If I should call a sheep’s tail a leg, how many legs would it have?

According to Abe Lincoln, “only four, for my calling the tail a leg would not make it so.” So begins the Eleventh Circuit’s opinion holding the motion to reschedule a foreclosure sale was not a motion for an order of sale within the meaning of the RESPA regulation governing loss-mitigation procedures.

The language of 12 C.F.R. 1024.1(g) prohibits a loan servicer from moving for an order of foreclosure sale after a borrower has submitted a complete loss-mitigation plan. Under the plain language of the regulation, a motion to reschedule a previously ordered foreclosure sale is no more a motion for an order of sale than a sheep’s tail is a leg!

This conclusion is reinforced by the construction canon favored by Justice Scalia, known as the “associated word cannon” in English, but more commonly referred to by learned colleagues as the “noscitur a sociis canon.” (Thank god for high school Latin helping me pass the bar!)

In a case of first impression in its circuit, the Second Circuit held that a business may not be liable under the Fair Credit Reporting Act (FCRA) for publishing false information unless it specifically intended the report to be a “consumer report.” Kidd v. Thompson Reuters, —F.3d — (2019 WL 2292190, 5/30/19). It then held that  defendant Thompson Reuters established it did not have the requisite specific intent by showing that at each step in its processes it instructed its users and potential subscribers that its platform was not to be used for FCRA purposes, such as employment eligibility–but only for the non-FCRA purposes of law enforcement, fraud prevention and identity verification–and required them to affirm their understanding of that restriction. Accordingly, the Second Circuit Court of Appeals affirmed the granting of summary judgment to Thompson Reuters, even though its subscriber had used its inaccurate report to determine a job applicant’s employment eligibility.

The take-away: If your business regularly assembles consumer information, distributes it to third parties, and fears it may be used for a FCRA-related end that is not intended, your business should forbid such uses in its subscriber contract, monitor the actual uses of that information, and take adequate measures to stop FCRA-related uses when it learns of them.  

In a case of first impression, the Fifth Circuit held that a defendant is not required to plead as an affirmative defense under the Real Estate Settlement Procedures Act that it had complied with Section 1024.41 of the Code of Federal Regulations by responding properly to a borrower’s loss mitigation application. Germain v. US Bank National Association, — F. 3d — (2019 WL 146705, April 3, 2019). It affirmed the dismissal of the borrower’s RESPA claim on a summary judgment motion, based on the following facts.

After repeated defaults beginning in 2009, the borrower Plaintiff filed three or four loss mitigation applications, asking for loan modifications in 2012, 2013 and 2014, in addition to filing bankruptcy in 2013. Each time, the loan servicer responded to the application properly. When the lender accelerated the loan and scheduled it for foreclosure in 2015, Plaintiff filed a lawsuit. It alleged the Defendants violated RESPA by failing to comply with Section 1024.41(d). That regulation section requires that a servicer who denies a loss mitigation application must notify the applicant of the reason he was denied any trial or permanent loan application option available pursuant to the regulation.

In their Answer to the complaint, the Defendants denied the allegation that they had failed to comply with Section 1024.41(d). The unstated basis for the Answer’s denial was that the loan servicer had complied Section 1024.41(i), which states: “A servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower’s mortgage loan account.” The Court of Appeals ruled that the denial, without the detail, was sufficient, and affirmed the district court’s determination that the Defendants were not required to plead Section 1024.41(i) as an affirmative defense.

The background to the Eleventh Circuit’s decision in Marchisio v. Carrington Mortgage Services, LLC, — F. 3d — (11th Cir. March 25, 2019)(2019 WL 1320522) demonstrated repeated recklessness by a lender in updating its reporting databases after repeated litigation and settlements.

The borrowers defaulted on their home loans in 2008; the loan servicer brought a foreclosure action; in 2009, the parties settled with a deed in lieu of foreclosure that extinguished first and second loans and required the loan servicer to report to the credit reporting agencies that nothing more was due on the loans. The loan servicer failed to correct the credit reporting and continued to try to collect on the nonexistent debt, prompting the borrowers/Plaintiffs in 2012 to file a lawsuit under the Fair Credit Reporting Act. The parties settled the FCRA suit in 2013, with the loan servicer/Defendant agreeing to correct the credit reporting. The loan servicer failed to timely comply with this correction requirement within 90 days and issued three erroneous reports that the second loan was delinquent.

