the FTC may use to compensate consumers harmed by the operation’s business practices. To the extent that an FTC representative determines that direct consumer redress is impracticable or money remains after redress is completed, the FTC may apply any remaining funds to other equitable relief (including consumer information remedies) that it determines is reasonably related to the practices alleged in the complaint. The court also permanently enjoined the operation from marketing or providing any secured or unsecured debt relief product or service, as well as from making deceptive statements to consumers regarding any other financial product or service.

    Courts Loan Modification Consumer Finance FTC Act MARS Rule Debt Relief Mortgages FTC

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  • Conn. Supreme Court reverses foreclosure based on bank misconduct

    Courts

    On August 13, the Connecticut Supreme Court reversed the appellate court’s judgment, concluding a borrower’s special defenses and counterclaims raised against a bank during a foreclosure action “bore a sufficient connection to the enforcement of the note or the mortgage.” According to the opinion, the bank sought to foreclose on real property owned by the borrower, and during that proceeding, the borrower and loan servicer began loan modification negotiations. The borrower contacted the Connecticut Department of Banking, which intervened on his behalf in the negotiations, but the bank subsequently increased the mortgage payment and the parties were unable to reach an agreement. The borrower asserted special defenses and counterclaims, which included, among other things, that the bank allegedly engaged in conduct that increased the borrowers overall indebtedness and caused the borrower to “incur costs that impeded his ability to cure the default, and reneged on loan modifications.” The trial court rendered a judgment of strict foreclosure, which the appellate court affirmed.

    On appeal, the Supreme Court held the appellate court incorrectly concluded the borrower’s allegations did not provide a legally sufficient basis for those defenses and counterclaims. The Court noted that the borrower’s allegations—that the bank “engaged in a pattern of misrepresentation and delay in postdefault loan modification negotiations before and after initiating a foreclosure action,” which added to the borrower’s debt and hampered his ability to avoid foreclosure—involved misconduct that “bore a sufficient connection to the enforcement of the note or the mortgage.” To the extent the intervention of the Department of Banking actually resulted in a binding loan modification, the potential breach of such agreement would also “provide a legally sufficient basis for special defenses in the foreclosure action.” Therefore, the Court reversed the appellate judgment upholding the strict foreclosure.

    Courts State Issues Mortgages Foreclosure Loan Modification

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  • District Court approves $13.8 million class settlement for loan modifications

    Courts

    On March 14, the U.S. District Court for the Western District of North Carolina issued an order certifying a settlement class of individuals who alleged that, while they were subject to Chapter 13 bankruptcy proceedings, a national bank imposed “no-application loan modifications” (NAMs) to their mortgages without consent. The class members claimed that the bank filed payment change notices in their bankruptcy proceedings around the time it sent out the NAM solicitations, which asserted that the mortgage payments had been adjusted to the amount of the proposed NAM payment, even though borrowers had not requested or accepted the changes. As a result, class members’ mortgage loans went into contractual default. According to the class, the bank has since ended the alleged practice. Under the terms of the settlement approved by the court, the bank has agreed to pay approximately $13.8 million into a common fund that will go to class members, account remediation, and attorneys’ fees and costs, as well as to injunctive relief.

    Courts Mortgages Class Action Bankruptcy Settlement Loan Modification

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  • Court holds RESPA loss mitigation claim is ripe prior to a foreclosure sale

    Courts

    On August 14, the U.S. District Court for the Northern District of Illinois held that RESPA (and its implementing Regulation X) does not require a plaintiff to wait until a property is foreclosed upon to bring an action for a violation of Regulation X’s loss mitigation requirements. The plaintiff filed a complaint against her mortgage servicer for (among other claims) allegedly violating RESPA when the company initiated a foreclosure action while she had a pending loss mitigation application, even though the company did not ultimately foreclose on the property. The company moved to dismiss the RESPA claim as unripe and the court disagreed, finding there is no language in the statute or implementing regulation that states a plaintiff must wait. Conversely, the implementing regulation “expressly states that the prohibited action is a servicer making ‘the first notice or filing required by applicable law…’” and, therefore, the plaintiff’s claim did not fail for lack of ripeness. The court ultimately dismissed the plaintiff’s action against the company, however, finding the plaintiff did not adequately plead actual damages, and granted the plaintiff leave to file an amended complaint. 

    Courts RESPA Regulation X Loan Modification Foreclosure Ripeness Mortgages

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