Can mortgage lenders force arbitration on consumers?

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Fourth Circuit says no in a published opinion

In Lyons v. PNC Bank*, a consumer, William Lyons, Jr., filed suit against his home equity line of credit lender alleging violations of the Truth in Lending Act (TILA). The lender, PNC Bank, had set-off funds from two of Mr. Lyons’ deposit accounts to pay the outstanding balance on his HELOC.

PNC moved to compel arbitration of the dispute based on an arbitration provision in the parties’ agreements relating to the deposit accounts. The case contains some discussion about jurisdiction, and one judges dissented on that basis. But the important holding in the case relates to pre-dispute arbitration provisions in consumer mortgages and related documents.

The Court found the relevant legislation to be 15 U.S.C. §1639c(e)(1) and §1639c(e)(3) from the Dodd-Frank Act, which had amended TILA. The first provision states:

“No residential mortgage loan and no extension of credit under and open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”

The second provision states:

“No provision of any residential mortgage loan or any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer, and no other agreement between the consumer and the creditor relating to the residential mortgage loan…shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States…”

The Court held that the plain language of the legislation is clear and unambiguous that a consumer cannot be prevented from bringing a TILA action in federal district court by a provision in any agreement related to a residential mortgage loan. The Court’s holding indicates its opinion that Congress clearly intended consumers to have the right to litigate mortgage disputes.

* United States Court of Appeals for the Fourth Circuit Opinion No. 21-1058 (February 15, 2022)

Here’s a great idea!

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The official who records our deeds should not be selected via popularity contest!

I’m all about the democratic process. But when it comes to the Register of Deeds, I believe that person should be appointed locally based on a very specific skill set. Popularity and politics should have nothing to do with choosing the appropriate person to handle the very meticulous administrative process that deals with recording public documents.

Apparently, the Executive Committee of the Charleston County Bar Association wants to take action to make sure the ROD for Charleston County is qualified. Take a look at this letter that body wrote to County Council on January 19.

If you follow this blog, you know that the Finkel Firm has brought suit against the Charleston County ROD asking for a writ of mandamus based on the horrific lag involved with recording documents in that county. This letter provides additional evidence that something is terribly wrong in the Charleston County ROD office, and action needs to be taken sooner rather than later.

As this letter points out, South Carolina is a race notice state. If our deeds, mortgages and other documents are not recorded in a timely manner and in the proper order, then the proper priorities among parties is thrown to the wind. The rights of parties relating to real property are based on when the documents establishing those rights are properly recorded.

The letter lists eighteen counties where the RODs are currently appointed. The letter also states that no constitutional provision or statutory edict requires an election in this case.

What do you think? Should the Register of Deeds be appointed by County Council?

Finkel Firm files suit against Charleston ROD for neglect of duties

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Real estate practitioners don’t often get excited about litigation, but this lawsuit should bring cheers from dirt lawyers in every part of the Palmetto State! The Finkel Law Firm, LLC, as plaintiff, filed suit on November 24 against Michael Miller, individually and in his official capacity as the Charleston County Register of Deeds. You can read the complaint in its entirety here.

The complaint points to Miller’s chronic and willful failure to timely record real estate documents within one month of delivery. The allegations state that Miller has allowed substantial delays since late 2019, and that these delays have increased significantly in 2021, sometimes amounting to as long as four months.

Further, the complaint states the Charleston ROD routinely files documents that are hand delivered immediately while allowing hundreds or even thousands of documents delivered to his office by mail or parcel delivery to be stored for later filing.

We all know that South Carolina is a race notice state. Delay in filing real estate documents will, of course, create liability for parties and their lawyers. The complaint makes this point clearly.

The law firm alleges that these failures have substantially interfered with its ability to meet its professional obligations to protect the interests of its clients and has exposed the firm to potential liability for correcting title problems resulting from the ROD’s dereliction of duty.

The complaint seeks a writ of mandamus ordering the ROD:

  • To immediately file all real estate documents that have been delivered and have not been filed within one month of delivery;
  • To mark the recorded real estate documents as being recorded on the same date that they were delivered; and
  • To record all real estate documents in the order of the times at which they were brought to the ROD, regardless of whether they are personally delivered or are delivered by U.S. mail or parcel post.

