Tuesday, February 1, 2011

FYI: Cal App Allows Borrower's Allegations of Loan Modification Misrepresentations to Proceed

The California Court of Appeal, Second District, recently held that a
borrower stated claims for promissory estoppel and fraud, in connection
with alleged loan modification representations. However, the Court
rejected the borrower's efforts to void the related foreclosure sale.

A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/B220922.PDF

The plaintiff borrower filed for bankruptcy, first as a Chapter 7 but then
sought to convert to a Chapter 13. She contacted the defendant bank,
which allegedly promised to work with her on a loan reinstatement and
modification if she would forgo further bankruptcy proceedings. In
reliance on that alleged promise, the borrower claimed she did not convert
her bankruptcy case to a chapter 13 proceeding or oppose the bank's motion
to lift the bankruptcy stay. While the bank was promising to work with
borrower, the bank allegedly was simultaneously complying with the notice
requirements to conduct a sale under the power of sale in the deed of
trust.

The bankruptcy court lifted the stay. But the bank allegedly did not work
with borrower in an attempt to reinstate and modify the loan. Rather, it
completed the foreclosure.

The borrower filed this action against the bank, asserting a cause of
action for promissory estoppel and fraud, among others. She argued the
bank's promise to work with her in reinstating and modifying the loan was
enforceable, she had relied on the promise by forgoing bankruptcy
protection under Chapter 13, and the bank subsequently breached its
promise by foreclosing. The trial court dismissed the case on demurrer.

The California appellate court reversed in part, holding: (1) the
borrower could have reasonably relied on the bank's promise to work on a
loan reinstatement and modification if she did not seek relief under
chapter 13; (2) the promise was sufficiently concrete to be enforceable;
and (3) the borrower's decision to forgo Chapter 13 relief was
detrimental because it allowed the bank to foreclose on the property. The
Court therefore allowed the promissory estoppel and fraud claims to
survive.

However, the appellate court also held that the borrower's complaint did
not allege any irregularities in the foreclosure process that would permit
the trial court to void the deed of sale or otherwise invalidate the
foreclosure.

The bank argued that an oral promise to postpone either a loan payment or
a foreclosure is unenforceable. However, the Court noted that "the
doctrine of promissory estoppel is used to provide a substitute for the
consideration which ordinarily is required to create an enforceable
promise." The Court further noted that a promissory estoppel claim
generally entitles a borrower to the damages available on a breach of
contract claim.

However, the Court also held that, "[b]ecause this is not a case where the
homeowner paid the funds needed to reinstate the loan before the
foreclosure, promissory estoppel does not provide a basis for voiding the
deed of sale or otherwise invalidating the foreclosure."

The Court also rejected the borrower's allegations that: (1) the trustee
under the deed of trust was defective because the "Substitution of
Trustee" was signed by the bank's attorney-in-fact; and (2) the
foreclosure sale was void because the notice of default mistakenly the
wrong beneficiary.


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: US Sup Ct Limits Car-Ownership Deduction for BAPCPA's Means Test

The Supreme Court of the United States recently held that, under BAPCPA's
means test, a debtor in Chapter 13 Bankruptcy who does not make loan or
lease payments may not take the car-ownership deduction.

A copy of the opinion is available at:
http://www.supremecourt.gov/opinions/10pdf/09-907.pdf.

This case came before the Supreme Court on certiorari from the United
States Court of Appeals for the Ninth Circuit. Petitioner Jason Ransom, a
debtor in Chapter 13 Bankruptcy, had liabilities which included $82,500 in
unsecured debt, part of which consisted of a claim by respondent FIA Card
Services N.A. Ransom, who owned his vehicle outright, contended that
under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(BAPCPA) means test used to determine a debtor's disposable income, he was
entitled to deductions in relation to the vehicle for both "Ownership
Costs" and "Operating Costs." FIA disputed Ransom's proposed repayment
plan stating that it "did not direct all of Ransom's disposable income to
unsecured creditors" because it improperly included the ownership
deduction.

