October 2016

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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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