Mass. Appeals Court Clarifies Chapter 93A Application in Landlord-Tenant Disputes
In another appeal of a summary process action, the Massachusetts Appeals Court addressed two questions related to Chapter 93A on appeal in 133 W. Main St. Realty, LLC v. Kimball. First, whether the landlord was engaged in trade or commerce when renting a residential property to the tenants, and second, whether a technical violation of the state sanitary code warranted actual damages under Chapter 93A, as opposed to statutory damages.
After trial, the Housing Court issued judgment in the landlord’s favor for unpaid rent and costs but awarded the tenants possession of the property along with damages for the Chapter 93A violation. The Appeals Court agreed with the Housing Court that a personal decision to allow an acquaintance to reside at the recently purchased property to help him get on his feet “morphed into” a transaction occurring in a business context such that Chapter 93A applied. The Appeals Court concluded that the “totality of facts” sufficiently supported the Housing Court’s conclusion. Amongst those facts were that (1) the premises was owned by an LLC without evidence the LLC managers ever lived there; (2) the rental was not an isolated rental property for the LLC, as it managed other residential and commercial properties; (3) one of the LLC managers worked with the tenants to resolve issues, pay bills, and co-managed the premises and other properties owned or operated through another LLC manager; and (4) other tenants previously resided at the premises.
As to the second issue, the Massachusetts state sanitary code seeks to protect the health, safety, and well-being of occupants and the general public by requiring that the owner of a dwelling provide water, sewer, and electricity absent a written agreement for them to be provided by a dwelling occupant. Here, the landlord and tenant had a verbal agreement that the tenant was responsible for utilities. The failure to reduce the agreement to writing, according to the Appeals Court, amounted to technical state sanitary code and Chapter 93A violations. The Housing Court awarded the tenants the exact amount that they paid for water and sewer utilities. However, since the violation was only a technical one, the tenants had affirmatively agreed to pay for utilities since the tenancy’s inception, and the Housing Court made explicit and repeated findings that the violation did not constitute a breach of the covenant of quiet enjoyment, the Housing Court erred in awarding actual rather than nominal damages. As such, the Appeals Court upheld the liability determination but vacated and remanded the amount of those damages to the Housing Court for recalculation.
It does not appear that the Appeals Court properly considered and applied the injury requirement under Chapter 93A, § 9 when reaching the second conclusion. Although the Appeals Court correctly cited Tyler v. Michaels Stores, Inc., 464 Mass. 492, 502 (2013) and noted that a plaintiff must allege and ultimately prove a separate and distinct injury that arose from the Section 2 violation, it does not appear the Appeals Court required a separate and distinct injury. Instead, it appears that the Appeals Court relied solely on violation of the State Sanitary Code (which it concluded automatically violated 940 Code Mass. Regs. § 3.16(3) and amounted to a per se Section 2 violation). According to the Massachusetts Supreme Judicial Court in Klairmont v. Gainsboro Restaurant, Inc., 465 Mass. 165, 174 (2013), however, not every violation of the law violates 940 Mass. Code Regs. § 3.16(3) and, in turn, Section 2. Rather, code violations run afoul of Section 2 when “the conduct leading up to the violation is both unfair or deceptive.” In Klairmont, the SJC dealt with a building code violation and the argument that the code violation also violated 940 C.M. R. § 3.16(3), which triggered a per se Section 2 violation. The SJC, however, rejected the argument and, when doing so, concisely explained that the fact that a building code may qualify as a regulation “meant for the protection of the public’s health, safety, or welfare” (940 Mass. Code Regs. § 3.16(3)), does not mean that a violation of the building code necessarily qualifies as a violation of c. 93A, § 2. Section 2(a) proscribes unfair or deceptive acts or practices in the conduct of trade or commerce. Although the language of 940 Code Mass. Regs. § 3.16(3) “is unquestionably broad, by its terms it imposes the substantive limitation that the law or regulation at issue must be intended to protect consumers, and we further read the regulation as being bound by the scope of c. 93A, § 2(a).” As such, under 940 Code Mass. Regs. § 3.16(3), a violation of a law or regulation, including a building code violation, would violate Section 2 “only if the conduct leading to the violation is both unfair or deceptive and occurs in trade or commerce.”
Finally, the SJC recognized that whether a particular violation or violations qualify as unfair or deceptive conduct “is best discerned ‘from the circumstances of each case.’” It appears, however, that the Appeals Court adopted the more lenient per se violation without further analysis of Klairmont’s requirements.
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Mass. Appeals Court Clarifies Chapter 93A, Section 2 Standards: Takeaways from Bucci v. Campbell
In Bucci v. Campbell, the Massachusetts Appeals Court, in a summary decision, clarified standards that govern a trial court’s conclusions about whether acts or practices are unfair or deceptive under Chapter 93A, Section 2.
