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Banking Law Blog

CFPB Anti-Arbitration Rule Repealed

On Wednesday, November 1, 2017, President Donald Trump signed legislation repealing an anti-arbitration rule that the Consumer Financial Protection Bureau ("CFPB") had promulgated in early July.  Repeal of the CFPB rule was welcomed by representatives of the financial services industry.

Failure to Record Complaint Requires Dismissal Under Statute of Repose

The Massachusetts Land Court has held that a plaintiff's failure to timely file a copy of a complaint challenging a foreclosure with the registry of deeds, as required by Mass. Gen. Laws c. 244, § 15, requires dismissal of a complaint challenging the subject foreclosure.  Kenney, et al. v. Brown, et al., No. 16 MISC 000530 (Mass. Land Court July 27, 2017).

U.S. Supreme Court Limits Scope of FDCPA.

On June 12, 2017, the United States Supreme Court decided a case captioned Henson v. Santander Consumer USA, Inc., No. 16-349.  In an opinion authored by newly-appointed Justice Neil Gorsuch and hailed by the financial services industry, the unanimous Court held that a company may collect debts that it purchased for its own account without implicating the statutory definition of "debt collector" set forth in the federal Fair Debt Collection Practices Act ("FDCPA").

A Notice of Default That Does Not Strictly Comply With Paragraph 22 Of The Mortgage Renders a Foreclosure Sale Void So Long As The Issue Of Noncompliance Was Asserted In Court Before July 17, 2015

Signing Certified Mail Receipt Satisfies Requirement to Acknowledge Receipt of Borrower's Request for Information

The United States Court of Appeals for the Eleventh Circuit has held, in a matter of first impression, that signing a borrower's certified-mail return receipt can serve as a loan servicer's acknowledgment of receipt of a borrower's written request for information. Meeks v. Ocwen Loan Servicing LLC, No. 16-15536, 2017 WL 782285, at *1 (11th Cir. Mar. 1, 2017).

District of Columbia Court of Appeals will Rehear PHH v. CFPB

Authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (the "CFPB") is an agency of the United States government that regulates banks, credit unions, debt collectors, and many other sectors of the American financial services industry.

Failure to Comply With Post-Foreclosure Notice Provisions Does Not Void Foreclosure

The Massachusetts Supreme Judicial Court ("SJC") has held that a bank's failure to comply with post-foreclosure notice provisions in Mass. G.L. c. 244, § 15A ("Section 15A"), does not render a foreclosure void.  Turra v. Deutsche Bank Trust Company Americas, 476 Mass. 1020 (2017).  The SJC's decision clarifies its prior rulings that appeared to state that any failure to comply with a provision appearing in Mass. G.L. c. 244, §§ 11-17C, rendered a foreclosure void.

The Ninth Circuit Holds that the Enforcement of a Security Interest is Not Always "Debt Collection" Subject to the Fair Debt Collection Practices Act

The United States Court of Appeals for the Ninth Circuit recently held that a lender's agent is not a "debt collector" within the meaning of the Fair Debt Collection Practices Act ("FDCPA") when it sends certain notices to the borrower in connection with a non-judicial foreclosure. Ho v. ReconTrust Co., NA, 840 F.3d 618, 621 (9th Cir. 2016).

Ninth Circuit Holds Opt-In Foreclosure Notice Statute Violates Due Process

The United States Court of Appeals for the Ninth Circuit has joined the Fifth Circuit in finding that a statutory scheme in which mortgage lenders were required to affirmatively opt-in to receive notice of foreclosures by homeowners' associations violates the lenders' due-process rights under the 14th Amendment. Bourne Valley Court Trust v. Wells Fargo Bank, N.A., No. 15-15233, 2016 WL 4254983 (9th Cir. Aug. 12, 2016).

D.C. Circuit Rules Structure of Consumer Financial Protection Bureau Unconstitutional

In a highly anticipated decision and the first judicial review of a Consumer Financial Protection Bureau ("CFPB" or the "Bureau") administrative enforcement action, the United States Court of Appeals for the District of Columbia Circuit ruled in October 2016 that the CFPB's single Director structure violated separation of powers principles and was unconstitutional. PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1 (D.C. Cir. 2016). 

Massachusetts Appeals Court Reaffirms MERS' Role As Mortgagee

The Massachusetts Appeals Court, in a Rule 1:28 decision, has once again reaffirmed its holdings in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202 (2014) and Shea v. Federal Natl' Mort. Assn., et al., 87 Mass.App.Ct. 901 (2015), that the Mortgage Electronic Registration Systems, Inc. ("MERS") system of mortgage assignments comports with Massachusetts law.  The Appeals Court further reaffirmed that MERS' status as mortgagee, even "solely as nominee for [lender] and [lender]'s successors and assigns," grants to MERS all the rights and powers of a mortgagee, including the right to foreclose and exercise the power of sale in the mortgage.  Epps v. Bank of America, N.A., et al., 15-P-1095, 2016 Mass. App. Unpub. LEXIS 974 (Oct. 11, 2016).

Ninth Circuit Denies Class Action For Allegedly Fraudulent Mortgage Modification Delays and Subsequent Foreclosures

The United States Court of Appeals for the Ninth Circuit has refused to reinstate a putative class-action suit accusing numerous banks and other mortgage servicers of fraudulently enticing mortgagors into applying for mortgage loan modifications to continue collecting servicing fees prior to foreclosure.  The Ninth Circuit panel agreed with the United States District Court for the Central District of California and the defendants that the servicers were not at fault for the foreclosures where the borrowers failed to pay their mortgages.  Casault v. OneWest Bank, et al., 2016 WL 4137656 (9th Cir. Aug. 4, 2016).