The Plaintiffs then disputed with the credit reporting agencies the reporting of a balloon payment due on the second loan. In response, the loan servicer investigated the dispute. However, because the loan servicer had not updated its database to reflect the settlements, it erroneously verified to the credit reporting agencies that the Plaintiffs were delinquent, and then in 2014 charged them for lender-placed insurance on the property, which the Plaintiffs no longer owned. This led in 2014 to the second lawsuit with the FCRA claim that the 11th Circuit addressed. This lawsuit “caught Defendant’s attention” and immediately prompted it to update its database, correct its previous errors and accurately report the status of Plaintiffs’ second loan, finally.

In a first, a federal circuit court rules a lender cannot be held liable for a servicer’s RESPA violation.

A borrower who took out a home equity loan from Bank of America alleged the Bank is vicariously liable for the failure of its loan servicer to comply with the Real Estate Settlement Procedures Act (RESPA), particularly 12 C. F. R. § 1024.41(c)(1). That regulation imposes duties on servicers who receive a complete loss mitigation application more than 37 days before a foreclosure sale to–within 30 days of receipt–evaluate the borrower for all loss mitigation options available to the borrower and provide the borrower with a notice stating which options, if any, it will offer the borrower.

The Fifth Circuit, which is apparently the first circuit to address the issue, held banks cannot be held vicariously liable for the alleged RESPA violations of servicers. Christiana Trust v. Riddle, — F. 3d — (2018) (2018 WL 6715882, 12/21/18). The Court had three related reasons.

First, “[b]y its plain terms the regulation at issue here imposes duties only on servicers” as it states a “servicer shall.” 12 C. F. R. § 1024.41(c)(1)

In a case of first impression, the Ninth Circuit begins to unravel the mystery of when a claim to enforce a rescission request under the Truth in Lending Act (TILA) may be time-barred. An action by a Washington state borrower to enforce a request for rescission of a loan under TILA is analogous to an action to enforce a contract and must be brought within the Washington state statute of limitations for such a contract claim, given that TILA itself does not provide a limitations period. Hoang v. Bank of America, N.A., 2018 WL 6367268 (9th Cir. December 6, 2018).

To effect rescission of a loan under TILA, the borrower must notify the lender of her intent to rescind within three days, or if required disclosures are not given, three years of the loan’s consummation date; but the borrower need not bring a lawsuit to enforce its rescission request within that three-year period. TILA does not specify when the borrower must bring the enforcement lawsuit.

So, to what limitations should a borrower, her lawyer and the court look when the borrower has not brought the rescission suit within the three years? “Without a statute of limitations in TILA, courts must first borrow the most analogous state law statute of limitations and apply that limitation period to TILA rescission enforcement claims.” Id. at *1. “Only when a state statute of limitations would ‘frustrate or significantly interfere with federal policies’ do we turn instead to federal law to supply the limitations period” to look for an analogous statute of limitations. Id. at *4.

Twenty venture capitalists gathered in Silicon Valley last week to discuss the impact of blockchain technology, including digital currency, on financial services and venture capital. The 20 VCs represent an equal number of funds, which invest–or are looking for investment opportunities–all over the world, including the third world. They represented a diverse group of perspectives, with some having regulatory experience, some having experience with conventional payment mechanisms and some with innovative mechanisms such as PayPal. Even their disagreements were instructive of the uncertain future of blockchain technology and its various potential applications.

The consensus is that digital currency is entering a nuclear winter. A majority of Initial Coin Offerings made in 2017–perhaps as much as 75%–turned out to be fraudulent and have no value today. Not coincidentally, the vast majority of Initial Coin Offerings originated in Eastern European countries that are home to spam and bot farms…and where there is little, if any, regulatory oversight.