The underlying case concerned whether the defendants had breached a contract with the plaintiffs by failing to install a natural gas line to the plaintiffs’ lot. The jury found that the defendants (i) had breached the contract, (ii) had breached the implied covenant of good faith and fair dealing, and (iii) were liable for negligent, but not intentional, misrepresentation. The plaintiffs also asserted a Chapter 93A claim against the defendants, which the trial judge reserved for the court after the jury verdict, and later found that the defendants did not violate Chapter 93A. The plaintiffs appealed the Chapter 93A judgment.
In its decision, the Appeals Court first explained that whether acts are unfair or deceptive in their factual setting is a question of fact, but whether unfair or deceptive conduct rises to a level to violate Chapter 93A is a question of law and subject to a de novo review standard. Here, the trial judge found the defendants’ conduct to be “a bit sleazy” and based on “an extremely weak claim,” but it did not “rise to the level of rascality or misconduct” required to violate Section 2. Before getting to the merits of the judge’s conclusions, the Appeals Court noted that Chapter 93A no longer includes a “rascality” standard, which the Supreme Judicial Court rejected in 1995[1]. This, according to the Appeals Court, may have caused the trial judge to err.
Based on the trial judge’s acceptance of the jury’s findings, combined with the judge’s additional findings, the Appeals Court concluded that, as a matter of law, the defendants’ conduct was both unfair and deceptive under Section 2. Specifically, the court found the defendants’ negligent misrepresentation of fact, the truth of which could be reasonably ascertained, to be unfair and deceptive. With the addition of the “sleaziness” and “weak claim” the judge found, the defendants’ conduct was sufficiently “extreme or egregious” enough to violate Section 2. A breach of the implied covenant of good faith and fair dealing may also violate Section 2. Since the jury found such a breach here, and the judge found that they breached the covenant for their own economic advantage, the court had to conclude that their conduct violated Section 2 as a matter of law. The defendants’ conduct also was unfair under 940 Code Mass. Regs. § 3.16(2), which further supported the Appeals Court’s conclusions that the trial judge had erred in finding the defendants had not violated Chapter 93A.
This case demonstrates that unfairness and deception under Section 2 are fact based in a sense that a fact finder must determine whether conduct is unfair or deceptive in the factual setting at issue. Beyond that, it is for the court to decide whether the conduct—coupled with other relevant facts—is unfair or deceptive enough to violate Section 2.
[1] See Mass. Employers Ins. Exc. v. Propac-Mass, Inc.
Troubled Assets: Key Considerations
In the current cycle, asset quality remains strong at most institutions. There are occasional exceptions — a poorly managed business, a hurricane or other unexpected event, etc. — but for the most part, banks and other lenders have strong portfolios.
This, of course, will not last forever. Interest rates have risen in the last few years. Certain sectors, including office and retail, have faced headwinds as technology has fueled a rise in remote work and remote shopping.
It is prudent to plan for the next downturn. The following are some key considerations in dealing with troubled assets.
1. AN ENFORCEABLE WORKOUT IS A GOOD SOLUTION
As in most areas of the law, a settlement is better than litigation. If it is possible to structure a forbearance agreement to allow the borrower to come back into compliance with the loan obligations, that often is the best solution.
It is best to build in some protections for the lender, if possible under the circumstances. A forbearance agreement without some “teeth” often results in simply kicking the can down the road — delaying the default rather than remedying the situation.
If possible, the borrower should concede, in the forbearance agreement, the necessary elements the lender otherwise would have to prove in a court case to enforce its loan documents. In exchange for the lender’s forbearance, the borrower should concede that the loan is in default, the specific payments missed or other violations, the amount due, and that the borrower has no defense to payment. The borrower should concede that if it fails to abide by the terms of the forbearance agreement, the lender is entitled to a judgment against it in court in a specified amount. The borrower should concede that if it files for bankruptcy protection, it will, within the bounds of applicable bankruptcy law, cooperate with the lender’s efforts to lift any bankruptcy stay to pursue collateral.
2. DO YOU WANT THE COLLATERAL?
Another key consideration is the quality of the collateral. Real estate or other collateral for which there is a ready market at a good price of course is best, but not all loans have such collateral. Some real estate and other collateral can be difficult to manage and dispose.
The lender is not required to pursue the collateral, absent unusual provisions rarely contained in standard loan documents. A serious consideration whether to pursue the collateral, and what the lender intends to do with it if it forecloses, should be made at the outset.