DFPB Proposes Rule That Would Restore Consumer Right To Sue Banks

In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the United States Supreme Court ruled that the Federal Arbitration Act preempts state laws that prohibit consumer contracts from disallowing class-wide arbitration.  On May 5, 2016, however, the Federal Consumer Financial Protection Bureau (CFPB) proposed a new rule that would restore consumer's rights to bring class action lawsuits against banks and other certain financial firms.

Massachusetts Supreme Judicial Court Rejects Challenge To Attorney's Authority To Conduct Foreclosure Activities For Client Without Written Authorization

The Massachusetts Supreme Judicial Court (the "SJC) has rejected a challenge to the authority of an attorney to conduct foreclosure activities on behalf of clients without specific written authorization to perform those activities.  See Federal National Mortgage Association v. Rego, et al., No. SJC-11927, 2015 WL 10895667 (Mass. May 24, 2016).  At a foreclosure sale conducted by GMAC Mortgage, LLC, Federal National Mortgage Association ("Fannie Mae") purchased the home formerly owned by Edward and Emanuela Rego.  When Fannie Mae filed a complaint for summary process in the Housing Court seeking possession of the home, the Regos argued that the foreclosure sale was void because the attorneys for GMAC lacked authority to undertake foreclosure activities on GMAC's behalf because their actions had not been authorized by a prior writing pursuant to Mass. Gen. L. c. 244, § 14 ("Section 14").

Appeals Court Dismisses HAMP-Based Negligence Claim

In a post-foreclosure lawsuit, Santos v. U.S. Bank National Association, et al., 2016 WL 3636049 (Mass.App.Ct. 2016), a borrower ("Santos") alleged inter alia that a foreclosing mortgagee ("U.S. Bank") and its loan servicer negligently handled his applications for a HAMP loan modification.  Santos argued that the defendants "negligently failed to adhere to the HAMP guidelines in processing his loan modification applications." 

CFPB Proposes Rule That Would Restore Consumer Right To Sue Banks

In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the United States Supreme Court ruled that the Federal Arbitration Act preempts state laws that prohibit consumer contracts from disallowing class-wide arbitration.  On May 5, 2016, however, the Federal Consumer Financial Protection Bureau (CFPB) proposed a new rule that would restore consumer's rights to bring class action lawsuits against banks and other certain financial firms.  

Division of Banks Issues Warning About ATM 'Skimming'

The Massachusetts Division of Banks (the "Division") has issued a letter to Non-Bank ATM Registrants in the Commonwealth to warn them about a "concerning increase" in ATM skimming fraud.  The Division's March 16, 2016 letter is published on its website.

Connecticut Supreme Court Upholds Mortgage Recording Fees for MERS

The Connecticut Supreme Court has upheld state legislation imposing an aggregate fee increase of approximately $5 million for mortgages recorded in Connecticut registries by Mortgage Electronic Registration Systems, Inc. ("MERS"). See MERSCORP Holdings Inc., et al. v. Malloy, No. SC19376, 2016 WL 510244 (Conn. Feb. 8, 2016). As noted previously in this blog on April 11, 2014, and August 7, 2015, certain government entities in Texas and Louisiana failed in their attempts to recoup fees from MERS by alleging violations of federal RICO statutes or by asserting claims for unjust enrichment. Connecticut chose instead to legislatively impose significantly higher recording fees for MERS than for other mortgage companies.

U.S. District Court Dismisses Claims Arising From Check Fraud Scheme

In Armenian Missionary Association of America, Inc. v. TD Bank, N.A., et al, 87 UCC Rep. Serv. 2d 766 (D.N.J. 2015), the United States District Court for the District of New Jersey dismissed check fraud claims brought against TD Bank N.A. ("TD"). Plaintiff Armenian Missionary Association of America, Inc. ("AMAA" or "Plaintiff"), a non-profit organization that relies on donations to provide aid and assistance to Armenians throughout the world, sued TD after it discovered a series of alleged thefts by its former employee, Tigran Melkonyan, of over $800,000.00.

Eighth Circuit Holds No Recovery for Converted Checks in the Absence of Actual Loss

In a recent Minnesota case, the Eighth Circuit Court of Appeals held that where a bank accepted and paid two checks despite missing endorsements, the jilted payee had no viable claim because it ultimately suffered no loss.

Division Of Banks Told That Hearings Are Not Optional

A Superior Court judge recently expressed little patience with the Massachusetts Division of Banks's (the "Division's") failure to hold a hearing prior to issuing cease and desist letters, calling it "disturbing" that two statutes requiring hearings "were completely ignored by an absolutist and overbearing executive department."

Pennsylvania Federal Court Rejects Plaintiff's Attempt to Invoke Discovery Rule To Toll Statute of Limitations in UCC Check Fraud Case

Section 4-401 of the Uniform Commercial Code provides that a bank may charge the account of a customer if it is presented with a "properly payable" check or other item "authorized by the customer," and "in accordance with any agreement between the customer and the bank." Section 4-401 also provides the basis for forged check liability in the case in which a plaintiff alleges that a bank is liable for charging her for a check that was not properly payable to a third party. UCC Section 4-111 provides that "an obligation, duty, or right" stemming from Article 4 must be commenced within three years from the time the cause of action accrues.

MERS Requires No Authorization to Assign Mortgage

A Judge of the Massachusetts Superior Court, relying on earlier Massachusetts Appeals Court cases, has held that Mortgage Electronic Registration Systems, Inc. ("MERS") does not need authorization from the holder of the promissory note secured by a mortgage before assigning the mortgage to another entity.  O'Neil et al. v. The Bank of New York Mellon, 33 Mass. L. Rptr. 1, 8 (Mass. Super. July 20, 2015).

