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Op-Ed: New Jersey must cut links to unscrupulous payday-loan company

April 30th, 2015 by

OP-ED: NEW JERSEY MUST CUT LINKS TO UNSCRUPULOUS PAYDAY-LOAN COMPANY

APRIL 30, 2015 for NJ Spotlight. News Issues and Insight for New Jersey.

State’s public pension fund has $50 million stake in high-interest lending firm that’s banned in NJ

New Jersey maintains a statute that prohibits payday-lending companies from operating within the state. Despite this prohibition, a recent article published byFortune.com revealed that New Jersey’s public pension fund has invested $50 million in a private equity fund that owns Ace Cash Express Inc., a company that is prohibited from conducting business in New Jersey.

It is unethical for the state to fund its pensions from the profits of an unscrupulous company that is prohibited from conducting business within the state. The Division of Investments should immediately divest from the private fund managed by JLL Partners and instead invest in companies that reflect the social and moral landscape of the state.

By virtue of the investment, the New Jersey State Investment Counsel is part owner of Ace, the second-largest payday lending company in the United States.

Lenders in New Jersey are prohibited from charging an APR in excess of 30 percent. According to Fortune, Ace’s loans typically carry an APR ranging from 65.35 percent to 1,409.36 percent, in addition to an origination fee.

The company operates in 36 states, choosing not to do business in states that impose interest rate caps below 50 percentage points. The high interest rate leads to profits for investors, but a cost for the public and consumers doing business with companies like ACE.

The Consumer Financial Protection Bureau (CFPB) investigated Ace’s lending practices. In July 2014, Ace entered into a consent order acknowledging that it had acted in violation of the Consumer Financial Protection Act of 2010.

According to the settlement, loans issued by Ace have a two-week repayment period and consumers are typically forced into a cycle of refinancing loans to avoid default.

Ace also acknowledged using inappropriate collection techniques including repeated calls to non-debtors demanding payments, calling third-party references and disclosing information about debtors, and encouraging its collectors to make illegal threats if debtors did not pay immediately.

Ace also admitted training its collectors to push borrowers into a debt spiral by convincing borrowers to refinance existing debt and pay new fees instead of paying off existing loans.

It is inappropriate for the state to own an equity share of a company that is prohibited from doing business in New Jersey and has acknowledged violating federal law. New Jersey’s return on investment of approximately 11 percent does not justify profiting from a company that the state views as morally irresponsible.

The state should immediately withdraw its investment from the JLL Partners fund that owns Ace.

The money should instead be invested in funds that exclude interests in companies that are prohibited from doing business in New Jersey. This move is essential to show that New Jersey believes in its own future enough to invest in companies that flourish within the state.

For more discussion on other issues related to consumer financial litigation please visit the Financial Consumer Rights Talk podcasts.

Homeownership rate lowest in 25 years according to Case-Shiller report

April 29th, 2015 by

The home ownership rate fell to the lowest level, in twenty-five years and much of it has to do with rising home prices. In the top 20 markets home prices increases were about 5% compared year to year in February, according to the S&P / Case -Shiller home price index.

Home prices continue to rise and outpace both inflation and wage gains,” said David Blitzer, of S&P Dow Jones Indices. “If a complete recovery means new highs all around, we’re not there yet.

Read the complete story about why the homeownership rate is the lowest in 25 years on the CNBC website with video. In another article, Adam Deutsch, Esq. explains how homeowners in New Jersey are impacted by rising home prices, and NJ taxes.

New Jersey Attorney Says High Taxes Make for Foreclosure Perfect Storm

April 28th, 2015 by

Observation and comment by Adam Deutsch, Esq.

” Foreclosures are up 17% through the first quarter of 2015 in New Jersey,” says Adam Deutsch, Esq., of the law firm of Denbeaux and Denbeaux.

“The article “New Jersey still caught in Foreclosure Nightmare” , written by Alan J. Heavens, Inquirer Real Estate Writer,  makes a good point, that much of the sustained problem in New Jersey may be attributable to the state’s tax burden.  New Jersey has the second highest average property tax bill in the country at $8,108 for a single family home.  At that rate, a new assessment could easily be the difference that pushes a homeowner over the edge to default.  This adds to the perfect storm that has created a seemingly never ending housing recession in the state,” he concludes.