Many loan documents provide for the appointment of a receiver as one of the lender’s remedies. A receiver is an officer appointed by a court to manage property until the lender is able to foreclose on it or the borrower is able to settle. For certain properties — office, retail, and multifamily in particular — a receiver can be a good option in some circumstances. The receiver takes control of the property, books, and records; pays the bills and operates the property; and in some circumstances is able to market it and bring potential buyers to the court for approval. A receiver can be a good option when a lender needs to have collateral managed and marketed appropriately without having to take title itself. The lender should bear in mind that while the receiver has control of the property, the lender will likely incur expenses. The receiver’s fee will have to be paid, as will the property’s operating expenses. To the extent that the property does not generate sufficient income to do this, the shortfall often must be covered by the lender until the property is sold. While any such advances usually can be added to the loan balance, they may not ultimately be recoverable.
3. IF YOU GET A MONETARY JUDGMENT, WHAT THEN?
The usual remedy to recover on a defaulted loan, of course, is to sue the borrower for the amount owed. Most such cases are straightforward. Assuming the lender can prove that it owns the loan, that the loan is in default, and what amount is due, the cases usually result in a judgment for the lender. While, in some circumstances, there can be lender liability issues to consider, most often the resolution is in the lender’s favor.
This, however, is only the beginning. A judgment is simply a piece of paper stating that the borrower owes a certain sum to the lender. It does not guarantee collection.
A survey of the borrower’s assets, beyond any pledged collateral, is an important first step. Does the borrower own real estate in its own name? A lender’s monetary judgment can become a lien on that property. Are there other liens that would be senior in time to the lender’s judgment? Is there enough remaining equity to make a levy upon the real estate worth it? The same analysis would apply with respect to personal property.
OTHER CONSIDERATIONS
Be ready for bankruptcy. Good bankruptcy counsel can guide a lender to the best resolution if a debtor files a bankruptcy petition.
Remember that there can be a market for your loan documents and for your monetary judgments. Private equity funds exist that will purchase your paper. An important protection to build into any sale of your paper is that the purchaser indemnifies and holds the lender harmless from any lender liability claims.
Trump Administration Directs CFIUS to Tighten Restrictions on Investment From Certain Countries While Easing National Security Reviews of Investments From Allies and Partners
On 12 February 2025, President Donald J. Trump signaled his administration’s approach to foreign investment policy with a presidential memorandum, “America First Investment Policy” (The Policy) Among the most significant priorities, The Policy directs the Committee on Foreign Investment in the United States (CFIUS or the Committee) to ease foreign investments by allied and friendly countries and to further restrict Chinese investment in critical sectors. This policy will substantially revise CFIUS’s approach under the Biden Administration by, among other things, instructing the Committee to rationalize the process for mitigation of national security threats. The Policy in general signals a shift to a more flexible atmosphere for investors from countries that the United States considers to be allies and partners, while requiring more in-depth reviews of investments from adversarial countries.
Key Changes to CFIUS and Investment Policies:
1. Facilitating Investments From Allies
Streamlined Processes
To encourage investments from allied nations, The Policy proposes a “fast-track” process for investors from key partner countries (to be identified). This initiative aims to ensure that such investments directly bolster US economic growth and innovation. Previous attempts to streamline friendly country investments through the “Excepted Investor” provision in the CFIUS regulations have been narrowly tailored and challenging to navigate.
A more expansive process could significantly impact CFIUS reviews, especially since most transactions over the past five years have involved investors from countries such as the United Kingdom, European Union member states, Canada, Japan, and the United Arab Emirates. The policy seemingly aims to create clearer guidelines, which might better distinguish between genuine national security threats and investment opportunities that pose limited risk.
The policy stipulates that the “fast-track” process will include conditions to prevent foreign investors from friendly countries partnering with investors from China.
For instance, companies engaged in significant joint ventures or joint research operations in China, particularly those that may benefit Chinese military development, may face exclusion from fast-track treatment.
Crucially, the policy directs “more administrative resources” toward facilitating investments from key partner countries to avoid the “overlay bureaucratic, complex, and open-ended ‘mitigation’ agreements for US investments from foreign adversaries.”
Additionally, the policy directs the federal government to expedite environmental reviews for any investment over US$1 billion.
2. Encouraging Passive Investment From All Sources
The policy appears to direct CFIUS to reverse a trend we have observed in the past four years toward increasingly difficult reviews of strictly passive investments, with no control or access to material nonpublic technical information, especially investments from China with no apparent connection to or control by the Chinese government. The policy notes that “the United States will continue to encourage passive investments from all foreign persons.” To the extent this includes investments from China or other countries of concern this could be a significant development in encouraging more access to capital for many US companies.
3. Enhanced Scrutiny of Chinese Investments
At the same time, the policy does signal additional restrictions on Chinese investments in key areas:
Targeted Sectors
CFIUS is instructed to intensify its review of foreign investments, particularly those originating from countries the US government considers to be adversaries or potential adversaries, such as China, in sectors such as sensitive technology, critical infrastructure, healthcare, agriculture, energy, and raw materials.
