3 December 2013 – Consumer Financial Services Watch

Court Refuses to Defer to RESPA Statement of Policy Regarding Affiliated Businesses – 6th Circuit Says a Safe Harbor is a Safe Harbor

Dec 03 2013

Providing clarity in an area of law that had become increasingly muddled over the last two decades, the U.S. Court of Appeals for the Sixth Circuit held on November 27, 2013 that HUD’s 1996 policy statement setting forth a so-called “10-factor test” to determine whether an affiliated business arrangement (“ABA”) is bona fide or a sham is not entitled to deference (“1996 Policy Statement”). See Carter v. Welles-Bowen Realty, Inc., No. 10-3922 (6th Cir. Nov. 27, 2013). The Real Estate Settlement Procedures Act (“RESPA”) prohibits the payment of a fee in exchange for a referral of settlement service business. Profits generated by ABAs are exempt from this prohibition if the ABA meets the three prerequisites in RESPA’s safe harbor. Even though the plaintiff did not dispute that the ABA in Carter satisfied the three safe harbor requirements, they urged the district court to hold that the ABA nonetheless fell outside the safe harbor because, they claimed, the ABA did not satisfy a fourth requirement, namely HUD’s 1996 Policy Statement. While several district courts have otherwise concluded that an ABA must satisfy HUD’s policy statement in order to fall within the safe harbor, the theory was rejected by district judge Jack Zouhary in the Carter case. Read More

K&L Gates Presents at National Conference of Commissioners on Uniform State Law Regarding State Foreclosure Law

Dec 03 2013

On Friday, November 15, 2013, Laurence E. Platt presented at the working group meeting of the National Conference of Commissioners on Uniform State Law (the “Commission”) pertaining to the Commission’s discussion draft on the “Home Foreclosure Procedures Act” (the “Draft”). Speaking on behalf of The Securities Industry & Financial Markets Association, Platt expressed several concerns about the Draft. Among other issues, Platt emphasized the need for any uniform state foreclosure law to repeal existing state provisions that address the same issues so that the Draft does not merely serve as a “floor” for state regulations. He also asked that the Draft account for the new federal servicing regulations issued by the Consumer Financial Protection Bureau, by providing that satisfaction of the federal requirements would be deemed to satisfy the state requirements also addressing the same issues. He suggested that the Draft should make clear that loan holders and loan servicers are not obligated to offer any particular loss mitigation outcome to delinquent borrowers, such as permanent principal reductions. Platt objected to the three proposed alternatives to roll back the state “holder in due course” doctrine, each of which would permit a mortgagor to assert defenses to payment against a subsequent holder of the loan that could be asserted against the originating creditor. For a written summary of Platt’s comments, please click here. For background on the Draft, please click here.

Archive:3 December 2013