Financial Services Law Developments: 7/11/10

Monday, July 12, 2010

FYI: FinCEN Finds High Incidence of Loan Mod Scams

The Financial Crimes Enforcement Network recently issued the attached report on suspicious activity reports (SARs) concerning loan modification and foreclosure rescue scams, with data from more than 3,500 reports filed between 2004 and 2009 with 3,000 of the reports originated in 2009. The analysis showed that the nature of foreclosure rescue scams shifted.

Early SARs contained information about loan modification/foreclosure rescue scams that targeted financially troubled homeowners with promises of assistance. The scams involved the homeowners signing quit claim deeds, and resulted in loss of equity in or title to their property.

The scams described in later SARs reflect an evolution into advance fee schemes, in which purported loan modification or foreclosure rescue specialists promised to arrange modification of a homeowner’s mortgage for more favorable repayment terms. Following receipt of large advance fees, scammers rarely, if ever, provided any service.

The top metropolitan regions for mortgage loan fraud between Jan. 1, 2009, and June 10, 2010, were located in the states of Florida, California, New York, New Jersey, Pennsylvania, Illinois, Indiana, Wisconsin, District of Columbia, Virginia, Maryland, West Virginia, Arizona and Georgia.

Let me know if you have any questions. Thanks.

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320

Fax: (866) 581-9302
Mobile: (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

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From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Thursday, June 17, 2010 8:20 PM
To: Ralph Wutscher
Cc: Chicago Office; D.C. Office; SoCalOffice
Subject: FYI: More FTC Actions Against Fraudulent Loan Mod Companies

The Federal Trade Commission announced several new developments in its crackdown on fraudulent loan modification and foreclosure relief companies. One settlement order bans 16 marketers from the mortgage modification or foreclosure relief business, another requires payment of $11.4 million for violating a previous court order the FTC obtained against the same scammer for fraudulent telemarketing practices, and a new FTC lawsuit charges another online marketing operation with masquerading as a government mortgage assistance program.

The FTC is focusing on companies that charge consumers up-front fees and made false promises that they could get their loans modified or prevent foreclosure.

Some highlights include:

- Impersonation of MakingHomeAffordable.gov

- “Federal Loan Modification Law Center,” charging largely upfront fees of as much as $3k but not delivering services

- False claims of being able to obtain mortgage loan modifications for consumers in all or virtually all cases, false “money-back guarantees,” and false statements of affiliation with HOPE NOW

- Misleading “official government agency seals” or logos and links to federal government Web sites

For more detailed information, and copies of the court filings, please see:

http://www.ftc.gov/opa/2010/06/loanmods.shtm

Let me know if you have any questions. Thanks.

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320

Fax: (866) 581-9302
Mobile: (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

FYI: UT Fed Ct Says NBA Preempts Corp Registration, F/C Trustee Requirements

A U.S. District Court for the District of Utah recently held that state law claims against a national bank for alleged failure to register as a foreign corporation, and for alleged failure to meet Utah’s statutory requirements to act as a trustee, are preempted by the National Bank Act. A copy of the opinion is attached.

The Plaintiff's complaint asserted claims under the Real Estate Settlement Procedures Act (“RESPA”) and state law against ReconTrust, a national bank, and a number of other defendants. Plaintiff also filed for a temporary restraining order and then a preliminary injunction against the Defendants to enjoin the foreclosure sale on her property because: 1) ReconTrust allegedly had not registered to transact business in Utah as required by state law and 2) ReconTrust allegedly was not qualified to act as a trustee under state law. The state court granted Plaintiff’s requested preliminary injunction.

ReconTrust removed the case to federal court based on Plaintiff’s RESPA claims. Plaintiff then amended her complaint to remove the RESPA claims and moved to remand the case to state court. Defendant moved to vacate or modify the state court’s preliminary injunction in federal court on the grounds that the National Bank Act (“NBA”) preempts Plaintiff state law claims.

The District Court denied Plaintiff’s motion to remand and dissolved the state court injunction because Plaintiff’s claims are preempted under the NBA. First, the District Court found that Utah’s registration requirements are preempted because the statute, “makes clear that Congress intended that the federal statute exclusively control the area of allowing a national bank to transact business nationwide.” As the state law imposes requirements that compete with the federal statute and impose additional requirements on national banks, the state requirements, “‘significantly impair’ a national bank’s ability to do business in Utah.”

The District Court also found that the NBA preempted an addition Utah law that enumerates the types of entities that may act as trustees in Utah. Under the NBA, the Comptroller of the Currency has the power to allow national banks to act as trustees “when not in contravention of State or local law.” The statute goes on to state that “whenever a state law allows a competitor of a national bank to act as a trustee, allowing a national bank to do so as well shall not be deemed to be in contravention of State or local law.” The Utah statute allows “depository institutions” to act as trustees, which the District Court determined is a clear competitor to national banks.

The District court then dissolved the state court injunction for a number of reasons, but “most importantly, the court dissolved the injunction because…the Utah statute upon which the injunction was based is preempted by federal law.”

Let me know if you have any questions. Thanks.

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320

Fax: (866) 581-9302
Mobile: (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

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The editor and sponsoring law firm of this blog represent and serve banks, lenders, loan buyers, loan servicers, debt collectors, and other financial services companies. We do not represent consumers.

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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.