Category: Real Estate

Top Ten Trends in I-526 Requests for Evidence

The National Law Review recently published an article by Kate Kalmykov of Greenberg Traurig, LLP regarding I-526 Requests for Evidence:

GT Law

1. Lack of five years of tax returns.  In countries where tax returns are not readily available it is advisable for applicants to provide copies of the relevant sections of the law that explain the tax filing requirements, as well as corroborating evidence from independent third parties such as accountants.  In certain countries employers pay taxes directly on their employees.  In these cases it is advisable that EB-5 investors request this documentation directly from their employer or a corroborating letter attesting to their salary and compliance with the tax filing requirements of their home country.

2. Sale of Property.  USCIS seems to be requesting extensive documentation related to the sale of property if it was purchased less than 7 years ago.  Investors are advised to present sales contracts, deeds, and bank statements showing the sale and transfer of proceeds from the sale of property.  In cases where property was purchased over 7 years ago and evidence is not readily available, as long as a reasonable explanation for the lack of funds is given, USCIS seems to be showing more leniency.

3. Home Equity Loans as Source of Funds.  As the EB-5 program grows in popularity, many investors, particularly those from China have begun to obtain home equity loans for their EB-5 investments.  While investment through loan proceeds are permitted in EB-5, USCIS requires that the Investor prove that they have secured the loan with collateral as well as evidence that they are able to make payments on the loan from a lawful source.

4. Loans from a Petitioner’s Business, another popular source of EB-5 investment funds, particularly with Chinese nationals.  In these cases, USCIS often requests proof of approval from the company’s Board of Directors for issuance of the loan.  Likewise, USCIS requires proof that the investor has the ability to repay the loan.

5. Petitioner’s Salary.  USCIS often requests evidence to show that the investor has a level of income and savings that enables the investor to make the EB-5 investment.  To this end, USCIS may request proof of the investor’s yearly expenses as well as records of ongoing salary.

6. Retained Earnings from Investor’s Business.   Investors must demonstrate that they were allowed access to the funds that they ultimately used for their EB-5 investment and that they had authority to make distributions to themselves.

7. Gift Taxes.  More and more USCIS is requesting proof that the investor has complied with the home country’s gift tax requirements.  Likewise, the giftor must demonstrate their source of funds, as well as their understanding that the gift was made without an expectation of repayment.

8. Use of Intermediaries.  In some countries, like China individuals are restricted in the amount of foreign currency that they can exchange each year.  Where “friends and family” are used to assist in transferring money out of the country, bank statements or currency exchange receipts are often required to demonstrate:

  • Transfers from the investor to the friends and family members
  • Transfers from each friend and family member to the investor’s overseas account
  • Transfer from the Investor to the Regional Center

9. Proof of Common Country Specific Currency Practices.  Many countries operate on a “cash” economy and money is not often deposited in banks.  In these instances, it is important to provide independent, third-party evidence of these practices to account for any “gaps” in the trace of funds.

10. Proof of Source of Administrative Fee.  In addition to the required $500,000 (TEA investments) or $1,000,000 investment amount required by the EB-5 regulations, regional centers often charge a one-time administrative fee ranging from $30,000-60,000 to each investor. EB-5 investors that have been through the process know that the regulations only require that they  demonstrate the source of their EB-5 investment.  Not their entire net worth or earnings over time.  However, USCIS has begun to impose an additional requirement as of late by requesting that investors demonstrate the source and trace of their administrative fee.

©2012 Greenberg Traurig, LLP

Underwater Condos – They Have Their Own Considerations Before Deciding on a Short Sale or Other Option

The Business Real Estate and Transactions Practice Group of Williams Kastner recently had an article about Underwater Condos published in The National Law Review:

 

A client recently brought to me a situation where his nephew’s new wife had purchased a condominium unit prior to their wedding. She financed the entire price with two mortgages and now it’s under water.

When advising owners of distressed properties it’s easy to begin with a discussion of the owner’s financial situation. Is this the only problem or are they bankruptcy candidates? Will the owner need credit in the near future for a job transfer or to finance a business?

