Senate Bill No. 185
(By Senator Helmick, Kessler, Ross, Deem, Fanning, Minard and
McCabe)
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[Introduced January 24, 2000; referred to the Committee
on the Judiciary.]
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A BILL to amend and reenact sections one, two, seven, eight, nine,
ten, eleven, twelve, fourteen and seventeen, article
seventeen, chapter thirty-one of the code of West Virginia,
one thousand nine hundred thirty-one, as amended, all relating
to the regulation of residential mortgage lenders and brokers;
renaming secondary mortgage to subordinate mortgage; providing
that those who purchase loans are lenders for purposes of the
law; providing that only one license may be required if a
licensee registers the locations of all branches; requiring
prior notice of any change in business location; eliminating
the term restrictions on subordinate lien mortgage loans;
providing for additional charges in conformity with the West
Virginia consumer credit and protection act and real estate
loans made by regulated consumer lenders; allowing complete
compliance with federal disclosures to meet state law
disclosure requirements; eliminating reporting requirements as
to size, security, gross income and expenses; and allowing the commissioner to appoint a hearing examiner in contested cases.
Be it enacted by the Legislature of West Virginia:
That sections one, two, seven, eight, nine, ten, eleven,
twelve, fourteen and seventeen, article seventeen, chapter
thirty-one of the code of West Virginia, one thousand nine hundred
thirty-one, as amended, be amended and reenacted, all to read as
follows:
ARTICLE 17. SUBORDINATE MORTGAGE LOANS.
§31-17-1. Definitions and general provisions.
As used in this article:
(1) "Secondary Subordinate mortgage loan" means a loan made to
an individual or partnership which is secured in whole or in part
by a mortgage or deed of trust upon any interest in real property
used as a dwelling with accommodations for not more than four
families, which property is subject to the lien of one or more
prior recorded mortgages or deeds of trust.
(2) "Person" means an individual, partnership, association,
trust, corporation or any other legal entity, or any combination
thereof.
(3) "Lender" means any person who makes or offers to make or
accepts or offers to accept or purchases any secondary subordinate
mortgage loan in the regular course of business. A person shall be
deemed to be acting in the regular course of business if he or she
makes or accepts, or offers to make or accept, more than five
secondary subordinate mortgage loans in any one calendar year.
(4) "Broker" means any person acting in the regular course of
business who, for a fee or commission or other consideration, negotiates or arranges, or who offers to negotiate or arrange, a
secondary subordinate mortgage loan between a lender and a
borrower. A person shall be deemed to be acting in the regular
course of business if he or she negotiates or arranges, or offers
to negotiate or arrange, more than five secondary subordinate
mortgage loans in any one calendar year; or if he or she seeks to
charge a borrower or receive from a borrower money or other
valuable consideration in any second subordinate mortgage
transaction before completing performance of all broker services
that he or she has agreed to perform for the borrower.
(5) "Brokerage fee" means the fee or commission or other
consideration charged by a broker for the services described in
subdivision (4) of this section.
(6) "Principal" or "principal sum" means the total of:
(a) The net amount paid to, receivable by or paid or payable
for the account of the debtor;
(b) The amount of any discount excluded from the loan finance
charge; and
(c) To the extent that payment is deferred:
(i) Amounts actually paid or to be paid by the lender for
registration, certificate of title or license fees if not included
in paragraph (a) of this subdivision; and
(ii) Additional charges permitted by this article.
(7) "Additional charges" means every type of charge arising
out of the making or acceptance of a secondary subordinate mortgage
loan, except finance charges, including, but not limited to,
official fees and taxes, reasonable closing costs and certain documentary charges and insurance premiums and other charges which
definition is to be read in conjunction with, and permitted by
section one hundred nine, article three, chapter forty-six-a of
this code.
(8) "Finance charge" means the sum of all interest and similar
charges payable directly or indirectly by the debtor imposed or
collected by the lender incident to the extension of credit, as
coextensive with the definition of "loan finance charge" set forth
in section one hundred two, article one, chapter forty-six-a of
this code.
(9) "Commissioner" means the commissioner of banking of this
state.
(10) "Applicant" means a person who has applied for a lender's
or broker's license.
(11) "Licensee" means any person duly licensed by the
commissioner under the provisions of this article as a lender or
broker.
