Florida Fourth District Court of Appeals Rules in Bank’s Favor in Foreclosure Action Based on an eNote

On April 20, a Florida District Court of Appeals issued an opinion affirming a lower court’s final judgment in favor of a bank (Bank) in a foreclosure action against borrowers who signed a mortgage note electronically (eNote). Rivera v. Wells Fargo Bank, N.A., No. 4D14-2273 (Fla. App. April 20, 2016). In the proceedings below, the Bank had presented a sworn certificate of authentication which articulated, among other things, the Bank’s role as servicer of the eNote for Fannie Mae, and describing the Bank’s practices and systems used for the receipt and storage of authoritative copies of electronic records and for protecting electronic records against alteration. The Bank also provided evidence from the same system records and the records of MERSCORP, Inc., as provided for in the terms of the eNote itself, showing that the eNote was last transferred to Fannie Mae and that the authoritative copy of the eNote was maintained in the Bank’s systems as Fannie Mae’s custodian. On appeal, the borrowers challenged the adequacy of the Bank’s demonstration that the eNote had properly transferred to Fannie Mae, thus challenging the Bank’s standing to enforce the eNote and foreclose the mortgage as Fannie Mae’s authorized representative.  Read more…

LinkedInFacebookTwitterGoogle+Share

New York Supreme Court Reverses Lower Court’s Ruling in Foreclosure Case; Observes eNote and Transfer History Sufficient under ESIGN

On April 13, the New York Supreme Court, Appellate Division, Second Department issued an opinion reversing a lower court order dismissing a foreclosure action against a borrower who signed a mortgage note electronically (“eNote”). New York Community Bank v. McClendon, 2016 N.Y. Slip Op. 02790 (N.Y. Supp. April 13, 2016). In the proceedings below, the lower court had granted the borrower’s motion to dismiss the foreclosure complaint for lack of standing, accepting the argument that the plaintiff mortgagee lacked standing because it could not produce a chain of valid assignments of the eNote from the original lender to itself. In opposition to the motion to dismiss, the mortgagee had submitted, among other things, a copy of the eNote and a print out of an electronic record of the transfer history of the eNote (“Transfer History”) showing a chain of transfers from the original lender to itself. The court observed that the eNote qualified as a “Transferable Record” under Section 201 of the Electronic Signatures in Global and National Commerce Act (“ESIGN”) and that a person is in “control” of a Transferable Record if “a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.” Citing the UCC, the court further observed that the holder of the eNote would have standing to foreclose and that any person with “control” of the eNote is its holder. After establishing this legal framework, the court concluded that the Transfer History, together with the eNote, were sufficient to establish that the plaintiff mortgagee had control of the eNote under ESIGN and therefore had standing to foreclose as the holder. According to the court, because these rules governing Transferable Records applied to the eNote, the failure of the plaintiff mortgagee to produce proof of assignment was “irrelevant” and the complaint should not have been dismissed for lack of standing.

LinkedInFacebookTwitterGoogle+Share

Supreme Court Order Allows Victims of Terrorism to Collect from Frozen Funds of Iranian Central Bank

On April 20, the Supreme Court held in Bank Markazi v. Peterson that Section 8772 of the Iran Threat Reduction and Syria Human Rights Act of 2012 does not violate separation of powers principles. Bank Markazi v. Peterson, No. 14-770, slip op. (U.S. April 20, 2016). In a 6-2 decision, the Court concluded that Section 8772, which made certain frozen Iranian assets held in the U.S. subject to attachment to satisfy judgment in favor of persons injured by Iranian terrorism or Iran-supported terrorism, does not “transgress constraints placed on Congress and the President by the Constitution” and is not a “‘one-case-only regime.’” At issue was whether plaintiffs in a wrongful-death case related to the 1983 Beirut bombings could satisfy an award in their favor from billions of Bank Markazi’s dollars that are frozen in a New York bank account. In 2007, a federal district court awarded more than one thousand American victims of Iran-related terrorism $2.65 billion in relief. In 2013, a U.S. federal district court rejected the Iranian central bank’s argument that Section 8772 violated separation of powers principles because it was meant to dictate the outcome of the present case, and ordered the bank to pay the victims using frozen assets in the United States. In 2014, the Second Circuit affirmed the district court’s ruling. The Supreme Court’s recent decision affirms the lower court’s ruling, finding that “[Section] 8772 is an exercise of congressional authority regarding foreign affairs, a domain in which the controlling role of the political branches is both necessary and proper.”

