Articles Posted in Banking

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Fried bought a home in 2007 for $553,330; an appraisal estimated the home’s value at $570,000. Fried borrowed $497,950 at a fixed interest rate. Because the loan-to-purchase-price ratio was more than 80%, Chase, the servicer for Fried’s mortgage required her to obtain private mortgage insurance. Fried had to pay monthly premiums for that insurance until the ratio reached 78%; projected to happen around March 2016. After the housing market crashed in 2008, Fried had trouble making mortgage payments. Chase modified Fried’s mortgage under the Home Affordable Mortgage Program, part of the Emergency Economic Stabilization Act of 2008, by reducing the principal balance to $463,737. By reassessing the value of Fried’s home at the time of the modification, Chase extended Fried’s mortgage insurance premiums to 2026. The district court declined to dismiss Fried’s purported class action under the Homeowners Protection Act, 12 U.S.C. 4901. The Third Circuit affirmed, finding that the Act does not permit a servicer to rely on an updated property value, estimated by a broker, to recalculate the length of a homeowner’s mortgage insurance obligation following a modification; the Act requires that the ending of that obligation remain tied to the initial purchase price of the home. View "Fried v. JP Morgan Chase & Co" on Justia Law

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In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

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After a foreclosure case, Davis filed various claims against an entity that he calls “Wells Fargo U.S. Bank National Association as Trustee for the Structured Asset Investment Loan Trust, 2005-11” as the purported holder of Davis’s mortgage. Davis also sued Assurant, believing it to be the provider of insurance on his home. His claims arise from damage that occurred to his house after Wells Fargo locked him out of it, which went unrepaired and worsened into severe structural problems. The district court dismissed Davis’s claims against Wells Fargo, on the grounds that claim preclusion and a statute of limitations barred recovery, and claims against Assurant for lack of subject matter jurisdiction. The Court reasoned that Davis lacked standing to bring those claims because he sued the wrong corporate entity, namely Assurant, when he should have sued Assurant’s wholly-owned subsidiary, ASIC. The Third Circuit affirmed dismissal of Wells Fargo, but vacated as to Assurant. Standing is a jurisdictional predicate, but generally focuses on whether the plaintiff is the right party to bring particular claims, not on whether the plaintiff has sued the right party. View "Davis v. Wells Fargo" on Justia Law

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Goldenstein, obtained a $1,000 online loan from a company owned by Chippewa Indians, incorporated under Chippewa tribal law, and authorized to issue loans secured by vehicles at interest rates greater than permitted under Pennsylvania law. Goldenstein pledged his car and was charged 250 percent interest. The company, after deducting a $50 transfer fee and wiring $950 to Goldenstein, withdrew installments of $207.90 from Goldenstein’s bank account in June and July. Goldenstein removed funds from the account because he did not recognize the activity on his bank statements. When the company attempted to collect the August installment, it was rejected for insufficient funds. Repossessors took Goldenstein’s car. Goldenstein was told that his payment would not be accepted, nor his car returned unless he signed releases. Goldenstein paid $2,393 ($2,143 for the loan and $250 in repossession fees), signed the releases, then filed suit, claiming violations of the Fair Debt Collection Practices Act, 15 U.S.C. 1692–1692p; Pennsylvania’s Fair Credit Extension Uniformity Act and Uniform Commercial Code; and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(c). The Third Circuit vacated summary judgment in favor of the defendants on the RICO and state law claims, but affirmed as to the FDCPA claim. Forfeiture of collateral can amount to “collection of unlawful debt” under RICO, but defendants had a right to possession and did not violate the FDCPA by repossessing the car. View "Goldenstein v. Repossessors Inc." on Justia Law

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Plaintiffs obtained residential mortgage loans from M&T to finance the purchase of their homes and, because the loans exceeded 80% of the value of the residences, agreed to pay for private mortgage insurance. As is customary, M&T selected the insurers who, in turn, reinsured the insurance policy with M&T Reinsurance, M&T’s captive reinsurer. Beginning in 2011, counsel sent letters to Plaintiffs advising that they were investigating claims concerning M&T’s captive mortgage reinsurance. Plaintiffs agreed to be part of a lawsuit against M&T and filed a putative class action complaint alleging violations of the anti-kickback and anti-fee-splitting provisions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2607, and unjust enrichment. After discovery, the court granted M&T summary judgment, finding the claims time-barred and that Plaintiffs could not equitably toll the limitations period because none of them had exercised reasonable diligence in investigating any potential claims under RESPA. The Third Circuit affirmed, noting that the one-year statute of limitations runs “from the date of the occurrence of the violation,” View "Cunningham v. M&T Bank Corp." on Justia Law