(12) "Amount financed" means the total of the following items
to the extent that payment is deferred:
(a) The cash price of the goods, services or interest in land,
less the amount of any down payment, whether made in cash or in
property traded in;
(b) The amount actually paid or to be paid by the seller
pursuant to an agreement with the buyer to discharge a security
interest in or a lien on property traded in; and
(c) If not included in the cash price:
(i) Any applicable sales, use, privilege, excise or documentary stamp taxes;
(ii) Amounts actually paid or to be paid by the seller for
registration, certificate of title or license fees; and
(iii) Additional charges permitted by this article.
§31-17-2. License required for lender or broker; exemptions.
(a) No person shall engage in this state in the business of
lender or broker unless and until he or she shall first obtain a
license to do so from the commissioner, which license remains
unexpired, unsuspended and unrevoked, and no foreign corporation
shall notwithstanding the provisions of section seventy-nine-a,
article one of this chapter, engage in such business in this state
unless it shall qualify to hold property and transact business in
this state.
(b) The provisions of this article do not apply to loans made
by federally insured depository institutions, regulated consumer
lender licensees, insurance companies, or to loans made by any
other lender licensed by and under the supervision of any agency of
the federal government, or to loans made by, or on behalf of, any
agency or instrumentality of this state or federal government or by
a nonprofit community development organization which loans are
subject to federal or state government supervision and oversight.
Loans made subject to this exemption may be assigned, transferred,
sold or otherwise securitized to any person and shall remain exempt
from the provisions of this article, except as to reporting
requirements in the discretion of the commissioner where the person
is a licensee under this article. A broker licensed under this article may broker subordinate mortgage loans to entities whose
loans are exempt under this subsection in the same manner that
those entities are permitted to originate such loans.
(c) A person or entity designated in subsection (b) of this
section may take assignments of a secondary subordinate mortgage
loan from a licensed lender, and the assignments of said loans that
they themselves could have lawfully made as exempt from the
provisions of this article under this section do not make that
person or entity subject to the licensing, bonding, reporting or
other provisions of this article, except as such defense or claim
would be preserved pursuant to section one hundred two, article
two, chapter forty-six-a of this code.
(d) The placement or sale for securitization of a second
subordinate mortgage loan into a secondary market by a licensee
shall not subject the secondary market holder to the provisions of
this article: Provided, That either the trustee under such an
arrangement is a licensee, or person or entity entitled to make
exempt loans of that type under this section, or the loan is held
with right of recourse to a licensee, or person or entity entitled
to make exempt loans of that type, who also either retains the
servicing rights to the loan or otherwise has the servicing done in
its name by an agent or third party.
§31-17-7. Form of license; posting required; license not
transferable or assignable; license may not be
franchised;
renewal of license.
(a) It shall be stated on the license whether it is a lender's or broker's license, the location at which the business is to be
conducted and the full name of the licensee. A broker's license
shall be conspicuously posted in the licensee's place of business
in this state, and a lender's license shall be conspicuously posted
in the licensee's place of business if in this state. No license
shall be transferable or assignable. No licensee may offer a
franchise under that license to another individual. Not more than
one location or place of business in this state shall be maintained
under the same license, but the commissioner is authorized to issue
more than one license to the same licensee upon compliance with all
the provisions of this article governing the original issuance of
a license. The commissioner may allow licensees to have branch
offices without requiring additional licenses provided the location
of all branch offices are registered with the division of banking
by the licensee. Whenever a licensee changes his place of business
to a location other than that set forth in his license and branch
registration, he shall give written notice within thirty days of
prior to such change to the commissioner.
(b) Every lender's or broker's license shall, unless sooner
suspended or revoked, expire on December thirty-first of each year,
and any such license may be renewed each year in the same manner,
for the same license fee and investigation fee or fees specified
above and upon the same basis as an original license is issued in
accordance with the provisions of section five of this article.
All applications for the renewal of licenses shall be filed with
the commissioner at least forty-five ninety days before the
expiration thereof.
§31-17-8. Maximum period of loan; maximum interest and charge or
charges; other prohibitions.
