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SF 988

1st Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to mortgages; prohibiting certain predatory lending practices; prescribing
criminal penalties; providing remedies; amending Minnesota Statutes 2006,
sections 58.02, by adding subdivisions; 58.13, subdivision 1; 58.137, subdivision
2; proposing coding for new law in Minnesota Statutes, chapters 58; 82B.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2006, section 58.02, is amended by adding a subdivision
to read:


new text begin Subd. 27. new text end

new text begin Investment grade. new text end

new text begin When used in reference to residential mortgage loans,
"investment grade" refers to a system of categorizing residential mortgage loans in which
the pricing or terms are distinguished by interest rate or discount points, or both, charged
to the borrower, which vary according to the degree of perceived risk of default based on
factors such as the borrower's credit, including credit score and credit patterns, income and
employment history, debt ratio, loan-to-value ratio, and prior bankruptcy or foreclosure.
new text end

Sec. 2.

Minnesota Statutes 2006, section 58.02, is amended by adding a subdivision to
read:


new text begin Subd. 28. new text end

new text begin Prime loan. new text end

new text begin "Prime loan" means a residential mortgage loan that is
of the highest investment grade and which is commonly designated by an alphabetical
character of "A".
new text end

Sec. 3.

Minnesota Statutes 2006, section 58.02, is amended by adding a subdivision to
read:


new text begin Subd. 29. new text end

new text begin Subprime loan. new text end

new text begin "Subprime loan" means a residential mortgage loan
that is of less than the highest investment grade, and which is commonly designated by
an alphabetical character of "A-" to "D".
new text end

Sec. 4.

Minnesota Statutes 2006, section 58.13, subdivision 1, is amended to read:


Subdivision 1.

Generally.

No person acting as a residential mortgage originator
or servicer, including a person required to be licensed under this chapter, and no person
exempt from the licensing requirements of this chapter under section 58.04, shall:

(1) fail to maintain a trust account to hold trust funds received in connection with a
residential mortgage loan;

(2) fail to deposit all trust funds into a trust account within three business days of
receipt; commingle trust funds with funds belonging to the licensee or exempt person; or
use trust account funds for any purpose other than that for which they are received;

(3) unreasonably delay the processing of a residential mortgage loan application,
or the closing of a residential mortgage loan. For purposes of this clause, evidence of
unreasonable delay includes but is not limited to those factors identified in section 47.206,
subdivision 7
, clause (d);

(4) fail to disburse funds according to its contractual or statutory obligations;

(5) fail to perform in conformance with its written agreements with borrowers,
investors, other licensees, or exempt persons;

(6) charge a fee for a product or service where the product or service is not actually
provided, or misrepresent the amount charged by or paid to a third party for a product
or service;

(7) fail to comply with sections 345.31 to 345.60, the Minnesota unclaimed property
law;

(8) violate any provision of any other applicable state or federal law regulating
residential mortgage loans including, without limitation, sections 47.20 to 47.208;

(9) make or cause to be made, directly or indirectly, any false, deceptive, or
misleading statement or representation in connection with a residential loan transaction
including, without limitation, a false, deceptive, or misleading statement or representation
regarding the borrower's ability to qualify for any mortgage product;

(10) conduct residential mortgage loan business under any name other than that
under which the license or certificate of exemption was issued;

(11) compensate, whether directly or indirectly, coerce or intimidate an appraiser for
the purpose of influencing the independent judgment of the appraiser with respect to the
value of real estate that is to be covered by a residential mortgage or is being offered as
security according to an application for a residential mortgage loan;

(12) issue any document indicating conditional qualification or conditional approval
for a residential mortgage loan, unless the document also clearly indicates that final
qualification or approval is not guaranteed, and may be subject to additional review;

(13) make or assist in making any residential mortgage loan with the intent that the
loan will not be repaid and that the residential mortgage originator will obtain title to
the property through foreclosure;

