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Ohio Appeals Court Rules Documents Flawed, Reverses Previous Foreclosure Judgment
On October 22, the Ninth District Court of Appeals reversed a summary judgment decision allowing a trust unit of a bank to foreclose on a home. In this case, the loan servicers were unable to prove who held the promissory note when the trust unit requested a foreclosure order from the trial court. Employees at both servicers failed to attach records relied upon in their respective affidavits, but rather provided copies of the promissory note, mortgage, and the assignment of the mortgage. The Court held that the copies “do not establish when or if the Bank came into possession of the Note or that the Bank was in possession of the Note at the time of the filing of the complaint.” Deutsche Bank Natl. Trust Co. v. Dvorak, 2014-Ohio-4652 29, Ohio. Ct. App., 27120 (Oct.22, 2014)
Court Orders Company to Comply with Rule 34
On October 16, a California district court issued a declaratory judgment ordering a company to comply with Rule 34 as cited in the Federal Rules of Civil Procedure. Rule 34 has two specific and separate requirements: (i) “[a] party must produce documents as they are kept in the ordinary course of business or must organize and label them to correspond to the categories in the request;” and (ii) [if] a request does not specify a form for producing electronically stored information (ESI), a party must produce it in a form in which it is ordinarily maintained or in a reasonably usable forms.” In this case, the defendant served initial document requests to the company. The parties agreed to meet and discussed about how the company would produce the requested documents. Thereafter, the company produced 41,000 pages of ESI consisting of flash drive and email. The drive and email contained no custodial index, table, or categories – just all folders of files. The Court ruled that, although the company satisfied with the first requirement of Rule 34, the company failed to adhere to the second requirement because the company must (i) either organize and label each document it has produced or it shall provide custodial and other organizational information along the lines outlined above and (2) produce load files for its production containing searchable text and metadata. Venture Corp. v. Barrett, 5:13-cv-03384-PSG, WL 5305575 (N.D. Cal. Oct.16, 2014)
New York Appeals Court Clarifies Law on Out-of-State Affidavits
Recently, the New York Appellate Division held an affidavit supporting an Oklahoma bank’s motion to foreclose a New York mortgage conformed to New York statutory requirements. An affidavit acknowledged out of state must be accompanied by a certificate of conformity under N.Y. Civil Practice Law and Rules §2309(c), providing that an oath taken outside New York is treated as if taken in New York if accompanied by a certificate required to entitle a deed to be recorded in New York. Oaths acknowledged outside New York by non-New York notaries require a certificate of conformity in substantially the form set out in Real Property Law §309-b. Here, an affidavit of the holder’s senior foreclosure litigation specialist established the mortgage, the default and assignment of the mortgage. It was accompanied by a “Uniform, All Purpose Certificate of Acknowledgment” which substantially conformed to Real Property Law §309-b. The borrowers did not oppose the motion to foreclose; the holder was therefore entitled to judgment. Midfirst Bank v. Agho, 991 N.Y.S.2d 623 (Aug. 13, 2014).
Eleventh Circuit Vacates Dismissal, Rules Bank Officers Subject To Negligence Claims Under Georgia Law
On October 24, based on the Georgia Supreme Court’s response to the federal appellate court’s certified questions, the United States Court of Appeals for the Eleventh Circuit issued a per curiam opinion overturning a district court’s order to dismiss a lawsuit under Georgia’s business judgment rule. In this case, the court addressed whether bank directors and officers of failed banking institutions could be held liable under the state’s law for claims of ordinary negligence and breach of fiduciary duty based on ordinary negligence. In light of the responses from the Georgia Supreme Court, the Eleventh Circuit noted, “a bank director or officer may violate the standard of care established by O.C.G.A. § 7–1–490, even where he acts in good faith, where, with respect to the process by which he makes decisions, he fails to exercise the diligence, care, and skill of ‘ordinarily prudent men [acting] under similar circumstances in like positions.’” The case was remanded back to the district court for further proceedings. FDIC v. Skow, No. 12-15878, WL 5394321 (11th Cir. Oct. 24, 2014)
OECD Countries Agree To Share Tax Information
On October 29, representatives from 51 countries, having met at the Global Forum on Transparency and Exchange of Information for Tax Purposes, agreed to address tax havens in exchange for transparency in tax information. Recently, the Global Forum released a report regarding the Global Forum’s progress in efforts to increase tax transparency and exchange of information. Since the early 2000s, the Global Forum has worked with the Paris-based Organisation for Economic Cooperation and Development (OECD) to increase international tax transparency. The OECD drafted the Standard for Automatic Exchange of Financial Account Information in Tax Matters so that jurisdictions participating in the fight against tax evasion will have a way to share financial information with each other.
Special Alert: CFPB Finalizes Points-and-Fees Cure and Other Mortgage Rule Amendments
Last week, the CFPB finalized an important amendment to its ATR/QM Rule that provides a mechanism for curing points-and-fees overages on qualified mortgage (“QM”) loans, as well as more minor amendments to its mortgage origination and servicing rules. The new rules, which were proposed in April, are detailed below. The discussion below regarding the new origination rules, including the points-and-fees cure, will also appear with the American Bankers Association/BuckleySandler publication, The New CFPB Mortgage Origination Rules Deskbook. (Click here for information about obtaining copies of the Deskbook.)
Click here to view the full special alert.
Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
CFPB Finalizes Qualified Mortgage Points & Fees Cure
On October 22, the CFPB finalized targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. The amendments include:
- Points and fees cure. Under the Ability-to-Repay/Qualified Mortgage Rule, loans must meet certain requirements to receive “qualified mortgage” or “QM” status. In particular, the points and fees charged to a consumer on a QM generally cannot exceed 3 percent of the loan amount. The amendments permit a lender or secondary market purchaser that discovers, after the loan has closed, that the 3 percent cap was exceeded to retain QM status by refunding the excess amount to the consumer with interest. However, the refund must occur within 210 days after consummation and before the consumer files suit, provides written notice to the lender that the cap has been exceeded, or becomes 60 days past due. In addition, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. Although the CFPB stated that this amendment is intended to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit, the provision will expire on January 10, 2021.
