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New York Federal Court Dismisses RESPA Claim From Plaintiff Who Allegedly Assumed Borrowers’ Mortgage Banner Image

New York Federal Court Dismisses RESPA Claim From Plaintiff Who Allegedly Assumed Borrowers’ Mortgage

Month: September 2019

New York Federal Court Dismisses RESPA Claim From Plaintiff Who Allegedly Assumed Borrowers’ Mortgage

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The United States District Court for the Northern District of New York recently dismissed a Real Estate Settlement Procedures Act (“RESPA”) complaint brought by a plaintiff who claimed to have purchased the borrowers’ home and assumed their note and mortgage.  See Garrasi v. Selene Fin., LP, 2019 WL 4305411 (N.D.N.Y. Sept. 11, 2019).  In the case, plaintiff purchased the home of two borrowers, and the borrowers assigned plaintiff “all their rights and interest under the terms of the note and mortgage” on the property.  Plaintiff then sent multiple letters to defendants that he designated as qualified written requests (“QWRs”) and asked for information about the owner of the note and mortgage, as well as other information.  Defendant responded and informed plaintiff that he was not authorized to receive that information unless he had a third party authorization form signed by the borrowers.  Plaintiff then brought this action, alleging that defendant violated RESPA by not properly responding to his QWRs.  Defendant moved to dismiss the action.

The Court granted the motion and dismissed the RESPA claim.  First, the Court found that plaintiff did not have standing to bring the claim.  RESPA provided that entities who fail to comply with certain provisions “shall be liable to the borrower for each such failure.”  In this case, plaintiff was not the borrower, and had no standing.  Second, the Court found that plaintiff’s letters were not QWRs, which meant that defendant had no obligation to respond to them.  “Defendant’s obligation to respond to a borrower’s inquiry under RESPA cannot be triggered when Plaintiff failed to assert an account error or establish any connection between the information sought and the servicing of the loan. Defendant is not required to respond to all inquiries or complaints[.]”  Finally, the Court held that “RESPA does not apply to ‘any assumption in which the lender does not have the right expressly to approve a subsequent person as the borrower on an existing federally related mortgage loan.’” 12 C.F.R. § 1024.5(a) & (b)(5).

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

Nevada Federal Court Holds Title Insurer May Be Able to Reform Policy After Mistakenly Omitting Mortgage

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The United States District Court for the District of Nevada recently denied a motion for partial summary judgment by homeowners against their title insurance company for coverage and found that the title insurance company may have a claim for reformation when it mistakenly omitted an exception for a mortgage.  See Bank of New York Mellon v. Christopher Communities at S. Highlands Golf Club Homeowners Ass’n, 2019 WL 4261854 (D. Nev. Sept. 9, 2019).  In the case, the insured homeowners purchased the property at issue after a foreclosure sale for unpaid homeowners association liens.  The lender who held the first mortgage on the property before the sale brought a quiet title action and ultimately prevailed on its claim that the foreclosure sale did not extinguish its lien.  The insureds then brought a claim against the title insurance company who issued their policy, arguing that they are entitled to coverage because the policy does not contain an exception for this lien.  The title insurer did not dispute that this exception was omitted, but filed a counterclaim seeking reformation of the policy.  The insureds then brought this motion for partial summary judgment on coverage.

The Court denied the motion.  The Court found that reformation would be available if there was a mutual mistake in the policy.  In this case, the Court found that an exception for the lien was included in preliminary title reports, and that the title insurer informed the insureds that certain other exceptions (but not this one) would be removed from the final title policy.  Nonetheless, the final title policy did not include this exception.  The Court thus found that “[t]his is necessarily an omission—a mistake—for which reformation is an available remedy” and that there was a genuine issue of material fact as to whether the policy should be reformed.  Accordingly, the Court denied the insureds’ motion.

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

Third Circuit Finds Debt Collector Violated FDCPA by Sending an Envelope With a QR Code That Revealed the Debtor’s Account Number When Scanned

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The United States Court of Appeals for the Third Circuit recently affirmed a District Court’s decision granting a debtor’s motion for summary judgment and finding that a quick response (“QR”) code printed on the outside of an envelope that revealed the debtor’s account number when scanned violated the Fair Debt Collection Practices Act (“FDCPA”).  See DiNaples v. MRS BPO, LLC, 934 F.3d 275 (3d Cir. 2019).  In the case, the defendant debt collector sent a collection letter to the debtor, and the outside of the envelope included a QR code.  When scanned by a smartphone app, the code revealed the debtor’s internal reference number with the debt collector.  The debtor then brought this class action, alleging that the QR code on the envelope violated the FDCPA, which prohibits a debt collector from using “any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails.”  See 15 U.S.C. 1692f(8).  The District Court granted the debtor’s motion for summary judgment.