With condos, my first questions go to the marketability of the unit:

  • What’s the owner occupancy ratio? Are we looking for a landlord or someone who wants to live there? Owner occupancy rates affect the availability and cost of financing as well as the type and number of willing buyers.
  • How healthy is the homeowners association? If owners have stopped paying their assessments the HOA could be under funded. This would discourage almost all buyers.
  • How well has the HOA planned for major repairs and capital improvements? Is there a reserve study? Will there be large special assessments in the coming years for roofing, painting, deck replacement, etc.?
  • Has the owner been paying their assessments? If not, will they be able to bring the assessments current at closing?

Many owners are unable to answer these questions because they stopped reading newsletters and minutes from the Board or going to owners meetings.

There are opportunities for investors and others in distressed properties. But, to help an owner, much of the craft is in knowing the questions that will quickly tell you what you’re dealing with. When it comes to condos, I want to know about the marketability of the unit before spending much time on the owner’s financial situation.

© 2002-2012 by Williams Kastner

FTC Obtains Injunction, Asset Freeze on Alleged Mortgage Scam

The National Law Review recently published an article by Steven Eichorn of Ifrah Law regarding a Recent FTC Injunction:

The Federal Trade Commission has obtained an order from the federal court for the Central District of California for a preliminary injunction and asset freeze against all the defendants in an alleged mortgage modification scam.

The complaint was filed against California-based Sameer Lakhany and a number of related corporate entities for violating the Federal Trade Commission Act and the Mortgage Assistance Relief Services Rule, now known as Regulation O.This was the first FTC complaint against a mortgage relief scheme that falsely promised to get help for homeowners who joined with other homeowners to file so-called “mass joinder” lawsuits against their lenders.

The complaint listed two separate alleged schemes that collected over $1 million in fees and used images of President Obama to urge consumers to call for modifications under the “Obama Loan Modification Programs.”

The first scheme was a loan modification plan under which the defendants allegedly promised substantial relief to unwary homeowners from unaffordable mortgages and foreclosures. Their website featured a seal indicating that it was an “NHLA accredited mortgage advocate” and that NHLA is “a regulatory body in the loan modification industry to insure only the highest standards and practices are being performed. They have an A rating with the BBB.” Unfortunately, the NHLA is not a “regulatory body” and it actually has an “F” rating with the BBB.

The defendants reinforced their sales pitch by portraying themselves as nonprofit housing counselors that received outside funding for all their operating costs, except for a “forensic loan audit” fee. According to the FTC, the defendants told consumers that these audits would uncover lender violations 90 percent of the time or more and that the violations would provide leverage over their lenders and force the lenders to grant a loan modification. The defendants typically charged consumers between $795 and $1595 for this “audit.” Also, if the “audit” did not turn up any violations, the consumers could get a 70 percent refund. Unfortunately, there were often no violations found, any “violations” did not materially change the lender’s position, and it was nearly impossible to actually get a refund for this fee.

The second alleged scheme was that the defendants created a law firm, Precision Law Center, and attempted to sell consumers legal services. Precision Law Center was supposed to be a “full service law firm”, with a wide variety of practice areas. It even claimed to “have assembled an aggressive and talented team of litigators to address the lenders in a Court of Law.” However, the FTC charged that the firm never did anything besides for filing a few complaints, which were mostly dismissed.

To assist Precision Law Center in getting new clients, the defendants sent out direct mail from their law firm that resembled a class action settlement notice. The notice “promised” consumers that if they sued their lenders along with other homeowners in a “mass joinder” lawsuit, they could obtain favorable mortgage concessions from their lenders or stop the foreclosure process. The fee to participate in this lawsuit was usually between $6,000 to $10,000. The material also allegedly claimed that 80 to 85 percent of these suits are successful and that consumers might also receive their homes free and clear and be refunded all other charges.

The defendants’ direct mail solicitation also contained an official-looking form designed to mimic a federal tax form or class action settlement notice. It had prominent markings urging the time sensitivity of the materials and it requested an immediate response.

Obviously, these defendants employed many egregious marketing techniques that crossed the FTC’s line of permissibility. However, in light of the FTC’s renewed focus on Internet marketing, even a traditional marketing campaign should be carefully crafted with legal ramifications in mind.