(a) The maximum rate of finance charges and maximum total
additional charges on or in connection with any secondary
subordinate mortgage loan shall be as follows:
(1) The maximum rate of finance charge shall not exceed
eighteen percent per year on the unpaid balance of the amount
financed: Provided, That the borrower shall have the right to
prepay his or her debt in whole or in part at any time and shall
receive a rebate for any unearned finance charge, exclusive of any
points, investigation fees and loan origination fees, which rebate
shall be computed in accordance with section one hundred eleven,
article three, chapter forty-six-a of this code: Provided,
however, That the sum of any points, investigation fees and loan
origination fees charged may not exceed five percent of the amount
financed;
(2) A secondary mortgage loan shall be payable over a period
not to exceed sixty months. This sixty-month maximum loan period
is temporarily extended, as of the effective date of this section,
to one hundred twenty months until the first day of July, two
thousand, at which time it reverts to the sixty-month maximum loan
limit time period. The commissioner shall report to the
Legislature by the first day of July, one thousand nine hundred
ninety-nine, on the impact of this extended loan time period upon
the citizens of this state. The report shall include analysis of
the impact of this loan period extension on the secondary mortgage industry in this state, impacts of this extension on various socio-
economic classes of citizens of this state, statistics regarding
the number of homes which have been foreclosed upon based on this
extension and the effect of this extension to any other citizens of
this state. The commissioner may require any licensee to provide
the commissioner with any information necessary to make this
report;
(3) (2) Except as provided for by section one hundred nine,
article three, chapter forty-six-a of this code, no additional
charges may be made; nor may any charge permitted by this section
be assessed unless the loan is made The total of additional
charges as permitted by this section and by section one hundred
nine, article three, chapter forty-six-a of this code, excluding
official fees and taxes, and insurance, may equal, but shall not be
in excess of, ten percent of the principal sum: Provided, That
where the principal sum at the inception of the secondary mortgage
loan is one thousand five hundred dollars or less, the total
additional charge or charges, excluding official fees, taxes and
insurance, may exceed said ten percent, but shall not be in excess
of one hundred fifty dollars: Provided, however, That no
additional charges other than official fees, taxes and hazard
insurance may be required by the same or affiliated lender more
often than once each twenty-four months by renewal of a secondary
mortgage loan or an additional secondary mortgage loan secured by
the same residential property;
(4) (3) Where loan origination fees, investigation fees or points have been charged by the licensee, such fees may not be
imposed again by the same or affiliated lender in any refinancing
of that loan or any additional loan on that property made within
twenty-four months thereof, unless these earlier charges have been
rebated by payment or credit to the consumer under the actuarial
method, or the total of the earlier and current changes does not
exceed the five percent amount.
(b) Notwithstanding the provisions of subsection (a) of this
section, a delinquent or "late charge" may be charged on any
installment made ten or more days after the regularly scheduled due
date in accordance with section one hundred twelve or one hundred
thirteen, article three, chapter forty-six-a of this code,
whichever is applicable. The charge may be made only once on any
one installment during the term of the secondary subordinate
mortgage loan.
(c) Hazard insurance may be required by the lender of the
borrower, as provided in section one hundred nine, article three,
chapter forty-six-a of this code. Decreasing term life insurance,
in an amount not exceeding the amount of the secondary subordinate
mortgage loan and for a period not exceeding the term of the loan,
and accident and health insurance in an amount sufficient to make
the monthly payments due on said loan in the event of the
disability of the borrower and for a period not exceeding the life
of said loan, may also be offered by the lender to the borrower and
the premium therefor may be financed. The charges for any
insurance shall not exceed the standard rate approved by the
insurance commissioner for such insurance. Proof of all insurance in connection with secondary subordinate mortgage loans subject to
this article shall be furnished to the borrower within thirty days
from and after the date of application therefor by said borrower.
(d) No application fee may be allowed whether or not the
secondary subordinate mortgage loan is consummated; however, the
borrower may be required to reimburse the lender for actual
expenses incurred by the lender after acceptance and approval of a
secondary subordinate mortgage loan proposal made in accordance
with the provisions of this article which is not consummated
because of:
(1) The borrower's willful failure to close said loan; or
(2) The borrower's false or fraudulent representation of a
material fact which prevents closing of said loan as proposed.
(e) No licensee shall make, offer to make, accept or offer to
accept, any secondary subordinate mortgage loan except on the terms
and conditions authorized in this article.
