Maryland Legal Alert for Financial Services

In This Issue:

2013 MARYLAND LEGISLATION: SOME LAWS HAVE JUNE 1 EFFECTIVE DATE

DODD-FRANK ACT MORTGAGE RULES: THE IMPLEMENTATION CHALLENGE BEGINS

4TH CIRCUIT AFFIRMS DISMISSAL OF HAMP MODIFICATION CLAIMS

2013 MARYLAND LEGISLATION: SOME LAWS HAVE JUNE 1 EFFECTIVE DATE

Maryland’s 2013 General Assembly Session ended on April 8. The Governor has signed some bills into law and has a final scheduled signing session on May 16. We will prepare our annual Maryland Laws Update again this year providing insights on new laws that impact financial service providers. In the meantime, we briefly describe two bills that, subject to the Governor’s signature, will become effective June 1. Please let Bob Enten know if you have any questions about these two new laws.

Fraudulent Liens
Introduced as HB941 (effective June 1, 2013)
This law makes it a misdemeanor to file a public or private record of a lien or encumbrance against real or personal property if the filer knows that the lien or encumbrance is false or knows that the record contains or is based on a materially false, fictitious, or fraudulent statement or representation. For the first violation, the penalty is imprisonment not exceeding 1 year or a fine not exceeding $10,000, or both, and for each subsequent violation, imprisonment not exceeding 5 years or a fine not exceeding $10,000 or both.

Manufactured Homes
Introduced as HB794/SB696 (effective June 1, 2013)
Last year Maryland established a statutory procedure for converting manufactured housing affixed to land into real property. Implementation of the new law proved difficult when the owner of the manufactured home could not locate either a certificate of title or certificate of origin because, as enacted, the law required in those circumstances that a title company or attorney certify that no liens exist on the manufactured home. In the event there were liens, the certification could not be made and conversion could not occur. House Bill 794/Senate Bill 696 (identical language) alter the information that needs to accompany an affidavit of affixation when the owner cannot locate either a certificate of title or certificate of origin, eliminating the need for a title company or lawyer to provide a certification of no lien.

DODD-FRANK ACT MORTGAGE RULES: THE IMPLEMENTATION CHALLENGE BEGINS

The expanse of new consumer mortgage lending regulations that need to be implemented by January 2014 is astounding. This is particularly true for smaller lenders that do not have a cadre of in-house attorneys upon whom to rely. It is time to identify those persons in your business who will be responsible for implementing the various regulations and to begin the analysis of how the new regulations impact your unique operations. The attached chart may help to focus the challenge.

Please contact Chris Rahl if you have any questions.

4TH CIRCUIT AFFIRMS DISMISSAL OF HAMP MODIFICATION CLAIMS

On April 19, 2013, the U.S. Court of Appeals for the Fourth Circuit affirmed dismissal of a case brought against a loan servicer by consumers as a result of the servicer’s denial of the consumers’ loan modification application under the federal government’s Home Affordable Modification Program (HAMP). A copy of the Court’s opinion can be found here.

Recognizing that they had no private cause of action under HAMP, the consumers claimed breach of implied-in-fact contract, negligence, violations of Maryland’s Consumer Protection Act (basically UDAP claims) (MCPA), negligent misrepresentation, and common law fraud. The principal underlying facts were that the consumers submitted an application for a HAMP modification, only providing half a month’s worth of pay stubs. The servicer responded with a letter requesting that supplemental pay stubs be provided in order to substantiate a full month’s worth of income, and required that such information be provided within 10 days. The consumers failed to respond within that required time period; however, they did provide the requested information 11 days after the time period had run.

In pertinent part, the Court held that:

• No contract, express or implied, was created between the consumers and the servicer notwithstanding the various foreclosure and HAMP notices sent by the servicer and the submission of the loan modification application by the consumers in response;
   
• With respect to the negligence claim, the servicer owed no duty of care to the consumers, either generally (recognizing that the relationship between a lender and its customer in a loan transaction is a contractual relationship and not fiduciary in nature) or by virtue of HAMP (because there was no contract under which a tort duty might arise); and
   
• The servicer’s request for additional income documentation was not a “misrepresentation” under the MCPA because the servicer needed the additional information in order to process the HAMP application and, therefore, there had been no false representation on the part of the servicer.

The Court distinguished the facts in this case from the “special circumstances” in Jacques v. First Nat’l Bank of Maryland, 515 A.2d 756 (Md. 1986), where the Court of Appeals of Maryland found a bank that accepted a mortgage loan application owed the applicant a duty of reasonable care in processing that application. The Court noted that, among other circumstances, the bank in Jacques made specific promises to the applicants and the applicants paid a loan processing fee to the bank in connection with the application.

Please contact Chris Rahl if you have any questions.