Amherst Bowl Father Son Football Tournament

Several years ago I put together a father son Thanksgiving Day football game hoping to fill those empty morning hours and hang out with my son.

I succeeded beyond my wildest dreams.

Celebrating its 6th year, the tournament, christened "The Amherst Bowl", has swollen to 127 players spanning 6 football fields and 12 teams playing 5 continuous football games in authentic AFC or NFC team jerseys.

The trash talk begins on Labor Day and echoes through our Township’s lunchrooms and playing fields with kids wearing prior years’ jerseys like badges of glory.

During Thanksgiving’s wet early morning hours, we map out and line the fields and set up tables overflowing with cakes, water, hot chocolate and coffee.

The horde shows up at around 8:00 a.m. eager to see to which to team they have been assigned, whom their teammates will be, and exactly how gloriously muddy the field is.

Shirts are distributed, rules are gone over, and at 8:30 a.m. the carnage begins.

During the ensuing rigidly timed five games, fathers put their middle aged bodies at risk while relieving their youth and playing football with their sons.

Throughout the morning soccer balls, cleats and shin guards are collected and donated to "Heads Up Soccer" which transports and distributes them to impoverished third world youth.

Additionally, monies raised are donated to "Katie at the Bat"

(http://www.katieatthebatteam.org/), improving inner-city youths’ lives through athletics, literacy, nutrition and health, and the arts, and "Adam Spandorfer Memorial Fund" (http://www.adamsfield.org/), raising monies for Variety Camp where children with disabilities can play baseball.

Although, at the Tournament’s end, some dads needed help getting off of the field, Thanksgiving tables were abuzz that evening with boasts of heroic plays, grudges revisited, and glorious victories.

Until next year, when we do it bigger and better and raise more equipment and money.

Recent Circuit Opinions Curtail RESPA Exposure

In the recent Hazewood v. Foundation Financial Group, LLC, 551 F.3d 1223 (11th Cir. 2008) and Arthur v. Ticor Title Ins. Co. of Fla., 2009 U.S. App. LEXIS 13090 (4th Cir. 2009) opinions, the 11th and 4th Circuit limited lenders and tile insurers’ Real Estate Settlement Procedures Act ("RESPA") 12 U.S.C. § 2601, et seq. exposure.

RESPA protects consumers "from unnecessarily high settlement charges caused by certain abusive practices". RESPA’s prohibitions are limited to "certain abusive practices" (but not excessive fees in general) and bars settlement service providers from giving "kickbacks" for referrals or charging or splitting fees for unperformed services.

Fortifying Filed Rate Doctrine Defense

Although some argue that it provides broad relief for "overcharges" and is aimed at reducing real estate settlement services costs, RESPA is silent on whether a violation occurs for charging fees above the market rate, above the rate filed with and approved by a state regulatory authority ("Filed Rate"), or otherwise excessive.

In affirming the RESPA claim dismissal, the Hazewood court held that RESPA "does not provide a cause of action for excessive fees—that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider."

Although the Hazewood plaintiff alleged charging fees in excess of the rates defendant had filed with, and approved by, the state, the 11th Circuit rejected dividing fees into "reasonable" and "unreasonable" portions by ruling that plaintiffs’ conceding "that a service is actually performed in exchange for a settlement fee" may not avoid RESPA claim dismissal "by arguing that the 'excessive' portion of the fee was 'unearned'".

While unremarkable on its face - - RESPA is neither a "price-control statute" nor prohibits overcharges or fees exceeding provider's Filed Rate- - Hazewood is helpful when viewed in light of the Filed Rate defense, i.e., that a plaintiff who is not overcharged for settlement services—as measured by service provider's filed rate—cannot pursue a RESPA claim.

Hazewood extends this approach in holding that, even if defendant charges above the state- regulated Filed Rate, there is no RESPA violation because any claim must be brought under state law.

Relaxation of Title Insurers’ RESPA Exposure

The Arthur v. Ticor Title Ins. Co. of Fla. Court held that a title insurer is not liable under RESPA despite splitting fees and charging fees above its Filed Rate when both the insurer and "split fees recipient" performed settlement services.

