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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.
2.

Who is actor?
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
Consumer Finance Class Actions & Litigation - Conference Materials
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.
2.
3.
4.

5.

The mortgagor does not reside in the mortgaged
property
The mortgaged property is not within 200 miles of the
mortgagee, its servicer, or a branch office of either,
The mortgagor has clearly indicated that he will not
cooperate in the interview,
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
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. 1:13CV-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.

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Consumer Finance Class Actions & Litigation - Conference Materials

  • 1. Jeffrey S. Patterson Nelson Mullins Riley & Scarborough LLP One Post Office Square, Boston, MA 02109 P: (617) 573-4700 jeffrey.patterson@nelsonmullins.com
  • 2. Pushing the Bounds of Pre-Emption: Defenses to Alleged Violations of State Notice of Right to Cure Laws
  • 3. 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
  • 4. 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.
  • 5. "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).
  • 6. 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).
  • 7. 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
  • 8. 1. 2. Who is actor? What is regulated action or inaction?
  • 9. Potential Relevant Actors:  Originator  Servicer  Holder Focus on Relevant Time  Not commencement of eviction  Sending of notice
  • 10. 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).
  • 11. 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).
  • 12. 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).
  • 15. 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.
  • 16. 1. 2. 3. 4. 5. The mortgagor does not reside in the mortgaged property The mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either, The mortgagor has clearly indicated that he will not cooperate in the interview, 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 A reasonable effort to arrange a meeting is unsuccessful.
  • 17. Under 24 CFR 203.606, all servicing requirements of this section, including the face-to-face meeting, must occur before initiating a foreclosure.
  • 18. 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)).
  • 19. Hewitt v. Bank of Am. N.A., No. 1:13CV-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
  • 20. 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 
  • 21.  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.
  • 22.  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.