Real Estate
The policy emphasizes protecting US farmland and properties near sensitive facilities, and aims to expand CFIUS’s authority over “greenfield” investments to prevent foreign adversaries from gaining control over essential US assets. As a result of the Foreign Investment Risk Review Modernization Act of 2018, CFIUS jurisdiction was already expanded to real estate acquisitions and greenfield developments within proximity of certain military bases and other sensitive facilities such as maritime ports and airports.
4. Restrictions on Outbound Investments
Sensitive Technologies
According to the policy, the Administration is considering new or expanded restrictions on US outbound investments involving China, especially those related to sensitive technologies like semiconductors, artificial intelligence, quantum computing, biotechnology, hypersonics, and aerospace. These outbound investment restrictions will likely build on the Outbound Investment Program regulations under Executive Order 14032, which came into effect on 2 January 2025, and already restrict or requirements notification of investments in Chinese entities engaged in certain semiconductor, quantum, and AI development and production activities.
5. Increased Securities Oversight
The policy further expressed a policy emphasis on “auditing of foreign companies on US exchanges” including “reviewing their ownership structures and any alleged fraud.” Presumably, this would entail greater scrutiny to ensure that foreign issues listed on US exchanges accurately and full identify their direct and indirect shareholders. Although not mentioned, presumably the focus will be on Chinese companies, which will build on enhanced scrutiny of auditing and reporting methodology of Chinese issuers on US exchanges.
Implications for Investors
Opportunities for Allied Investors
Overall, the policy signals a shift in US policy to favor investments from allied and other nonadversarial nations, especially the “NATO plus” countries. Such investments could benefit from fast track review process as well as increased scrutiny of China and other countries considered by CFIUS to be of concern. However, such investors may still attract scrutiny if they maintain significant commercial operations in China, especially those in the critical technologies space. Rulemaking to implement the policy may be crafted in such a way to discourage friendly country investors from continuing significant operations in China.
Increased Compliance Requirements
Deals that involve any connections to Chinese investors should anticipate more rigorous CFIUS reviews. The scope of industries that may be considered to have a national security impact will also be broader, to the point that almost any China-connected investment should be carefully assessed for CFIUS considerations. The need to drill down into any potential connection to investors from China will be crucial for transactions aiming to benefit from the more open environment for allied and partner countries.
Strategic Investment Planning
US entities considering outbound investments in sectors like technology and infrastructure should stay informed about potential restrictions to avoid unintentional violations.
Next Steps
While some of the policy changes in the policy can be accomplished through a shift in enforcement priorities at CFIUS and other relevant agencies, other changes will require regulatory rule writing and even legislative changes. Proposed regulations should be issued shortly via an advance notice of rulemaking, which may give interested parties the opportunity to submit comments on final rules.
Mass. “Unlocking Housing Production Commission” Recommends Land Use and Zoning Reforms
Last Friday, Massachusetts’ “Unlocking Housing Production Commission,” established by Gov. Maura Healey in October, 2023, released its report titled “Building for Tomorrow.” The report lays out a series of recommendations to address the Commonwealth’s housing crisis, organized into several categories: Economic Incentives and Workforce Development; Land Use and Zoning; Regulations, Codes, and Permitting; and Statewide Planning and Local Coordination. Some of the recommendations are realistic and achievable; others are pie-in-the-sky pipe dreams that could never happen in the current environment (or, in some cases, in any imaginable future environment).
Of interest to regular readers of this blog, the report makes the following recommendations under the heading of Land Use and Zoning.
Eliminating Parking Minimums. Noting the significant effect on housing costs of mandatory surface and structured parking, and the corresponding consumption of land that could be beneficially used for other purposes, the Report recommends: (1) Eliminating parking minimums statewide for residential uses; and (2) Requiring municipalities to establish transportation demand management requirements as a condition for allowing off-street parking associated with new housing.
40A Reforms. The Report makes six recommendations to reform the state Zoning Act, Chapter 40A:
(1) Adding a statement of the purposes of zoning back into Chapter 40A. Such a statement was part of the bill establishing the current Zoning Act in 1975, but was not included in the statute as codified in the General Laws. One of the stated purposes of zoning is “[encouraging] housing for persons of all income levels.” The Report sees re-inserting the statement of purposes into Chapter 40A as an opportunity to highlight the role of zoning in addressing the Commonwealth’s housing needs.
(2) Incentivizing or requiring zoning to align with municipal master planning. The Report notes that many communities create master plans with 10- or 20-year growth strategies, but outdated zoning regulations often hinder achievement of these goals.
(3) Codifying site plan review. The Report observes that site plan review, which has become a key component in most municipal permitting regimes, is a creature of the common law that’s unregulated by Chapter 40A or any other statute. As a result, the process varies greatly from one municipality to the next, and often has the effect of making the development of housing more difficult and costly. The Report recommends codifying site plan review under Chapter 40A, including setting time limits, establishing uniform, objective criteria, allowing for tiered review systems depending on the size and scope of a project, and clarifying that notice to abutters is not required.