New Jersey still caught in foreclosure nightmare

Read more at http://www.philly.com/philly/classifieds/real_estate/20150427_New_Jersey_still_caught_in_foreclosure_nightmare.html#qLL2GTUmkUjyt6Lo.99

Discussion: Notice of Error, a New Tool Under Federal Law to Fix Mortgage Account Errors.

April 27th, 2015 by

Notice of Error, a New Tool Under Federal Law to Fix Mortgage Account Errors

In January 2014 homeowners with mortgage loans obtained a significant tool for disputing errors in the collection and application of their mortgage loans.  The tool in question is known as a Notice of Error, which was made part of the Real Estate Settlement Procedures Act (RESPA), originally enacted in 1974.  Drafted by the Consumer Financial Protection Bureau, Regulation X which includes the Notice of Error rule is a great tool that should be utilized by aggrieved homeowners seeking to fix errors on their mortgage loan accounts.

A Notice of Error is merely a written letter sent to the loan servicing company that sets forth an explanation of the alleged error and includes sufficient identifying information for the servicing company to determine what account the problem relates to.  Errors covered by the rule are those having to do with loan servicing.  By way of example this includes monthly payments that are not properly credited to the account, a modification agreement that is not honored following a change in loan servicing company, errors with tax and insurance disbursements and fees that are inappropriately assessed to an account.  A notice of error does not include claims of errors that occurred at the time the loan was originated.

By issuing a Notice of Error, a homeowner can compel a loan servicing company to conduct an investigation of the error.  The loan servicer must complete its investigation within 30-45 business days and provide the homeowner with a written response.  In responding to a Notice of Error the loan servicer must correct the error or provide the homeowner with a detailed letter explaining the reasons why no error was found.  Thus, if the servicing company disagrees with the homeowners allegations, they must explain what research was done in finding that no error occurred.  The loan servicer must also make available upon request and at no cost, documents reviewed by the servicing company during its investigation.  This allows a homeowner to obtain a level of transparency that was not previously available.

If the loan servicer fails to respond to the Notice of Error or otherwise fails to conduct an investigation in the manner and time required by the rule, a homeowner can seek relief in court.  RESPA provides that a successful plaintiff homeowner will be entitled to the Notice of Error investigation and will recover attorney fees and costs incurred pursuing the case.  In some circumstances the homeowner might also be entitled to damages of up to $2,000 per violation of the RESPA requirements by the loan servicing company.

Homeowners who have been subject to an error by their loan servicer may have found themselves in financial trouble as a result of the error, or even worse, facing a foreclosure.  Using the Notice of Error early on can prevent the snowball effect of an error.  For more information including an in-depth discussion regarding notices of error, listen to Episode 6 of the Financial Consumer Rights Talk which can be found in the podcast section of www.Denbeauxlaw.com.

Episode 6 – Financial Consumer Rights Talk – Notice of Error: New Tool Under Federal Law to Fix Mortgage Account Errors

April 27th, 2015 by

Notice of Error, a New Tool Under Federal Law to Fix Mortgage Account Errors

By Adam Deutsch

In January 2014 homeowners with mortgage loans obtained a significant tool for disputing errors in the collection and application of their mortgage loans.  The tool in question is known as a Notice of Error, which was made part of the Real Estate Settlement Procedures Act (RESPA), originally enacted in 1974.  Drafted by the Consumer Financial Protection Bureau, Regulation X which includes the Notice of Error rule is a great tool that should be utilized by aggrieved homeowners seeking to fix errors on their mortgage loan accounts.

A Notice of Error is merely a written letter sent to the loan servicing company that sets forth an explanation of the alleged error and includes sufficient identifying information for the servicing company to determine what account the problem relates to.  Errors covered by the rule are those having to do with loan servicing.  By way of example this includes monthly payments that are not properly credited to the account, a modification agreement that is not honored following a change in loan servicing company, errors with tax and insurance disbursements and fees that are inappropriately assessed to an account.  A notice of error does not include claims of errors that occurred at the time the loan was originated.

