January 23, 2013
Plaintiff’s Challenge to MERS While Not in Default Dismissed by Nevada Court
In Wellington v. Mortgage Electronic Registration Systems, Inc., et al., No. 2:12-CV-00541-KJD-VCF (D. Nev. Oct. 30, 2012), the plaintiff decided to challenge the use of MERS after learning of fraudulent activity in the mortgage industry. After failing to obtain documents she requested from CMI, the entity that was assigned servicing rights by MERS (who is listed as the beneficiary in her deed of trust), she filed this suit. In this case, the plaintiff is representing herself and she is not in default, making it an unusual case since there is no foreclosure proceeding in process.
The plaintiff challenged the use of MERS as a nominee under her deed of trust. However, the court found that MERS has been recognized as a valid entity that can be named as a nominal beneficiary of deeds of trust by the courts in both the Nevada district court system and the 9th Circuit court system. In addition, the deed of trust signed by the plaintiff permitted MERS to exercise the rights and interests accompanied by legal title, including the right to sell the note without notice to the plaintiff. As a result, the court found that the initial appointment of MERS as a nominal beneficiary by the lender was valid.
The plaintiff also alleged a violation of the federal Fair Debt Collection Practices Act. However, the court found that the statute does not apply to the relevant mortgage institutions as long as the debt was not in default at the time it was assigned. In this case, it does not apply to the defendants since the plaintiff was not in default at the time of the assignment. In addition, the plaintiff did not state any specific abusive or fraudulent debt collection practices by CMI. She only challenged CMI’s collection of payments and failure to forward her payments to the actual creditor. However, the plaintiff failed to identify the actual creditor. As a result, the court granted the defendant’s motion to dismiss the claim.
January 23, 2013 | Permalink | No Comments
Court Dismissed Claim of Violation of the Nevada False Claims Act
In State of Nevada, ex rel. Barrett Bates, et al. v. Mortgage Electronic Registration System, Inc., et al., No. 11-16310 (9th Cir. 2012) (unpublished), the Court of Appeals for the federal court of Nevada affirmed the lower court’s decision to dismiss the plaintiff’s claim.
The plaintiff alleged the defendants violated Nevada’s False Claims Act, which was filed on behalf of the state of Nevada and its counties. To show a violation of the False Claim Act, the plaintiff must prove that the defendant “[k]nowingly makes or uses … a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the State or a political subdivision.” Nev. Rev. Stat. § 357.040(1)(g). To support his claim, the plaintiff alleged that the lenders made false representations in naming MERS as a beneficiary to the recorded deeds of trust and the notes in order to avoid paying the recording fees in the various counties of Nevada.
However, the court found that the plaintiff failed to successfully state a claim of liability under the statute because he failed to allege that the lenders had an obligation to the Counties to record the assignments and pay the relevant recording fees. Furthermore, the court found that there was no obligation to do so under Nevada law. As a result, the court affirmed the decision to dismiss the claim.
January 23, 2013 | Permalink | No Comments
Levitin Gives Overview of CFPB
The extraordinarily prolific Adam Levitin has posted The Consumer Financial Protection Bureau: An Introduction. He concludes that the
CFPB faces a constant challenge in terms of measuring and then balancing the consumer protection benefits from regulation with the costs of regulation and the potential impact of those costs on the availability and pricing of consumer financial products and services. What remains to be seen, however, is whether the CFPB will back away from more controversial rulemaking and enforcement activity because of the political threat it faces or whether the agency will pursue the policies it believes to be substantively right irrespective of the political situation. In other words, will the agency’s own interests affect guide its behavior? And are those interests best served by compromise and living to fight another day or by taking a principled stand and hoping to rally political support on that basis? The CFPB is a powerful new agency, but it is also one very much aware of its vulnerability. (35)
The paper was posted just as the Bureau unleashed a series of major rules for the mortgage industry. Levitin is right that the path that the Bureau will take in the long term is still unclear. But the early reaction indicates that the Bureau has taken a middle ground that has not unleashed vicious attacks from consumer advocates nor from industry groups. Indeed, it has garnered measured praise from both camps. Congressional Republicans do appear, however, to be preparing for a long term fight to dismantle the Bureau (see here for instance).
January 23, 2013 | Permalink | No Comments
January 22, 2013
CFPB Issues Rules on High-Cost Mortgages
The CFPB issued rules for high-cost mortgages (those with high interest rates and/or points and fees). Importantly, the rules now apply to most mortgages, including purchase money mortgages; refis; home equity loans; and home equity lines of credit.
