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Foreclosure Defenses Lawsuits Debt Collection
Rich Rydstrom, CMIS & HAMP
Foreclosure Defenses:
DIDMCA Law: Link to DIDMCA Foreclosure Defense Document:
WHAT IS DIDMCA AND WHAT DOES IT HAVE TO DO WITH FORECLOSURES?
Congress passed the Depository Institutions Deregulation and Monetary Control Act
(“DIDMCA” or the “Act”) in 1980, and DIDMCA represented a significant piece of legislation
aimed at deregulating and standardizing aspects of the national banking industry.
Overview of DIDMCA – Background and Purpose
Congress enacted DIDMCA to address certain issues in the banking sector, including
interest rate restrictions, competitive disadvantages among diverse types of financial
institutions/lenders, and the need for more uniform monetary policy control. The Act aimed to
promote competition among depository institutions while enhancing the Federal Reserve’s control
over monetary policy. According to the Act’s preamble, the Act’s goal was “[t]o facilitate the
implementation of monetary policy, to provide for the gradual elimination of all limitations on the
rates of interest which are payable on deposits and accounts, and to authorize interest-bearing
transaction accounts, and for other purposes.
Key Provisions of the Act
First, deregulation of interest rates was a significant aspect. DIDMCA phased out the
interest rate ceilings on deposit accounts over six years, allowing banks to offer competitive rates.
At Section 501, Congress provided that state laws and constitutional provisions limiting the rates
or amounts of interest, discount points, finance charges, or other charges imposed by mortgage
lenders would not be applicable to certain loans, including single family mortgages insured by
FHA. Second, the Act extended Federal Reserve Membership to all depository institutions.
A third significant impact of the law was the preemption of State Usury Laws. DIDMCA
allowed national banks and certain state chartered institutions to charge interest rates as high as
those permissible for national banks in the state where they operate or are based. This is known as
“interest rate exportation,” or in other words, the ability to “export” the maximum interest rate
allowed in the state where the lender is located to the state in which the borrower resides.
A major decision in the area of “exporting” terms or rates from the lender’s home state is
Marquette National Bank v. First of Omaha Service Corporation, 439 U.S. 299 (1978). In that
case, the Supreme Court held that because the particular state designated on the national bank's
organizational certificate was traditionally understood to be the state where the bank was “located,”
for purposes of Section 85 of the National Bank Act, 12 U.S.C. § 85, a national bank could not be
deprived of this domicile merely because it extends credit to a resident of a different state. The
Supreme Court said that since the bank “is a national bank; it is an ‘[instrumentality] of the Federal
government, created for a public purpose, and as such necessarily subject to the paramount
authority of the United States.’ Davis v. Elmira Savings Bank, 161 U.S. 275, 283 (1896). The
interest rate that Omaha Bank may charge in its BankAmericard program is thus governed by
federal law.” 439 U.S. at 541-42.
Since Marquette was decided, national banks have been allowed to charge interest rates
authorized by the state where the national bank is located on loans to out-of-state borrowers, even
though those interest rates may be prohibited by the state laws where the particular borrowers
reside. This gave national banks a competitive advantage, and it is part of the reason for the
enactment of DIDMCA. DIDMCA leveled the playing field by enabling FDIC-insured state-
chartered banks also to export the maximum interest rate permitted by the state in which the bank
was located.
So, what does this theory of exporting interest rates have to do with foreclosing a loan in
default? There are three primary impacts arising today as borrowers become more creative in their
defenses of foreclosures.
“Valid-When-Made”
The first implication is a doctrine known as the “valid-when-made” rule, which dates back
almost two hundred years in this country. The doctrine effectively said that if the terms of the loan
(including the rate of interest) were legal at the time the loan was made, the terms do not become
illegal or unenforceable when the loan is sold to a different entity. This doctrine was seriously
undermined in the Second Circuit’s decision in Madden v. Midland Funding, LLC, (2d Cir. 2015),
which held that a non-national bank entity, acting as a debt collector, did not benefit from the
protections afforded under federal law from state-law usury claims. On a federal level, the FDIC
and OCC have sought to codify the “Valid-When-Made” Rule, but it is expected that more
borrowers will raise this issue in challenges to foreclosures.
Effects if a Buyer of the Loan is not Licensed in the State where the Foreclosure will
be.
The second implication is a slightly different effect on the secondary market when a loan
is sold or transferred. Under aspects of federal preemption, the original lender may not have been
subject to state-law lender licensure requirements in the jurisdiction where the borrower resides.
