11/6/2013

Truth In Lending Act/RESPA Update: Recent Cases and Current Claims Lorray Brown, Michigan Poverty Law Program Andrew Pizor & Diane E. Thompson, National Consumer Law Center 2013 Consumer Rights Litigation Conference ©National Consumer Law Center 2013

TRUTH IN LENDING ACT CASES

2

1

11/6/2013

Two Topics of Discussion I. Liability for Servicer TILA Violations II. Rescission Timing

3

Prohibitions on Servicers: In the Statute 15 USC § 1641(f)(2) – Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation. Note: Dodd-Frank added other substantive requirements

4

2

11/6/2013

Servicer Prohibitions: Prompt Crediting of Payments & Payoff Statements Regulation Z, 12 CFR § 1026.36(c)(1) In connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall: (i) Fail to credit a payment to the consumer's loan account as of the date of receipt, except when a delay in crediting does not result in any charge to the consumer . . . (ii) Impose on the consumer any late fee or delinquency charge in connection with a payment, when the only delinquency is attributable to late fees or delinquency charges assessed on an earlier payment, and the payment is otherwise a full payment for the applicable period and is paid on its due date or within any applicable grace period; or (iii) Fail to provide, within a reasonable time after receiving a request from the consumer or any person acting on behalf of the consumer, an accurate statement of the total outstanding balance that would be required to satisfy . . . . 5

Who is Liable for Servicer TILA Violations? ■ Creditors? ■ Assignees? ■ Servicers?

6

3

11/6/2013

Relevant TILA Liability Provisions 15 USC § 1640(a) – “any creditor who fails to comply with any requirements . . . under [section 1641(f)] . . . is liable . . . .” 15 USC § 1641 (a) – “any civil action for a violation … which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face . . . .” 15 USC § 1641 (e) – “any civil action against a creditor for a violation . . . with respect to a consumer credit transaction secured by real property may be maintained against any assignee . . . only if . . . the violation for which such action or proceeding is brought is apparent on the face . . . .” 7

Relevant Provisions Relating to Servicers 15 USC § 1641(f)(1) – A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as an assignee of such obligation . . . unless the servicer is or was the owner of the obligation. 15 USC § 1641(f)(2) – A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as the owner of the obligation for purposes of this section on the basis of an assignment of the obligation from the creditor or another assignee to the servicer solely for the administrative convenience of the servicer in servicing the obligation. 8

4

11/6/2013

Can You Sue the Servicer? Compare Khan v Bank of New York Mellon, 849 F. Supp.2d 1377 (S.D. Fla. 2012) (servicers have no liability for TILA violations unless they are the current or former owner of the loan) with Cloud v. EMC Mortgage Corp., 2012 WL 1432594 (D. Or. Apr. 25, 2012) (awarding statutory damages, attorney fees and costs against servicer for violation of § 1641(f)(2)); Stephenson v. Chase Home Fin. L.L.C., 2011 WL 2006117 (S.D. Cal. May 23, 2011) (refusing to dismiss claim against servicer for actual and statutory damages for violation of § 1641(f)(2); Erickson v. PNC Mortgage, 2011 WL 1743875 (D. Nev. May 6, 2011) (denying motion to dismiss § 1641(f)(2) claim against servicer) See generally § 11.6.9.4 in TILA Supplement

9

Are Creditors and Assignees Vicariously Liable for Servicer Violations? Yes. See Cenat v US Bank, 930 F.Supp.2d 1347 (S.D. Fla. 2013) (assignee vicariously liable for servicer’s violation of section 1641(f)(2)); St. Breux v. US Bank, 919 F.Supp.2d 1371 (S.D. Fla. 2013)(assignee of a consumer credit transaction secured by real estate can be liable for its servicer’s § 1641(f)(2) violations)

10

5

11/6/2013

But Some Courts Disagree Kievman v Federal National Mortgage Assoc, 901 F.Supp.2d 1348 (S.D. Fla. 2012)(declined to extend liability to creditors or assignees for servicers’ failures to comply with § 1641(f)(2)) Signori v Federal National Mortgage Assoc, 934 F.Supp.2d 1364 (S.D. Fla. 2013 (assignee could not be vicariously liable for servicer’s violation of TILA’s disclosure requirement) See generally § 11.6.9.5 in TILA Supplement

