Saturday, June 4, 2016

FYI: 8th Cir Rejects Borrowers' Challenges to Notice of Intent to Accelerate and to Assignment of Mortgage

The U.S. Court of Appeals for the Eight Circuit recently held that two borrowers did not have standing to challenge an allegedly invalid mortgage assignment between creditors, because the borrowers could not show harm fairly traceable to the allegedly invalid assignment.

 

Additionally, the Court held that the borrowers failed to state a plausible claim for relief for allegedly failing to comply with the notice of intent to accelerate provisions in their mortgage.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff borrowers alleged that their mortgage loan servicer did not have authority to foreclose on their home because (1) due to an allegedly invalid assignment of the mortgage to the servicer, the servicer supposedly did not have legal title to the mortgage on the plaintiff borrowers' home; and (2) the servicer's predecessor supposedly failed to comply with the terms of the mortgage in giving the plaintiff borrowers notice of its intent to accelerate the loan.

 

The trial court granted the defendant servicer's motion to dismiss, concluding the borrowers did not have standing to challenge the assignment, and that the claim of a defective notice of intent to accelerate failed to state a plausible claim for relief.  The plaintiff borrowers appealed.

 

As you recall, to establish standing, a plaintiff must show a concrete and particularized injury that is fairly traceable to the challenged conduct that is likely to be redressed by a favorable judicial decision.

 

The Eighth Circuit found that the plaintiff's invalid assignment claim was nearly identical to the claim two homeowners asserted against a foreclosing lender in Quale v. Aurora Loan Services, LLC.  In Quale, the Eighth Circuit held that the homeowners in that case did not have standing to raise an invalid assignment claim because they were not injured by the assignment and any harm to the homeowners was not fairly traceable to the allegedly invalid assignment. See Quale,  561 F. App'x 582, 582-83 (8th Cir. 2014) (unpublished per curiam). The Court held that the assignor, not the homeowner, is the party injured by an improper assignment.

 

Accordingly, the Eighth Circuit here held that the borrowers lacked standing to bring an invalid assignment claim.

 

The Court then addressed the claim that the defendant servicer's predecessor had not complied with the terms of the mortgage in sending its notice of intent to accelerate.  The Court noted that, in the event of an uncured default, Paragraph 22 of the plaintiff borrowers' mortgage authorizes the mortgagee, at its option, to accelerate the amounts due on the loan "without further demand and . . . invoke the power of sale and any other remedies permitted by" law. Before doing so, the Court also noted, the mortgagee must give the borrowers notice by certified mail and an opportunity to cure the default. 

 

The plaintiff borrowers acknowledge they received a notice of intent to accelerate from the prior servicer by certified mail dated April 29, 2011.  However, they alleged the notice supposedly failed to specific the action required to cure the default, supposedly failed apprise them that they have the unconditional right to resistance, and supposedly failed to give the requisite 30-day's notice of default.

 

The Eighth Circuit rejected the borrower's argument, holding that the prior servicer's notice was sufficient to comply with Paragraph 22 of the plaintiffs' mortgage, as the letter not only notified their default resulted from missed payments, but also calculated the total amount in monthly and late charges the borrowers would need to pay to cure the default.

 

The Court also noted that the mortgage does not give the plaintiff borrowers an unconditional right to reinstate, such that the notice could not be deficient in failing to apprise them of such a right.  Instead, the Court noted, the mortgage expressly states that the plaintiffs must meet certain conditions for reinstatement. 

 

Finally, the Eighth Circuit found that the notice was dated April 29 and required the plaintiff borrowers to cure the default by exactly 30 days later on May 29. The borrowers alleged that they did not receive 30-day's notice because the letter could not have been delivered until after April 29, when it was dated.  

 

However, the Court noted that the mortgage expressly states that any notice is deemed to have been given when mailed. The plaintiffs did not allege that the prior servicer failed to send the notice on the date indicated nor did the borrowers otherwise challenge the date of mailing. Thus, the Court held that the plaintiff borrowers failed to state a plausible claim for relief.