(14) provide or offer to provide for a borrower, any brokering or lending services
under an arrangement with a person other than a licensee or exempt person, provided that
a person may rely upon a written representation by the residential mortgage originator that
it is in compliance with the licensing requirements of this chapter;

(15) claim to represent a licensee or exempt person, unless the person is an employee
of the licensee or exempt person or unless the person has entered into a written agency
agreement with the licensee or exempt person;

(16) fail to comply with the record keeping and notification requirements identified
in section 58.14 or fail to abide by the affirmations made on the application for licensure;

(17) represent that the licensee or exempt person is acting as the borrower's agent
after providing the nonagency disclosure required by section 58.15, unless the disclosure
is retracted and the licensee or exempt person complies with all of the requirements of
section 58.16;

(18) make, provide, or arrange for a residential mortgage loan that is of a lower
investment grade if the borrower's credit score or, if the originator does not utilize credit
scoring or if a credit score is unavailable, then comparable underwriting data, indicates
that the borrower may qualify for a residential mortgage loan, available from or through
the originator, that is of a higher investment grade, unless the borrower is informed that
the borrower may qualify for a higher investment grade loan with a lower interest rate
and/or lower discount points, and consents in writing to receipt of the lower investment
grade loan.

For purposes of this section, "investment grade" refers to a system of categorizing
residential mortgage loans in which the loans are: (i) commonly referred to as "prime" or
"subprime"; (ii) commonly designated by an alphabetical character with "A" being the
highest investment grade; and (iii) are distinguished by interest rate or discount points
or both charged to the borrower, which vary according to the degree of perceived risk
of default based on factors such as the borrower's credit, including credit score and
credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior
bankruptcy or foreclosure;

(19) make, publish, disseminate, circulate, place before the public, or cause to be
made, directly or indirectly, any advertisement or marketing materials of any type, or any
statement or representation relating to the business of residential mortgage loans that is
false, deceptive, or misleading;

(20) advertise loan types or terms that are not available from or through the licensee
or exempt person on the date advertised, or on the date specified in the advertisement.
For purposes of this clause, advertisement includes, but is not limited to, a list of sample
mortgage terms, including interest rates, discount points, and closing costs provided by
licensees or exempt persons to a print or electronic medium that presents the information
to the public;

(21) use or employ phrases, pictures, return addresses, geographic designations, or
other means that create the impression, directly or indirectly, that a licensee or other
person is a governmental agency, or is associated with, sponsored by, or in any manner
connected to, related to, or endorsed by a governmental agency, if that is not the case; deleted text beginor
deleted text end

(22) violate section 82.49, relating to table fundingdeleted text begin.deleted text endnew text begin; ornew text end

new text begin (23) make, provide, or arrange for a residential mortgage loan all or a portion of
the proceeds of which are used to fully or partially pay off a "special mortgage" unless
the borrower has obtained a written certification from a counselor with a third-party
nonprofit or governmental organization approved by the United States Department of
Housing and Urban Development or the commissioner that the borrower has received
counseling on the advisability of the loan transaction. The commissioner shall maintain a
list of approved counseling programs. For purposes of this section, "special mortgage"
means a residential mortgage loan originated, subsidized, or guaranteed by or through
a state, tribal, or local government, or nonprofit organization, that bears one or more of
the following nonstandard payment terms which substantially benefit the borrower: (i)
payments vary with income; (ii) payments of principal or interest are not required or
can be deferred under specified conditions; (iii) principal or interest is forgivable under
specified conditions; or (iv) where no interest or an annual interest rate of two percent or
less is charged in connection with the loan.
new text end

Sec. 5.

Minnesota Statutes 2006, section 58.137, subdivision 2, is amended to read:


Subd. 2.

Prepayment penalties.