The complaint asks the court to maintain jurisdiction for a reasonable time to monitor the continued operations of the ROD.

Every real estate practitioner in South Carolina should thank their friends at the Finkel Firm for taking this action. And every ROD in the State should take notice!

Secret Service Thwarts $21 million scam

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The United States Secret Service announced in a press release dated September 1 that on August 23, it was successful in thwarting a real estate related business email compromise (BEC) scheme that sought to defraud a purchaser of more than $21 million.

The scheme attempted to divert closing funds to a fraudulent bank account. After quick action by the Secret Service and its private sector partners, the funds were returned to the victim.

Please refer to this Underwriting Memorandum issued by Chicago Title’s South Carolina State Office on September 20 warning that fraudulent wiring instruction schemes are on the rise.

These schemes typically employ altered or fictitious payoff statements. The fraudster often impersonates a mortgage broker, lender, borrower, or an agent of the borrower to request a copy of the payoff statement. Alternatively, the fraudster may intercept the payoff statement by a hacking or phishing ploy.

Armed with the payoff statement, the fraudster will create and transmit a bogus “updated” payoff statement with wiring instructions intending to divert the funds to the fraudster. The statement may also alter contact information so that telephone calls to verify payoff information will be answered by the fraudsters.

Chicago Title’s memorandum advises closing attorneys to take the following proactive measures to minimize the risk that payoff funds will be diverted:

  • Obtain payoff statements early so they can be properly reviewed and verified.
  • Verify banking information and payoff amounts directly with the payee using known, trusted numbers rather than information from the payoff statement.
  • Refer to prior payoff statements from the same payee to confirm the banking information matches.
  • Maintain repetitive wire information within systems or databases to use for future wires. Lock this information to restrict alterations.
  • If it is impossible to make a verbal confirmation by a known trusted telephone number, consider sending overnighting a check.

Be careful out there, closing attorneys!

United States Supreme Court terminates eviction moratorium

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Last Thursday, the United States Supreme Court blocked the CDC’s Covid-related eviction moratorium. The eight-page unsigned 6-3 opinion stated Congress was on notice that a further extension would require new legislation but failed to act in the weeks leading up to the moratorium’s expiration.

Congress has approved nearly $50 billion to assist renters. But estimates indicate many states have disbursed less than 5% if the available funds. More than 7 million renters are in default and subject to eviction. Bureaucratic delays at state and local levels have prevented payments that would assist landlords as well as tenants.

At the beginning of the pandemic, Congress adopted a limited, temporary moratorium on evictions. After the moratorium lapsed last July, the CDC issued a new eviction ban. The ban was extended twice more.

The three liberal justices dissented. The dissenting opinion, written by Justice Breyer said that the public interest is not supported by the court’s second-guessing of the CDC’s judgment in the fact of the spread of COVID-19.

Landlords, real estate companies and trade associations, led by the Alabama Association of Realtors, who challenged the moratorium in this case, argued that the moratorium was not authorized by the law the CDC relied on, the Public Health Service Act of 1944.

That law, the challengers said, authorized quarantines and inspections to stop the spread of disease but did not give the CDC the “the unqualified power to take any measure imaginable to stop the spread of communicable disease – whether eviction moratoria, worship limits, nationwide lockdowns, school closures or vaccine mandates.”

The CDC argued that the moratorium was authorized by the Public Health Service Act of 1944, and that evictions would accelerate the spread of the virus by forcing people to move into closer quarters in shared housing settings with friends or family or congregate in homeless shelters.

Some states and municipalities have issued their own moratoriums, and some judges have indicated they will slow-walk cases as the pandemic intensifies. We will have to watch and see how the termination of the moratorium interacts with the current backlog of cases in South Carolina. Real estate lawyers should be prepared to advise their landlord and tenant clients.

Eviction ban extended…again

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The federal block on evictions expired on July 31, but on August 3, it was extended for an additional sixty days. The new order indicates it is designed to “target specific areas of the country where cases are rapidly increasing, which likely would be exacerbated by mass evictions.” The new deadline is October 3. The money received through this program is nontaxable.

