by Herbert Wiggins | Feb 23, 2023 | bankruptcy, Fair Lending, mortage, Real Estate
Where homeowner lost property to non-judicial foreclosure, Arizona’s “anti-deficiency law” meant that the junior mortgage, which was unsecured following the foreclosure, had been “abolished,” pursuant to previous Arizona Supreme Court ruling. Therefore, the lender’s reporting of the junior mortgage as a “charge off,” rather than an abolished loan, was inaccurate and misleading. The former homeowner/borrower had a colorable claim against the junior lender, pursuant to the Fair Credit Reporting Act, 15 U.S.C. §§1681, 1681a–1681x. The trial court’s erroneous decision to dismiss borrower’s lawsuit was reversed.
Gross v. Citimortgage, Inc., Citibank, NA, Equifax Information Services LLC, Experian Information Solutions, Inc., & Trans Union LLC (9th Circuit, 2022), 33 F.4th 1246
United States Court of Appeals, Ninth Circuit.
Argued and Submitted 11/17/2021 at San Francisco, California.
Opinion Issued 5/16/2022.
by Herbert Wiggins | Dec 29, 2022 | student loans
In Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578, a very conservative jurist, Associate Justice Antonin Scalia, wrote the following:
“To permit Congress to convert the undifferentiated public interest in executive officers’ compliance with the law into an “individual right” vindicable in the courts is to permit Congress to transfer from the President to the courts the Chief Executive’s most important constitutional duty, to “take Care that the Laws be faithfully executed,” Art. II, § 3. It would enable the courts, with the permission of Congress, “to assume a position of authority over the governmental acts of another and co-equal department,” Massachusetts v. Mellon, 262 U. S., at 489, and to become” ‘virtually continuing monitors of the wisdom and soundness of Executive action.’ “
This was another way of saying that there are cases in which the court should not get involved, such as those involving the specific statutory actions of a co-equal branch of government (i.e., “non-justiciable” cases).
Consequently, even when Congress passes a law that has a public benefit, it does not automatically grant citizens a “private right of action” to block that law. Any citizen who disliked any law could ask the courts to prevent it from going into effect, which would lead to chaos.
The student loan forgiveness program announced by President Biden is on hold. And it may be an example of what Justice Scalia warned of in Lujan. The Supreme Court will be hearing arguments regarding the loan forgiveness program in a few weeks. (“Supreme Court Agrees to Decide on Biden’s Stalled Student Loan Forgiveness Plan, “Los Angeles Times, December 1, 2022). The arguments against the program, based on the 8th Circuit Court of Appeal decision, and another decision in Texas, raise the specter of placing the Supreme Court in the position of deciding on the appropriateness of day to day, or administrative actions by both Congress and the President.
In other words, the current student loan case invites the courts to get involved in non-justiciable cases. Albert, Lee A., “Justiciability and Theories of Judicial Review: A Remote Relationship,” 50 So. Cal. Law Review 1139, 1165-1166 (1977)
Pres. Biden and Education Sec’y Cardona base the program on the 2003 HEROES Act, which authorizes the Secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs” if the Secretary “deems” such waivers or modifications “necessary to ensure” at least one of several enumerated purposes, including that borrowers are “not placed in a worse position financially” because of a national emergency. 20 U.S.C. § 1098bb(a)(1), (2)(A).”
The “national emergency” cited by Pres. Biden and Sec’y Cardona was the COVID pandemic, which began in 2020, and is far from over. “Tripledemic Update: RSV, Covid And Flu,” Forbes, December 13, 2022.
In the 8th circuit case, the state of Missouri claimed that it would be harmed by receiving less repayment revenue, should be loan forgiveness program go into effect. State of Nebraska, et al. v. Joseph R. Biden, Jr., et al., Case No. Case No. 22-3179.
This reasoning is problematic because: 1) No loans have been forgiven, so no money has been lost; 2) research shows that when borrowers are released from paycheck to paycheck jobs as a result of debt relief, those borrowers find better paying jobs, which would cause them to pay more in taxes to the state (Harvard Business School/Working Knowledge, “Forgiving Student Loan Debt Leads to Better Jobs, Stronger Consumers,” May 22, 2019); 3) the government has several different laws upon which they can rely for student loan relief [e.g., Higher Education Act (“HEA”), beginning at 20 US Code Sec. 1082; the Federal Family Education Loan Program, beginning at 20 USC 1071; the Federal Claims Collection Act, found beginning at 31 USC Sec. 3701, the Direct Loan Program of Title IV of the HEA, and federal regulations, such as 31 CFR 30.70 and 31 CFR 902.1 (a); see Open Letter to Sen. Elizabeth Warren, Legal Services Center of Harvard Law School, September 14, 2020]. For example, the HEA states that the Secretary of Education has the power “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” 20 U.S.C. § 1082(a)(6) p. 3 (emphasis added);
And 4) striking down the program is exactly the type of mischief that Justice Scalia warned against in Lujan, as stated above.
