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Financial Services Law Insights and Observations


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  • Foreclosure firm and affiliates agree to DOJ settlement resolving FCA allegations

    Federal Issues

    On December 4, the U.S. Attorney for the Southern District of New York announced that a New York foreclosure law firm and its wholly-owned affiliates—a process server and a title search company (defendants)—have agreed to pay $4.6 million to resolve False Claims Act allegations claiming that between 2009 and 2018 the defendants systematically generated false and inflated bills for foreclosure-related and eviction-related expenses and caused those expenses to be paid by Fannie Mae. The settlement also resolves claims arising from the same misconduct pertaining to eviction-related expenses that were submitted to and ultimately paid by the Department of Veterans Affairs (VA). The DOJ alleges that the process server and title search company both added “additional charges to the costs charged by independent contractors and otherwise took actions that increased costs and expenses,” which were then submitted by the law firm for reimbursement. According to the DOJ, “[l]awyers are not above the law. For years, the [law firm] submitted bills to Fannie Mae and the VA that contained inflated and unnecessary charges. This Office will continue to hold accountable those who seek to achieve profits by fraudulent conduct.” The DOJ states that Fannie Mae’s Servicing Guide requires “all foreclosure costs and expenses be ‘actual, reasonable, and necessary,’ and that foreclosure law firms ‘must make every effort to reduce foreclosure-related costs and expenses in a manner that is consistent with all applicable laws.’”

    The DOJ further notes that the defendants agreed to pay an additional $1,518,000 to resolve separate False Claims Act claims pursued by the whistleblower.

    Federal Issues DOJ Fannie Mae Department of Veterans Affairs Foreclosure Mortgages FHFA False Claims Act / FIRREA Whistleblower

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  • Rhode Island Department of Business Regulation adopts mortgage foreclosure disclosure amendments

    State Issues

    On October 1, the Rhode Island Department of Business Regulation adopted amendments to its regulations relating to mortgage foreclosure disclosure notices and mediation conference obligations. The amendments—which are effective as of September 28—require entities and individuals regulated by the Rhode Island Division of Banking and non-exempt mortgagees to comply with the outlined foreclosure provisions. The provisions, among other items, (i) require use of the notice of pending foreclosure form; (ii) require provision of notice of mediation conferences to all mortgagors prior to initiating a foreclosure, in the specified manner; and (iii) outline qualifications for the mediation coordinator responsible for issuing certificates of compliance.

    State Issues Mortgages Disclosures Foreclosure

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  • Utah Supreme Court reverses foreclosure ruling, states OCC interpretation of “located” is reasonable


    On October 5, the Utah Supreme Court revisited a 2013 decision in which it held that federal law does not preempt Utah state law that limits the ability of national banks to foreclose on real property in the state. In a unanimous opinion, the court wrote that it was overruling its “clearly erroneous” decision in a case stemming from a borrower’s challenge to the validity of a nonjudicial foreclosure sale of her Utah home by a Texas-based national bank. According to the opinion, the borrower argued that the sale of her home at auction was invalid because Utah state law “does not permit a bank to act as a trustee on a trust need.” Fannie Mae, which won the auction, secured an eviction order and argued that under the National Bank Act (NBA), the bank had the authority to conduct the sale. The court, however, reversed the eviction order after deciding that the bank did not have the authority under Utah law to act as a trustee under a deed of trust.

    In overruling its 2013 decision, the court held that whether a national bank has the authority to act as a trustee to foreclose on property in Utah depends on the OCC’s regulation implementing the NBA, not on Utah state law. According to the OCC’s interpretation of Section 92a of the NBA, a bank is located in the state where it “accepts the fiduciary appointment, executes the documents that create the fiduciary relationship, and makes discretionary decisions regarding the investment or distribution of fiduciary assets.” Previously, the court had found this interpretation to be unreasonable and not entitled to Chevron deference. However, when reconsidering the issue, the court determined that the OCC had the authority to implement the NBA and that the agency’s interpretation of the word “located” was reasonable. “Whatever located means, Congress has instructed that a state has to permit a national bank to act as a fiduciary if institutions that compete with the national bank in the state where it is located can act as a fiduciary,” the court wrote. “This expresses a federal intent to clomp into an area of traditional state concern.” The question, however, remained whether the bank performed its actions in a fiduciary capacity in Texas—a point on which the two parties to the litigation disagreed. “Because the district court has not had the opportunity to address this issue and because of the potential need for factual findings, we remand for the district court to consider this argument,” the opinion stated.