High-cost loans can no longer have prepayment penalties, balloon payments (except in special circumstances), big late fees and some other miscellaneous fees.
The high-cost mortgage rules have been criticized for not reaching many mortgages as they only kick in (in most cases) when the APR on a first mortgage is more than 6.5 percentage points higher than what people with good credit would pay or if the points and fees are more than five percent of the total loan amount. The new rule will still cover only a small number of loans, so it is not clear if the new rule will have much impact on the market, as opposed to the new Qualified Mortgage rules.
January 22, 2013 | Permalink | No Comments
Alleged Violation of Deceptive Trade Practice Dismissed by Nevada Court
In Medina v. Quality Loan Service Corp., et al., No. 12-CV-00428-KJD-PAL (D. Nev. Oct. 25, 2012), the district court in Nevada addressed the plaintiff’s claim of a violation of the Nevada Deceptive Trade Practices Act.
The Act prohibits sellers from making false statements or misrepresentations about their goods or services. However, the court found that the Act doesn’t apply to most real estate loan transactions. The use of the Deceptive Trade Practices Act was only recognized once by the Nevada Supreme Court in Betsinger v. D.R. Horton, Inc., 232 P.3d 433, 436 (Nev. 2010). However, in that case, the plaintiff purchased a home after the defendant offered a 4.6% mortgage interest rate. After entering a purchase contract and receiving the plaintiff’s deposit, the defendant increased the interest rate to 6.5%. As a result, the plaintiff cancelled the contract and sued for the deposit after the defendant refused to return it. The Supreme Court upheld a jury finding that the defendant violated the Deceptive Trade Practices Act.
In this case, the court distinguished the facts because there was no allegation of a bait and switch, the defendant was not selling a house and the plaintiff was not purchasing one, and the defendant was not withholding a deposit.
The plaintiff also alleged there was a wrongful foreclosure because the party that initiated the foreclosure proceedings, Quality, had no authority to do so. The plaintiff argued that the only person who can enforce the note is the current note holder, not the party in possession of the deed of trust. This theory is a challenge to the split note theory that was addressed in Edelstein v. Bank of New York Mellon, 128 Nev. Adv. Op. 48, *2-3, 286 P.3d 249, ___ (2012). The court summarized the court’s opinion that supported the split note theory and rejected this challenge as well.
As a result, the court granted the defendant’s motion to dismiss this case.
January 22, 2013 | Permalink | No Comments
CFPB Issues Rule on Loan Originator Compensation
Distorted mortgage broker incentives were one of the big problems during the Subprime Boom. Indeed, many lenders have since stopped outsourcing loan originator to mortgage brokers because a lot of the terrible loans they were stuck with had been originated by them. Homeowners were also frequently burned by mortgage brokers who placed them in inappropriate products.
The CFPB has just issued new rules (summary here) relating to the compensation of mortgage brokers. One of the key elements of the rule is that broker compensation cannot be based on a term of the transaction such as the interest rate. This is intended to keep brokers from steering borrowers into more expensive mortgages solely to increase their own compensation. This is a major consumer protection initiative because a large number of homeowners with subprime loans were eligible for prime loans with lower interest rates. Because brokers had been financially incentivized to place them in subprime loans, that is what they did.
The new rule seeks to prevent the mortgage industry from doing an end run around the rule by attempting to identify proxies for the terms of the transaction. Time will tell whether the proxies work as intended.
January 22, 2013 | Permalink | No Comments
January 18, 2013
New York Supreme Court, Appellate Division Holds that Bank Has Standing to Foreclose
In Countrywide Home Loans, Inc. v Delphonse, 64 A.D.3d 624 (2d Dept. 2009) the Supreme Court, Appellate Division, Second Department found that the lender, Countrywide Home Loans (Countrywide), had standing to foreclose on the Delphonses, the homeowners in the case, because the court found that the Delphonses waived the issue at the pre-trial stage, and furthermore that Countrywide met its burden of proof. The court held, “[the Delphonses] waived the defense of lack of standing (see CPLR 3211[a][3]) by failing to either make a pre-answer motion to dismiss the complaint on that ground or by asserting that defense in their answer. . . . On its motion for summary judgment, [Countrywide] established its prima facie entitlement to judgment as a matter of law by submitting the mortgage, the underlying note, and evidence of a default.”
January 18, 2013 | Permalink | No Comments
