AB 238 Mortgage Deferment Act for California Wildfire: Mortgage Forbearance Relief

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Cheryl S. Chang and Jessica A. McElroy ●

AB 238, also referred to as the Mortgage Deferment Act, to add Title 19.1 § 3273.20 et seq. (the “Mortgage Deferment Act” or the “Act”), was introduced in the California legislature on January 13, 2025, to provide essential financial relief to the victims of the Los Angeles County wildfires (including the Palisades and Eaton fires) that continue to burn in multiple locations throughout Southern California. The Mortgage Deferment Act may be heard in committee on February 13, 2025. If implemented, the Act is intended to provide financial relief to those who have lost their homes or livelihood to wildfires by allowing borrowers to request mortgage payment forbearance for up to 360 days, in two increments of 180 days each. 

The Mortgage Deferment Act is modeled after the CARES Act, which provided similar forbearance relief to those experiencing financial hardship during the COVID-19 pandemic. To effectuate a request under the Act as currently drafted, the borrower must submit a request for forbearance to the borrower’s mortgage loan servicer and affirm that the borrower is experiencing a financial hardship due to the wildfire disaster. No additional documentation is required for a request for forbearance, other than the borrower’s attestation to a financial hardship caused by the wildfire disaster. 

Upon receipt of such a request, the mortgage servicer must provide the borrower a forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower. Additionally, the mortgage servicer must communicate with the borrower to whom a forbearance has been granted to ensure that the borrower understands that the missed mortgage payments must be repaid, although they may be paid back over time. 

The proposed legislation prohibits the assessment of additional fees, penalties, or interest beyond scheduled amounts. It also requires an immediate stay of foreclosure efforts, and extends to all aspects of the foreclosure process, including foreclosure-related eviction. Moreover, during the forbearance period, the Mortgage Deferment Act prohibits a mortgage servicer from initiating any judicial or nonjudicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or foreclosure sale.

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New York’s Highest Court Will Finally Address the Foreclosure Abuse Prevention Act

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Diana M. Eng and Andrea M. Roberts ●

The Foreclosure Abuse Prevention Act (“FAPA”) has been heavily litigated since its enactment in December 2022. New York courts have issued conflicting decisions interpreting FAPA, including whether the statute applies retroactively to conduct that occurred prior to its enactment and whether retroactive application is unconstitutional. Lenders, mortgage servicers, and other financial institutions should take note that the Second Circuit has certified the question of FAPA’s retroactive application to the New York Court of Appeals. Thus, there will finally be a definitive answer regarding retroactivity.

In East Fork Funding, LLC v. U.S. Bank, National Association, As Trustee For Greenpoint Mortgage Funding Trust Mortgage Pass-Through Certificates, Series 2006-AR6, 2024 WL 4351792 (2d Cir. Oct. 1, 2024), the Second Circuit certified the question of whether Sections 4 and/or 8 of the Foreclosure Abuse Prevention Act, codified under Sections 203(h) and 3217(e) of New York’s Civil Practice Law and Rules (“CPLR”), apply retroactively to a voluntary discontinuance of an action that occurred prior to FAPA’s enactment. The Court of Appeals’ answer to this certified question will resolve conflicting decisions in the New York courts regarding whether FAPA applies retroactively. 

Summary of Facts & Background

In 2006, Sean and Patricia Dros (“Borrowers”) took out a loan to purchase property in Queens, New York. The Borrowers defaulted under the mortgage and the prior lender, GMAC Mortgage, LLC (“GMAC”), commenced a foreclosure action in July 2010 (“First Foreclosure”). In May 2011, GMAC voluntarily discontinued the First Foreclosure. In November 2011, GMAC commenced a second foreclosure action (“Second Foreclosure”). During the pendency of the Second Foreclosure, the loan was assigned to defendant U.S. Bank, National Association (“U.S. Bank”). In 2016, the Second Foreclosure was voluntarily discontinued. In July 2016, U.S. Bank commenced a third foreclosure action (“Third Foreclosure”). As of the date of the parties’ briefing of the appeal before the Second Circuit, a foreclosure sale had not yet occurred.

