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  • Federal Reserve Offers Policy Guidance for REO Rental Programs

    Lending

    On April 5, the FRB released a policy statement that reiterates its general policy that banking organizations should make good faith efforts to dispose of foreclosed properties, also known as REO properties, as soon as practicable. However, under current market conditions, the FRB explains that banking organizations may hold and rent residential REO properties within legal holding-period limits without demonstrating continuous active marketing of the property for sale provided suitable policies and procedures are followed. The guidance offers risk management and compliance considerations for renting REO properties, as well as specific expectations for large-scale REO rental programs. The FRB release also points out that REO rental properties may meet the definition of community development under the Community Revitalization Act (CRA), and, if so, a banking organization would receive favorable CRA consideration.

    Foreclosure Federal Reserve Mortgage Servicing REO

  • Fannie Mae Provides Guidance Regarding Chicago Vacant Property Ordinance and Payment of Homeowners' Association Dues and Condo Assessments

    Lending

    On April 11, Fannie Mae published Servicing Guide Lender Letter LL-2012-04, which follows up on a previous notice regarding the City of Chicago’s (the City) vacant property ordinance. Effective May 1, 2012, servicers will be required to submit expense reimbursement requests using the Cash Disbursement Request and updated expense designations for all expenses related to the ordinance that are not otherwise required by the Servicing Guide. The Letter attaches a list of the expense designations. Fannie Mae reminds servicers that payments to the City in connection with the ordinance must be made “under protest” by sending a written communication to the City with the registration fee. Further, (i) all ordinance-related expenses must be submitted to Fannie Mae within 10 business days of the date they are paid by the servicer, (ii) ordinance-related expenses incurred from November 19, 2011 through April 30, 2012 must be submitted for reimbursement using the new expense categories no later than May 31, 2012, (iii) servicers will not be reimbursed for any penalties, fines, expenses or interest assessed by the City for failure to comply with the ordinance, and (iv) servicers must submit a request for pre-approval for ordinance expenses that exceed the allowable limits on or after May 1, 2012. Also on April 11, Fannie Mae published Servicing Guide Announcement SVC-2012-05 to provide guidance regarding payment of homeowners’ association (HOA) dues and condo assessments. Effective July 1, 2012, servicers must ensure that any priority liens for delinquent HOA dues and assessments on acquired properties are cleared immediately, but no later than 30 days, after the foreclosure sale or acceptance of a deed-in-lieu of foreclosure. The Announcement also revises the reimbursement policy to align with the amount a servicer must pay to protect the lien position and ensure properties are clear of any liens for HOA dues and condo assessments. The Announcement further reminds servicers of their responsibility to continue (i) advancing funds to pay HOA dues and property taxes as they become due following a foreclosure sale and (ii) performing certain property management duties.

    Fannie Mae Mortgage Servicing

  • Eleventh Circuit Reverses Dismissal of FDCPA Claim Involving MERS

    Lending

    On March 30, the Eleventh Circuit Court of Appeals reversed the dismissal of a FDCPA claim stemming from a communication to the plaintiff that erroneously identified MERS Corp. as the plaintiff’s creditor.  Shoup v. McCurdy & Candler LLC, No. 10-14619, 2012 WL 1071196 (11th Cir. Mar. 30, 2012). The plaintiff obtained a mortgage from America Wholesale Lender.  MERS was the grantee acting as the lender’s nominee under the mortgage contract.  After the plaintiff defaulted, MERS’s law firm sent an initial communication letter described as an attempt to collect a debt and identifying MERS as the “creditor on the above referenced loan.”  The mortgagee filed suit under the FDCPA, alleging that MERS is not a creditor and that by falsely stating so, the law firm committed a FDCPA violation.  The district court granted the defendant law firm’s 12(b)(6) motion to dismiss, concluding that MERS was a creditor and that even if it was not, the purported violation was harmless.  In its reversal, the Eleventh Circuit reasoned that the FDCPA makes clear that (i) “any false representation” in the collection of a debt is a violation of the statute, (ii) a “creditor” under the statute would not include MERS in this instance, because MERS was not owed a debt, and (iii) any failure to comply with the law subjects the violator to actual and statutory damages.

    FDCPA Mortgage Servicing

  • Fair Housing Groups File First REO Complaint

    Lending

    Last week we posted about plans by the National Fair Housing Alliance and certain of its member organizations to file administrative complaints and/or lawsuits against multiple financial institutions for alleged discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. Yesterday, the first such complaint was filed with the Department of Housing and Urban Development. The filing triggers a process through which HUD will now conduct its own investigation of the issues presented. The complaint is based on an NFHA report released earlier this month, which overlooks key considerations with regard to servicer management of REO properties. In announcing this complaint, NFHA indicated another will be filed next week. Servicers should expect several additional complaints in the coming weeks and months.

    Mortgage Servicing Fair Housing

  • Federal Court Approves Multi-Party Mortgage Servicing Settlement

    Lending

    On April 5, the U.S. District Court for the District of Columbia approved the consent orders that comprise the previously announced settlement of various government probes, including investigations and inquiries by numerous federal regulators and 49 state Attorneys General, into alleged mortgage-related violations by five large mortgage servicers.

