Source: http://updates.mwbllp.com/2016_02_21_archive.html
Timestamp: 2019-04-19 22:44:52+00:00

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The U.S. Court of Appeals for the Third Circuit recently affirmed summary judgment against a putative class of borrowers who were allegedly victims of a captive reinsurance scheme by a lender and its affiliated reinsurance company.
In so ruling, the Court held that the plaintiff borrowers' claims were barred by the applicable statute of limitations, and the doctrine of equitable tolling did not apply because the plaintiff borrowers had not exercised reasonable diligence in investigating their potential claims.
The plaintiff borrowers financed the purchase of their homes with mortgage loans. The loans exceeded 80% of the homes' value, and they were required to purchase private mortgage insurance from insurers selected by the lender.
The private mortgage insurers, in turn, contracted with the lender's wholly owned "captive" reinsurance company. "Under a reinsurance agreement, the reinsurance company assumes a portion of the risk associated with default in exchange for a percentage of the mortgage insurance premiums paid by the borrower."
The plaintiff borrowers filed a putative class action alleging violations of the federal Real Estate Settlement Procedures Act ("RESPA") and unjust enrichment. The complaint alleged that the lender and its reinsurer "colluded with private mortgage insurers, referring customers to the private mortgage insurers and receiving in return reinsurance agreements that required [the captive reinsurer] to take on little or no actual risk" in alleged violation of RESPA's anti-kickback and anti-fee-splitting provisions, 12 U.S.C. § 2607(a)-(b).
The lender moved to dismiss, arguing that RESPA's one-year statute of limitations barred the plaintiffs' claims and equitable tolling did not apply. The district court denied the motion, reasoning that limited discovery was necessary to resolve the fact-intensive issue of equitable tolling.
After discovery, the lender moved for summary judgment, which the district court granted, holding that the claims were time-barred and equitable tolling did not apply because the plaintiffs had not exercised reasonable diligence in investigating their potential RESPA claims. The plaintiffs appealed.
The Third Circuit began its analysis by explaining that RESPA has a one-year statute of limitations, which runs from the date of the closing of the loan. The plaintiffs closed on their loans in May of 2007, October of 2007 and June of 2008, but filed their lawsuit in June of 2012.
The plaintiffs argued that, despite filing suit more than one year after their closings, the doctrine of equitable tolling applied to "rescue a claim otherwise barred as untimely … when a plaintiff has been prevented from filing in a timely manner due to sufficiently inequitable circumstances."
The Third Circuit pointed out that it had "previously held that the statute of limitations in RESPA is not jurisdictional and is thus eligible for equitable-tolling consideration … [b]ut 'equitable tolling is an extraordinary remedy which should be extended only sparingly."
The Court explained that in order for equitable tolling to apply based on a theory of fraudulent concealment, plaintiffs must "show three elements: '(1) that the defendant actively misled the plaintiff; (2) which prevented the plaintiff from recognizing the validity of her claim within the limitations period; and (3) where the plaintiff's ignorance is not attributable to her lack of reasonable due diligence in attempting to uncover the relevant facts.'" In order to show reasonable diligence, a plaintiff must "'establish that he pursued the cause of his injury with those qualities of attention, knowledge, intelligence and judgement which society requires of its members for the protection of their own interests and the interests of others.'"
The Third Circuit noted that before the plaintiff borrowers closed on their loans, they received a disclosure form explaining reinsurance in plain language and providing the option to opt out of captive reinsurance with an affiliate of the lender, but none did so.
In addition, after the closing, the plaintiffs "took no steps to investigate whether [the lender's] captive reinsurance program might violate state or federal law. They did not, for example, ask their mortgage insurer if their particular insurance policy had been reinsured and, if so, with whom. They did not seek the advice of an attorney, research captive reinsurance, request documents related to their mortgage insurance, or take any steps to discover if they had a claim under RESPA."
The plaintiff borrowers also argued that they did not discover they had potential RESPA claims until late 2011, when their attorney asked them to join a lawsuit.
