FYI: Feds Issue Final Appraisal Guidance

The Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); and the National Credit Union Administration (NCUA) recently issued final supervisory guidance regarding real estate appraisals and evaluations.

 

A copy of the Guidance is available at:

http://www.ots.treas.gov/_files/490054.pdf

 

These Interagency Appraisal and Evaluation Guidelines ("Guidelines") replace the prior 1994 guidelines.  The Guidelines incorporate the regulators' recent supervisory issuances on appraisal practices, address advancements in information technology used in collateral valuation practices, and clarify standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations. 

 

The Guidelines emphasize that financial institutions are responsible for selecting appraisers and people performing evaluations based on their competence, experience, and knowledge of the market and type of property being valued.  The Guidelines also emphasize the importance of institutions maintaining strong internal controls to ensure reliable appraisals and evaluations. 

 

According to the Guidelines, financial institutions should demonstrate the independence of their processes for obtaining property values, and adopt standards for appropriate communications and information-sharing with appraisers and people performing evaluations.  In addition, under the Guidelines, institutions are responsible for monitoring and periodically updating valuations of collateral for existing real estate loans and for transactions, such as modifications and workouts, according to the guidelines.

 

The regulators noted that future revisions may be necessary after regulations are adopted to implement the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act of 2010 Act.

 

 

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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FYI: Cal App Holds Lender Owed No Duty to Disclose Judgment Obtained Against Add'l Cardholder

The Court of Appeals of the State of California, Second Appellate District, recently affirmed that a lender had no duty to disclose a judgment obtained by an affiliate against an additional cardholder.

A copy of the opinion is available online at:  http://www.courtinfo.ca.gov/opinions/documents/B223686.PDF

Kayatta brought the appeal contending that American Express had a duty to disclose to him that "it had filed suit against, or obtained a judgment against" Robert E. Francis, a third party additional card-member.  Kayatta had entered into a Business Agreement with American Express upon application for the card, which stated in part, "You [the cardholder] promise to pay all Charges, including Charges incurred by Additional Cardmembers, on your Account."  The Agreement further stipulated that the "Company and the Basic Cardmember" will be held responsible "for any losses as well as any other consequences related to or resulting from actions taken by any third parties authorized to act on behalf of the Company and Basic Cardmember."

The facts and terms of the Business Agreement were undisputed. Kayatta posited three "extra-contractual" bases for American Express's purported duty to advise him of its  affiliates' judgment against Francis.  The Appellate Court stated that Kayatta "apparently contends that American Express is barred from enforcing the Business Agreement" because of its failure to disclose the judgment.  The three bases for this extra-contractual duty Kayatta posited were: "(1) federal and state statutes and regulations on credit accounts; (2) the "special relationship" of "trust and confidence" between American Express and Kayatta; and (3) the implied covenant of good faith and fair dealing." 

Kayatta argued that American Express owed him a duty of disclose under the federal Truth in Lending Act.  The court agreed with Kayatta that the purpose of TILA was to assist cardholders with making an "informed decision" regarding use of credit.  However, the court noted that there is no specific language in TILA that supports the proposition that American Express would have the duty to disclose a judgment against an additional cardholder to the basic cardholder.   

The court also found Kayatta's citations to "dicta" in cases involving fraudulent obtainment of a charge card or authorization of a conditional possession of a card readily distinguishable.  No fraud was alleged in the present case, and American Express "did not authorize a conditional possession of a charge card by Francis."  Kayatta himself authorized Francis's use of the card "and thus he bore the risk of nonpayment by Frances." 

The court also rejected Kayatta's attempts to establish a "special relationship" of "trust and confidence" with American Express.  Kayatta argued that "some courts in other states have recognized that the relationship between a bank and its loan customers" may place a duty to disclose "facts which may place the bank or a third party at an advantage with respect to the customer."  However, in the present case, the court held that "nothing in the record suggests a confidential relationship" between Kayatta and American Express such that would require disclosure.  Kayatta made no claims that he sought advice from American Express regarding additional cardmembers, nor did American Express induce him to authorize Francis as such.

Lastly, Kayatta invoked the "implied covenant of good faith and fair dealing", which is "implied by law in every contract" to try to establish American Express's duty to disclose Francis's credit history.  However, examining the language of the Business Agreement, the court found that there was no stipulation that Kayatta would be given "credit-related information" concerning additional card members.  The court held that American Express's failure to disclose the judgment against Francis did not in any way deprive Kayatta of any rights or benefits in relation to the charge card.  Kayatta himself did not dispute that he obtained the charge card and "was able to add (or remove) Francis as an additional member."

For the foregoing reasons, the Appellate Court upheld the lower court's decision granting American Express money damages pursuant to the terms of the Business Agreement with Kayatta. 

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

Email:  RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: FTC Issues Final Mortgage Assistance Relief Services (MARS) Rule, Banning Advance Fees and Requiring Various Disclosures

The FTC issued its final Mortgage Assistance Relief Services (MARS) Rule and Statement of Basis and Purpose concerning the practices of for-profit companies that, in exchange for a fee, offer to work on behalf of consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.

In sum, the Final Rule, among other things, would:  (1) prohibit providers of such mortgage assistance relief services from making false or misleading claims; (2) mandate that providers disclose certain information about these services; (3) bar the collection of advance fees for these services; (4) prohibit anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the Rule; and (5) impose recordkeeping and compliance requirements.

A copy of the final rule is available online at:  http://www.ftc.gov/os/2010/11/R911003mars.pdf

Advance fee ban

Under this provision of the Final Rule, MARS companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.  MARS companies also must remind consumers of their right to reject the offer without any charge.

