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Financial Services Law Insights and Observations

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  • Vermont Adds Individual Licensing Requirement for Loan Modification Activities

    State Issues

    The Vermont Legislature recently amended the Vermont Licensed Lender Act, Vt. Stat. Ann. tit. 8, § 2201, to require loan modification employees of mortgage loan servicing companies to obtain individual mortgage loan originator licenses to continue their loan modification efforts for loans serviced by the loan servicing company. The statute defines "loan modification" as an adjustment or compromise of an existing residential mortgage loan and excludes a refinancing transaction. This provision takes effect on July 1, 2011.

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  • Florida Amends Mortgage Loan Originator Licensing Requirements in Alignment with S.A.F.E. Act

    State Issues

    Last week’s InfoBytes incorrectly reported on a Florida bill signed into law on May 31 by stating that the law amends provisions of Florida’s mortgage licensing law such that in-house loan processors must secure an individual mortgage loan processor license. Although Florida law previously required persons acting solely as loan processors to secure a loan originator license, the new legislation actually relieves in-house loan processors from individual licensing in Florida. Specifically, the bill excludes in-house loan processors from individual licensure, so long as the individual (i) is an exclusive employee of a single mortgage broker or a mortgage lender, (ii) under direct supervision and instruction of a licensed Florida loan originator, and (iii) engages in loan processing only (i.e., receiving, collecting, distributing, and analyzing information for processing a mortgage loan or communicating with consumers to obtain information necessary to process a mortgage loan (not including offering or negotiating or counseling consumers about mortgage loan rates or terms)). Contract (i.e., independent) loan processors remain subject to loan originator licensure in certain circumstances. This amendment brings Florida’s law more in line with the federal Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E.) and other state jurisdictions with respect to treatment of mortgage loan processors. As previously reported, the bill additionally requires mortgage lenders to submit reports of their financial condition to the NMLS registry and to authorize the NMLS registry to obtain a credit report for each of the mortgage lender’s control persons in order to renew a mortgage lender license. The bill becomes effective July 1, 2011. 

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  • Texas Adds Statutes Regarding Scope and Validity of Corrected Instruments

    State Issues

    On May 28, the governor of Texas signed Senate Bill 1496, which added new sections regarding instruments that correct recorded original instruments to the Texas statutes. These new provisions provide that a correction instrument may correct an ambiguity or error in a recorded original instrument of conveyance to transfer real property or an interest in real property, including an ambiguity or error that relates to the description of or extent of the interest conveyed. The legislation states that a correction instrument may make nonmaterial corrections, such as corrections to legal descriptions, names, dates, or facts relating to the acknowledgment or authentication, but the person executing the document must disclose in the instrument the basis for the person’s personal knowledge of the facts relevant to the correction of the recorded original instrument of conveyance. A correction instrument may also make material corrections, such as adding a buyer’s disclaimer, a mortgagee’s consent or subordination, or additional land; removing land from a conveyance; or accurately identifying a lot or unit number that was inaccurately identified in the recorded original instrument of conveyance. While this legislation is slated to be effective September 1, 2011, a correction instrument that substantially complies with the statutory provisions recorded before that date will be given effect.

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  • Oklahoma Amends Telephone Solicitation Statutes to Include Cellular Telephone Calls and Text Messages

    State Issues

    On May 26, Oklahoma’s Governor approved legislation amending provisions of the Oklahoma Consumer Protection Act and its Telemarketer Restriction Act to address the rapidly increasing use of text messages for commercial solicitation. The new law modifies relevant statutory definitions and expands existing consumer protections related to commercial telephone solicitation to include cellular telephone calls and text messages made by automatic dialing devices without the use of a live operator. The legislation also instructs the Attorney General to expand the do-not-call registry to include an opt-in list of consumers who would do not want to receive any unsolicited telemarketing text messages.

