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New Jersey Amends Provisions Regarding Foreclosure Consultants
Recently, New Jersey amended provisions under the Foreclosure Rescue Fraud Prevention Act (the Act), requiring foreclosure consultants and distressed property purchasers who contract with owners of residential properties in financial distress, to adhere to certain practices in providing foreclosure prevention services to owners. The law is scheduled to take effect 180 days from its enactment. Among other provisions, the Act requires foreclosure consultants (a defined term under the Act) to (i) obtain a license from the Commissioner of Banking and Insurance prior to conducting any business in the state, (ii) ensure that a contract for foreclosure consulting services include the services to be performed, the foreclosure consultants representations, and the distressed property relief to be secured. In addition the Act provides a homeowner the right to cancel the foreclosure consulting contract at any time until after the foreclosure consultant has fully performed every service and secured the relief the consultant contracted to perform.
Illinois Bill Amends Real Estate License Act; Expands Anti-Predatory Lending Database
On December 31, Illinois Governor Pat Quinn signed into law Senate Bill 1894, a bill that increases education requirements for Illinois real estate agents and expands the state’s anti-predatory lending database to three additional counties. Specifically, the bill (i) increases the pre-licensing education requirements for Illinois real estate agents from 45 to 120 hours, (ii) eliminates the “salesperson” license category, (iii) establishes the “broker” license category as the entry-level real estate license in the state, and (iv) establishes a “managing broker” license category, which requires 165 hours of pre-licensing education and 24 hours of continuing education every renewal period. The bill also expands the state’s anti-predatory lending database program to include Kane, Will, and Peoria counties, which rank among the state’s highest foreclosure rates. The program, which currently only applies to Cook County (most-recently reported in InfoBytes, May 16, 2008), aims to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The program is set to expand into the three additional counties on July 1, 2010. Finally, the bill includes a provision that allows municipalities, until certain conditions take place, to obtain a lien for costs associated with the clean-up of abandoned residential properties.
Florida Supreme Court Approves Mandatory Mediation For All Homestead Foreclosure Cases in Florida State Courts
On December 28, the Florida Supreme Court approved a model administrative order that requires mediation for all foreclosure cases in Florida state courts involving residential homestead property unless (i) the plaintiff and borrower agree otherwise, (ii) effective pre-suit mediation that substantially complies with the model administrative order’s mediation program requirements has been conducted, or (iii) a borrower opts out of the mediation process. In re Final Report and Recommendations on Residential Mortgage Foreclosure Cases, No. AOSC09-54 (Fl. Sup. Ct. Dec. 28, 2009). A task force, charged with recommending policies, strategies, and methods for easing the backlog of pending residential mortgage foreclosure cases in Florida recommended the model administrative order, which the Florida Supreme Court approved with minor changes. Features of the model administrative order’s mediation program include (i) referral of the borrower to foreclosure counseling prior to mediation, (ii) early electronic exchange of borrower and lender information prior to mediation, and (iii) the ability of a plaintiff’s representative to appear at mediation by telephone. Under the model administrative order, a designated mediation manager must schedule a mediation program between 60 and 120 days after a suit is filed. Mediation program costs are to be paid initially by plaintiffs, but these costs are recoverable in the final judgment of foreclosure or settlement order.
New Jersey Adjusts Definition Of "High Cost Home Loan" Under Home Ownership Security Act
Recently, the New Jersey Department of Banking and Insurance (Department) issued a bulletin increasing the maximum principal amount of a loan that may be considered a high cost home loan to $430,955.10. High cost home loans in New Jersey are subject to additional lender requirements under the New Jersey Home Ownership Security Act of 2002. When the New Jersey Home Ownership Security Act of 2002 (Act) became effective in 2003, the maximum principal amount that would trigger the "high cost home loan" provisions of the Act was $350,000. Pursuant to a requirement in the Act to annually review and, if necessary, adjust the maximum principal amount that will trigger the "high cost home loan" provisions of the Act, the maximum principal amount was last adjusted in 2008 to $428,615.60. The Department made the adjustment to $430,955.10. The Department made this adjustment based upon the United States Department of Labor, Bureau of Labor Statistics’ Consumer Price Index for the New York - Northern New Jersey Region. This increase in the definition of a high cost home loan is effective for all completed loan applications received by a lender on or after January 1, 2011.
District of Columbia Issues Guidance on Foreclosure Law Compliance
On November 29, the District of Columbia Department of Insurance, Securities and Banking (DISB) announced it had issued a November 24 bulletin informing licensed residential mortgage lenders and mortgage borrowers of the enactment of a new emergency law requiring mortgage lenders to go through six months of mediation with a homeowner before proceeding with a foreclosure. The law, titled the Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010, requires lenders to send homeowners a form to opt in or out of mediation when the homeowners receive foreclosure notices from the lenders. Borrowers who opt in will enter mediation with their lender and have 90 days, in addition to the 30 days they had to decide whether to opt in or out, to reach a settlement. Mediation will be guided by foreclosure mediators, and the program will be administered by DISB. The law became effective immediately upon the signature of Mayor Adrian Fenty on November 17 and will expire on February 15, 2011.