Finally, if the quibble is with the HEROES Act as a basis for the program, shouldn’t the Supreme Court defer to the Executive, based on this undisputed alternative authority? Or, simply require the President to resubmit the program, citing to his alternative statutory authority rather than the HEROES Act, instead of gutting the program?
We may have an answer in June 2023.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
by Herbert Wiggins | Nov 29, 2022 | bankruptcy, student loans
On August 24, 2022, President Joe Biden announced a proposed plan, through the Department of Education, to forgive a portion of student loan debt owed by millions of Americans. The plan proposed to allow cancellation of up to $10,000 for certain loan recipients, and up to $20,000 for Pell Grant recipients. This forgiveness would be given only to holders of federal loans, and would not guarantee full cancellation of all debt owed by every borrower, such as those who owe more than $20,000 in Pell grants. The program also does not apply to those whose loans come from private lenders, such as Sallie Mae.
As of this writing, over 26 million borrowers have applied for relief, and the Biden Administration has approved certain applicants for relief. But no loan relief has been granted.
No relief has been granted because several Republican Attorneys General, from Nebraska, Missouri, Kansas, Iowa, Arkansas, and South Carolina, sued to stop the program (Eastern District of Missouri, Case No. 4:22CV1040, filed 9/29/2022). Briefly, the States claimed that the loan relief would harm them financially, based on lost loan repayments (the States apparently did not discuss how they might benefit from increased tax payments if the borrowers were not tied to low-wage jobs to make their current payments; nor did the States discuss how much more money they would receive through the federal infrastructure bill).
Eastern District of Missouri Judge Autrey threw the case out, based on lack of “standing” (i.e., lack of an actual harm that the States had suffered), but the 8th Circuit Court of Appeals, which oversees several Midwestern states, placed this loan relief program on hold, pursuant to an injunction. State of Missouri, et al. v. Joseph R. Biden, etc., et al., Case No. 22-3179, published 11/14/22
Unfortunately, the 8th Circuit’s logic, particularly on the issue of immediate, actual harm (“standing”) appears disingenuous, and suggests a political motive behind the decision. For example, the 8th Circuit ruled that the state of Missouri has standing, because a loan fund created by the state of Missouri would potentially lose money if some of the loans granted through that fund were reduced or forgiven. That no relief has yet been granted means that no funds have yet been lost. And thus the state of Missouri has no standing. Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578 [opinion of Scalia, J].
Even more worrisome is the court’s assertion that because a federal decision causes a state to lose money, the state can sue to stop that program. Taken to its logical extreme, if the federal government decides from year to year to spend less money on highway repair for roads in Ohio than in Kansas, Ohio can sue and stop the program. Or if, year to year, the federal government decides to grant more funds for cancer research to universities in Minnesota than in California, California can sue to stop the program. This is the sort of chaos that Scalia warned against; the courts would assume day to day authority over the acts of a co-equal branch of government. Lujan v. Defenders of Wildlife (1992) 504 US at 577.
In other words, the 8th Circuit Court’s reasoning leads to chaos, and no federal spending program could ever be approved, because by definition, some agency, state, or individual will receive less money than another.
Additionally, how these States might benefit eventually from the improved financial health of borrowers apparently played no role in the 8th Circuit’s decision.
The Biden Administration has asked the US Supreme Court to intervene and overturn the 8th Circuit. (SCOTUS Blog, 11/18/2022) However, given the Court’s extreme conservative nature, as well as its willingness to disregard long-established precedent, a favorable ruling is not assured.
by Herbert Wiggins | Nov 17, 2022 | Fair Lending, Red Lining
During the years of the Financial Crash (2007-2012), one could read in the press about something called “predatory lending,” or “lending discrimination,” or “disparate treatment,” or “disparate impact.” These concepts and legal doctrines were important because they spoke to the fact that persons of color were treated deceptively or unfairly, or tended to receive subprime loans, or loans that they could not repay, or were preyed upon by certain lenders. The end result was that minority borrowers were much more likely to have their homes foreclosed upon than were Caucasian borrowers.