(4) Converting zoning appeals to court from their current status as “de novo” appeals to proceedings limited to the record that was before the local zoning board. The Report describes the benefit of this change as “prevent[ing] abutters from raising new issues on appeal that were never raised during the local approval process for the explicit purpose of delaying a project.” Amen to that.
(5) Amending Chapter 40A to add appeals of building permits to the list of appeals for which the defendant may move the court to require the plaintiff to post a bond. Currently, the statute only authorizes the imposition of a bond in appeals of special permits, variances, and site plans. The Report suggests this change “will strengthen the appeals process and disincentivize parties from levying baseless appeals.” Amen to that too.
(6) Requiring that land use appeals concerning the construction of 25 or more housing units be heard in the Land Court’s Permit Session, which offers attentive case management by the court and expedited timelines. Currently, under M.G.L. c. 40A, § 3A, appeals concerning projects involving 25 or more dwelling units may be brought in the Permit Session, or transferred there on the motion of any party, but are not required to be heard there.
The Report cites the following benefits of these proposed changes to Chapter 40A: strengthen the legal foundation for zoning to support housing production; reduce legal challenges and uncertainty for housing development; ensure zoning supports long-term housing and economic goals; improve permitting transparency and efficiency; streamline development timelines and reduce project costs; and enhance coordination between planning and zoning implementation.
Expanding Multifamily Housing Options. The Report makes two recommendations in this regard: (1) the Commonwealth should allow, by right, two-family homes on all residential lots and four-family homes on all residential lots with existing water and sewer infrastructure; and (2) the Commonwealth should require all municipalities to create multifamily zoning zoning districts, including by-right zoning for multi-family units proportional to each municipality’s overall housing stock, minimum density standards, requirements to ensure suitability of units for families with children, protection for environmentally sensitive land, and flexibility for municipalities to determine the size and location of multi-family projects, “with incentives for development near transit, commercial corridors, and job centers.”
Minimum Lot Size Reform. Under this heading the Report has two recommendations: (1) eliminate residential minimum lot sizes statewide; and (2) allow residential lot mergers, lots splits, and use of substandard lots statewide to create multifamily housing by right, except in environmentally sensitive areas and on excluded lands. Whoa. Can you say “non-starter”?
40R Reforms. Chapter 40R is a 2004 law that offers incentive payments to municipalities that create zoning districts in which high-density residential and mixed-use development, with a minimum of 20% affordable housing, is allowed by right. The Report acknowledges that Chapter 40R has been mildly successful, producing over 7.000 housing units, but observes that this pace is inadequate to address the Commonwealth’s huge housing shortage. The Report makes two recommendations to improve Chapter 40R: (1) scale affordability requirements to density, meaning require a higher percentage of affordable units at higher density levels, while maintaining “a non-negotiable minimum percentage of affordable units for each tier of density”; and (2) amend the statute to eliminate so-called “zoning incentive payments” to municipalities and instead channel those funds into bonus payments for units actually built, with a portion of the funds paid to the municipality and a portion paid directly to the developer.
40B Reforms. The Report recommends several changes to Chapter 40B, the Commonwealth’s groundbreaking 1969 statute that offers developers the opportunity to get a single “comprehensive permit” from the local zoning board, and avoid local zoning and other regulations, in municipalities that don’t have at least 10% affordable housing. Those recommendations are to strengthen Chapter 40B by (1) streamlining and speeding up the appeals process, including by expanding staffing at the Housing Appeals Committee, which hears developers’ appeals from adverse local decisions; (2) require parties who appeal comprehensive permits to post a mandatory bond to discourage baseless appeals; (3) increase the frequency of housing stock counts and updates to the state’s Subsidized Housing Inventory (SHI); (4) eliminate the requirement that affordable units must receive a financial subsidy to count towards the municipality’s SHI and instead treat oversight by and technical assistance from the Executive Office of Housing and Livable Communities and affiliated agencies as a form of subsidy; and (5) offer major financial incentives to municipalities that exceed the 10% statutory baseline, including grants for infrastructure improvements and technical assistance.
As noted, some of the Report’s recommendations – for example, allowing two-family homes by right on all residential lots and eliminating minimum lots sizes statewide – are unrealistic and politically unachievable given Massachusetts’ strong Home Rule tradition. Others are plausible and something to strive for – particularly the proposed reforms to Chapter 40A, some of which have been bandied about for years, and which can be seen as a logical extension of the pro-housing reforms the Legislature enacted last summer (see our coverage of that important bill here).
