Supposed Drop in Mortgage-Related Litigation May Be Just an Illusion A Ballard Spahr and Mortgage Daily webinar May 17, 2013
© Copyright 2013 by Ballard Spahr LLP
Host: Sam Garcia
Moderator: Michael S. Waldron
Presenters: Martin C. Bryce, Jr. John G. Kerkorian Alan S. Petlak Robert A. Scott Christopher J. Willis
2
Resources
CFPB Monitor
Subscribe to our ABA award-winning blog at www.CFPBMonitor.com.
E-Alerts
Subscribe at www.ballardspahr.com (click “subscribe” and choose Consumer Financial Services as your area of interest).
Mortgage Banking Update
Subscribe at www.ballardspahr.com (click “subscribe” and choose Mortgage Banking as your area of interest).
Questions? E-mail [email protected].
3
Upcoming Webinars
Scheduled Webinars:
The CFPB and the Interstate Land Sales Full Disclosure Act May 21, 2013 Regulatory and Litigation Challenges to Lender-Placed Insurance
May 29, 2013
Rx for Your Digital Platform June 13, 2013
Register for upcoming webinars at www.ballardspahr.com or by e-mailing [email protected]. Request materials from past webinars by e-mailing [email protected].
4
Upcoming Webinars
Planned Webinars: E-Commerce Series • Advertising: Creating Effective Advertising Review Policies & Procedures • Privacy/Cybersecurity: Data Security and Privacy Claims and Disclosures • E-Commerce: Mobile Channel
Bring Your Own Device: Mobile Endpoint Security Dos and Don’ts of Credit Card Advertising Dos and Don’ts of Advertising Prepaid Cards and Deposits The Nationwide Mortgage Licensing System and Registry (NMLS) UDAAP Issues FTC Door-to-Door Sales Rule Military Lending Act CFPB’s White Paper on Payday Lending and OCC/FDIC Regulations Regarding Advance Deposit Accounts
5
Moderator – Michael S. Waldron
• Practice Leader of Ballard Spahr’s Mortgage Banking Group and a member of the firm’s Consumer Financial Services and Privacy and Data Security Groups
• Former in-house counsel for two national lender/servicing shops; draws on in-house experience to advise and represent mortgage companies, financial institutions, and secondary-market investors on the complexities of the current marketplace
• Michael is an Editor of Mortgage Finance Regulation Answer Book 2011-2012, published by the Practising Law Institute
6
Presenter – Martin C. Bryce, Jr.
• Litigation Partner and a member of the Appellate, Consumer Class Action Litigation, Consumer Financial Services, and Mortgage Banking, and Groups
• Practice focuses on credit card-related litigation, arbitration, commercial law, class action defense, and mortgage-related litigation
• Has significant trial experience in both federal and state courts
• Has successfully handled appeals in the Third, Fourth, and Fifth Circuits, as well as in numerous state appeals courts, including those of California, Pennsylvania, New Jersey, Ohio, and Wisconsin
7
Presenter – John G. Kerkorian
• Partner at Ballard Spahr in Phoenix
• Member of Firm’s Mortgage Banking and Consumer Financial Services Groups
• Broad-based litigation practice
• Named in The Best Lawyers in America for Business Litigation in 2012 and 2013
8
Presenter – Alan S. Petlak
• Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services and Mortgage Banking Groups
• Frequently represents financial institutions in federal and state court litigation in California
• Frequent author and speaker on issues related to consumer financial services litigation
9
Presenter – Robert A. Scott
• Partner in Ballard’s Spahr’s Baltimore office with more than 16 years experience litigating cases in federal and state courts in Maryland and the District of Columbia
• Member of Ballard Spahr’s Mortgage Banking Group and Consumer Financial Services Group
• Regularly represents mortgage lenders and servicers in a broad range of litigation matters, including claims related to alleged servicing errors and disputed foreclosures
• Defends lawyers, law firms and foreclosure trustees in cases alleging wrongful foreclosure, fraud and “robo-signing”
10
Presenter– Christopher J. Willis
• Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services and Mortgage Banking Groups
• Counsels financial institutions on regulatory matters, advises them on compliance with consumer financial services laws, and defends them in both individual and class action lawsuits, as well as governmental enforcement actions (including CFPB investigations)
• Chairs the firm’s Fair Lending Task Force and Collection Documentation Task Force
• Named in The Best Lawyers in America for banking and finance litigation and commercial litigation for 2013
• Frequent author and speaker on issues relating to consumer financial services regulation and litigation
11
The MortgageDaily Litigation Index
12
The MortgageDaily Litigation Index • Began in 2007 • Quarterly coverage beginning in 1st Quarter