As you may recall, Chapter 13 of the Bankruptcy Code enables an individual
to obtain a discharge of his debts if he pays his creditors a portion of
his monthly income in accordance with a court-approved plan. 11 U. S. C.
§1301 et seq. To determine how much income the debtor is capable of
paying, Chapter 13 uses a statutory formula known as the "means test." The
means test instructs a debtor to deduct from his current monthly income
"amounts reasonably necessary to be expended" for, inter alia,
"maintenance or support." 11 U. S. C. §1325(b)(2)(A)(i). The result is his
"disposable income"—the amount he has available to reimburse creditors.
§1325(b)(2).

As relevant here, the statute provides that "[t]he debtor's monthly
expenses shall be the debtor's applicable monthly expense amounts
specified under the National Standards and Local Standards, and the
debtor's actual monthly expenses for the categories specified as Other
Necessary Expenses issued by the Internal Revenue Service [IRS] fort he
area in which the debtor resides." The Standards are tables listing
standardized expense amounts for basic necessities, which the IRS prepares
to help calculate taxpayers' ability to pay overdue taxes. The IRS also
creates supplemental guidelines known as the "Collection Financial
Standards," which describe how to use the tables and what the amounts
listed in them mean. The Local Standards include an allowance for
transportation expenses, divided into vehicle "Ownership Costs" and
vehicle "Operating Costs." The Collection Financial Standards explain that
"Ownership Costs" cover monthly loan or lease payments on an automobile.
The expense amounts listed are based on nationwide car financing data. The
Collection Financial Standards further state that a taxpayer who has no
car payment may not claim an allowance for ownership costs.

The Supreme Court examined the language of the Bankruptcy Code at
§707(b)(2)(A)(ii)(I), which states, "The debtor's monthly expenses shall
be the debtor's applicable monthly expense amounts specified under the
National Standards and Local Standards." The Court focused on the term
"applicable," stating that whether or not Ransom could claim the car
ownership deduction hinged on whether this amount "is "applicable" to
him." The Court then noted that as this term is undefined in the statute
they look to the "ordinary meaning of the term" which is "appropriate,
relevant, suitable, or fit."

The Court stated that applicability, in the context of BAPCPA, is
determined by making "individualized determination" of a debtor's monthly
expenses. The Court noted that if Congress had not intended to
differentiate between debtors who did and did not qualify for a deduction,
it "could have omitted the term 'applicable' altogether." The Court also
noted that the "statutory context" gives support to this reading as the
Code defines disposable income as "current monthly income…less amounts
reasonably necessary to be expended." Lastly, the Court examined the
legislative intent behind BAPCPA, which was to prevent perceived
bankruptcy abuses by ensuring "[debtors] repay creditors the maximum they
can afford."

Ransom argued that the term "applicable" refers to the deduction tables,
directing the debtor to chose the "applicable" ownership deduction of
whether he or she owned one or two vehicles. The Court noted that this
interpretation made the use of the word "applicable" superfluous, and was
contrary to the statutory purpose effected by the means test giving an
allowance for ""reasonably necessary" expenses." The Court further noted
that "[e]xpenses that are wholly fictional are not easily though of as
reasonably necessary." The Court also disagreed with Ransom's contention
that this reading would conflate "applicable" with "actual", noting that
although an expense can only be deducted if actually incurred, the actual
debtor expenses incurred does not necessarily control, if for instance the
debtor's "actual expenses exceed the amounts listed in the tables…."

The Court also disagreed with Ransom's contention that the car-ownership
deduction cannot cover only loan and lease payments, because a separate
sentence of the means test provides that "notwithstanding" the other
provisions of the test, "the monthly expenses of the debtor shall not
include any payments for debts." The Court held that this sentence did
not apply solely to the car-ownership provision, and that this sentence
could only serve to "exclude, and not authorize, deductions."

Lastly, Ransom argued that his reading of the means test was necessary to
avoid results not intended by Congress. Ransom gave as an example of such
"senseless results" as that of a debtor timing their bankruptcy filing so
that he or she would have only a few car payments left, and thus claim an
ownership deduction that would not be applicable soon after entering
bankruptcy. The Court stated that such anomalies were "the inevitable
result of a standardized formula like the means test", and Ransom's
reading introduced its own problems, namely, "the strangeness of giving a
debtor an allowance for loan or lease payments" when he or she is
incurring no such costs. The Court held that all of Ransom's arguments
miss the point of both BAPCPA and the means test, which are to prevent
bankruptcy abuses while simultaneously assuring that a debtor has enough
money for "reasonable expenses."