    Mortgage Servicing State Attorney General

  • Washington Enacts New Short Sale and Foreclosure Protections, Adds Escrow Licensing Exemption

    Lending

    On March 29, Washington enacted House Bill 2614, which took effect immediately and created new borrower protections. The bill requires mortgagees that intend to permit a short sale of a residential property to provide written notice to the borrower that it is either waiving or reserving its right to collect the full debt. Mortgagees that reserve the right to collect must initiate a court action to collect within three years of the short sale. House Bill 2614 also amends provisions ofWashington’s Foreclosure Fairness Act, including, among other things, (i) to allow meetings with the borrower to discuss foreclosure avoidance options to be conducted by phone, if the borrowers agrees, (ii) to alter the foreclosure mediation procedures, (iii) to extend the time period for a trustee’s sale, and (iv) to change beneficiary reporting requirements. Lastly, the bill creates a process to rescind a trustee sale under certain circumstances.

    Also on March 29, Washington, through Senate Bill 6218, amended its escrow licensing requirements to clarify that attorneys are not required to obtain a license, provided that (i) the escrow transactions are performed by either the lawyer while engaged in the practice of law or any employee of the law practice under direct supervision of the lawyer, (ii) all escrow transactions are performed under a legal entity that is publicly identified and operated as a law practice, and (iii) all escrow funds are deposited to, maintained in, and disbursed from a trust account in compliance with rules enacted by the Washington Supreme Court regulating the conduct of lawyers. These changes take effect June 7, 2012.

    Foreclosure Mortgage Servicing

  • Utah Enacts Multiple Bills Related to Mortgages and Default Servicing

    Lending

    Recently, Utah enacted several bills to amend the state’s mortgage licensing and servicing requirements, and to support enforcement of mortgage fraud. On March 19, the state enacted House Bill 191, the majority of which takes effect May 8, 2012. The bill makes numerous adjustments to the state’s mortgage and real estate practices and licensing statutes, including revisions to certain definitions, licensing and renewal requirements, prohibited conduct, and record keeping and reporting requirements. House Bill 164, enacted on March 19, establishes new servicing requirements, including (i) requiring servicers to appoint a single contact person for residential properties in default and establishing responsibilities for the contact person, (ii) requiring notice to a default trustor before a notice of default is filed, and (iii) allowing a default trustor to seek foreclosure relief. Enacted on March 22, House Bill 280, extends for two years, through the end of 2014, an existing provision requiring a notice for residential rental property that is being foreclosed. Also enacted on March 22 was Senate Bill 281. That bill creates a mortgage and financial fraud unit within the state’s Attorney General’s office. Beginning July 1, 2012, the Attorney General’s office will have a $2 million appropriation to establish the new unit to work with other state and local agencies to prevent, investigate, and prosecute mortgage and other financial fraud.

    Mortgage Licensing Mortgage Servicing

  • Utah Limits Time for Deficiency Actions Following a Short Sale

    Lending

    On March 8, Utah enacted Senate Bill 42 to limit the time within which lenders can bring an action to recover a deficiency following a short sale. Lenders now have only three months following a short sale to file a deficiency action against a borrower to recover the balance of the debt. Prior to passage of SB 42, lenders had six years to bring such actions. This law became effective March 8, 2012.

    Mortgage Servicing

  • Multiple States Reach Separate Settlements with Mortgage Servicers

    Lending

    On March 13, several major mortgage services notified the U.S. District Court for the District of Columbia that they have settled multiple suits brought by certain State Attorneys General (AGs). That court is tasked with approving or denying the multi-party servicer settlement between federal and state officials and the five largest residential mortgage servicers filed on March 12. The notice is intended to provide the court with “a more complete understanding of the terms of the proposed [Settlement] and related litigation.” According to the notice, the servicers have reached agreements with the California, Delaware, Florida, Massachusetts, and New York AGs to resolve certain claims of those states that were preserved under the multi-party agreement. For example, New York settled for $25 million its lawsuit against all of the servicers and MERSCORP, Inc. The notice filed with the court also states that Bank of America is in the process of resolving litigation brought by the AGs of Arizona, Nevada, and Washington.

    Mortgage Servicing State Attorney General

  • Multi-Party Mortgage Servicing Settlement Filed in Court

    Lending

    On March 12, federal and state officials filed documents in the United States District Court for the District of Columbia formalizing a previously announced settlement (the Settlement) of various government probes into alleged mortgage-related violations by the five largest residential mortgage servicers (collectively the Servicers). The Settlement resolves investigations and inquiries by numerous federal regulators and 49 state Attorneys General (AGs). The federal agencies that have signed on to the settlement include: the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Department of Agriculture, the Department of Veterans Affairs, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Trustee. With the filing of a consolidated complaint and a separate consent judgment for each Servicer, the details of the Settlement have been made available, including its provisions regarding: (i) restitution and other relief, (ii) new servicing standards, (iii) the scope of its releases, and (iv) implementation and enforcement. For a detailed analysis of the Settlement, please see BuckleySandler LLP’s recent Special Alert.

    Mortgage Servicing HUD State Attorney General

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