As a final note, it is always smart not to antagonize the FTC by proclaiming (like the defendants here did) that they are “Allowed to Accept Retainer Fees” because it was “Not covered by FTC.” We couldn’t think of a better way to get onto the FTC’s radar screen!

© 2012 Ifrah PLLC

U.S. Department of Justice Postpones ADA Requirements for Swimming Pools and Spas

Recently The National Law Review published a paper by the Labor and Employment Law Department of Barnes & Thornburg LLP regarding the ADA Requirements for Pools and Spas:

On March 20, 2012, the U.S. Department of Justice (the Department) announced an immediate 60-day postponement of the effective date for the accessibility requirements for pools and spas subject to either Title II (state and local government programs) or Title III (places of public accommodation). These requirements will now take effect on May 21, 2012.

The Department also is contemplating further extending the effective date, and simultaneously issued a Notice of Proposed Rulemaking (NPRM) soliciting public comment as to whether the effective date of the pool and spa requirements should be postponed until Sept. 17, 2012, 180 days from the original effective date. The Department indicated that it was taking this action in order to allow pool owners and operators additional time to address certain misunderstandings regarding these requirements and their application to existing pools and spas.

On Sept. 15, 2010, the Department adopted the 2010 ADA Standards for Accessible Design (2010 Standards), which took effect on March 15, 2012. The 2010 Standards contain requirements for accessible means of entry into and exit from swimming pools and spas as follows:

  • Swimming pools with at least 300 linear feet of pool wall must provide two accessible means of entry and exit from the pool.  At least one means of entry and exit must be either a sloped entry (i.e., ramp) or pool lift that complies with the requirements set forth in Section 1009 of the 2010 Standards.  The second means of entry and exit can be either a transfer wall, transfer system or pool stairs.  (Wave action pools, leisure rivers, sand bottom pools and other pools with only one area for entry are required to provide only one accessible means of entry and exit.)
  • Swimming pools with less than 300 linear feet of pool wall are required to provide only one accessible means of entry and exit, provide that means is either a sloped entry or pool lift.
  • Only one accessible means of entry and exit is required into spas. This means of entry and exit must be either a pool lift, transfer wall or transfer system.  Furthermore, where more than one spa is provided in a cluster, only five percent (5%) of the spas are required to have an accessible means of entry and exit.

On Jan. 31, 2012, the Department issued technical guidance with respect to these requirements, in particular the manner in which they pertain to existing pools and spas.  See “ADA 2010 Revised Requirements: Accessible Pools – Means of Entry and Exit,” available athttp://www.ada.gov/pools_2010.htm ). Use of pool lifts generally is the most convenient method for providing access to existing pools and spas. In its technical guidance and in subsequent correspondence further explaining the pool requirements, the Department indicated that under Title II (state and local government programs), access could be provided through the use of portable pool lifts.  Under Title III, however, the Department indicated the pool lift must be fixed, or at least capable of being affixed to the pool deck or apron when in use; use of portable lifts is permitted only if provision of a fixed lift is not readily achievable. This difference stems from the fact that unlike Title III, which requires the removal of physical barriers to access where readily achievable, Title II permits state and local programs to provide access to existing facilities via alternative methods, including the purchase of equipment, in lieu of making structural modifications. Whether covered under Title II or Title III, however, newly constructed pools must comply with the 2010 Standards, and altered pools must comply to the maximum extent feasible.

In its technical guidance, the Department also indicated that pool lifts must be in place during the hours the pool or spa is open.  Where a facility has multiple pools or spas that are required to be accessible, a pool lift cannot be shared among the pools and spas, unless providing multiple lifts creates an undue burden.

Following issuance of the technical guidance, certain pool owners and operators expressed concern over its substance and urged the Department to permit the use of portable lifts under Title III and to permit pool lifts to be shared among pools.  They also raised safety concerns regarding the Department’s position that pool lifts must be in place during the hours the pool or spa is open.