 

In sum, the Eighth Circuit found that the plaintiff borrowers did not have standing to bring an invalid assignment claim, and their notice of intent to accelerate allegations failed to state a plausible claim for relief, and accordingly affirmed the ruling of the trial court.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, June 3, 2016

FYI: Fla App Ct (4th DCA) Holds Indorsement by Successor By Merger Not Sufficient to Confer Standing to Foreclose

The District Court of Appeal of the State of Florida, Fourth District, recently reversed a final judgment of foreclosure, holding that the mortgagee failed to prove that it had standing to foreclose because the note was specially indorsed to an affiliate of the lender, which later merged into the lender, but only the lender and not its former affiliate subsequently indorsed the note to the mortgagee, and the mortgagee did not present evidence of the extent of any assets transferred as part of the merger.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers signed a promissory note and mortgage in favor of a national bank, which later transferred the note to a subsidiary (the "LLC"). The note contained an allonge with a specific indorsement from the bank to the LLC.

 

The LLC subsequently was merged or consolidated into the bank. The bank then indorsed the note to the mortgagee, which sued to foreclose the mortgage.

 

As a defense, the borrower argued that the trustee lacked standing to enforce the note as a holder in due course, because the chain of ownership showed that the LLC -- not the original lender bank -- was still the holder.

 

At trial, the trustee's witness testified that although the note was specially indorsed from the bank to its LLC subsidiary, the LLC was merged into the bank "to become one entity." The trial court overruled the borrower's objection to admission of the assignment into evidence and entered final judgment in the mortgagee's favor. The borrower appealed.

 

On appeal, the Fourth District Court of Appeal limited its attention to whether the mortgagee proved it had standing to foreclose.

 

The Appellate Court explained that "[w]hen a note is specially endorsed, … 'it becomes payable to the identified person and may be negotiated only by the indorsement of that person.'" It went on to clarify, however, that "[w]here a bank is seeking to enforce a note which is specially indorsed to another it may provide standing 'through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.' … One type of such an 'effective transfer' is a corporate merger, whereby a surviving entity may enforce the note and mortgage of the predecessor."

 

The Appellate Court then cited two Florida statutes, sections 607.1106 and section 655.417(1), which govern what happens to a merged corporation's property interests and the effect of mergers on corporate liabilities.  The Court found that "[t]hese statutes make it clear that a foreclosing party can establish standing to foreclose based upon a merger. However, achieving standing via merger also requires that the surviving entity prove that it 'acquired all of [the absorbed entity's] assets, including [the] note and mortgage, by virtue of the merger.'"

 

The Appellate Court pointed out that "[o]ther than the bare assertion by [the mortgagee's] witness at trial, there are no documents in the record indicating that the merger of [the bank and its LLC subsidiary] took place. It then concluded that the mortgagee "did not provide sufficient evidence to enable the trial court to discern the extent of any assets transferred between [the bank and its LLC subsidiary], or that a merger … had taken place. Testimony that the merger had occurred, without more, is insufficient to prove the extent of the consolidation, or that the transfer of the asset in question was included as part of the purported transaction."

 

Because the mortgagee did not sufficiently prove that the merger had occurred and that the surviving entity had thereby acquired the note by operation of law, "there was no evidence that [the bank] had the authority to further transfer the note by assigning the mortgage to the [mortgagee]."

 

Accordingly, the Court concluded that the mortgagee "failed to prove that it had standing to foreclose," and reversed and remanded the case directing the trial court to enter an involuntary dismissal.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Thursday, June 2, 2016

FYI: 11th Cir Holds Obvious Unilateral Mistake Rendered "Bargain Basement" Short Sale Price Unenforceable

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed summary judgment in favor of a mortgage loan servicer, holding that the trial court correctly refused to enforce the servicer's acceptance of a short sale offer that contained an obvious clerical error in the form of a "bargain basement price."

 

A copy of the opinion is available at:  Link to Opinion

 

A borrower defaulted on a $550,000 mortgage loan in 2008 and wanted to sell his house to a third party through a short sale. The servicer made clear in the short sale payoff letter that it would have to receive "a net payout that was greater than the expected proceeds from a foreclosure sale."

 

The prospective buyer made 3 escalating offers.  The servicer intended to accept the third offer, but the servicer's response to the offer contained an error -- namely, the net payout amount was over $300,000 less than the correct amount the servicer found acceptable.