The Disadvantages of Timesharing: When a Dream Vacation Turns into a Nightmare
The idea of a long and idyllic vacation definitely sounds appealing, especially if we’re talking about the average person who works a 9 to 5 every day and barely finds any quality rest time. Recently, timesharing has gained popularity as a great way to get the well-earned vacation you deserve. A luxurious vacation property in […]
Maryland Extends Lender Licensure Enforcement Deadline Amid Industry Pushback
On February 18, 2025, the Maryland Office of Financial Regulation (OFR) extended its temporary moratorium on the enforcement of mortgage lender licensure guidance and emergency regulations it issued on January 10, 2025. In that guidance and regulations, the OFR for the first time applied the State’s mortgage lender licensure requirements to acquirers and assignees (including passive trusts) of residential mortgage loans on Maryland properties. The temporary moratorium will expire making the new compliance deadline July 6, 2025. Please read our earlier discussion of these emergency regulations in our legal update Even Passive Trusts?!? Maryland Extends Mortgage Lender Licensure Requirements to Holders of Residential Mortgage Loans.
Following broad pushback from industry stakeholders, including some who suspended all mortgage operations in Maryland, Senator Pamela Beidle and Delegate Pam Queen sponsored the Maryland Secondary Market Stability Act of 2025 before both chambers of the Maryland General Assembly. As proposed, the emergency bill would provide an exemption from Maryland’s mortgage lender and installment loan licensure requirements for entities under certain circumstances that acquire or are assigned certain mortgage loan and/or installment loans but who do not originate, service, or collect payments on these loans on their own behalf. In their February 18th release, the OFR indicated they “strongly support[] the passage of this bill to ensure the continued availability of mortgage loans for Maryland consumers.”
Finally, through its announcement, the OFR “clarifie[d] that commercial lenders making loans exclusively for business purposes under Maryland’s installment loan statutes . . . are not subject to OFR’s licensing requirements under mortgage lending and installment licensing provisions.”
Hunton will continue to monitor developments from the Maryland legislature and the OFR regarding these assignee licensure requirements and provide periodic updates to clients.
Second Circuit Upholds Reverse Redlining Verdict Against Mortgage Lender
On February 14, a divided Second Circuit panel upheld a 2016 jury verdict which found that a mortgage lender violated, among other laws, the Equal Credit Opportunity Act (“ECOA”) by engaging in “reverse redlining” when it allegedly targeted Black and Latino homeowners with predatory loans.
The majority held that the district court did not abuse its discretion by applying equitable tolling to the plaintiff’s claims, and rejected the mortgage lender’s argument that the statute of limitations began running at loan origination. Instead, the statute of limitations began to run when the plaintiffs discovered that they were the alleged victims of discrimination in connection with their predatory loans.
The majority also rejected the mortgage lender’s challenges to the district court’s jury instructions finding they sufficiently conveyed the requirement for proving disparate impact.
Putting It Into Practice: While we will likely see a pullback in ECOA enforcement under the Trump administration, financial institutions are reminded that many statutes, including ECOA, have an independent right of action. As such, we expect the plaintiffs’ bar to continue to remain busy in bringing lawsuits. Accordingly, lenders should continue to review their own fair lending protocols to ensure they maintain appropriate compliance practices.
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LLC’s Splitting into Six Companies Not Subject to Pennsylvania Realty Transfer Tax
The Pennsylvania Commonwealth Court held that the statutory division of a limited liability company (“LLC”) which resulted in the original LLC and five new companies—with each of the new companies owning a portion of the real estate of the original LLC—was not subject to state and local realty transfer tax as there was no transfer of real estate as contemplated by the statute. Kunj Harrisburg LLC, et. al. v. Commonwealth, No. 390 F.R. 2020 (Pa. Cmwlth. Jan. 10, 2025).
The Facts: Kunj Harrisburg LLC (“Kunj”) owned a Condominium Association consisting of seven condominium units in Adams County, Pennsylvania. Pursuant to the Entity Transactions Law (“ETL”), it subsequently filed with the Department of State a Statement of Division and an accompanying Plan of Division which divided Kunj into six companies consisting of Kunj and five new companies. Kunj remained the owner of two condominium units and each of the five new companies became the owner of one condominium unit. The six companies recorded deeds in Adams County reflecting the Plan of Division and claimed exemption from the realty transfer tax.
The Department of Revenue issued Notices of Assessment to the five new companies asserting that the deeds did not qualify for exemption and assessing tax. The companies were unsuccessful in their appeals to the Board of Appeals and the Board of Finance and Revenue.
The Decision: The Commonwealth Court first reviewed the realty transfer tax which imposes tax for the recording of any document and which defines a “document” to include any deed which conveys title to real estate in the Commonwealth. It then looked to the ETL which permits an entity to divide into one or more new associations and which states that the property allocated to a new association vests “without reversion or impairment, and the division shall not constitute a transfer, directly or indirectly, of any of that property.” 15 Pa.C.S. § 367(a)(3)(ii).