I’ve read that the targeting language only limits the extent of the moratorium to 80 percent of the country geographically and 90% of the population, so that’s not much of a restriction.  The Department of Housing and Urban Development (HUD) has indicated that 14.3% of the 44.1 million renter households are behind of rent.

There are many problems with the system. I’ve read the major concern is that the bulk of the available funds for rental assistance haven’t been distributed. Landlords seem to be faced with helping their tenants apply for the funds in order to receive the funds. And for all of us who have dealt with government, we understand that few governmental processes are efficient. This one is apparently not an exception to that general rule.  For tenants who are living on the outer edge of their ability to work and take care of their children, time and patience to deal with the inefficient process may be in short supply.

Under the new order, protected renters include:

  • Renters who have tried to obtain governmental assistance for rent or housing.
  • Renters who earned no more than $99,000 or $198,000 filing jointly in 2020 or do not expect to earn at those levels in 2021.
  • Renters who are unable to pay the full rent because of loss of household income or out-of-pocket medical expenses.
  • Renters for whom eviction would result in homelessness or force them to reside in close quarters in a shared living setting (thus increasing the risk of COVID).
  • Renters who living in a county experiencing a high rate of infection.

Because the bulk of the funds have not been claimed, the CFPB has introduced an on-line tool to help landlords and tenants locate the funds in state and local governmental agencies. The tool can be found here.

I have concerns that this program is going to take a great deal of sorting out at some point. Is it constitutional?  What will a holding of unconstitutionality mean? Will COVID require further extensions? Will funds have to be repaid by states and local governments if the funds are not properly applied? Will landlords or tenants be forced to repay such funds? Dirt lawyers will undoubtedly have to deal with of these issues in the future in representing their landlord and tenant clients.

All of us are tired of COVID. We seemed at one point to being so close to having it under control, but now we are seeing a frightening trend of rising cases and deaths, particularly among a younger population. All of us with children and grandchildren who cannot be vaccinated are concerned about what this school year will bring. At the risk of being perceived as preaching and apologizing up front who have medical reasons to resist, I strongly encourage vaccines!

HUD to enforce sexual orientation and gender identity anti-discrimination rule

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This blog has referred to the Dirt Listserv* previously, and I point in that direction again today for those among us who may represent clients in the business of renting or selling housing. On July 12, Professor Dale Whitman published a post entitled “Fair Housing Act will be applied to prohibit LGBTQ discrimination.”

The post mentions a Supreme Court case and a Department of Housing and Urban Development Press Release.

The case** held that Title VII of the Civil Rights Act of 1964 protects employees against discrimination because they are gay or transgender. The plaintiff, Gerald Bostock, worked as a child-welfare advocate for Clayton County, Georgia and was fired for conduct “unbecoming” a county employee when he started playing in a gay softball league. (Two cases from other circuits were consolidated with this case. One involved a person who was fired from his job as a skydiving instructor within days of mentioning to his employer that he is gay. The other involved a funeral home employee who was fired after disclosing to her employer her transgender status and intent to live and work as a woman.)

The press release was issued by HUD and can be read here. HUD announced that it will administer and enforce the Fair Housing Act to prohibit discrimination on the basis of sexual orientation and gender identity.  

The release said that a number of studies indicate same-sex couples and transgender persons experience demonstrably less favorable treatment than their counterparts when seeking housing. But HUD was previously constrained in its efforts to address this housing discrimination because of a legal uncertainty about whether this discrimination is within HUD’s reach. HUD has now reached a legal conclusion based partially on the Bostock case. HUD indicates that it is simply saying that discrimination the Supreme Court held to be illegal in the workplace is also illegal in the housing market.

Complaints may be filed by contacting HUD’s Fair Housing and Equal Opportunity Office at (800) 669-9777 or hud.gov/fairhousing.

Clients involved in housing should be advised of this development.

* Real Estate Lawyers Listserv: Dirt@LISTSERV.UMKC.EDU

** Bostock v. Clayton County, 590 U.S. ___ (2020)

Expect a new look to uniform notes, security instruments and riders

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Fannie Mae and Freddie Mac have introduced new uniform notes, security instruments and riders for use immediately, with a deadline for use of January 1, 2023.

Read the press release here and review the new documents here.

