The U.S. Court of Appeals for the First Circuit recently confirmed that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) provides a firm jurisdictional bar to consumer protection claims based on loans made by failed institutions but now held by successor banks following a transfer facilitated by the Federal Deposit Insurance Corporation (FDIC) unless the claimants have complied with a strict administrative regime. In Demelo v. U.S. Bank National Association, 727 F.3d 117 (1st Cir. 2013), in which Stephen Reilly and Jennifer Greaney of Fitch Law Partners LLP represented the defendant U.S. Bank National Association (U.S. Bank), the First Circuit held that claimants against a failed institution must comply with the claims-processing regime prescribed by FIRREA.
In 2004, Edimara and Edilson Demelo refinanced their Stoneham home with a variable rate loan from Downey Savings and Loan Association. Downey Savings and Loan Association (Downey Savings) subsequently failed in November 2008 and the FDIC was appointed as its receiver. The FDIC entered into a purchase and assumption agreement and a loan sale agreement with U.S. Bank, pursuant to which U.S. Bank assumed the loans and mortgages of Downey Savings. After the Demelos defaulted on their loan and U.S. Bank initiated foreclosure proceedings, the Demelos sued U.S. Bank, alleging that the loan violated several Massachusetts consumer protection statutes and that the foreclosure was improper because U.S. Bank did not have a specific written assignment of the mortgage as required by state law.
FIRREA requires that the FDIC, after being appointed as receiver for a failed institution, must publish a written notice requiring administrative claims to be filed with it by a specified date, after which point it has 180 days to allow or disallow filed claims. FIRREA further provides that "no court shall have jurisdiction" over "any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver" or "any claim relating to any act or omission of [the failed] institution or the [FDIC] as receiver." 12 U.S.C. § 1821(d)(13)(D).
The FDIC properly published the statutorily mandated notice and the Demelos failed to pursue a claim under the administrative scheme. The plaintiffs argued, inter alia, that the language of FIRREA applies only to claims against the FDIC while the institution is in receivership and that FIRREA applies only to creditors' claims and not to consumer claims. The Court held that the language of the statute precluded each of those contentions, noting that "FIRREA explicitly bars jurisdiction over 'any claim relating to any act or omission' of the failed financial institution." 727 F.3d at 122, quoting 12 U.S.C. § 1821(d)(13)(D)(ii) (emphasis added by Court).
With respect to the plaintiffs' allegation that Massachusetts law requiring land transfers to be in writing, the Court noted that the transfer was made pursuant to FIRREA's statutory scheme, and thus held that "a transfer of a mortgage, authorized by federal law, obviates the need for the specific written assignment that state law would otherwise require." 727 F.3d at 126.
The First Circuit's decision in Demelo establishes precedent that binds federal district courts in Massachusetts, Maine, New Hampshire, Rhode Island, and Puerto Rico.
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