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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.
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.
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).
Utah Revises Regulations Concerning Qualifications for Principal Lending Manager Licensing and Registration Procedures
Effective May 10, 2011, the Utah Division of Real Estate revised its rules (see here and here) to prohibit a principal lending manager from simultaneously serving as a branch lending manager, and to prohibit an individual from serving as the branch lending manager for more than one branch at any given time. In addition, Utah Admin. Code r. 162-2c-202 was revised to include additional language under which a person may not be granted a mortgage loan officer or lending manager license.
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."
Tennessee Amends Consumer Protection Provision of the Uniform Debt-Management Services Act
The state of Tennessee recently amended the Uniform Debt-Management Services Act regarding registration applicants for entities providing debt-management services in the state. The new provision requires applications for registration to include (at their own expense) the results of fingerprint-based criminal history records, both state and national, covering every officer of the applicant and every employee or agent of the applicant who is authorized to have access to the trust account used to hold money for disbursement to creditors. This amendment is effective immediately.
Maryland Appeals Court Rules Printed MySpace Page Not Properly Authenticated & Provides Guidelines
On April 28, Maryland’s highest court overturned a lower court that had ruled the MySpace profile page of a convicted murderer’s girlfriend was properly authenticated evidence. The girlfriend’s profile page, used by the prosecution at trial, contained threatening statements allegedly made by the defendant, the defendant’s unique nickname, pictures of the defendant and his girlfriend, and a reference to the girlfriend’s birthday. Testimony was also presented linking the defendant with his nickname and the girlfriend with her profile picture In Griffin v. Maryland, 2011 WL 1586683, No. 74 (Ct. App. Md., Apr. 28, 2011), the court of appeals held that more is required when dealing with printouts from social networking sites, noting that anyone can set up a fake account on MySpace and "masquerade under another person’s name or . . . gain access to another’s account by obtaining the user’s username and password[.]" Finding that the lower court simply "failed to acknowledge the possibility or likelihood that another user could have created the profile in issue or authored the [threatening statements]," the appeals court observed that electronically stored information, "with its potential for manipulation, requires greater scrutiny of the ‘foundational requirements’ than letters or other paper records, to bolster reliability," and went on to hold that such potential "requires a greater degree of authentication [of an image printed from such a site] than merely identifying the date of birth of the creator and her visage." The court then went on to offer specific guidelines for proper authentication of such information: first, the purported creator of the profile or posting should be asked whether he created it; second, digital forensics should be performed on the purported creator’s computer; and, finally, information should be obtained directly from the social networking site that links the profile to the person allegedly creating it. Significantly, none of these steps had been taken at trial in Griffin.
California Federal Court Dismisses Lawsuit After Finding Adequate Disclosures Regarding Online Discount Program
On April 11, the U.S. District Court for the Southern District of California dismissed claims against an online discount program and online movie ticketing website that the defendants deceptively enrolled the plaintiff into a costly program. Berry v. Webloyalty.com, Inc., et al., No. 10-1358, 2011 WL 1375665 (S.D. Cal. Apr. 11, 2011). Plaintiff alleged that, while purchasing movie tickets online, he clicked on an advertisement promising discounted movie tickets and, after later providing his email address, unwittingly enrolled in a "savings club" that began charging a monthly fee. The court dismissed plaintiff’s claims of misrepresentation, unfair competition, false advertising, and invasion of privacy on the ground that multiple disclosures in the advertisement (which plaintiff did not read) adequately disclosed the terms and conditions of membership in the savings club, including the monthly fee.