The Third Circuit rejected this argument as well. The Court concluded that based on the undisputed facts, the plaintiff borrowers "failed to show due diligence and cannot use equitable tolling to rescue otherwise time-barred claims."
It rejected the plaintiff borrowers' argument because most of the cases they cited "address the discovery rule, which relates to claim accrual (when the limitations period begins to run) rather than equitable tolling (the events that can stop the clock on a limitations period once it has begun to run). Under the discovery rule, a cause of action does not accrue until the plaintiff discovers or in the exercise of reasonable diligence should have discovered the basis of her claim against the defendant. … In deciding when a diligent plaintiff would have discovered the basis of a claim, courts look for 'storm warnings' that would put the plaintiff on notice of her injury. However, the discovery rule is not apt for RESPA claims because Congress specifically provided that the limitations period begins to run on 'the date of the occurrence of the violation.' … It is thus irrelevant for purposes of the statute of limitations in RESPA when a reasonable plaintiff would have discovered her claim."
Regardless of the inapplicability of the discovery rule to time-barred RESPA claims, the Third Circuit reasoned that the plaintiffs were asking it to "ignore the plain words of [the lender's] disclosure. Based on the disclosure, they were on notice that reinsurance for their mortgage loans was reasonably likely through an affiliate of [the lender]. Armed with the facts necessary to allege their claim under RESPA, it is undisputed that they took no steps to investigate whether the reinsurance arrangement was fully valid."
The Court held that "accepting Plaintiffs' theory in this case — toll indefinitely the limitations period for claims under RESPA until a lawyer can find the right plaintiff to join a lawsuit and notify other putative plaintiff — would effectively write the statute of limitations out of RESPA."
Accordingly, the Third Circuit affirmed the district court's grant of summary judgement for the defendants.
In a case limited to nonjudicial foreclosures, the Supreme Court of California recently held that a borrower may maintain an action for wrongful foreclosure based on an allegedly void assignment.
More specifically, the Court held that, "because in a nonjudicial foreclosure only the original beneficiary of a deed of trust or its assignee or agent may direct the trustee to sell the property, an allegation that the assignment was void, and not merely voidable at the behest of the parties to the assignment, will support an action for wrongful foreclosure."
The Court clarified that: "[w]e hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment. We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party's right to proceed."
The Court also declined to rule on whether the borrower could prove that the assignment was void instead of voidable, or otherwise satisfy the elements of a wrongful foreclosure claim.
In 2006, the plaintiff borrower executed a deed of trust on a residential property. The lender filed for bankruptcy in 2007 and was liquidated in 2008.
The servicer as attorney in fact for the lender executed an assignment of the deed of trust to an asset securitization trust. The assignment was dated December 19, 2011, after the lender's dissolution, and it was recorded eleven days later. The closing date of the asset securitization trust – i.e., the date by which the investment trust needed to receive the trust deed -- was January 27, 2007.
On February 28, 2012, a different entity was substituted as trustee on the deed of trust. On August 20, 2012, the new trustee recorded this substitution as well as a notice of trustee's sale dated August 16, 2012.
On September 14, 2012, the plaintiff borrower's property was sold at public auction. The sale was identified by the deed upon sale dated December 24, 2012.
The borrower filed suit for quiet title against various parties, alleging that the assignment from the lender to the investment trust was void because: (1) the lender's assets were transferred by the bankruptcy trustee in 2008, and the lender therefore had no authority to assign the deed of trust; and (2) the investment trust did not receive the assignment until after its closing date of January 27, 2007.
The defendants demurred, and the trial sustained the demurrer, finding that the borrower could not state a claim for quiet title.
The Court of Appeal affirmed the trial court's judgment. The appellate court held that the borrower's claim was fatally flawed because she failed to allege that she tendered payment on the debt. The appellate court then considered whether the borrower could amend her complaint to plead wrongful disclosure. After seeking and receiving briefing on the issue, the appellate court held that leave to amend was not warranted because, as an unrelated third party to the assignment, the borrower had no standing to enforce the terms of the securitization agreements allegedly violated.
