Cover Letter from Loan Servicer May Unwittingly Change Terms of Forbearance Agreement

In Traut v. Quantum Servicing Corp., on the grounds that a cover letter accompanying a forbearance agreement may have altered the terms of that agreement, the Massachusetts federal court denied a loan servicer's motion for summary judgment in a lawsuit where the borrowers claimed breach of contract arising out of a loan modification agreement. The forbearance agreement required an additional down payment and six monthly installment payments. The cover letter to that agreement stated that the loan "will be modified," modification documents "will be generated" and some of the arrearage would be forgiven if six monthly payments were made. The servicer did not permanently modify the loan because two of the six payments on the forbearance agreement were late resulting in a breach. More ›

Business Records Exception Used to Attack Foreclosure Action in Maine Supreme Court

The Maine Supreme Court, using a recent interpretation of the business records exception to the hearsay rule under Maine law, has raised questions regarding mortgage loan servicers' ability to foreclose on defaulted borrowers. An essential element of proof in any Maine judicial foreclosure action includes evidence of default, and in Key Bank Nat'l Ass'n v. Estate of Quint, the Court affirmed exclusion of a prior servicer's screenshots submitted to demonstrate the amount a borrower owed, costs incurred and the outstanding principal balance in pursuit of a judicial foreclosure action. The current servicer's witness testified to establish default on review of the prior servicer's business records and under exception to hearsay, but the trial judge concluded that the witness had not established the hearsay exception with regard to records of the prior servicer. More ›

Mortgages or milk - do you need to check your expiration date?

There are borrowers out there who believe that the Massachusetts Obsolete Mortgage Statute, M.G.L. c. 260 sec. 33, relieves them of their repayment obligations. This statute, amended back in 2006, provides that five years after a mortgage reaches its term (or 35 years after the time the mortgage is recorded where a maturity date is not specified) it will be discharged by operation of law absent the timely recording of an extension or affidavit. The 2006 amendment specifically applied to all existing mortgages. The law is supposed to provide clarity in conveyancing and protect borrowers if their mortgagee or servicer failed to issue a discharge of the mortgage after the mortgage reaches its term.

In Hayden v. HSBC Mortgage, the borrowers alleged that the statute should apply to their loan and the loan should be discharged by operation of law because five years had passed from the time the servicer had accelerated the loan. Mortgagees and servicers can rest easy, however, because the First Circuit rejected this theory outright. In a succinct and emphatic rejection, the court held that "[n]othing in the text of the statute supports the Haydens' assertion that the acceleration of the maturity date of a note affects the five-year limitations period for the related mortgage." Thus, a borrower's milk will undoubtedly expire well before his mortgage.

Take Note: Employers are Helping Pay Student Loans and Consumer Advocates are Watching Closely

A growing number of employers are offering student loan repayment assistance as a means of attracting and retaining talent. Industries like tech, financial services, and health services are among the early adopters, offering variations of the same general benefit:  the employer agrees to pay a certain amount—either a set figure or a percentage of salary—toward their employee’s student loan debt. Since student loan repayment benefits are relatively novel, the rules for both employers offering the benefit, and the student loan servicers administering it, are not yet explicit. More ›

Attention Mortgage Loan Servicers: Highest Court in Massachusetts Attempts to Clarify When Default Notices Must Strictly Comply with Paragraph 22 of the Standard Mortgage

The Massachusetts Supreme Judicial Court (SJC) provided further guidance - up to a point - on mortgagees’ strict compliance with the notice of default provisions within paragraph 22 of the standard mortgage (or the equivalent) and when that standard takes effect. Mortgage holders have litigated this issue for years in Massachusetts, and the SJC first addressed compliance with paragraph 22 in a July 17, 2015 decision Pinti v. Emigrant Mtge. Co., 472 Mass. 226 (2015). In Pinti, the SJC ruled that "strict compliance" with paragraph 22 was required to effectuate a valid foreclosure pursuant to the statutory power of sale. Understanding that this decision would invalidate hundreds and potentially thousands of foreclosures in Massachusetts, the SJC held that its newly minted strict compliance standard would apply prospectively from its July 17, 2015 decision. However, the SJC neglected to address whether the strict compliance standard would apply to cases already filed in the trial and appellate courts. This caused conflicting decisions by the Massachusetts courts and required the SJC to review its Pinti decision in short term after several appeals were filed. More ›