(f) No licensee shall induce or permit any husband and wife,
jointly and severally, to become obligated to the licensee under
this article, directly or contingently, or both, under more than
one secondary subordinate mortgage loan at the same time for the
purpose or with the result of obtaining greater charges than would
otherwise be permitted under the provisions of this article.
(g) No instrument evidencing or securing a secondary
subordinate mortgage loan shall contain:
(1) Any acceleration clause under which any part or all of the
unpaid balance of the obligation not yet matured may be declared
due and payable because the holder deems himself to be insecure;
(2) Any power of attorney to confess judgment or any other
power of attorney;
(3) Any provision whereby the borrower waives any rights
accruing to him under the provisions of this article;
(4) Any requirement that more than one installment be payable
in any one installment period, or that the amount of any
installment be greater or less than that of any other installment,
except for the final installment which may be in a lesser amount,
or unless the loan is structured as a revolving line of credit
having no set final payment date; or
(5) Any assignment of or order for the payment of any salary,
wages, commissions or other compensation for services, or any part
thereof, earned or to be earned.
(h) No broker licensee shall charge a borrower or receive from
a borrower money or other valuable consideration before completing
performance of all services the broker has agreed to perform for
the borrower, unless the licensee also registers and complies with
all requirements set forth for credit service organizations in
article six-c, chapter forty-six-a of this code, including all
additional bonding requirements as may be established therein.
(i) No lender licensee shall make revolving loans secured by
a secondary subordinate mortgage lien for the retail purchase of
consumer goods and services by use of a lender credit card.
§31-17-9. Disclosure; closing statements; other records required.
(a) Any licensee or person making on his own behalf, or as
agent, broker or in other representative capacity on behalf of any
other person, a secondary subordinate mortgage loan, whether lawfully or unlawfully, shall at the time of the closing furnish to
the borrower a complete and itemized closing statement which shall
show in detail:
(1) The amount and date of the note or secondary subordinate
mortgage loan contract and the date of maturity;
(2) The nature of the security;
(3) The finance charge rate per annum and the itemized amount
of finance charges and additional charges;
(4) The amount financed and total of payments;
(5) Disposition of the principal;
(6) A description of the payment schedule;
(7) The terms on which additional advances, if any, will be
made;
(8) The charge to be imposed for past-due installments;
(9) A description and the cost of insurance required by the
lender or purchased by the borrower in connection with the
secondary subordinate mortgage loan;
(10) The name and address of the borrower and of the lender;
and
(11) That the borrower may prepay the secondary subordinate
mortgage loan in whole or in part on any installment date, and that
the borrower will receive a rebate in full for any unearned finance
charge.
Such detailed closing statement shall be signed by the lender
or his representative, and a completed and signed copy thereof
shall be retained by the lender and made available at all
reasonable times to the borrower, the borrower's successor in interest to the residential property, or the authorized agent of
the borrower or the borrower's successor, until the time as the
indebtedness shall be satisfied in full. Complete compliance with
all residential mortgage disclosures required by federal law shall
be deemed to meet the requirements of this subsection.
The commissioner may, from time to time, by rules prescribe
additional information to be included in a closing statement.
(b) Upon written request from the borrower, the holder of a
secondary subordinate mortgage loan instrument shall deliver to the
borrower, within ten days from and after receipt of the written
request, a statement of the borrower's account showing the date and
amount of all payments made or credited to the account and the
total unpaid balance. Charges for providing an account statement
may be assessed only where permitted as set forth by subsection
two, section one hundred fourteen, article two, chapter forty-six-a
of this code.
(c) Upon satisfaction of a secondary subordinate mortgage loan
obligation in full, the holder of the instrument evidencing or
securing the obligation shall comply with the requirements of
section one, article twelve, chapter thirty-eight of this code in
the prompt release of the lien which had secured the secondary
subordinate mortgage loan obligation.
(d) Upon written request or authorization from the borrower,
the holder of a secondary subordinate mortgage loan instrument
shall send or otherwise provide to the borrower or his or her
designee, within two business days after receipt of the written
request or authorization, a payoff statement of the borrower's account. Except as provided by this subsection, no charge may be
made for providing the payoff statement. Charges for the actual
expenses associated with using a third-party courier delivery or
expedited mail delivery service may be assessed when this type of
delivery is requested and authorized by the borrower, following
disclosure to the borrower of its cost. The payoff information
shall be provided by mail, telephone, courier, facsimile, or other
transmission as requested by the borrower or his or her designee.