However, if the loan were sold on the secondary market to an entity that is not a national or state-
chartered institution, questions arise as to whether this buyer of the loan would be able to maintain
the benefits of the federal preemption that the originator of the loan had. If the buyer of the loan
could not claim the benefits of federal preemption, and the new owner of the loan were therefor
subject to the lender licensure requirements of the state where the borrower resides, borrowers can
claim that the entity lacks the power to foreclose in that jurisdiction by its failure to be licensed.
Such an enforcement attempt through foreclosure could lead to not only affirmative defenses to
the foreclosure but also subject that new owner of the loan to counterclaims or liability under state
usuary laws or UDAAP.
Interest Rate Opt-Outs
Another looming question deals with the effects of states that “opt out” of DIDMCA, thus
affecting ability to enforce the terms of a loan. What is an “Interest Rate Opt-Out?” This term
“interest rate opt-out” refers to a provision in DIDMCA at section 525 that afforded states the
opportunity to opt out of interest rate exportation with respect to loans made in that state. Not long
after enactment of DIDMCA, seven states and Puerto Rico in fact opted out of these provisions.
Since that time, a number of the states opted back in (or let their opt-outs expire), but Iowa and
Puerto Rico did not. However, with a renewed focus on interest rate charges and consumer
protection, this issue is coming to the forefront once again. Iowa presents an interesting test
concerning enforcement of interest rate terms stated in loan documents. Iowa’s present-day view
of “opting out” is that an out-of-state lender cannot export its home state’s maximum interest rate
into Iowa, but rather that the lender is bound by the maximum interest stated under Iowa law,
because the loan should be considered “made” in Iowa. The state of Iowa has initiated enforcement
actions against several out-of-state state-chartered banks, alleging violations of Iowa usury laws.
Other states are now considering “opt-out” provisions. Colorado enacted a bill opting out
effective July 1, 2024. Bills are also pending in Washington, D.C., Minnesota, Nevada, and Rhode
Island. If more states “opt-out,” and take a similar view of interest rate exportation as in Iowa,
there are inherent issues with proceeding with foreclosure. From a compliance standpoint, lenders
and mortgage servicers will have to be aware of whether the interest rate being sought in any
foreclosure would be permissible under that state’s laws. This could become a patchwork of
different maximum interest rates in a state depending on the type of loan or the type of originator.
This type of widely varying standards is exactly what DIDMCA sought to eliminate.
However, as more states opt out, this certainly gives borrowers additional defenses against
foreclosure and can enable UDAAP and FDCPA claims utilizing state usury laws.
2nd Mortgage Defenses:
Zombie Mortgage Debt - Time Barred Defense 2023 Zombie Mortgage Protections
Article & Video by Attorney Near You: Rich Rydstrom 33 Years, Rated 10/10 Superb
Illegal Zombie 2nd Liens, Debts and Mortgages Defense and Lawsuits
By 33 Year Veteran Attorney Rich Rydstrom, Esq. Former Chairman of CMIS, 1-877-WIN-4-You™ |https://LitigationMonster.com HAMP 2MP, West v. JP Morgan Chase, BP 17,200, 17082, Reg F, CCP 337
As Chairman of the Coalition for Mortgage Industry Solutions (“CMIS”; https://MortgageCoalition.org ), I led the debate for solutions to the Great Recession, including foreclosure and servicer standards and the forming of default solutions. In 2008 they said I was wrong. But in 2013, I won the landmark West v. JP Morgan case affirming that California Borrowers could sue the banks (lender/servicers/foreclosure trustees) in California states courts, for violations of federal rules, regulations, guidelines, standards, and public policy, including violations of HAMP, HAFA and 2MP. This is long settled now.
But shockingly, now in 2023, we face a barrage of debt collectors, threatening foreclosure of our homes for second or junior liens that were long ‘charged off’ or ‘extinguished’, without proper communications, required legal notices, bank statements, credit reporting, and legal process. It is illegal to threaten to foreclosure on a lien, if the ability to collect legally has expired. In part, this is the case in California when we apply Federal Reg F and the California statutes of limitations.