 

The servicer only realized its mistake when the closing agent disbursed the incorrect lesser amount. The servicer's attorney promptly rejected and returned the funds, explaining that the lesser amount was a clerical error. The following day, the third party buyer demanded that the servicer accept the lesser amount.

 

The servicer took no action for more than two years, and then filed a foreclosure action in December of 2010. The former owner and buyer responded by filing a complaint in state court, asserting claims for wrongful foreclosure, breach of contract, and tortious interference with contractual relationship, and sought damages and other equitable relief.

 

The defendant servicer and mortgagee removed the case to federal district court and later moved for summary judgment, which the district court granted on all claims. The plaintiffs appealed.

 

On appeal, the Eleventh Circuit noted that the "dispositive issue is whether [the servicer's] unilateral mistake … about the amount of the net payout it was seeking, prevented the parties from forming a valid contract."

 

The Court first rejected the third party buyer's argument that testimony about the circumstances leading up to the clerical error was barred by the parol evidence rule because, under Georgia law, parol evidence is admissible "to show no valid agreement ever went into existence" or "to prove that a written term in a contract was a mistake."

 

The Eleventh Circuit also rejected the third party buyer's argument that the clerical error did not prevent the formation of a valid contract because unilateral mistake cannot form the basis for rescission of a contract. The Court reasoned that, although "Georgia courts will often refuse to save contracting parties from their own unilateral mistakes that could have been avoided through the exercise of due diligence", "it is equally true, if not more so, that Georgia courts will not permit a party to take unfair advantage of an offer that contains an obvious, unilateral mistake."

 

The Court found that given the parties' course of dealing and escalating offers, the servicer's mistake was obvious and the third party buyer "knew or should have known it was a mistake."  In the words of the Eleventh Circuit, "[n]o rational person would believe [the servicer's mistaken response letter] was anything but a mistake because rational persons and mortgage companies do not counteroffer for less—in this case nearly $300,000 less—than the latest and highest and still outstanding offer."

 

The Eleventh Circuit concluded that the breach of contract claims failed because neither the third party buyer nor mortgagor would suffer any "injustice under Georgia law because they will only be deprived of what Georgia law does not allow them to have—in [the buyer's] case the opportunity to take advantage of another's obvious unilateral mistake; in [the mortgagor's] case the opportunity to retain mortgaged property after he defaulted on the underlying loan."

 

The Court found that the third party buyer and mortgagor abandoned their claims for tortious interference with contractual relations and other forms of relief because they "failed to flesh out any argument about those issues." It also rejected the remaining claim for wrongful foreclosure, reasoning that because the only source of the mortgagee's alleged duty not to foreclose was the mistaken response letter and such letter did not lead to the formation of a valid contract, the mortgagee "did not have any duty not to foreclose on the property."

 

Accordingly, the district court's summary judgment was affirmed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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Wednesday, June 1, 2016

FYI: 5th Cir Holds Tax Buyers Not Subject to TILA

The U.S. Court of Appeals for the Fifth Circuit recently held that a transfer of a tax lien to a tax buyer under Texas law does not constitute an extension of credit that is subject to the federal Truth in Lending Act ("TILA").

 

A copy of the opinion is available at:  Link to Opinion

 

In four consolidated cases, the plaintiffs were individuals who agreed to have the defendant property tax buyers pay their real estate taxes in exchange for the transfer of their tax liens pursuant to Sections 32.06 and 32.065 of the Texas Tax Code. The transactions were each evidenced by a promissory note executed by the plaintiff and payable to the tax buyer.

 

The plaintiffs each brought suit against the defendant tax buyers alleging that they committed TILA violations. The defendant tax buyers moved to dismiss arguing that TILA did not apply because tax lien transfers are not "consumer credit transactions" under TILA.

 

In three of the four consolidated cases, the district court denied the defendants' motions to dismiss, finding that TILA does not apply to the tax lien transfers. The district court certified the question for appeal.

 

In the fourth case, the district court held that because property taxes are not debt under Texas law, and the transfer of the tax lien to a private party does not change the nature of the obligation such that it becomes a debt, the transfer of a tax lien to a private entity is not a consumer credit transaction subject to TILA.

