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Financial Services Law Insights and Observations


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  • District Court orders millions in restitution and civil penalties against two foreclosure relief companies


    On November 4, the U.S. District Court for the Western District of Wisconsin ordered restitution and disgorgement, civil penalties, and permanent injunctive relief in an action brought by the CFPB against two former foreclosure relief companies and their principals (collectively, “defendants”) for violations of Regulation O. As previously covered by InfoBytes, in 2014, the CFPB, FTC, and 15 state authorities took action against foreclosure relief companies and associated individuals, including the defendants, alleging the use of deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. Specifically, the CFPB alleged that the companies and individuals (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers, in violation of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule. Among other things, the court order holds company one and its principals jointly and severally liable for over $18 million in restitution, while company two and its same principals are jointly and severally liable for nearly $3 million in restitution. Additionally, the court ordered civil penalties totaling over $37 million against company two and four principals.

    Courts CFPB Foreclosure Enforcement Regulation O Civil Money Penalties Restitution

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  • OCC fines national bank $30 million for OREO violations

    Federal Issues

    On October 11, the OCC announced that a national bank has agreed to pay a $30 million civil money penalty to resolve allegations relating to the holding period of other real estate owned (OREO). According to the OCC’s consent order, the bank violated the statutory holding period for OREO. (See previous InfoBytes coverage on OCC OREO regulations here.) The OCC asserted that the bank’s processes and controls for identifying and monitoring the OREO holding period were deficient, and following an investigation it determined the bank allegedly “failed to meet its commitment to implement corrective actions, resulting in additional violations.” While the OCC noted that it will continue to monitor the bank’s corrective actions, it determined that the bank’s implementation of effective policies and procedures to ensure OREO compliance over the last 12 months has “significantly reduced its inventory of OREO assets.”

    Federal Issues OCC Enforcement OREO Foreclosure

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  • CFPB files deceptive and abusive allegations against foreclosure relief services company and principals

    Federal Issues

    On September 6, the CFPB announced a complaint filed in the U.S. District Court for the Central District of California against a foreclosure relief services company, along with the company’s president/CEO (defendants), for allegedly engaging in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. According to the complaint, since 2014 the defendants allegedly violated the Consumer Financial Protection Act  (CFPA) and Regulation O by making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. Additionally, the Bureau alleged the defendants’ representations about their services constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.

    In addition, the Bureau entered a proposed stipulated final judgment and order against the company’s principal auditor for providing “substantial assistance in furtherance of [the defendants’] unlawful conduct” in violation of the CFPA and Regulation O. The proposed judgment imposes a $493,403.04 civil penalty, of which all but $5,000 is suspended due to the auditor’s limited ability to pay. The auditor is also permanently banned from providing mortgage assistance relief services or consumer financial products and services.

    Federal Issues CFPB Enforcement Courts CFPA UDAAP Regulation O Foreclosure

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  • Conn. Supreme Court reverses foreclosure based on bank misconduct


    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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  • New York increases homeowner safeguards, closes loopholes to prevent deed fraud and mortgage scams

    State Issues

    On August 14, the New York governor signed a package of bills intended to increase consumer homeowner protections. According to a press release issued by the governor, the three measures enact homeowner safeguards and close loopholes to prevent deed fraud and mortgage scams.

    • A 92 imposes obligations on banks or financial institutions that sell or transfer a mortgage after a borrower has applied for a loan modification. Specifically, the law requires the original holder of the loan to provide the borrower with a list of all modification application documents provided to the buyer or transferee of the mortgage. The measure also requires the new mortgage servicer to honor the terms and conditions of a loan modification that was approved by the original servicer. The act takes effect in 90 days.
    • A 1800 requires servicers of vacant or abandoned residential properties to continue to pay homeowners’ association fees or cooperative fees on properties in the state to ensure they do not become dilapidated before a foreclosure is finalized. The act takes effect immediately.
    • A 5615 amends state law related to distressed home loans to extend consumer protections for homes in default and foreclosure by, among other things, (i) providing homeowners additional time to cancel a covered contract with a purchaser; (ii) preventing distressed property consultants from inducing the consumer to transfer the deed to the consultant or anyone else; and (iii) allowing consumers to void contracts, deeds, or other agreements material to the consumer’s property where an individual was convicted of or pled guilty to making false statements in connection with that agreement. The act takes effect immediately.