In issuing its NPRM to further extend the effective date of the pool and spa requirements, the Department emphasized that it will not revisit the merits of the accessibility requirements for pools and spas.  Public comments on the issue of whether the effective date of these requirements should be further extended to Sept. 17, 2012 must be submitted no later than April 4, 2012.

© 2012 BARNES & THORNBURG LLP

DOJ Goes After Smaller Fraudsters, Lets Big Fish Escape

An article featured recently in The National Law Review regarding the Department of Justice’s Prosecuting Fraud was written by Nicole Kardell of Ifrah Law:

Successful criminal prosecutions of mortgage fraud seem to have one thing in common: a fraud figure well below $10 million. One of the recent cases that generated a fair amount of press involved the convictions of co-conspirators in a mortgage scheme carried out by an ex-NFL player. That scheme, which took place during the housing boom in the early 2000’s, resulted in 10 convictions. Former Dallas Cowboy linebacker Eugene Lockhart is facing jail time of up to 10 years. The nine other individuals are looking at sentences of roughly two to five years.

The mortgage scheme – which led to convictions for wire fraud, conspiracy to commit wire fraud, and making false statements to a federal agency – seems pretty typical of the conduct that prosecutors have been going after: the use of “straw borrowers” to apply for loans on home purchases; falsification of data on loan applications to ensure that straw borrowers would qualify for home loans; and creation of artificially high appraisal values for the homes to be purchased by the straw borrowers. In the case of Lockhart and his cohorts, the Justice Department alleges that the scheme resulted in an actual loss to lenders of roughly $3 million.

While $3 million is not a trivial sum, it is a very tiny portion of the housing industry. Even the total amount in all similar prosecutions nationwide is quite small. Recent headline prosecutions involving similar schemes include a Florida case valued at $8 million in loan proceeds, an Alabama case valued at $2 million, and a New York case valued at $82 million in loan proceeds. At least the latter is a more aggressive number (as apparently was one of the defendants in the New York case, who moonlighted as a dominatrix in a Manhattan club).

The government has been touting these prosecutions as a part of a major crackdown on the mortgage business. The DOJ press statements note that“[m]ortgage fraud is a major focus of President Barack Obama’s Financial Fraud Enforcement Task Force.” But these are comparatively minor matters if one looks to the real causes of the housing crash that led to the 2008 financial crisis. Bank of America, Goldman Sachs, JPMorgan Chase, and Wells Fargo, who were all in the business of packaging and selling subprime mortgages, have been more or less covered with Teflon.

The lack of criminal prosecutions against the big banks in the subprime crisis has been written about many times. But that doesn’t mean it’s not worth repeating. Something seems just wrong about the DOJ’s focus on the smaller fraudsters and its soft approach to the bigger players.

Hopefully, the SEC’s recent decision to send Wells notices to Goldman Sachs, JPMorgan Chase, and Wells Fargo indicating possible enforcement proceedings, means that at least these banks could face some civil liability for their role in the housing crash. And Bank of America recently settled a False Claims Act case with the Feds for $1 billion. But approaching the banks with civil actions, and skirting individual culpability, sends the message that once you reach a certain level of success, you are above the law.

© 2012 Ifrah PLLC

What is an LLC and How Does an LLC Work?

Featured recently in The National Law Review an article by Christopher J. Caldwell and Laura E. Radle of Varnum LLP regarding LLCs:

Varnum LLP

Many cottage owners have heard of others who have established a “Cottage LLC”. But what exactly does this mean? What is an LLC? How does an LLC which owns a cottage work and why would someone use an LLC to own his or her cottage?

Simply put, an LLC is a “limited liability company,” which has some features of both partnerships and traditional corporations. It provides greater liability protection than individual ownership and may have perpetual existence. However, an LLC is also somewhat simpler to manage than a traditional corporation.

In an LLC the owners are called members. The LLC can be controlled either by its members or by managers who are selected by the members. In family cottage situations, selecting one or two managers (who may be members) typically works best.

