Company that Entered into CFPB Consent Order Loses Motion to Dismiss Class Action

A federal judge in California has rejected the attempt of Castle & Cooke Mortgage, LLC, the mortgage company that entered into a consent order with the CFPB in November 2013 to settle charges that it violated the Regulation Z loan originator compensation rule, to dismiss two counts of an amended class action complaint filed against it by a consumer who received redress under the consent order. The amended complaint alleged violations of TILA, violations of the Utah Residential Mortgage Practices and Licensing Act, unjust enrichment under Utah law, and as to a California subclass, violations of California’s Unfair Competition Law (UCL). (The original complaint also included a RESPA claim.)

The mortgage company sought dismissal of the unjust enrichment and UCL claims. The court rejected the mortgage company’s argument that the plaintiff could not pursue equitable relief because his TILA claim provided him with an adequate legal remedy. According to the court, the plaintiff could alternatively plead unjust enrichment because it was too early in the case to determine if the plaintiff’s TILA claim was viable.

The mortgage company also argued that because the UCL only provides for equitable relief in the form of restitution or an injunction, the plaintiff’s UCL claim was precluded by his TILA claim. In addition, it argued that the plaintiff had not shown any ongoing TILA violation that an injunction would prevent on a prospective basis or that restitution was available to force the mortgage company to give up something it was not entitled to and that plaintiff should have been allowed to keep. In refusing to dismiss the UCL claim, the court indicated that resolution of such issues went beyond the confines of a motion to dismiss and “whether plaintiff or any class member is entitled to restitution beyond that already paid by the CFPB is similarly not amenable to determination at the pleadings stage.”

The mortgage company appears not to have argued that the redress obtained by the plaintiff pursuant to the CFPB consent order barred the filing of the class action. As we commented when the plaintiff filed the complaint, in the absence of releases from affected consumers, a company does not necessarily achieve finality as to issues involved in a CFPB enforcement action by entering into a CFPB consent order.

- Barbara S. Mishkin 

CFPB Blinks on TRID Rule Effective Date

CFPB Director Richard Cordray issued a statement on June 17, 2015 indicating that the CFPB will propose to delay the effective date of the TILA/RESPA Integrated Disclosure (TRID) rule until October 1, 2015. The CFPB has previously resisted calls from industry and lawmakers for a delay in the TRID rule’s scheduled August 1 effective date. Earlier this month, it conceded only that that it would take a “sensitive” approach to compliance for entities that had made good faith efforts to comply with the rule by August 1.

In his statement, Director Cordray indicated that the CFPB decided to propose the delayed effective date “to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks.” He said the CFPB believes “the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.” Initial reactions from mortgage industry members are positive, as the industry has been advocating for a delay, both before the CFPB and Congress. Some members believe that concerns with the finalization of the necessary software to comply with the TRID rule may have been a factor in the CFPB’s decision.

- Richard J. Andreano, Jr.


CFPB Issues Seventh Semi-Annual Report

The CFPB has issued its seventh Semi-Annual Report to the President and Congress covering the period from October 1, 2014 through March 31, 2015.

The 190-page report recycles information from previously-issued CFPB reports and reviews ongoing and past developments, all of which we have already covered in previous blog posts.

By way of aggregate statistics, the report indicates that in the six-month period it covers, CFPB supervisory actions resulted in financial institutions providing more than $114 million in redress to more than 700,000 consumers. Also during that period, the CFPB obtained orders in enforcement actions requiring payment of more than $19 million in relief to consumers and more than $32 million in civil money penalties.

As they have done in connection with previous semi-annual reports, we expect the House Financial Services and Senate Banking Committees to hold hearings on the latest report at which Director Cordray will appear as a witness. And as they have also done previously, we expect lawmakers to attempt to elicit more information from Director Cordray about the CFPB’s activities and rulemaking plans than what is provided in the report.

- Barbara S. Mishkin


New York Court of Appeals Provides Guidance on Deficiency Judgments

The level of proof that a lender must submit to obtain a deficiency judgment following a mortgage foreclosure was recently clarified by the New York Court of Appeals. Under RPAPL § 1371, a lender may seek a deficiency judgment within 90 days of the consummation of sale to recover the difference between the amount of the foreclosure judgment and the higher of the foreclosure auction price or the fair market value of the property.

In the case, the Court held that the lender failed to meet its burden to establish the fair market value of the property. The lender submitted a four-paragraph affidavit of the appraiser to establish the fair market value of the property at $475,000. The borrower did not file any opposition papers or appear at the deficiency judgment hearing.

The Court noted that the affidavit contained two paragraphs explaining the appraiser’s qualifications, “conclusory references to comparable sales,” and a general reference of “an examination of general economic trends, comparable rentals, and expense data.” The Court held that the affidavit failed to include the data and valuation criteria used by the appraiser in calculating the fair market value or a description of the property’s condition or the results of the inspection.