    State Issues State Legislation Mortgages Foreclosure

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  • 1st Circuit asks Massachusetts high court to resolve foreclosure question


    On July 29, the U.S. Court of Appeals for the 1st Circuit certified to the Massachusetts Supreme Judicial Court the question of whether a national bank’s foreclosure notice was valid under Massachusetts law. According to the order, the appellate court granted the bank an en banc rehearing of its February decision, which concluded that the bank’s foreclosure notice was defective and therefore, it could not properly foreclose the mortgage. The court had reasoned that the notice, which stated that the homeowners “could avoid foreclosure if, but only if, the [homeowners] paid the balance due on or before the specified foreclosure date,” was defective because the mortgage required the homeowners to pay the amount at least five days before the foreclosure date. In its petition for rehearing en banc, the bank argued that a Massachusetts state banking regulation required it to use the specific language it had in the notice and that the panel erred in its reading of existing state court precedent. The appellate court noted that the position is debatable and that in a diversity jurisdiction action the court “cannot properly overturn governing state precedent.” Therefore, the appellate court withdrew its earlier opinion, vacated the judgment, and certified to the Massachusetts Supreme Judicial Court the question of whether the statement in the foreclosure notice would render the notice inaccurate or deceptive, voiding the subsequent foreclosure sale under Massachusetts law.

    Courts State Issues First Circuit Appellate Mortgages Foreclosure

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  • 11th Circuit: Motion to reschedule foreclosure does not violate RESPA


    On June 11, the U.S. Court of Appeals for the 11th Circuit affirmed the dismissal of a RESPA action against a mortgage servicer, concluding that rescheduling a foreclosure sale is not a violation of Regulation X’s prohibition on moving for an order of foreclosure sale after a borrower has submitted a complete loss-mitigation application. According to the opinion, a consumer’s home was the subject of an order of foreclosure, and the mortgage servicer subsequently approved a trial loan-modification plan for a six-month period. The servicer filed a motion to reschedule the foreclosure sale so that the sale would not occur unless the consumer failed to comply with the modification plan during the trial period. The consumer filed suit, alleging that the servicer violated Regulation X––which prohibits loan servicers from moving for an order of foreclosure sale after a borrower has submitted a complete loss-mitigation application––because the servicer rescheduled the foreclosure sale instead of cancelling it. The district court dismissed the action.

    On appeal, the 11th Circuit agreed with the district court, concluding that the consumer failed to state a claim for a violation of Regulation X. The appellate court reasoned that Regulation X does not prohibit a servicer from moving to reschedule a foreclosure sale as that motion is not the same as the “order of sale,” a substantive and dispositive motion seeking authorization to conduct a sale at all, as referenced in Regulation X. Moreover, the appellate court argued that the consumer’s interpretation of the prohibition is inconsistent with the consumer protection goals of RESPA because it would disincent loan servicers from offering loss-mitigation options and helping borrowers complete loss-mitigation applications, if a foreclosure sale has already been scheduled. Lastly, the appellate court noted that the motion to reschedule is consistent with the CFPB’s commentary that, “[i]t is already standard industry practice for a servicer to suspend a foreclosure sale during any period where a borrower is making payments pursuant to the terms of a trial loan modification,” rejecting the consumer’s argument that the servicer should have cancelled the sale altogether.


    Courts Appellate Eleventh Circuit RESPA Regulation X Foreclosure Loss Mitigation Mortgage Modification Mortgages

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  • Maryland amends statute of limitations for UDAP actions against mortgage servicers

    State Issues

    On May 25, the Maryland governor signed HB 0425, which amends the state’s statute of limitations applicable to certain civil actions relating to unfair, abusive, or deceptive trade practices (UDAP) filed against a mortgage servicer. Specifically, the bill requires that an action filed by a homeowner alleging damages arising out of a UDAP violation shall be filed within the earlier of: (i) 5 years after a foreclosure sale of the residential property; or (ii) 3 years after the mortgage servicer discloses its UDAP violation to the homeowner. The bill is effective October 1.