    Courts State Issues OCC National Bank Act Foreclosure

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  • DOJ settles with Washington state foreclosure trustee for alleged SCRA violations

    Federal Issues

    On September 27, the DOJ announced a settlement with a Washington state foreclosure services company resolving allegations that the company violated the Servicemembers Civil Relief Act (SCRA) by foreclosing on homes owned by servicemembers without first obtaining the required court orders. As previously covered by InfoBytes, in November 2017, the DOJ filed a complaint in the Western District of Washington alleging its investigation into the company’s practices uncovered at least 28 unlawful non-judicial foreclosures. The DOJ initiated the investigation following the same court’s dismissal of a private SCRA action brought by a veteran on the ground that it was time-barred.

    Under the settlement, each affected servicemember may receive up to $125,000, with a total payout by the company of up to $750,000. The DOJ notes that the company ceased operations in December 2017 and was placed into receivership in March.

    Federal Issues DOJ SCRA Servicemembers Foreclosure

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  • Fannie Mae and Freddie Mac issue servicing updates

    Federal Issues

    On September 26, Fannie Mae issued SVC-2018-07, which includes changes to the foreclosure and third party sale program. In order to encourage more third-party foreclosure sales, Fannie Mae is now requiring the use of Fannie Mae vendors for foreclosure sale marketing services in certain jurisdictions and encouraging the use of Fannie Mae vendors for public foreclosure auctions in certain jurisdictions. Servicers must implement the requirements for all sales scheduled on or after January 1, 2019. Additionally, effective October 28, Fannie Mae will now allow servicers to accept payment changes with future effective dates.

    Freddie Mac released Guide Bulletin 2018-16, which announces new and revised requirements to facilitate a secondary market for mortgages in support of affordable housing preservation and rural housing, including (i) allowing the sale of Community Land Trust Mortgages to Freddie Mac (effective November 5); (ii) updating requirements for mortgages secured by properties subject to resale restrictions (effective November 5); and (iii) revising the Home Possible mortgage requirements to permit sweat equity as a source of funds to cover the entire amount of cash to close for the down payment and/or closing costs (effective September 26).

    Federal Issues Fannie Mae Freddie Mac Servicing Guide Mortgages Mortgage Servicing Foreclosure

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  • Agencies issue guidance to institutions affected by storms in Gulf Coast and Hurricane Lane in Hawaii

    Federal Issues

    On September 5, the OCC issued a proclamation permitting OCC-regulated institutions to close their offices affected by Tropical Storm Gordon in the Gulf Coast Region. OCC Bulletin 2012-28 provides further guidance on natural disasters and other emergency conditions.

    On August 30, the Department of Veterans Affairs issued Circular 26-18-17, requesting relief for homeowners impacted by Hurricane Lane in Hawaii. Among other things, the Circular (i) encourages loan holders to extend forbearance to borrowers in distress because of the storms; (ii) requests that loan holders establish a 90-day moratorium on initiating new foreclosures on loans affected by the major disaster; and (iii) waives late charges on affected loans. The Circular is effective until October 1, 2019.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues OCC Department of Veterans Affairs Disaster Relief Mortgages Foreclosure Forbearance

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  • Court denies law firm’s request for judgment on Texas debt collection claim


    On August 14, the U.S. District Court for the Southern District of Texas entered judgment in favor of a bank, mortgage loan servicer, and servicer’s law firm (defendants) on all but one Texas Debt Collection Practices Act (TDCPA) claims, among others, brought by homeowner plaintiffs, but determined the law firm was not entitled to judgment as a matter of law regarding its attempted foreclosure on the property despite an attorney exemption provision in the TDCPA. The court agreed with the defendants that the plaintiff failed to allege material facts that support the majority of the claims brought, but disagreed with the law firm as to the remaining TDCPA claim. According to the opinion, the plaintiffs alleged the law firm violated the TDCPA by operating as a third-party debt collector in Texas without the surety bond required by law. The law firm moved for judgment, arguing, among other things, that it was not subject to the TDCPA bond requirement because it simply “assisted” the mortgage servicer with the foreclosure, which is not considered debt collection absent a collection attempt on a deficiency judgment. The court rejected this argument as a matter of law. The court also rejected the law firm’s argument that it was not a “third-party debt collector,” concluding there was a genuine dispute about whether the law firm was a debt collector under the TDCPA despite the attorney exemption, due to whether the letters sent were in its capacity as attorneys for the servicer or as a debt collector.