 

As you may recall, TILA's disclosure protections apply to the offering of consumer credit by creditors, as defined by the statute. "Credit" is defined as "the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment." 15 U.S.C. §1602(f). "Debt" is not defined by TILA and thus takes on the definition under applicable state law.

 

The Consumer Financial Protection Bureau ("CFPB") is charged with interpreting TILA. The CFPB commentary to the implementing regulations of TILA expressly excludes "tax liens and tax assessments" from the definition of credit, but states that third party financing of such obligations is credit for purposes of the regulation.  See 12 C.F.R. pt. 1026, Supp. I, Subpart A, cmt. 2(a)(14)(1)(ii).

 

Texas imposes property taxes, which are secured by a tax lien that automatically attaches to taxable property each year in favor of each taxing unit having power to tax the property. Under Texas law, a tax lien may be transferred to the person who pays the taxes on behalf of the property owner. The tax code includes a number of protections for property owners who use a tax lien transfer to defer payment of their property taxes.

 

The Fifth Circuit followed their holding in In re Kinzzee-Jordan in determining whether the transfer of a tax lien to the tax buyers and the resulting promissory note, executed by the plaintiffs and payable to the tax buyers, extinguishes the original tax obligation and creates a new debt that is subject to TILA.  In re Kinzzee-Jordan held that tax lien transfers were not extensions of credit under TILA because the transactions were merely transfers of tax obligations. Thus did not create any new debt that would be subject to TILA.

 

The Court in In re Kinzzee-Jordan first looked to federal bankruptcy law and concluded that a tax claim is a broad claim for the payment of taxes that is protected from modification by 11 U.S.C. § 511 of the Bankruptcy Code, and that a private entity may seek the benefit of Bankruptcy Code § 511 in pursuing such a claim.  Under Texas's real estate tax scheme, the transferee of the tax lien is subrogated to and is entitled to exercise any right or remedy possessed by the transferring taxing unit.

 

The Fifth Circuit explicitly held in In re Kinzzee-Jordan that a tax claim is not extinguished when the transferee pays the property taxes to the taxing authority.  Instead, the Fifth Circuit held that "a tax lien transfer under Texas law preserves the existing tax claim, and changes only the entity to which the [property owners] are indebted for the taxes originally owed, not the nature of the underlying debt."

 

In applying the holding of In re Kinzzee-Jordan to the instant case, the Fifth Circuit held that the payments made by the defendant tax buyers to the taxing authorities and the subsequent transfer of the tax liens did not extinguish the original tax obligations.  Stated differently, "when a lender pays a taxing authority and in exchange receives the tax lien along with an executed promissory note from the property owner under Section 32.06 of the Texas Tax Code, the lender holds the preexisting tax claim — not a new debt arising from the execution of the promissory note." 

 

Accordingly, the Court held, the transfers did not create new debts, but rather transferred existing tax obligations, which under Texas law are not "debts" and are therefore not subject to TILA.

 

The plaintiffs argued that In re Kinzzee-Jordan is inapplicable due to its bankruptcy context. However, the Fifth Circuit found that In re Kinzzee-Jordan interpreted the impact of a tax lien transfer under the same provision of the Texas Tax Code applicable as the instant case, and relied on interpreting the Texas Tax Code not the Bankruptcy Code.

 

Thus, the Fifth Circuit held that the transfer of a property tax lien is not an extension of credit subject to TILA, and accordingly affirmed one of the consolidated cases and reversed the remaining three consolidated cases.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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FYI: Annual Consumer Financial Services Conference (CCFL | Sept. 15-16, 2016 | Chicago, Illinois) (TOPICS SELECTED)

Please join us at the Annual Consumer Financial Services Conference organized by The Conference on Consumer Finance Law.  The Conference will be hosted at the Loyola University Chicago School of Law, on September 15-16, 2016.