Section 35A Imposes No Time Limit on Completion of Foreclosures

The statute providing borrowers with a right to cure mortgage payment defaults before acceleration and foreclosure can occur imposes no deadline on completion of foreclosure proceedings once commenced, according to two very recent Massachusetts decisions.

First Circuit Examines Compliance Requirements Under Bank Secrecy Act

Federal law - specifically a section of the Bank Secrecy Act (31 U.S.C. § 5318(g)) (the "Act") and related regulations - requires financial institutions both "to report any suspicious transaction relevant to a possible violation of law or regulation" and forbids those institutions, government officials, and others from "notify[ing] any person involved in the transaction that the transaction has been reported."  31 U.S.C. § 5318(g).  

Fifth Circuit Court of Appeals Reaffirms MERS System Under Texas Law

The United States Court of Appeals for the 5th Circuit has held that recording Mortgage Electronic Registration Systems, Inc. ("MERS") as the holder or beneficiary of a mortgage comports with Texas law.  Harris County Texas, et al. v. MERSCORP Inc., et al., No. 14-10392, 2015 WL 3937927 (5th Cir. June 26, 2015).  This adds to the Court's prior holding in Welborn v. Bank of N.Y. Mellon Corp., 557 Fed.Appx. 383 (5th Cir. 2014), treated in this blog on April 11, 2014, that certain government entities could not recover from MERS on the basis of federal RICO statutes.

CFPB to institute TILA-RESPA Integrated Disclosure Rule on October 3, 2015

The Real Estate Settlement Procedures Act (RESPA) was enacted by Congress in 1974 in order to promote "more effective advance disclosure to home buyers and sellers of settlement costs." 12 U.S.C. § 2601(b)(1). In particular, RESPA requires the issuance of forms to the borrower that "conspicuously and clearly itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement." 12 U.S.C. § 2603(a). The related Truth-in-Lending Act (TILA) of 1968 requires that, "in the case of any consumer credit transaction," the lender "shall clearly and conspicuously disclose" to the borrower certain material terms and shall provide notice of right to cancel.  15 U.S.C. § 1635(a).  

Two Appellate Courts Hold That Banks' Duty of Care to Non-Customers Is Extremely Limited

The United States Courts of Appeals for the Sixth and Eleventh Circuits have added to the significant body of law limiting a bank's duty to non-customers harmed or defrauded by one of the bank's actual customers.  The Sixth Circuit reaffirmed that, under Michigan law, a bank only owes a duty of care to its own customers.  The Eleventh Circuit found that, under Florida law, a bank has no fiduciary relationship with its customers and only owes a duty of ordinary care in arms-length transactions with its customers, and that any aiding and abetting liability for acts of a bank's customers is limited to cases where a bank has actual knowledge of the customer's bad actions.

Striking a Balance: Judicial Liens Survive Bankruptcy Under Massachusetts Law

In an attempt to strike a balance between a debtor's right to the "fresh start" contemplated in the Bankruptcy Code and a creditor's right to collect on secured debt, the Massachusetts Supreme Judicial Court (the "SJC") has squarely held that a judicial lien survives a bankruptcy discharge unless the Bankruptcy Court has ruled that the lien should be avoided.

U.S. Supreme Court Rules That Underwater Mortgages Cannot Be "Stripped Off"

While the American economy has shown tentative signs of stabilization and recovery, the nation's courts continue to grapple with legal questions that emanate from the Great Recession and the bursting of the so-called "housing bubble."  In one notable development, the United States Supreme Court has decided an important question regarding the treatment of home mortgages in Chapter 7 bankruptcy cases (i.e., cases in which the bankruptcy trustee gathers and sells the debtor's non-exempt assets and uses the proceeds of such assets to pay creditors in accordance with the Bankruptcy Code.)  

Foreclosure Is Not Debt Collection Under the FDCPA in the 11th Circuit

The United States District Court for the Middle District of Florida has issued an opinion collecting 11th Circuit precedent and reiterating that foreclosure or other enforcement of a security interest, without more, is not "collection of any debt" under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692-1692p ("FDCPA").  While an enforcement of a security interest comingled with an attempt to collect payment on the underlying debt may fall under the FDCPA, mere foreclosure or other security enforcement does not.  Gillis v. Deutsche Bank Trust Company Americas, 2015 WL 1345309 (M.D. Fla., Mar. 23, 2015).

Massachusetts Supreme Judicial Court Upholds Obsolete Mortgage Statute

The Massachusetts Supreme Judicial Court ("SJC") has held that the provisions of the "Obsolete Mortgage" statute, Mass. Gen. L. c. 260, § 33, as amended in 2006, comport with the Massachusetts and United States Constitutions.  Deutsche Bank National Trust Co. v. Fitchburg Capital, LLC, et al., No. SJC-11756, 2015 WL 1649160 (Mass. Apr. 15, 2015).  Further, the SJC held that for purposes of the statute, a reference to the maturity date of the underlying debt secured by the mortgage is sufficient to state the "term of maturity date of the mortgage," and thereby trigger a loss of enforceability of the mortgage.  Id.

Fifth Circuit Rules Amendment to Electronic Funds Transfer Act Not Retroactive

A three-judge panel of the Fifth Circuit has ruled that a 2012 amendment to the federal Electronic Funds Transfer Act ("EFTA"), which abolished the requirement that operators of automatic teller machines ("ATM") maintain exterior notices of fees, was not retroactive.  Prior to the amendment, the EFTA required fee notices to be located both externally, "in a prominent and conspicuous location on or at the automated teller machine" and also before the close of the customer's ATM transaction, either "on the screen of the automated teller machine, or on a paper notice issued . . . before the consumer is irrevocably committed to completing the transaction."  15 U.S.C. § 1693b(d)(3) (2011). 

