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Mortgage Lending: 13.4.1 Diversity Jurisdiction in Individual Cases

For diversity jurisdiction in cases other than class actions, 28 U.S.C. § 1332 provides that an action must be “between citizens of different states” and the amount in controversy must exceed $75,000.104 The party that chooses federal court (either the plaintiff or the defendant seeking removal) must set out the basis of federal jurisdiction and bears the burden of proof “by a preponderance of the evidence” on any contested factual allegations.105

Mortgage Lending: 13.4.2 Diversity Jurisdiction Under the Class Action Fairness Act

The Class Action Fairness Act (CAFA), enacted by Congress in February 2005, amended 28 U.S.C. § 1332, the diversity jurisdiction statute.125 CAFA relaxes the requirements for diversity jurisdiction over class actions with 100 or more members.126 There is no need for “complete diversity” under CAFA—it is enough if any class member is diverse from any defendant.127 The amount in controversy is also different.

Mortgage Lending: 13.6.2.2 General Jurisdiction over Securitization Trusts

General jurisdiction allows a court to hear any case against a defendant, even a case that does not arise out of its activities in the forum state, and is permissible if the defendant has substantial and continuous contacts with the forum state.165 A securitization trust’s lack of employees or offices in the forum state is not dispositive.166 However, the United States Supreme Court’s 2014 decision in Daimler AG v.

Mortgage Lending: 13.6.2.3 Specific Jurisdiction When Claim Relates to Property in Forum State

Often a debtor’s suit relates to a security interest held by the trust in real or personal property that is located in the debtor’s home state. For example, a consumer may have entered into a loan transaction in their home state, and given the creditor a mortgage on real estate or a security interest in a manufactured home located in that same state. If an out-of-state trust later acquires the mortgage or security agreement and note, can the consumer bring a suit in the consumer’s home state where the loan originated and the secured property is located?

Mortgage Lending: 13.7.6 Closing Protection Letters

Closing protection letters are a rarely invoked source of third-party liability for a settlement agent’s misconduct. A closing protection letter (sometimes called an insured closing letter) is a contract between a lender and a title insurer through which the insurer assumes (that is, indemnifies) the lender’s liability for the settlement agent’s conduct during the closing.276 In essence, a closing protection letter is an errors and omissions insurance policy for settlement agents.

Mortgage Lending: 13.8.1.1 Twelve Limits to the Holder-in-Due-Course Defense

Consumers wishing to use loan origination misconduct as a defense to a foreclosure or other collection of a mortgage obligation often run up against the holder-in-due-course doctrine. The mortgage loan originator has sold the obligation, and the party holding the loan claims immunity as a holder in due course from defenses the consumer could raise against the originating lender or some prior holder.

Mortgage Lending: 13.8.2.1 Introduction

This subsection focuses on home improvement contracts, but generally applies to the sale of any goods or services. A creditor’s ability to claim holder-in-due-course status concerning home improvement credit will vary depending on the relationship of the creditor to the original seller of the home improvement (or any other goods or services):

Mortgage Lending: 13.8.4 No Holder in Due Course in Home Equity Lines of Credit

There can be no holder in due course relating to a home equity line of credit (a HELOC) or any other open-end credit obligation.342 A negotiable instrument contains a promise to pay a fixed amount of money.343 The amount of principal owed on a HELOC or other type of open-end credit is unknown at the time the loan is originated and the amount changes over time.

Mortgage Lending: 13.8.5 No Holder in Due Course in Reverse Mortgages

While reverse mortgage obligations can be drafted in a number of different ways, in general an assignee of a reverse mortgage obligation should not be able to become a holder in due course. To be negotiable an instrument must be payable either on demand or at a definite time,344 and there must be a promise to pay a fixed amount of money.345

Truth in Lending: 9.6.13.3 Limitation on Assignee Liability and the Assignee’s Burden of Proof to Invoke It

An assignee will not be held liable under the Act when it “demonstrates, by a preponderance of the evidence, that a reasonable person exercising ordinary due diligence” could not have determined that the loan was a HOEPA loan.1017 Due diligence requires that the lender examine all documentation required by TILA and HOEPA, the itemization of the amount financed and other disclosures of disbursements.1018 In addition, the assignee should be responsible for any other information that is act

Mortgage Lending: 13.8.9.3 Exception When Transferor Is Holder in Due Course

Even if a transferee has notice of consumer defenses, it still can acquire the rights of a holder in due course under the shelter rule if its transferor is a holder in due course or has the rights of a holder in due course.388 That is, if any assignee of the original creditor was not on notice of consumer defenses and otherwise qualifies as a holder in due course, it can pass on that status to subsequent assignees, even those on notice of the consumer defenses.

Mortgage Lending: 13.8.10.1 The Holder Requirement

For an entity to become a holder in due course, it must be a “holder” of the negotiable instrument, meaning that the instrument must be negotiated to that entity. If the instrument is not negotiated properly, then the party seeking to enforce the instrument is not in fact a holder of the instrument. And a party cannot be a holder in due course without first being a holder. Often, due to sloppy paperwork, this negotiation does not take place or the assignee cannot prove that it properly took place, and thus the assignee is not a holder and therefore not a holder in due course.

Mortgage Lending: 13.8.10.2 Bearer Notes

Bearer paper is indorsed in blank and is negotiated simply by delivery of the instrument.391 Thus, for bearer paper, the transferee must prove the transfer of the physical note to the transferee.392

Home Foreclosures: 2.1 Introduction

Chapter 5, infra, describes various procedural requirements that a foreclosing party must follow in order to conduct a valid foreclosure sale. Failure to follow the procedural requirements mandated by a state statute or the loan documents may preclude foreclosure. However, a more fundamental defect in proceedings may arise if the party conducting the foreclosure lacks authority to do so.

Mortgage Lending: 13.8.10.3 Notes Payable to Order

The alternative to negotiation via bearer paper is negotiation via an instrument that already states that it is payable to the order of an identified person.396 To negotiate such an instrument, the person to whom the instrument is payable must indorse the instrument and give delivery of the instrument to its transferee, so that the new holder has possession of it.397

Fair Debt Collection: 11.15.2.2.1 The holdings in Ramirez

The Supreme Court’s 2021 decision in TransUnion L.L.C. v. Ramirez1458 is its second major decision about the application of Article III to claims under federal consumer protection laws. The case arose when TransUnion, one of the “Big Three” nationwide consumer reporting agencies (CRAs or credit bureaus), issued a report identifying a car buyer, Sergio Ramirez, as a potential terrorist.