The rules and regulations of an LLC are set forth in the LLC’s operating agreement. The operating agreement can be as basic or as detailed as the members wish. At a minimum, when created for cottage ownership, the operating agreement should discuss the potential sale or transfer of the cottage, management responsibilities, contributions for expenses, potential for renting, scheduling of time, liability of the owners, and an exit strategy if one owner wants to end the relationship. The primary goal of the LLC – as addressed by the operating agreement – is to provide clear rules, rights and obligations for all of the members.

Cottage owners often need to use an entity that will provide a liability shelter (for example, if the cottage is rented to third parties). But the owners also need an entity that does not require a lot of time to maintain. And, most importantly, because cottage owners want to be able to tailor the operating agreement to fit their lifestyles, they need an entity that is flexible. The LLC has all of these attributes, making it a great match for cottage owners. And once an LLC is established, cottage owners will be able to focus on the fun part of their ownership, spending carefree and conflict-free time at the cottage.

© 2012 Varnum LLP

Google, Microsoft Assume Roles of Judge, Jury and Executioner on the Web

Published December 6, 2011 in The National Law Review an article by Nicole Kardell of Ifrah Law regarding Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation:

 

 

Google, Yahoo! and Bing have suspended their accounts with hundreds of advertisers and agents associated with mortgage programs under federal investigation. The move by Google and Microsoft (Microsoft powers Bing and Yahoo!) has basically shut down these businesses: Without the vehicle of the search engines, these sites cannot effectively generate traffic.

Why did Google and Microsoft cut the cord of these companies, and is there anything the companies can do? Google and Microsoft (we’ll call them the Government’s “Judge, Jury, and Executioner” or the “Enforcers”) acted upon the request of SIGTARP, a federal agency charged with preventing fraud, waste, and abuse under TARP’s Home Affordable Modification Program. (The pressure started a while back, as we wrote last March.)

SIGTARP is investigating mortgage programs that it believes have been wrongly charging “struggling homeowners a fee in exchange for false promises of lowering the homeowner’s mortgage.”

According to a source at SIGTARP, the agency handed Google and Microsoft a list of some 125 mortgage “schemes.” Apparently, the Enforcers then took that list, identified advertisers and agents associated with those mortgage programs, and opted to suspend relations with those companies (about 500 advertisers and agents for Google and about 400 for Microsoft). (SIGTARP’s announcements on these actions can be found here andhere.)

So it looks as if these companies have been penalized through government action without any adjudicative process, merely through government pressure on private companies, i.e. Google and Microsoft. (More analysis from us on this to come.)

It’s easy to understand why the Enforcers would feel pressure. Google just settled with the Department of Justice and agreed to pay more than $500 million for its role in publishing prescription drug ads from Canada. Those familiar with that settlement may see Google’s recent actions for SIGTARP as follow-on. Likely Google is more apt to buckle to the Feds quickly because of the costly settlement, but the matters are not directly related. In fact, the prescription drug settlement agreement relates to prescription drug ads only.

While the SIGTARP investigation is “ongoing,” and Google and Microsoft are continuing to cooperate with the agency, what can companies who have been caught up in this firestorm do? The Enforcers do, fortunately, have grievance processes (see, for instance, Google’s grievance process here).

Either on their own, or with some added strength through legal representation, the companies can try to make their cases regarding the content and nature of the ads at issue.

What is the next step going to be? If the Federal Trade Commission identifies, say, a group of websites that it believes are promoting bogus weight-loss schemes, will the Enforcers simply move to shut off their access to the Web, without further ado?

© 2011 Ifrah PLLC

Common Attornment Provision Held Ineffective After Master Lease and Sublease Rejected in Bankruptcy by Debtor-Sublandlord

Posted in the National Law Review an article by attorney  Howard J. Berman of  Greenberg Traurig regarding a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord:

GT Law

In Green Tree Serv., LLC v. DBSI Landmark Towers LLC,1 a case that is significant for landlords and leasing attorneys, the Eighth Circuit recently held that a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord, notwithstanding an attornment provision in the sublease requiring the subtenant to attorn2 to the landlord when the landlord either terminates the master lease or otherwise succeeds to the interest of the sublandlord under the master lease.

Because the Eighth Circuit’s decision hinges on an interpretation of an attornment provision that is common in many sublease agreements, landlords and practitioners must be careful to draft attornment provisions that do not run afoul of the decision.