§31-17-10. Advertising requirements.
It shall be unlawful and an unfair trade practice for any
person to cause to be placed before the public in this state,
directly or indirectly, any false, misleading or deceptive
advertising matter pertaining to secondary subordinate mortgage
loans or the availability thereof: Provided, That this section
shall not apply to the owner, publisher, operator or employees of
any publication or radio or television station which disseminates
such advertising matter without actual knowledge of the false or
misleading character thereof.
§31-17-11. Records and reports; examination of records; analysis.
(a) Every licensee shall maintain at his or her place of
business in this state, if any, or if he or she has no place of
business in this state at his or her principal place of business
outside this state, such books, accounts and records relating to
all transactions within this article as are necessary to enable the
commissioner to enforce the provisions of this article. All the
books, accounts and records shall be preserved, exhibited to the commissioner and kept available as provided herein for the
reasonable period of time as the commissioner may by rules require.
The commissioner is hereby authorized to prescribe by rules the
minimum information to be shown in the books, accounts and records.
(b) Each licensee shall file with the commissioner on or
before the fifteenth day of March of each year a report under oath
or affirmation concerning his or her business and operations in
this state for the preceding license year in the form prescribed by
the commissioner. which shall show the annual volume and
outstanding amounts of secondary mortgage loans, the classification
of the secondary mortgage loans by size and by security, and the
gross income from, and expenses properly chargeable to, such
secondary mortgage loans
(c) The commissioner may, at his or her discretion, make or
cause to be made an examination of the books, accounts and records
of every licensee pertaining to secondary subordinate mortgage
loans made in this state under the provisions of this article, for
the purpose of determining whether each licensee is complying with
the provisions hereof and for the purpose of verifying each
licensee's annual report. If the examination is made outside this
state, the licensee shall pay the cost thereof in like manner as
applicants are required to pay the cost of investigations outside
this state.
(d) The commissioner shall publish annually an aggregate
analysis of the information furnished in accordance with the
provisions of subsection (b) or (c) of this section, but the
individual reports shall not be public records and shall not be open to public inspection.
§31-17-12. Grounds for suspension or revocation of license;
suspension and revocation generally; reinstatement
or new license.
(a) The commissioner may suspend or revoke any license issued
hereunder if he or she finds that the licensee and/or any owner,
director, officer, member, partner, stockholder, employee or agent
of such licensee:
(1) Has knowingly violated any provision of this article or
any order, decision or rule of the commissioner lawfully made
pursuant to the authority of this article; or
(2) Has knowingly made any material misstatement in the
application for such license; or
(3) Does not have available the net assets required by the
provisions of section four of this article; or
(4) Has failed or refused to keep the bond required by section
four of this article in full force and effect; or
(5) In the case of a foreign corporation, does not remain
qualified to do business in this state; or
(6) Has committed any fraud or engaged in any dishonest
activities with respect to such secondary subordinate mortgage loan
business in this state, or failed to disclose any of the material
particulars of any secondary subordinate mortgage loan transaction
in this state to anyone entitled to the information; or
(7) Has otherwise demonstrated bad faith, dishonesty or any
other quality indicating that the business of the licensee in this
state has not been or will not be conducted honestly or fairly within the purpose of this article. It shall be a demonstration of
bad faith and an unfair or deceptive act or practice to engage in
a pattern of making loans where the consumer has insufficient
sources of income to timely repay the debt, and the lender had the
primary intent to acquire the property upon default rather than to
derive profit from the loan. This section shall not limit any
right the consumer may have to bring an action for a violation of
section one hundred four, article six, chapter forty-six-a of this
code in an individual case.
The commissioner may also suspend or revoke the license of a
licensee if he or she finds the existence of any ground upon which
the license could have been refused, or any ground which would be
cause for refusing a license to such licensee were he then applying
for the same. The commissioner may also suspend or revoke the
license of a licensee pursuant to his or her authority under
section thirteen, article two, chapter thirty-one-a of this code.
(b) The suspension or revocation of the license of any
licensee shall not impair or affect the obligation of any
preexisting lawful secondary subordinate mortgage loan between such
licensee and any obligor.