(a) A residential mortgage originator making a
residential mortgage loan new text beginthat is a prime loan new text endto a borrower located in this state shall not
charge, receive, or collect any prepayment penalty, fee, premium, or other charge:

(1) for any partial prepayment of the residential mortgage loan; or

(2) for any prepayment of the residential mortgage loan upon the sale of any
residential real property, or the sale of any stock, interest, or lease relating to cooperative
ownership of residential real property, securing the loan; or

(3) for any prepayment of the residential mortgage loan if the prepayment is made
more than 42 months after the date of the note or other agreement for the residential
mortgage loan; or

(4) for any prepayment of the residential mortgage loan if the aggregate amount of
all prepayment penalties, fees, premiums, and other charges exceeds the lesser of (i) an
amount equal to two percent of the unpaid principal balance of the residential mortgage
loan at the time of prepayment, or (ii) an amount equal to 60 days' interest, at the interest
rate in effect on the residential mortgage loan at the time of prepayment, on the unpaid
principal balance of the residential mortgage loan at the time of prepayment.

(b) If a residential mortgage originator offers or makes residential mortgage loans
to any borrowers located in this state with prepayment penalties, fees, premiums, or
other charges exceeding the maximum amount under paragraph (a), clause (4), then the
residential mortgage originator shall provide the following disclosure to each prospective
borrower located in this state that requests a residential mortgage loan from the residential
mortgage originator, whether or not the prospective borrower receives a residential
mortgage loan:

THIS IS VERY IMPORTANT

THIS LENDER CHARGES YOU A SUBSTANTIAL PENALTY IF YOU PAY OFF OR
REFINANCE YOUR LOAN BEFORE MATURITY. ASK THE LENDER HOW MUCH
THE PENALTY WILL BE FOR YOUR LOAN.

The residential mortgage originator shall read the disclosure to the prospective
borrower when the prospective borrower requests a residential mortgage loan, and again
within three days before the borrower signs the note or other agreement for the residential
mortgage loan. The residential mortgage originator also shall provide the disclosure to the
prospective borrower in writing so that it is received by the prospective borrower within
five days after the residential mortgage originator receives the prospective borrower's
request for a residential mortgage loan, and again within three days before the prospective
borrower signs the note or other agreement for the residential mortgage loan. The written
disclosure must be stated in at least 16-point capitalized boldface type on a single sheet of
paper that contains only the disclosure, the date on which the disclosure form is sent or
provided, the name, address, and telephone number of the residential mortgage originator,
the name and address of the prospective borrower, and, at the option of the residential
mortgage originator, the prospective borrower's dated and signed acknowledgment
of receipt of the disclosure form. The provisions of the disclosure form, other than
the disclosure in this subdivision, are not required to be in at least 16-point capitalized
boldface type. The prospective borrower shall be permitted to keep a copy of each written
disclosure form. When a prospective borrower asks a residential mortgage originator for
information about a prepayment penalty, the residential mortgage originator shall give the
prospective borrower the requested information, and shall tell the borrower the highest
aggregate amount of the prepayment penalties, fees, premiums, and other charges that the
residential mortgage originator would charge to the prospective borrower for prepayment
of the residential mortgage loan one year after it is funded, based on a hypothetical
unpaid principal balance of $100,000 and also based on the highest interest rate that the
residential mortgage originator would charge to the prospective borrower. A mortgage
originator responding to requests for residential mortgage loans via the Internet may make
the disclosure in a manner acceptable to the commissioner.

new text begin (c) A residential mortgage originator shall not enter into a subprime loan that
contains a provision requiring or permitting the imposition of a penalty, fee, premium, or
other charge in the event the residential mortgage loan is prepaid in whole or in part.
new text end

Sec. 6.

