On February 3, President Trump issued an Executive Order titled “Core Principals for Regulating the United States Financial System.” This order outlines the President’s policy for the regulation of the U.S. financial system and directs the Secretary of the Treasury to report how the aforementioned policy is being promoted in current “laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies.” The Order itself has very little to no immediate effect on the regulation of the U.S. financial services industry; however, the order is a great way to gain insight as to what is to come over the next four years under the Trump administration.
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The CFPB suffered a blow yesterday in the most significant attack against its authority to date. In PHH Mortgage’s appeal from a $109,000,000 disgorgement order issued by the CFPB in June of 2015, the U.S. Court of Appeals for the D.C. Circuit held that “the CFPB is unconstitutionally structured” and violates Article II of the Constitution. The court also found that the CFPB violated PHH’s due process rights and rejected the Bureau’s determination that its enforcement actions brought as administrative proceedings are not bound by any statutes of limitations.
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Lenders frequently enter into loans secured by accounts receivables and/or chattel paper. A security agreement is signed, and the lender files a UCC financing statement, “putting the world on notice” of its security interest in the collateral. Per the loan documents, the borrower supplies borrowing base certificates, personal financial statements, access for field inspections, and independent third party audits to “verify” the borrowing base. Based on these assurances, the borrower receives access to a percentage of the agreed “borrowing base” on a revolving line. Even if the borrower defaults, the lender has only loaned 75%, 80%, or 85% of the value of the collateral, so the lender is protected – right?  Not so fast.
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Mortgage lenders received some good news from the Eleventh Circuit Court of Appeals last week!  In Failla v. Citibank, N.A., Case No. 15-15626 (11th Cir. Oct. 4, 2016), the Court affirmed a bankruptcy judge’s order for a married couple to stop opposing the lender’s efforts to foreclose on their home in Boca Raton, Florida.  As will be discussed below, Failla essentially affirms the principle that a bankruptcy debtor (or any other litigant) cannot take inconsistent positions in different legal proceedings.
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On August 31, 2016, United States Bankruptcy Judge Robert A. Mark ruled that a bankruptcy trustee can pursue avoidance of property transfers that occurred nearly ten years before the debtor’s bankruptcy filing.  The proceedings are related to In re: Kipnis, Chapter 7 Case No. 14-11370, pending in the United States Bankruptcy Court for the Southern District of Florida.
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Foreclosure is usually the remedy of choice used by secured creditors to monetize their real estate collateral; however, there are situations where a sale of real estate through receivership could be an attractive alternative to foreclosure.  Where circumstances have given cause for appointment of a receiver to operate, manage, and stabilize property in the short term, the option of a receiver sale should be considered, especially where title to the property does not need to be cleansed of junior encumbrances through the foreclosure process.  In states with a lengthy judicial foreclosure process, a receiver’s sale can result in a much more timely disposition by avoiding the usual baked-in litigation delays of initial answer time and procedural timelines applicable to motions for default and/or summary judgment.  In judicial foreclosure states where the sale is conducted by statute only through the local sheriff or appointed commissioner, a receiver’s sale can put conduct of the sale in the hands of a real estate professional who can employ a market program and design a sale process which is more likely to lead to better commercial results.  Even in states which enjoy a fairly expeditious non-judicial foreclosure process allowing for a quick sale, the receiver’s sale can prove the best means of ultimate disposition of the property where the creditor wishes to avoid taking the property in as real estate owned.  This factor can be particularly compelling for banks wishing to mitigate the risk of holding an operating property such as a hospitality property or one which presents potential environmental issues such as an industrial property.  In multijurisdictional portfolio cases where a federal receivership action has been filed as to properties in different states, a receivership sale under the federal statue can be considered to avoid disposition of properties on different timelines due to various applicable foreclosure laws in each state.  In non-judicial foreclosure states where the creditor or its servicer is prepared to take the collateral in as real estate owned, foreclosure is likely the quickest and simplest route.  Where other factors are at play, receivership sales are worthy of consideration.

On May 16, the bankruptcy world of “actual fraud” got larger. In an opinion delivered by Justice Sotomayor, the Supreme Court addressed what it recognized was a deepening circuit split regarding the interpretation of “actual fraud” in 11 U.S.C. § 523(a)(2)(A). After analyzing the history and structure of the code section, the Court rejected a narrower interpretation of the statute requiring that the debt be procured by a false representation at the time of inducement and clarified that “actual fraud” included traditional forms of fraud, such as a fraudulent transfer or similar wrongdoing.
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Chapter 56 of the Florida Statutes provides the framework for judgment creditors to collect on money judgments. Section 56.29 governs the process by which a judgment creditor may seek to recover property transferred to, or concealed by, third parties.  However, the lack of procedural clarity in the statute led to conflicting decisions and uncertainty. Amid due process concerns, courts often erected significant procedural hurdles to cost-effective collection efforts against third parties.  The new amendments to Section 56.29, which become effective on July 1, 2016, provide practitioners with some much needed clarity. (more…)