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  • U.S. District Court Rules Non-Judicial Foreclosure of MERS Mortgage Violated Oregon Trust Deed Act

    State Issues

    On May 25, Judge Panner, ruling for the U.S. District Court for the District of Oregon, granted the plaintiff’s request for a declaratory judgment that the defendants violated the Oregon Trust Deed Act, ORS 86.735(1), in pursuing non-judicial foreclosure of their loan without recording all assignments of the trust deed. Hooker v. Northwest Trustee Services, Inc., Civ. No. 10-3111-PA (D. Or. May 25, 2011). In this case, the plaintiffs had obtained a loan from GN Mortgage, LLC in 2005. At that time, a trust deed was recorded naming the Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary, "solely as nominee for Lender and Lender’s successors and assigns." The note was subsequently assigned several times, and MERS tracked the new lenders in its system. No assignments of the deed of trust were recorded. When the plaintiffs defaulted on their loan in 2009, MERS assigned the deed of trust to Bank of America and appointed Northwest Trustee Services as successor trustee, and Northwest executed a notice of default and election to sell. The assignment of the trust deed, appointment of successor trustee, and notice default were then recorded. After the plaintiffs filed suit, the defendants attempted to correct the documents by having the current lender appoint the trustee, and new documents were recorded. However, the court ordered the defendants to submit a complete chain of title. The MERS records submitted by the defendants indicated a chain of title beginning with Guaranty Bank, with no indication of how Guaranty Bank obtained the loan from GN Mortgage. The court noted that under Oregon law, only the beneficiary of the deed of trust may invoke the power of sale, not merely a nominee for the lender. GN Mortgage (or its successor in interest), as the lender of record, was the beneficiary of the trust deed. The court then noted that under Oregon law, a trustee could invoke the power of sale only if "any assignments of the trust deed by the trustee or the beneficiary ... are recorded in the mortgage records." The court held that tracking the successive assignments of the deed of trust by MERS was insufficient to protect the interests of the homeowner and violates the Oregon Trust Deed Act, because the assignments of the trust deed were not recorded as required by law. 

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  • Indiana Appellate Court Holds That MERS as Nominee Has No Rights Apart From Those of Lender

    State Issues

    On May 17, the Court of Appeals of Indiana held that Mortgage Electronic Registration Systems, Inc. (MERS), as the mere "nominee" of a mortgage lender, held nothing more than "bare legal title" to a mortgage, and therefore has no rights separate from those of the lender, including no rights to notice of a foreclosure claim by another lender. CitiMortgage, Inc. v. Barabas, No. 48A04-1004-CC-232 (Ind. Ct. App. May 17, 2011). In 2005, Barabas executed a mortgage that provided for the security interest to be "given to [MERS], (solely as nominee for Lender . . . ), as mortgagee." The Lender was Irwin Mortgage Corporation (IMC). The mortgage included the addresses of both MERS and IMC, but it stated that any notice to Lender was to be provided to IMC. Later, the holder of a second mortgage on the property, ReCasa Financial Group (ReCasa) sought to foreclose on the property and named IMC (but not MERS) as a defendant. IMC, however, disclaimed any interest in the property, and Barabas had discharged her debts in bankruptcy. Accordingly, the trial court entered a default judgment in favor of ReCasa and ordered the property sold at a judicial sale. ReCasa wound up repurchasing the property and then reselling it to a third party. Meanwhile, MERS assigned its interest in the original mortgage to CitiMortgage (Citi), which subsequently sought to vacate the default judgment and the subsequent sales. The trial court declined to vacate the default judgment, and the Court of Appeals affirmed. As to Citi’s argument that the default judgment was defective because MERS had not received notice of the foreclosure claim, the Court (relying on Landmark National Bank v. Kesler, 216 P.3d 158 (Kan. 2009)), held that, notwithstanding the fact that the mortgage referred to MERS as both "nominee" and "mortgagee," MERS "served as the mortgagee ‘solely as nominee’ for [IMC]." Thus, when IMC disclaimed its interest in the property, "MERS, as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by [IMC]." Because IMC received proper notice, there was no basis to set aside the default judgment. The Court also rejected Citi’s claim under Indiana Code 32-29-8-3, which provides that a purchaser at a judicial sale without notice that the mortgage has been assigned holds the premises free and discharged of the lien, unless the assignee redeems the premises within one year of the sale. Although Citi did seek to redeem the premises within one year of the judicial sale, it had been more than one year since (i) ReCasa’s foreclosure complaint and (ii) Citi’s effort to intervene in Barabas’s bankruptcy case to assert its rights to the property. Therefore, the Court determined that Citi’s claim was "precluded . . . because it failed to intervene until more than a year after it first acquired interest in the property."