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Eleventh Circuit Affirms Dismissal of FCRA Claims Since Alleged Inaccurate Information Was Not Objectively and Readily Verifiable

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Diana M. Eng and Michael R. Esposito ●

Financial institutions, credit furnishers, debt collectors, and other businesses reporting consumer information to credit reporting agencies should take note that the Eleventh Circuit Court of Appeals has declined to impose a bright-line rule that only purely factual or transcription errors are actionable under the Fair Credit Reporting Act (“FCRA”). Rather, courts must determine whether the disputed information is “objectively and readily verifiable.” Thus, furnishers should revisit their internal investigation and verification procedures to ensure compliance with the FCRA. 

In Holden v. Holiday Inn Club Vacations Inc., No. 22-11014, No. 22-11734, 2024 WL 1759143 (11th Cir. 2024), which was a consolidated appeal, the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit” or “Court”) held that the purchasers of a timeshare did not have actionable FCRA claims since the alleged inaccurate information reported to one of the consumer reporting agencies (“CRAs”) was not objectively and readily verifiable. In doing so, the Eleventh Circuit affirmed two decisions issued by United States District Court for the Middle District of Florida (“District Court”) granting of summary judgment in favor of the timeshare company in the respective cases.

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Second Circuit Holds CFPB’s Funding Structure Is Constitutional

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Diana M. Eng, Louise Bowes Marencik, and Jonathan K. Moore ●


Entities regulated by the Consumer Financial Protection Bureau (“CFPB”), including banks, credit unions, payday lenders, mortgage servicers, debt collectors, and other financial services providers, should take note that the Second Circuit has held that the CFPB’s funding structure does not violate the Appropriations Clause of the Constitution. Further, CFPB-regulated entities should pay close attention to the Supreme Court of the United States’ forthcoming decision on the constitutionality of the CFPB’s funding structure. If the CFPB’s funding structure is held to be unconstitutional, the bureau’s future operations will be in jeopardy without action from Congress.

In Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., No. 20-3471 (2d Cir. March 23, 2023), the United States Court of Appeals for the Second Circuit (“Second Circuit”) held that the Consumer Financial Protection Bureau’s (“CFPB”) funding structure is constitutional. In doing so, the Second Circuit affirmed the decision of the United States District Court for the Southern District of New York (“District Court”) upholding the enforceability of an investigative demand served by the CFPB on a debt collection law firm.

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Welcome to Internet and Mobile Marketing: HUD’s 1996 RESPA CLO Policy Statement Finally Refreshed

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R. Colgate Selden, R. Andrew Arculin, Scott D. Samlin, Paula M. Vigo Marques, and Daniel V. Funaro ●

A new Consumer Financial Protection Bureau (“CFPB”) advisory opinion refreshes the Department of Housing and Urban Development’s computer loan origination system policy statement for a new generation of online marketing technology, specifically targeting the policy to “operators of certain digital technology platforms” that function via website and online applications. These “Digital Mortgage Comparison-Shopping Platforms,” as described by the CFPB, “enable consumers to comparison shop for mortgages and other real estate settlement services, and include platforms that generate potential leads for platform participants through consumer interactions.”

The CFPB advisory opinion applies long standing interpretations on unlawful referrals to new online marketing technology platforms. However, even if such platforms are permissible under a referral analysis, they still could violate prohibitions on unfair, deceptive, or abusive acts or practices and other federal and state laws. The advisory also functions to put the industry on notice for future enforcement actions should operators of noncompliant marketing platforms not heed the guidance in the advisory.

Background

After nearly 30 years, the CFPB issued an advisory opinion (“CFPB Opinion”) last week picking up where the Department of Housing and Urban Development (“HUD”) left off in 1996 with its policy statement on computer loan origination systems (“CLOs”). The HUD policy statement, which addressed the applicability of the Real Estate Settlement Procedures Act’s (“RESPA”) Section 8 prohibition on kickbacks in exchange for settlement service business referrals to CLOs, was drafted at a time when CLOs often consisted of a lender’s Internet dial-up computer kiosk located in a real estate broker or other settlement service provider’s office.

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Law360: NY Foreclosure Notice Ruling Is a Win for Lenders

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Law360, February 16, 2023

Diana M. Eng and Alina Levi ●


On Feb. 14, New York’s highest court, the Court of Appeals, issued a ruling in Bank of America NA v. Kessler, reversing the Appellate Division, Second Department’s 2021 decision.