The Supreme Court of California granted review and limited its analysis to whether a borrower has standing to pursue a claim for wrongful foreclosure by challenging the assignment of the deed of trust and arguing that defects on the assignment make it void.
The Supreme Court began its analysis by explaining that California designed its nonjudicial foreclosure system to provide mortgagees with an expedient remedy against the defaulted borrower, while also protecting the borrower from wrongful loss of the property and ensuring that properly conducted sales of the property are final and conclusive as to a bona fide purchaser.
The Court noted that a deed of trust typically has three parties: the borrower, the lender, and the trustee; and the trustee possesses the power of sale. However, the trustee of a deed of trust is not a trustee in the sense that it has fiduciary obligations, but rather acts as an agent for the borrower and the lender.
Under California law, the trustee initiates the nonjudicial foreclosure process. Cal. Civ. Code, § 2924, subd. (a)(1). But the trustee may only take these steps at the direction of the holder of the note and beneficiary interest under the deed of trust. See Santens v. Los Angeles Finance Co., 91 Cal.App.2d 197, 202 (1949).
Thus, while the Court agreed with the defendants that generally a borrower has no ability to raise an objection to an assignment of a note or deed of trust, if the borrower defaults on the loan, only the current beneficiary is authorized to instruct the trustee to initiate the nonjudicial foreclosure process.
A lender or trustee under a deed of trust may be liable to the borrower for wrongful foreclosure if it conducts an illegal, fraudulent or willfully oppressive sale of the property. This conduct includes foreclosure initiated by a trustee that has no authority to do so. Ohlendorf v. American Home Mortgage Servicing, 279 F.R.D. 575, 582-583 (E.D. Cal. 2010).
The borrower alleged such conduct in her complaint. This, the only question for the Court to decide was whether the borrower "may challenge the authority of one who claims [the authority to foreclose] by assignment." The Court answered that question in the affirmative.
The California Supreme Court held that a borrower has standing to bring a claim for wrongful foreclosure if it can show that the assignment is void instead of merely voidable.
When an assignment is voidable, the parties to the assignment have the power to ratify or avoid the transaction. In that situation, a borrower challenging the foreclosure could be asserting an interest belonging to the parties to the assignment instead of herself.
However, the Court found that when the borrower alleges that the assignment is void, the concern for asserting the interests of other parties is misplaced. The borrower is not asserting the rights of one of the contracting parties but rather asserting her own right not to have her home illegally foreclosed upon.
The California Supreme Court noted that underpinning the distinction between void and voidable transactions is the fact that, for void transactions, the parties cannot ratify or validate the transaction even if they so desire. Thus, standing is not lacking in those cases because the borrower has an independent interest and is not attempting to settle the rights of third persons who are not parties.
The Court recognized the defendants' argument that a defaulted borrower suffers no prejudice from foreclosure because the actual holder of the beneficial interest on the deed of trust could have also foreclosed on the property. But the Court declined to delve substantively into the claim for wrongful foreclosure, asserting that it was "concerned only with prejudice in the sense of an injury sufficiently concrete and personal to provide standing, not with prejudice as a possible element of the wrongful foreclosure tort."
Moreover, the Court disagreed with the defendants' contention that the borrower has no cognizable interest in the identity of the party enforcing her debt. The Court noted that although the borrower may not be able to object to an assignment, she is obligated to pay the debt only to the party "that has actually been assigned the debt." Contractually, it is not a "procedural nicety" to insist that the foreclosing party have the actual authority to foreclose.
According to the California Supreme Court, the logic of defendants' argument implied that anyone could foreclose upon a defaulted borrower's property. But, the Court noted, banks are not private attorneys general or bounty hunters, and are only permitted to foreclose upon those properties for which they are entitled to foreclose as beneficiaries of the deed of trust.
In embracing its limited decision that a borrower has standing to sue for wrongful foreclosure based upon a void assignment of the deed of trust, the Court pointed out that various other states around the nation had ruled similarly on the issue. The Court further asserted that federal courts ruling differently in applying California law did not alter its conclusion.
