mortgage

Another Win for MERS.

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South Carolina Supreme Court tosses case against it brought by five Counties

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County administrators in five South Carolina counties were told they have no statutory cause of action against MERS in a case our Supreme Court dismissed on March 30.* Allendale, Beaufort, Colleton, Hampton and Jasper Counties brought suits against MERS and numerous banking institutions claiming their fraudulent practice of recordings disrupted the integrity of the public records.

The Supreme Court consolidated the five suits and assigned them to Business Court Judge Lawton McIntosh. MERS and the banking institutions filed a joint motion to dismiss, arguing the suit was barred by SC Code §30-9-30. The trial court denied the motion to dismiss, indicating dismissal is improper for a novel question of law. The Supreme Court granted cert and dismissed the actions.

MERS is a member-based organization made up of lenders, investors, mortgage banks and others. When a MERS lender takes a promissory note and mortgage, MERS is shown on the face of the mortgage as the nominee for the lender. The mortgage is recorded in the county where the real estate is located, and the loan is registered in the MERS system.

This system allows lenders to retain priority with MERS as nominee. MERS provides convenient framework through which its members can transfer notes and mortgages without having to record each assignment. As a result, the public records may not accurately reflect the true owners of mortgages.

The lawsuits claimed fraud, misrepresentation, unfair trade practices, conversion, and trespass to chattels. It sought a declaratory judgment stating MERS and the lenders had caused damage to the public index system by recording false documents. It requested injunctive relief barring further recordings showing MERS as nominee and requiring corrections to the public records. The prayer demanded direct and consequential damages to remediate deficiencies in the records, as well as compensatory and punitive damages in the event the errors could not be fixed.

The crux of the matter was surely the loss of income for the assignment fees, although that thought is never mentioned in the published opinion.

Sale of a house. Object over whiteThe statute, §30-9-30, allows a recorder to refuse to accept or to remove any document believed to be materially false or fraudulent or a sham legal process. MERS and the lenders argued the statute does not provide the counties authority to bring the lawsuit, and the counties argued that the statute allows them to bring the suit by implication. They suggest that the statute provides, by implication, the power to commence litigation to remediate the public records and to seek guidance from the Court. The Supreme Court declined to imply language into deliberate legislative silence.

The Supreme Court held that the lower court erred in declining to dismiss the suit on the ground that this is a novel issue of law despite the fact that earlier cases had held to the contrary. The Court stated that where the case involves simple statutory construction, the trial court should not deny a meritorious motion simply because the question is one of first impression.

According to the Court, the statute already provides a remedy to government officials by allowing them to remove or reject any fraudulent records. Will the counties attempt to utilize this remedy?  Only time will tell.

*Kubic v. MERSCORP Holdings, Inc. (Appellate Case 2015-001366, March 30, 2016)

Lenders’ Closing Plans Solidify As August 1 Approaches

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news news newsCitibank recently notified settlement agents (closing attorneys in South Carolina) that they will be requested to register with the FPSDirect Vendor Website at the time they agree to handle a Citibank closing. This website was created to provide the bank’s settlement agents with an easy and efficient method of loan document delivery, closing date confirmation and funding approval, among other matters. The memo stated the bank’s goal is to save the time of faxing and the insecurity of email.

Wells Fargo issued a Settlement Agent Communication on March 16 indicating that, like Bank of America, it plans to integrate with Closing Insight™ with a goal of improving the way instructions, fees and other information is shared. The memo stated: “Unlike today where we typically use email to pass these important details back and forth, Closing Insight™ will support an interactive, online collaboration that includes a full view of information from both parties, and provides an audit trail and quality checks to reduce errors.”

We have learned and the Wells Fargo communication states that many closing attorneys will be able to access Closing Insight™ through connections with their existing software packages. Wells’ communication also states that attorneys without closing software packages will not be left out because a secure web portal will be available. Wells reiterated its goal of continuing to do business with local service providers, but emphasized that it expects closing attorneys to be ready, willing and able to comply with requirements and closing instructions.

Wells Fargo also answered four recent FAQs:

“If co-borrowers plan to sign the loan documents on different dates, which date applies for compliance with the three business day receipt requirement of the CD? The borrower’s CD must have been received not less than three business days before the earliest signing date. This question highlights the importance of communicating specifics about signing plans to your Wells Fargo closing contact, including cases when a mobile signing agent or mail away signing is being requested.