    State Issues State Legislation UDAP Mortgage Servicing Mortgages Foreclosure

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  • New Jersey approves mortgage lending bill package

    State Issues

    On April 29, the New Jersey governor approved several bills related to mortgage lending in the state. According to a press release issued by the governor, the package of nine bills addresses the state’s foreclosure crisis and includes the following:

    • A 4997, known as the Mortgage Services Licensing Act, requires persons who act as mortgage servicers—either directly or indirectly—to obtain a license from the New Jersey Commissioner of Banking and Insurance for each office where business is conducted. The Act provides certain licensing exemptions, including federally insured banks and credit unions and their wholly-owned subsidiaries, those already licensed under the state’s Residential Mortgage Lending Act (the Act) who meet certain criteria, and the New Jersey Housing and Mortgage Finance Agency. However, the Act stipulates that sections 9 – 12, which discuss, among other things, record-keeping requirements, late fee restrictions, and required disclosures, apply to all persons, including exempt persons, acting as mortgage servicers in the state. Among other provisions, the Act (i) outlines licensing application requirements, procedures, and expiration terms; (ii) requires licensed mortgage servicers to file annual reports about loan servicing in the state; (iii) stipulates that licenses are non-transferable; (iv) mandates mortgage servicers to file a surety bond, fidelity bond, and evidence of coverage with the Commissioner; (v) requires compliance with all applicable federal laws including RESPA and TILA; (vi) requires mortgage servicers to keep a current schedule of service-related activity fees; and (vii) prohibits mortgage servicers from engaging in unfair or deceptive practices in connection with loan servicing. Moreover, the Act grants the Commission with supervision, investigation, and examination authority. The Act takes effect in 90 days.
    • A 5001 “reduces the statute of limitations in residential mortgage foreclosures from 20 years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.” A 5001 takes effect immediately and applies to all residential mortgages executed on or after the effective date.
    • S 3416 states that provisions of the New Jersey Residential Mortgage Lending Act now apply to certain out-of-state persons involved in residential mortgage lending in the state “provided they are otherwise required to be licensed pursuant to the provisions of the [A]ct. . . .” S 3416 takes effect immediately.
    • S 3411, among other things, (i) requires a notice of intention to foreclose on a residential mortgage to be filed within 180 days prior to commencing foreclosure, stating that if a foreclosure proceeding has not yet commenced, “the lender shall send a new written notice at least 30 days, but not more than 180 days, in advance of that action”; and (ii) limits the number of permitted reinstatements of dismissed mortgage foreclosure actions to three, with certain exceptions. S 3411 takes effect August 1, which is the first day of the fourth month following enactment.

    State Issues State Legislation Licensing Mortgages Foreclosure Consumer Finance

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  • Texas Court of Appeals affirms summary judgment for loan servicer and bank


    On April 15, the Texas Court of Appeals affirmed a grant of summary judgment in favor of appellees, a loan servicer and a national bank acting as a trustee, concluding, among other things, that the appellant homeowner failed to provide sufficient evidence to support her claims that the appellees violated the Texas Debt Collection Act (TDCA) and Texas Deceptive Trade Practices and Consumer Protection Act (DTPA). According to the opinion, the homeowner—who defaulted on a loan that was referred to foreclosure—filed a lawsuit to stop the foreclosure sale, alleging that the defendants made “fraudulent, deceptive, or misleading representations” under the TDCA by allegedly failing to (i) provide an accurate accounting of received payments and credits; (ii) apply received payments; (iii) clearly disclose “the name of the person to whom the debt had been assigned or was owed when making a demand for money”; (iv) provide requested documentation regarding the assignment of the promissory note; and (v) provide proper prior notice to the appellant concerning the foreclosure proceedings. Additionally, the appellant further alleged that the appellees violated the DTPA by using fraudulent, deceptive, or misleading representations in the collection of appellant’s debt. The trial court granted summary judgment in favor of the defendants, and the appellate court affirmed the trial court’s decision. With respect to the appellant’s TDCA claims, the appellate court held, among other things, that first, the homeowner failed to show that the appellees made affirmative misrepresentations concerning the loan’s character or amount; second, failure to apply payments is not specifically a “‘prohibited misleading practice’” under the TDCA; and third, the appellees provided evidence showing the homeowner was “appropriately notified” of her default, and that under the TDCA, “service is completed upon deposit in the mail, not actual receipt.” With respect to the appellant’s DTPA claim, the appellate court held that the DTPA only applies to the acquisition of goods and services by lease or purchase and that loan servicing, foreclosure, and loan modification activities are not goods or services under the DTPA.

    Courts Debt Collection Mortgage Servicing Foreclosure Appellate

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