 

 

WHEN:  Sept. 15-16, 2016

WHERE:  Loyola University Chicago School of Law | Chicago, Illinois

CLE:  12.0 CLE Credits to Be Provided, including 1.0 hr of Ethics

PRICE:  $495 before July 1, 2016

 

 

Presentations will be conducted by some of the "best and brightest" speakers, on the following topics:

 

TCPA

Fair Lending/HMDA

Data Breach Litigation

Arbitration

Fintech/Marketplace Lending

CFPB UDAAP Rulemaking/Small Dollar

Auto Finance/CFPB Regulations

TRID

Mortgage Servicing Litigation/Rules

Private Label Mortgage Servicing

Debt Sales and Madden

State Law/Debt Buying Issues

FCRA/Privacy/Furnisher Issues

CFPB Administrative Enforcement

FDCPA/Ethics

 

 

For more information, including as to registration, sponsorship, and hotel accommodations, please see:

 

https://www.ccflonline.org/attachments/ccfl-conference-2016.pdf

 

Hope to see you there!

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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FYI: 5th Cir Holds Compliance With Cal. Prob. Code Makes Bank Immune from Wrongful Disbursement Claim

The U.S. Court of Appeals for the Fifth Circuit recently held that, although a bank had actual notice of an heir's claim to her decedent father's account funds, the bank's compliance with the post-death affidavit provisions of California Probate § 13106(a) rendered the bank immune from liability for wrongful disbursement of the funds.

 

In any event, the Court also held, the decedent's surviving spouse who withdrew the funds had a probate claim that was statutorily superior to the heir's claim.

 

A copy of the opinion is available at:  Link to Opinion

 

Plaintiff heir's father died in a mountain climbing accident.  Plaintiff heir's father had a will leaving the money he held in two bank accounts ("subject accounts") to the plaintiff heir. 

 

Plaintiff heir went to a Texas branch of the defendant bank and requested information on the decedent's accounts.  Plaintiff heir was informed that she needed a copy of the decedent's death certificate and will ("withdrawal requirements").  Plaintiff heir informed the defendant bank that her step-mother may try to withdraw the funds, and to place a note in the records that she was claiming the funds in the subject accounts. 

 

The defendant bank's employee refused, but assured plaintiff heir that the funds could not be withdrawn without the withdrawal requirements and court intervention.  Subsequently, plaintiff heir returned with copies of the withdrawal requirements and was informed that her step-mother had emptied and closed the subject accounts from a California branch of the defendant bank.

 

Plaintiff heir sued the defendant bank in state court for negligence, promissory estoppel, and conversion.  The defendant bank removed to federal court.  The trial court granted summary judgment for the defendant bank under California Probate Code § 13106(a).  Plaintiff heir appealed arguing that Texas state law governed rather than the law of California and there were genuine issues of material fact.

 

The Fifth Circuit first found that plaintiff heir had waived her objection on choice-of-law grounds at the trial court level as she never claimed that such rules required application of Texas law to California events. 

 

Plaintiff heir also argued that her interactions with defendant bank's Texas branch provided the bank with actual notice of her claims, and that the trial court improperly ignored disputed factual issues regarding this argument.

 

Applying California law, the Fifth Circuit held that there was no issue of material fact.  The Court noted that California Probate Code § 13106(a) discharged the defendant bank "from any further liability with respect to money or property" upon receipt of a duly executed affidavit under California Probate Code §§ 13100 – 13104. 

 

The Fifth Circuit held that, under Cal. Prob. Code § 13106(a), the defendant bank could rely on the statutory affidavit and had "no duty to inquire into the truth of any statement in the affidavit or declaration."

 

The Fifth Circuit also rejected plaintiff heir's argument that Muatner v. Peralta, 215 Cal. App. 3d 796 (1989) attributed liability to the defendant bank because the defendant bank had actual notice of her claim.  The Court explained that Muatner created an exception to Cal. Prob. Code § 13106(a) when the holder of funds has actual notice of a superior statutory claim.  However, the Court distinguished Muatner and noted that the plaintiff heir did not probate her father's will. 

 

Thus, the Fifth Circuit held, plaintiff heir's only possible statutory claim arose under California's laws of intestate succession.  The Court explained that California's intestate laws only gave the decedent's heirs a share in the estate not passing to the spouse, and plaintiff heir's claim was therefore inferior to the surviving spouse's claim.

 

Accordingly, the Court found that the defendant bank's actual notice of plaintiff heir's claim was of no import as the California statutory scheme granted defendant bank immunity from any alleged wrongful disbursement of funds, and in any event the plaintiff heir's actual notice argument failed.  The Fifth Circuit therefore affirmed the district court's decision.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services