 

 

In a strict construction of the attornment provision, the court determined that because the master lease was rejected by the debtor-sublandlord and not terminated by the landlord, the attornment provision was never triggered. Because the Eighth Circuit’s decision hinges on an interpretation of an attornment provision that is common in many sublease agreements, landlords and practitioners must be careful to draft attornment provisions that do not run afoul of the Eighth Circuit’s decision.

In Green Tree, the landlord leased an office building to the debtor, DBSI Landmark Towers Leaseco, LLC (“DBSI”), under a master lease. DBSI then subleased the property to Green Tree Servicing, LLC (“Green Tree”). The master lease agreement between the landlord and tenantsublandlord DBSI required that any sublease include a provision providing for the subtenant to attorn to the landlord in certain circumstances. The sublease agreement entered into between DBSI and subtenant Green Tree required Green Tree to attorn to the landlord if the “[landlord] ‘terminates the Master Lease’ or ‘otherwise succeeds to the interest of [DBSI] under the foregoing Lease.’” 3

After tenant DBSI filed for bankruptcy, it rejected its master lease as well as its sublease with Green Tree pursuant to order of the bankruptcy court. In its motion to reject, DBSI indicated that the sublease would be terminated as a result of the rejection. In response, Green Tree exercised its rights under section 365(h) of the Bankruptcy Code (which allows a tenant whose lease is rejected by a debtor-lessor to either remain in possession or treat the lease as terminated) to treat the sublease as terminated.4 Although sublandlord DBSI did not object to Green Tree’s election to terminate the sublease, the landlord objected, claiming that the terms of the sublease required subtenant Green Tree to attorn to the landlord.5Green Tree then commenced an action in Minnesota state court seeking a declaration that the sublease was terminated and that it could vacate its premises. The landlord removed the case to federal court and cross-claimed for a judgment affirming the sublease.

The Eighth Circuit rejected Green Tree’s argument that because it exercised its right to terminate the sublease under section 365(h) it had no obligation to the landlord under the attornment provision in the sublease, stating “nothing in section 365(h) indicates that a debtor-lessor’s rejection of a lease extinguishes a third party’s rights and obligations under the lease.”6 The court then analyzed the language of the attornment provision strictly and determined that it would be triggered only when the landlord terminates the master lease or otherwise succeeds to the interest of sublandlord DBSI.7 Because DBSI and not the landlord rejected the master lease in DBSI’s bankruptcy case and because DBSI rejected and terminated the sublease, the court held that the attornment provision was never triggered and that subtenant Green Tree was free to vacate the premises. 8In reaching this conclusion, the court noted that DBSI never assigned its contractual interest in the sublease to the landlord prior to DBSI’s rejection and termination of the sublease and that the landlord “could not succeed to the interest in the sublease that no longer existed . . . .”9 Here, the only contractual interest to survive under the sublease was the landlord’s right to attornment, which right was not triggered.10

In light of the court’s strict interpretation of the attornment provision, landlords must be careful to include language in attornment provisions in both the master lease and sublease making it clear that a subtenant must attorn to the landlord in the event that a master lease and/or sublease is rejected under section 365 of the Bankruptcy Code by a debtor-sublandlord.

1__F. 3d__, 2011 WL 3802800 (8th Cir. Aug. 30, 2011).

2The term “attorn” means ‘“[t]o agree to be the tenant of a new landlord.’” Id. at *1 n. 5 (quoting Black’s Law Dictionary,
147 (9th ed. 2009)).

3Green Tree Serv., 2011 WL 3802800 at *1

411 U.S.C. § 365(h)(1)(A) provides in pertinent part:

If the trustee rejects an unexpired lease of real property under which the debtor is the lessor and –

(i) if the rejection by the trustee amounts to such a breach as would entitle the lessee to treat such lease as terminated by virtue of its terms, applicable nonbankruptcy law, or any agreement made by the lessee, then the lessee under such lease may treat such lease as terminated by the rejection . . .