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  • Washington Adds Provisions Regarding Lien Holder Requirements for Certain Foreclosures

    State Issues

    On May 17, Washington enacted new legislation that would require a senior beneficiary of a deed of trust to respond to a seller’s written offer that the senior beneficiary accept the entire net proceeds of the sale when those proceeds are insufficient to pay the full obligation owed within 120 days. The statute applies only when the senior beneficiary receives the written offer from the seller prior to the issuance of a notice of default. The seller must include a copy of the purchase and sale agreement with the offer, and the senior beneficiary’s response must include either an acceptance, rejection, or counter-offer of the seller’s offer. The new requirements do not apply to deeds of trust securing a commercial loan, securing obligations of a grantor who is not the borrower or a guarantor, or securing a purchaser’s obligations under a seller-financed sale. The provisions take effect July 22.

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  • Maine Amends Mortgage Release Statutes, Requires Delivery of Original Release to Mortgagor

    State Issues

    On May 16, the governor of Maine signed House Bill 748, which amended Maine’s statutes regarding the release of a mortgage. The legislation added a provision requiring that, within 30 days after receiving the recorded release of the mortgage from the registry of deeds, the mortgagee must send the release by first class mail to the mortgagor. The legislation also provides that, if the release is not sent by first class mail to the mortgagor within 30 days, the mortgagee will be liable to an aggrieved party for damages equal to exemplary damages of $500. In addition to recording fees, the mortgagee may charge the mortgagor for any postage fees incurred in sending the release to the mortgagor. The legislation will be effective 90 days after the adjournment of the legislature, which is scheduled for June 15.

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  • Eleventh Circuit Applies Dodd-Frank Preemption Standard To Find That State Law Is Preempted

    State Issues

    On May 11, the U.S. Court of Appeals for the 11th Circuit held that a Florida law significantly interfered with federally-authorized bank powers and thus was preempted under the Dodd-Frank Act. Baptista v. JP Morgan Chase Bank, No. 6:10-cv-139 (11th Cir. May 11, 2011). The defendant national bank charged the plaintiff, who did not hold an account at the bank, a $6 fee for cashing a check. The plaintiff brought a class action lawsuit in federal district court, alleging that the bank’s check-cashing fee violated a Florida statutory provision that prohibited the fee and that it unjustly enriched the bank. The district court dismissed both claims as preempted under 12 U.S.C. § 24 (Seventh), which accords national bank powers incidental to the business of banking, and 12 C.F.R. § 7.4002, which is a regulation promulgated by the Office of the Comptroller of the Currency (OCC) authorizing national banks to charge customers non-interest charges and fees. In dismissing the plaintiff’s claims, the district court noted that the OCC interpreted "customer" to include not just accountholders, but any person who presents a check for payment. The plaintiff appealed, and the 11th Circuit affirmed. The court noted that the Dodd-Frank Act provides that "State consumer financial laws are preempted . . .if . . . in accordance with Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), the State consumer financial law prevents or significantly interferes with the exercise by [a] national bank of its powers." The court concluded that under this standard, "the proper preemption test asks whether there is a significant conflict between the state and federal statutes-that is, the test for conflict preemption." The court concluded that the OCC was authorized by Congress to regulate banking, that the OCC’s definition of "customer" to include a non-accountholder presenting a check for payment was not unreasonable, and that the Florida law substantially conflicted with the authorization of national banks to charge non-accountholders with check-cashing fees.

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  • Texas Amends Payoff Statement Requirements

    State Issues

    On May 5, Texas enacted H.B. No. 558 ("the Act") amending the Texas Finance Code and requiring the Finance Commission of Texas ("Finance Commission") to adopt rules "governing requests by title insurance companies for payoff information from mortgage servicers related to home loans and the provision of that information..." The Finance Commission is required to adopt required rules as soon as practicable after the Act takes effect on September 1, 2011, and mortgage servicers are given a 90-day grace period to comply following adoption of the rules. The rules must prescribe a standard payoff statement form that states a proposed closing date for transactions involving the payoff of a home loan, and a payoff amount that is valid through that date. If a payoff statement is issued that complies with the rules, then the mortgage servicer or mortgagee may not demand that the mortgagor pay any amount in excess of the stated amount until the proposed closing date has elapsed. The Act also requires the Finance Commission to adopt rules prescribing specific remedial procedures in the event that a mortgage servicer or mortgagee provides an incorrect payoff statement to a title insurance company.

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