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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.
Maryland Court of Appeals Approves Emergency Rule on Screening Foreclosure Documentation and Special Master Reviews
On October 19, the Maryland Court of Appeals approved Emergency Rule 14-207.1 and amendments to Maryland Court Rules 1-311 and 14-207, authorizing Maryland courts to adopt procedures to screen pleadings and documents, including affidavits, filed in foreclosure proceedings for compliance with legal requirements. Where a court has reason to believe an affiant in a foreclosure proceeding (i) may not have read or personally signed an affidavit, (ii) did not have a sufficient basis to attest to the accuracy of the facts in the affidavit, or (iii) failed to appear before a notary, the court may order the party to show cause why the affidavit should not be stricken, and why the action should not be dismissed. The Rule also empowers courts to order affiants and notaries to testify under penalty of perjury as to the circumstances of the signing of the affidavits, and provides that special masters may be appointed to screen foreclosure documents, and to conduct the proceedings in which affiants or notaries may be required to testify. Plaintiffs have 30 days to demonstrate compliance if a pleading or affidavit is questioned. If a party attempts to amend, supplement, or confirm a previously filed affidavit or pleading, the party must serve the new document on all parties and their attorneys, regardless of whether the original affidavit or pleading required service. Finally, attorneys who submit an improperly signed pleading or paper, or one signed with intent to defeat the purposes of the rule requiring an attorney signature, may have the pleading or paper stricken and be subject to discipline. The new Rules took effect for all new actions commenced on or after October 20, 2010, and "insofar as practicable to all actions then pending."
New California Statute Restricts Mortgage Deficiency Judgments
On September 30, the California legislature approved a statute prohibiting deficiency judgments in cases where the holders of first deed of trust or first mortgages consent to a sale of a dwelling for less than the remaining amount of indebtedness due at the time of the sale. Based on the holder’s written consent, the holders cannot collect any deficiencies and must fully discharge the remaining amount of debt. The statute applies to first mortgages or first deeds of trust for dwellings that are 4 units or less. The mortgagee can seek compensation, if the mortgagor commits fraud in the sale of the property or causes damage to the property.
New York Extends Credit Lien Protection for Credit Line Mortgage Advances from 25 to 30 Years
The Governor of New York recently signed a statutory amendment extending the lien protection for future advances made under a credit line mortgage from 25 years to 30 years. Subdivision 2 of section 281 of New York’s real property law had provided that a credit line mortgage may secure the original indebtedness and indebtedness created by future advances within 25 years after the recording date of the credit line mortgage. The statutory amendment, Chapter 529 of the New York Laws of 2010, changed the credit lien protection period to 30 years, effective upon enactment.
Michigan Office of Financial and Insurance Regulation Announces the Enforcement of the Mortgage Loan Originator Licensing Act Beginning October 15
On September 28, the Michigan Office of Financial and Insurance Regulation (OFIR) published a notice reminding mortgage brokers, lenders, servicers, and loan originators that the OFIR will begin enforcing the loan originator licensing requirements of the Mortgage Loan Originator Licensing Act starting October 15. After that date, any individual originating loans without an active approved mortgage loan originator license or anyone employing such an individual could be subject to an enforcement action and civil penalties up to $25,000. The OFIR encourages all mortgage brokers, lenders, servicers, and loan originators to verify the status of their licensees/their own license. If an individual discovers that his or her loan originator license application does not have an approved status in NMLS, the individual should contact the OFIR immediately to discuss the deficiency.
California Federal Court Dismisses TILA, Fraud, Unfair Business Practices, and Quiet Title Claims
On August 25, the U.S. District Court for the Northern District of California granted defendant’s motion to dismiss without prejudice because, inter alia, plaintiff failed to comply with Truth in Lending Act (TILA) requirements and did not plead his fraud claim with particularity. Briosos v. Wells Fargo Bank, 2010 WL 3341043, No. C 10-02834 LB (N.D. Cal. Aug. 25, 2010). Plaintiff alleged that defendant made fraudulent statements and concealed information about his ability to afford the loans in order to induce him to obtain a refinance loan. Plaintiff also alleged that the defendant failed to provide him with disclosures required under TILA and refused his request to rescind one of the loans. The court found that although plaintiff had not filed suit until after the three-year limitations period for TILA rescission claims had expired, plaintiff had timely exercised his right to rescission by making a rescission request by letter within three years after the transaction was consummated. However, plaintiff did not adequately allege facts demonstrating his ability to tender the loan proceeds, and thus his TILA rescission claim failed. The court further held that plaintiff failed to plead fraud with particularity and failed to assert his quiet title claim in a verified complaint, as is required under California law. As plaintiff failed to sufficiently plead his fraud and TILA claims, his § 17200 claim could not proceed because that claim depends on an underlying violation of federal or state law.