On appeal, the Court affirmed.  First, the Court addressed whether the debtor had standing to bring this action under the Spokeo standard, which requires the plaintiff to suffer an injury that is “concrete and particularized.”  See Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).  The Court found that she had suffered concrete harm:  “Disclosure of the debtor’s account number through a QR code, which anyone could easily scan and read, . . . ‘implicates core privacy concerns.’”  Second, the Court found that the presence of the QR code violated the FDCPA.  In doing so, the Court relied on its 2014 decision of Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d Cir. 2014), in which it found that a letter that disclosed the debtor’s account number through the envelope’s clear plastic window violated the FDCPA.  The Court rejected the debt collector’s argument that the presence of a QR code is different from the presence of an account number, because the only way a third party could discover the account number from a QR code would be by “unlawfully scanning” the envelope, which would be “akin to opening a letter addressed to another.”  The Court found that “[t]here is no material difference between disclosing an account number directly on the envelope and doing so via QR code ––the harm is the same, especially given the ubiquity of smartphones. Whether it is illegal to scan someone’s mail, as [the debt collector] argues, is beside the point.”

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

N.J. Federal Court Denies Motion for Preliminary Injunction Seeking to Enforce Restrictive Covenant Prohibiting Sports Wagering, But Still Finds Covenant Likely Is Enforceable

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The United States District Court for the District of New Jersey recently found that the defendant could not obtain a preliminary injunction prohibiting the plaintiff from operating a sports wagering business on the plaintiff’s property due to a restrictive covenant, but that the defendant still showed a likelihood of success on the merits.  See Cherry Hill Towne Ctr. Partners, LLC v. GS Park Racing, L.P., 2019 WL 4187836 (D.N.J. Sept. 4, 2019).  Under the New Jersey Sports Wagering Act of 2018, certain businesses could apply for sports wagering licenses.  See N.J.S.A. 5:12A-11.  Plaintiff owned a former racetrack and was eligible to apply for a license.  In 2018, 11 days after the law was passed, Defendant sent a letter to Plaintiff informing Plaintiff that Plaintiff was barred from applying for a sports wagering license due to a Declaration of Restrictive Covenants (the “Declaration”).  The Declaration stated: “Horse racing, simulcasting, off-track betting, wagering activities and gambling and gaming of any sort (collectively, ‘Gaming’) anywhere on the [Plaintiff’s] Property at any time by any party other than [Defendant] and its successors and assignees is hereby prohibited.”  Plaintiff responded by bringing this action seeking a declaratory judgment invalidating the Declaration and providing that the Declaration does not prohibit sports wagering.  Defendant then brought a motion for preliminary injunction preventing Plaintiff from “engaging in the business of sports wagering at” the property.

The Court denied the motion.  The Court first found that the issue was ripe for review.  Although Plaintiff had not obtained or even applied for a license yet, the parties agreed that Plaintiff “intends to do so as soon as possible” and “[a] declaration of rights in this case will alleviate legal uncertainty and could potentially have a significant impact on Plaintiff’s plan to open and operate a sports wagering facility.”  The Court then addressed the motion for a preliminary injunction.  The Court found that Defendant showed a likelihood of success on the merits.  It found that the Declaration’s language was unambiguous and clear, and was not an unreasonable restraint on trade because it only encumbered one property.  The Court also found that the fact that the Declaration was entered into in 1999, when sports wagering was illegal in New Jersey, did not make the Declaration unenforceable after the law changed.  “The changed circumstances have not resulted in any burden on [Plaintiff]. Before the Sports Wagering Act, [Plaintiff] could not conduct sports wagering on its property, and after the Act, it still cannot conduct sports wagering.”  Nonetheless, the Court found that Defendant had not shown that it would be irreparably harmed without the injunction.  Plaintiff had not applied for its license yet, so the Court determined that it could not engage in the sports wagering business “anytime in the immediate future” and that an injunction was unnecessary at this time.

