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DOJ Sues Washington State Company for Alleged SCRA Violations
On November 9, the DOJ filed a complaint in the Western District of Washington against a Washington company for allegedly foreclosing on servicemembers’ homes in violation of the Servicemembers Civil Relief Act (SCRA). According to the DOJ’s complaint, its investigation uncovered at least 28 unlawful non-judicial foreclosures. In addition to a declaration that the company violated the SCRA, the DOJ is seeking monetary damages, a civil penalty, and injunctive relief.
The allegations stem from an investigation the DOJ initiated into the company’s foreclosure practices following the same court’s dismissal of a private SCRA action brought by a veteran on the ground that it was time-barred. Prior to the DOJ initiating the investigation, the veteran appealed the dismissal to the Ninth Circuit Court of Appeals. The DOJ filed an amicus brief in that appeal, arguing that private SCRA suits are governed by the four-year federal catch-all statute of limitations.
Servicemember Files Writ of Certiorari, Petitions Supreme Court to Review SCRA Protections for Non-Judicial Foreclosures
On October 11, a servicemember filed a petition for a writ of certiorari, requesting that the U.S. Supreme Court review an opinion issued by the U.S. Court of Appeals for the Fourth Circuit concerning whether the Servicemembers Civil Relief Act (SCRA) can be applied to a mortgage loan obligation incurred during a borrower’s earlier, distinct period of military service. (See previous InfoBytes summary on Fourth Circuit opinion.)
Under the SCRA, servicemembers are afforded certain protections against non-judicial foreclosures of their home while in active military service. Section 3953 provides that a home mortgage “originated before the period of the servicemember’s military service and for which the servicemember is still obligated” cannot be foreclosed upon unless allowed by a court order. However, the appellate court affirmed the district court’s decision in favor of the bank, concluding that because the servicemember “incurred his mortgage obligation during his service in the Navy, the obligation was not subject to SCRA protection” even through the servicemember, after a discharge period, later re-enlisted with the Army.
The petition argues that the appellate court “misconstrued” and narrowly interpreted the SCRA’s definition of the term “period of military service” under section 3911 by treating the servicemember’s “separate and distinct periods of military service as a single period of service.”
FinCEN Encourages Communication from Financial Institutions Affected by the California Wildfires; FDIC Offers Regulatory Relief; FHA Extends Foreclosure Moratorium
California Wildfire Relief. On October 19, FinCEN announced that financial institutions affected by the California wildfires should contact FinCEN and their functional regulator regarding any delays in their ability to file Bank Secrecy Act reports and to keep FinCEN and the regulators apprised of subsequent changes in their circumstances.
On October 20, the FDIC announced steps to provide regulatory relief to financial institutions and facilitate recovery in areas of California affected by recent wildfires. The FDIC is encouraging banks to work constructively with borrowers affected by the wildfires, including extending repayment terms, restructuring existing loans, or easing terms for new loans. The FDIC noted that financial institutions may receive favorable Community Reinvestment Act (CRA) consideration in support of disaster recovery and will consider regulatory relief from certain filing and publishing requirements.
Hurricane Relief. On October 20, HUD issued an additional 90-day extension of the initial disaster foreclosure moratorium for FHA mortgaged properties located in specified areas impacted by the recent hurricanes. The foreclosure moratorium applies to the initiation of foreclosures and foreclosures already in process. The new extended dates are as follows: February 21, 2018 for Hurricane Harvey, March 9, 2018 for Hurricane Irma, and March 19, 2018 for Hurricane Maria.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
Federal Agencies Offer Consumer Relief Measures Following Recent Natural Disasters
On October 13, the Department of Veterans Affairs (VA) released two circulars (here and here) describing measures mortgagees may employ to provide relief to VA home loan borrowers affected by recent California wildfires and Hurricane Nate. Referencing the VA’s guidance on natural disasters, the VA’s recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
Separately, on October 17, the Federal Reserve Board, FDIC, National Credit Union Administration, and OCC released a joint notice under the Financial Institutions Reform, Recovery, and Enforcement Act that temporarily eases appraisal requirements for real estate-related financial transactions in areas impacted by recent hurricane disasters. The four agencies will allow appraisal exceptions, provided that financial institutions determine, and obtain documentation related to, the following: (i) the property involved is located in a major disaster area; (ii) there exists a binding commitment to fund the transaction within 36 months of the date the area was declared a major disaster; and (iii) “the value of the real property supports the institution’s decision to enter into the transaction.” The expiration date for exceptions in each area covered by the notice is three years after the date the President declared the area to be a major disaster area.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
Maine Amends Consumer Credit Code to Regulate Mortgage Loan Servicers
On May 30, Maine Governor Paul LePage signed into law S.P. 444, which amends the state’s Consumer Credit Code to improve the mortgage foreclosure process by regulating mortgage loan servicers. Under the Consumer Credit Code, “creditors” must be licensed and must comply with the provisions of the Consumer Credit Code. The amendment revises the definition of “creditor” to now include a “mortgage loan servicer,” which means a person or organization that undertakes direct collection of payments from or enforcement of rights against debtors arising from a supervised loan secured by a dwelling. The law, according to state rules, takes effect 90 days after adjournment of the legislature.
