Jeffrey S. Patterson

Nelson Mullins Riley & Scarborough LLP

One Post Office Square, Boston, MA 02109

P: (617) 573-4700

jeffrey.patterson@nelsonmullins.com

Pushing the Bounds of Pre-Emption: Defenses to Alleged Violations of State Notice of Right to Cure Laws

Non-judicial foreclosure state Bank sends proper foreclosure

notices under power of sale Technical defects in Notice of Right

to Cure Borrower defends eviction and/or

asserts counterclaims

The National Bank Act provides national banks with the power "to make, arrange, purchase, or sell loans or extensions of credit secured by interests in real estate . . . ." 12 U.S.C. § 371.

"State laws that obstruct, impair or condition a national bank's ability to fully exercise its Federally authorized real estate lending powers do not apply to national banks. Specifically, a national bank may make real estate loans under 12 U.S.C. 371 and § 34.3, without regard to state law limitations concerning … processing, origination, servicing, sale or purchase of, or investment in, mortgages." 12 C.F.R. § 34.4(a)(10) (emphasis added).

In 1989, Congress, under HOLA, created the Office of Thrift Supervision (“OTS”) to regulate and govern "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave.” Fidelity Fed. Say. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 159-60 (1982).

NBA: If the state law at issue is a consumer finance law, it will generally be subject to preemption only if there is a discriminatory effect or if state the law prevents or significantly interferes with the exercise of powers. HOLA: Conflict preemption only; no longer "occupying the entire field" Determination on a case-by case basis

1. Who is actor?

2. What is regulated action or inaction?

Potential Relevant Actors: Originator

Servicer

Holder

Focus on Relevant Time Not commencement of eviction

Sending of notice

Title 12 U.S.C. § 24 (Seventh) provides that national banks can "exercise … all such incidental powers as shall be necessary to carry on the business of banking" supplements this general authority. Loan servicing is a nonbanking activity that is "a proper incident" to banking. Akopyan v. Wells Fargo Home Mortg. Inc., 155 Cal Rptr. 3d 245, 267 (2013).

12 CFR 7.7379 permits a national bank, either directly or through a subsidiary, to act as agent in the warehousing and servicing of mortgage loans. See OCC Mortgage Banking Handbook, 6 (1998).

For preemption to apply, you must convince Court that the action is part of the bank's exercise of the powers granted by national bank act. See Watters v. Wachovia Bank, N.A., 550 U.S. 1, 18 (2007).

Most right to cure statutes impact the bank's ability to accelerate the debt and the term to maturity of the loan. As a result, these laws may be preempted because they impose restrictions on "[t]he terms of credit, including ... adjustments to the ... term to maturity of the loan ...." 12 C.F.R. § 560.2(b)(4). See also Sovereign Bank v. Sturgis, 863 F. Supp. 2d 75, 101 (D.Mass. 2012); Sloane v. JPMorgan Chase Bank, N.A., 2012 WL 7806163, *1 (D. Mass. March 27, 2013) (statute which limits the circumstances under which a loan may be called due and regulates the term to maturity of the loan is preempted) Maynard v. Wells Fargo Bank, N.A., 2012 WL 4898021, *4 (S.D. Cal. Oct. 15, 2012) (court rejected on preemption grounds, borrower's challenge to foreclosure because Wells Fargo did not contact him to discuss alternatives to foreclosure and failed to include a declaration of compliance in violation of Cal. Civil Code § 2923.5).

Inequitable/Unfair

Foreclosure Savings Clause

NBA applies only to making loans

A face to face meeting, or a reasonable attempt at a

meeting, must occur with a mortgagor before the debtor is three months behind on their mortgage.

“The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid.”

Thus, the meeting must occur before the lender is 3 months behind, not just before a foreclosure proceeding is initiated.

1. The mortgagor does not reside in the mortgaged property 2. The mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either, 3. The mortgagor has clearly indicated that he will not cooperate in the interview, 4. A repayment plan consistent with the mortgagor's circumstances is entered into to bring the mortgagor's account current thus making a meeting unnecessary, and payments thereunder are current, or 5. A reasonable effort to arrange a meeting is unsuccessful.

Under 24 CFR 203.606, all servicing requirements of this section, including the face-to-face meeting, must occur before initiating a foreclosure.

Bagley v. Wells Fargo Bank, N.A., No. 3:12-CV-617, 2013 U.S. Dist. LEXIS 11880 (E.D. Va. Jan 29, 2013)

Holds that under Virginia law a lender must comply with all conditions precedent, including compliance with FHA/HUD regulations that a face to face meeting occur, prior to accelerating the loan and initiating foreclosure (citing Mathews v. PHH Mortgage, 283 Va. 723, 732, 724 S.E.2d 196 (Va. 2012)).

Hewitt v. Bank of Am. N.A., No. 1:13-CV-310, 2013 U.S. Dist. LEXIS 96820 (E.D. Mich. July 11, 2013) Holding that the federal regulations

related to a face to face meeting and foreclosures, as with federal regulations in general, do not create a stand-alone private right of action against a lender

Silveira v. Wells Fargo Bank, N.A. (In re Silveira), No. 12-4036, 2013 Bankr. LEXIS 1904 (Bankr. D. Mass. May 3, 2013) HUD regulations requiring a face-to-face meeting before

the borrower is in 3 months default does not provide the mortgagor with a private right of action.

When the HUD regulations, including a face to face meeting, “are incorporated into the various loan documents, as they were in this case, they become enforceable by the parties to the loan documents,” such as through a breach of contract action.

Falling into default is not a material breach of a contract which would relieve the lender of its responsibility to conduct a face to face meeting with the mortgagee, if applicable

Johnson v. JPMorgan Chase Bank, N.A., No. 4:12-cv-285, 2013 U.S. Dist. LEXIS 81243 (E.D. Tex. April 10, 2013) – Held that a plaintiff could not maintain a breach of contract claim against JPMorgan Chase for HUD violations, because when the loan was three months behind it was owned by a different bank (WaMu) and liability for any breach by WaMu was disclaimed and not assumed when the loan was transferred to Chase in a purchase and assumption agreement.

Montalvo v. Bank of Am. Corp., 864 F. Supp. 2d 567, 2012 U.S. Dist. LEXIS 45267 (W.D. Tex. 2012) - Where a mortgagee did not operate a “servicing center within a 200-mile radius of the mortgaged property that was staffed with employees familiar with servicing issues,” the exception to the face to face meeting applied

Kersey v. PHH Mortg. Corp., 682 F. Supp. 2d 588 (E.D. Va. 2010), vacated on other grounds, 2010 U.S. Dist. LEXIS 82802, 2010 WL 3222262 (E.D. Va. Aug. 13, 2010) – Court held that any loan origination or loan servicing office, not just a loan servicing office, within 200 miles would be sufficient to constitute a branch office and prevent the lender from using the exception to a face-to-face meeting.