Banking & Finance Webinar

Transcription

1 Banking & Finance Webinar March 18, 2014 Simmons Perrine Moyer Bergman PLC 115 Third St SE, Suite 1200 Cedar Rapids, IA

2 Today s Presenters: Lynn W. Hartman (319) lhartman@simmonsperrine.com Christopher K. Loftus (319) cloftus@simmonsperrine.com 2

3 Agenda: Iowa Case Law Update Title Insurance Regulatory Update: A Look Ahead to the CFPB in 2014 CLE Notice: This webinar is an accredited program under the regulations of the Iowa Supreme Court Commission on Continuing Legal Education. This program will provide a maximum of 1 hour of regular credit toward the mandatory continuing legal education requirements established by Rules 41.3 and This webinar is also approved for 1 hour of Federal continuing legal education. [Activity # ] 3

4 Iowa Case Law Update March 18, 2014 Presenter: Christopher K. Loftus 4

5 Outline of Recent Cases I. Iowa Garnishment - New v. Gemini; II. Use of Non-Exempt Property to Pay Homestead In re: Arends; III. Oral Personal Guaranty - Wells Fargo Bank, N.A. v. Nevins; IV. Dragnet Clause - Wells Fargo Bank, N.A. v. Valley Bank & Trust; V. Common Law Marriage Defense to Foreclosure Earlham Sav. Bank v. Morrell; VI. Compulsory Counterclaim and Need to Mediate Prior to Foreclosing Ag. Land Schaefer v. Putnam. 5

6 Iowa Garnishment New v. Gemini Capital Group 6

7 Iowa Garnishment New v. Gemini Capital Group Background Facts: Lawsuit was brought by a debtor against the debt collector and other defendants involved in the collection of the debtor s debt for their failure to provide the debtor with notice after executing a garnishment of the debtor s bank account. Under Iowa statutory law, no such notice was required until condemnation proceedings are filed against the assets. The debtor claimed that the failure to provide the debtor with sufficient postgarnishment notice violated the due process clause of the fourteenth amendment of the US Constitution. Pertinent Iowa Law: Iowa s garnishment notice statute, Iowa Code , states Judgment against the garnishee shall not be entered until the principal defendant has had ten days' notice of the garnishment proceedings, to be served in the same manner as original notices... It was admitted that the defendants did not violate this statute. 7

8 Iowa Garnishment New v. Gemini Capital Group Holding: Court held that Iowa s notice requirements under Iowa Code Section related to garnishment was unconstitutional because it failed to satisfy the notice requirements to satisfy due process. Impact: A debtor whose property is garnished must now receive notice of such garnishment, otherwise the debtor s due process rights are violated. Iowa has proposed new legislation to mandate such notice. Case Citation: 859 F. Supp. 2d 990, 992 (S.D. Iowa 2012) 8

9 State s Response Iowa Legislature has proposed Iowa Code Section A. It states: 1. Within seven days after execution is served upon a garnishee, the sheriff shall send a notice of garnishment and levy to the defendant in the main action informing the defendant that certain real and personal property of the defendant may be exempt from execution or garnishment and that a hearing process is available for the defendant to claim such exemptions. 2. The notice required by this section shall be served by personal service or restricted certified mail to the last known address of the defendant and to the defendant's attorney. The judgment creditor shall provide the sheriff with the last known address of the defendant and the defendant's attorney if there is an attorney of record. Proof of mailing or personal service by the sheriff shall be by affidavit. 9

10 State s Response, continued 3. The notice required by this section shall: a) Inform the defendant that judgment has been entered in the main action and the defendant's funds or other property is subject to execution under the judgment. b) Inform the defendant that the defendant has the right to claim funds or other property exempt from execution or garnishment and a right to be timely heard on those claims. c) Inform the defendant that if the defendant does not file a motion or other appropriate pleading to claim funds or other property exempt from execution or garnishment under state or federal law, the defendant may lose any such rights and the funds or other property may be applied to the judgment against the defendant. d) Inform the defendant that state and federal laws may place limits on the amount of earnings that may be garnished annually and per pay period and limits on other funds and property that may be garnished or levied against. e) Contain the full text of section 630.3A. f) State that the defendant may wish to consult a lawyer for advice as to the meaning of the notice. 4. An additional court filing fee shall not be assessed for proceedings under this section. 10

