Maryland Legal Alert for Financial Services

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Maryland Legal Alert - January 2020

IN THIS ISSUE:

CIRCUIT SPLIT EMERGES REGARDING THE DURATION OF AUTOMATIC STAY FOR SERIAL BANKRUPTCY FILINGS

U.S. SUPREME COURT ADDRESSES FDCPA’S STATUTE OF LIMITATIONS

MARYLAND MINIMUM INTEREST RATE DECREASES FOR ESCROW AND SPECIAL PURPOSE ACCOUNTS

Circuit Split Emerges Regarding the Duration of Automatic Stay for Serial Bankruptcy Filings

When Congress amended the Bankruptcy Code in 2005, it intended to curb serial filings by debtors that were made to stay mortgage foreclosures. One amendment added Bankruptcy Code § 362(c)(3).

Section 362(c)(3) provides that if an individual debtor had filed a bankruptcy case that was dismissed within one year before the second case was filed, then the automatic stay of actions against the debtor, or with respect to property securing a debt, terminates “with respect to the debtor” 30 days after the second case’s filing date, unless the court extends the stay before the 30-day period expires.

Since the enactment of Section 362(c)(3), courts are divided over whether the phrase “with respect to the debtor” means that the automatic stay will only terminate as to the debtor and any property of the debtor that is not part of the bankruptcy estate (such as exempt property), or whether the automatic stay will terminate as to all property, including property of the bankruptcy estate.

Most courts have ruled that Section 362(c)(3) does not terminate the stay as to property of the bankruptcy estate. Therefore, under this majority rule, a lender will be required to obtain relief from the stay to foreclose a lien on property of the bankruptcy estate, even though the stay was terminated under Section 362(c)(3) as to actions against the debtor and any property not within the bankruptcy estate.

The latest court to adopt the majority rule is the U.S. Court of Appeals for the Fifth Circuit in Rose v. Select Portfolio Servicing, Inc. The Fifth Circuit’s decision has created a circuit split. In an earlier decision, the U.S. Court of Appeals for the First Circuit, in In re Smith, adopted the minority rule, holding that the automatic stay terminated as to all property under Section 362(c)(3).

Practice Pointer: The U.S. Supreme Court and the U.S. Court of Appeals for the Fourth Circuit have not ruled on the issue. However, the Maryland Bankruptcy Court has adopted the majority rule. Unless the Maryland Bankruptcy Court is reversed, mortgage holders in Maryland would be well-advised to obtain relief from the stay before foreclosing a lien on property of the bankruptcy estate, even if the debtor previously filed a bankruptcy case that was dismissed within one year prior to the filing of a second case.

Please contact Lawrence D. Coppel for any questions concerning this topic.

Contact Lawrence D. Coppel | 410-576-4238

U.S. Supreme Court Addresses FDCPA’s Statute of Limitations

The Fair Debt Collection Practices Act (FDCPA), which enables consumers to assert private civil claims against debt collectors for unauthorized actions, provides that a claimant must bring an FDCPA claim “within one year from the date on which the [FDCPA] violation occurs.”

In a recent decision, the U.S. Supreme Court addressed whether the FDCPA’s one-year limitations period starts when the violation occurred or when the claimant discovers the violation. The case arose from a debt collector’s default judgment against the claimant debtor. The debtor did not learn of the default judgment until five years later when he applied for a mortgage. The debtor alleged that the collector knowingly served someone other than the debtor at a home where the debtor no longer resided. Within one year of learning of the default judgment, the debtor sued the collector under the FDCPA for filing suit on a time-barred debt. The district court dismissed the suit as untimely filed under the FDCPA’s one-year limitations period. The U.S. Court of Appeals for the Third Circuit affirmed, noting that the FDCPA’s limitations statute’s plain language requires a suit be filed “within one year from the date on which the violation occurs”. 

The Third Circuit’s decision was a departure from prior rulings in the U.S. Court of Appeals for the Fourth and Ninth circuits. Both circuits had held that the general “discovery rule” determines when the FDCPA’s one-year limitations period starts. Under the discovery rule, a statute of limitations does not commence until the claimant learns of the violation.

In an 8-1 decision, the Supreme Court resolved this circuit split, ruling that the general discovery rule does not apply to the FDCPA’s statute of limitations. The Court reasoned that the statute’s plain meaning clearly set the occurrence of a violation, not its discovery, as the point from which the limitations clock begins to run.

Practice Pointer: Notably, the Court also ruled that the debtor had failed to preserve a claim that the “fraud-specific discovery rule” applied to toll the running of the limitations period. Therefore, the Court did not address whether this rule applied with respect to the FDCPA’s statute of limitations. Unlike the general discovery rule, the fraud-specific discovery rule stalls the commencement of a limitations period when a plaintiff’s delay in asserting a claim stems from the defendant’s fraudulent conduct. Justice Sotomayor and Justice Ginsburg signaled in their respective consenting and dissenting opinions that the Court might be receptive to the application of the fraud-specific discovery rule to the FDCPA’s statute of limitations. FDCPA claimants facing limitations defenses are likely to latch on to the fraud-specific discovery rule to try to preserve their claims going forward.

Please contact Bryan Mull for more information concerning this topic.

Contact Bryan Mull | 410-576-4227

Maryland Minimum Interest Rate Decreases for Escrow and Special Purpose Accounts

Maryland law requires depository institutions doing business in Maryland that make first lien residential real property loans and maintain escrow accounts for those loans to pay a minimum rate of interest on those escrow accounts.

Maryland law also requires Maryland-chartered banks that offer certain short-term “special purpose” deposit accounts (for example, Christmas Club Accounts) to pay a minimum rate of interest on those deposit accounts. The minimum rate of interest on these accounts is based on the weekly average yield of United States Treasury Securities adjusted to a constant maturity of one year as of the first business day of the calendar year.

The minimum rate of interest to be paid on these accounts for 2020 is 1.56% (i.e., the statutory prescribed rate as of January 2, 2020, the first business day of 2020). This is down from 2.60%, the minimum rate to be paid in 2019.

Please contact Christopher Rahl if you have any questions about this topic.

Contact Christopher Rahl | 410-576-4222