McShannock v. JP Morgan Chase Bank
Facts: An owner of a one-to-four unit residential property obtains a mortgage originated by a federal savings association for the purchase of their property. An impound account is set up for handling taxes and insurance payments received by the lender. No interest is paid by the originating lender as they are a federal savings association exempt from California law calling for payment of at least 2% simple interest on funds held in the account. The mortgage is sold to a national bank which is not exempt from paying interest on impound accounts.
Claim: The property owner seeks to collect the accrued interest on their impound account claiming the present holder of the mortgage is not exempt from paying at least 2% simple interest per annum on funds held in an impound account.
Counterclaim: The mortgage holder claims the California requirement to pay interest does not apply to the mortgage they hold since the mortgage was originated by a federal savings association.
Holding: The federal ninth circuit district court holds a mortgage originated by a federally controlled savings association now held by other than a savings association need not pay interest on an impound account for the mortgage since participation as a holder of a mortgage originated by savings associations are preempted by federal law which does not call for the payment of interest on impound accounts. [McShannock v. JP Morgan Chase Bank NA (September 22, 2020) __ F. Supp 2nd_]
Editor’s note — Allowing states to impose requirements on mortgages originating from savings associations restricts the securitization of those mortgages, in turn decreasing the value of loans being held by savings associations, as found in de la Cuesta v. Fidelity Federal Savings & Loan Assoc. This outcome more than incidentally effects the lending operations of savings associations, thereby necessitating preemption.
[de la Cuesta v. Fidelity Federal Savings & Loan Assoc. (1981) 121 CA3d 328 (Disclosure: the legal editor of this publication was the attorney of record for the homeowner in this case.)]