LinkedInFacebookTwitterGoogle+Share
COMMENTS: Comments Off
POSTED IN: Banking, Courts, International

U.S. Court of Appeals for the D.C. Circuit Hears Oral Arguments Regarding CFPB’s Interpretation of RESPA

On April 12, the U.S. Court of Appeals for the D.C. Circuit held oral arguments in the case PHH Corporation v. CFPB. The primary issue in the case is whether the CFPB is constitutionally and statutorily authorized to assess a $109 million penalty against the petitioner, a nonbank mortgage lender (Lender), for allegedly violating Section 8 of the Real Estate Settlement Procedures Act (RESPA) by referring customers to certain mortgage insurance companies that purchased mortgage reinsurance at fair market value from an affiliate of the Lender. According to CFPB Director Richard Cordray, this practice was a violation of Section 8’s prohibition on kickbacks for referrals, because the mortgage insurers allegedly only purchased mortgage reinsurance in order to receive customer referrals from the Lender.

In appealing the CFPB’s action, counsel for the Lender argued that the CFPB is attempting to effectively rewrite Section 8 to prohibit activities expressly permitted by the statute’s implementing regulation, Regulation X, as well as prior agency guidance and the plain language of the statute itself. According to the Lender, its mortgage reinsurance practices had long been understood to be legal, were widespread throughout the country, and aligned with existing HUD guidance. The Lender further argued that Section 8(c)(2) permits entities to refer business so long as the referrals are not compensated, and any payments are equal to the market value cost of services actually provided. In the Lender’s case, counsel argued that the mortgage reinsurance premiums could not have been compensation for referrals, because mortgage reinsurance premiums received by the Lender’s affiliate were equal to the fair market value of mortgage reinsurance services actually rendered. The Lender further argued that the CFPB improperly ignored RESPA’s statutorily-prescribed statute of limitations (SOL) of three years when, under Section 15, RESPA clearly applies the SOL to “any action” – which, in the Lender’s view, would include an administrative action. Finally, the Lender argued that the CFPB’s structure and funding under the Dodd-Frank Act was unconstitutional in that it violated the requirement for separation of powers by, among other things, (i) restricting the President’s removal power to “for cause” removal; (ii) concentrating power in one individual; and (iii) funding the CFPB outside of the Congressional appropriations process.     Read more…

LinkedInFacebookTwitterGoogle+Share

Supreme Court Affirms Certification of a Class Under Fair Labor Standards Act

On March 22, the U.S. Supreme Court affirmed the certification of a class under the Fair Labor Standards Act. In so doing, the Court permitted Plaintiffs’ use of expert evidence regarding a representative sample of the class to establish liability regarding the entire class. Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (U.S. Mar. 22, 2016). In Tyson, the plaintiff employees, who worked at the kill, cut, and retrim departments of a pork processing plan, argued that the donning and doffing of certain protective gear was integral and indispensable to their work, and the defendant company’s policy to not pay for those activities violated the Fair Labor Standards Act. Because the company did not keep records of the amount of time it took employees to don and doff their protective gear, the employees primarily relied upon a sampling study performed by an expert to estimate this time frame. While the defendants did not file a Daubert challenge to this evidence, it did argue that the use of this sampling evidence was improper because the underlying question – how long it took employees in a meat packing plant to don and doff protective gear – required individual determinations that would predominate over common questions of fact. In permitting the use of the evidence, the Court stated that “[b]ecause a representative sample may be the only feasible way to establish liability, it cannot be deemed improper merely because the claim is brought on behalf of a class. [Plaintiffs] can show that [their expert’s] sample is a permissible means of establishing hours worked in a class action by showing that each class member could have relied on that sample to establish liability had each brought an individual action.” The Court did caution that Tysons did not present an “occasion for adoption of broad and categorical rules governing the use of representative and statistical evidence in class actions.” Instead, it stated that “[whether] and when statistical evidence can be used to establish classwide liability will depend on the purpose for which the evidence is being introduced and on ‘the elements of the underlying cause of action.’” The Court did not reach the substance of the second issue of the case, whether a class action or collective action may be certified or maintained when the class contains members who are not injured.

LinkedInFacebookTwitterGoogle+Share