PHH Wins Case Against CFPB
Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the Consumer Financial Protection Bureau ("CFPB") is an agency of the United States government responsible for consumer protection in the financial sector. As a relatively young agency, little case law exists regarding the powers and abilities of the agency. The agency believes that, pursuant to Dodd-Frank, they have extensive authority to regulate and enforce in all aspects of the financial sector. Few have challenged the agency's position fearing the repercussions of doing so.
One lender, PHH Mortgage, has bucked this trend, taking the CFPB to court over a ruling by the CFPB on the company's business practices as it relates to mortgage insurance. In particular, the CFPB had found that PHH violated RESPA by disguising the payments it received from mortgage insurers in the form of reinsurance premiums. PHH defended the case on the grounds that the reinsurance premiums were "reasonably related" to the services actually provided, as evidenced by millions of dollars of reinsurance claims that ultimately were paid out. The case was originally heard by an administrative court which fined PHH $6,000,000. PHH appealed that original ruling which resulted in the director of the CFPB increasing the fine to $109,000,000. Reasonably displeased, PHH appealed the CFPB's ruling to the U.S. Court of Appeals for the District of Columbia Circuit.
On October 11, 2016, the Court ruled on the PHH appeal. The results were a clear victory for PHH and others regulated by the CFPB. Indeed, the Court made several significant rulings that will impact both CFPB and all other entities regulated thereby. First, the Court agreed with an argument made by PHH that the structure of the CFPB was unconstitutional. As a result, the Court struck language in the Dodd-Frank Act that said the CFPB director could be removed "for cause," such that the "CFPB therefore will continue to operate ... but will do so as an executive agency akin to other executive agencies headed by a single person." Federal executive agencies are governed by the President of the United States so this will likely have significant impacts on the agency over the next few years.
Second, the court also held that RESPA allows captive reinsurance arrangements so long as the amount paid for the reinsurance does not exceed the market value. In looking at the relationship between section 8(a) and (c) of RESPA, the Court adopted the industry's long-standing view of the law that financial services companies can pay parties in a position to refer business when it is market value for a service actually performed. This is a major win for PHH as their fine will most certainly be reduced if not eliminated.
Another core ruling of the Court was that all laws allowing for criminal or civil penalties must have some statute of limitations. The CFPB had taken the position that there was no time limit on their enforcement ability such that they could retroactively punish behavior without limit. The court specifically held that while Dodd-Frank created an administrative hearing process those hearings are limited by the underlying federal consumer law. In this case the law being enforced was RESPA which has a three-year statute of limitations, so the Court threw out the penalties imposed for PHH's activities more than three years before their original administrative hearing. Obviously, PHH will see a significant financial benefit. So too this helps the industry as a whole plan and implement procedures based upon current law, which will hopefully reduce costs for the industry and by extension consumers.
|
|
Case of the Month
Nellie Gail Ranch Owners Association v. Donald G. McMullin, et al.
This case involves a dispute between a homeowner and a homeowner's association over the construction of a new retaining wall and sports court. The homeowner's association, Nellie Gail Ranch, is a 1,407-unit residential planned development on approximately 1,350 acres in Laguna Hills, California. The association has horse trails, an equestrian center, parks, tennis courts, and other common areas. In December 2000, the homeowners in this case purchased a home in the association located at the end of a cul-de-sac on a hilltop with canyon views. The back of their property slopes down towards and abuts two lots both owned by the association and used as a horse trail and a park.
In 2008, the homeowners decided that they wanted to make some revisions to the existing backyard and add a new retaining wall and sports court. Based thereon, the homeowners submitted plans to the association for approval. After significant negotiations, the association approved the existing backyard revisions proposed but denied the request for the addition of a new retaining wall and sports court.
Almost a year later the homeowners went back to the association to submit a new application and plans for the retaining wall and sports court. A representative of the association told the homeowners that the new plans were not necessary as the application has already been approved. Based thereon, the homeowners obtained permits from the city. Work began in June 2009 to the full knowledge of the association. Only after the work was almost complete the association sent a letter to the homeowners advising them that the construction of the wall and sports court was not approved. This letter demanded that they cease work immediately.
The homeowners complied and attempted to work with the association to resolve the matter. These negotiations resulted in the association's board voting and agreeing not to pursue the installation of the homeowners' wall as a violation. The association never approved the construction of the retaining wall or sports court.
In July 2010, the city sent a letter to both the homeowners and the association explaining the wall was constructed entirely on the association's property and did not fully comply with the city's requirements regarding the wall's height and the slope adjacent to the wall. The city further informed the parties the wall could not remain in its current condition - either the association must grant its approval for the wall and the wall must be brought into compliance with the city's requirements, or the wall must be removed. The parties attempted unsuccessfully to resolve the matter. Negotiations having failed, the association sued the homeowners for quiet title and an injunction requiring the homeowners to remove the retaining wall and sports court. The homeowners answered and filed a cross complaint against the association. They alleged they either acquired title to the area in question through adverse possession or a prescriptive, implied, or equitable easement. The trial court ruled for the association on all counts.
On appeal the homeowners alleged that the action of the association in allowing and agreeing to the actions of the homeowners was grounds for the trial court's ruling to be overturned. They relied on the legal doctrine of equitable estoppel which prevents one party from taking unfair advantage of another, through false language or conduct, by inducing the other party to act in a certain way, which resulted in the other party being injured in some way. The homeowners argued that they were induced by the board vote and subsequent additional irrigation plan approval to spend significant sums on construction of the wall and improvements such that they would be injured if forced to remove them.
The Appellate Court found these arguments unavailing as these communications and their reliance on them occurred well after the retaining wall was constructed, and therefore they could not justifiably have relied on them in spending money to construct the wall and sports court. The Appellate Court also denied this argument finding that the evidence supported the conclusion that the association did not know all of the essential facts when it voted because it was unaware that the wall and sports court were built almost entirely on the association's property when it voted not to pursue the wall. Based thereon, the Appellate Court affirmed the ruling of the trial court finding for the association.
|
California Fighting Back Against Cyber Crime
As those of us in the real estate industry are all too aware, cyber criminals are actively targeting anyone who uses the internet. In our industry, these criminals are using email to impersonate individuals in a real estate transaction and convince them to send them money. In the broader world, the bad guys are attacking in broader ways, like email extortion, cyber stalking, exploitation, auction fraud and computer hijacking.
On October 10, 2016, California Attorney General and U.S. Senator Elect announced the formation of the California Cyber Crime Center ("C4"), a new initiative within the California Department of Justice to fight crime in the digital era by bringing state-of-the-art digital forensic capabilities and cyber security expertise to law enforcement across the state. C4 brings together several existing resources in an attempt to centralize and coordinate the state's efforts to fight cyber crime.
Based in Fresno, this specialized unit is one of the first in the nation. The goal of the new C4 unit is to unify the California Department of Justice's resources to investigate and prosecute cyber crime, enhance digital evidence capabilities, and promote innovation. C4 supports the California Department of Justice internally as well as local and state law enforcement agency partners throughout the cyber crime lifecycle by providing services, technical assistance, and training related to cyber crime, digital evidence, and digital forensics. C4 also advances the Department of Justice's internal capabilities to utilize digital evidence for investigations and litigation.
As the world's fifth largest economy, California is a huge target for cyber crime. Having an organized response and defense strategy is vital to protect the state and its inhabitants. C4 is a step in the right direction in such efforts.
|
|
|
|
|
HAPPY THANKSGIVING!
From your friends at RELAW, APC
|
|
|
STAY CONNECTED
|
|
|
|
|
