Topline Q4 2015

General information

Filed an amicus brief with the California Supreme Court in McGill v. Citibank, which addresses whether an arbitration agreement is enforceable in an action brought under Code of Civil Procedure Section 17200. Ever since the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, which sustained the supremacy of the Federal Arbitration Act over state restrictions, California courts have (reluctantly) allowed consumer arbitration agreements to be enforced. Two prior California decisions hold that arbitration agreements are not enforceable in Section 17200 actions because those claims are brought on behalf of the public. Whether those decisions remain viable following the Concepcion decision is the issue before the Supreme Court in McGill. The decision is pending.

Submitted an amicus letter supporting Supreme Court review of Garden Grove Galleria, LLC v. Cathay Bank. The bank had ceased funding a construction loan because the projected value of the completed project was less than the developer’s costs to complete it due to the real estate crisis. The developer was awarded damages against the bank equal to the amount it spent in reliance on the loan being funded, but the trial court did not allow the bank to offset the amount that the developer would have lost if the bank complied with the loan agreement. As a result of the court’s decision, the developer was in a better position than had the lender fully funded, a result that is contrary to the laws of contract. The court declined to review.

Submitted an amicus letter in First California Bank v. McDonald asking the court to issue a decision to clarify application of California’s “one form of action” rule codified at Code of Civil Procedure Section 726. In this case the lender was deemed to lose its right, following the borrower’s default, to foreclose on a parcel of real property when it had previously allowed a co-borrower to conduct a short sale of another property securing the same loan. The appellate court applied the one form of action rule rigidly, allowing co-borrowers an unjustified windfall at the expense of the innocent lender. Our request was denied.

Urged the publication of the decision SCC Acquisitions Inc. v. Superior Court, a creditor-friendly decision that addresses a judgment creditor’s ability to obtain documents relating to third parties that are in the possession, custody or control of the judgment debtor. The court granted our request.

Submitted a comment letter to the FDIC pertaining to its proposal to revise its small bank deposit insurance assessment system. We expressed concerns about the FDIC’s application of a “loan mix” factor that essentially penalizing banks that make “excessive” C&I, CRE, and construction loans because these types of loans are correlated with bank failures during the financial crisis. The proposal also broadly penalizes banks that experienced quick asset growth and expects banks to maintain unduly high levels of tier 1 capital. The FDIC’s action is pending.

Submitted a letter to the Los Angeles City Attorney’s office inquiring about its plan to outsource its efforts to take control of abandoned properties to remove nuisances. The office is retaining outside law firms to initiate receivership proceedings with the courts. This is an open matter.

Published Regulatory Compliance Bulletins on the following issues:

Analysis of Supreme Court case, Coker v. JPMorgan Chase Bank, holding that the cluster of anti-deficiency provisions under state law apply to short sales. The court was interpreting Code of Civil Procedure Sections 580b and 580d, which courts historically have applied to non-judicial foreclosure sales but not to short sales. Subsequent to the facts of this case, California adopted CPP Section 580e, which specifically bars deficiency judgments following short sales.

Analysis of the decision Orscilla v. Big Sur Inc. holding that a wrongful foreclosure action is permitted following sale of residential property to a bona fide purchaser on the basis that the loan was unconscionable (grossly unfair) when made.

Analysis of new rules issued under the Military Lending Act which govern consumer loans made to active duty service members and their spouses and dependents. Screening of covered applicants is facilitated by a new Department of Defense database. 

Analysis of new interagency guidance on applying customer identification program (CIP) requirements on prepaid card accounts. Where prepaid cards have features that are analogous to a deposit account, issuers are required to treat each cardholder (rather than the account coordinator) as a separate account for CIP purposes.

Analysis of the Supreme Court decision Yvanova v. New Century Mortgage holding that a defaulted debtor has standing to challenge the assignment of her residential mortgage loan into a loan pool if the alleged error would render the assignment void as opposed to voidable. Having standing, plaintiff is not foreclosed from pursuing her wrongful foreclosure claim.