CFPB Updates Home Buying Information Booklet

The Consumer Financial Protection Bureau has issued an updated version of the home buying information booklet (also known as the special information or settlement cost booklet) required under RESPA and TILA. The new booklet is titled “Your home loan toolkit: A step-by-step guide.” (The booklet it replaces is titled “Shopping for Your Home Loan: Settlement Cost Booklet.”) The new booklet or toolkit is designed to be used with the new TILA/RESPA integrated disclosures required to be provided for applications received on or after August 1, 2015.

Lenders are required to deliver or mail the toolkit no later than three days after receiving an application. However, in the Federal Register notice announcing the toolkit’s availability, the CFPB encourages all market participants (such as Realtors) “to provide the [toolkit] to consumers at any other time, preferably as early in the home or mortgage shopping process as possible.” The toolkit is designed to be distributed electronically and has interactive worksheets and checklists.

The goals of the Toolkit are to inform consumers of the steps they need to take to get the best mortgage for their individual situation, help consumers understand their closing costs and what it takes to buy a home, and give consumers tips on how to be a successful homeowner. The toolkit includes the following topics:

Choosing the best mortgage for you

  • Define what affordable means to you. This section includes a worksheet for consumers to calculate their total monthly home payment. It includes their mortgage payment but also HOA fees, insurance, and taxes. There is also a calculation of the percentage of the consumer’s income spent on his or her monthly home payment. Further, there is a worksheet that has the consumer calculate his or her total monthly income minus all debt payments. In addition to the monthly home payment, this worksheet has the consumer deduct car payments, student loan payments, credit card payments, and other payments such as child support or alimony.
  • Understand your credit.
  • Pick the mortgage type that works for you.
  • Choose the right down payment for you. This section takes the consumer through the different down payment options and possibility of having PMI on the loan.
  • Understand the tradeoff between points and interest rate. This section contains a table that illustrates how different “points” scenarios impact the monthly payment over the life of the loan.
  • Shop with several lenders. This section includes a work sheet that aids the consumer in comparing loan offers.
  • Choose your mortgage.
  • Avoid pitfalls and handle problems.

Your closing

  • Shop for mortgage closing services. This section describes the various service providers in connection with the loan closing.
  • Review your revised Loan Estimate.
  • Understand and use your Closing Disclosure. This section takes the consumer through the Closing Disclosure and describes the costs shown on it.

Owning your home

  • Act fast if you get behind on your payments.
  • Keep up with ongoing costs.
  • Determine if you need flood insurance.
  • Understand home equity lines of credit and refinancing.

The toolkit is focused on the process for purchasing a home and obtaining a purchase money mortgage, and does not address refinances except for a mention at the end. It emphasizes the consumer’s ability to repay and the mortgage payment’s affordability. The toolkit appears to reflect a bias in favor of fixed-rate loans, a 20 percent down payment, and HUD counseling. It discourages loans with balloon features and prepayment penalties and encourages consumers to shop with at least three different lenders. Curiously, while the list of possible lenders for consumers to consider includes banks and credit unions, there is no direct mention of “Mortgage Bankers.” Instead, only Mortgage Brokers are listed. While the reference to “online lenders” might be intended to include “Mortgage Bankers,” many Mortgage Bankers are not online lenders.

Richard J. Andreano, Jr.

Trade groups seek grace period for TILA/RESPA integrated disclosure rule

Seventeen trade associations and organizations have written to the CFPB seeking a grace period for enforcement of the TILA-RESPA Integrated Disclosure (TRID) rule, which becomes effective on August 1, 2015.

In their letter, the groups seek written guidance from the CFPB on various situations not addressed by the TRID rule and ask the CFPB to announce and implement a “restrained enforcement and liability” or “grace period” for those seeking to comply in good faith following the provision of such guidance after August 1 through the end of 2015. The groups propose to use the grace period “to identify pain points with stakeholders” and thereafter meet with CFPB staff to address such issues and allow the CFPB time to provide additional written guidance.

The groups note that there is no opportunity for early compliance with the TRID rule, which means that industry will not be able to test systems in real time and in real circumstances until after August 1. Accordingly, since industry would still be required to use the new forms and processes during the proposed grace period, the grace period would allow industry and the CFPB to see what actually works and what might need fine-tuning or further clarification without costly disruptions to consumers during peak transaction months. The groups also observe in the letter that a restrained enforcement period is not without precedent, pointing to the approach taken by HUD when it revised the RESPA disclosures in 2010.