By issuing a Notice of Error, a homeowner can compel a loan servicing company to conduct an investigation of the error.  The loan servicer must complete its investigation within 30-45 business days and provide the homeowner with a written response.  In responding to a Notice of Error the loan servicer must correct the error or provide the homeowner with a detailed letter explaining the reasons why no error was found.  Thus, if the servicing company disagrees with the homeowners allegations, they must explain what research was done in finding that no error occurred.  The loan servicer must also make available upon request and at no cost, documents reviewed by the servicing company during its investigation.  This allows a homeowner to obtain a level of transparency that was not previously available.

If the loan servicer fails to respond to the Notice of Error or otherwise fails to conduct an investigation in the manner and time required by the rule, a homeowner can seek relief in court.  RESPA provides that a successful plaintiff homeowner will be entitled to the Notice of Error investigation and will recover attorney fees and costs incurred pursuing the case.  In some circumstances the homeowner might also be entitled to damages of up to $2,000 per violation of the RESPA requirements by the loan servicing company.

Homeowners who have been subject to an error by their loan servicer may have found themselves in financial trouble as a result of the error, or even worse, facing a foreclosure.  Using the Notice of Error early on can prevent the snowball effect of an error.

Quicken Loans Sues the Department of Justice and HUD, but Make No Mistake, it is Not a Victim

April 24th, 2015 by

by Adam Deutsch Esq.

Privately owned Detroit Michigan based mortgage origination company Quicken Loans used to love doing business with the Federal Government.  Now it seems, the love affair has cooled off.  On Friday April 17, 2015, Quicken filed a pre-emptive lawsuit against the U.S. Department of Housing and Urban Development and the Justice Department.  The lawsuit claims that the company has been unfairly singled out as part of a “political agenda under which the DOJ is investigating and pressuring large, high-profile lenders into paying nine- and 10-figure sums and publically admitting wrongdoing.”  Quicken suggests it is being blackmailed into submission under the threat of lawsuit from the Federal Government.

At the core of the lawsuit is the Quicken business model.  Unlike traditional mortgage originators, Quicken does not retain ownership of the loans it creates.  Instead, the firm maintains contracts guaranteeing its ability to sell the loan shortly after origination.  This business model lends itself to high risk, but not for Quicken.  Because Quicken sells its loans shortly after origination, it makes money through the origination, not loan servicing business.  Regardless of whether a borrower pays off the full value of the loan, or defaults after a couple of years, Quicken gets paid.  By exclusively focusing on the origination process, Quicken has created a successful niche and has consistently ranked first by consumers in terms of customer satisfaction according to J.D. Power.

According to the lawsuit, Quicken has originated approximately 250,000 loans insured by the Federal Housing Agency since 2007.  Since the housing crisis the Federal Government has conducted regular audits of loans backed by the FHA.  The process is essential to the national interest because every time a loan backed by the FHA fails, the Federal Government is forced to pay the value of the loan to its owner.  As part of the FHA lending process, Quicken must certify that each FHA backed loan it originates has no errors.

Quicken’s lawsuit does not deny that errors were made in the origination of FHA loans.  Instead, the company claims that the Justice Department has made unfair demands of Quicken.  According to the Complaint the Justice Department threatened penalties against Quicken based upon an sampling audit of only 55 loans.  Quicken asserts that the errors found were de-minimus and included miscalculating a borrower’s income by only $17.  However, even minor infractions are a violation of the FHA lending requirements because each time corners are cut it amplifies the financial risk carried by the American taxpayer.

The Quicken lawsuit highlights the central problem with the Federal Government’s FHA program.  A central purpose of FHA loans is to permit access to home ownership and to encourage savings for Americans in the lower and middle class for whom access to traditional mortgage loans may not be available.  However, by insuring the full value of loans, lenders are more likely to cut corners and take risk.  Quicken can sell FHA loans more easily than conventional loans because the guarantee of repayment is secured.  There exists an inherent conflict when a lender issues a loan it knows it will be fully repaid upon regardless of the borrower’s financial capacity.  It has been argued that the risky lending leading up to the 2008 crises was in part caused by loan originators having no “skin in the game.”  Financially, the owner of an FHA loan may prefer to own a loan that defaults because they will recoup their principal more quickly.