Moreover, the Court concluded that the affidavit did not attach any records to substantiate the appraiser’s conclusion as to the fair market value. The Court also ruled that the borrower’s failure to oppose the motion for deficiency judgment was “of no moment” because the lender carries the burden to establish the fair market value “through the submission of sufficient proof.” The Court, however, did hold that the trial court should not have denied the motion for deficiency judgment with prejudice, but instead should have allowed the lender an opportunity to submit additional proof.

In light of this decision, it is critical that lenders and servicers bolster their oversight of appraisers and their internal affidavit procedures to ensure that the appraiser obtains the appropriate detail and that such detail is included in the affidavit.

- Justin Angelo


Nevada Amends Mortgage Lending, Servicing Provisions; Creates Servicer License

Nevada Governor Brian Sandoval signed into law AB 480, which amends provisions concerning mortgage lending, escrow agents, escrow agencies, mortgage brokers, mortgage agents, and mortgage bankers. Among the modifications to mortgage lending, the Act authorizes a wholesale lender from outside Nevada to operate in the state as a mortgage broker and mortgage banker. The bill also increases certain fees related to mortgage brokers and mortgage bankers.

The bill also creates a new mortgage servicer license that is required for persons who directly service a mortgage loan, or who are responsible for interacting with a borrower, managing a loan account on a daily basis, including, collecting and crediting periodic loan payments, managing any escrow account or enforcing the note and security instrument, either as the current owner of the promissory note or as the authorized agent of the current owner of the promissory note.

Persons who are licensed as mortgage brokers, mortgage bankers, and installment loan lenders are exempt from licensure as a mortgage servicer if they are collecting payments on a mortgage loan or servicing mortgage loans that the licensee originated. Further, the law instructs the Commissioner of Mortgage Lending to adopt regulations establishing the requirements for the licensure and supervision of mortgage servicers in Nevada.

On a related note, the bill repeals the mortgage loan servicer registration which is currently required for any person to service loans for one’s self or on behalf of third parties.

Certain sections of the bill (101.3, 101.7, and 103) are effective immediately, while others, including the sections concerning mortgage servicers and wholesale lenders, become effective on January 1, 2016, subject to the passage and approval of any necessary regulations.

Indiana Amends Licensing Provisions

The State of Indiana recently amended its Indiana Code concerning financial institutions. The Act makes certain technical and procedural revisions to provisions regulating first lien mortgage lenders, persons licensed under the Uniform Consumer Credit Code, debt management companies, and loan brokers. The amendments also make numerous changes regarding companies that engage in the making and taking assignment of small loans (i.e., loans in the amount of $50 to $550). The provisions are effective on July 1, 2015.

-Marc D. Patterson


Did you know?

by Marc D. Patterson

Nevada Amends Mortgage Lending, Servicing Provisions; Creates Servicer License

Nevada Governor Brian Sandoval signed into law AB 480, which amends provisions concerning mortgage lending, escrow agents, escrow agencies, mortgage brokers, mortgage agents, and mortgage bankers. Among the modifications to mortgage lending, the Act authorizes a wholesale lender from outside Nevada to operate in the state as a mortgage broker and mortgage banker. The bill also increases certain fees related to mortgage brokers and mortgage bankers.

The bill also creates a new mortgage servicer license that is required for persons who directly service a mortgage loan, or who are responsible for interacting with a borrower, managing a loan account on a daily basis, including, collecting and crediting periodic loan payments, managing any escrow account or enforcing the note and security instrument, either as the current owner of the promissory note or as the authorized agent of the current owner of the promissory note.

Persons who are licensed as mortgage brokers, mortgage bankers, and installment loan lenders are exempt from licensure as a mortgage servicer if they are collecting payments on a mortgage loan or servicing mortgage loans that the licensee originated. Further, the law instructs the Commissioner of Mortgage Lending to adopt regulations establishing the requirements for the licensure and supervision of mortgage servicers in Nevada. 

On a related note, the bill repeals the mortgage loan servicer registration which is currently required for any person to service loans for one’s self or on behalf of third parties.

Certain sections of the bill (101.3, 101.7, and 103) are effective immediately, while others, including the sections concerning mortgage servicers and wholesale lenders, become effective on January 1, 2016, subject to the passage and approval of any necessary regulations.

Indiana Amends Licensing Provisions

The State of Indiana recently amended its Indiana Code concerning financial institutions. The Act makes certain technical and procedural revisions to provisions regulating first lien mortgage lenders, persons licensed under the Uniform Consumer Credit Code, debt management companies, and loan brokers. The amendments also make numerous changes regarding companies that engage in the making and taking assignment of small loans (i.e., loans in the amount of $50 to $550). The provisions are effective on July 1, 2015.


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