    Courts State Issues Foreclosure Debt Collection

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  • FHA updates loss mitigation options for mortgages in certain areas of Puerto Rico and the U.S. Virgin Islands

    Federal Issues

    On August 15, the Federal Housing Administration (FHA) released Mortgagee Letter 2018-05 (ML 2018-05), which updates loss mitigation options for certain FHA-insured mortgages located in Puerto Rico or Virgin Islands. The properties must be located in Presidentially-Declared Major Disaster Areas (PDMDAs) as a result of Hurricane Maria. In adition, FHA is also instituting a 30-day foreclosure moratorium on certain properties located in Puerto Rico or the Virgin Islands that FEMA has declared to be eligible for individual assistance. (As previously covered by InfoBytes, ML 2018-03 had extended an existing moratorium through August 16.) Additionally, in order to reduce foreclosures and minimize losses to the Insurance Fund, ML 2018-05 provides updated loss mitigation options “designed to provide greater alternatives to foreclosure for mortgagees to use with borrowers in the designated PDMDAs.” The new options supersede the previous ones offered in ML 2018-01 and rearrange the loss mitigation waterfall in order to provide expedited permanent loss mitigation solutions by considering “Disaster Standalone Partial Claims” earlier. This option would allow borrowers, among other things, to maintain their pre-disaster monthly payment of principle and interest and does not change interest rate and term of the mortgage. These loss mitigation options must be implemented by September 15 and expire May 1, 2019. The foreclosure mortgage moratorium is effective immediately and applies to the initiation of foreclosures and foreclosures already in process.

    Federal Issues FHA HUD Disaster Relief Loss Mitigation Mortgages Foreclosure

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  • Court holds RESPA loss mitigation claim is ripe prior to a foreclosure sale


    On August 14, the U.S. District Court for the Northern District of Illinois held that RESPA (and its implementing Regulation X) does not require a plaintiff to wait until a property is foreclosed upon to bring an action for a violation of Regulation X’s loss mitigation requirements. The plaintiff filed a complaint against her mortgage servicer for (among other claims) allegedly violating RESPA when the company initiated a foreclosure action while she had a pending loss mitigation application, even though the company did not ultimately foreclose on the property. The company moved to dismiss the RESPA claim as unripe and the court disagreed, finding there is no language in the statute or implementing regulation that states a plaintiff must wait. Conversely, the implementing regulation “expressly states that the prohibited action is a servicer making ‘the first notice or filing required by applicable law…’” and, therefore, the plaintiff’s claim did not fail for lack of ripeness. The court ultimately dismissed the plaintiff’s action against the company, however, finding the plaintiff did not adequately plead actual damages, and granted the plaintiff leave to file an amended complaint. 

    Courts RESPA Regulation X Loan Modification Foreclosure Ripeness Mortgages

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  • Court enters summary judgment in favor of bank in wrongful foreclosure action


    On August 3, the U.S. District Court for the District of Massachusetts entered summary judgment in favor of a national bank regarding a mortgage borrower’s allegations that the bank engaged in, among other things, predatory lending, wrongful foreclosure, and violations of Massachusetts’ unfair or deceptive practices (UDAP) law. As to the wrongful foreclosure claim, the borrower alleged that the bank lacked the legal authority to foreclose on his property because the chain of title was compromised and the mortgage transfers were invalid prior to the bank becoming the holder of the mortgage through assignments. The court rejected the borrower’s arguments because Massachusetts law allows for “splitting the note” as long as the mortgage documents are unified at the time of foreclosure, and there was no reason to question the validity of the prior assignments. The court rejected the borrower’s predatory lending claim because the bank was not the original lender of the mortgage note and had no duty to negotiate a modification because the borrower was already in default when the bank became the holder of the mortgage. The court also dismissed the UDAP claim on procedural grounds.

    Courts State Issues Mortgages Foreclosure

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