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Legislation in Montana Aimed at Reducing Banks’ Liability in Loss Mitigation

Montana banks regulatory relief loss mitigationLawmakers, particularly Republicans, who are especially concerned with the mortgage finance industry have been seeking regulatory relief for banks ever since the Consumer Financial Protection Bureau was created in 2011.

The same thing is happening at the state level now in Montana, where two bills that were recently heard in the state's House of Representatives were aimed at reducing the amount of liability for banks in lending and other mortgage practices such as loss mitigation.

The two bills were introduced on December 5, 2014, by Montana Republican State Senator Eric Moore. Under SB 280, which "generally revises the loan agreement statute of frauds laws," a borrower would be allowed to sue a lender over contract fraud only if the alleged violation is in writing, thus reversing a ruling from the Montana Supreme Court last year that permitted the use of verbal discussions between a borrower and a mortgagee as evidence of fraud in court.  SB 281, the stated purpose of which is to "generally revise consumer protection damage laws," would disallow the awarding of punitive damages when a borrower sues a lender for breach of contract.

SB 280 was tabled in committee Friday and SB 281 passed out of committee, according to a source familiar with the matter. The two bills had passed in the Montana State Senate on February 23.

"SB 281 only limits damages in Consumer Protection Act claims, not in tort claims," Al Smith, Executive Director of the Montana Trial Lawyers Association, said in an email to DS News. "We hope that the full House will reject the bill so that consumers will be able to obtain full justice when banks fraudulently and negligently misrepresent the 'help' they offer consumers."

Distressed and at-risk Montana homeowners spoke out against the two bills in the state's House Business and Labor Committee on Thursday, claiming that their respective mortgagees had misled them verbally with regards to loss mitigation practices. The borrowers said they would have had no legal claim against those mortgagees if these bills had been in enacted before they filed their respective lawsuits against their lenders.

According to one media report, bankers in Montana have been advised not to talk to borrowers about distressed loans since last year's Montana Supreme Court ruling, because what the bankers say can be used against them in court. Moore, the bills' sponsor, told the committee that the bills were "commonsense" and that such legislation was needed to protect banks and other financial institutions from frivolous lawsuits, saying they need to be able to inform borrowers of their options regarding delinquent loans without the worry of getting sued.

Foreclosures and seriously delinquent mortgage loans typically occur much less frequently in Montana than in other states. Montana consistently ranks near the bottom among states when it comes to foreclosure statistics – the latest CoreLogic data shows that only three states had fewer foreclosures than Montana's total of 832 for the 12-month period from February 2014 to January 2015. Montana's serious delinquency rate of 1.7 percent for January was less than half of the national average of 4 percent for the month.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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