Disclosures

In their advertising and in communications directed at individual consumers (such as telemarketing calls), MARS companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer's lender;
• the lender may not agree to change the consumer's loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

MARS companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don't have to pay the company's fee.  MARS companies also must disclose the amount of the fee.

Prohibited claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company's affiliation with government or private entities;
• the consumer's payment and other mortgage obligations;
• the company's refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers.  MARS companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney exemption

Attorneys are generally exempt from the rule if they meet three conditions:  (1) they are engaged in the practice of law;  (2) they are licensed in the state where the consumer or the dwelling is located; and  (3) they are complying with state laws and regulations governing attorney conduct related to the rule.

In order to be exempt from the advance fee ban, attorneys must also meet a fourth requirement:  they must place any fees they collect in a client trust account, and abide by state laws and regulations covering such accounts.

 

The FTC and states may enforce the Rule.  However, before a state brings such an action, states must give 60 days advance notice to the Commission or other "primary federal regulator" of the proposed defendant, and the regulator has the right to intervene in the action.

All provisions of the rule except the advance-fee ban will become effective December 29, 2010.

The advance-fee ban provisions will become effective January 31, 2011.

 

 

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

Email:  RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: WA Sup Ct Upholds Ruling Protecting Lender Files Obtained by AG from Release to Consumer Attorney

The Supreme Court for the State of Washington recently affirmed a Court of Appeals decision holding that federal privacy laws apply to a request for information brought by a consumer lawyer under Washington's State Public Records Act (PRA), chapter 42.56 RCW, as to documents received by the state attorney general during an investigation of Ameriquest.

A copy of the opinion is available online at: http://www.courts.wa.gov/opinions/pdf/826901.opn.pdf

This case concerns documents obtained by the Washington State Office of the Attorney General from Ameriquest Mortgage Company (Ameriquest) during an investigation of  Ameriquest's lending practices.  These documents included loan files, e-mails, and "other papers."  The AG received other information from consumers who filed complaints against Ameriquest, and also generated their own documents in relation to the investigation.   

 

Melissa A. Huelsman (Huelsman), a "member of the public", made a request for records from the investigation referencing the PRA.  The AG intended to disclose some of the information collected, but Ameriquest objected to the release of any information received from Ameriquest itself.  The issue before the Supreme Court is "whether, and to what extent the federal Gramm-Leach-Bliley Act (GLBA) . . . and the relevant Federal Trade Commission (FTC) rule" either preempt the PRA or otherwise prevent the AG from disclosing the information it received directly from Ameriquest.

The Washington Supreme Court described the GLBA as intended to protect customers' privacy, and to "protect the security and confidentiality of those customers' nonpublic personal information."   Under the rule-making authority contained in the GLBA, the FTC adopted the "Privacy of Consumer Financial Information."  These federal regulations prohibit a "financial institution" from releasing a consumer's "nonpublic personal information to a nonaffiliated third party", unless the consumer is given the chance to opt out of such release by receiving prior notice.  Relevant exceptions to this notice and disclosure requirement include when the release is done "with the consent or at the direction of the consumer", or to "comply with a properly authorized civil, criminal, or regulatory investigation."  The Court also noted that the federal regulations prevent a nonaffiliated third party from re-using or re-releasing any protected information received from a financial institution, and the nonaffiliated third party can share nonpublic personal information so received to its affiliates, but cannot share this information to a nonaffiliated third party unless the financial institution in question could lawfully do so.

Huelsman, an attorney representing former customers of Ameriquest, placed a request for documents which contained borrowers' "names, addresses, and loan terms and costs" but not other information such as their social security numbers. Ameriquest objected to such disclosure specifically in relation to Ameriquest's customer loan files, internal customer complaint files, employee e-mails, trade secrets and proprietary  information, and the AG generated documents.  The trial court denied Ameriquest's motion, while leaving in place a temporary restraining order, finding that the GLBA did not preempt state laws governing public disclosure of documents.  The Appellate Court reversed this decision, holding that if the PRA conflicted with GLBA concerning disclosure, then the GLBA preempted the PRA and prohibited such disclosure.  The Appellate Court held that as the AG is a nonaffiliated third party under GLBA, and Huelsman is not an affiliate of the AG, the GLBA therefore prohibited the AG's contemplated disclosure to Huelsman.

The Supreme Court affirmed the Appellate Court's ruling.  The Appellate Court had remanded the case to the trial court stating, "[w]hat information in loan customers' files is public is a factual question that the trial court will need to address."  The Supreme Court held that GLBA and FTC restrictions apply to the AG's proposed release of "nonpublic personal information to Huelsman."  Information which meets the definition of "personally identifiable financial information", is non-public and may not be disclosed, regardless of the form it comes in, i.e.; loan files, emails, etc.   

 

The Supreme Court further held that "the circumstances of the case" dictated that names, cases, addresses, and phone numbers of Ameriquest customers fit this definition as they were not only "personal identifiers", but would also disclose that the person in question "is or has been Ameriquest's customer."    The Court further held that "[a]ny information" that constitutes "'nonpublic personal information' cannot be recast as publicly available information by the AG."    

 

Finally, the Court held that only "aggregate information or blind data" that does not contain "personal identifiers" is exempt from the federal nondisclosure rules.  The Court held that both the GLBA and FTC do not allow the AG to "newly redact or repackage the information" it already has to transform it into "blind data."  Such data can only be disclosed if it is already in a "blind" or identifier-free state as delivered to the AG.  

 

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

Email:  RWutscher@kw-llp.com

http://www.kw-llp.com

 

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