Supreme Judicial Court: 'Try Title' Actions Challenging Foreclosure Are Only Available After Foreclosure Occurs

In a decision handed down earlier this month, the Massachusetts Supreme Judicial Court (the "SJC") has resolved a split among Land Court justices regarding the availability of a "try title" action brought against a mortgagee prior to foreclosure.

Supreme Judicial Court Decides Forced Withdrawals From ATM Satisfy Criminal Statute's Intent Requirement

An act of theft committed by forcing the victim to withdraw money from an Automated Teller Machine ("ATM") is sufficient to trigger conviction under a Massachusetts statute prohibiting "confining to commit a felony" (see G.L. c. 265, § 21), the Supreme Judicial Court (the "SJC") decided last month.

Massachusetts Appeals Court Reaffirms MERS Mortgage System

The Massachusetts Appeals Court has reaffirmed its holding in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202 (2014), that mortgagors have standing only to challenge assignments of their mortgages that are void, not merely voidable, and that the Mortgage Electronic Registration Systems, Inc. ("MERS") system of mortgage assignments comports with Massachusetts law.  The Court in Shea v. Federal National Mortgage Association, et al., No. 13-P-1630, slip op. (Mass. App. Ct. Feb. 18, 2015), further reaffirmed that a mortgagee need not ever hold the note secured by the mortgage, and that Massachusetts law does not require authorization from the noteholder for a mortgagee to assign the mortgage to another party.

Alabama Supreme Court Holds Bank of First Deposit Must Bear Liability for Under-Encoded Check

On September 30, 2014, the Alabama Supreme Court issued an important decision with wide-ranging implications for depositary institutions.  In the case of Troy Bank and Trust Co. v. The Citizens Bank, 2014 WL 4851511 (Ala. 2014), the Court held that a bank that "under-encodes" a check is strictly liable for any loss caused by such an action under the Uniform Commercial Code.  

U.S. Supreme Court to Hear Cases Regarding Mortgage "Strip Offs"

While the American economy has shown tentative signs of stabilization and recovery, the nation's courts continue to grapple with legal questions that emanate from the Great Recession and the bursting of the so-called "housing bubble."  In one notable development, the United States Supreme Court has recently agreed to decide an important question regarding the treatment of home mortgages in Chapter 7 bankruptcy cases (i.e., cases in which the bankruptcy trustee gathers and sells the debtor's non-exempt assets and uses the proceeds of such assets to pay creditors in accordance with the Bankruptcy Code.)  Having granted certiorari in two substantially similar cases, Bank of America, N.A. v. Caulkett and Bank of America, N.A. v. Toledo-Cardona, the Supreme Court will decide whether section 506(d) of the Bankruptcy Code permits a Chapter 7 debtor to void a junior mortgage lien in its entirety when the outstanding debt owed to a senior lien holder exceeds the current value of the home in question.  In more colloquial terms, the Supreme Court will determine whether a debtor may "strip off" a junior mortgage lien that is "under water."

Fremont Investment's Mortgage Foreclosure Injunction Not Retroactive

A Massachusetts Superior Court judge has held that the 2008 injunction against foreclosure of certain Fremont Investment & Loan ("Fremont") mortgages did not apply to Fremont mortgages assigned to third parties prior to the entry of the injunction.  Moronta v. Nationstar Mortgage, LLC et al., 32 Mass. L. Rptr. No. 14, 339 (November 24, 2014) (Connors, J.).

SJC Says Springfield Foreclosure Ordinances Are Preempted

In a decision handed down earlier this month, the Supreme Judicial Court (the "SJC") has held that two foreclosure-related local ordinances enacted by the City of Springfield (the "City") are preempted by existing Massachusetts statutes.

Right-to-Cure Notice Naming Mortgage Servicer Deemed Effective

Naming a mortgage servicer as mortgagee on a statutory right-to-cure notice satisfies the requirements of the Commonwealth's pre-foreclosure right-to-cure statute, according to a recent decision of the Appeals Court.

UCC Section 4-406(f) Reporting Requirement Has Teeth

While Section 4-111 of the Uniform Commercial Code ("UCC") contains a three-year statute of limitations for filing claims against a bank for paying an unauthorized or altered item from an account, a more potent tool for banks can be found in UCC 4-406(f), a one-year statute of repose for reporting the disputed item to the bank.  Under UCC 4-406(f), a customer is required to report the disputed item to the bank within one year after the bank makes available the account statement or other documentation of the items paid, but what constitutes a "report" to the bank by the customer is not spelled out in the statute. Courts that have analyzed the issue have read UCC 4-406(f) as requiring such a report to specify the account, payment amount, check number, or other specific information identifying the unauthorized draft.  Among the methods which have failed to satisfy the reporting requirement:  Placing a blanket stop-payment order on an account and requesting copies of the account statements, Hatcher Cleaning Co. v. Comerica Bank - Texas, 995 S.W.2d 933 (Tex. App. 1999); requesting copies of potentially invalid checks from the bank, Watseka First National Bank v. Horney, 686 N.E.2d 1175 (Ill. App. 1997); reporting to the bank that a specific employee was suspected of check forgery on the company accounts, Villa Contracting Co., Inc. v. Summit Bancorporation, 695 A.2d 762 (N.J. Super. Ct. Law Div. 1996); discussing with a bank officer possible irregularities with single signatures on a dual-signature account, First Place Computers, Inc. v. Security Nat. Bank of Omaha, 558 N.W.2d 57 (Neb. 1997); reporting to the bank a belief of foul play or general notice of a possible theft, Simi Management Corp. v. Bank of America, N.A., 930 F. Supp. 2d 1082 (N.D. Calif. 2013).

