The United States District Court for the Northern District of California recently dismissed a  complaint alleging that a lender acted negligently in modifying a loan without accounting for a borrower’s impending retirement.  See Johnson v. PNC Mortgage, 2016 WL 861089, at *1 (N.D. Cal. Mar. 7, 2016).  In the case, the borrowers filed a complaint against the lender alleging that the lender had overstated their income because it had modified the loan based on the borrowers’ income at the time of the modification, despite having been informed that one of the borrowers was planning to retire in the near future.  The borrowers claimed that they had informed the lender of the retirement during a phone conversation but that the loan as modified nonetheless required payments that were too high, and that the federal Homeowner Affordable Modification Program (“HAMP”) guidelines required a lender to account for these changes in income.  The lender moved for summary judgment, which the Court granted.  It held that, though HAMP provided lenders with requirements on how to describe changes in income, it did not require that a lender had a duty to determine a borrower’s post-retirement income and adjust a loan accordingly.  Moreover, the Court held that such a policy would be unworkable because it would require that lenders guess future income and potentially be held liable for any miscalculations.  It found that “[w]ere that the rule, lenders would be whipsawed between two poles of liability. The law will not consciously sanction a rule under which actors can do no right.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The Massachusetts Supreme Judicial Court recently held that a condominium association may obtained multiple liens on condominium units for unpaid common expenses, all of which may have priority over prior-recorded mortgages.  See Drummer Boy Homes Ass’n, Inc. v. Britton, 47 N.E.3d 400 (Mass. 2016).  Under Massachusetts law, a condominium association may obtain a “super-priority” lien on a condominium unit, which would have priority over prior-recorded mortgages so long as the amount of the lien is limited to six months’ worth of common expenses.  See Mass. Gen. Laws Ann. ch. 183A, § 6(c).  The statute further allows mortgagees on the condominium units to regain their first-priority status by agreeing to pay to the condominium association the six months’ worth of expenses, reasonable attorneys’ fees and “all future common expenses” until the mortgagee no longer has an interest in the unit. 

In the case, the court addressed a situation in which the condominium association obtained three separate liens on a unit, each for six months’ worth of expenses.  The association argued that each of the three liens held a priority position on the property over a prior-recorded mortgage.  Though the lower courts rejected this argument and held that priority was only given for one lien of six months’ worth of expenses, the Supreme Judicial Court reversed these holdings.  It held that the statute’s reference to a mortgagee paying “all future common expenses” would be inconsequential if those future liens would not have priority over the mortgage, and that this provision indicated that the legislature intended the possibility of multiple super-priority liens, as did the statute’s use of the plural term “priority liens” in certain sections.  Therefore, the court found that condominium associations may hold multiple super-priority liens on a unit so long as each lien is limited to six months of expenses.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The United States District Court for the District of Columbia recently held that the Consumer Financial Protection Bureau (“CFPB”) lacked the authority to investigate an entity’s process for accrediting for-profit schools.  See Consumer Financial Protection Bureau v. Accrediting Council for Independent Colleges and Schools, 15-1838 (RJL) (D.D.C. Apr. 21, 2016).  In the case, the CFPB served a civil investigative demand on the Accrediting Council for Independent Colleges and Schools (“ACICS”) in which it demanded information relating to “whether any entity or person has engaged or is engaging in unlawful acts and practices in connection with accrediting for-profit colleges.”  After ACICS refused to comply, the CFPB filed a petition for enforcement.  ACICS opposed the petition, arguing that the CFPB’s jurisdiction was limited to consumer financial matters and did not extend to investigating the accreditation of for-profit colleges.  Although the CFPB argued that it has the authority to investigate for-profit schools “in relation to their lending and financial-advisory services” and that this authority naturally extended into a third-party’s accreditation of these schools, the court rejected the argument.  It held that the CFPB’s “post-hoc justification” was “a bridge too far” and that ACICS’s accreditation determinations had no bearing on the schools’ lending practices.  Therefore, the court denied the CFPB’s petition to enforce its investigative demand.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

The South Carolina Supreme Court recently held that county administrators and registers of deed may not pursue an action against Mortgage Electronic Registration System (“MERS”) under the state’s recording statute.  See Kubic v. MERSCORP Holdings, Inc., 2016 WL 1276344 (S.C. Mar. 30, 2016).  Under South Carolina law, the clerk of the court or register of deeds may refuse to accept a document for filing or may remove a filed document from the public records if he or she “reasonably believes that a conveyance, mortgage, judgment, lien, contract, or other document is materially false or fraudulent, or is a sham legal process.”  See S.C. Code Ann. § 30-9-30.  The statute further allows for the individual presenting the rejected document to file a lawsuit within thirty days to force the clerk or register to record the document.  Citing to this statute, five county administrators and registers of deeds sued MERS, among others, claiming that the defendants had caused damage to the public index by recording false documents.  The defendants filed a motion to dismiss, arguing that the statute does not provide the government officials the authority to bring this action.  The trial court denied the motion, finding that a motion to dismiss was inappropriate because the plaintiffs had presented a “novel issued of law.”  After the South Carolina Supreme Court granted the defendants’ writ of certiorari, it reversed the trial court’s decision.  It held that the plain language of the statute only granted the “person presenting the document” the right to file a lawsuit regarding allegedly fraudulent documents, and that “[w]hen the legislature delineated who would be able to bring a suit . . . it chose not to afford that right to government officials.”  Therefore, it found that the plaintiffs had failed to state a claim and dismissed the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

New Jersey’s Appellate Division recently held that a creditor’s complaint, in which it sought to nullify a debtor’s transfer of property, was made within the statute of limitations for a fraudulent transfer, because the four-year limitations period did not begin running until the deed at issue was recorded.  See Nationwide Registry & Sec., Ltd. v. Melhem, 2016 WL 921670 (N.J. Super. Ct. App. Div. Mar. 11, 2016).  In the case, the plaintiff was assigned a Nevada judgment against the debtor, which it had registered in New Jersey in 2014.  The plaintiff then learned that the debtor owned real property but had sold it to his sister for one dollar in 2009.  The deed, however, was not recorded until 2011.  The plaintiff filed a lawsuit against the debtor and his sister in 2014, arguing that the transfer was null and void as fraudulent under the Uniform Fraudulent Transfer Act (“UFTA”).  See N.J.S.A. 25:2-20.  The defendants then moved for summary judgment based on the four-year statute of limitations for a fraudulent transfer, arguing that the transfer occurred in 2009 and the complaint was not filed until 2014.  See N.J.S.A. 25:2-31.  The trial court granted the defendants’ motion, citing to a New Jersey statute stating that a deed transfers property interest upon delivery.  N.J.S.A. 46:3-13.  On appeal, however, the court reversed the decision.  It held that the UFTA expressly states that a transfer of real property is made when “the transfer is so far perfected that a good-faith purchaser . . . cannot acquire an interest in the asset that is superior to the interest of the transferee . . .”  N.J.S.A. 25:2-28.  Therefore, the trial court judge had erred in looking outside the UFTA to determine when the allegedly fraudulent transfer was made.  As the deed was not recorded until 2011 and the complaint was filed in 2014, the complaint was timely.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.