- Debt-to-income cure. In the April proposal, the Bureau requested comment on the need for a cure for loans that inadvertently exceed the 43% debt-to-income requirement for QMs made under Appendix Q. The Bureau deferred action on this issue, stating that it is considering the comments and whether to address the issue in a future rulemaking.
- Ability-to-Repay exemption for non-profits expanded. Certain 501(c)(3) nonprofit organizations that lend to low- and moderate-income consumers are already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The CFPB has amended this provision to allow certain non-profit groups to continue extending interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.
- Small servicer exemption expanded. Certain small servicers are exempt from some of the CFPB’s new mortgage servicing rules, so long as they (and their affiliates) service 5,000 or fewer mortgage loans and they (or their affiliate) are the creditor or assignee for all of the loans. However, some non-profit organizations do not meet this exemption because they service loans, for a fee, from other associated non-profit lenders that are not considered “affiliates,” even though they operate under mutual contractual obligations to serve the same charitable mission, and use a common name, trademark, or servicemark. Because of this unique corporate structure, these non-profit organizations did not qualify for the small servicer exemption, unlike their for-profit counterparts with similar arrangements. The final rule expands the small servicer exemption to include these non-profit organizations, so long as they are 501(c)(3) non-profits that service loans on behalf of other non-profits within a common network or group of nonprofit entities, and meet other requirements.
Regulators Jointly Approve Final Risk Retention Rule
On October 22, coordinated by the Department of Treasury, six federal agencies – the Board of Governors, HUD, FDIC, FHFA, OCC, and SEC – approved a final rule requiring sponsors of securitized transactions, such as asset-backed securities (ABS), to retain at least 5 percent of the credit risk of the assets collateralizing the ABS issuance. The final rule, which largely mirrors the proposed rule issued in August 2013, defines a “qualified residential mortgage” (QRM) and exempts securitized QRMs from the new risk retention requirement. Government-controlled Fannie and Freddie are exempt from the rule. Most notably, the final rule’s definition of a QRM parallels with that of a qualified mortgage as defined by the CFPB. Further, initially part of the proposed rule, the final rule does not include down payment provisions for borrowers. The final rule will be effective one year after publication in the Federal Register for residential mortgage-backed securities, and two years after publication for all other types of securitized assets.
FHFA Director Outlines Plan To Refine Representation and Warranty Framework
On October 20, FHFA Director Melvin Watt delivered remarks at the Mortgage Bankers Association Annual Conference in Las Vegas, Nevada. Watt addressed the Agency’s progress in ensuring safety and soundness and liquidity in the housing finance market. Specifically, Director Watt focused on the Agency’s continued work to revise the Representation and Warranty Framework (Framework) under which lenders and Enterprises function, stressing the importance of providing “clear rules of the road to allow lenders to manage their risk and lend throughout the Enterprises’ credit box.” In January 2013, the Agency implemented the first improvements to the Framework, which ultimately “relieved lenders of representation and warranties obligations related to the underwriting of the borrower, the property, or the project for loans that had clean payment histories for 36 months;” and in May, the Agency announced additional clarifications on the 36 month benchmark. Now, the Agency is focusing on improving the Framework by (i) clearly defining the life-of-loan exclusions to ensure lenders know what the exclusions are and when the exclusions apply to loans that are eligible for repurchase relief. These exclusions range into six categorical types: 1) misrepresentations, misstatements and omissions; 2) data inaccuracies; 3) charter compliance issues; 4) first-lien priority and title matters; 5) legal compliance violations; and 6) unacceptable mortgage products. Details regarding the definitions of the life-of-loan exclusion types will be released by the Enterprises in the coming weeks; (ii) clarifying that only life-of-loan exclusions can trigger a repurchase; and (iii) adding a “significance” test that requires the Enterprises to “determine that the loan would have been ineligible for purchase initially if the loan information had been accurately reported.” By making these revisions to the Framework, the Agency anticipates that the Enterprises will continue to conduct quality control reviews, enhance their risk management practices, and “engage in transactions that sell a portion of the credit risk from new mortgage purchases to the private market.”
CFPB Finalizes Rule To Limit Relief From Annual Privacy Notice Delivery Requirements
On October 20, the CFPB finalized its amendment to Regulation P, which requires that financial institutions meet specific consumer data-sharing requirements, including the delivery of annual privacy notices. Under the new rule, bank and nonbank institutions under the CFPB’s jurisdiction will now be allowed to post privacy notices online, rather than deliver an annual paper copy. Institutions that choose to post notices online must meet certain conditions, including (i) providing notice to consumers if the institution shares any data to third parties, in addition to providing an opportunity to opt out of such sharing; and, (ii) using the 2009 model disclosure form developed by federal regulatory agencies. The institutions that choose to rely on the new delivery method must (i) ensure that customers are aware of the notices posted online; (ii) provide paper copies within ten days of a customer’s request; and, (iii) make customers aware that the privacy notice(s) are available online—and that a paper copy will be provided at the customer’s request—by inserting a “clear and conspicuous statement at least once per year on an account statement, coupon book, or a notice or disclosure.” As outlined when the proposed rule was issued in May, the CFPB anticipates that the rule will: (i) provide consumers with constant access to privacy notices; (ii) limit the amount of an institution’s data sharing with third parties; (iii) educate consumers on the various types of privacy policies available to them; and, (iv) reduce the cost for companies to provide privacy notices.