11 Use of Non-Exempt Property to Pay Homestead In re: Arends 11

12 Use of Non-Exempt Property to Pay Homestead In re: Arends Background Facts: Prior to filing bankruptcy, debtors cashed out two life insurance policies, and the proceeds were deposited in an account for six days (the time required for the check to clear) prior to being used to pay down their debtor s mortgage on their homestead. Shortly thereafter, the debtors filed bankruptcy and claimed their homestead exempt. Bankruptcy trustee objected to the homestead exemption for the amount of the life insurance policies alleging that when the insurance proceeds were deposited in debtor s bank account, the proceeds were no longer exempt and the debtors inappropriately converted non-exempt property into exempt property with the intent to hinder, delay, or defraud a creditor under 11 U.S.C. 522(o)(4). Holding: Court held that the funds in the bank account retained its exempt status for the six days it was in the account since it was only in the account to clear and be wired to the mortgage company. Takeaway: Debtors may convert exempt property into other exempt property and even if the property is temporarily converted into non-exempt property, it may still retain its exempt status. Case Citation: 2014 WL (U.S.Bankruptcy.Ct. N. D. IA., March 4, 2014). 12

13 Oral Personal Guaranty Wells Fargo Bank, N.A. v. Nevins 13

14 Oral Personal Guaranty Wells Fargo Bank, N.A. v. Nevins Background Facts: At issue was whether or not the statute of frauds precluded the admission into evidence of a phone call transcript of a business owner s oral promise to personally guaranty the debt incurred by the owner s business. The oral guaranty was given in exchange for an extension of credit that was used to pay operating expenses of the business including the owner s salary. Business owner alleged that the promise to guaranty the debt was collateral to the contract and was therefore inadmissible since such a promise falls under the statute of frauds. Pertinent Iowa Law: Statute of Frauds, Iowa Code , is an evidentiary rule precluding admission of certain oral agreements including a promise to answer for the debt, default or miscarriage of another and applies when the promise to pay is made in addition to an already existing contract and the surety has no personal concern or benefit from the debtor s obligation. The Statute of Frauds does not apply when the promise to pay the debt of another is an original promise. Major factor in determining if a promise is original is whether the guarantor gained a personal benefit from guarantying the debt. 14

15 Oral Personal Guaranty Wells Fargo Bank, N.A. v. Nevins Holding: Court held that business owner s oral promise to guaranty the business debt was an original promise since the owner used the extension of the line of credit for her salary and the line of credit would not have been extended without such guaranty. As such, the Statute of Frauds did not apply and the evidence of the oral guaranty was permitted to be admitted, was deemed a term of the agreement to extend credit, and the owner was held to have personally guarantied the debt. Impact: Evidence of an oral guaranty of another s existing debt is admissible if the promise to guaranty qualifies as an original promise, which is determined based on whether the guarantor receives a personal benefit from guarantying the debt. Case Citation: (Iowa Ct. App. March 12, 2014) 15

16 Dragnet Clause - Wells Fargo Bank, N.A. v. Valley Bank & Trust 16

17 Dragnet Clause - Wells Fargo Bank, N.A. v. Valley Bank & Trust Background Facts: Debtor executed on the same day two promissory notes (PN1 and PN2) and a mortgage with the Bank. Mortgage contained a dragnet clause stating: All future advances from Lender to Mortgagor or other future obligations of Mortgagor to Lender under any promissory note, contract, guaranty, or other evidence of debt existing now or executed after this Mortgage whether or not this Mortgage is specifically referred to in the evidence of debt and whether or not such future advances or obligations are incurred for any purpose that was related or unrelated to the purpose of the Evidence of Debt. PN1 for $46,500 and stated that it was secured by Real property shown on the mortgage. PN2 for $111,358 and stated that it was secured by assignments of corporate stock of Cars, Inc. Real estate was foreclosed and after satisfying the first lien holder and PN1 there remained a surplus of funds. At issue was whether or not Bank s PN2 was covered by its mortgage. If it did then the PN2 took priority, but if not then another Bank s loan would have priority over PN2. Lower Court held that PN2 was not secured by the mortgage since it failed to identify the security as the real estate. 17

