Sheppard Mullin Financial Institutions Law Blog

In another blow to residential lenders, the city of Los Angeles has passed an ordinance that will require the person that owns or is in control of certain residential real property to maintain the property in a safe and sanitary condition and in good repair. While one might logically expect that this ordinance would only apply to financial institutions once they have foreclosed upon the property or taken it back via a deed in lieu of foreclosure, the ordinance appears to go farther than that, requiring the financial institution to take responsibility for the condition of the property once a notice of default has been filed.

In a decision that was handed down on June 30, 2010, a United States District Court for the Northern District of Ohio has ruled that HUD's sham joint venture guidelines, as contained in HUD's RESPA Statement of Policy 1996-2 (the "Policy Statement"), are unconstitutionally vague, and has granted the defendants summary judgment against claims by the plaintiffs that certain affiliated title agencies violated RESPA. Carter v. Wells-Bowen Realty, Inc., 2010 WL 1607266.

On June 4, 2010, the California Court of Appeal issued its first important decision on the scope of California's Perata Mortgage Relief Act, passed into law in 2008 and codified at California Civil Code Sections 2923.5 and 2923.6. See Mabry v. Superior Court (Case No. G042911, June 4, 2010) ---Cal.App.4th---, 2010 WL 2180530.

Question: When a bank sues to recover an overdraft created by a Nigerian-style email scam, which party has the burden of proof on the question of whether, in the context of section 3406 of the Commercial Code, the bank acted negligently—the bank or the overdraft account holder?

Answer: The account holder, according to the Fourth Appellate District, Division Two, in Chino Commercial Bank, N.A. vs. Peters (E049170), decided May 25, 2010.

Question: "Does a credit card issuer have to resolve disputes about purchases with the consumer who used the card to buy the goods, or just with the person who obtained the card and authorized issuance of another card to the consumer?"

Answer: Just the latter, according to the Ninth Circuit Court of Appeals in Edwards v. Wells Fargo & Company (No. 06-16892), decided May 19, 2010.

Question: Is section 1748.9 of the Civil Code, which requires certain disclosures to credit card holders who use preprinted "convenience checks," preempted by the National Bank Act?

Answer: No, according to Fourth District Court of Appeal, Division Three, in Parks v. MBNA America Bank, N.A. (G040798), decided May 12, 2010.

The U.S. House of Representatives approved by a voice vote on April 14 an amendment to the Gramm-Leach-Bliley Act that will provide an exemption from annual privacy notice updates for financial institutions that do not share non-public consumer information with unaffiliated third parties or make changes to their privacy policies. Currently, a financial institution is required to send out privacy notices annually, even if its privacy policy has not changed and it does not share customer information. Continue Reading Questions & comments

In Alston v. Countrywide Financial Corporation, 585 F.3d. 753 (3rd Cir. 2009), the United States Court of Appeals for the 3rd Circuit held that homebuyers may pursue a class action claim that Countrywide Financial Corporation engaged in taking kickbacks in violation of Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) by steering private mortgage insurance policy referrals to insurers who agreed to reinsure a portion of the policies with Countrywide's affiliate.

The United States Court of Appeals for the Ninth Circuit, which includes California, issued a ruling on March 9 that the clear and unambiguous language of RESPA Section 8(b) does not reach the practice of overcharging. Martinez v. Wells Fargo Home Mortgage, Inc. Section 8(b) of RESPA states that "no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed."

The Federal Housing Administration has issued a proposed rule that would increase the net worth requirements for approved mortgage lenders and hold them responsible for the lending actions of affiliated mortgage brokers. Currently, the FHA requires approved mortgage lenders to have a net worth of at least $250,000. The proposed rule would require such lenders to maintain a minimum of $1 million in net worth within the first year and at least $2.5 million of net worth within three years of the effective date of the rule. The FHA stated that these changes are consistent with industry standards and will ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting the FHA to mitigate losses and decrease risks to its insurance fund.