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

New York Amends Confession of Judgment Statute to Prohibit Confessions Filed Against Out-of-State Debtors

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On August 30, 2019, Governor Cuomo signed legislation that amended CPLR § 3218 to prevent creditors from filing confessions of judgment in New York against out-of-state debtors.  Under the prior version of the statute, a creditor could enter a confession of judgment against a debtor based upon an affidavit signed by the debtor “stating the sum for which judgment may be entered, authorizing the entry of judgment, and stating the county where the defendant resides or if he is a non-resident, the county in which entry is authorized.”  In other words, a creditor could file a confession in New York against a non-resident debtor and begin seizing on the debtor’s assets, regardless of the debtor’s actual connection to the state.

Under the amended version, a confession of judgment must be supported by an affidavit “stating the sum for which judgment may be entered, authorizing the entry of judgment, and stating the county where the defendant resides. . . . For purposes of this section, a non-natural person resides in any county where it has a place of business.”  In short, confessions of judgment against non-resident individuals or entities with no place of business within the state are now prohibited.  The amended statute includes a carve-out for government agencies:  “Notwithstanding any other provision of law to the contrary, a government agency engaged in the enforcement of civil or criminal law against a person or a non-natural person may file an affidavit in any county within the state.”  Finally, this new law takes effect immediately and “appl[ies] to judgments by confession entered upon affidavits filed on or after such effective date,” so unfiled confessions based on affidavits signed before August 30 are now prohibited.

For a copy of the updated statute, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey Appellate Court Holds Certification of Amount Due and Certification of Diligent Inquiry Sufficient to Foreclose

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The New Jersey Appellate Division recently denied a homeowner’s argument that a lender’s final judgment of foreclosure submission was improper because the lender submitted certifications of amount due and of diligent inquiry, rather than affidavits.  See Wells Fargo Bank, NA, v. Owens, 2019 WL 4184096 (N.J. Super. Ct. App. Div. Sept. 4, 2019).  In the case, the lender obtained a final judgment of foreclosure and went to sale.  The borrower then brought a motion to vacate the sale, arguing that the lender’s final judgment of foreclosure submission failed to comply with the requirements of Rule 4:64-2(b) and (d), which require an “affidavit of amount due” and an “affidavit of diligent inquiry.”  The borrower argued that the lender’s submission was insufficient because the lender submitted certifications rather than affidavits.  The trial court denied the motion.

On appeal, the Court affirmed.  In addition to the fact that vacating the judgment or sale would be a “futile proceeding” because the lender could just refile with affidavits, the Court found that there was no merit to the borrower’s arguments.  Under Rule 1:4-4(b), an affiant is permitted to submit a certification in lieu of any affidavit “required by these rules.”  Although the Court acknowledged that the Rules were recently amended to permit “a certificate or affidavit” under Rules 4:64-2(a) and (c)—but not 4:64-2(b) or (d)—“[w]e do not read the change in (a) and (c) to imply that certifications are not permitted under subsection (b) and (d).”  Additionally, the Court found that “the Supreme Court’s Special Committee on Residential Foreclosures, whose recommendations prompted the rule change, did not expressly discuss these amendments.  Had the Committee intended a substantive change in the Rule, we suspect it would have commented on it.”

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

Delaware Court Dismisses Bad Faith Claim Against Title Insurer and Claims Against Title Insurer’s Parent Company

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A Delaware court recently dismissed a bad faith claim against a title insurance company after holding that Michigan law applied to the dispute over a property in Michigan, and that Michigan does not recognize a claim for bad faith breach of an insurance contract.  The Court further dismissed the action as against the insurer’s parent company, who was not a party to the policy.  See Buhl Bldg., L.L.C. v. Commonwealth Land Title Ins. Co., 2019 WL 3916615 (Del. Super. Ct. Aug. 19, 2019).  In the case, Commonwealth Land Title Insurance Company (“Commonwealth”) issued an owner’s title insurance policy to the owner of a skyscraper in Detroit in 1998.  In 2016, the insured owner entered into an agreement to sell the property, but the sale fell through because the potential purchaser’s title insurance company refused to insure the property due to a discrepancy in the legal description.  Although Commonwealth and its parent company, Fidelity National Financial, Inc. (“FNF”) tried to resolve the issue with the potential purchaser’s title insurance company, they were not successful.  The insured, a Delaware company, then brought this breach of contract and bad faith action in Delaware against Commonwealth and FNF.  Defendants then brought a motion seeking an order (i) applying Michigan law to the action; (ii) dismissing the bad faith claim; and (iii) dismissing FNF.