new text begin [58.18] PRIVATE RIGHT OF ACTION.
new text end

new text begin Subdivision 1. new text end

new text begin Remedies. new text end

new text begin A borrower injured by a violation of the standards, duties,
prohibitions, or requirements of sections 58.13, 58.136, 58.137, and 58.16 shall have a
private right of action and the court shall award:
new text end

new text begin (1) actual, incidental, and consequential damages;
new text end

new text begin (2) statutory damages equal to the amount of all lender fees included in the amount
of the principal of the residential mortgage loan as defined in section 58.137;
new text end

new text begin (3) punitive damages as the court may allow. In determining punitive damages,
the court should consider the severity and intentionality of the violation, the number of
violations, and whether the violation was part of a pattern and practice of violations; and
new text end

new text begin (4) court costs and reasonable attorneys' fees.
new text end

new text begin Subd. 2. new text end

new text begin Private attorney general statute. new text end

new text begin A borrower injured by a violation of
the standards, duties, prohibitions, or requirements of sections 58.13, 58.136, 58.137, and
58.16 also may bring an action under section 8.31. A private right of action by a borrower
under this chapter is in the public interest.
new text end

new text begin Subd. 3. new text end

new text begin Remedies cumulative. new text end

new text begin The remedies provided in this section are
cumulative and do not restrict any other right or remedy otherwise available to the
borrower.
new text end

new text begin Subd. 4. new text end

new text begin Exemption. new text end

new text begin This section does not apply to a residential mortgage loan
originated by a federal or state chartered bank, savings bank, or credit union.
new text end

Sec. 7.

new text begin [58.19] CRIMINAL PENALTIES FOR GROSSLY UNSUITABLE
LOANS.
new text end

new text begin Subdivision 1. new text end

new text begin Definition. new text end

new text begin For the purpose of this section, "grossly unsuitable"
means:
new text end

new text begin (1) a residential mortgage loan for which the borrower lacked the capacity to repay
the interest and principal of the loan, and the real estate taxes and home insurance on the
property, at the time the loan was originated; or
new text end

new text begin (2) a residential mortgage loan made as a result of a loan application that contains
materially false or fraudulent information as to the borrower's income, expenses, debts
or assets.
new text end

new text begin Subd. 2. new text end

new text begin Acts constituting; penalties. new text end

new text begin Any person who makes a residential
mortgage loan, or obtains or assists in obtaining from another person for a borrower a
residential mortgage loan, that the person knows is grossly unsuitable for the borrower
may be fined not more than $75,000 or imprisoned for up to two years, or both.
Prosecution or conviction for securing grossly unsuitable loans on behalf of borrowers will
not bar prosecution or conviction for any other offenses. These penalties are cumulative to
any other remedies or penalties provided by law.
new text end

new text begin Subd. 3. new text end

new text begin Additional penalty for crime against a disabled or elderly person.
new text end

new text begin Any person who commits the criminal offense specified in this section against a senior
citizen or disabled person may be fined an additional $50,000 or imprisoned for up to two
additional years, or both. For purposes of this subdivision, "senior citizen" and "disabled
person" have the meanings given those terms in section 325F.71, subdivision 1.
new text end

Sec. 8.

new text begin [82B.24] PRIVATE RIGHT OF ACTION.
new text end

new text begin Subdivision 1. new text end

new text begin Remedies. new text end

new text begin Any person injured by a violation of the standards, duties,
prohibitions, or requirements of section 82B.20 or 82B.22 shall have a private right of
action and the court shall award:
new text end

new text begin (1) actual, incidental, and consequential damages;
new text end

new text begin (2) statutory damages of no less than $1,000 nor more than $2,000; and
new text end

new text begin (3) punitive damages as the court may allow. In determining punitive damages,
the court should consider the severity and intentionality of the violation, the number of
violations, and whether the violation was part of a pattern and practice of violations; and
new text end

new text begin (4) court costs and reasonable attorneys fees.
new text end

new text begin Subd. 2. new text end

new text begin Private attorney general statute. new text end

new text begin A person injured by a violation of the
standards, duties, prohibitions, or requirements of sections 58.13, 58.136, 58.137, and
58.16 also may bring an action under section 8.31. A private right of action by a borrower
under this chapter is in the public interest.
new text end

new text begin Subd. 3. new text end

new text begin Remedies cumulative. new text end

new text begin The remedies provided in this section are
cumulative and do not restrict any other right or remedy otherwise available to the
borrower.
new text end