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Oklahoma Amends Telephone Solicitation Statutes to Include Cellular Telephone Calls and Text Messages
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.
U.S. District Court Rules Non-Judicial Foreclosure of MERS Mortgage Violated Oregon Trust Deed Act
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.
Indiana Appellate Court Holds That MERS as Nominee Has No Rights Apart From Those of Lender
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."
Washington Adds Provisions Regarding Lien Holder Requirements for Certain Foreclosures
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.
Maine Amends Mortgage Release Statutes, Requires Delivery of Original Release to Mortgagor
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.
Eleventh Circuit Applies Dodd-Frank Preemption Standard To Find That State Law Is Preempted
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.
Texas Amends Payoff Statement Requirements
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.
Hawaii Amends State Code Concerning Mortgage Foreclosure Process
On May 5, Hawaii Governor Neil Abercrombie signed into law several amendments to the state’s mortgage foreclosure statutes. The changes were encompassed within Senate Bill (S.B.) No. 651, "Relating to Mortgage Foreclosures". The bill places numerous procedural requirements in the way of foreclosure completion. Section 667-D, entitled "Availability of dispute resolution required before foreclosure," mandates that a foreclosing mortgagee participate in a dispute resolution program at the election of the owner-occupant in order to "attempt to negotiate an agreement that avoids foreclosure or mitigates damages in cases where foreclosure is unavoidable." The amendments also require (at § 667-E) that foreclosure notices advise of that obligation. The program requires the owner-occupant to pay a $300 participation fee. (§ 667-H). Both the mortgagor and the owner-occupant may be represented by counsel in a dispute resolution; the owner-occupant may also be assisted by "an approved housing counselor or approved budget and credit counselor." (§ 667-J). Within ten days of conclusion of a dispute resolution, the neutral participant examining the parties’ claims is required to file a "closing report" with Hawaii’s Department of Commerce and Consumer Affairs, advising (among other things) whether the parties were able to resolve the dispute. The foreclosure process may resume (§ 667-K) after the report is recorded with Hawaii’s Bureau of Conveyances or Land Court (as appropriate).
Montana Adopts Revisions to the Montana Broker, Mortgage Lender, and Mortgage Loan Originator Licensing Act
On May 5, Montana adopted House Bill No. 90, which made numerous revisions to the Montana Mortgage Broker, Mortgage Lender, and Mortgage Loan Originator Licensing Act (Act) and changed its title to the Montana Mortgage Act. The revisions include provisions for the licensing and regulation of mortgage servicers, updated application and licensing requirements for brokers, lenders and originators, a reduction in the number of hours required for continuing education, changes to recordkeeping, reporting, bonding and disclosure requirements, and prohibitions against certain acts by mortgage lenders and mortgage servicers. In addition, the Act was revised to conform to federal law and expand the Department of Administration’s rulemaking authority.
North Carolina Court of Appeals Denies Foreclosure Action Due to Improper Endorsement on Borrower’s Note
The North Carolina Court of Appeals recently denied a lender’s right to foreclose on a borrower’s property, holding that the lender had not established by competent evidence that it was the owner and holder of the borrower’s note and deed of trust. In re Foreclosure by David A. Simpson, No. COA10-361 (N.C. App. May 3, 2011). In this case, the borrower had executed a note to refinance an existing mortgage on his home in 2006 with payment and principal due to the First National Bank of Arizona. Two years later, the borrower ceased making payments on his note. In 2009, a substitution of trustee was recorded with the register of deeds and it identified Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6 (Deutsche Bank RAL) as the new holder of the note and the lien. Soon thereafter, Deutsche Bank RAL commenced non-judicial foreclosure proceedings which were upheld, after appeal, in county superior court. The borrower appealed the superior court’s order based on two claims. First, the borrower claimed that the debt was not valid due to recission; he contended that he had rescinded the transaction because the original lender failed to provide all material disclosures as required by the federal Truth in Lending Act, 15 U.S.C. § 1635 (TILA). The court rejected this argument, holding that because recission under TILA is an equitable remedy, it cannot be properly raised in a non-judicial foreclosure proceeding under North Carolina law, but must instead be brought in a separate civil action in superior court. Second, the borrower claimed that Deutsche Bank RAL was not the owner and holder of the note. The court agreed, finding that while both the original note and an allonge to that note evidenced the note’s transfer, the party to whom the note was transferred to was not the same party bringing the foreclosure action. Specifically, while the foreclosure action was brought by Deutsche Bank Trust Company Americas as Trustee for Residential Accredit Loans, Inc. Series 2006-QA6, the endorsement to the note was in the name of Deutsche Bank Trust Company Americas only. Because the note was not properly endorsed to the named plaintiff in the foreclosure action, the court found that under the Uniform Commercial Code there was "not sufficient evidence that [the] Petitioner [was] the ‘holder’ of the Note."