The Court granted the motion in its entirety.  First, the Court found that Michigan law applies because the reasonable expectations of the parties was that Michigan law would apply.  In addition to the property itself being in Michigan, the insured “paid its premiums from Michigan, Commonwealth referenced land records in Michigan, and the parties formed the Contract using Michigan forms.”  Second, the Court dismissed the insured’s bad faith and punitive damages claims, because Michigan (unlike Delaware) “does not recognize claims for bad faith breach of insurance contracts and punitive damages.”  Finally, the Court dismissed FNF from the action, finding that FNF was not a party to the title insurance policy and could not be found liable without piercing the corporate veil, which could only be done in a chancery court in Delaware.

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

New York Federal Court Denies Motion to Dismiss Claims Alleging that Credit Union Improperly Charged Customers “Overdraft Fees” When Sufficient Funds Existed in Customer’s Account to Cover the Transaction

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The United States District Court for the Northern District of New York recently denied a federal credit union’s motion to dismiss a class action complaint alleging that the credit union violated contract law, Regulation E of the Electronic Fund Transfer Act (15 U.S.C.A. §§ 1693 et seq.) (“Regulation E”), and Section 349 of New York General Business Law (“N.Y.G.B.L. § 349”) by charging its customers overdraft fees even when their accounts contained enough funds to cover the transactions.  See Story v. SEFCU, 2019 WL 2369878 (N.D.N.Y. 2019). The defendant, State Employees Federal Credit Union (“SEFCU”), offers its customers the option to “opt-into” an overdraft protection contract where SEFCU will cover certain transactions in excess of the available funds in a customer’s account for a standard $25 “overdraft fee.”  Plaintiff, a customer of SEFCU, claimed that she entered into the “opt-in” overdraft contract with SEFCU and was charged an overdraft fee of $25 when she made a $3.66 debit purchase from her account with a balance of $88.64.

Plaintiff alleged that SEFCU improperly utilized an artificial balance calculation to determine whether enough funds exist in a customer’s account for a transaction which, in turn, may result in a customer being charged an overdraft fee even if the account contains sufficient funds.  Therefore, plaintiff claimed, SEFCU’s practice of charging overdraft fees was in violation of the “opt-in” contract with its customers and Regulation E, which requires, in pertinent part, a financial institution to: (1) provide the customer with a copy of the overdraft policy; (2) inform the customer of the options that he or she has to avoid overdraft fees, if such options exist; and (3) obtain “opt-in consent” for the overdraft policy.  The defendant moved to dismiss the complaint for lack of standing.

The Court denied the motion.  First, the Court found that plaintiff had properly alleged a breach of contract claim because SEFCU entered into the contract with plaintiff—stating it would only charge an overdraft fee if insufficient funds existed to cover the presented transaction—and nonetheless charged plaintiff an overdraft fee.  The Court rejected the defendant’s claims that the plaintiff never affirmatively “opted-into” the overdraft program and never suffered an injury from the overdraft charge, stating that SEFCU never provided any proof to dispute these claims.

Second, plaintiff asserted a cause of action for unjust enrichment, claiming that plaintiff and class members have conferred a benefit on the defendant, the defendant has knowledge of this benefit, as well as the wrongful circumstances under which it was conveyed, and yet the defendant voluntarily accepted and retained the benefit conferred to the tune of “millions of dollars in overdraft fees.”  The Court found that, at this stage of the proceeding, plaintiff had standing to bring an unjust enrichment claim, even though the relief accorded for unjust enrichment is “only available in the absence of an enforceable written contract between the parties . . . .”

Third, plaintiff alleged that SEFCU did not properly abide by Regulation E’s opt-in requirements before charging overdraft fees.  The Court found that the defendant did not provide any evidence to adequately dispute this allegation; therefore plaintiff had properly alleged that she suffered an injury (overdraft fee of $25) traceable to SEFCU’s alleged violation of Regulation E.

Last, plaintiff alleged that SEFCU’s practice of charging overdraft fees even where the customer’s account contained enough funds to cover the transaction was a deceptive act in violation of N.Y.G.B.L. § 349.  The Court found that plaintiff had standing to bring this claim because she alleged that she was harmed by SEFCU’s unlawful business practice of improperly charging overdraft fees.

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

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