Relying on the “unambiguous language” in the ETL that an association created through a statutory division is a successor to the dividing association and does not acquire its property through the transfer of the property’s beneficial interest, the Court concluded that each deed at issue did not convey title to real estate, that each deed was therefore not a “document” as contemplated by the realty transfer tax law, and that no tax was due.
This case demonstrates that when there is unambiguous statutory support for a position, while it may take a couple of levels of appeal, a taxpayer should be victorious despite a taxing agency’s position.
Los Angeles Wildfire Resources: What to do About Your Mortgage
Among the immediate economic impacts faced by those whose homes were destroyed or damaged by the fires in Los Angeles County will be the need to address their home mortgages. There are many issues that homeowners will need to consider, including whether to continue paying the mortgage; what to expect from your lender; how to coordinate with lenders and insurers in anticipation of payments for immediate support and in the longer term, funds for reconstruction; and what support to expect from various government agencies who provide oversight and economic support under these circumstances. As with the other matters that homeowners are facing, it is best to approach each issue with a basic understanding of the resources available and your rights and remedies. While it is not possible to provide a comprehensive listing of every issue to consider, this alert covers what we consider to be some of the fundamental issues and recommendations for proceeding.
1. Lender Communications and Initial Relief.
Reach out to your lender as soon as practicable to discuss the condition of your property and the status of your loan. Prompt and open communications with your lender will likely be met with offers of immediate relief in the form of a loan forbearance. As has been reported in the news, the major banks have already stated that they will be offering such forbearances to all affected borrowers. Note, while some lenders may approach you with offers of a loan modification, you should consider whether you have sufficient information to enter into any agreement beyond a forbearance agreement at this time. Before you can proceed with a loan modification, you will need to have a complete financial plan in place which takes into account the value of the property, the cost to rebuild or repair, sufficiency of insurance coverage, and availability of funding from the numerous government programs and those which may become available in the coming months.
2. Review Your Loan Agreements and Applicable Insurance Policies.
Before you can fully consider your longer-term approach to your mortgage, you will need to study both the loan documents and your insurance policies because the lender will be named as additional insureds on your policy and will have rights to proceeds otherwise payable to you. Again, while lenders have stated their intent to cooperate, you will want to be sure that your lender and you are on the same page as you and your insurance company regarding the use of funds provided for immediate needs (i.e., housing and expenses) as well as funds made available for design and repair or reconstruction of your home.
3. Insurance, Loan Repayment, and Reconstruction or Repair.
Many borrowers will be looking at the limits on their policies and be concerned that there will be insufficient insurance proceeds to reconstruct (or even repair) their homes. First, it is important to note that borrowers should not assume that they have inadequate coverage based on current information that has been published about building costs and timing of such construction. The adequacy of your limits needs to be addressed on a case-specific basis to determine how much it will cost to rebuild your home and whether your limits, including extended replacement cost coverage, if applicable, are adequate. Note, even if you find that you are underinsured, you will have options beyond the policy to address such shortfalls in the form of government loans and grants (i.e., See sources provided by FEMA and the California Department of Financial Protection and Innovation). At the same time, you will need to coordinate with your lender to be sure that both the lender and you are in agreement regarding the use of the insurance proceeds. The lender must allow you to use the insurance proceeds to reconstruct your home, as long as you can demonstrate that the value of the completed home will be sufficient to satisfy the debt. In other words, the lender’s interest in the collateral will not be impaired upon completion of the construction project.
The Rules That Apply to Foreign Persons Purchasing Established Homes in Australia are Going to Change on 1 April 2025…. So, You May Need to Act Now
The Hon. Jim Chalmers MP, Federal Treasurer and the Hon. Clare O’Neil MP, Minister for Housing, Minister for Homelessness issued a joint media release on 16 February 2025 titled “Albanese Government clamping down on foreign purchase of established homes and land banking”.
The media release foreshadows changes to the rules that apply when a foreign person buys an established dwelling or undertakes a land development.
Parts of the media release are extracted below:
The Albanese Government will ban foreign investors from buying established homes for at least two years and crack down on foreign land banking.……..This is all about easing pressure on our housing market at the same time as we build more homes.………We’re banning foreign purchases of established dwellings from 1 April 2025, until 31 March 2027. A review will be undertaken to determine whether it should be extended beyond this point.The ban will mean Australians will be able to buy homes that would have otherwise been bought by foreign investors.Until now, foreign investors have generally been barred from buying existing property except in limited circumstances, such as when they come to live here for work or study.From 1 April 2025, foreign investors (including temporary residents and foreign owned companies) will no longer be able to purchase an established dwelling in Australia while the ban is in place unless an exception applies.………We will also bolster the Australian Taxation Office’s (ATO) foreign investment compliance team to enforce the ban and enhance screening of foreign investment proposals relating to residential property by providing $5.7 million over 4 years from 2025–26.This will ensure that the ban and exemptions are complied with, and tough enforcement action is taken for any non‑compliance.………We’re cracking down on land banking by foreign investors to free up land to build more homes more quickly.Foreign investors are subject to development conditions when they acquire vacant land in Australia to ensure that it is put to productive use within reasonable timeframes.………
Here are some initial observations:
The consequences of contravening Australia’s foreign investment laws are serious. The media release raises a number of questions, and the full implications will naturally depend upon the precise wording of the changes.