Like the Hazewood Court, the 4th Circuit rejected the argument that fees could be divided into a reasonable, legal portion (the Filed Rate amount) and unreasonable, illegal portion (the amount exceeding the Filed Rate) ruling that RESPA "does not authorize a court to divide charges into valid and invalid parts and to decide that the invalid part is not for services performed" or "create liability for improper pricing".

The 4th Circuit also rejected the assertion that fee-splitting constituted a "kickback" in violation of RESPA because the split fees agents "indisputably performed settlement services".

Mortgage Loan Industry Licensing and Consumer Protection Law

The recently enacted Mortgage Loan Industry Licensing and Consumer Protection Law, 7 Pa C.S.A. §6101, Et Seq. (“MLILCP”) - - repealing much of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (“MBBA”) and all of the Secondary Mortgage Loan Act (“SMLA”) - - tightens regulation of individuals soliciting mortgage loans, increases education requirements for mortgage professionals, and enhances the Pennsylvania Department of Banking’s (“DOB”) powers.

“Mortgage Originator” Licensing

MLILCP establishes a new licensing category of "mortgage originator" defined as an individual not otherwise licensed soliciting, negotiating or accepting mortgage loan applications having direct contact with consumers.

Mortgage originators are prohibited from engaging in the mortgage loan business unless employed and supervised by a licensed mortgage broker, mortgage lender or mortgage loan correspondent and assigned to a licensed location.

Employer licensees must maintain a list of all current and former originators and, if they suspect illegal activity, provide the DOB with written notification and proposed corrective measures.

Increased Education and Test Requirements

MLILCP substantially expands mortgage licensees’ current education requirements.

To obtain a new license, a mortgage originator license applicant must have successfully completed a minimum of 12 hours of professional education instruction and passed a new testing program regarding first and secondary mortgage loan business and various relevant federal and state laws.

To maintain a license, a mortgage broker, mortgage lender or mortgage loan correspondent must demonstrate that at least one person from each licensed office who is not a mortgage originator and all mortgage originators employed by the licensee have attended at least six hours of continuing education per year.

Licensing Scope Expanded

MLILCP expands the coverage of Pennsylvania's mortgage banking laws including repealing the MBBA’s licensing exemption for persons originating less than three first mortgage loans per year and the SMLA’s licensing exemption for a person originating two or fewer secondary mortgage loans per year.

Mortgage Loan Payoff Procedure

MLILCP requires a mortgage lender upon payment in full to cancel any insurance, stamp any note "paid in full" or "canceled," and return the loan agreement or note to the consumer within 60 days.

Restrictions on First Mortgages

Whereas the MBBA did not restrict fees a licensee could charge, MLILCP now specifies which fees a licensees may charge on first mortgage loans for title examination, credit reports, appraisals, notaries, tax service and other fees actually related to the processing of a mortgage loan application or making a mortgage loan when such fees are actually paid or incurred by the licensee.

Additionally, MLILCP limits application fees to not more than 3% of the original principal and bars charging a non-refundable "application fee" to cover overhead processing costs beyond 3% application fee that can only be charged on closed loans.

MLILCP also limits delinquency charges on second mortgage loans of $20, or 10 percent of each payment, whichever is greater for a payment which is more than 15 days late.

Additionally, beyond requiring that payment and acceptance of a broker's fee comply with the Real Estate Settlement Procedures Act, (“RESPA”), MLILCP requires compliance with laws including RESPA, Truth in Lending Act, and Equal Credit Opportunity Act.

Higher Penalties

MLILCP increases penalties for violations from $2,000 to $10,000 per offense.

Court Invalidates Mortgage Prepayment Provision

A Pennsylvania court recently rejected a foreclosing lender's prepayment premium claim in In re Atrium View, LLC, 2008 WL 5378293 (Bkrtcy.M.D. Pa. 2008).

Nineteen (19) months after the loan’s origination, the mortgage lender sought enforcement of Note’s prepayment provision requiring “six (6) months interest” on any principal balance being repaid within three (3) years of the closing.

After reiterating dual criteria for enforcing prepayment premium demand - - that prepayment must be reasonable under state law and, as required by 11 U.S.C. §506(b), be contained in loan documents and “reasonable” - - the Court determined that Pennsylvania law did not bar prepayment premiums and focused on “reasonability”.