As the groups indicate, additional CFPB guidance on the TRID rule is needed. To date, the CFPB has provided guidance only orally, which many industry members consider to be lacking. The industry has found numerous issues that are not clearly addressed by the rule and will require CFPB guidance, which appears to have been a factor in the trade groups’ request to the CFPB.

- Richard J. Andreano, Jr.


Voluntary Dismissal of Foreclosure Action Does Not Entitle Borrower To Attorneys’ Fees, Florida Court Rules

The voluntary dismissal of a foreclosure action pursuant to a settlement agreement does not make the borrower the “prevailing party” for purposes of a motion for attorneys’ fees, the Florida Court of Appeals has ruled. The decision should give mortgage lenders and servicers some comfort that they may compromise with borrowers during a pending foreclosure action without fear of potential liability for attorneys’ fees and costs.

In Kelly v. BankUnited, FSB, the Florida appellate court affirmed the denial of the borrower’s request for attorneys’ fees in a foreclosure action that had been voluntarily dismissed by the lender. The court applied an exception to the general rule that the defendant in a case voluntarily dismissed by the plaintiff is the “prevailing party” for purposes of determining an award of attorneys’ fees and costs.

In Kelly, the lender filed a foreclosure complaint against the borrower for defaulting on a mortgage loan. The borrower filed an answer and affirmative defenses, including a request for an award of costs and reasonable attorneys’ fees. The trial court entered summary judgment in favor of the lender and the borrower appealed. With the appeal pending, the lender and the borrower entered into a short sale agreement and the subject property was sold to a third party. Because of the short sale, the lender moved the trial court to cancel the foreclosure sale, vacate the summary judgment, and dismiss the action, which the trial court granted. The borrower’s appeal, however, was not dismissed.

More than a year after the short sale, the appellate court reversed the summary judgment and remanded the case to the trial court for rehearing. On remand, the borrower moved for an award of attorneys’ fees and costs, claiming that he was the prevailing party in light of the lender’s voluntary dismissal. The trial court denied the borrower’s request for fees.

In affirming the trial court, the Florida Court of Appeals applied an exception to the general rule that a plaintiff’s voluntary dismissal makes a defendant the “prevailing party” for purposes of determining an attorney’s fees award. Citing Padow v. Knollwood Club Ass’n, 839 So. 2d 744 (Fla. 4th DCA 2003), the appellate court stated that “courts must look to the substance of litigation outcomes—not just procedural maneuvers—in determining the issue of which party has prevailed in an action.”

Evaluating the circumstances of the case, the appellate court determined that neither the mortgage lender nor the borrower achieved their litigation objectives. The appellate court held that in a situation where both plaintiff and defendant compromised in effectively agreeing to a settlement to end their litigation, it will not hold the plaintiff responsible for payment of the defendant’s attorneys’ fees.

While the Kelly decision provides lenders some comfort to compromise with borrowers during a foreclosure action, the best practice remains to address the issue of attorneys’ fees and costs in the dismissal.

- Robert A. Scott, Patrick H. Pugh, and Sarah T. Reise


No Need for Foreclosing Trustee To Record New Notice of Sale upon Third-Time Postponement, Nevada Supreme Court Holds

The Nevada Supreme Court recently interpreted a statute that governs the manner in which a foreclosing trustee can postpone a trustee’s sale. At issue was whether a trustee must record a new notice of sale upon orally postponing a trustee’s sale for a third time. The court held the trustee does not have to record a new notice of sale under such circumstances. The opinion in JED Property, LLC v. Coastline RE Holdings NV Corp., issued on March 5, 2015, is of importance for both commercial and residential lenders with loans in Nevada.

Chapter 107 of the Nevada Revised Statutes (NRS) governs nonjudicial foreclosure sales under deeds of trust in Nevada. Under this statute, the trustee begins nonjudicial foreclosure by recording a notice of default with the county recorder. The trustee must also send the notice of default to the borrower and the title owner of the property. If the default is not cured within three months of recording the notice of default, the trustee may issue a notice of sale setting a time and place for a trustee’s sale. Among other things, the trustee must generally record the notice of sale with the county recorder, send it to the borrower, post it in a public place for 20 successive days, and publish it in a general circulation newspaper once per week for three consecutive weeks. Additional requirements apply for “residential foreclosures” and foreclosures against “owner-occupied housing.”