2008 • Tracks overall levels of mortgage litigation, as
well as litigation in numerous areas like foreclosure, regulatory cases, and investor/MBS cases
• Serves as a unique resource for the industry to be able to track overall trends in mortgage litigation nationwide
DMEAST #16677375 v1
13
The 4th Quarter 2012 Index: The Good News
0
50
100
150
200
250
300
Q42012
Q32012
Q22012
Q12012
Q42011
Q32011
Q22011
Q12011
Q42010
Q32010
Q22010
Q12010
Q42009
Q32009
Q22009
Q12009
Q42008
Q32008
Q22008
Q12008
Total Cases Tracked (some cases tracked in multiple categories)
14
The Good News (continued)
• Overall litigation numbers declined in Q3 and Q4 of 2012
• 4th quarter total is 5% down from Q3 and 15% lower than the all-time record set in Q2
15
The Bad News
• Overall levels of litigation are still significantly elevated from historical levels
• Certain key categories are increasing or are at all-time highs: • Foreclosure-related cases (new record in 4Q2012, up 20%
from 4th quarter of 2011) (represents approximately half the cases reported in the index)
• Loan modification cases (higher in Q4 than any other quarter in 2012, and consistent with levels in 2011)
• Servicing cases (2012 was 33% higher than 2011, and Q4 slightly higher than previous quarters in 2012)
• This data seems to suggest that the reduction in delinquency and foreclosure numbers has not yet reduced the level of litigation
16
Other Categories of Interest
• Regulatory cases showed an increase from Q3 and levels are similar to those in 2011 and in first half of 2012
• Investor and MBS cases also increased in 4th quarter, returning to near-record levels
17
Equal Credit Opportunity Act Duty of mortgage loan servicers to respond to requests for loan modifications
18
What is the purpose of ECOA?
• To prevent lenders from discriminating against applicants for credit on the basis race, color, religion, national origin, gender, marital status or age. - 15 U.S.C. sec. 1691(a)(1)
• Requires creditor to notify applicants of the action taken on the application within 30 days - 15 U.S.C. sec. 1691(d)(1)
• Requires creditor to provide applicants with written statement of any “adverse action” taken - 15 U.S.C. sec. 1691(d)(2)
19
How does ECOA apply to loan modification requests?
• A request for a HAMP loan modification has been held to be an application for credit under ECOA - Federal Reserve Board of Governor’s Consumer Affairs Letter
CA 09-13 (December, 2009)
- A complete request for HAMP loan modification request may be an “application” for credit under ECOA and Regulation B
• Completed application triggers duty to advise borrower of adverse action - Adverse action can be denial or a failure to make a decision
20
How can a servicer comply?
• Notify applicant in writing within 30 days
• Notify applicant of adverse action - Statement of action taken on the application
- Name and address of creditor
- Statement of explaining the anti-discrimination provisions
- Name and address of federal agency charged with enforcing ECOA
- Reason for denial or disclosure of applicant’s right to a statement of specific reasons
21
Discrimination need not be alleged
• Recent cases hold that a Plaintiff’s allegation that the servicer failed to respond states a viable claim under ECOA regardless of whether discrimination is alleged - Courts have held that ECOA is a broad, remedial statute, and that
its purpose is served by requiring creditors to provide a reason that an applicant is denied credit
- Damages – must prove actual damages
- Out of pocket costs
- Damage to credit
- Emotional damages
- Punitive damages
22
Loan Modification Litigation
23
Loan Modification Litigation
• Courts have universally held that there is no private right of action under HAMP. See, e.g., Sinclair v. CitiMortgage, Inc., 2013 WL 1010617 (3d Cir. 2013); Nelson v. Bank of Am., N.A., 446 Fed. Appx. 158, 159 (11th Cir. 2011); Bourdelais v. J.P. Morgan Chase Bank, N.A., No. 3:10-CV 670-HEH, 2011 WL 1306311, at *3 (E.D. Va. Apr. 1, 2011).
• It is equally well settled that there is no entitlement to a HAMP loan modification. See, e.g., Ishler v. Chase Home Finance LLC, No. 1:CV-10-2117, 2011 U.S. Dist. LEXIS 17620, at *12-13 (M.D. Pa. Feb. 23, 2011); Shurtliff v. Wells Fargo Bank, N.A., No. 10-165, 2010 U.S. Dist. LEXIS 117962, at *4 (D. Utah Nov. 5, 2010); Am., N.A., No. 10-CV-00300, 2010 WL 2609436, *10 (D. Nev. June 23, 2010).
24
Loan Modification Litigation
• Courts have repeatedly held that borrowers cannot bring state law causes of action predicated on HAMP. See, e.g., Keosseian v. Bank of Am., No. 11-3478 (JAP), 2012 WL 458470, at *2 (D. N.J. Feb. 10, 2012); Hemenway v. Wells Fargo, N.A., No. 3:11-cv-00283-HU, 2012 WL 512398, at *5 (D. Or. Jan. 9, 2012).