The Court noted that prepayment premium’s purpose is ensuring that a lender “obtains the benefit of the bargain by protecting it against falling interest rates” and the burden of establishing “reasonableness” requires demonstrating how accurately the premium “predicts actual losses that will be incurred” if obligation is paid before the term’s end.

The Court ruled that because its "[i]n the current residential subprime mortgage industry, a typical prepayment premium is six months' interest” argument provided no “prepayment premium approximates reasonably predicted losses” evidence, the lender failed to establish premium’s reasonableness and rejected the prepayment claim.

Unfortunately, the In re Atrium View holding ignores the impact of failing to protect against declining interest rates.

Like insurance companies and investment funds committed to maintaining investors’ returns based on anticipation of long-term cash flow for mortgage investments, lenders often make commitments based on anticipated interest returns.

If high-yielding mortgages are prepaid when interest rates have fallen, lenders may be unable to maintain yield commitments to their investors, including guaranteed annuity payments.

Another inequity the In re Atrium View ruling imposes is that junior lenders might receive funds otherwise used to pay senior lender’s prepayment fee.

Because junior lenders advance money with the awareness of the senior mortgage’s terms, including the prepayment premiums, In re Atrium View places junior lenders in a stronger secured position at the senior lender’s expense, which, in turn, encourages senior lenders to prohibit secondary lending.

Home Improvement Consumer Protection Act

On July 1, 2009, the Home Improvement Consumer Protection Act, 73 P.S. §§517.1, Et. Seq (“HICPA”) went into effect to curtail home improvement abuses.

As described below, HICPA requires contractors to resister with the Attorney General’s office, maintain at least $50,000 of property damage and personal injury insurance, prohibits “home improvement fraud”, defines what must be included - - and excluded - - from home improvement contracts, and imposes severe criminal and civil penalties.

“Contractor” Under HICPA

HICPA applies to contractors performing over $5,000 of annual “home improvements” including “construction, replacement, installation or improvement” of driveways, pools, central heating, air conditioning and solar energy systems, pool houses, garages, roofs, siding, insulation, security systems, flooring, patios, fences, gazebos, sheds, cabanas, painting, doors, windows, waterproofing, and storm windows or awnings.

Registration Requirements

HICPA requires contractors to register with the Attorney General every two (2) years and provide information including name, home address, telephone number, driver’s license numbers, social security numbers, prior “home improvement businesses” names, criminal convictions relating to a home improvement transaction, fraud, theft, deception or fraudulent business practices, judgments entered against applicant relating to home improvement transactions, bankruptcy filings, and any certificate or license revocation or suspension or disciplinary action from any another area in which applicant is registered.

Duty to Maintain $50,000 Property Damage and Personal Injury Insurance

HICPA also requires that all contractors obtain and provide proof of liability insurance covering personal injury and property damage of at least $50,000.

Home Improvement Contracts Terms Required/Barred By HICPA

HICPA requires that every home improvement contract:

• contain work’s approximate starting and completion date.
• describe work to be performed, materials to be used and specifications, which cannot be changed without a written change order signed by owner and contractor.
• include all subcontractors’ names, addresses and telephone numbers.
• verify that contractor agrees to maintain insurance and identifying amount of insurance maintained.
• include total sales price due.

HICPA also provides a list of prohibited contractual provisions which, if included, empowers consumer to void the contract.

Civil & Criminal Violations

HICPA prohibits “home improvement fraud” defined as “misrepresenting true name of salesperson, contractor or business, damaging property with intent of inducing consumer into purchasing home improvement services, misrepresenting cost of materials, altering any agreement or mortgage and publishing false advertisement”.

Under HICPA “home improvement fraud” can be criminally prosecuted as a 1st degree misdemeanor or 3rd degree felony (depending if contract is for more than $2,000) and increases offenses’ grading if victim is 60 years old or older. HICPA’s criminal penalties include revocation or suspension of contractor’s certificate.