Specifically, the Court of Appeals held that including additional information, such as bankruptcy disclosures, debt collection disclosures and service members’ disclosures, in a 90-day preforeclosure notice is permissible and does not void such notice pursuant to Section 1304 of the New York Real Property Actions and Proceedings Law.

As such, a 90-day notice including such disclosures does not invalidate the subsequently filed foreclosure action. Notably, the Court of Appeals held that Section 1304 does not preclude such additional language, and such language does not violate or frustrate the legislative purpose of Section 1304.

Thus, financial institutions, lenders and servicers should review actions that were dismissed based on the Second Department’s prior decision in Kessler to determine whether they may be able to restore such actions.

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CFPB Looks to Expand Its Oversight of Nonbanks through Two Controversial New Registries

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R. Andrew Arculin, R. Colgate Selden, Scott E. Wortman, Paula M. Vigo Marques, and Daniel V. Funaro

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released two new proposals that aim to expand the Bureau’s authority over nonbank financial institutions:

  1. A “repeat offender” registry of consent orders or settlements with an array of state and federal regulators relating to compliance with consumer protection laws (“Repeat Offender Proposal”); and
  2. A public registry of the terms and conditions nonbanks use in “form contracts” that consumers typically are not able to negotiate (“Terms and Conditions Proposal”).

Assuming these registries are created as proposed and survive any ensuing legal challenges, complying with the reporting obligations should be relatively easy. The larger challenge will be managing the increased regulatory and litigation risk imposed by the registries.

Repeat Offender Proposal

On December 12, 2022, the CFPB issued a proposal to establish a “repeat offender” registry requiring certain nonbank covered entities to report all final public written orders and judgments (including any settlements, consent decrees, or stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of a number of enumerated consumer protection laws, including those related to unfair, deceptive, or abusive acts or practices (“UDAAPs”).

After receiving these written orders and judgments, the CFPB intends to create a database of enforcement actions that would be available online for use by the public and other regulators. The database will be limited to final settlement or consent orders, so injunctions, preliminary orders, temporary cease-and-desist, and other tentative or temporary orders would not be reportable.

In addition, the proposal would require supervised nonbanks to submit annual written statements regarding compliance with an attestation for each underlying order by an executive with “knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.” These entities would also be required to identify a central point of contact related to an entity’s compliance with reportable enforcement actions.

The proposed rule would only apply to certain nonbank covered entities subject to CFPB’s authority. At present, insured depository institutions and credit unions, related persons, states, natural persons, and certain other entities are excluded from registry participation requirements. However, the CFPB stated in the press release for the proposal that it “might later consider collecting or publishing the information described in the proposal from insured banks and credit unions.”

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New York Law Journal: New York’s Foreclosure Abuse Prevention Act: What You Need to Know

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New York Law Journal, January 11, 2023 

Diana M. Eng and Andrea M. Roberts ●


On Dec. 30, 2022, Gov. Hochul signed the Foreclosure Abuse Prevention Act (Act). The Act, which amends the Real Property Actions and Proceedings Law (RPAPL), General Obligations Law (GOL) and Civil Practice Law and Rules (CPLR), became effective immediately and applies to all actions commenced under CPLR 213(4) and in which a final Judgment of Foreclosure and Sale has not been enforced. As such, the Act applies to pending actions, not just new actions commenced after the effective date.

Highlights of the Act are summarized below, but please refer to the full text of the Act for additional information and potential further updates after the date of this publication (NY State Assembly Bill A7737B (nysenate.gov)):

    • The Act adds a new subdivision 4 to RPAPL §1301, which provides that while an action is pending or after final judgment, no other action shall be commenced, including an action to foreclose, without leave of court. The failure to obtain leave of court shall be a defense in the new action and the commencement of the new action without leave of court discontinues the other action, unless, prior to the entry of final judgment in the other action, a defendant raises the failure to comply with the condition precedent or seeks dismissal of the action under CPLR 3211(a).

In addition, RPAPL §1301(4) makes clear that the subdivision shall not act as a stay or statutory prohibition for purposes of calculating the statute of limitations. Further, if it is determined that an action to foreclose under the mortgage or recover under the note is time-barred, the subdivision expressly states that any other action to foreclose or recover under the same debt is similarly time-barred. The amendment overrules New York case law holding that since a lender has a right to the election of remedies, if the court holds that enforcement of the mortgage based on a borrower’s non-payment is time-barred, res judicata does not absolutely bar the lender from electing a different remedy of pursuing a money judgment under the unpaid note.