It is against this conflict that the Department of Justice, Federal Housing Association, and Consumer Financial Protection Bureau have increased scrutiny of lenders and loan servicing companies in the past couple of years.  Quicken cries foul, but it should be cautious not to bite the hand that feeds it.  It is refreshing to see the Federal Government working diligently for the people.  So long as a loan originator chooses to create loans backed by the FHA or otherwise sponsored by the American Government, it must accept that the cost of doing business includes a guarantee of paper work accuracy and the scrutiny of audits.  Quicken is not a political target, it is a petulant business playing a game without following the rules.

Attorney Liability in Lien Enforcement: The Untapped Potential of The FDCPA

April 22nd, 2015 by

42 Rutgers L. Rec. 205 (2015)

Debt is an American epidemic. The total sum of consumer debt in the United States (U.S.) is approximately $11.4 trillion dollars. From 1985 to 2007, an average households’ debt increased from roughly 60% of post-tax annual income to more than 125%. During that same period, debt-to-income ratios nearly doubled. Furthermore, roughly 35% of all adults, more than 77 million Americans, hold debt that is delinquent and in collection. As a result, debt collection companies have found a viable and rapidly expanding market in debt collection.Currently, the debt-collecting industry employs nearly 500,000 people (debt purchasers) in the U.S. alone. In a study conducted by the Federal Trade Commission (FTC) between 2009 and 2012, nine of the largest buyers of defaulted debt on the secondary market acquired $143 billion in defaulted loans but paid only $6.5 billion for defaulted loan’s acquisition. This acquisition cost is equal to only four cents per dollar of defaulted debt. It is debt purchaser’s goal to collect as much of the remaining debt value as possible.

Read all of the article : Attorney Liability in Lien Enforcement: The Untapped Potential of The FDCPA

Episode 5 – Financial Consumer Rights Talk – 3rd Circuit FDCPA Kaymark v Bank of America

April 14th, 2015 by

The Third Circuit Court of Appeals Renders Landmark Decision in Favor of Consumer Debtors

On April 7, 2015 Third Circuit Court of Appeals (DE, NJ, PA) published a landmark decision ruling that a debt collection law firm can be held liable for violation of the Fair Debt Collection Practices Act (“FDCPA”) based upon false allegations within a foreclosure complaint.  In reaching this conclusion, the Court of Appeals reversed the District Court’s ruling and maintained the Third Circuit’s long standing approach to view the FDCPA as a remedial consumer protection statute that Congress intended to be interpreted broadly in favor of the consumer.  The decision has significant implications for individuals facing debt collections on consumer debt including mortgage loans, credit cards and medical debt.

The case in question, Kaymark v. Bank of America, N.A. 2015 U.S. App. LEXIS 5548 (3d Cir. 2015) originates from a claim that debt collection law firm Udren Law Offices, P.C. violated the FDCPA by claiming in the body of a foreclosure complaint to be owed specified fees including $1,650.00 in attorney fees.  In Pennsylvania (and NJ) legal fees for foreclosure lawsuits are set by statute.  Kaymark argued that it was a violation of the FDCPA to claim that $1,650.00 in attorney fees were owed at the time the complaint was filed, because the fees were not yet incurred and the debt collector would not become entitled to the fees unless it successfully obtained a foreclosure judgment and was awarded the fees by the state court.  The District Court dismissed Kaymark’s claim, calling it “rather hyper-technical.”  The inference from the District Court is that it assumed the foreclosure action would be successful and fees awarded, therefore no harm was done.  The Appellate Court rejected the reasoning.

The Appellate Court explained that had Udren Law Offices, P.C. asserted that the fees were an estimate, or would be sought they may be excusable however because the fees were demanded in a precise amount, the demand “misrepresented the amount of the debt owed, forming a basis for violations.”  Essential to the Court’s holding is confirmation that a complaint and/or other document filed with the Court in connection with debt collection litigation is actionable under the FDCPA.  In 1996 and again in 2006, Congress amended the FDCPA to provide exemptions from formal court pleadings from coverage of two sections of the FDCPA (15 U.S.C. 1692e(11) and 15 U.S.C. 1692g(d).  The Court of Appeals explains in the Kaymark case that “If Congress intended that all conduct in the course of formal pleadings be exempt from the FDCPA, then these express exemptions would be superfluous” and it is presumed that Congress acted with purpose in carving narrow exemptions.