• Miller v. Chase Home Finance, LLC, 677 F.3d 1113, 1116-17 (11th Cir. 2012); Legore v. OneWest Bank, FSB, 2012 WL 4903087, at *6 (D. Md. Oct. 15, 2012); Ramos v. Bank of Am., N.A., 2012 WL 5928732, at *4 (D. Md. Nov. 26, 2012); Baltazar v. Premium Capital Funding, 2011 WL 3841450, at *4 (D. Utah Aug. 26, 2011); Johnson v. Bank of Am., N.A., 2012 WL 6052044, at *3 (E.D. Va. Dec. 5, 2012).
25
Loan Modification Litigation
• There are cases to the contrary.
• Fletcher v. OneWest Bank FSB, 798 F.Supp.2d 925 (N.D. Ill. 2011).
• Bank of America Home Affordable Modification Program Contract Litigation, No. 10-md-2193, 2011 WL 2637222 (D. Mass. July 6, 2011).
• Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012).
26
Pre-Foreclosure Notices
• Beneficial Consumer Discount Co. v. Vukman, 37 A.3d 596, 2012 PA Super 18 (Pa.Super. 2012), appeal granted, 55 A.3d 100 (Pa. Oct 16, 2012).
• If there has been a failure to comply with the notice requirements . . . and such failure has been properly raised in a legal action, including an action in foreclosure, for money due under the mortgage obligation or to take possession of the mortgagor's security, the court may dismiss the action without prejudice, order the service of a corrected notice during the action, impose a stay on any action or impose other appropriate remedies in the action to address the interests, if any, of the mortgagor who has been prejudiced thereby. 35 P.S. § 1681.5
27
Pre-Foreclosure Notices
• The Fair Foreclosure Act requires that a notice of intention to foreclose include the name and address of the actual lender, in addition to contact information for any loan servicer who is charged by the lender with the responsibility to accept mortgage payments and/or negotiate a resolution of the dispute between the lender and the homeowner. N.J.S.A. 2A:50-56(c)(11).
• Dismissal without prejudice is not the exclusive remedy for the service of a notice that does not satisfy Act's requirements; trial court may dismiss the action without prejudice, order the service of a corrected notice, or impose another remedy appropriate to the circumstances of the case. US Bank Nat. Ass'n v. Guillaume, 209 N.J. 449, 38 A.3d 570 (2012).
28
Dual Tracking - What Is It?
29
• Arose Out Of The Multistate/National Mortgage Settlement
• California’s Version Styled “The California Homeowner Bill Of Rights”
• CFPB New Rules Go Into Effect January 2014
30
• Impact of Dual Tracking Restrictions on Foreclosures - Slowing Down Process And Rate Of
Foreclosures
31
• Impact of Dual Tracking Restrictions on Mortgage Litigation - Provides Borrowers in Default
With New Remedies
- More Litigation
32
CFPB Mortgage Servicing Rules
33
CFPB MORTGAGE SERVICING RULES
General Servicing Policies, Procedures and Requirements – 1024.38
Policies Reasonably Designed to Achieve the Following: • Access and provide timely information
• Properly evaluate loss mitigation applications
• Facilitate oversight/compliance to ensure servicer personnel have accurate/current documents
• Facilitate transfer information during servicer transfers
• Inform borrowers of written error resolution and information request procedures
34
CFPB MORTGAGE SERVICING RULES
Early Intervention Requirements – 1024.39
• Servicer must establish (or make good faith efforts to establish) live contact • Good faith = reasonable steps under the circumstances to reach
borrower
• Servicer must provide written notice of available loss mitigation options
• Private right of action
35
Lender Placed Insurance
• Lender-placed insurance has been the subject of attention from regulators, GSEs and class action plaintiffs
• Two basic legal theories have been asserted:
- That it is improper for servicers to receive compensation in connection with LPI (commissions, discounted tracking fees, reinsurance arrangements)
- That servicers have “over-insured” property with respect to flood insurance by placing coverage at replacement cost value instead of principal balance
36
Regulatory Actions
• NY Department of Financial Services Investigation
• Settlements with Assurant and QBE • CFPB Mortgage Servicing Rules • GSE and FHFA statements
37
LPI Class Actions
• Numerous class actions have been filed across the country
• Unsuccessful attempt by certain plaintiffs’ lawyers to force an MDL proceeding in S.D. Fla.
• Class certification decisions have been mixed
• Key flood insurance case before the en banc 1st Circuit: Kolbe v. Bank of America
• Upcoming webinar on LPI issues on May 29
38
Questions?
If you have questions about anything we covered today, please contact:
Michael S. Waldron, Practice Leader Mortgage Banking Group
202.661.2234 [email protected]
Christopher J. Willis, Partner Mortgage Banking Group
678.420.9436 [email protected]
Martin C. Bryce, Jr., Partner Mortgage Banking Group
215.864.8238 [email protected]
John G. Kerkorian, Partner Mortgage Banking Group
602.798.5408 [email protected]
Alan S. Petlak, Partner Mortgage Banking Group
424.204.4320 [email protected]
Robert A. Scott, Partner Mortgage Banking Group
410.528.5527 [email protected]