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In 2007 fraudulent checks in the amount of $181,577 were cashed against the accounts of seven Citizens Bank customers in New York, Pennsylvania, and Delaware. Fraud investigator Swoyer discovered that Tolliver’s employee number was the only one used to access all of the accounts; only Tolliver and one assistant manager worked on all of the days on which the accounts were accessed.. Swoyer, Postal Inspector Busch, and a Secret Service agent interviewed Tolliver. At trial, Swoyer testified that he reviewed Tolliver’s entire logbook with her and that Tolliver told him that she had not given her password to anyone and that she always logged off her computer when she walked away from a terminal. Seven of Tolliver’s former co-workers testified they never knew Tolliver’s password or saw it written down. A jury convicted Tolliver of bank fraud, 18 U.S.C. 1344, aggravated identity theft, 18 U.S.C. 1028A(a), and unauthorized use of a computer, 18 U.S.C. 1030. The court imposed a below-Guidelines sentence of 30 months’ imprisonment and restitution. The Third Circuit affirmed. Tolliver, represented by newly appointed counsel, filed a 28 U.S.C. 2255 motion, claiming that her trial counsel was ineffective by failure to investigate. The district court granted her motion without holding an evidentiary hearing. The Third Circuit vacated. View "United States v. Tolliver" on Justia Law

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Mortgage Electronic Registration Systems (MERS) is a national electronic loan registry system that permits its members to transfer, among themselves, promissory notes associated with mortgages, while MERS remains the mortgagee of record in public records as “nominee” for the note holder and its successors and assigns. MERS facilitates the secondary market for mortgages by permitting members to transfer the right to repayment pursuant to the terms of the promissory note, recording such transfers in the MERS database to notify one another and establish priority, instead of recording such transfers as mortgage assignments in local land recording offices. It permits note holders to avoid recording fees. Recorders of deeds in Pennsylvania counties sued, seeking an injunction, and to recover millions of dollars in unpaid recording fees, contending that the MERS entities violated 21 Pa. Cons. Stat. 351. The Third Circuit rejected the claims, holding that section 351 does not create a duty to record all land conveyances and is so clear that certification to the Supreme Court of Pennsylvania was unnecessary. The transfers of promissory notes among MERS members do not constitute assignments of the mortgage itself. View "Cnty. of Montgomery Recorder v. MERSCorp Inc" on Justia Law

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Plaintiffs described a predatory lending scheme affecting numerous borrowers nationwide, allegedly masterminded by Shumway, a residential mortgage loan business operating through other entities and title companies, to offer high-interest mortgage-backed loans to financially strapped homeowners. As a non-depository lender, Shumway was subject to fee caps and interest ceilings imposed by state mortgage lending laws. Plaintiffs claimed that, to circumvent those limitations, Shumway formed associations with banks, including CBNV and Guaranty, which were depository institutions. Plaintiffs alleged that CBNV and Guaranty uniformly misrepresented the apportionment and distribution of settlement and title fees on their HUD–1 Settlement Statement forms. The district court certified a nationwide class of individuals who received residential mortgage loans from CBNV. Two previous appeals involved certification of settlement classes. In a third appeal, the Third Circuit rejected arguments that there was a fundamental class conflict that undermines the adequacy of representation provided by class counsel; that the court conditionally certified the class and thus erred; and that the putative class does not meet the ascertainability, commonality, predominance, superiority, or manageability requirements of Federal Rule of Civil Procedure 23. View "In re: Community Bank of N. Va." on Justia Law

Posted in: Banking, Class Action

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In 2011 Lehman filed suit, claiming Gateway was obliged to make good on mortgage loans that Lehman’s subsidiary purchased almost 10 years earlier from Arlington Capital. In 2007 contracts, Arlington agreed to indemnify Lehman for losses on those loans. The following year, Arlington sold its assets to Gateway. The district court held that although it was clear Arlington was liable to Lehman on three loans, it was unclear whether Gateway was liable for Arlington’s debts and a trial was necessary to determine whether a de facto merger had taken place between Gateway and Arlington. After considering the evidence, the court concluded that a de facto merger had occurred and held Gateway for $450,000 plus interest. The Third Circuit affirmed. Gateway violated FRCP 10 when it failed to include in the appellate record a transcript necessary to evaluate its principal claim, so that claim forfeited. Gateway’s other claims lacked merit. View "Lehman Bros. Holdings Inc v. Gateway Funding Diversified Mortg. Servs., LP" on Justia Law

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Kaymark defaulted on a mortgage held by Bank of America (BOA). On behalf of BOA, Udren Law Offices initiated foreclosure proceedings. The body of the Foreclosure Complaint listed not-yet-incurred fees as due and owing, which, Kaymark alleged, violated state and federal fair debt collection laws and breached the mortgage contract. The Third Circuit reversed dismissal of claims that the disputed fees constituted actionable misrepresentation under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692, but affirmed dismissal of all other claims. By attempting to collect fees for legal services not yet performed in the mortgage foreclosure, Udren violated FDCPA section 1692e(2)(A), (5), and (10), which imposes strict liability on debt collectors who “use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and section 1692f(1) by attempting to collect “an[] amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” The court analogized to similar claims in a debt collection demand letter. View "Kaymark v. Bank of America NA" on Justia Law