Central to the effects of the Financial Crash upon minority borrowers, in particular, was the belief among certain lenders that they could do whatever they wanted with regard to minority borrowers.
A recent ruling from Pennsylvania points to the continued need for vigilance with regard to lending discrimination. The US Department of Justice and the Consumer Financial Protection Bureau sued Trident Mortgage for redlining practices against borrowers of color in the Philadelphia area. Consumer Financial Protection Bureau v. Trident Mortgage Company LP, Case No. 2:22-cv-02936, U.S. District Court for the Eastern District of Pennsylvania.
In its press release of July 27, 2022, announcing the settlement with Trident Mortgage, the Department of Justice stated that:
“Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of residents of those communities. The complaint in federal court today alleges that from at least 2015 to 2019, Trident failed to provide mortgage lending services to neighborhoods of color in the Philadelphia Metropolitan area, that its offices were concentrated in majority-white neighborhoods, and that its loan officers did not serve the credit needs of neighborhoods of color. The complaint also alleges that loan officers and other employees sent and received work e-mails containing racial slurs and referring to communities of color as ‘ghetto.’ ”
The director of the Consumer Financial Protection Bureau, Rohit Chopra, stated the importance of fighting discrimination, when he said, in connection with the Trident settlement, “With housing costs so high, it is critical that illegal discrimination does not put homeownership even further out of reach.”
The Department of Justice, in commenting on the consent order, stated that the Truth in Lending Laws and other anti-discrimination laws must continue to be enforced. 15 USC §§1601, et seq (Truth in Lending Act); 15 USC §1691 (Equal Credit Opportunity Act); 15 USC §1681 et seq. (Fair Credit Reporting Act). Courts will have an important role, looking to the letter of the anti-discrimination laws, their intent, and to the reality on the ground, rather than finding excuses to look the other way, and blame the victim, simply because confronting reality may be uncomfortable or inconvenient.
Warning: These Posts Does Not Constitute Legal Advice; Please Consult An Attorney
by Herbert Wiggins | Nov 3, 2022 | BANKRUPTCY LAW, Real Estate
When representing clients, attorneys rely on the words of the law (a “statute”) and ask the court to implement the plain, obvious meaning of its words.
When it comes to federal statutes, however, it is easy to overlook the “comments” by Congressional committees that draft the statutes, or the agencies which implement them. Such comments can be critical in court.
For example, a recent unanimous Court of Appeal used a statute’s agency staff comments to protect a consumer from a deceitful lender.
In Gilliam v. Levine, Case No. 18-56373 (9th Circuit, 2020), the court recounts that the borrower obtained a loan as trustee for a family trust. The purpose of the loan was to make home repairs. The home itself was the sole asset of the trust. Another family member, who occupied the home, was the trust beneficiary.
The borrower later discovered that the due date for the final loan payment was 1 year earlier than she had been led to believe. The borrower was alarmed, and sued to cancel (rescind) the loan under federal law, Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., and the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. § 2601. The borrower also asserted a claim under California’s Fair Lending Law [Rosenthal Act], 1788.1(b) of California’s Rosenthal Act, California Civil Code §§ 1788.1(b).
The trial judge dismissed the lawsuit, because, according to that judge, the loan went to the trust, not to a person, and hence was not a consumer loan.
The 9th Circuit Court of Appeal reversed the trial court, noting the federal Consumer Financial Protection Bureau’s Official Staff Commentary to Regulation Z (mortgage loans), which states that “[c]redit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.” 12 C.F.R. pt.1026, Supp. 1, § 1026.3 Comment 3(a)-10. (And under California law, the trustee, not the trust, holds title to trust property – – Author)
The “certain trusts,” which fall under the rubric of “natural persons,” included the trust in this case, which was formed for tax or estate planning purposes [which benefit people]. The trust in question was “primarily for personal, family, or household purposes.” 15 U.S.C. § 1602(i). The borrower was the aunt (as Trustee); the niece was the beneficiary; and the trust property was a private home. As a result, the loan was a “consumer credit transaction,” which was subject to the Fair Lending Laws.
And the Comment makes the point: Look to the substance of the transaction. Here it was to benefit a consumer, not a company. 12 C.F.R. pt. 1026, Supp. 1, and § 1026.3 Comment 3(a)-10.i. Because this was a consumer loan, the Trustee had the right to rescind this deceptive loan.
WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
