In the case Thomas et al. v. US Bank et al., several Missouri homeowners received high loan-to-value-ratio second mortgages from an originator, up to 125 percent of the appraised value of their homes. The mortgages were later sold to various lenders.
After the originator, FirstPlus Bank, went out of business, the homeowners filed suit against the lenders, alleging that they were charged loan fees in violation of the Missouri Second Mortgage Loan Act (MSMLA), which regulates lending practices on second mortgages secured by homes located in Missouri.
The district court ruled in favor of the lenders’ motion to remove the case to federal court, agreeing with the lenders’ argument that because the loan originator was a federally insured, state-chartered bank, the Missouri statute was completely preempted by the federal Depository Institutions Deregulation and Monetary Control Act (DIDA, 12 U.S.C. Section 1831d).
On appeal, the district court’s removal of the case was reversed and the matter was remanded to the state court for trial. The Court of Appeals found that removal to federal court was improper because the MSMLA was not completely preempted by the DIDA.
Additionally, the appellate court examined the DIDA and found that the express language of the statute indicated that Congress’ intent was to limit the preemptive scope of DIDA to a narrow set of circumstances — particularly where a state’s usury statute sets a maximum interest rate lower than the federal law.
Because the maximum interest rate set by the MSMLA was higher than that allowed by the DIDA, the Missouri law was not preempted by the federal statute. Accordingly, the state law was not preempted and removal to federal court was not warranted.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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