Legal/Legislative Update – April, 2013

Published on: April 10, 2013


The Housing recovery appears to be contagious, spreading gradually but steadily to more areas of the country. The National Association of Home Builders (NAHB) reported 259 metropolitan areas on its February “improving markets” index, up from 242 in January and the sixth consecutive month in which the index has gained ground. When the trade group began compiling the index in September of 2011, only 12 metropolitan areas made the list.

All 50 states now have at least one metropolitan area on the list, David Crowe, chief economist for the NAHB, noted in a press release. “Today, the story is about how widespread the recovery has become as conditions steadily improve in markets nationwide,” an indication, he said that the housing recovery “has substantial momentum.”

Continuing increases in home prices seem to confirm that positive view. CoreLogic reported an 8.3 percent year-over-year increase in December, the tenth consecutive annual gain and the largest jump in its index since May 2006.

We are heading into 2013 with home prices on the rebound,” Anand Nallathambi, president and chief executive of CoreLogic, said in a press statement. Price gains for last year were “broad-based,” he noted, reflected in all but four states. “All signals point to a continued improvement in the fundamentals underpinning the U.S. housing market recovery,” he added.

Home buyers, apparently, have gotten that message. A Bloomberg News report on the prospects for the typically busy spring market notes that the supply-demand balance “is tipped so far in favor of sellers that almost a third of listings in areas from Washington, to Denver and Seattle under contract in two weeks or less.”

Industry analysts quoted in the article note the dearth of listings (currently at a 12-year low), the inclination of many sellers to hold off, anticipating that prices will continue to rise, and the inability of homebuilders to keep up with growing demand as the major factors creating a seller’s market.

“There is just no inventory for buyers,” one real estate agent quoted in the article, observed. “There are lots of losers in the marketplace now. When you have multiple offers, there are several losers and only one winner for each home.”

Industry analysts are predicting that current conditions will prevail, at least through the current selling season, until prices rise enough (at least 5 percent to 10 percent, they suggest) to push sellers off the fence and into the market.



The damage foreclosures cause for borrowers and for communities has been well documented. Less noted has been the collateral damage on tenants when banks foreclose on the homes they are renting.

“Renters are innocent bystanders caught in the crossfire of the foreclosure crisis, becoming vulnerable to homelessness through no fault of their own,” the National Law Center on Homelessness and Poverty (NLCHP) notes in a recently published report on the issue, “Eviction (Without) Notice: Renters and the Foreclosure Crisis.” The report estimates that 20 percent of the foreclosed properties in 2010 were rentals and 40 percent of the families facing eviction resulting from foreclosures were tenants, not owners.

A federal law, Protecting Tenants at Foreclosure (PTFA) provides some protections to tenants living in foreclosed properties – requiring new owners to honor existing leases and to give tenants with short-term leases or without leases 90 days’ notice before evicting them – but that law is set to expire in 2014 and it has many shortcomings, the study found, among them: “Violations …are widespread,” tenants are often unaware of their rights, and new owners often fail to communicate with tenants or “provide illegal, misleading, or inaccurate written notices” to them.

The NLCHP recommends several Congressional actions to address the problems the report identifies, among them:

  • Make the PTFA permanent;
  • Amend the law to include an express right of private action for tenants whose rights are violated; and
  • Designate a federal agency to be responsible for enforcing the law.

Additionally, the report suggests that federal regulators monitor banks for compliance with PTFA and urges states to enact expanded protections for tenants living in foreclosed properties.



The budget President Obama submitted to Congress recently contained reams of information about his Administration’s priorities, not to mention plenty of fuel for the partisan fires burning in Washington. One thing it did not contain is good news for the Federal Housing Administration (FHA), which the budget projects will need $943 million in federal funds this year to balance its books. On the plus side, the budget also anticipates that taxpayers will realize a net profit of $51 billion on the $187.5 billion government bailout of Fannie Mae and Freddie Mac.

The secondary market giants, which were seized by regulators in 2008 when massive losses threatened to sink them, have slowly returned to profitability as the housing market has recovered. Fannie Mae reported net income of $17.2 billion last year while Freddie Mac earned $11 billion for the year after losing $5.3 billion in 2011.

The FHA, on the other hand, continues to bleed from loan losses, despite a series of steps aimed at stabilizing its wobbly insurance fund. The agency’s problems stem in large part from the outsized role it has played in filling the home mortgage financing gap as the housing market has struggled to recover from its prolonged downturn.

FHA Commissioner Carol Galante told lawmakers recently that she is confident the remedial actions the agency has taken and the rebound in home prices will avoid the need for a taxpayer bailout, but some analysts remain skeptical.

Edward Pinto, a resident fellow at the American Enterprise institute and an outspoken FHA critic, estimates that the agency is insolvent “to the tune of $32 billion. If the United States has just a modest to moderate recession at any time in the next three or four years,” he told the Los Angeles Times, recently, “the FHA and taxpayers will suffer catastrophic losses.”



Since the beginning of this year, the nation’s debt collection companies have been operating under a regulatory spotlight wielded by the Consumer Financial Protection Bureau (CFPB). Exercising authority granted in the Dodd-Frank Financial Reform Law, the CFPB recently unveiled new rules establishing operating requirements and mandating consumer protections for agencies with more than $10 million in receipts. Those companies will also be subject to periodic compliance examinations.