Civilly, any HICPA violation forms a per se Unfair Trade Practices and Consumer Protection Law, 15 Pa. Cons. Stat Ann. §§ 201-1, et seq. (“Consumer Protection Law”) violation which allows for recovery of treble damages and attorneys’ fees. HICPA expands the Consumer Protection Laws scope by:

• requiring contractor to refund any amount paid within 10 days of “written refund request” receipt if 45 days have passed since work’s start time without performance of “substantial portion” of work.
• prohibiting contractor from materially deviating from plans or specifications without written change order containing deviation’s price change.
• barring contractor from accepting deposit exceeding of 1/3 of contract price (and cost of specially ordered materials) in contracts over $1,000.

Credit CARD Act of 2009

On May 22, 2009, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD Act”) was signed into law.

Many of the CARD Act's provisions track recently approved Federal Reserve System ("Federal Reserve") regulations and amending the Truth in Lending Act ("TILA") to include additional consumer protections, enhanced consumer disclosures, and special protections for consumers under 21, the Fair Credit Reporting Act regarding special protections for young consumers and deceptive credit report marketing, and the Electronic Fund Transfer Act targeting gift cards.

Like the Federal Reserve’s recent regulations, the CARD Act:
○limits when interest rates may be increased, thereby prohibiting "universal default" (i.e., where default in one obligation deemed to cause default in consumer’s universe of obligations);
○prohibits double-cycle billing;
○limits circumstances under which payments may be considered late;
○limits permissible methodologies for allocating payments exceeding “minimum amount due”;
○place restrictions on subprime credit cards; and
○mandate changes to certain disclosures.

Additionally, the CARD Act’s provisions:
○limit changes to other account terms;
○restrict use and amount of fees;
○require evaluating consumer's ability to repay when opening new account or increasing existing account’s credit limit;
○mandate posting of credit card agreements on the Internet;
○provide special protections for consumers under 21, including limiting marketing of credit cards to college students;
○imposes rules governing prepaid and gift cards;
○increases TILA penalties for issuers equaling twice finance charge amount with a $500 minimum and $5,000 maximum, or a higher amount if based on an established pattern or practice; and
○ curbs “free credit reports” advertisements.

Both the CARD Act and Federal Reserve’s new regulations are likely to affect credit cards’ availability and cost, consumer behaviors regarding credit cards purchases and payment patterns, and revenues of credit card issuers and processors, as well as retailers, colleges, and others involved in credit card programs.

Mortgage Reform and Anti-Predatory Lending Act of 2009

Earlier this month the Houses of Representatives passed HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act", a revival of HR 3915 which was passed by the last Congress but never taken up by the Senate.

Like HR 3915, HR 1728 contains “repayment ability” and “borrower benefit standards” provisions, “prepayment penalty” and “yield spread premium” restrictions, and imposes responsibilities on secondary market participants.

Also like HR 3915, HR 1728 establishes a "duty of care" for mortgage originators, prohibits "steering" borrowers to products that are not in borrower’s "interest", and requires mortgage originator’s licensing and registration. This duty of care includes standards regarding determination of a borrower's repayment ability and, for refinances, determination of a “net tangible benefit” and “qualified safe harbors” from which "qualified mortgages" meeting certain stringent requirements are exempted.

Unlike HR 3915, HR 1728 requires loan originators to retain a portion of the mortgages as a means of sharing credit risk with subsequent purchasers/”securitizers” (i.e., one transferring, conveying, or assigning residential mortgage loans including to any securitization vehicle).
HR 1728 also amends the Home Ownership and Equity Protection Act by significantly expanding both "high-cost mortgage’s" definition and afforded protections, creating safeguards for escrow accounts and lender/forced placed insurance, and amending the Real Estate Settlement Procedures Act to require faster consumer inquiry responses, increased penalties, and prompt payment crediting.

HR 1728 fortifies appraiser requirements by establishing stronger appraiser independence standards backed both by tough enforcement provisions and more stringent appraiser licensing and education standards.

If enacted in its current - - or an even a vaguely similar - - draft, HR 1728 could quell the credit markets at a time when liquidity is desperately needed.

Further, it is unclear whether originators would make - - and whether key current secondary market players like Fannie Mae and Freddie Mac would buy - - non "qualified safe harbor mortgages" and, if so, whether depository institutions and private mortgage companies will retain the requisite recourse when selling or securitizing the loans.