The media release notes “The ATO and Treasury will publish updated policy guidance prior to the commencement of the changes” (i.e. before 1 April 2025).
The existing rules already tightly limit the classes of foreign buyer who can acquire established homes. Currently this is essentially limited to:
A temporary resident (or their spouse) who is going to use the dwelling as their place of residence while in Australia and who applies for and obtains approval;
A buyer who is planning to redevelop the dwelling where the redevelopment will genuinely increase Australia’s housing stock and who applies for and obtains approval; and
Foreign controlled companies who are planning to purchase an established dwelling to house an Australian based employee and who apply for and obtain approval.
It seems clear the Government is also removing the ability for foreign companies to buy established dwellings to house their Australian based staff. While the Government may allow exceptions as it has flagged in the media release, this detail is yet to be seen.
We query whether there are other alternatives to an outright ban, such as only a ban on housing below a prescribed price threshold (area by area).
It is unclear from the media release if the Government is going to change the rules applicable to holders of an Australian permanent resident visa. But we suspect changes are not proposed for holders of an Australian permanent resident visa.
The message from the media release is that where a foreign person has already acquired or intends to acquire vacant land or an established dwelling for redevelopment, the foreign person should assume there is going to be:
More active monitoring of compliance with conditions (eg vacant residential land approvals require construction of all dwellings to be completed within four years of the date of the notice of approval); and
More rapid application of existing enforcement options.
If you currently have a Foreign Investment Review Board (FIRB) approval, make sure you are in complying with the conditions and seek advice if you are not.
We query whether the Government intends to revisit the rules when a foreign person rents a residential dwelling or whether the foreshadowed changes will just apply to purchases.
If a foreign person is unable to acquire an established dwelling, then that person will need to either acquire a new dwelling or access the rental market. The changes may increase still further the demand for dwellings to rent.
If a foreign person is planning on acquiring an established dwelling, take advice and seriously consider doing so before 1 April 2025.
Foreign Investor Surcharges
All six Australian States impose transfer duty surcharges on acquisitions of residential related property acquired by a foreign person (including a foreign company or trust). Typically, the surcharge duty rate is 7% or 8% and applies in addition transfer duty at general rates.
Further, some States and the Australian Capital Territory also impose surcharge land tax on foreign persons that own residential related property.If foreign buyers are prohibited from acquiring existing homes, this may have some impact on the level of surcharge duty and surcharge land tax revenue that will be collected at a State and Territory level.
Caution on Australian Citizens Buying for Foreign Persons
There are some circumstances in which family members (say, as a spouse or adult child) who are Australian citizens or permanent residents may want to acquire and hold property for family members who are foreign. The intention may be to avoid existing FIRB restrictions as well as the above- mentioned foreign investor surcharges.
Such arrangements are high risk and caution should be exercised.
Typically, such arrangements will create a trust relationship between the “apparent purchaser” (i.e. the Australian citizen) and the “real purchaser” (i.e. the foreign person who provides the money for the purchase).
Most Australian States and Territories now require a purchaser of land to provide a declaration which sets out:
Whether the purchaser is acquiring the land for their own purposes (or on trust for another person); and
If the purchaser is acquiring as trustee for another person, whether the beneficiaries of the trust are foreign.
Further, the duties and land tax legislation in most jurisdictions will apply to such arrangements. For example, section 104T in the Duties Act 1997 (NSW) expressly captures “apparent purchaser arrangements” such as those described above for surcharge purchaser duty purposes.
We note that a written agreement is not required to create a treat relationship. A verbal agreement can suffice.
A purchaser who provides a false declaration and does not disclose they are acquiring and holding a property on trust for a foreign person may commit an offence.
There are also risks for the foreign person on whose behalf the property has been purchased. If there is a break down in the relationship between the parties, it may be difficult for the foreign person to demonstrate that they are the real owner of the property (and the party entitled to the benefit of any rents or sale proceeds).
All tax and legal risks should be fully considered if any such arrangements are contemplated.
How can we Help?
We will continue to monitor changes to the rules that apply to acquisitions of established dwellings by foreign persons in Australia and will provide a further update when the new policy is released.