18 Dragnet Clause - Wells Fargo Bank, N.A. v. Valley Bank & Trust, continued Pertinent Iowa Law: Priority of Advances Under Mortgages Iowa Code A states that such dragnet clauses are enforced if certain conditions are satisfied. In prior case, Freese Leasing, Inc. v. Union Trust & Savings Bank, the court held that future advances clauses will not apply to subsequent debts unless they are of the same kind and quality as the original debt or if they do not relate to the same transaction or series of transactions as the principal obligation. 18

19 Dragnet Clause - Wells Fargo Bank, N.A. v. Valley Bank & Trust, continued Holding: Court held that the future advances clause of the mortgage was intended by the parties to apply to all future advances under any promissory note and specifically disavowed any relatedness requirement. Impact: The language of the dragnet clause should be drafted to specifically disavow the need for the relatedness requirement. Additionally, the court s decision made note in making its opinion that the mortgage at issue was titled open-end real estate mortgage giving notice to the Borrower and the dragnet clause itself was not buried in the document in a way that might be misleading or allow for surprise. Dissenting Opinion: Disagreed with the majority because: The mortgage s cover page states Notice: This mortgage secures credit in the amount of $46,500. Loans and advances up to this amount, together with interest, are senior to indebtedness to other creditors under subsequently recorded or filed mortgages and liens. Mortgage also contained a clause that stated that the maximum obligation limit stating that the amount secured at any one time shall not exceed the amount stated above [the $46,500]. Case Citation: 839 N.W.2d 675 (Iowa Ct. App. 2013). 19

20 Common Law Marriage Defense to Foreclosure Earlham Sav. Bank v. Morrell 20

21 Common Law Marriage Defense to Foreclosure Earlham Sav. Bank v. Morrell Background Facts: Debtor granted Bank a mortgage on homestead in order to obtain financing to pay overdrafts related to his business. Debtor failed to make payment on such loans and the Bank moved to foreclose mortgage. Debtor argued that he was in a common law marriage at the time of executing the mortgage and therefore the mortgage is void because it did not contain his common law wife s signature. Pertinent Iowa Law: Conveyances and encumbrances of the homestead are not valid if the owner is married unless the spouse of the owner executes the device as well. Beal Bank v. Siems, 670 N.W.2d 119 (Iowa 2003). Common Law Marriage exists if the following three elements are proven by a preponderance of evidence: 1) present intent and agreement to be married by both parties; 2) continuous cohabitation; and 3) public declaration that the parties are husband and wife. 21

22 Common Law Marriage Defense to Foreclosure Earlham Sav. Bank v. Morrell Holding: Court held that debtor failed to prove he was in a common law marriage at the time of executing and that there was significant evidence such as debtor filing as a single person in his tax returns, listing himself as single in the loan application, and the fact that the debtor signed the loan documents as a single person all of which failed to support the claim. Takeaway: Be aware that common law marriage exists in Iowa and could potentially impact the effectiveness of a mortgage if such a marriage exists. This appears to be a rare occurrence, and even more difficult argument for a debtor to claim. Case Citation: 837 N.W.2d 681 (Iowa Ct. App. 2013). 22