Accordingly, the Court reversed the Court of Appeal and remanded the case back to the trial court for it to reconsider whether the borrower could amend its complaint to plead wrongful foreclosure. In doing so, the Court expressed no opinion as to whether the borrower's complaint alleged facts showing that the assignment of the deed of trust was void instead of voidable, or whether the borrower could satisfy the elements for the claim of wrongful foreclosure.
The Supreme Court of Tennessee recently affirmed judgment on the pleadings in favor of a tax sale purchaser, holding that although a party challenging the validity of a tax sale for lack of notice does not have to tender the amount owed before filing suit under the Tennessee tax sale statute, MERS had no protected interest in the property arising from the deed of trust's designation of MERS as beneficiary and nominee for the lender or it being the alleged holder of bare legal title for the purpose of enforcing the lender's rights.
The Court held that, because MERS was only the lender's agent and not a true beneficiary, it had no protected interest in the subject property, and its due process rights were not violated by the county's failure to give notice of the tax foreclosure proceeding or the tax sale.
The borrowers took out a $60,000 loan secured by a deed of trust on their property. The deed of trust reflected Mortgage Electronic Registration Systems, Inc. (MERS), a company that operates a national electronic mortgage loan registry, as the beneficiary as nominee for the lender and its successors and assigns.
The borrowers failed to pay the 2006 property taxes, and in February of 2008, the county filed a delinquent tax lawsuit. The clerk's office searched the public records, served the borrowers by certified mail and attempted to serve notice on the original lender named in the deed of trust by certified mail, but the letter was returned as undeliverable. The original lender was later served with process through its registered agent. The county did not, however attempt to serve or otherwise provide notice to MERS.
The delinquent taxes were never paid, and in June of 2010 the property was sold at a tax sale to a third party. Shortly thereafter, the trial court confirmed the sale. The property was not redeemed within 1 year after the sale confirmation, such that the purchaser was presumed to have "perfect title" under Tennessee law.
In January of 2012, MERS filed suit to set aside the tax sale and for declaratory judgment, arguing that the tax sale and trial court's order confirming the sale were void ab initio because the county failed to give notice of the tax sale to MERS in violation of it constitutional right to due process.
The trial court consolidated the tax lawsuit with MERS's lawsuit to set aside the tax sale, and after a flurry of motions, held that MERS had only a nominal stake in the outcome of the tax foreclosure proceeding and, because it had no property interest, it could suffer no injury and its due process rights were not violated.
The Appellate Court took a different view, but reached the same result, holding that MERS sustained no injury or damage from the tax sale and thus did not have standing to sue.
Both the tax sale purchaser and MERS sought, and were granted, permission to appeal to the Supreme Court of Tennessee.
MERS appealed the appellate court's ruling that it did not have standing to set aside the tax sale based on the county's failure to provide notice of the sale. The purchaser appealed the appellate court's ruling that MERS was not required to tender the delinquent taxes prior to suing to set aside the tax sale.
The Supreme Court of Tennessee first address the threshold issue of whether MERS was required to tender payment prior to suing to set aside the tax sale.
The Court reasoned that MERS's petition was not based on any grounds contained in the governing statute, but instead challenged the constitutionality of the tax sale. This meant that the issue before the Court was whether the pre-suit tender requirement in the statute "applies where the plaintiff files a lawsuit that seeks to have a tax sale declared void due to lack of constitutionally-required notice, as opposed to a lawsuit that seeks to have the tax sale 'invalidated' on one of the grounds set for in [the statute]."
After reviewing Tennessee cases on whether the statutory pre-suit tender requirement applies where the tax sale is alleged to be void ab initio, the Supreme Court of Tennessee held that "when a plaintiff claims to have a protected interest in the subject property and files suit to have the tax sale of the property declared void ab initio based on lack of constitutionally-required notice, the pre-suit tender requirement … is inapplicable to the petition to set aside the tax sale." It thereby rejected the purchaser's argument that the trial court should have granted its motion to dismiss based on MERS's failure to comply with the pre-suit tender requirement.