To the extent bitcoins may become a viable, commercial technology for B2B transactions, it is likely to occur in a technology hub in the U.S. or Europe. Those hubs have the talent, the infrastructure and the robust regulatory structures that can be adapted to ICOs and create the trust necessary to make digital currency a positive, viable alternative to government currencies. In fact, the centralization of technology talent in the U.S. is depriving the rest of the world of talent.

The attempts of island states, like Bermuda, Malta, Cyprus, the Isle of Mann, and even Singapore to draft regulations that facilitate the creation of bitcoin issuers on their soil is unlikely to have a significant impact. Nobody who is experienced and seriously intends to build a global digital technology company and change the financial services industry on a global scale will think one can create the necessary large organization on these islands. These islands do not have an ecosystem of sophisticated VCs and do not have a critical mass of talented engineers. The island states are going for broke because they have so little to lose. When and if the technology matures, U.S. companies will step in and crush competitors based in these islands.

The Sixth Circuit has issued another opinion regarding loan modifications, following its opinion two weeks ago in Segrist v. Bank of New York Mellon (2018 WL 3773785, August 9, 2018), on which I earlier wrote.

Now, in Pittman v. Experian Information Solutions, Inc. — F.3d —- 2018 WL 4016604, August 23, 2018), the Sixth joins the First, Seventh, Ninth, and Tenth Circuits, in holding that loan servicers are contractually obligated under the terms of their Trial Modification Plan (“TPP”), pursuant to the Home Affordable Mortgage Program (“HAMP”), to offer a permanent modification to borrowers who comply with the TPP by submitting accurate documentation and making trial payments.

The Court relied on language in the TPP that said, “[a]fter all trial period payments are timely made and you have submitted all the required documents, your mortage will be permanently modified.” The court noted hornbook contract law that “the mere fact that an offer or agreement is subject to events not within the promisor’ control … will not render the agreement illusory.”

Additionally, the TPP was sufficiently definite to constitute an enforceable contract, even though it did not set the precise terms for the permanent modification, because HAMP guidelines provide the existing standard by which the ultimate terms of the permanent modification were to be set in order to bring down the monthly payments to 31% of gross income.

In a case with potentially broad implications, the Sixth Circuit becomes the first federal circuit court to hold that the Truth in Lending Act provides no right to rescind a loan modification agreement entered into with a successor creditor. TILA exempts from rescission “refinancing” transactions with “the same creditor secured by an interest in the same property” but not “refinancing” with a different creditor.

The case impacts those borrowers whose loans were assigned after origination (an everyday occurrence), and who seek rescission after receiving a common form of modification that lowered their interest rate, recalculated the principal due to include only the unpaid balance plus earned finance charges and premiums for continuation of insurance, and perhaps even extended their payment schedule.

Regulation Z provides that a “refinancing occurs when an existing obligation … is satisfied and replaced by a new obligation undertaken by the same consumer” and that a refinancing does not include a “reduction in the annual percentage rate with a corresponding change in the payment schedule.”

The Sixth Circuit Court of Appeals continues to contribute to the case law defining which violations of procedural statutes constitute an injury-in-fact under Spokeo, Inc. v. Robins, ––– U.S. ––––, 136 S.Ct. 1540, 1547, 194 L.Ed.2d 635 (2016).

In Macy v GC Services Limited Partnership, it holds that Plaintiffs alleged sufficient concrete harm to satisfy the injury-in-fact requirement for standing where the defendant debt collector’s letter omitted to inform the plaintiffs, credit card holders, that it was obligated to provide certain information only if Plaintiffs disputed their debts in writing. See 2018 WL 3614580 (6th Cir. July 30, 2018).

At issue was the Fair Debt Collection Practices Act’s requirements that a debt collector provide a consumer with a notice that contains:

(4) a statement that if the consumer notifies the debt collector in writing within [a] thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (5) a statement that, upon the consumer’s written request within [a] thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.” 15 U.S.C. § 1692g(a) (emphases added).

The Defendant’s letter omitted to mention the writing requirement, instead simply stating, “if you do dispute all or any portion of this debt within 30 days of receiving this letter, we will obtain verification of the debt from our client and send it to you. Or, if within 30 days of receiving this letter you request the name and address of the original creditor, we will provide it to you in the event it differs from our client, Synchrony Bank.”