The press release touts the benefits of the updated instruments as:

  • Easier to use: Employ more headings and subheadings, shorter paragraphs and sentences, and more clearly defined lists.
  • Provide more clarity: Use plainer language and clarify the explanation of borrower and lender obligations.
  • Reflect industry changes: Account for the changes that the industry has experienced over time and better reflect current industry practices and systems.

Fannie and Freddie are providing an 18-month transition period to allow lenders and their vendors to prepare.

Dirt lawyers should review the new documents to determine whether changes are needed in how closing documents are explained to clients.

What do you think of the new documents?

A few news items affecting housing…

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Last week, the CDC extended the residential eviction moratorium to July 31. The constitutionality and validity of the moratorium has been litigated many times. The issues are: (1) the existence of constitutional power for the government to hand down such a moratorium under the Commerce Clause; and (2) whether the delegation of authority to the CDC by Congress is broad enough to encompass an eviction moratorium.

The latest decision was issued June 2 by the D.C. Circuit in Alabama Association of Realtors v. United States Department of Health and Human Services*. There, the Court upheld the stay of the lower court’s decision striking down the moratorium and made it clear that the panel believes the CDC would win on the merits. 

On Tuesday, the Supreme Court left the moratorium extension in place.

The Treasury Department issued new guidance encouraging states and local governments to streamline the distribution of the nearly $47 million in available emergency rental assistance funding.  Associate Attorney General Vanita Gupta released a letter to state courts encouraging them to pursue alternatives to protect tenants and landlords.

South Carolina Housing authority is working with landlords and tenants to administer the federal pandemic relief funding. The application must come from the tenant, but the landlord may refer the tenant to the agency for action.

In other news, President Biden fired Mark Calabria, the head of the Federal Housing Finance Agency (FHFA) last week, just hours after the Supreme Court held the structure of FHFA was unconstitutional under the separation of powers doctrine. The offending provision states the president can only remove the director for cause, not at will. FHFA regulates Fannie Mae and Freddie Mac, both of which have been the subject of extensive restructuring debate dating back to the housing crisis of 2008. The case is Collins v. Yellen**

Real estate practitioners will recall that the Court issued a similar decision last year concerning the structure of the Consumer Financial Protection Bureau (CFPB) in Seila Law v. CFPB***.

* 2021 WL 2221646 (D.C. Circuit, June 2, 2021).

** U.S. Supreme Court case 19-422, WL2557067, June 23, 2021.

*** 140 S. Ct. 2183 (2020).

D.C. Federal Court vacates CDC’s eviction moratorium

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…. then temporarily stays its ruling

This blog reported in early April that the Centers for Disease Control and Prevention (CDC) had extended the national moratorium on residential evictions through June 30. The U.S. District Court for the District of Columbia issued an order on May 5 vacating the moratorium, but later in the day temporarily stayed its own ruling to give the Court time to consider the merits of the arguments on both sides. The result of the stay is that the eviction moratorium remains in place for the time being.

The suit* resulting in these remarkable rulings was brought on November 30 by two trade associations, the Alabama and Georgia Associations of Realtors, and by individuals who manage rental properties. The complaint raised several statutory and constitutional challenges to the CDC order. Both parties filed motions for summary judgment. The plaintiffs’ motion was granted on the grounds that the CDC had exceeded its authority by issuing the broad moratorium. The Department of Justice filed an emergency appeal within hours.

The Court asked for a defense response this week and a reply from the government by May 16, so it is likely that a new order will be issued soon. But with the moratorium’s expiration date of June 30, a new ruling will have little, if any, effect. 

In addition to the national moratorium, some state and local laws restricting evictions remain in place.

The Court’s order vacating the moratorium pointed to the unprecedented challenges for public health officials and the nation caused by the COVID-19 pandemic. The difficult policy decisions, like the decision to impose the moratorium, have real-world consequences, according to the Court. The Court stated that it is the role of the political branches, not the courts, to assess the merits of such policy decisions. The Court perceived the question before it to be very narrow:  does the Public Health Service Act grant the CDC the legal authority to impost a nationwide eviction moratorium? The Court held that it does not.

*Alabama Association of Realtors v. United States Department of Health and Human Services, United States District Court for the District of Columbia, No. 20-cv-3377 (DLF).