23 Compulsory Counterclaim and Need to Mediate Prior to Foreclosing Ag. Land Schaefer v. Putnam 23

24 Compulsory Counterclaim and Need to Mediate Prior to Foreclosing Ag. Land Schaefer v. Putnam Background Facts: Case has a long case history and many facts, all of which are not summarized here. Debtors filed for bankruptcy. The bankruptcy trustee was able to have set aside a transfer of the debtors agriculture land and obtained control over such land. To avoid having such land sold, the Debtors took a loan from SMP and executed four promissory notes and had assigned to SMP a mortgage on Debtors homestead (40 acres of ag. land) in order to pay their creditors. Debtors later defaulted and filed suit against numerous parties including SMP. SMP, without first seeking mediation, filed a counterclaim to the petition foreclosing on all of its mortgages including mortgages on the debtor s agricultural land. District court foreclosed the mortgage. Court of Appeals later reversed for SMP s failure to obtain a mediation release prior to foreclosing on the mortgages. SMP argued that the foreclosure action was a compulsory counterclaim to debtor petition and therefore there was not a requirement for mediation or notice to cure prior to foreclosure. Pertinent Iowa Law: Mandatory Mediation Provision, Iowa Code 654A.6, states A creditor... desiring to initiate a proceeding to enforce a debt against agricultural property which is real estate under chapter shall file a request for mediation with the farm mediation service.

25 Compulsory Counterclaim and Need to Mediate Prior to Foreclosing Ag. Land Schaefer v. Putnam Holding: Court held that the foreclosure was a compulsory counterclaim and that Iowa Code 654A.6 does not require a creditor to seek mediation before asserting a compulsory counterclaim against a creditor. Court focused on the term initiates in the code requires that the creditor bring the foreclosure action and found the code to not apply in this case since it was the debtor s that filed the action. Impact: The mediation release required prior to initiating a foreclosure action against agricultural land is not required if the foreclosure is done as a compulsory counterclaim to an action brought by the debtor. Case Citation: 841 N.W.2d 68, 71 (Iowa 2013), as corrected (Dec. 18, 2013). 25

26 Questions? 26

27 Title Insurance for Iowa Lenders March 18, 2014 Presenter: Lynn W. Hartman 27

28 Iowa is unique No title companies Abstract/Attorney Title Opinion 28

29 Only Iowa Title Guaranty, a division of Iowa Finance Authority, can sell title insurance 29

30 Title Guaranty Division Iowa Finance Authority Manual 30

31 Title insurance can be purchased from out of state Title Companies 31

32 For Iowa real estate State Banks must have a title opinion from lawyers 32

33 Here is what Iowa Admin. Rule (5) states: 9.2(5) Evidence of title. The state bank shall obtain, when lending for the purpose of acquisition or for the purpose of refinance of acquisition when a new mortgage, deed of trust, or similar instrument is filed, either: a. A written legal opinion by an attorney admitted to practice in the state in which the real estate is located showing marketable title in the mortgagor and describing any existing liens and stating that the state bank s mortgage, deed of trust, or similar instrument is a lien on the real estate, or b. Title insurance written by an insurance company licensed to do business In the state in which the real property is located, describing any existing liens and insuring the title to the real property and the validity and enforceability of the mortgage, deed of trust, or similar instrument as a lien on the real property. 33

34 Six Standard American Land Title Association (ALTA) Policies Lenders, Lenders Leasehold Owners, Owners Leasehold and Residential Construction Loan 34

35 Difference between Attorney Title Opinion and Title Insurance PTO vs. Insurance Title Commitment FTO vs. Title Certificate 35

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42 Title Insurance can provide protection not afforded by attorney title opinions Forgery Fraud Lack of Capacity 42

43 Title Insurance provides Gap Coverage 43

44 GAP Coverage Buyers and Lenders are covered for matters put of public record after title search but before recordation 44

45 Many of these special coverage requirements, like GAP coverage will be obtained only if closed by title company 45

46 Title Insurance offers endorsements that insure over special risks 46

47 Typical Lender Endorsements Comprehensive 1 - ALTA Form 9 Restrictions, Encroachments and Minerals Sometimes referred to as Comprehensive Endorsement Protects against certain off record occurrences 47

