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The Plain Meaning of RESPA Regulations

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!)

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RESPA is a Shield, Not a Sword

RESPA is a Shield, Not a Sword

April 29, 2019

Authored by: Jim Goldberg

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.

Image by Nadine Doerlé from Pixabay

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.

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SCOTUS Protects Lawyers Seeking Non-Judicial Foreclosures

Editor’s Note: BCLP’s consumer financial services team is a group of specialized lawyers from around the U.S., adept in state court rumbles, courthouse steps foreclosures, and bankruptcy court interludes. They are also deep thinkers in consumer law, and were waiting for this ruling today. If you have a portfolio of consumer loans and want some efficient, value-maximizing handling, give us a call. Here’s the take from Zina Gabsi, from our Miami CFS practice.

Earlier today, the U.S. Supreme Court issued its long-awaited opinion on whether law firms pursing non-judicial foreclosures are “debt collectors” as defined by the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq. Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307 (March 20, 2019). In its ruling, the Court held that a business engaged in no more than a non-judicial foreclosure is not a debt collector under the FDCPA. (Business lawyers around the US breathed a collective sigh of relief.) Instead, the Court held that those pursuing non-judicial foreclosures are subject to the more limited FDCPA restrictions contained in section 1692f(6).

The FDCPA defines a debt collector as “any person … in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed or due another.” 15 U.S.C. §1692a(6). But the statute also includes the “limited-purpose definition” which states that “[f]or the purpose of section 1692f(6) [the] term [debt collector] also includes any person … in any business the principal purpose of which is the enforcement of security interests.” Thus, the statute creates a set (debt collectors) and a subset (people that only seek to enforce security interests). The subset certainly includes “repo men,” but according to the Supreme Court, the subset also includes lawyers pursuing non-judicial foreclosures. The subset is subject to far less restrictions and mandates under the FDCPA.

The Court considered three factors in coming to its conclusion: (i) the text of the FDCPA itself; (ii) Congress’s intent; and (iii) the FDCPA’s legislative history. The Court explained that but for the limited-purpose definition (the subset), those pursuing non-judicial foreclosure would in fact be debt collectors under the additional provisions of the FDCPA. However, the Court notes that a plain reading of the limited-purpose definition, “particularly the word ‘also,’ strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition. Otherwise why add this sentence at all?” Obduskey, at page 8. To interpret the definition of a debt collector under the FDCPA otherwise would render the addition of the “limited-purpose definition” superfluous. Id., at page 9. Furthermore, the Court posited that Congress “may well have chosen to treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes.” Id.

Of note, the Court rejected Obduskey’s argument that “McCarthy engaged in more than security-interest enforcement by sending notices that many ordinary homeowner would understand as an attempt to collect a debt backed up by the threat of foreclosure.” Id., at page 13. The Court explained that such notices were likely required under state law in order to pursue the non-judicial foreclosure and therefore the FDCPA’s “(partial) exclusion of ‘the enforcement of security interests’ must also exclude the legal means required to do so.” Id.

Justice Sotomayor wrote a concurring opinion to make two observations: “First, this is a close case, and today’s opinion does not prevent Congress from clarifying this statute if we have gotten it wrong. Second, as the Court makes clear, ‘enforcing a security interest does not grant an actor blanket immunity from the’ mandates of the FDCPA.” She interestingly noted that Congress may not have contemplated the Court’s interpretation because even though States do regulate nonjudicial foreclosures, the FDCPA was enacted “to promote consistent State action to protect consumers against debt collection abuses.”

The holding sheds light (for the moment) on the scope of the limited-purpose exception to the FDCPA’s definition of a debt collector as it relates to nonjudicial foreclosures. “[W]hether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day.” Id., at page 12. We will cover that another day too!

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Reverse Mortgage Update: New York Law Mandates New Foreclosure Notices and Certificate of Merit

New York has signed into law an amendment redefining a reverse mortgage as a “home loan.” With this amendment, statutory pre-foreclosure ninety day notices (RPAPL 1304) and a “certificate of merit” (CPLR 3012-b) will be required in all New York reverse mortgage foreclosures. Additionally, New York’s foreclosure settlement conference law (CPLR 3408) now incorporates by reference the new “home loan” definition.