5 See Green Tree Serv., 2011 WL 3802800 at *1.
6 Id. at *2 (citation omitted).
7 Id. at *3.
8 Id. at *3.
9 Id.
10Id.

©2011 Greenberg Traurig, LLP. All rights reserved.

Mortgage Industry to Face Centralized Repository for State Regulatory Enforcement Actions – Deadline for Comments is September 20, 2011

Posted in the National Law Review an article by attorney  Thomas J. McKee, Jr., Gil Rudolph and Michael R. Sklaire of Greenberg Traurig, LLP regarding State Regulatory Registry LLC (SRR);

 

 

Deadline for Comments is September 20, 2011

On July 22, 2011, the State Regulatory Registry LLC (SRR) issued a Request for Public Comments on a proposal to collect, centralize and publish all state regulatory enforcement information concerning mortgage loan originators. By creating a central source of investigation information, the SRR aims to provide a repository of background information for both consumers and other state and federal regulators. Before implementing, the SRR has asked for public comments to be submitted by September 20, 2011.

In 2008, the Nationwide Mortgage Licensing System & Registry (NMLS) was created under the federal Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”), with the purpose of “provid[ing] consumers with accessible information . . . regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against loan originators.” 12 U.S.C.A. § 5101(7). As part of implementing this purpose, the NMLS intended to use the SRR as the vehicle through which to include all regulatory actions taken by state regulators against companies and individuals that could be gathered and published. Previously, actions by state regulators could only be found, if at all, through a search of the individual state regulators’ websites.

The proposal to incorporate state regulatory reporting into the NMLS, which would take effect in Spring of 2012, consists of twelve major policies and processes, which include, among others:

  1. The state agency that took the action will be responsible for inputting such information into the NMLS. The SRR will not verify, validate, or amend any of the enforcement actions, as such information can only be changed by the inputting agency.
  2. Whether an action will actually be included in the NMLS can vary from state to state, depending on state-specific statutes and regulations. Further, each state will determine which actions will be shared only with other regulators, and those that will be made available to the general public.
  3. Reported actions will not be limited to those actions that are public. Instead, a regulator will have the ability, at their discretion, to include information that is to be shared only among regulators or among agency employees.
  4. A recommendation that any postings be made within five (5) days of receipt of a state agency’s final order.
  5. Provide a standardized set of information to be posted, including, for example, (a) the enforcing agency, (b) a description of the Order, and (c) the amount of any fine or other penalty.
  6. The SRR recommends that actions taken against companies should be posted on a prospective basis, while actions taken against loan originators should be posted as of the date each state’s SAFE Act became effective.
  7. All respondents named in an action will be included in any reporting, and the action will be tied to the records of both the named company and/or individuals.
  8. A company or individual will be notified of any posting in the system and will be able to view any publicly posted actions against it in the NMLS. The SRR proposal does not, however, contain a mechanism for a company or individual to learn of the non-public postings against it.
  9. State regulators will have the ability to post multi-state actions through NMLS. Each state involved in such an action is responsible for posting the action pursuant to its own reporting policies.

At first glance, the proposed registry presents a number of benefits to companies. For example, by having a central repository for all state regulatory actions, companies will have easy, up-to-date, access to the types of enforcement actions being pursued across the country, including the resulting fines and penalties assessed. Such information can be invaluable when defending an enforcement action and evaluating settlement proposals with state agencies. Companies will be able to see enforcement trends and use such information to modify their practices. The new system will greatly simplify a company’s ability to learn from the conduct of others.

Such benefits, however, do not come without a host of potential drawbacks. Specifically, while the system seeks to compile standard information regarding enforcement actions, it does not set forth a standard for reporting. Instead, its reliance upon individual state standards for reporting could lead to competitive disadvantages where, despite identical conduct, one company is tagged with a report while another is not solely due to a difference in state reporting standards.

The discretion given to regulators under the system could have similar effects. Giving regulators the discretion to input information (including non-adjudicated information) that will only be shared among regulators or agency employees could result in information being shared without verification, accountability, or opportunity to cure. Successfully defending an enforcement action would not necessarily preclude the sharing of negative comments about a company on the system. Companies will not be privy to such secret, albeit formalized, statements that could be prejudicial to how such entities are viewed and/or treated by other regulatory agencies. Nevertheless, the repository could be a potential treasure trove of information for future plaintiffs and will certainly be a frequent target of discovery in lawsuits.