CFPB Fines Mortgage Servicer for RESPA Violations
On June 7, the CFPB ordered a mortgage servicer to pay up to $1.15 million in restitution for failing to provide borrowers with required foreclosure protections when handling loss-mitigation applications. The consent order alleges the servicer violated RESPA by failing to send critical information to consumers who were applying for foreclosure relief, and, in some circumstances, beginning foreclosure proceedings on borrowers who had submitted completed applications. Pursuant to the consent order, in addition to restitution, the servicer is required to provide borrowers the opportunity to pursue foreclosure relief, must cease its illegal practices, and develop policies and procedures to ensure compliance with mortgage servicing rules.
Nevada Supreme Court Holds that HOA "Superpriority" Statute Does Not Violate Due Process, Declines to Follow 9th Circuit
On January 26, in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, No 68630, (Nev. Jan 26, 2017), the Nevada Supreme Court reaffirmed its interpretation of the state statute granting priority lien status to unpaid condo assessments (Nev. Rev. Stat. § 116.3116 et seq.); specifically that foreclosure of such liens extinguishes prior-recorded mortgages. The Nevada Supreme Court declined to follow a 2016 ruling by the Ninth Circuit holding that the statute violates the Due Process Clause of the 14th Amendment. Rather, the Nevada Supreme Court stated that the Due Process Clause protects individuals from state actions, and a foreclosing HOA cannot be deemed to be a state actor. In doing so, the court specifically notes that “[w]e acknowledge that the Ninth Circuit has recently held that the Legislature's enactment of NRS 116.3116 et seq. does constitute state action. . . . However, for the aforementioned reasons, we decline to follow its holding.”
Prudential Regulators Fine Mortgage Company Over "Significant Deficiencies" in Foreclosure-Related Services
On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor. In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.
NYDFS Unveils Consumer Bill of Rights for Mortgage Foreclosures; Announces New Regulations for "Zombie Properties"
On December 7, Governor Andrew M. Cuomo announced the publication of the NYDFS Residential Foreclosure Actions Consumer Bill of Rights – intended to offer guidance to homeowners facing foreclosure in New York. Concurrently, the New York Governor also announced new NYDFS regulations intended to curb the threat to communities posed by vacant and abandoned properties (“zombie properties”) by “expediting foreclosure proceedings, improving the efficiency and integrity of the mandatory settlement conferences, and obligating banks and mortgage servicers to secure, protect and maintain vacant and abandoned properties before and during foreclosure proceedings.”
The Consumer Bill of Rights acts as guidance for homeowners facing foreclosure, and specifies that homeowners have certain rights and obligations, including, among others: (i) the right to stay in the home unless and until a court orders the homeowner to vacate the property; (ii) the right to be represented by an attorney; (iii) the right to be free from harassment and foreclosure scams; (iv) the right to avoid foreclosure by making a full or negotiated payment prior to foreclosure sale; (v) the right to be notified at least 90 days prior to a foreclosure suit being filed; (vi) the right to explore loss mitigation options; and (vii) the right to receive a copy of legal papers in a lawsuit. The Consumer Bill of Rights also outlines various obligations of a homeowner, including to respond to complaints, appearing at court, and negotiating in good faith. Under the law, the court must provide homeowners a copy of the Consumer Bill of Rights at the initial mandatory settlement conference.
With respect to vacant and abandoned properties, the new regulations target blight caused by such zombie properties by, among other things, requiring that bank and mortgage servicers: (i) complete an inspection of a property subject to delinquency within 90 days; (ii) secure and maintain the property where the bank or servicer has a reasonable basis to believe that the property is vacant and abandoned; (iii) report all such vacant and abandoned properties to NYDFS; and (iv) submit quarterly reports detailing both their efforts to secure and maintain the properties and the status of any foreclosure proceedings. The NYDFS Superintendent is authorized under the new regulations to issue civil penalties of $500 per day per property for violations of the new regulations.