The Court then addressed whether MERS "has a property interest that is protected under the Due Process Clause", an issue of first impression in Tennessee.
Looking first to the language of the deed of trust, which provided that MERS "is the beneficiary but acts solely as the nominee for the lender and its successors and assigns, holds only legal title to the interests granted by the borrowers in the [deed of trust], but if necessary to comply with law or custom it may exercise some rights of the lender such as foreclosing on the property", the Court was perplexed "at the mishmash of descriptive terms and qualifiers" in the deed of trust.
Surveying the case law involving MERS, the Supreme Court of Tennessee noted that "[m]ost of these cases have addressed whether [MERS] has the power to assign a deed of trust, foreclose on a note, or otherwise exercise the interests of the lender … [t]hey have not addressed the precise issue presented here, namely, whether [MERS] itself has an interest in the subject property that is subject to due process protections." The Court noted, however, that although courts that have considered the issue are divided, they are instructive because they discuss the registry's "role in the overall transaction as that of an agent for the lender or successor lender."
The Court also noted that the Supreme Courts of Kansas and Arkansas have held that, absent a protected property interest, MERS's due process rights were not violated. The Court further noted that other courts have held that the registry is not the true beneficiary of the deed of trust despite the deed's language to the contrary, but rather merely an agent of the lender. From this, the Supreme Court of Tennessee reasoned that the registry couldn't have it both ways or "be all things to all people", agreeing with the appellate and trial court that the registry "was never given an independent interest in the property" and "has no interest in the subject property that is protected under the Due Process Clause, so notice to [it] was not compelled by the Constitution."
Accordingly, the trial court's grant of judgment on the pleadings in favor of the tax sale purchaser was affirmed.
The federal Consumer Financial Protection Bureau (CFPB) recently issued its final policy regarding "no action letters."
The final policy establishes a process to apply for non-binding statements from the CFPB as to whether it has any "present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to a specified matter" involving "innovative financial products or services that promise substantial consumer benefit where there is substantial uncertainty whether or how specific provisions of statutes implemented or regulations issued by the [CFPB] would be applied."
As you may recall, the CFPB proposed the policy in October of 2014. The CFPB declined to make changes to its proposed policy in light of many of the comments received.
The CFPB noted that "[d]enials of a request for a NAL generally would not be published," but "because a circumstance may arise in which publication of a denial would be in the public interest, the [final policy] does not categorically rule out publication of denials."
The CFPN also noted that "a NAL is subject to subsequent revocation or modification in the discretion of Bureau staff, and may be immediate upon notice."
The U.S. District Court for the Eastern District of New York recently granted summary judgment in favor of a debtor in his claim that a debt collector violated the FDCPA when the debt collector, in attempting to reach the debtor by telephone, left a message with a third party providing the debt collector's callback information.
The Court held that because the undisclosed nature of the call may induce the debtor to contact a debt collector when he does not wish to do so, the debt collector must refrain from leaving callback information and attempt the call at a later time in order to avoid violating the FDCPA.
A debt collector telephoned the debtor about his debt. An undisclosed person answering the phone responded that the debtor was not in yet and asked to take a message. The collection agent responded: "Name is Eric Panganiban. Callback number is 1-866-277-1877. . .direct extension is 6929. Regarding a personal business matter."
Except as provided in section 1692b of this title ...a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.
The reference to § 1692b allows the debt collector to confirm that it has the correct contact information for the debtor: "Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall ... identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer." 15 U.S.C. § 1692b(1).
in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector. . . .
Here, the Court held there was no need for the debt collector to confirm contact information as allowed under 15 U.S.C. § 1692b(1), as the third party who answered the telephone did it for him when he told the debt collector that the debtor "is not yet in." The Court also held that "§ 1692b(1) does not say anything about leaving a callback number. That is not part of the exempted information that the statute allows the debt collector to provide to the third party."