The legislation was signed by Gov. Andrew Cuomo on April 12, 2018 but “shall be deemed to have been in full force and effect on and after April 20, 2017.” However, the pre-foreclosure notice requirement specific to reverse mortgages has an effective date of May 12, 2018.

Under the new legislation, for actions commenced after May 12, 2018, lenders, assignees or servicers are required to provide a pre-foreclosure notice at least 90 days before commencing legal action against the borrower or borrowers at the property address and any other addresses of record. The language of the notice is set by statute.

Although the 90-day waiting period does not apply, or ceases to apply under certain circumstances (i.e. where a borrower no longer occupies the residence as a principal dwelling),the 90 Day Notice is a condition precedent which, if not strictly complied with, may subject a foreclosure action to dismissal. Further, the foreclosing party is required by statute to deliver the notices by first class and certified mail. Relevant case law makes clear that evidencing the proof of mailing may require tracking documentation for first class mail and certified receipts for notices sent by certified mail.

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D.C. Circuit Rejects FCC’s TCPA Interpretation

On March 16, 2018, the D.C. Circuit issued its long-awaited opinion on the FCC’s 2015 Declaratory Ruling and Order (“2015 Order”) interpreting various sections of the Telephone Consumer Collection Practices Act (“TCPA”)[1]. Of note, the Court specifically rejected and set aside the FCC’s interpretation of what constitutes an Automatic Telephone Dialing System (“ATDS”). The Court also rejected the FCC’s one-call “safe harbor” for re-assigned phone numbers. At first glance, this may seem like a win for those defending TCPA lawsuits; however, the opinion may create more questions than answers.

The Court addressed (i) what types of automatic dialing equipment fall under the TCPA’s definition of ATDS; (ii) whether a dialer violates the TCPA if a number is reassigned to another person who has not given consent to be called; (iii) how a consenting party may revoke consent; and (iv) whether the consent exemption for healthcare-related calls was too narrow. The Court’s scope was limited to whether these aspects of the FCC’s 2015 Order were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The Court upheld the FCC’s “approach to revocation of consent, under which a party may revoke her consent through any reasonable means” and rejected the one-call “safe harbor” for re-assigned phone numbers as “arbitrary and capricious.”

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Bank Website ADA Litigation Update

Court Dismisses Website Accessibility Case as Violating Due Process, Since DOJ Still Has Not Issued Regulations

Recent court decisions from California and Florida may provide ammunition to retailers battling claims that their websites and mobile applications are inaccessible in violation of Title III of the Americans With Disabilities Act (the “ADA”). As we reported in a previous blog post, banks and other businesses have faced a wave of such demand letters and lawsuits.  Most of these claims settled quickly and confidentially.

However, a California district court recently granted Dominos Pizza’s motion to dismiss under the primary jurisdiction doctrine, which allows courts to stay or dismiss lawsuits pending the resolution of an issue by a government agency. In Robles v. Dominos Pizza LLC, U.S. Dist. Ct. North Dist. Cal. Case No. CV 16-06599 SJO, the court held it would violate Domino’s due process rights to hold that its website violates the ADA, because the Department of Justice still has not promulgated regulations defining website accessibility – despite issuing a notice of proposed rulemaking back in 2010.

The court stated that the DOJ’s application of an industry standard, the Website Content Accessibility Guidelines 2.0 (WCAG 2.0), in statements of interest and consent decrees in other cases does not impose a legally binding standard on all public accommodations. It also noted that those consent decrees indicated flexibility to choose an appropriate auxiliary aid to communicate with disabled customers, and suggested that Domino’s provision of a telephone number for disabled customers may satisfy this obligation. Retailers that do not have an accessible website should therefore provide a toll-free number serviced by live customer service agents who can provide all the information and services available on the website.

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Trump May Not be the Only Catalyst for Administrative Reform

In the past few months, there has been a lot of speculation regarding the future of many administrative agencies under Trump’s administration. However, two current cases pending in the D.C. Circuit have the potential to have a dramatic impact on administrative agencies and past and present regulatory enforcement actions by such agencies.