Sixth Circuit Joins Majority in Rejecting Discovery Rule for UCC Check Conversion Claims

The United States Court of Appeals for the Sixth Circuit has joined with the majority of courts in rejecting application of the discovery rule for check conversion claims under the Uniform Commercial Code ("UCC").  In Pate v. Huntington Nat'l Bank, et al., 560 Fed.Appx. 506 (2014), the Sixth Circuit addressed the application of Ohio's general statutory discovery rule for the wrongful taking of personal property in the context of check conversion subject to UCC § 3-118(g).  Ohio Rev. Code § 2305.09 provides that a cause for wrongful taking of personal property "shall not accrue until the wrongdoer is discovered."  UCC § 3-118(g), on the other hand, provides that an action for conversion "must be commenced within three years after the cause of action accrues."

Tender of Full Repayment of Principal is Condition of Rescission

The 7th U.S. Circuit Court of Appeals has held that borrowers are not assured of conditions that would allow them to rescind a home mortgage loan pursuant to the federal Truth in Lending Act ("TILA"), 15 U.S.C. 1601 et seq., and that a court can condition rescission of the loan on the borrowers' tender of the full principal balance of the loan.  The Court in Iroanyah v. Bank of America, et al., 2014 WL 2198562 (7th Cir. May 28, 2014) affirmed the determination of the district court that conditioned the borrowers' rescission, and the attendant release of the banks' security interests in the home, on the borrowers' tender of the remaining principal balances within 90-days.

Identity Theft Prevention Satisfies FCRA's Legitimate Business Need Requirement

The 6th U.S. Circuit Court of Appeals has held that identity theft prevention satisfies the Fair Credit Reporting Act's ("FCRA") Legitimate Business Need requirement for purposes of FCRA compliance.  The Court in Bickley v. Dish Network, LLC, 2014 WL 1887565 (6th Cir. May 13, 2014) upheld a grant of summary judgment in favor of the defendant, who had pulled a credit report in order to verify the identity of a consumer and determine his eligibility for service.

Massachusetts Appeals Court Upholds MERS Mortgage System

The Massachusetts Appeals Court has joined the U.S. Court of Appeals for the First Circuit in upholding the Mortgage Electronic Registration Systems, Inc. ("MERS") business model under Massachusetts law.  Explicitly referencing the First Circuit's decision in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir. 2013), the Appeals Court in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202 (2014), held that mortgagors have standing to challenge an assignment of their mortgages, but only to the extent that such assignment is void, not merely voidable.  Further, the Appeals Court found that the MERS system of mortgage assignments fully comports with Massachusetts law.

RICO Claims By Government Agencies Against MERS Fail

The United States Court of Appeals for the 5th Circuit has held that government land recording offices cannot state a claim under the federal RICO statutes for loss of revenue due to fewer filing fee revenues or for allegedly inaccurate records.  Welborn v. Bank of N.Y. Mellon Corp., No. 13-30103, 2014 WL 843262 (5th Cir. March 5, 2014).

Recent Developments in the Rapidly Changing Bitcoin Market

On February 27, 2014, Fitch Law Partners LLP posted a blog article regarding the volatile market for Bitcoin and the rapid rise of the cryptocurrency over the past two-three years.  Over the past month, there have been several important new developments.

First Circuit Affirms Culhane, Woods, and MERS Assignments of Mortgages

The United States Court of Appeals for the First Circuit has reaffirmed its prior holdings in Culhane v Aurora Loan Services of Nebraska, 708 F.3d 282 (1st Cir. 2013) and Woods v. Wells Fargo Bank, N.A., 733 F.3d 349 (1st Cir. 2013) regarding Mortgage Electronic Registration Systems, Inc.'s ("MERS") assignments of mortgages.  The Court in Wilson v. HSBC Mortgage Services, Inc., 2014 WL 563457 (1st Cir. Feb. 14, 2014) found that while a plaintiff has standing to challenge a void assignment, they lack standing to challenge allegedly voidable assignments, and the MERS system for assignments comports with Massachusetts law.

A Primer on Bitcoin

Bitcoin is a relatively new 'cryptocurrency' in which in which encryption technology enables consumers and businesses to exchange goods for currency over the Internet without having to rely on the element of trust in order to ensure payment.  Users buy Bitcoins and load them onto a virtual wallet, which they can then use to transfer Bitcoins instantly and anonymously to other users anywhere in the world.  As such, there are significant cost savings and efficiency benefits associated with the use of Bitcoin as a method of currency.  As Venture Capitalist Marc Andreessen explained on the New York Times' Dealbook, "Bitcoin is the first Internetwide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies)."(1)  Many vendors are starting to consider Bitcoin in part to combat the large fees charged by credit card companies which cut into sales margins.  However, no central bank exists to regulate Bitcoin, and it entirely relies on peer-to-peer transactions and largely unregulated exchanges.

Contemporaneous Evidence of Off-Record Assignments Satisfies Ibanez

The Massachusetts Land Court division of the Trial Court has affirmed that contemporaneous evidence of off-record assignments are adequate to satisfy the requirements of U.S. Bank N.A. v. Ibanez, 458 Mass. 637 (2011).

