CFPB Officially Moves TRID Effective Date To October 3

The CFPB has issued a final rule postponing the effective date for all provisions of the TILA-RESPA Final Rule and Amendments to October 3, 2015. The final rule also includes certain technical amendments to reflect the new effective date. The provisions of the final rule related to the delay in the effective date are effective immediately upon publication in the Federal Register in order to move the effective date for TILA-RESPA Final Rule and Amendments from Saturday, August 1, 2015 to Saturday, October 3, 2015. The Federal Register that contains the finalized rule is scheduled to be published on July 24, 2015.

The final rule also makes two technical changes to the TILA-RESPA Final Rule that were not in the proposed rule. Specifically, the final rule amends § 1026.38(i)(8)(ii) and (iii)(A) to include, in the amount disclosed as “Final” for Adjustments and Other Credits, the amount disclosed under § 1026.38(j)(1)(iii) for certain personal property sales in order to conform the calculation of Adjustments and Other Credits on the Closing Disclosure and Loan Estimate. The final rule also attempts to conform the disclosure of the borrower’s cash to close in the Calculating Cash to Close and the Summaries of Transactions tables on the Closing Disclosure by amending § 1026.38(j)(1)(iv) to include, in the amount disclosed as Closing Costs Paid at Closing, lender credits disclosed under § 1026.38(h)(3). According to the preamble, these “technical corrections are in line with existing industry expectations and informal Bureau guidance.”

Due to an administrative error the CFPB committed under the Congressional Review Act, the TILA-RESPA Final Rule would have been delayed by two weeks until August 15, 2015. According to Director Richard Cordray, the CFPB believes that the additional time provided by the new October 3, 2015 effective date will “better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year.” In addition, the preamble also notes that the CFPB noticed “delays in the delivery of system had left some creditors with limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner.”

Finally, the preamble to the final rule repeats the CFPB’s vow that it will not institute either a formal grace period or a dual compliance period as requested by many in the industry and Congress. However, the preamble states that, as expressed in Director Cordray’s letter to members of Congress on June 3, 2015, the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.”

- Marc D. Patterson


CFPB To Host Forum on eClosing August 5

The CFPB will host a forum on the “Know Before You Owe Initiative” on eClosing on Wednesday, August 5 at 1 p.m. EDT. The forum will feature remarks from Director Richard Cordray, and include a panel discussion with consumer groups, industry representatives, and members of the public.

The event is open to the public and requires an RSVP. The forum will also be live streamed on the CFPB blog.

While the announcement contains few specifics on the topics to be discussed, the CFPB is expected to  address its eClosing pilot project to improve the closing process through the use of technology. If so, this meeting will likely be a follow-up to the April 2014 eClosing forum, where the CFPB presented its plan to shift the mortgage industry toward an electronic mortgage closing process.

Marc D. Patterson


Meredith Fuchs Named Acting Deputy Director of the CFPB

CFPB Director Richard Cordray on July 22 named Meredith Fuchs, General Counsel of the CFPB, to be the Acting Deputy Director of the CFPB effective August 1, 2015. The CFPB previously announced that the existing Deputy Director and Associate Director of the Division of Supervision, Enforcement, and Fair Lending, Steve Antonakes, will leave the CFPB at the end of July.

 Ms. Fuchs had previously announced her intention to leave the agency, but will stay with the agency as both General Counsel and Acting Deputy Director until Director Cordray appoints a permanent Deputy Director and a new General Counsel.

Director Cordray also announced today that David Bleicken, who now serves as Deputy Associate Director of the Division of Supervision, Enforcement, and Fair Lending, will replace Mr. Antonakes on August 1 as Acting Associate Director of the Division.

The press release of the CFPB is here.

- Alan S. Kaplinsky


Borrowers’ Counsel Sanctioned for Frivolous Lawsuit Against Lender Who Attempted to Resolve Foreclosure Action

An Ohio appellate court has affirmed an order of sanctions against counsel for borrowers who filed a frivolous lawsuit against the lender alleging fraud, breach of contract and estoppel in connection with failed attempts to resolve a separate foreclosure action.

In Bergman v. Genoa Banking Company, the court found that the borrowers’ counsel violated Rule 11 because there was no factual or legal basis for filing the complaint and an inquiry into the factual and legal contentions asserted would have rendered this obvious.

In Bergman, the lender filed a judicial foreclosure action against the borrowers for defaulting on a mortgage loan. Over the next several months the parties engaged in dialogue, exchanged proposals and engaged in an unsuccessful mediation. During those discussions, the trial court entered a judgment for foreclosure. The borrowers appealed the judgment and the appellate court affirmed the judgment.

While the foreclosure action was pending, the borrowers filed a second action against the lender alleging that the lender misrepresented its intention to settle the foreclosure action and breached a settlement agreement by refusing to accept funds to reinstate the loan. The borrowers then moved for a preliminary injunction to stop the foreclosure from proceeding.

At the hearing on the borrower’s motion, the evidence showed that that no settlement agreement was ever reached. The trial court denied the borrowers’ motion for preliminary injunction and the borrowers voluntarily dismissed the case. Shortly after the voluntary dismissal, the lender moved for sanctions under the state’s Rule 11. The trial court found that the claims asserted by the borrowers and their counsel in the subsequent action were legally and factually groundless and awarded the lender its attorneys’ fees to defend the action.

The appellate court affirmed the trial court, finding that the borrowers brought claims that were not warranted under existing law, and made factual contentions that lacked evidentiary support and were not warranted by the evidence. The appellate court stated that it was clear from the documents and testimony at the preliminary injunction hearing that all parties were aware that the discussions never moved past settlement negotiations. The appellate court determined that to plead and represent to the contrary was a willful violation of Rule 11.

The Bergman decision serves as a reminder to parties and their attorneys to ensure a factual and legal basis for each claim and defense asserted, and that, under appropriate circumstances, a court will enforce Rule 11 when necessary.

- Robert A. Scott, Patrick H. Pugh, and Matthew Morr


New York Appellate Court Confers Standing on Assignee of Note Previously Discharged in Bankruptcy

A mortgage lender has standing to foreclose even when it obtains assignment of the underlying promissory note after the note has been discharged in bankruptcy, a New York appellate court has ruled.

The case arose after the borrower filed for Chapter 7 bankruptcy and named the servicer of the original lender as a creditor in the bankruptcy case. The servicer subsequently assigned the note and mortgage to another lender, which subsequently brought the foreclosure action. While there was a factual dispute as to whether the transfer of the note occurred before or after the discharge, the Appellate Division for the Second Department held on July 1, 2015 that the mortgage lender could still assign a note even if it had been discharged in bankruptcy.

The borrower argued that if the assignment occurred after discharge that it was invalid because the assignment of an unenforceable note could not convey standing. The Court, however, held that the note need not be “collectable and payable at the time of the transfer.” The Court noted that the discharge “extinguishes one mode of enforcing a note—namely an action against the debtor in personam, it leaves intact another—namely, an action against the debtor in rem.”

Because the bankruptcy discharge does not the affect the lender’s right to proceed in rem against the property, the note survives the proceeding and can still be assigned to confer standing upon an assignee that only pursues foreclosure. The Court did affirm that the discharge prohibits the assignee from seeking a deficiency judgment against the borrower.

This decision is an important victory for lenders and assignees, since pools of loans sold on the secondary market may include discharged notes. While assignees may foreclose on delinquent loans, it is critical when the loans are initially boarded to ensure they are properly coded to prevent the seeking of deficiency judgments, which would violate a bankruptcy discharge order and possibly subject the assignee to sanctions.

- Robert A. Scott and Justin P. Angelo


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