Reg F; and Time-Barred Debt:
The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to affirm that the Fair Debt Collection Practices Act (FDCPA) and its implementing Regulation F prohibit a debt collector from suing or threatening to sue to collect a time-barred debt. Accordingly, an FDCPA debt collector who brings or threatens to bring a State court foreclosure action to collect a time-barred mortgage debt may violate the FDCPA and Regulation F. (CONSUMER FINANCIAL PROTECTION BUREAU 12 CFR Part 1006 Fair Debt Collection Practices Act (Regulation F); Time-Barred Debt.) https://files.consumerfinance.gov/f/documents/cfpb_regulation-f-time-barred-debt_advisory-opinion_2023-04.pdf
In California, and in California Superior Court, we can use The Rosenthal Act incorporating the FDCPA, and other state causes of action, such as Unfair Trade Practices (“UCL”), Breach of Contract, Fraud and Misrepresentation, both negligent and intentional, among others, to find liability and hold the debt collectors liable for acting outside of the law.
In California, enforcement of a debt must be lawful, otherwise it is unlawful to threaten foreclosure or file a lawsuit to enforce same. The California Civil Code of Procedure, section 337, holds that a debt is time-barred from enforcement over 4 years from the date of the breach of contract, which is typically the date of non-payment, or date of the ‘charge-off’ or ‘extinguishment’ – whether by purchase/sale, insurance claims or assignment.
The Federal government supplies regulations, standards, and guidelines which the breach of same may satisfy the elements of California causes of action as mentioned above. For example, HAMP/2MP states that if a lender/servicer charges off the debt/lien it is an extinguishment. It also says that an extinguishment prohibits the creditor from collecting on that debt/lien, even if the defendants cleverly disguise the party transactions by inserting a non-SPA-signatory. Litigation to come. Stay tuned.
Link Zombie Loans TruthorHype link
https://truthorhype.newsaistudio.com/single-article/california-zombie-2nd-lien-debt-and-mortgages
www.RydstromLaw.com | https://LitigationMonster.com
Contact Rich@Rich.Law
Video Zombie Mortgages & Defense
Resources Library California Law on Zombie Debt and Mortgages
CODE OF CIVIL PROCEDURE - CCP
PART 2. OF CIVIL ACTIONS [307 - 1062.20] ( Part 2 enacted 1872. )
TITLE 2. OF THE TIME OF COMMENCING CIVIL ACTIONS [312 - 366.3] ( Title 2 enacted 1872. )
CHAPTER 3. The Time of Commencing Actions Other Than for the Recovery of Real Property [335 - 349.4] ( Chapter 3 enacted 1872. )
337.
Within four years:
(a) An action upon any contract, obligation or liability founded upon an instrument in writing, except as provided in Section 336a; provided, that the time within which any action for a money judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage.
(b) An action to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; (3) a balance due upon a mutual, open and current account, the items of which are in writing; provided, however, that if an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and if an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.
(c) An action based upon the rescission of a contract in writing. The time begins to run from the date upon which the facts that entitle the aggrieved party to rescind occurred. Where the ground for rescission is fraud or mistake, the time shall not begin to run until the discovery by the aggrieved party of the facts constituting the fraud or mistake. Where the ground for rescission is misrepresentation under Section 359 of the Insurance Code, the time shall not begin to run until the representation becomes false.
(d) When the period in which an action must be commenced under this section has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Section 360.
(Amended by Stats. 2018, Ch. 247, Sec. 2. (AB 1526) Effective January 1, 2019.)
YouTube Video @RichLaw www.Rich.Law Rich@Rich.Law
https://www.youtube.com/watch?v=a2LVbk1giPw&t=7s
Out to help people, in 2006, Richard wrote an article about how the economy was about to crash. Congress read it and invited him to deliver a neutral analysis and statement to the 110th Congress. In January 2007 he did just that, and immediately found himself in the middle of the left and right political and economic (world) powers. Richard became the Chairman of the D.C. Coalition for Mortgage Industry Solutions (“CMIS”). In mid-2007 the mortgage and credit crisis were in full bloom wiping out millions. The Great Recession arrived, it was real, and it ran through-out the world.
It appeared no one was taking decisive action to stop the snow-balling asset (mortgage) write-offs (per the Reps and Warranties in our banking and credit swap contracts), leading to greater credit freezes, and escalating foreclosures. Richard had already created financial solutions for Wall Street (finance) to lessen the severity and frequency of write-off (losses) and foreclosures in his predictive Congressional speech, but no one was implementing them. Nor was anyone else injecting solutions to the run-a-way crisis. Day after day, more and more people were thrown in the streets. It became clear the industry wasn't in the solutions business, they appeared to be managing the sinking of the Titanic.
