Maryland Legal Alert for Financial Services

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Maryland Legal Alert - November 2021

IN THIS ISSUE:

MARYLAND DEPARTMENT OF LABOR, LICENSING AND REGULATION ISSUES ADVISORY ON PROPERTY INSPECTION FEES

BANKRUPTCY COURT: CREDITOR’S REFUSAL TO RELEASE PREPETITION ACCOUNT GARNISHMENT DOES NOT VIOLATE AUTOMATIC STAY

MARYLAND BANKRUPTCY COURT PROPOSES RULE TO ADDRESS SUPREME COURT RULING ON ESTATE PROPERTY

CFPB ISSUES DEBT COLLECTION FAQS REGARDING VALIDATION NOTICES

 

Maryland Department of Labor, Licensing and Regulation Issues Advisory on Property Inspection Fees

The Commissioner of Financial Regulation for the Maryland Department of Labor, Licensing and Regulation issued an industry advisory on October 14, 2021, specifically reminding mortgage servicers of the general ban on visual inspection fees.

This guidance resulted from a Maryland Court of Special Appeals (CSA) decision this past year holding that mortgage servicers and assignees may not impose a fee for visual property inspections. We wrote about this decision in our November 2020 Maryland Legal Alert.

The advisory notes that property inspection fees may only be charged in instances where an “inspection is needed to ascertain: construction of a new home; or repairs, alterations, or other work required by the lender.” Servicers and assignees servicing mortgage loans in Maryland should review their policies and procedures to ensure that they are not charging inspection fees in situations where such fees are not permitted.

The CSA decision focused on Maryland’s interest and usury law (Section 12-121 of the Commercial Law Article) that prohibits a “lender” from imposing any visual inspection fees. The CSA — contrary to several federal court decisions — held that the term “lender” should be interpreted to include subsequent assignees and servicers, not just the originating lender. The CSA’s decision concerning visual inspection fees was affirmed by the Maryland Court of Appeals in August 2021 (see update in our September 2021 Maryland Legal Alert).

Please contact Bryan M. Mull or Christopher R. Rahl with questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227

Contact Christopher R. Rahl | 410-576-4222

 

Bankruptcy Court: Creditor’s Refusal to Release Prepetition Account Garnishment Does Not Violate Automatic Stay

We recently reported on the much-anticipated U.S. Supreme Court decision in City of Chicago, Illinois v. Fulton, in which the Court held that mere retention of bankruptcy estate property by a creditor post-petition does not amount to an exercise of control over estate property in violation of the automatic stay. The Fulton case concerned prepetition repossessions and impounding of motor vehicles. However, as detailed in a recent decision from the U.S. Bankruptcy Court for the Middle District of Pennsylvania, the principles of the Fulton case extend to other prepetition attachments.

In the Pennsylvania Bankruptcy Court case, a judgment creditor served a writ of execution on the debtor’s credit union, which attached to the debtor’s deposit account. Thereafter, the debtor filed a voluntary bankruptcy petition. The debtor requested that the creditor release the attachment on several occasions, but the creditor declined. The creditor did not pursue an order directing disbursement of funds or other acts to enforce its prepetition account garnishment. The debtor then filed an adversary proceeding against the creditor alleging a willful violation of the automatic stay and seeking a turnover order.

The bankruptcy court, relying on the Fulton decision, ruled in favor of the creditor. The creditor did not take an affirmative action to enforce or, otherwise, continue to pursue the prepetition attachment. Under Pennsylvania law — and Maryland law — the prepetition writ functions as a lien against the debtor’s accounts with the garnishee. The court held that the creditor did not violate the automatic stay by merely retaining a valid prepetition attachment.

Practice Point: Judgment creditors and depository institutions that regularly process writs of garnishment should study the lessons of this ruling. Creditors must ensure that they take no further action to pursue accounts attached prepetition. Debtors, likewise, should recognize that they must take affirmative steps (e.g., pursue a turnover order) if they wish to obtain funds held pursuant to prepetition account garnishments.

Please contact Bryan M. Mull with any account garnishment questions.

Contact Bryan M. Mull | 410-576-4227

 

Maryland Bankruptcy Court Proposes Rule to Address Supreme Court Ruling on Estate Property

The Bankruptcy Court for the District of Maryland recently proposed a new local rule in response to the U.S. Supreme Court decision that mere retention of bankruptcy estate property by a creditor post-petition does not amount to an exercise of control over estate property in violation of the automatic stay.

We recently reported on the much-anticipated U.S. Supreme Court decision in City of Chicago, Illinois v. Fulton.

The Maryland court’s proposed local rule 7007-1, titled as “Motions to Expedite Turnover of Motor Vehicles,” creates an expedited process within an adversary proceeding for turnover of a motor vehicle.

By motion, the plaintiff may request expedited turnover of a motor vehicle if the plaintiff satisfies the following conditions:

  1. The motion must specifically identify the motor vehicle, the legal authority supporting the turnover, and the justification for expedited relief, including, specifically, any adequate protection offered to the defendant.
  2. The plaintiff files an affidavit or unsworn declaration supporting the turnover as to the facts related to the request.
  3. The plaintiff must certify that the plaintiff conferred with the defendant in advance of the request for turnover and made a good faith effort to resolve the dispute consensually.

Practice Point: If adopted as proposed, the local rule goes into effect on December 1, 2021. Non-debtors holding motor vehicles at the time of the petition should be prepared to negotiate with debtors regarding turnover of the motor vehicles.

Please contact Bryan M. Mull with any questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227

 

CFPB Issues Debt Collection FAQs Regarding Validation Notices

The Consumer Financial Protection Bureau (CFPB) has issued new FAQs addressing the use of the CFPB’s model validation notice generally and the validation information required for certain residential mortgage debt.

These FAQs, released this month, come on the heels of CFPB’s recent issuance of FAQs pertaining to debt collectors’ telephonic communications under the Debt Collection Rule.

The CFPB’s Debt Collection Rule, which we have reported on in Part I and Part II of our Debt Collection Rule coverage, becomes effective on November 30, 2021.

Among other things, the newest FAQs clarify that the model validation notice is not required, but that if a debt collector does not use the model validation notice or makes changes to the model form that result in a notice that is not “substantially similar” to the model notice, the debt collector will not receive a safe harbor for the validation information content and format requirements. The debt collector’s nonconforming validation notice may not necessarily violate the Debt Collection Rule, but the notice loses the valuable safe harbor protection.

The FAQs also address the “Mortgage Special Rule,” which provides that the debt collector may provide a required periodic statement as a substitute for the Itemization-Related Information. This rule only applies if the residential mortgage debt meets the mortgage loan definition under Reg Z (12 CFR § 1026.41(a)) and the loan is subject to the period statement requirements under the Mortgage Servicing Rule when the validation notice is sent. A debt collector using the Mortgage Special Rule must use the date of the periodic statement provided under that Special Rule as the itemization date.

Practice Point: Debt collectors should review the FAQs to ensure that their validation notices are compliant under the Debt Collection Rule. The CFPB also published additional guidance including examples and reviews of certain required validation information.

Please contact Bryan M. Mull with any questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227