Lenders Now Liable For "Excessive" Hazard Insurance

Pennsylvania now holds lenders liable for requiring hazard insurance which exceeds structures replacement value.

The attached recently enacted Mortgage Property Insurance Coverage Act, 7 P.S. § 6701, et seq. ("Act") provides that:
No lender may require a borrower, as a condition of obtaining or maintaining a secured loan, to obtain property insurance coverage which exceeds the replacement value of buildings and structures situate on the land used to secure the loan. A borrower on a loan secured by real property may not be required to insure the value of the land.

Thus, any loan closed after July 5, 2008 involving hazard insurance exceeding structures’ replacement value violates the Act and renders lenders liable.

Unfortunately, the Act fails to define "required" or "as a condition of obtaining or maintaining secured loan", explain whether a private action exists and, if so, what the penalties are, or rule out Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, et seq.’s treble damages and attorneys’ fees penalties for Act violations.

Further, the Act provides no safe harbor for complying with Fannie Mae/Freddie Mac mortgage form "Section 5 Property Insurance" language that:
Borrower shall keep improvements now existing or hereafter erected on Property insured against loss . . . included within term "extended coverage" and any other hazards . . . for which Lender requires insurance. This insurance shall be maintained in amounts including deductible levels and for periods Lender requires.

Recent Caselaw Helping Lenders

Finally, a break for the lenders.

In the recent Morilus v. Countrywide Home Loans, Inc., 2008 WL 5377627 (E.D. Pa. 2008) opinion, the U.S. District Court for the Eastern District of Pennsylvania dismissed loan origination claims against a lender arising exclusively from allegations of mortgage broker wrongdoing.

The Court examined whether the lender was liable for the broker’s action under an agency theory, the elements of which are manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking, and the understanding of the parties that the principal is to be in control of the undertaking.

The lender argued that there was no evidence of a manifestation of intent for the broker to act on its behalf, nor was there ever any understanding between it and the broker.

Plaintiffs responded that the lender had exerted such a high level of control that the broker must be its agent and not an independent contractor.

The Court concluded that to be an agent, the control "must be of such a high degree that the purported agent is deemed to have had almost no independence" and that plainitffs could only demonstrate that if the broker worked for the lender, it was only was required to abide by certain of the lender’s guidelines.

Further, in rejecting the apparent agency claim, the Court ruled that the determination hinged on whether a principal "leads persons with whom his agent deals to believe he has granted certain authority which actually exceeds the scope of the agency" but that plainitffs failed to demonstrate any action by the lender indicating that the broker was its apparent agent. For example, the Court noted that the broker had the ability to submit the mortgage application to any lender in the industry and not just the lender that was ultimately selected.

Because many negligence, fraud, and Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, et seq. violations claims against lenders stem from mortgage broker’s acts and omissions, Morilus will a tremendous help in getting claims dismissed.

Philadelphia Mortgage Foreclosure Court

We’re a hit in Kentucky!

As the attached article sets forth, Philadelphia’s Mortgage Foreclosure Diversion Pilot Program - - of which I was a pioneer and in which I serve as Judge Pro Tem - - is being eyed by Kentucky, Maryland, New York, and New Jersey courts.

The Program provides for early court intervention in residential owner-occupied mortgage foreclosures to both facilitate loan work-outs and permit lenders to proceed freely to sheriff sales.

As always, if you have any question about litigation in Pennsylvania and New Jersey, please do not hesitate in calling.

Phila. Foreclosure Program Is Eyed by Kentucky Court
The Legal Intelligencer By Amaris Elliott-Engel January 16, 2009

Philadelphia's mortgage foreclosure diversion pilot program has garnered a lot of press coverage, but the true success of the mediation program might be measured in how many other jurisdictions want to copy the program to deal with their own foreclosure crises.

A group visiting from Louisville, Ky., last week was the fourth out-of-state contingent to visit City Hall in order to witness the program overseen by Philadelphia Common Pleas Judge Annette M. Rizzo.

Delegations from Maryland, New York and New Jersey already have visited, Rizzo said. A group from California is slated to come in the future, and officials from around Pennsylvania have visited, the judge said. Allegheny County has just started its mortgage foreclosure program, based partly on Philadelphia's program.