In Lucia v. SEC, the SEC brought claims against Lucia for misleading advertising in violation of the Investment Advisers Act of 1940. The enforcement action was initially resolved by an administrative law judge (ALJ); however Luica was later granted a petition for review based on an argument that the administrative hearing was unconstitutional because the ALJ was unconstitutionally appointed. The issue made it up to the U.S. Court of Appeals for the D.C. Circuit who recently held that the ALJ was constitutionally appointed because the judge was an “employee”, not an officer. However, other courts have held just the opposite. In December, the 10th Circuit held in Bandimere v. SEC that ALJs were “inferior officers” and thus must be appointed pursuant to the Appointments Clause. A rehearing en banc has been granted in Lucia to address this issue.

On the heels of Lucia, in PHH v. CFPB, the CFPB brought claims against PHH for violations of the Real Estate Settlement Procedures Act. Similarly, this enforcement proceeding was originally decided by an ALJ. However, PHH appealed the ALJ decision for a multitude of reasons and the appeal has also made it up to the D.C. Circuit where a rehearing en banc was granted last month. In the court’s order granting a rehearing en banc, the court ordered, among other things, that the parties address what the appropriate holding would be in PHH if the court holds in Lucia that the ALJ was unconstitutional.

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CFPB Customer Complaint Data: Seeing What the Plaintiffs’ Bar Sees

CFPB watchers know that since 2013 customer complaints have been solicited and complaint data has been made available on the CFPB website. January is ubiquitous with New Year’s resolutions (perhaps you’ve already broken all of yours, but hopefully not). It is a great time to review the 2016 customer complaint data and see what the Plaintiffs’ Bar sees about your customers and your institution.

Undoubtedly, in due course, the CFPB has contacted your compliance and legal teams directly about these consumer complaints on an individualized basis. And undoubtedly, you have investigated the issue and provided responsive information to the CFPB and the consumer. Hopefully, each individual customer complaint matter is resolved and closed.

As a class action litigator, however, it is important to highlight that there is more here than just each individual complaint. We are living in an age of big data. The CFPB knows it. Your institution knows it. And, guess what, the Plaintiffs’ Bar knows it. The individual complaints posted to the CFPB database may be only the tip of the iceberg, or the issues may not have been fully resolved.

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Reduce Potential ADA Liability by Making ATMs and Websites Accessible

Banks and credit unions are among the most recent targets of a wave of demand letters and lawsuits alleging violation of the Americans With Disabilities Act of 1990 (the “ADA”). The most common allegations concern inaccessible ATMs and websites, despite the fact that the ADA and its implementing regulations do not yet address website accessibility.

Title III of the ADA prohibits discrimination against individuals “on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation,” 42 U.S.C. § 12182(a), which includes banks and credit unions.

In 2010, the federal regulations implementing the ADA were revised, and expressly addressed ATMs for the first time. Banks and credit unions were given until March 2012 to become fully compliant, and most litigation targeted institutions that failed to comply by that date.

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Pointers for Bank Recipients of Demand Letters Asserting ADA Non-Compliance

Community banks have recently been on the receiving end of demand letters from plaintiffs law firms alleging that the banks’ websites are in violation of the Americans With Disabilities Act of 1990 (the “ADA”).  Interestingly, there are currently no specific federal standards for websites under the ADA. The Department of Justice (“DOJ”) is in the process of developing regulations for website accessibility, but has announced it will not finalize these regulations until 2018 at the earliest. Even so, the DOJ has emphasized that businesses should make websites accessible to the disabled. While the regulations are being developed, many businesses have been applying the Web Content Accessibility Guidelines (WCAG) 2.0 Level AA with the understanding that the DOJ has made clear that it considers a website accessible if it complies with these guidelines.

When a bank receives a demand letter the first thing they need to do is hire counsel to advise them about their various options, including mitigating any damages by curing website defects, litigation or settlement. As a practical matter, the best defense to such claims is making sure that the bank’s website is compliant with the WCAG 2.0 Level AA Guidelines. That may involve the use of internal resources as well as external consultants.  While it is impossible to tell whether suit will be filed in any given situation, banks should take note that the firms sending demands have previously been engaged in filing over 100 of these types of suits against various non-financial defendants over the past year.

Bryan Cave has put together a resource that provides generally accepted recommendations for website accessibility and federal ADA standards for ATM accessibility to help you review how your banks stands.

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