Justice Scalia alone dissented from the majority opinion. His dissenting
opinion took issue with the majority's assertion that Ransom's reading of
the word "applicable" would render it superfluous, noting "[t]he canon
against superfluity is not a canon against verbosity." Justice Scalia
then stated that "[t]he point of the statutory language is to entitle
debtors who own cars to an ownership deduction" and that an independent
interpretation of the tables used was unnecessary as there was "little
doubt" that a debtor would be able to choose whether to claim a deduction
for one car or two. Scalia also noted that the Court's job was not to
"eliminate or reduce" the "oddities" mentioned by the court, but to "give
the formula Congress adopted its fairest meaning."


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: Feds Announce NMLS Registrations Beginning for Subject Depository Institution Employees

The federal depository institution regulators and Farm Credit
Administration announced that the Nationwide Mortgage Licensing System and
Registry will begin accepting federal registrations.

The announcement was made by the Board of Governors of the Federal Reserve
System, Farm Credit Administration, Federal Deposit Insurance Corporation,
National Credit Union Administration, Office of the Comptroller of the
Currency, and Office of Thrift Supervision.

As you may recall, under the S.A.F.E. Act and the agencies' final rules,
residential mortgage loan originators employed by banks, savings
associations, credit unions, or Farm Credit System institutions must
register with the registry, obtain a unique identifier from the registry,
and maintain their registrations.

Following expiration of the 180-day initial registration period on July
29, 2011, any employee of an agency-regulated institution who is subject
to the registration requirements will be prohibited from originating
residential mortgage loans without first meeting these requirements. The
rules include an exception for mortgage loan originators that originated
five or fewer mortgage loans during the previous 12 months and who have
never been registered.

Further information regarding the registry and the registration process is
available at the registry's website:
http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx

The Federal Register notice is available at:
http://www.occ.gov/news-issuances/news-releases/2011/nr-ia-2011-9a.pdf

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.


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http://updates.kw-llp.com

The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.

Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.

Monday, January 31, 2011

FYI: US Sup Ct Upholds Former Reg Z Rule on Credit Card Rate Increase Disclosures Following Default

The Supreme Court of the United States recently held that, under the
version of Regulation Z applicable at the time of the relevant
transactions, TILA did not require a credit card issuer to provide the
credit card holder with a change-in-terms notice before implementing a
provision in the cardholder agreement allowing the bank to raise the card
holder's interest rate, up to a pre-set maximum, following the card
holder's delinquency or default.

A copy of the opinion can be found at:
http://www.supremecourt.gov/opinions/10pdf/09-329.pdf

As you may recall, in January 2009, the Board promulgated a final rule,
scheduled to be effective July 1, 2010, which among other things included
a new provision, §226.9(g), which requires 45 days' advance notice of
increases in rates due to cardholder delinquency or default, or as a
penalty, including penalties for "events specified in the account
agreement, such as making a late payment . . . ."12 CFR
§226.9(g)(1)(2010). In May 2009, Congress enacted the Credit Card
Accountability Responsibility and Disclosure Act (Credit CARD Act). The
Credit CARD Act amended TILA, in relevant part, to require 45 days'
advance notice of most increases in credit card annual percentage rates.
15 U. S. C. §1637(i). Because the Credit CARD Act's notice requirements
with respect to interest-rate increases largely mirrored the requirements
in the new version of the new regulation, the Board changed the effective
date of those requirements to August 20, 2009, to coincide with the
statutory schedule. The transactions giving rise to the dispute at issue
in this case arose prior to enactment of the Credit CARD Act and the
promulgation of the new regulatory provisions.

The Supreme Court held that the Regulation Z rules were not clear on
whether a change to an interest rate that resulted from a previously
disclosed provision in a contract would require disclosure. The U.S.
Supreme Court deferred to the Federal Reserve, which in its amicus brief
argued that the bank was not required to give the borrower notice under
the version of Regulation Z that was in effect at the time.

Plaintiff ("Debtor") was the holder of a card issued by creditor Chase
Bank ("Chase"). The cardholder agreement between the parties provided, in
relevant part, that Debtor was eligible for "preferred rates," but that to
keep those rates Debtor had to meet certain conditions. If any conditions
in the credit agreement were not met, Chase reserved the right to "change
Debtor's interest rate and impose a non-preferred rate up to the maximum
non-preferred rate described in the pricing schedule" and to apply any
changes "to existing as well as new balances … effective with the billing
cycle ending on the review date." Debtor brought suit against Chase,
alleging that Chase violated Regulation Z because Chase increased Debtor's
interest rate "due to his delinquency or default" and did not notify
Debtor of the increase until after it had taken effect.

