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Forget Notice, Face Litigation Risk

NOV 21, 2012 2:38pm ET
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A REMINDER ABOUT A NOTICE TO THE BORROWER THAT YOU COULD EASILY FORGET UNDER THE DODD FRANK ACT AND PUT YOU AT RISK OF POTENTIAL LITIGATION

FACTS

NOTICE BEFORE REFINANCING THAT WOULD CAUSE LOSS OF PROTECTION—In the case of any residential mortgage loan that is subject to protection under an anti-deficiency law, if a creditor or mortgage originator provides an application to a consumer, or receives an application from a consumer, for any type of refinancing for such loan that would cause the loan to lose the protection of such anti-deficiency law, the creditor or mortgage originator shall provide a written notice to the consumer describing the protection provided by the anti-deficiency law and the significance for the consumer of the loss of such protection before any agreement for any such refinancing is consummated. (Dodd-Frank Section 1411(g)(3))

MORAL

One example—Homebuyer purchases home on an 80-20 purchase money loan. Later because of increased value refinances the second mortgage and gets higher amount that pays off the existing second mortgage and also gives cash-out. This could arguably cause the borrower loss of the purchase money mortgage anti-deficiency protection given by CCP Section 580b and therefore you the creditor have to five notice or risk litigation at some point if the first ever forecloses leaving an unsecured note since the second deed of trust is now extinguished. This means the new lender at a minimum. A word to the wise. If in doubt, make the disclosure. You can invent your own disclosure or you may have us create one for you.

VIOLATE THE GRAMM-LEACH-BLILEY ACT BY NOT SHREDDING FINANCIAL DOCUMENTS THE FTC WILL GIVE YOU CAUSE TO REGRET IT

FACTS

PLS Financial Services Inc. and the Payday Loan Store of Illinois Inc. are two companies that allegedly failed to safeguard discarded, sensitive personal information will now have to pay $101,500 to settle related Federal Trade Commission charges filed in the U.S. District Court for the Northern District of Illinois, according to a consent order released Nov. 7 (United States v. PLS Financial Services Inc., N.D. Ill., No. 1:12-cv-08334, consent order entered 10/26/12).

PLS Financial Services Inc. provides management services to more than 300 payday loan and check cashing stores, and The Payday Loan Store of Illinois Inc. is an affiliated company that owns and operates such stores, the FTC explained in a Nov. 7 statement. The two companies are jointly and severally liable for the penalty.

The companies allegedly discarded documents containing sensitive personal identifying information in unsecured dumpsters near several PLS Loan Stores or PLS Check Cashers locations, the commission explained in its statement.

The commission's complaint alleged that the defendants violated the FTC's Disposal Rule, the Gramm-Leach-Bliley Safeguards Rule and Privacy Rule, and the FTC Act.  The FTC's Disposal Rule requires companies dispose of credit reports and information derived from them in a safe and secure manner. PLS Financial Services and The Payday Loan Store did not take reasonable steps to protect against the unauthorized access to consumer information when disposing credit reports, the FTC alleged. The commission said that this case is the third time it has brought charges under the Disposal Rule.

The complaint further claimed that the companies violated the Gramm-Leach-Bliley Safeguards Rule. Those rules “require financial institutions to develop and use safeguards to protect consumer information, and deliver privacy notices to consumers,” the commission said.

The alleged violation of the FTC Act stems from the defendants' misrepresentations about the reasonable measures they implemented to protect sensitive consumer information. In addition to the civil penalty imposed on PLS Financial Services and The Payday Loan Store, the consent order:

• Prohibits all of the defendants from misrepresenting the privacy and security of consumers' personal information;

• Prohibits the defendants from further violating the Disposal Rule, Safeguards Rule, and Privacy Rule;

• Requires the defendants to establish and implement a comprehensive information security program;

• Requires the defendants to obtain independent, third-party audits every other year for 20 years; and

• Requires each defendant to submit a compliance report to the FTC one year after the order's entry, in addition to other recordkeeping and compliance monitoring requirements.

MORAL

I have seen another just like this one. In that case also the party had to comply with audits for the next 20 years! Just what you need, another audit procedure. Are you disposing of your credit reports properly? More importantly, are your loan originators doing it properly. Remember, you the owner suffer if the loan originator does not comply.

CALIFORNIA MAN INDICTED FOR MORTGAGE FRAUD

FACTS

On Nov. 15, Daniel Gherasim was indicted by a federal grand jury for bank fraud, false statements on a loan and credit application, money laundering, and structuring in connection with an alleged scheme to defraud a bank in obtaining a home equity loan.

According to the indictment, in November 2008, Gherasim submitted a fraudulent loan application for a home equity line of credit he took out on a home he owned. The application inflated the amount of equity he had in the property. After receiving the $215,800 HELOC, Gherasim transferred the money to another bank account he held, in part by writing checks to himself in amounts over $10,000. The indictment alleges that Gherasim then withdrew money from that account in increments ranging from $490 to $9,500 in order to evade currency reporting requirements.

If convicted, Gherasim faces a maximum penalty of 30 years in prison and a $1 million fine.  (usattyedca111612)

MORAL

One loan and if convicted, one felony and loss of many civil rights and job potentials. Note the fact that the federal prosecutor chased the one loan. So if anyone was overly creative on a loan application that person should see the attorney now.

CONNECTICUT LAWYER DRAWS TWO YEARS IN FEDERAL PRISON FOR $10 MILLION MORTGAGE FRAUD-TWO OTHERS AWAIT SENTENCING

FACTS

Comments (1)
The 'anti-deficiency' notice is being incorporated into the new GFE/TIL and implementation requirements have been delayed until the new form is adopted. 1414(c); 129C(g)(3)
Posted by | Wednesday, November 28 2012 at 10:36AM ET
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