Seventh Circuit Dismisses Allegations of Fraudulent Force-Placed Insurance

The Seventh Circuit Court of Appeals recently dismissed a borrower's putative class action lawsuit under the Illinois Consumer Fraud and Deceptive Business Practices Act, alleging that a lender and insurer fraudulently insured the borrower's property after the borrower's homeowner's policy expired.  In Cohen v. American Security Insurance Co., 735 F.3d 601 (7th Cir. 2013), the homeowner held a secured loan with Wachovia Mortgage, FSB, which required her to maintain homeowner's insurance on the residence as a condition of her loan agreement.  When the homeowner's policy lapsed, Wachovia purchased replacement coverage at a rate more than twice as expensive as she had previously paid.  Id. at 603.  Wachovia charged the homeowner for the cost of the replacement coverage.  Id.  The coverage procured by Wachovia also included a commission to Wachovia's insurance agent affiliate, a feature allowed under the loan agreement.  Id.

First Circuit Finds No Private Right of Action Under HAMP

The First Circuit has affirmed a holding finding that no private right of action exists for homeowner-borrowers under the Home Affordable Modification Program ("HAMP"), bringing clarity on this issue to courts within the Circuit.  In the underlying mater, Mackenzie v. Flagstar Bank, FSB, 2013 WL 139738 (D. Mass. Jan. 9, 2013) aff'd, 2013 WL 6840611 (1st Cir. Dec. 30, 2013), Magistrate Judge Bowler of the United States District Court had held a borrower is not an intended third-party beneficiary of the Servicer Participation Agreement ("SPA") among the banks and the federal government relating to HAMP.  The District Court further held that absent an independent duty to modify the mortgage, neither the existence of a mortgagor-mortgagee relationship nor HAMP itself created any duty enforceable by the borrower.

Washington and Colorado State Banking Associations Request Federal Guidance Regarding Banking Activities with Marijuana Producers

In the fall of 2012, voters in both Colorado and Washington introduced a new era in the United States when they voted to legalize the sale of marijuana.  In response to the landmark referenda, the Department of Justice issued a revised "Guidance Regarding Marijuana Enforcement" on August 29, 2013.  The DOJ Guidance noted that the federal Controlled Substances Act includes several important priorities with respect to marijuana, including preventing access of minors to marijuana, preventing revenue from the sale of marijuana going to criminal enterprises, preventing violence, and preventing drugged driving.  While the DOJ Guidance states that state and local law enforcement in jurisdictions that have legalized marijuana in some form should remain the "primary means" of addressing marijuana-related activity, the DOJ warns that the federal government may continue to "bring individual enforcement actions, including criminal prosecutions," focused on that activity.

Mississippi Joins Jurisdictions Approving Contractual Reduction of Check Fraud Reporting Deadline

Mississippi has joined the growing list of jurisdictions that have approved contractual reductions of the one-year reporting deadline for certain check fraud claims found in Uniform Commercial Code ("UCC") section 4-406(f).  In Century Construction Co., LLC v. BancorpSouth Bank, 117 So.3d 345, 80 UCC Rep.2d 1073 (Miss. Ct. App. 2013), the Mississippi Court of Appeals found that a term in the customer's deposit account agreement requiring the customer to report check fraud claims within 60 days of the issuance of the account statement listing the subject check was valid and enforceable.

Federal Circuits Split on Required Action to Effect Rescission under Truth-in-Lending Act

The federal Circuit Courts of Appeal are split on the important question of what is required of a consumer who claims not to have received the proper disclosures from a lender and who wishes to rescind the loan within the three-year period following the closing.

RESPA Qualified Written Requests May Not Be Used to Create Foreclosure Defenses

The United States District Court for the District of Massachusetts has held that failure to respond to a purported Qualified Written Request, sent to a loan servicer pursuant to the Real Estate Settlement Procedures Act, 12 U.S.C. 2605 et seq. ("RESPA"), cannot serve as a defense to collection of a promissory note where a defendant suffered no actual damages as a result of any purported RESPA violation.  Santander Bank v. Sturgis, et al., (C.A. No. 11-10601-DPW) (D. Mass. Nov. 13, 2013).

Claims Against Failed Institutions Must Comply with Claims-Processing Regime Set Forth in FIRREA

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.

Try Title Action May Be Available Against Mortgagees, Or Not

A decision from the Land Court has muddied the waters regarding whether a mortgagor can raise a claim under the Massachusetts try title statute against a mortgagee.  A 2012 Land Court decision by Judge Robert B. Foster found that the try title statute was unavailable to a mortgagor prior to foreclosure.  In Abate v. Fremont Investment & Loan, et al., Judge Foster found that until foreclosure, during which the mortgagor's equitable title is extinguished, the mortgagor and mortgagee hold complementary equitable and legal title to the property, and have no adverse claims.  The First Circuit reached a similar decision in July in Lemelson, et al. v. U.S. National Bank Association.

Class Action Certification Denied To HAMP Plaintiffs

The United States District Court for the District of Massachusetts has denied class certification to a group of individual borrowers alleging that Bank of America mishandled their loan modification requests pursuant to the Home Affordable Modification Program.

Title Insurer Not Required to Defend Suit Against Validity of Underlying Debt

The Massachusetts Supreme Judicial Court has held that a title insurer has no duty to defend a bank against a third-party suit challenging the validity of the underlying debt, absent a specific provision in the title insurance policy envisioning such a claim.  Deutsche Bank National Association v. First American Title Insurance Company, 465 Mass. 741 (2013).

Mortgage Holder Is Not Debt Collector Under FDCPA

The United States Bankruptcy Court for the District of Massachusetts has held that the holder of a mortgage is not a "debt collector" within the meaning of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §1692 et seq.  In Re: Gill, Stephen D., et al., Chapter 7 Case No. 09-15976-JNF; Adv. P. No. 13-1111.