Will Wells Fargo be providing loan closing documents to the settlement agent at the same time the borrower’s CD is delivered? Our goal is to provide the closing documents to the settlement agent shortly after the borrower’s CD has been finalized and provided to the borrower. In most cases, you should receive the closing documents earlier than in the past.

Will Wells Fargo permit any other party to deliver the borrower’s CD to meet the three business day closing requirement for a rush closing situation? No. We have determined that we must be responsible for delivering the borrower’s CD to meet and track the three business day receipt requirement for all transactions We will continue to encourage all parties involved to stay in close communication and work together proactively to minimize the need for expedited CD delivery.

Is my company required to be ALTA Best Practices Certified by August 1 to continue to close Wells Fargo loans?  No. Completing your certification by August 1 will not be a Wells Fargo requirement. However, we hope that if your company is not yet certified you will – at minimum – have already completed a self-assessment and addressed any identified gaps. As communicated in our March 6, 2014, newsletter, Wells Fargo supports the ALTA Best Practices as sound business practices that should ideally already be in place for businesses providing title and closing services to our customers.”

Wells Fargo also stated that it has entered into a business arrangement with ClosingCorp, a leading provider of fee management solutions, to obtain actual fee information from selected settlement agents who closing a high number of Wells Fargo loans.

Good News for Small Lenders

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changes comingCFPB proposed rule change may also benefit South Carolina closing attorneys.

On January 29, the CFPB proposed its ability to repay and qualified mortgage rules to facilitate additional mortgage lending by credit unions and community banks. South Carolina closing attorneys who handle transactions for small lenders could benefit from these proposed rule changes because the business coming from these lenders would increase in volume.

Comments are due on the proposals by March 30. South Carolina closing attorneys should consider commenting positively on this proposal.

“Responsible lending by community banks and credit unions did not cause the financial crisis, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” said CFPB Director Richard Cordray.

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Credit unions and other small lenders have been lobbying for flexibility under the new rules, and this development is considered to be a victory for them.

The proposed rules would expand the definition of “small creditor” by raising the limit on first lien-mortgages from 500 to 2,000, excluding the mortgages held in the portfolios of the creditor and their affiliates. The CFPB said that this change would increase the approximate number of small lenders from 9,700 to 10,400.

Small lender status allows these lenders to make loans where the homeowner’s total debt payments exceed 43 percent of pretax income.

The proposal would also extend the ability of small creditors in rural or underserved areas to issue loans with balloon payments and still have them qualify as qualified mortgage loans. The definition of “rural” was extended to any census block that is not in an urban area as defined by the Census Bureau.stay tuned

A copy of the proposal can be found at the Consumer Financial Protection Bureau’s  website, or by clicking here.

Homeowners Win U.S. Supreme Court Mortgage Rescission Case

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money puzzleThe Court holds borrowers must only notify the lender, not sue, within three years

Larry and Cheryle Jesinoski refinanced their home in Eagan, Minnesota on February 23, 2007, by borrowing $611,000 from Countrywide Home Loans, Inc. The borrowers received a Truth-in-Lending Act (“TILA”) disclosure and a Notice of Right to Cancel at the closing.

TILA allows a borrower to rescind a refinance loan on the borrower’s home within three days of the transaction, or until the lender has delivered the required number of disclosures. But there is a three-year time limit even if the lender still hasn’t provided the necessary loan disclosure documents.

Exactly three years after the closing, the Jesinoskis sent theright to cancel lender written notice that they wanted to rescind, saying they hadn’t received the required number of copies of the notice. The property was underwater at the time. The lender refused to cancel the mortgage, and the Jesinoskis sued.

On January 13, 2015, the Court ruled unanimously in an opinion written by Justice Antonin Scalia, that the borrowers need only notify the lender of the intent to rescind. The Court rejected the lender’s position that the borrower must take the additional step of filing suit within three years.

This issue is one that has arisen frequently in recent years with borrowers who are in default and facing foreclosure, and this case settles a split in lower courts over steps borrowers must take within the time limit.

house parachuteThe lending industry had supported the lender in this case, indicating the Jesinoskis’ position could cloud titles to properties and require lenders to sue borrowers instead of trying to work with them. Consumer groups had supported the Minnesota couple, indicating the right to rescind is an important protection for consumers against abusive lending practices.

The case was remanded to the Eighth Circuit for further proceedings. The ruling does not mean the borrowers will escape paying their mortgage, but this lawsuit has delayed the inevitable for many years. It is possible that the property is no longer underwater and that the borrowers may be able to refinance in this improving economy.