(c) The commissioner may reinstate a suspended license, or
issue a new license to a licensee whose license has been revoked,
if the grounds upon which any such license was suspended or revoked
have been eliminated or corrected and the commissioner is satisfied
that the grounds are not likely to recur.
§31-17-14. Hearing before commissioner; provisions pertaining to
hearing.
(a) Any applicant or licensee, as the case may be, adversely
affected by an order made and entered by the commissioner in
accordance with the provisions of section thirteen of this article,
if not previously provided the opportunity to a hearing on the
matter, may in writing demand a hearing before the commissioner.
The commissioner may appoint a hearing examiner to conduct the
hearing and prepare a recommended decision. The written demand
for a hearing must be filed with the commissioner within thirty
days after the date upon which the applicant or licensee was served
with a copy of such order. The timely filing of a written demand
for hearing shall stay or suspend execution of the order in
question, pending a final determination, except for an order
suspending a license for failure of the licensee to maintain the
bond required by section four of this article in full force and
effect. If a written demand is timely filed as aforesaid, the
aggrieved party shall be entitled to a hearing as a matter of
right.
(b) All of the pertinent provisions of article five, chapter
twenty-nine-a of this code shall apply to and govern the hearing
and the administrative procedures in connection with and following
such hearing, with like effect as if the provisions of said article
were set forth in extenso in this subsection.
(c) For the purpose of conducting any such hearing hereunder,
the commissioner or appointed hearing examiner shall have the power
and authority to issue subpoenas and subpoenas duces tecum, in
accordance with the provisions of section one, article five,
chapter twenty-nine-a of this code. All subpoenas and subpoenas duces tecum shall be issued and served in the manner, within the
time and for the fees and shall be enforced, as specified in said
section, and all of the said section provisions dealing with
subpoenas and subpoenas duces tecum shall apply to subpoenas and
subpoenas duces tecum issued for the purpose of a hearing
hereunder.
(d) Any such hearing shall be held within twenty days after
the date upon which the commissioner received the timely written
demand therefor, unless there is a postponement or continuance.
The commissioner or hearing examiner may postpone or continue any
hearing on his or her own motion, or for good cause shown upon the
application of the aggrieved party. At any such hearing, the
aggrieved party may represent himself or herself or be represented
by any attorney-at-law admitted to practice before any circuit
court of this state.
(e) After such hearing and consideration of all of the
testimony, evidence and record in the case, the commissioner shall
make and enter an order affirming, modifying or vacating his or her
earlier order, or shall make and enter such order as is deemed
appropriate, meet and proper. Such order shall be accompanied by
findings of fact and conclusions of law as specified in section
three, article five, chapter twenty-nine-a of this code, and a copy
of such order and accompanying findings and conclusions shall be
served upon the aggrieved party and his attorney of record, if any,
in person or by certified mail, return receipt requested, or in any
other manner in which process in a civil action in this state may
be served. The order of the commissioner shall be final unless vacated or modified on judicial review thereof in accordance with
the provisions of section fifteen of this article.
§31-17-17. Loans made in violation of this article void;
agreements to waive article void.
(a) If any secondary subordinate mortgage loan is made in
violation of the provisions of this article, except as a result of
a bona fide error, such loan shall be void and neither the lender
nor any holder of the obligation secured by such secondary
subordinate mortgage shall have the right to collect or receive any
principal, interest or charges whatsoever, and the lender shall
refund all payments on or with respect to such loan which have been
made by the borrower.
(b) Any agreement whereby the borrower waives the benefits of
this article shall be deemed to be against public policy and void.
NOTE: This bill amends the secondary, i.e. subordinate
mortgage licensing law. It provides that those who purchase loans
are lenders for purposes of this law; that only one license may be
required if a licensee registers the locations of all branches;
requires prior notice of any change in business location;
eliminates the term restrictions on subordinate lien mortgage
loans; provides for additional charges in conformity with the West
Virginia Consumer Credit and Protection Act and real estate loans
made by regulated consumer lenders; allows complete compliance with
federal disclosures to meet state law disclosure requirements;
eliminates reporting requirements as to size, security, gross
income and expenses; and allows the commissioner to appoint a
hearing examiner in contested cases. It also makes technical
changes.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.