Mortgage in Default Not Enough for Try Title Action

The First Circuit has held that, under Massachusetts law, a mortgagee's interest in a mortgage in default is inadequate to state a claim under the Massachusetts try title statute.  The Plaintiffs in Lemelson, et al. v. U.S. Bank, N.A. filed suit under the Massachusetts try title statute, asserting that U.S. Bank's interest in the property as mortgagee constituted a adverse claim on their record title to the property.

Bank's Duty to Non-Customers Limited to Actual Knowledge of Misappropriation

In a recent case, Bernkopf Goodman LLP v. Herbert, 2013 WL 803521 (March 21, 2013), Massachusetts Federal District Judge Zobel considered the scope of a bank's duty of care to non-customers in cases of alleged misappropriation by an account holder. The plaintiff, Bernkopf Goodman LLP (the "Firm"), alleged that its payroll company, Checkmaster Payroll Service ("Checkmaster"), had misappropriated funds that were supposed to be used to pay the Firm's taxes. In addition to naming Checkmaster as a defendant, the Firm sued the two banks that Checkmaster used to transfer the Firm's funds that were supposed to be paid to the I.R.S.  The Firm claimed that the banks were negligent in failing to prevent the alleged misappropriation.

Consumer Financial Protection Bureau Eliminates Dual Notice Requirement Regarding ATM Fees

The Federal Consumer Financial Protection Bureau ("CFPB") recently amended Regulation E, 12 CFR 1005.16 ("Reg. E"), to eliminate duplicative fee notice requirements on ATM machines.  As a result of the March 26, 2013 amendment, banks will no longer be liable for failing to post notice on the ATM machine of a user fee for non-customers of the bank, even though a more specific warning is provided on the screen before an ATM transaction can be completed.

UCC Article 9 Damages Provisions Displace Common Law

In a case handed down just last month, the Supreme Judicial Court reinforced the long-standing rule that provisions of the Uniform Commercial Code (the "UCC") displace common law principles that would otherwise apply in contexts not governed by the UCC.

First Circuit Upholds MERS Mortgage System Under Massachusetts Law

The First Circuit has affirmed a holding finding that the system under which mortgages are held in the name of Mortgage Electronic Registration Systems, Inc., commonly known as MERS, comports with Massachusetts law relating to mortgage transactions.  In the underlying matter, Culhane v. Aurora Loan Services of Nebraska, 826 F.Supp.2d 352 (D.Mass. 2011), Judge Young of the United States District Court had held that a mortgagor possesses standing to challenge the chain of assignment of his or her mortgage in defense to a foreclosure action, but further held that the MERS system of registration and transfer of mortgages is lawful.

No Implied Covenant Before Mortgage Note Executed

Massachusetts' implied covenant of good faith and fair dealing does not apply to negotiations and contract preparations for a mortgage and accompanying promissory note, the First Circuit has held.  In Latson v. Plaza Home Mortgage, Inc., the plaintiffs filed suit against their lender alleging, among other claims, violation of the implied covenant based on the lender's alleged failure to provide a proper commitment letter, good faith estimate, or other documents required by law, and gave them insufficient opportunity to review the terms in the loan documents.   The United States District Court for the District of Massachusetts dismissed the case for failure to state a claim, and the borrowers appealed.

Even Technical Errors Can Invalidate Foreclosure

Even technical errors in mortgage and foreclosure documents can invalidate the foreclosure and subsequent sale of a condominium unit, according to the Massachusetts Housing Court.  Following foreclosure, and purchase at the foreclosure sale by the foreclosing bank, the former owner asserted that erroneous references in the foreclosure documentation for the unit invalidated the foreclosure and left her with the superior right of possession.  The Housing Court, J. Muirhead, agreed and invalidated the foreclosure.  East West Bank v. Chung, Lawyers Weekly No. 17-001-13.

Liability for Payment of Note Required to Rescind Mortgage

A mortgagor who is not personally liable for payment of the note securing a property loan cannot rescind the loan transaction or mortgage, the United States Bankruptcy Court for the District of Massachusetts has held.  In re Smith-Pena v. Wells Fargo Bank, N.A.In re Smith-Pena v. Wells Fargo Bank, N.A., 2013 WL 28696 (Bankr. D. Mass. Jan. 2, 2013).

Standing Is Limited In 'Soldiers and Sailors' Actions - For Both Plaintiffs and Defendants

Earlier this week, the Massachusetts Supreme Judicial Court (the "SJC") held that a plaintiff who is not a present mortgagee (or the mortgagee's agent) has no standing to bring an action under the Massachusetts Soldiers' and Sailors' Civil Relief Act for a determination that the named defendant is not entitled to the protections of the Federal Servicemembers Civil Relief Act (the "SCRA"). 

First Circuit Court of Appeals Hears Culhane Case

A panel of the United States Court of Appeals for the First Circuit heard oral argument in the matter of Oratai Culhane v. Aurora Loan Services of Nebraska earlier this week.  The panel was comprised of Chief Judge Hon. Sandra L. Lynch, Senior Circuit Judge Hon. Bruce M. Selya, and retired U.S. Supreme Court Associate Justice Hon. David H. Souter, sitting by designation.  The Culhane case is notable for District Court Judge Hon. William G. Young's discussion in a summary judgment decision of Mortgage Electronic Registration Systems, Inc. ("MERS") and the propriety of MERS's system of assigning mortgages held in its name to loan servicers prior to foreclosure.  See Culhane v. Aurora Loan Serv. of Neb., 826 F. Supp.2d 352 (2011).  