Ninth Circuit Holds Debtor’s Claim Under California Consumer Credit Reporting Act Preempted Under the Federal Fair Credit Reporting Act
On August 18, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s grant of summary judgment for defendants in an action concerning alleged violations of the California Consumer Credit Reporting Agencies Act (CCRAA). Carvalho v. Equifax Information Services LLC, 2010 WL 323947, No. 09-15030 (9th Cir. Aug. 18, 2010). In this matter, the Debtor had filed a class action complaint in California state court under the CCRAA alleging that the defendant consumer reporting agencies (CRAs) failed to properly "reinvestigate" a disputed credit report. The case was removed from state court to federal district court after the CRAs learned, during discovery, that the case met the $5 million amount in controversy requirement under the Class Action Fairness Act of 2005, 28 U.S.C. §13320(d). The CRAs moved for summary judgment, which the district court granted. On appeal, the debtor challenged the court’s decision and claimed that the notice of removal was untimely filed; that the federal Fair Credit Reporting Act (FCRA) did not pre-empt her state law causes of action; and that the CRAs violated the CCRAAs reinvestigation provision. The Ninth Circuit rejected the debtor’s challenge. In upholding the district court’s grant of summary judgment, the court held that: (i) removal was timely, because the debtor’s complaint failed to indicate an amount in controversy necessary to trigger the 30 day period for removing a class action to federal court; (ii) the debtor’s claim under the CCRAA that the collection agency failed to assist in the reinvestigation of the dispute was preempted by the FCRA; and (iii) the debtor’s claim that the reported debt was misleading, rather than inaccurate, failed to establish a prima facie reinvestigation claim under the CCRAA.
New York Enacts Law Addressing Telemarketing Abuses and Regulates Robo-Calls
On August 13, New York Governor David Paterson signed into law A. 8839 which updates the state’s telemarketing laws by, among other things, restricting the hours telemarketers can call state residents and by applying the federal Do Not Call Registry to robo-calls. Specifically, the bill: (i) restricts, absent expressed consent, unsolicited telemarketing calls to the hours of 8 a.m. to 9 p.m.; (ii) requires telemarketers at the outset of a call to disclose their identity and the nature of good or services they are selling; (iii) amends New York’s existing Do Not Call registry law to include robo-calls and prohibits robo-calls to customers on the federal Do Not Call registry; and (iv) gives the state’s Consumer Protection Board subpoena power with regard to telemarketing violations. The new law takes effect on December 11, 2010.
Maine Court Holds MERS Lacks Standing To Foreclose In Maine
On August 12, the Maine Supreme Judicial Court held that Mortgage Electronic Registration Systems, Inc. (MERS) - the "nominee" for the lender under the mortgage - was not the proper party to commence a foreclosure action against delinquent borrowers. MERS, Inc. v. Saunders, No. 09-640, 2010 ME 79 (ME Sup. Jud. Ct. Aug. 12, 2010). In this case, the plaintiffs executed a residential mortgage that named MERS as a nominee for the lender. After the plaintiffs defaulted on their loan, MERS filed a complaint seeking to foreclose. The plaintiffs opposed, arguing that MERS lacked standing because it could not show that it was the holder of the mortgage. The Supreme Judicial Court agreed, holding that, because MERS was a "nominee" for the lender and not a "mortgagee," it lacked standing to foreclose on the mortgage under Maine law. However, the court also held that the substitution of the bank for MERS during the foreclosure proceedings was proper. Nonetheless, the court found that the lower court’s grant of summary judgment on the foreclosure proceeding was improper because the record did not establish what property owned by the borrowers actually secured the mortgage.
Massachusetts Regulator Issues 43 Cease-And-Desist Orders to Mortgage Loan Originators in Violation of Massachusetts SAFE Act Law
On August 9, the Massachusetts Division of Banks announced the issuance of 43 temporary cease-and-desist orders against licensed mortgage loan originators in Massachusetts for failing to meet requirements for licensure under Massachusetts’ Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) compliance law. Under the law, mortgage loan originators licensed after July 31, 2009 had until July 31, 2010 to meet the new licensing requirements, while mortgage loan originators licensed prior to July 31, 2009 must pass the required state and national test by October 31, 2010 and must submit fingerprints for a national criminal background check by December 31, 2010.