Companies should carefully examine the potential ramifications each of the proposed policies may have on their business.

©2011 Greenberg Traurig, LLP. All rights reserved.

The Truth about Clean Energy Jobs

Recently posted in the National Law Review an article by U.S. Department of Energy in response to The Washington Post’s assertions  about the Department of Energy’s loan programs:

The Washington Post’s assertions today about the Department of Energy’s loan programs are both incomplete and inaccurate.

Here are the facts: over the past two years, the Department of Energy’s Loan Program has supported a robust, diverse portfolio of more than 40 projects that are investing in pioneering companies as we work to regain American leadership in the global race for clean energy jobs. These projects include major advances for our renewable power industry including the world’s largest wind farm, several of the world’s largest solar generation facilities, and one of the country’s first commercial-scale cellulosic ethanol plants. Collectively, the projects plan to employ more than 60,000 Americans, create tens of thousands more indirect jobs, provide clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year, all while investing in American competitiveness. What matters to the men and women who have those jobs is that the investments that this Administration is making are helping to keep factories open and running.

When the Washington Post claims that the program has created 3,500 jobs, here is what the reporters are excluding:

  • 33,000 American auto jobs saved at Ford. The Post article does acknowledge that the program enabled Ford to modernize its factories to produce more fuel efficient vehicles, which a Ford spokeswoman credits for “helping retain the 33,000 jobs by ensuring our employees can build the fuel-efficient cars people want to drive.”
  • More than 7,300 construction jobs. Many of the projects funded by the program are wind and solar power plants, which create significant numbers of construction jobs but once built can be operated inexpensively without a large workforce. But the Washington Post chose to ignore all of those jobs. If a community built a new highway or a bridge that employed 200 workers directly during construction – and many more in the supply chain — and that also strengthened the local economy by making it faster to transport goods, would anyone say that the project created zero jobs?
  • Supply chain jobs. While these jobs aren’t reflected in official government estimates because of the difficulty in obtaining a precisely accurate count, that doesn’t mean they don’t exist. When a company spends $100 million or $200 million building a wind farm or a solar power plant, most of that economic value actually goes into the supply chain – creating huge manufacturing opportunities for the United States.

In fact, when you look at the Washington Post’s graphic, you can see that the program has already created or saved roughly 44,000 jobs.  Many of the projects it has funded are just getting going, and many of the loans won’t even go out the door until the next few weeks. Others have not ramped fully up to scale. But we are on pace to achieve more than 60,000 direct jobs – and many more in the supply chain.

Here’s a simple example:

Last year, the Department awarded a loan guarantee to build the Kahuku wind farm in Hawaii. It employed 200 workers during construction. Those wind turbines were built in Cedar Rapids, Iowa. The project also features a state of the art energy storage system supplied by a company in Texas. The supply chain reached 104 U.S. businesses in 21 states. But by the Washington Post’s count, none of those jobs – not even the 200 direct construction jobs – should count.

What’s critically important and completely ignored by the Washington Post, is that the value of this program can’t be measured in operating jobs alone. The investments are helping to build a new clean energy industry here in America. We are now on pace to double renewable energy generation from wind and solar from the time the President took office. Yet we are still in danger of falling behind China and other nations that are competing aggressively for leadership in these technologies. This is a race we can and will win, but only if we make these investments today. These investments will pay dividends not just in today’s jobs but in entire industries and supply chains – and in cleaner air and water for our children and grandchildren.

One of the goals of the program is to create projects that will encourage the private sector to take the financing risk on other, similar projects on its own. If we can show, for example, that a commercial scale cellulosic biofuel plant in Iowa can succeed, the private sector will likely finance many more of them around the country.

America’s economic strength has been built on technological leadership. The next great technological revolution is the clean energy revolution, and this Administration is committed to making sure that America will continue to lead the world.

Department of Energy – © Copyright 2011