Rhode Island Considers New Surety Bond and Minimum Net Worth Requirements for Mortgage Loan Originators
On November 5, Rhode Island’s Department of Business Regulation (DBR) proposed the adoption of Banking Regulation 6 (BR 6) entitled "Surety Bond and Minimum Net Worth Pursuant to the Secure and Fair Enforcement Mortgage Licensing Act of 2009," which would implement statutory requirements for mortgage loan originators regarding surety bonds and minimum net worth. The DBR maintains that the new regulation will protect Rhode Island consumers by reserving funds for those injured by mortgage loan originators and by ensuring that mortgage loan originators are financially stable. Under Section 5 of the new regulation, mortgage loan originators that originate between $1 and $10 million per year would be required to file a minimum $10,000 surety bond with the DBR while originators that originate more than $10 million per year would be required to file a surety of at least $15,000. The exact bond requirements would vary yearly based on a formula tied to the amount of mortgage loans originated in Rhode Island in the preceding year. According to the regulation, the surety bond must be continuous and will be used for the benefit of Rhode Island consumers injured by the mortgage loan originators, but the requirement can be fulfilled by utilizing the surety bond of the mortgage loan originator’s licensed lender or loan broker. Section 6 of the new regulation would impose a requirement that applicants for a new license must demonstrate a minimum net worth of $10,000 for annual volume of Rhode Island loans originated in an amount up to $10 million, and $25,000 for volume of Rhode Island loans originated in an amount greater than $10 million. Applicants must maintain this minimum net worth continuously and cannot rely on the net worth of their employers to satisfy the requirement. The DBR may waive or modify the requirement if it deems it appropriate based on written evidence. The DBR is currently accepting written and oral comments on the new regulation, and it will hold a public hearing to consider the adoption of the new regulation.
North Carolina UDAP Claim Preempted by FCRA
On October 29, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of false credit reporting claims made under Article 1 of the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), agreeing with the lower court that those claims were preempted by the Fair Credit Reporting Act (FCRA). Ross v. Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, No. 08-1851, 2010 WL 4261819 (4th Cir. Oct. 29, 2010). In Ross, plaintiff sued her mortgage servicer for false reporting of credit information in violation of FCRA and the NCUDTPA. Plaintiff, who was living in the property secured by the loan and making the loan payments, was not an obligor on the loan. Nonetheless, when the loan went into default, defendant reported negative credit information to credit reporting agencies (CRAs). The district court awarded summary judgment to the defendant, dismissing plaintiff’s FCRA claim on statute of limitations grounds, and plaintiff’s NCUDTPA claim on the basis of FCRA’s preemption provision, 15 U.S.C. § 1681t(b)(1)(F) ("No requirement or prohibition may be imposed under the laws of any State (1) with respect to any subject matter regulated under ... (F) section 1681s2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies...."). Plaintiff appealed the preemption ruling, and the Court of Appeals affirmed. According to the court, "[plaintiff’s] NCUDTPA claim ... runs into the teeth of the FCRA preemption provision. Her claim concerns [defendant’s] reporting of inaccurate credit information to CRAs, an area regulated in great detail under §§ 1681s-2(a)-(b)." The court also rejected plaintiff’s argument that her NCUDTPA claims fell under FCRA’s preemption exemption for claims based on "malice or willful intent to injure," finding that plaintiff did not provide sufficient proof of such malice or willful intent to injure. To the contrary, "[t]he record is replete with evidence that [defendant] made a regrettable but honest mistake and took action to remedy this error once [plaintiff] brought it to [defendant’s] attention." According to the court, "[b]anks make mistakes, which include errors in their records. And while we would hope that these errors could be held to a minimum and corrected the first time they are brought to the bank’s attention, the failure to do so does not necessarily constitute malice."
New Jersey Permits Compensation for Mortgage Solicitor or Origination Activity if Licensee Was Authorized at Time of Activity
On October 26, the Commissioner of the New Jersey Department of Banking and Insurance (the Department), issued Bulletin 10-29, which provides guidance on licensees’ and former licensees’ ability to pay and receive compensation for residential mortgage solicitor or loan origination activity. According to Bulletin 10-29, the Department construes the Residential Mortgage Lenders Act as permitting compensation to be paid and received when the activity took place in full while the person paying or receiving the compensation was duly authorized under a then-existing license, registration, or order. The compensation is considered to have been paid or received at the time of the activity, regardless of the date of the actual payment or receipt of such compensation.
NY Banking Department Issues Industry Letter Clarifying Section 590(2)(b-1) of Banking Law
On October 20, the New York State Banking Department (Department) issued a mortgage banking industry letter confirming that an exempt organization, such as a bank, savings bank or credit union, is considered a mortgage loan servicer when it collects principal and interest payments on loans it holds in portfolio, as well as when it services loans for third parties. Consequently, those organizations are required to notify the Banking Department of that fact and to comply with the Conduct of Business Rules for Mortgage Loan Servicers. The letter clarified the requirements of Section 590(2)(b-1) of the Banking Law, which provides that an exempt organization that makes and services mortgage loans is not required to register as a "mortgage loan servicer," though it must (i) notify the Superintendent that it is acting as a "mortgage loan servicer," and (ii) comply with any regulation applicable to mortgage loan servicers promulgated by the Banking Board or prescribed by the Superintendent with respect to mortgage loan servicer.
New York Amends Law to Prohibit Fees for Payment by Mail or Receipt of Paper Billing Statement
On October 20, the Governor of New York signed into law amendments to New York General Business Law Chapter 556, prohibiting businesses from charging additional rates or fees, or a differential in rate or fee associated with payment on an account, when a consumer chooses to pay by U.S. mail or to receive a paper billing statement. The new Section 399-zzz does not prohibit a business from offering a credit or other incentive to consumers to elect a specific payment or billing option. Each violation of the new Section is deemed a deceptive act and practice. The amendment takes effect on April 18, 2011.