Mortgage Lending: 8.4.2 Referrals
It is common—and legal—for one person to refer business to another in the real estate business. And it is not unusual for settlement service providers to aggressively solicit referrals.
It is common—and legal—for one person to refer business to another in the real estate business. And it is not unusual for settlement service providers to aggressively solicit referrals.
The CFPB has found some illegal referral fees concealed as marketing services agreements.262 A marketing services agreement (MSA) is ostensibly a contract for one settlement services provider or creditor to pay another for advertising or promotional services.263 But they are ultimately intended to refer customers to a particular service provider.
For an affiliated business arrangement to comply with these terms, the existence of the relationship between the referrer and the settlement service provider must be disclosed to the consumer, using the form included with Regulation X.308 The timing of the disclosure depends on a variety of factors and also varies depending on who is making the referral.309 Making the disclosure for the first time at closing should violate RESPA if the timing deprives the consumer of a realistic opportunity
Standing is a basic element of any civil action. A plaintiff who fails this basic test will be barred from all relief.
For federal courts, standing has a constitutional foundation. Article III of the United States Constitution limits a federal court to jurisdiction over “cases” or “controversies” between parties.1422
This chapter discusses the relationship between federal and state law in regulating matters of arbitration.
This chapter focuses on NBA, HOLA, and FCUA preemption of state laws regulating aspects of a loan other than the interest rate. Federal law also overrides state laws regarding interest rates in a number of circumstances. First, the federal laws governing home loans made or insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS) preempt state law limits on interest rates (and also state law limits on a number of other loan terms).
The Barnett Bank case was a narrow decision.
The Dodd-Frank Act changed not only the substantive standards for preempting state laws but also the ground rules for officially determining that a state law is preempted.
The subsections that follow examine the meaning of the various categories of state law limitations that the 2004 and 2011 OCC lending rules list as preempted, and those listed in the savings clause. Because of their substantial overlap, it discusses decisions interpreting the OCC’s preemption rule for non-mortgage loans along with decisions interpreting the parallel provisions of its mortgage rule.340 When relevant, and when not clear from the context, decisions interpreting the 2011 rule are identified as such in the text and footnotes.
The regulations provide that national banks may make real estate or other loans without regard to state-law limitations concerning licensing, registration, filings, or reports by creditors.347 A state court applied this rule to hold that a state law requiring national banks to file a notice, designate an agent, and pay a filing fee when transacting business in the state was preempted.348 Another decision holds that the NBA itself preempts a state statute that required an out-of-state plainti
The OCC’s lending rules list loan-to-value ratios as an area in which state-law limitations are preempted.363 There do not appear to be any cases that apply or illuminate this provision.
Another area in which the OCC rule states that state law limitations are preempted is “security property.”379 No cases have been found that apply or illuminate this provision.
The OCC identifies “access to and use of credit reports” as another area in which state law limitations are preempted.380 No cases have been found that apply or illuminate this provision.
State laws that affect the interest paid by national banks and federal savings associations on deposit accounts are governed by the OCC’s regulations and case law regarding preemption of state laws governing deposit-taking activities.169
For real estate secured loans, the rule states that banks may make loans without regard to state-law limitations relating to the aggregate amount of funds that can be loaned upon the security of real estate.415 One court held that this subsection encompasses a claim that a bank made a loan in excess of the borrower’s needs or ability to repay.416 The subsection seems to be aimed more at caps on loan amounts, however.
For real estate secured loans, state laws relating to due-on-sale clauses are preempted,435 with exceptions as provided in the Garn-St Germain Act.436 That law includes its own preemption provision437 and has been interpreted by a number of courts.438 Due-on-sale clauses and the Garn-St Germain Act are discussed in detail in another treatise in this series.
The rule states that national banks can make loans without regard to state-law limitations on the covenants and restrictions that must be contained in a lease to make it qualify as acceptable security for a real estate loan.440 The scope of this provision is unlikely to be an issue in consumer cases.
After listing subject areas in which national banks can disregard state laws, each of the OCC’s preemption rules then includes a savings clause that lists types of state laws that are not preempted under certain circumstances.441 Under the pre-Dodd-Frank Act rules, these laws were not preempted “to the extent that they only incidentally affect the exercise of” national banks’ powers.
The OCC regulations carve out criminal law as an area that is not preempted. But the regulations include footnotes endorsing the view of an early United States Supreme Court decision466 that, while general criminal laws can be applied to national banks, those directed specifically at banks cannot.
The OCC regulation for mortgage lending adds homestead laws specified in another statute469 to the list of laws that are not preempted.470 The cross-reference appears to encompass only the Texas Constitution’s homestead provision, which contains significant limits on non-purchase-money mortgage lending.
The FDCPA does not preempt state statutory claims unless they are inconsistent with it.4 A consumer can recover statutory damages under both the FDCPA and a state debt collection statute.5 Nothing in the FDCPA prevents a state from, as a matter of state law, applying its prohibitions to entities that the FDCPA does not cover. 6
State laws on the subject of “rights to collect debts” are preserved by the savings clause. The preservation of state laws regulating debt collection is in fact mandated by long-standing Supreme Court precedent.471