The rules will cover approximately 175 of the nation’s 4,500 debt collection agencies, responsible for more than 60 percent of annual collections totaling more than $12 billion. Industry executives have complained that the threshold for review is too low; consumer advocates say it is too high. The Federal Trade Commission fielded more than 180,000 consumer complaints about debt collection agencies last year compared with only 14,000 a decade ago.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” CFPB Director Richard Cordray said in a press statement. “We want all companies to realize that the better business choice is to follow the law — not break it,” he added.

Examiners will review collection practices to make sure agents are correctly identifying themselves, are properly disclosing the amount of debt owed and are not “harassing or deceiving” consumers in pursuing debts, the CFPB statement said.

Underscoring its regulatory focus, the CFPB recently won a law suit against Payday Loan Debt Solution, Inc., a Florida-based debt settlement agency. A Federal district court ordered the company to refund up to $100,000 in fees it had charged consumers illegally.

“This action is part of the CFPB’s comprehensive effort to prevent consumer harm in the debt-relief industry,” an agency press release said, adding, “The bureau is working to ensure federal consumer laws are being followed at every stage of the process and is focusing not only on debt-relief service providers, but also on their partners, including those who facilitate their unlawful conduct and who may also violate federal consumer financial laws.”




A Worcester condominium board has discovered the hard way that “just say no” is not the best strategy for dealing with disability-related accommodation requests. The board of Federal Square Condominium Trust and its management company, Alpine Property Management, recently negotiated a $20,000 settlement agreement with state Attorney General Martha Coakley to resolve allegations that they discriminated against a resident of the mixed-use 76-unit community by refusing to repair broken elevators and failing to take other steps to make the building wheelchair accessible.

The wording of the press release announcing the agreement suggests that the condominium board and manager did not spend much, if any time discussing the requested modifications before refusing to approve them, eschewing the give-and-take process that the state and federal fair housing laws require. (See this month’s alert.)

“Massachusetts law requires landlords to communicate with and provide reasonable accommodations for their tenants with disabilities,” Coakley said, adding, “Landlords must meet their obligations under the law in a timely manner, especially when it comes to tenants who have every right to safe access to their own home.”

Of the $20,000 Federal Square and Alpine must pay, $16,500 will go to the tenant; the balance ($3,500) is a penalty paid to the state. The agreement also requires Alpine employees to attend fair housing training sessions and requires the management company to implement new policies to ensure that it responds promptly (in 15 days or less) to future accommodation requests.



Worcester appears to have become something of a magnet for Fair Housing litigation of late. Coldwell Banker Residential Brokerage and an attorney representing the seller of a home in that community have agreed to pay $90,000 to settle a suit filed against them for blocking the sale of the house to a buyer who planned to rent it to a non-profit group that provides supportive housing to individuals with disabilities. When the executor for the estate selling the home learned of that plan, he insisted on a restrictive covenant specifying that the property could not be rented to unrelated individuals or students. The real estate agent added that language and the prospective buyer withdrew. He subsequently filed a complaint with the Department of Housing and Urban Development (HUD), which agreed that the covenant violated the Fair Housing Act.

Under the agreement, Coldwell Banker and the law firm involved will each pay $39,000 the prospective buyer of the home and $6,000 each to the buyer’s real estate agent. Additionally, the law firm (Bowditch & Dewey) must offer fair housing training to its employees, donate 100 hours of free legal services related directly to fair housing and another 100 hours of services related directly to promoting disability rights.

It is probably worth noting that this settlement agreement was announced in April, which has been designated Fair Housing Month, possibly because April is Fair Housing Month, marking the 45th anniversary of the passage of the Fair Housing Act .



Bank of America won’t be able to duck on procedural grounds law suits accusing it of accepting kickbacks for private mortgage insurance. A U.S. District court rejected the bank’s argument that the claims should be dismissed because the statute of limitations has expired. The court didn’t rule on the merits of the case, only on the procedural question of whether it should proceed. But the decision means the bank will have to answer allegations that it employed an illegal “pay-to-play’ reinsurance scheme, collecting payments from insurers for referring borrowers to them. Referral fees of that kind are prohibited by the Real Estate Settlement Procedures Act (RESPA). The homeowners initiating the suit are seeking to have it certified as a class action.

Their complaint names three insurance companies — Radian Guaranty Inc., Genworth Mortgage Insurance Corp. and United Guaranty residential Insurance – which, like Bank of America, sought unsuccessfully to have the action dismissed on procedural grounds.

In rejecting the request, U.S. District Judge Berle Schiller said the plaintiffs should be allowed to pursue their claim despite the statute of limitations, because the bank intentionally disguised its illegal actions. “Plaintiffs’ allegations that defendants dressed up an illegal scheme to appear as a legitimate transaction is sufficient to deny defendants’ motion to dismiss,” the judge ruled. Separately, Radian, Genworth and United have agreed to pay more than $15 million to resolve allegations that they paid illegal kickbacks to lenders, under the terms of a settlement negotiated with the Consumer Financial Protection Bureau. □



“I’m glad Fannie Mae is showing an increase in income, but we have to remember that this is largely because we have crowded out private capital and made Fannie or Freddie the only viable execution option for new loans.” ─ Sen. Bob Corker (R-TN), commenting on Fannie Mae’s positive earnings report.