11

Are Assignees Liable for Violations Post-Consummation? 15 USC § 1641(a) – “any civil action for a violation … which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, . . . violation apparent on the face of the disclosure statement includes, but is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, . . . .” 15 USC 1641(e) – “any civil action against a creditor for a violation . . . with respect to a consumer credit transaction secured by real property may be maintained against any assignee . . . only if . . . the violation for which such action or proceeding is brought is apparent on the face . . . . (2) . . . . a violation is apparent on the face of the disclosure statement if— (A) the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement; or (B) the disclosure statement does not use the terms or format required to be used by this subchapter.”

12

6

11/6/2013

Cases Struggle with This Compare Signori v Federal National Mortgage Assoc, 934 F.Supp.2d 1364 (S.D. Fla. 2013 (assignee may only be held liable for violations that are apparent on the face of disclosure documents that exist at the time of the assignment. So assignee could not be vicariously liable for servicer’s violation of TILA’s disclosure requirement – since documents were generated after the assignment); analysis under § 1641(a), not § 1641(e), with St. Breux v US Bank, 919 F.Supp.2d 1371, 1379 (S.D. Fla. 2013)(reasoning that “’disclosure statement’ is not defined in § 1641(a) and that term can be construed to encompass postassignment disclosures.” ) See generally § 12.2.3.5A in TILA Supplement (discussing what meets the “apparent on the face” standard for post-consummation TILA requirements) 13

Whom Should You Sue? ■Probably not a servicer for TILA disclosure violations ■ In most courts – creditor or assignee – vicariously liable ■ assignee liability – will depend on how the courts interpret the term “disclosure statement” pre-consummation vs post-consummation disclosure statements

14

7

11/6/2013

Rescission Timing When Do You Exercise Your Right To Rescind Under TILA? -- 15 USC § 1635(f) – “an obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first . . . .”

15

Regulation Z Provides: To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business. 12 CFR § 226.23(a)(2)

16

8

11/6/2013

When and How to Rescind? 1) File lawsuit within the 3 years after the consummation of the loan transaction OR 2) Send a written notice within the 3 years after the consummation of the loan transaction

17

Split in the Courts: Suit within 3 yrs: The 6th, 8th, 9th, and 10th Circuits have held that borrower must exercise rescission right by filing a lawsuit within the 3-year period. Notice within 3 yrs: The 3rd and 4th Circuits have held that a written notice sent within the 3-year period is an effective exercise of the right to rescind. The 1st and 11th tend to agree. And the 6th Circuit has an older decision supporting this position. See National Consumer Law Center, Truth in Lending §12.2.2.4 for detailed analyses of these circuit decisions 18

9

11/6/2013

Cases Requiring Suit Within Three Years • Sixth Circuit: – Lumpkin v Deutsche Bank, 2013 WL 4007760 (6th Cir. 2013)(dicta) • Eighth Circuit: – Keiran v Home Capital, 720 F.3d 721 (8th Cir. 2013) – Hartman v Smith, 2013 WL 4407058 (8th Cir. 2013) • Ninth Circuit: – McOmie-Gray v Bank of America, 667 F.3d 1325 (9th Cir. 2012) • Tenth Circuit: – Rosenfield v HSBC Bank, 681 F.3d 1172 (10th Cir. 2012) 19

Cases Permitting Suit After Three Years, If Notice Is Within Three Years • First Circuit: – Belini v. Washington Mut. Bank, 412 F.3d 17, 26 (1st Cir. 2005) (not conclusive) • Third Circuit: – Sherzer v Homestar Mortgage Services, 707 F.3d 255 (3rd Cir . 2013) • Fourth Circuit: – Gilbert v Residential Funding LLC, 678 F.3d 271 (4th Cir . 2012) • Sixth Circuit – McCoy v. Harriman Utility Board,, 790 F.2d 493 (6th Cir. 1986) • Eleventh Circuit: – Frazile v. EMC Mortgage Corp., 382 Fed. Appx. 833 (11th Cir. 2010) (“[T]he one-year limitations period for violation of § 1635(b) runs from twenty days after a plaintiff gives notice of rescission”) 20

