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CFPB Regulations on Providing Applicants With Appraisals Go Into Effect

Prior to Dodd-Frank, Section 701(e) of the Equal Credit Opportunity Act provided that a loan applicant had the right to request copies of any appraisals used in connection with his or her application for mortgage credit.  Section 1474 of Dodd-Frank amended Section 701(e) to require that lenders affirmatively provide copies of appraisals and valuations to loan applicants at no additional cost and without requiring applicants to affirmatively request such copies.

The appraisal documentation must be provided to the loan applicant in a timely manner and no later than three days prior to the loan closing unless the applicant waives the timing requirement.  The lender must provide a copy of each written appraisal or valuation at no additional cost to the applicant, though the creditor may impose a reasonable fee on the applicant to reimburse the creditor for the cost of the appraisal.

In September of 2013 the Consumer Financial Protection Bureau adopted final regulations amending Regulation B to implement the statutory changes. The amendments to Regulation B went into effect on January 18, 2014. Among other things, the revised Regulation requires lenders to provide a notice to a loan applicant not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant’s right to receive a copy of all written appraisals developed in connection with the application.

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Reminder: Credit Practices Cannot be Based on Marital Status

A recent opinion by the Fourth Circuit Court of Appeals is a good reminder that lenders and lending lawyers must be aware of Regulation B’s limitations on requiring spousal guarantees when underwriting and documenting commercial loan transactions. Regulation B implements the Equal Credit Opportunity Act and, among other things, prohibits creditors from using credit approval and underwriting practices that discriminate on the basis of marital status.

On October 30, 2013, the Fourth Circuit, in Ballard vs. Bank of America, upheld the lower court’s dismissal of a wife’s claims against the bank. The opinion provides a detailed discussion of Regulation B’s requirements and, in dicta, suggests that the bank may very well have violated Regulation B in requiring the wife, Mrs. Ballard, to guaranty a loan to her husband’s business. The court, however, finds the dismissal was proper because Mrs. Ballard waived her claims against the bank.

After the loan was originally made, defaults occurred and the borrower and guarantors waived and released claims against the bank in connection with restructuring agreements. The court found those subsequent waivers and releases were sufficient to waive any claims Mrs. Ballard may have had against the bank for violating Regulation B. This is an interesting (and some may say unfair) conclusion because the only reason Mrs. Ballard had signed the release is because she was a guarantor. Had the bank not required the guaranty in the first place (a supposed violation of Regulation B), Mrs. Ballard would not have been included in the release agreement. Nevertheless, the court did not agree that the initial violation which started the chain of events prevented the release from being effective.

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