48 Condo Endorsement ALTA 4 No violation of restrictive covenants that would cause forfeiture or reversion of title Mortgage priority over any condo liens or assessments No obligation to remove unintentional present or future encroachment EPA Endorsement ALTA 8.1 Insures against loss or damage due to environmental liens filed or provided by state statute Location Endorsement ALTA Variable Rate Mortgage ALTA 6-06 Insures against loss or damage caused to title by an increase in loan interest rate Endorsement Against Loss - Liens 48

49 Special Construction Endorsements Date Down Endorsements Future Advance Priority ALTA 14 49

50 Commercial Property Endorsements Commercial_Endorsements_with_table BCE40BCA2C2A4.pdf 50

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53 Questions? 53

54 Regulatory Update: A Look Ahead to the CFPB in 2014 March 18, 2014 Presenter: Christopher K. Loftus 54

55 Mortgage Rules Revisited Most Rules Effective January Foreclosures Under the New Mortgage Servicing Rule New Disclosure Forms in August

56 CFPB s Rule: Foreclosures (f) Prohibition on foreclosure referral. (1) Pre-foreclosure review period. A servicer shall not make the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process unless: (i) A borrower's mortgage loan obligation is more than 120 days delinquent; 56

57 Foreclosures, continued 41(f) Prohibition on foreclosure referral. Whether a document is considered the first notice or filing is determined on the basis of foreclosure procedure under the applicable State law. i. Where foreclosure procedure requires a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (e.g., a complaint, petition, order to docket, or notice of hearing). iv. A document provided to the borrower but not initially required to be filed, recorded, or published is not considered the first notice or filing on the sole basis that the document must later be included as an attachment accompanying another document that is required to be filed, recorded, or published to carry out a foreclosure. 57

58 New Forms - Overview Effective August 1, 2015 Applies to All Closed-End Consumer Mortgages The Forms Help Consumers Decide If They Can Afford Mortgage Use Clear Language For Consumers to Locate Key Information: Interest rate Monthly payments Costs to close loan 58

59 Loan Estimate Replaces GFE and Early TILA Forms. Must Be Provided Within 3 Business Days After Application. Help Consumers Identify Key Features, Costs, and Risks of Mortgages. 59

60 Closing Disclosure Replaces HUD-1 (for Settlement Agents) and TILA (for Creditors) Disclosure. Must Be Provided 3 Business Days Before Closing. Help Consumers Identify All Costs of the Transaction. Creditors Must Provide Disclosure, But Can Use Settlement Agent. Some Changes Require New Disclosure: APR changes more than 1/8 of percent Changes to the loan product Addition of prepayment penalty 60

61 More to Come? Calculation of APR Rural and Underserved Definition Additional Guidance for Calculating DTI Ratios 61

62 Privacy Elimination of Requirement to Provide Annual Notice Where No Change to Underlying Policies. CFPB Likely to Issue a Proposed Rule In

63 HMDA New Requirements Under Dodd-Frank: Age of loan applicants/mortgagors Information pertaining to points and fees Information pertaining to APR Term of prepayment penalty Value of property Additional Requirements Beyond Dodd-Frank: Explanation for loan rejection Consideration of whether loan was a Qualified Mortgage Underwriting and pricing information 63

64 Debt Collectors CFPB Considering Extending Current Regulations of Third-Party Debt Collectors to Original Creditors. CFPB Currently Considering Additional Regulations. Creditor provides the correct information to debt collector. Consumer s knowledge of legal rights during collection process. Collection practices. 64

65 Prepaid Cards Proposed Rule in May 2014 New Model Disclosure Forms New Regulations: Fees and terms disclosure Unauthorized transactions Product features 65

66 Overdrafts Possible Rule In Summer of 2014 Disclosures Overdraft coverage limits Transaction posting order Overdraft and insufficient fund fee structures Involuntary account closures 66

67 Questions? 67

68 Simmons Perrine Moyer Bergman PLC 115 3rd Street SE, Suite 1200 Cedar Rapids, IA (319) City Center Square th Street Coralville, IA (319) Disclaimer: This presentation is designed and intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired. 68