At the date, time, and location specified in the notice of sale, the trustee may proceed with the sale or may orally postpone the sale to a later date at the same location and time. NRS 107.082(2) provides that “[i]f such a sale has been postponed by oral proclamation three times, any new sale information must be provided by notice as provided in NRS 107.080.” The trustee in JED Property, relying on this statute, orally postponed its sale three times and then sold the subject property at the location, date, and time specified by the third oral postponement. The borrower argued that NRS 107.082(2) required that the trustee provide the new sale information resulting from the third oral postponement through the recording, mailing, posting, and publication processes set out in NRS 107.080.

The Nevada Supreme Court, however, held that the statute’s plain language did not require the trustee to record a new notice of sale under these circumstances. The court reasoned that where a sale “has been” orally postponed for a third time, any “new sale information” has already been provided through that postponement itself. As long as the date, time, and location of the sale remain the same after the third oral postponement, there is no “new sale information” to provide that would require a new notice of sale under NRS 107.082(2).

This decision reinforces the common interpretation of NRS 107.080, which is that a trustee may orally postpone a sale up to three times without recording a new notice of sale. However, if the trustee wishes to postpone the sale a fourth time, the trustee should record, mail, post, and publish a new notice of sale listing the updated date, time, and location.

The court also suggested in dicta that where NRS 107.082(2) does apply—i.e., where a trustee has postponed a sale for a fourth time—the trustee only must record a new notice of sale. That is, the trustee does not have to record a new notice of default, as some Nevada borrowers have argued. Requiring a trustee to record a new notice of default after a fourth postponement would essentially restart the entire nonjudicial foreclosure process.

Despite this case, several questions remain unanswered about the oral postponement process in nonjudicial foreclosure. Neither the relevant statutes nor Nevada case law clarify if there is a limit on how long a single oral postponement can last or whether there is a deadline by which the renoticing required by NRS 107.082(2) must occur.

Attorneys at Ballard Spahr regularly advise lenders and trustees in all aspects of Nevada foreclosure requirements and have been involved in the workout, restructuring, and foreclosure of more than $3 billion in loans secured by Nevada properties.

- Anthony C. Kaye, Matthew A. Morr, and Matthew D. Lamb


South Dakota Amends Money Lending Regulations

 

On March 12, Gov. Dennis Daugaard signed HB 1027, amending the regulations governing the South Dakota Money Lending License. Under existing law, a license is required for any person that “engages in the business of lending money.” The amendment modifies the term “engaged in the business of lending money” to include originating, selling, servicing, acquiring, or purchasing loans, or servicing, acquiring, or purchasing retail installment loans. Thus, the amendment significantly expands the scope of licensable activity.

The amendment also changes the expiration date of the licenses from July 1 to December 31. Under the new regulation, to renew a license, a licensee must file for renewal by December 1. Notably, any money lending license that is set to expire on July 1, 2015, is extended until December 31, 2015. The amendment also requires a person to be licensed and registered with the NMLS.

The amendment is effective July 1, 2015.

NMLS Adds New Licenses for North Dakota and Oregon

Several new state agencies are now receiving licenses beyond the mortgage industry through the NMLS. The North Dakota Department of Financial Institutions has begun accepting application filings for the Exempt Mortgage Loan Originator Registration through the NMLS. The Oregon Division of Finance and Corporate Securities has also begun accepting filings through the NMLS for the following licenses:

  • Payday/Title Loan License
  • Payday/Title Loan Registration
  • Payday/Title Loan Branch License

Pennsylvania Announces New Continuing Education Requirements for Debt Management Licensees

The Pennsylvania Department of Banking and Securities has announced new continuing education requirements for debt management licensees. Starting with the license renewal in 2016, licensees will be required to complete a minimum of 16 hours of continuing education every two years through a certifying organization. At least one of the education credits must relate to ethics. In addition, licensees are required to keep records regarding completion of the continuing education requirements for four license renewal periods.

- Marc D. Patterson


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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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