Climate for Student Loan Oversight Gets Hotter with Recommendation of Top CFPB Student Loan Official for FTC Commissioner

While most mainstream media outlets are pulling a Jan Brady and reporting "Comey, Comey, Comey," the consumer financial services community should be chewing on a different name right now: "Chopra, Chopra, Chopra."

U.S. Senate Minority Leader, Chuck Schumer (D, NY), has recommended to the President, Rohit Chopra, former Consumer Financial Protection Bureau Student Loan Ombudsman for an open Democratic seat on the Federal Trade Commission. As the former CFPB Ombudsman, Chopra held a high post in the Bureau, interacting directly and routinely with Director Richard Cordray, and helping to prioritize—and importantly, publicize—student loan policy and enforcement initiatives for the Bureau that have long outlasted Chopra's tenure. Chopra has been known to draw comparisons between the mortgage and student loan industries, calling for greater data transparency in the student loan industry. More ›

Franz Kafka, Sisyphus, and Foreclosures: Bank of America Fined $45 Million by Bankruptcy Court For Violation of Automatic Stay

"Franz Kafka lives. This automatic stay violation case reveals that he works at Bank of America." Thus begins an opinion stretching over 100 pages in length in which United States Bankruptcy Judge Christopher Klein fined Bank of America over $45 million for what he found to be an egregious violation of the automatic bankruptcy stay.

According to the order, the Sundquists, at the behest of advice given them by Bank of America, defaulted on their real property loan in 2009 so that they could be considered for a loan modification. The court found that this was followed by a "'multi-year 'dual tracking" game of cat-and-mouse" by Bank of America, which included repeated requests for information which had grown stale and incomprehensible denials of applications. Most central to the court's holding was that, although the Sundquists filed a Chapter 13 bankruptcy petition in June 2010, Bank of America proceeded with a foreclosure sale even though it had notice of the Sundquists' bankruptcy case. Clearly meaning to send a signal which would be heard in the bank's highest offices (in addition to Kafka, the opinion also references the myth of Sisyphus and the Watergate scandal), the court was clearly moved by the emotional distress documented by the plaintiffs (which included discussions of suicide attempts). More ›

No RESPA Claim for Violation of Written Acknowledgement Requirement under Regulation X

Last summer, the Consumer Financial Protection Bureau (CFPB) published its final rule amending existing mortgage servicer rules in Regulation X of the Real Estate Settlement Procedures Act (RESPA). Recently, the Eleventh Circuit Court of Appeals had the opportunity to determine what kind of damages might arise from a violation of Regulation X’s written acknowledgment requirement.

The answer in this case was no concrete harm, with the Court affirming dismissal of a borrower's claim for violations of the 5 day written response acknowledgment provision of 12 C.F.R. § 1024.36(c). The borrower had sued his mortgage loan servicer for RESPA violations after his lawyer sent the servicer a Request for Information certified mail return receipt requested, and the servicer responded by returning the certified mail green card and by providing a substantive response 9 days later. More ›

A Spike in Student Loan Defaults Likely to Trigger Follow-on Litigation Surge

The student lending industry should pay close attention to the onslaught of litigation that mortgage loan servicers have faced for years. I recently authored an article on this topic for Law360. A Consumer Federation of America analysis has indicated that student loan defaults have risen at least 14 percent since 2015. Such a trend will likely make student lending market participants susceptible to increased regulatory scrutiny, and could also result in a spike in follow-on private litigation. More ›