Richard needed to lead, influence the influencers, and start at the top. In 2008, with the help of his team (CMIS), Richard fashioned a DC Summit for the captains of industry, industry leaders and influencers in the financing, mortgage, and congressional spaces. It was done, he had created the solutions event for the crisis, but it needed more. While traveling, he stopped at his parents’ home on Long Island. He was looking through his notes to make sure he did all he could to make the Summit a success. When he woke up the next day, he said to his parents, I need to call billionaire Wilbur Ross, the largest private owner of mortgages in the United States. His Mom said, Oh, Richard. His Dad said, So, do It. Richard dialed 411 and asked for Wilbur Ross. In minutes he heard, hold for Wilbur. When Wilbur Ross said hello, what can I do for you: Richard was ready with his short and to the point request that Wilbur help debate and create at the CMIS live-broadcast Summit, the needed solutions to the crisis.
After a short discussion of Richard’s QbieSam™ solution (Quarantined Build In Equity Shared Appreciation Mortgage), and his ‘‘Safe Harbor Intelligent Loan Options’’ (‘‘SHILO’’), Wilbur said we would need claw back components which create liquidity events by selling reduction pieces at Xbps over the 10-year treasury. Richard said oh, wow. Ok, let’s do this. The borrower is in dire trouble and has a lack of exit options available. This is causing ‘‘liquidation type forced sales’’ at an alarming rate and severity, while creating a feeding frenzy in the foreclosure, credit, and capital markets. We must stop or slow-step the bleeding now or we may fall too far to get back up.
Excerpts of Solutions Discussion by Billionaire Wilbur Ross and CMIS Chairman Rich Rydstrom:
“AHM has proven that its leader, Wilbur Ross, expressed viable principal reduction modification remedies in his keynote discussion with Chairman Richard Rydstrom at the CMIS Executive Summit in DC (2008). The next step would be to activate the “liquidity creating” portion of the remedy by selling insured pieces, and/or add a reduction or quarantined device that does not result in capital ratio impairment write-offs (www.qbiesam.com).
“Back in June 2008, at the DC Leadership Summit, Richard Rydstrom and Wilbur Ross discussed modification solutions with principal reduction and SAM claw back components which also spark the secondary and securitization market (by selling reduction pieces at Xbps over the 10-year treasury (www.CMISfocus.com; AFN Video). One such solution is as follows: Public – Private Guarantee Solution: (Wilbur Ross and Richard Rydstrom June 2008) • Set up an insurance guarantee program. • The government would guarantee 50% of the mortgage that had been reduced to true net value after selling commissions, etc. • The guaranteed amount (50% government amount) could be separately sold by holder/lender at a much lower yield than the mortgage itself. • Enable the holder/lender to pay a 2 ½% per year Insurance Fee to the government. • At first sale, share proceeds of appreciation as follows: 1/3rd to Government 1/3rd to Lender/Holder 1/3rd to Borrower (Homeowner) • Making it transferrable/assumable will lessen the need for new replacement mortgage. • The 50% can come over to the next owner from the government guarantee at low rates and supply liquidity to the original lender. • It can be backed by reinsurance.”
More information re HAMP, CMIS, Great Recession: CMIS focus ezine https://cmisfocus.com; Mortgage Coalition historic site: https://www.mortgagecoalition.org
More Info on Creation of HAMP Click
Short Bio Chairman, Rich Rydstrom, Esq.:
Richard Rydstrom, Esq. was Chairman of CMIS Mortgage Coalition reconciling diverse disparate interests of the banks and the consumer borrowers in developing neutral solutions to the Great Recession of 2007, including the HAMP mortgage modification program with the U.S. Treasury and the foreclosure and consumer interest groups. When the 110th Congress wanted a neutral analysis and congressional statement regarding the problems and solutions of the pre Great Recession, they chose Mr. Rydstrom. When the banks and consumer groups wanted a formal explanation and speech regarding the first HAMP Mortgage Modification Program outline from President Obama and the U.S. Treasury, they chose Mr. Rydstrom. Mr. Rydstrom also served as a settlement officer for all California Superior Courts in Los Angeles. Richard is also a member of the Mediator Registry created when Los Angeles lost its funding to settle lawsuits in its VSO Progam. “I was very impressed with your preparation, tenacity, and skill ... I learned how to fine tune my ADR skills by virtue of watching you in action...” Peer Endorsement as ADR Officer
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