The district court dismissed Debtor's complaint, "holding that because the
increase did not constitute a 'change in terms' as contemplated by
§226.9(c), Chase was not required to notify him of the increase before
implementing it." The Ninth Circuit reversed, holding that "because the
credit agreement does not alert Debtor to the 'specific change' that will
occur if he defaults, Chase was obliged to give notice of that change
prior to its effective date." The First Circuit resolved the same
question in favor of Chase, the Supreme Court resolved the circuit split
and reversed the decision of the Ninth Circuit.

At the time of the relevant dispute, Section 226.6 of Regulation Z
required credit card issuers to provide debtors an "initial disclosure
statement" to include, among other things, "a disclosure of each periodic
rate that may be used to compute the finance charge." In addition,
Section 226.9(c) required that prior notice be given to the debtor
"[w]henever any term required to be disclosed under 226.6 is changed or
the minimum periodic payment is increased."

Therefore, the question before the Supreme Court was "whether the Debtor's
interest rate constitutes a change to a 'term required to be disclosed
under §226.6,' requiring a subsequent disclosure under §226.9(c)(1)." The
Supreme Court held that an interest-rate increase does not "constitute a
'change in terms' under Regulation Z, when the change is made pursuant to
a provision in the cardholder agreement allowing the issuer to increase
the rate, up to a state maximum, in the event of the cardholder's
delinquency or default."

Rejecting one among many of Debtor's arguments against deference to the
Board, the Court further reasoned that "there is no reason to believe that
the interpretation advanced by the Board is a 'post hoc rationalization'
taken as a litigation position." In addition, the Board's "2004 notice of
rulemaking and the 2007 proposed amendments to Regulation Z make clear
that, prior to 2009, the Board's fair and considered judgment was that 'no
change-in-terms notice is required if the creditor specifies in advance
that the circumstances under which an increase…will occur,' and 'immediate
application of penalty pricing upon the occurrence of events specified in
the contract' was permissible." Therefore, "it is clear that deference to
the interpretation in the Board's amicus brief is warranted."

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.

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The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.

Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.

FYI: HUD Proposes to Add Sexual Orientation as Anti-Discrimination Factor

The U.S. Department of Housing and Urban Development (HUD) is proposing to add a person's sexual orientation or gender identity as an anti-discrimination factor for lenders participating in the Federal Housing Administration's (FHA) loan guarantee programs and other HUD programs.
 
The proposed rule is available at:
 
HUD is seeking public comment on a number of proposed areas including:
 
1.    Prohibiting lenders from using sexual orientation or gender identity as a basis to determine a borrower's eligibility for FHA-insured mortgage financing.  FHA's current regulations provide that a mortgage lender's determination of the adequacy of a borrower's income "shall be made in a uniform manner without regard to" specified prohibited grounds.  The proposed rule would add actual or perceived sexual orientation and gender identity to the prohibited grounds to ensure FHA-approved lenders do not deny or otherwise alter the terms of mortgages on the basis of irrelevant criteria.
 
2.    Clarifying that all otherwise eligible families, regardless of marital status, sexual orientation, or gender identity, have the opportunity to participate in HUD programs.  In the majority of HUD's rental and homeownership programs the term "family" already has a broad scope, and includes a single person and families with or without children.  HUD's proposed rule clarifies that families, otherwise eligible for HUD programs, may not be excluded because one or more members of the family may be an LGBT individual, have an LGBT relationship, or be perceived to be such an individual or in such relationship.
3.    Prohibiting owners and operators of HUD-assisted housing, or housing whose financing is insured by HUD, from inquiring about the sexual orientation or gender identity of an applicant for, or occupant of, the dwelling, whether renter- or owner-occupied.  HUD is proposing to institute this policy in its rental assistance and homeownership programs, which include the Federal Housing Administration (FHA) mortgage insurance programs, community development programs, and public and assisted housing programs.

In addition, HUD is conducting the first-ever national study of discrimination against members of the LGBT community in the rental and sale of housing. 

 
 
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