10

11/6/2013

Consumer Financial Protection Bureau’s Position • Sending a written notice is sufficient to exercise the right to rescind • See www.consumerfinance.gov/amicus

21

When Should You File Your Rescission Lawsuit? -Err on the side of caution – file suit within the 3 years after consummation of the loan

22

11

11/6/2013

TILA REGULATION REVIEW AND UPDATE

23

Higher-Priced Mortgage Rules • “HPML” • CFPB collapsed the Fed’s pre-existing category with Dodd-Frank’s “higher-risk” mortgages • Slightly different coverage rules for escrow and appraisal rules

12

11/6/2013

Coverage • Closed-end loans • Secured by the consumer’s principal dwelling • Excludes – – – –

Loans to finance initial construction Temporary or bridge loans of less than 12 months Open-end credit Reverse mortgages

APR Triggers • Based on application date • Post October 1, 2009 – First lien APR > comparable APOR + 1.5 percentage points – Subordinate lien > comparable APOR + 3.5 percentage points

• APOR lookup: www.ffiec.gov/ratespread/newcalc.aspx

13

11/6/2013

Substantive Protections • • • •

Ability to repay Prepayment penalties Escrow required Prohibition on evading these restrictions by structuring the loan as open-end credit

• Reg. Z §1026.35

Ability to Repay Pre-January 10, 2014

Post January 10, 2014

• Identical to HOEPA’s rules • Must evaluate ability to repay • No safe harbor, but a rebuttable presumption if creditor • Verifies income; • Underwrites to maximum scheduled payment in first seven years; • And uses either a DTI ratio or residual income analysis

• Contained in Reg. Z § 1026.43 • Discussed in ch. 9 of TILA • Discussed in session K5 (1:30 on Saturday) • Still a rebuttable presumption of ability to repay for these loans

14

11/6/2013

Prepayment Penalties • Pre-January 10, 2014: No prepayment penalties unless – The penalty is otherwise permitted by law; – The penalty lasts no more than two years; – The penalty does not apply if the source of the prepayment funds is a refinancing by the same creditor or an affiliate; and – The amount of the monthly payment is fixed for the first four years.

• Post January 2014: – No prepayment penalties. Period. Full stop.

• Note: A violation of these requirements gives rise to rescission rights

Escrow Rules: What Applies When? • Hodgepodge of effective dates: – April 1, 2010 (October 1, 2010 for manufactured homes) – April 1, 2011. – June 1, 2013 – July 24, 2013 – January 1, 2014

• Big changes between 2010 and 2011, 2011 and June 1, 2013

15

11/6/2013

Coverage Exclusions • On top of the HPML standard exclusions: – Cooperative shares – No insurance if a master policy maintained – Small servicers excluded if they do not escrow for any loans they service

• Note: servicers may still require escrow – If loan contract so provides – Federal flood insurance requirements – Other agreement between borrower and servicer

Escrow Requirements Pre-June 1, 2013: Consumer may cancel account

Post June 1, 2013: Consumer may cancel account

• 365 days after closing • Reg. Z §1026.35(b)(3)(ii) [pre-June 1, 2013]

• 5 years after closing; • The outstanding principal balance is less than 80% of the value of the home at closing; and • The homeowner must be current.. • Reg. Z §1026.35(b)(3) [post-June 1, 2013]

16

11/6/2013

Appraisal Requirements Licensed or certified appraiser must • prepare a written appraisal report • based on a physical inspection of the interior of the property.

Creditors must disclose to applicants information about the purpose of the appraisal and to provide consumers with a free copy of any appraisal report.