James Shake, the Kentucky chief judge in the Jefferson Circuit Court, Division 2, said during a working lunch over sandwiches that he and the other Kentucky visitors wanted to visit Philadelphia in order to be able to model their program after the parts of Philadelphia's program that are effective.

A similar program in Ohio was a "miserable failure," so the Kentuckians wanted to see what has made Philadelphia's program so successful, Shake said. Shake's determination is that "social work," or the direct outreach to homeowners, has made Philadelphia's program as successful as it has been.

Ian Phillips, legislative director for Pennsylvania ACORN, a community group with national reach, said during the lunch that conducting door-to-door outreach to borrowers whose homes are under foreclosure has increased the response of borrowers. On average, it takes 1.65 door knocks before outreach will connect with a homeowner or a relative, Phillips said.

ACORN, as well as 14 other organizations, including neighborhood advisory committees, has been conducting door-to-door outreach on behalf of the city. Carolyn Brown, of the city of Philadelphia's Office of Neighborhood and Business Services, distributes the list of homeowners whose residences are subject to foreclosure and that the community organizations contact.
Phillips said simply sending out mailings about the court program won't get a response from financially struggling homeowners deluged with mailings disguised as official matters.
Brown said it costs $25 to pay for three door-knockings in a dense neighborhood.

Dan Albers, a Jefferson Circuit Court Master Commissioner, said all foreclosure cases in his jurisdiction are first funneled through the commissioners. Because cases first come through the commissioners, Albers said the commissioners might conduct the foreclosure mediations. The commissioners review the cases and make recommendations to judges about the cases, Albers said.

There were 4,800 foreclosure filings last year in his jurisdiction, Albers said. Rizzo said Philadelphia's program handled 10,000 filings.

The Kentucky contingent included members of the lender bar, members of the public interest bar representing borrowers and community organizers.

Just as Philadelphia has a steering committee with municipal, judicial, lender and borrower stakeholders, the Louisville court project has similar buy-in, Shake said. Many of the members of the Philadelphia steering committee, chaired by Lesia Kuzma of the city's Law Department, came to the lunch with the Kentucky visitors.

Albers said he was amazed at the receptiveness of lenders and Louisville Mayor Jerry Abramson to the effort to build a mediation program for foreclosure cases.

"There was no one that refused," Albers said.

While Shake is the chief judge, he said that he is like an "elected queen" and has no authority over how his colleagues handle the foreclosure cases on their dockets. During an upcoming team meeting, Shake said he hopes that every judge will unanimously adopt a proposed order that will pause foreclosure cases to see if loan workouts are possible following mediations in those cases.
During the Kentucky visit last week, Philadelphia Common Pleas President Judge Pamela Pryor Dembe said that creating a program like Philadelphia's "gets a group of lawyers who chew on each other's ankles to work together."

The Kentucky group stayed for two days.

Paul Lewis, chief of staff to former Chief Judge of New York Judith Kaye, said in an interview last year that following a visit to Philadelphia, the New York contingent discovered that Philadelphia was getting a higher response rate from borrowers than New York was to the court's foreclosure conferences.

New York's program started in Queens County before rolling out to the rest of the state, Lewis said. Queens County had one of the highest foreclosure rates growing from 1,855 in 2004 to over 6,000 in 2008, Lewis said. The New York contingent visited last spring.
New York officials have been reaching out to plaintiffs' representatives to get contact information for the defendants in the cases, sending letters to the defendants informing them of their right to foreclosure conferences and then giving defendants' a telephone number to call the courthouse, as well as the phone numbers of local legal providers, Lewis said.
New Jersey made their foreclosure mediation program optional, so that is one way to make a foreclosure court program manageable in terms of the number of cases, Rizzo said. But she said that in Philadelphia she wants to reach every house that is subject to foreclosure.
Rachel K. Gallegos, Rizzo's law clerk, said that she has seen stakeholders have greater buy-in into the program because lenders' attorneys are meeting face-to-face with borrowers and their counsel, most of them pro bono volunteers.

The housing crisis, and the broader recession, has broken down the hierarchy stretching from the rich to the poor, Gallegos said.

"You either take part, or you watch everybody go down in flames," Gallegos said.