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New York Law Journal: Can the Foreclosure Abuse Prevention Act Survive a Constitutional Challenge?

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New York Law Journal, January 6, 2023 

Diana M. Eng and Andrea M. Roberts ●


In February 2021, the New York Court of Appeals issued a long-awaited decision in Freedom Mortgage v. Engel, 37 N.Y.3d 1 (2021), which, among other things, held that the voluntary discontinuance of a foreclosure action constitutes an affirmative revocation of acceleration because such “discontinuance withdraws the complaint and, when the complaint is the only expression of demand for immediate payment of the entire debt, this is the functional equivalent of a statement by the lender that the acceleration is being revoked.” Id. at 31-32. This decision was reasoned upon longstanding case law governing contract interpretation. See Albertina Realty Co. v. Rosbro Realty, 258 N.Y. 472 (1932); Kilpatrick v. Germania Life Ins. Co., 183 N.Y. 163 (1905).

Engel was seen as a win for the financial services industry after years of the appellate courts and New York State Legislature imposing obstacles that delayed foreclosures or prevented lenders from foreclosing upon defaulted residential mortgage loans. Foreclosure defense attorneys and pro bono legal services labelled Engel “egregious” because they viewed it as a license for banks to bring previously time-barred cases “back to life.” See Maria Volkova, ‘Foreclosure Abuse Prevention Act’ awaits New York governor’s signature, HousingWire (May 13, 2022). As a result, the New York State Legislature drafted the “Foreclosure Abuse Prevention Act” (Act), which amends CPLR 3217 by adding a new subdivision (e) to provide that the voluntary discontinuance of an action, whether by motion, order, stipulation or notice, shall not waive, postpone, cancel, toll, extend, revive or reset the statute of limitations, unless prescribed by statute. NY State Assembly Bill A7737B; NY State Senate Bill S5473D. The Act became effective immediately upon Governor Hochul’s execution on Dec. 30, 2022 and applies to all actions commenced under CPLR 213(4) and in which a final judgment of foreclosure and sale has not been enforced. A.B. A7737B, §10. As such, the Act retroactively applies to pending actions, not just actions commenced after the effective date.

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New Jersey Law Journal: The Aftermath of ‘TransUnion v. Ramirez’: An Emerging Circuit Split

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New Jersey Law Journal, January 3, 2023 

Diana M. Eng, Andrea M. Roberts, and Alina Levi ●


For years, federal courts relied on the U.S. Supreme Court’s decision in Spokeo v. Robins, 578 U.S. 330 (2016), to ascertain whether a federal plaintiff demonstrated “concrete harm” such that his claims conferred Article III standing. However, the Spokeo standard was sufficiently vague, resulting in a circuit split regarding what constitutes “concrete harm.” In June 2021, the Supreme Court addressed this split in its TransUnion v. Ramirez, 141 S. Ct. 2190 (2021) (TransUnion) decision by attempting to clarify the Spokeo standard for “concrete harm.” In a 5-4 decision authored by Justice Brett Kavanaugh, the Supreme Court unequivocally rejected “the proposition that ‘a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right,’” 141 S. Ct. at 2205 (quoting Spokeo, 578 U.S. at 341). The court emphasized that “an important difference exists between a plaintiff’s statutory cause of action to sue a defendant over the defendant’s violation of federal law, and a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law.” The latter is required to satisfy Article III standing to confer federal jurisdiction: “Only those plaintiffs who have been concretely harmed by a defendant’s statutory violation may sue that private defendant over that violation in federal court.” As Kavanaugh succinctly stated: “No concrete harm, no standing.”

TransUnion was viewed as a significant win for financial institutions and the defense bar thought it would reduce the number of federal lawsuits, particularly from plaintiffs who alleged purely statutory violations. However, despite the Supreme Court’s clarification in TransUnion, courts are still reaching different conclusions on what constitutes concrete harm, and a new circuit split is already emerging, particularly with respect to intangible harms, such as economic or emotional distress, and informational harms.

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