Appraisal Requirements • Property flipping protection: If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors must obtain a second appraisal at no cost to the consumer. • Additional $2,000 statutory damages. 15 U.S.C. § 1639h(e)

17

11/6/2013

Appraisal Coverage • Beyond HPML exclusions: – Qualified Mortgage purchase money loans – Trailers and boats – Second appraisal requirement does not apply to rural areas

• Coverage uncertain: – Proposed rule exempting “streamlined” refinancing; loans secured by manufactured homes, but not land; and real-estate secured loans with a dollar value of $25,000 or less – 78 Fed. Reg. 48,547 (Aug. 8, 2013)

• Effective January 18, 2014

Assignee Liability for MLO and ATR Violations • Absolute assignee liability in foreclosure defense – 15 USC 1640(k)

• Affirmative cases?? – 15 USC 1641(e): assignee liability where violation apparent on the face of the disclosure statement provided – Query: What will be the disclosure statements provided? • Notice of broker compensation • Statements verifying income • Statement that loan complies with the law, either implicitly or explicitly

18

11/6/2013

For More Information on  TILA, Rescission Rights, CFPB on Reg. Z and more See NCLC‘s Truth in Lending Treatise Visit the NCLC Publications Exhibit Table —————— View and Order at Special Conference Discount

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)

38

19

11/6/2013

RESPA Updates – ABAs, Kickbacks • CFPB v. Borders & Borders (10/2013) – law firm, title companies – sham affiliated business arrangements to hide referral fees

• CFPB v. [4 mortgage insurers] (4/2013) – kickbacks for mortgage insurance business

• CFPB v. Paul Taylor (5/2013) – builder, mortgage lender s – sham affiliated business arrangement to hide referral fees – discovered by FDIC

39

RESPA Updates – ABAs, Kickbacks Take home message: • kickback violations do happen • read CFPB’s complaints and consent orders for facts used to show sham (search party name and RESPA on cfpb.gov)

40

20

11/6/2013

RESPA Updates - QWRs Must relate to servicing of the loan • Lawyer’s letters saying payment on contract not match what broker said • Demanded revision of contract

Held: NOT a QWR Medrano v. Flagstar, 704 F.3d 661 (9th Cir. 2012) 41

RESPA Updates - QWRs Send it to the designated address • 100+ letters about payment problems do not trigger RESPA because sent to wrong addresses Always ask for QWR address Berneike v. CitiMortg. 708 F.3d 1141 (10th Cir. 2013) 42

21

11/6/2013

RESPA Updates - QWRs Plead actual damages • QWR disputed application of payments, servicer failed to respond • Actual damages = late fees and interest on misapplied payments - Enis v. Bank of Am., 2013 WL 840696 (N.D. Tex. 3/7/13) - Kapis v. AHMSI, 923 F. Supp.2d 430 (E.D.N.Y. 2013) 43

RESPA Updates - QWRs Kapis – Good Pleading Example • When QWR sent • To Whom • Why • Summarized and attached copy (actually copy was attached to a pleading and incorporated by reference into amended complaint) 44

22

11/6/2013

RESPA Updates - QWRs Kapis – Good Pleading Example • QWR ID’d debtor and account • QWR said why believes account is in error • Compl. said servicer failed to respond/correct error • Explained actual damages 45

RESPA – General Lessons • Is there a private right of action? –Provide servicing statement • §2605(a), Reg. X §1024.21(b)

–Affiliated Business Arrangement • §2607, Reg. X §1024.15

–No kickbacks • §2607, Reg. X §1024.14(b)

*Black = actual damages, costs, atty fees + $1000/violation if pattern and practice *Red = treble damages

46

23

11/6/2013

RESPA – General Lessons • Is there a private right of action? –Ban on required use of title insurer • §2608, Reg. X §1024.16

–Duty to make timely escrow pymts • §2605(g), Reg. X §1024.17(k)

–Respond to QWRs • §2605(e), Reg. X §1024.21(e)

–Servicing transfer notice, Payment safe harbor • §2605(b)-(d), Reg. X §1024.21(d)

47

RESPA – General Lessons • Is there a private right of action? –If NOT: •UDAP? •Tort? –misrepresentation –fraud

48

24

11/6/2013

RESPA – General Lessons • Do you have actual damages? –actual damages ALWAYS make claim stronger –sometimes required –if you can’t articulate actual damages, why are you bringing the claim?

49

For More Information on  RESPA See NCLC‘s Foreclosures Defense and Mortgage Treatises 

Visit the NCLC Publications Exhibit Table To View and Order at Special Conference Discount

25

11/6/2013

Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for consumer justice and economic security for low-income and other disadvantaged people, including older adults, in the U.S. through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training. www.nclc.org

26