EFTA Amendments to Deter Serial Plaintiffs

Banks and other financial institutions that maintain ATMs got good news from Congress to close out the year.  On December 11, 2012, the Senate passed H.R. 4367 by unanimous consent, following passage by the House of Representatives in July.  The bill now moves to the President's desk for his signature.  H.R. 4367, as passed, amends the Electronic Funds Transfer Act to remove the placard fee disclosure requirement for ATMs operated by a financial institution other than the institution at which a consumer has an account.

Foreclosure By Entry Is Effective Method for Mortgagee to Gain Fee Simple Title

The Massachusetts Land Court's decision this fall in HS Land Trust LLC v. Gonzalez, Civ. Action No. 11 Misc. 446482 (October 30, 2012), serves as a useful reminder that a foreclosure by entry - which often accompanies a foreclosure by sale - is a perfectly valid method of obtaining title following the breach of a mortgage's conditions.  

Senator-elect Elizabeth Warren Appointed to Senate Banking Committee

The Democratic Steering Committee has approved the assignment of Senator-elect Elizabeth Warren, one of the most vocal critics of the financial services sector, to the Senate Banking Committee.  Warren previously led a congressional oversight panel that criticized the government's so-called "bank bailout" in the wake of the financial crisis.  Warren was the driving force behind the creation of the new Consumer Financial Protection Bureau, an agency created by the Dodd-Frank financial system overhaul.  Her potential appointment to head the Bureau, however, drew strong objections from Senate Republicans.  When the appointment went to former Ohio attorney general Richard Cordray, Warren instead successfully challenged incumbent Senator Scott Brown's reelection.

Allegations on 'Information and Belief' Not Enough to Stop Mortgage Foreclosures

One less-discussed but important aspect of the Supreme Judicial Court's ("SJC's") decision in Eaton v. National Federal Mortgage Association, 462 Mass. 569 (2012), is found in its most narrow ruling.  Even though the Court held that the named plaintiff, Henrietta Eaton, could benefit from the SJC's pronouncements despite an otherwise prospective application, the Court nonetheless struck down the preliminary injunction that brought Ms. Eaton to the SJC in the first place.

Beyond Summary Process: The Preclusive Effect of Eviction Actions

Last year, in Bank of New York v. Bailey, 460 Mass. 327 (2011), the Supreme Judicial Court (the "SJC") ruled that a Housing Court judge presiding over an eviction matter could hear a post-foreclosure mortgagor's claim that the foreclosure sale allegedly divesting him of title was defective - and thus, he should not be ousted from the property.  The Bailey decision's impact will likely be felt in not only in summary process sessions, however, but also in other fora where summary process decisions are likely to be given preclusive effect. 

Prospective Effect of Eaton Should Chill Litigation In 'Unity of Note and Mortgage' Cases

The Supreme Judicial Court's ("SJC's") self-imposed limitation on applicability of Eaton v. Federal National Mortgage Association, 462 Mass. 569 (2012) should reduce to a trickle the once-steady stream of foreclosure-related claims asserting that a mortgagee must hold the underlying note in order to effectively foreclose in Massachusetts. 

Re-foreclosure as a Remedy: Bevilacqua and Eaton

Last fall, in Bevilacqua v. Rodriguez, 460 Mass. 762 (2011), the Supreme Judicial Court (the "SJC") quashed the hopes of many that a "try title" action available by statute in Massachusetts would provide a mechanism to clear the title of a post-foreclosure owner whose predecessor failed to obtain a mortgage assignment prior to conducting a foreclosure sale.  (See U.S. Bank National Association v. Ibanez, 458 Mass. 637 (2011) for discussion of this particular title defect.)

Go-Best: An Important Massachusetts Banking Law Decision

On July 30, the Massachusetts Supreme Judicial Court ("SJC") issued an important decision in a Ponzi scheme captioned Go-Best Assets Limited v. Citizens Bank of Massachusetts, 463 Mass. 50 (2012).  

A Safe Harbor For Banks And Their Employees Who Contact Law Enforcement Authorities

In the course of performing their job duties, bank tellers and their supervisors may occasionally be asked to perform a transaction that appears to be somewhat suspicious.  For example, a non-customer of the bank may arrive in the teller line and ask to cash a large check drawn on an account of one of the bank's customers.  In some such cases, bank personnel may come to believe that the subject transaction is fraudulent.  While most banks have very detailed procedures for addressing these situations, bank personnel must sometimes make a quick decision about whether to alert law enforcement personnel.  In certain cases, though, bank employees may have concerns about whether they will incur civil liability to the non-customer if they alert the police but the transaction ultimately turns out to be legitimate.  While such concerns are certainly understandable in our highly litigious society, bank personnel can take some comfort in knowing that federal law provides them with considerable protection in these situations.

The "Same Wrongdoer" Defense In Check Fraud Litigation

In "check fraud" litigation, bank customers often sue their banks after learning that someone has made a forged or otherwise unauthorized signature on the front of one or more of the customer's checks.  It often turns out that the fraudster has perpetrated the scheme over a long period of time and has made unauthorized signatures on many different checks.   This article offers a brief overview of the "same wrongdoer" rule, an important defense that is available to banks in such cases under the Uniform Commercial Code ("UCC") as adopted in Massachusetts.

Bank of New York v. Bailey: Is Non-Judicial Foreclosure An Oxymoron?

In Massachusetts, mortgage foreclosure has long been considered "non-judicial," meaning that it is unnecessary to initiate an action before a Court to foreclose, and there is no judicial oversight of foreclosures unless a mortgagor brings a claim based on alleged improprieties in the exercise of the power of sale. 

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