The debt collector argued that the phone call did not fall under the statutory definition of a "communicat[ion] ... in connection with the collection of any debt ...", as used in 1692c(b). The debt collector reasoned that when its employee merely left his contact information with a third party, it was not collecting a debt.
The Court interpreted this argument as "inherently circular" – i.e., the Court restated the debt collector's argument as being that the call was not a communication in connection with the collection of a debt because a communication in connection with the collection of a debt requires disclosures, and because the debt collector did not give disclosures, it was not a communication in connection with the collection of a debt. Stated differently, the Court noted that if the call to the third party is a "communication," then the debt collector had to give the § 1692e "mini-Miranda" disclosure, but if the debt collector gave those disclosures to the third party, or even mentioned that it was a debt collector, then it would be violating § 1692c(b).
The debt collector further argued that there was nothing wrong with placing the call as Congress expected, and the debtor authorized, the use of a telephone to collect debts. The debt collector urged that it would have been "rude to simply hang up."
Although the Court agreed, the Court held that there is nothing in § 1692c(b) that permitted the debt collector to leave a response with the third party that will induce the debtor to call him back. More specifically, the Court held that "soliciting a call back to a collection agency unidentified as such through a third party is simply not a means of collection that is permitted under the restrictive statutory scope of a collector's efforts."
The Court ruled that the debt collector "seized upon the opportunity presented by the third party to obtain a debtor-initiated contact, something the debtor may or may not have done on his own, or in response to a dunning letter with full disclosures, in contrast to an unadorned callback message about a 'personal business matter.' Nothing required [the debt collector] to seize that opportunity, and the prohibition on relaying information through a third party prohibited it."
The Court ruled that only way to avoid violating the FDCPA would have been for the debt collector to make a different decision by politely declining to leave a message, and perhaps trying again at some point in the future.
The District Court of Appeal of the State of Florida, Fourth District, recently affirmed a final judgment of foreclosure in plaintiff mortgagee's favor, holding that the plaintiff mortgagee was not required to send a second notice of default after it voluntarily dismissed its first foreclosure action before filing the second foreclosure action.
In April of 2007, the borrower signed a promissory note and mortgage securing the loan, but defaulted on July 1, 2009. Pursuant to paragraph 22 of the mortgage, the mortgagee sent a notice of default on August 28, 2009 warning that borrower had 30 days to cure the default or the loan would be accelerated.
The borrower failed to cure the default and the mortgagee filed a foreclosure action in October of 2009. The mortgagee then voluntarily dismissed the case, but six weeks later, filed a second foreclosure action based on the same default.
The trial court entered a final judgment of foreclosure, which the borrower appealed. On appeal, the Appellate Court disagreed with the borrower's argument that the mortgagee was required to send a second notice of default before filing the second foreclosure action.
First, the Appellate Court cited the Fifth District Court of Appeal's 1998 decision in Kuper v. Perry, which involved a pre-suit notice required by Florida's sovereign immunity statute, where the First District held that a second notice as not required after the first suit was voluntarily dismissed before filing suit again because the complaints involved the same facts, parties and causes of action, and thus "there was no practical purpose in requiring an additional notice."
The Appellate Court then cited its own recent 2015 decision, Schindler v. Bank of N.Y. Mellon Trust Co., which held that "a borrower is entitled to a new notice before the second complaint is filed … where the dismissal of the first complaint was an adjudication on the merits."
The Court reasoned that in the case at bar "the first complaint was voluntarily dismissed without prejudice, and thus was not an adjudication on the merits and the second complaint was premised on the same July of 2009 default, and, as in the Fifth District Kuper ruling, "involved the same facts, relief, claimants, causes of action, and allegations."
Because the mortgagee filed the second foreclosure action "less than two months after it voluntarily dismissed the first suit…," the borrower did not make any payments between the 2009 notice of default and the filing of the second complaint in 2013 and the "mortgage does not require that a new notice of default be sent," the Appellate Court held that the first notice of default "remained valid and a second notice of default was not required before filing the second complaint based on the same default."
Accordingly, the final judgment of foreclosure was affirmed.

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