In light of the Kaymark decision, the rights of consumer debtors have not been expanded, but they have been clarified and secured in the Third Circuit.  Litigation is a form of debt collection, no different than phone calls and dunning letters.  Congress enacted the FDCPA after finding “abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” 15 U.S.C. 1692(a).  In the Third Circuit, it is an abusive debt collection practice and violation of the FDCPA to make false assertions of the amount and character of a debt in a communication whether the communication is a phone call, letter, or document filed with the Court.

It is plausible that the Kaymark decision will reshape the legal landscape for state court debt collection litigation.  In state court the debt collector is often given a great deal of deference in presentation of proofs.  This has long been a complaint of debtor litigants.  Where a debt collector violates the FDCPA in pursuit of relief in state court, the debtor can seek relief under the FDCPA.  Eventually this may lead to a change in the way state courts approach debt collection matters.  Particularly in the context of foreclosure actions which are heard by courts of equity, it is appropriate for the court to deny relief to the debt collector on the basis that they are acting with unclean hands by violating federal law while seeking relief under state law.

Debtors who believe they have been misled by debt collectors must act diligently.  Under the FDCPA, Congress enacted a one year statute of limitations, meaning that a claim must be brought within a year from the debt collector’s offending conduct.  To encourage debtors to act as private enforcers of the statute, Congress provides that a successful FDCPA claimant is entitled to reimbursement of costs and attorney fees.  This means relief can often be obtained without any out of pocket expenses.  That said, relief under the FDCPA is limited to $1,000 per debt collector and actual damages if any.  It is in part because of how limited the monetary relief is under the statute that the Third Circuit interprets Congressional intent as requiring strict compliance with the FDCPA.

The Third Circuit is expected to rule on another FDCPA case in the coming months Jensen v. Pressler & Pressler, LLP 2014 U.S. Dist. LEXIS 59676 (Dist. NJ. 2014) in which it will address whether a misleading statement by a debt collector must be “material” to the decision making process of the debtor in order to give rise to an FDCPA claim.  If Kaymark is a sign of what is to come, the Third Circuit should continue its streak of interpreting the FDCPA liberally so as to provide a maximum protection for consumer debtors.

3rd Circ. Rules FDCPA Covers Foreclosure Complaints

April 9th, 2015 by

The Third Circuit on Tuesday reversed in part a lower court’s decision in a class action establishing precedent that FDCPA protections extend to foreclosure complaints.

The Third Circuit on Tuesday reversed in part a lower court’s decision in a class action alleging violations of the Fair Debt Collection Practices Act by Bank of America NA and a New Jersey law firm over assessing not yet incurred fees, establishing precedent that FDCPA protections extend to foreclosure complaints.

Law360, New York (April 08, 2015, 2:43 PM ET) The Third Circuit on Tuesday reversed in part a lower court’s decision in a class action alleging violations of the Fair Debt Collection Practices Act by Bank of America NA and a New Jersey law firm over assessing not yet incurred fees, establishing precedent that FDCPA protections extend to foreclosure complaints.

The three-judge panel ruled that a Pennsylvania homeowner, who became delinquent on home loan payments to BofA, had his rights under the FDCPA violated when Udren Law Offices PC, on behalf of the bank, filed a foreclosure complaint against him and included fees that he had not yet incurred but would within the coming months.

The appellate court ruled that Dale Kaymark sufficiently pled that the disputed fees constituted actionable misrepresentation under the act and reversed the lower court order on the FDCPA-related claims, saying that it is well-established in the the Third Circuit that the FDCPA covers attorneys engaged in debt collection litigation.

Episode 4 – Financial Consumer Rights Talk – CFPB Talk to Congress

April 4th, 2015 by

Financial Consumer Rights Talk host, Adam Deutsch Esq. discusses the latest report from the Consumer Finance Protection Bureau (CFPB).