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Legislative Updates: Georgia

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Melody R. Jones
and Scott Lofranco
McCalla Raymer, LLC
USFN Member (Georgia)

The Georgia General Assembly concluded its annual 40-day legislative session under the Gold Dome in Atlanta on April 2. The 2015 legislative session included the passage of several major pieces of legislation affecting our industry.

House Bill 322 (HB 322) was signed into law on May 6, 2015 by the governor, effective July 1, 2015. There are two provisions of HB 322 relevant to our industry and practice. First, HB 322 amends O.C.G.A. § 44-14-160. The previous version of O.C.G.A. § 44-14-160 stated that a deed under power shall be recorded within 90 days of the foreclosure sale date. As amended, the statute now requires that deeds under power be “filed” within 90 days of the foreclosure sale date, which takes into account county recording delays that are out of the clients’ control. HB 322 also creates a $500 penalty (in addition to the filing fee) to be paid to the Clerk of Court for failing to file a deed under power within 120 days of a foreclosure sale. This penalty will be due at the time of filing along with the regular recording fees. The legislative purpose for introducing a $500 penalty is to encourage mortgage servicers to execute foreclosure deeds in a timely fashion so that counties and municipalities will have notice of the transfer of ownership. In order to ensure compliance and avoid any penalty, mortgage servicers should exercise diligence in moving deeds through their document execution departments and returning them to the law firms to record. Law firms should also follow up regularly with their clients on outstanding deeds.

HB 322 also amends O.C.G.A. §§ 44-5-30, 44-14-33, 44-14-34, 44-14-61, 44-14-62, and 44-14-63 relating to the witnessing requirements for deeds, mortgages, and deeds to secure debt. Proper execution of these instruments will now require the signatures of the maker, an unofficial witness, and an attesting officer (notary public). Further, O.C.G.A. § 44-14-63 has been amended to state that unrecorded deeds to secure debt remain valid against the persons executing them. The passage of HB 322 will help reduce the likelihood of secured debt being stripped of secured status due to gray areas in the law relating to execution or recording requirements. It appears that the unintentional effect of HB 322 on deed and assignment execution (as well as security deeds/mortgages) is that notary acknowledgements alone will no longer meet recording requirements in Georgia. As stated above, for all security deeds/mortgages, assignments, and deeds, the requirement now is that the maker/signor must sign in the presence of one attesting witness AND one attesting officer as defined by O.C.G.A. § 44-2-15. An “officer” is defined as a notary public, judge, magistrate, or deputy clerk/clerk of the superior court. What attestation means, in layman’s terms, is that the witness and notary are in the presence of the signor of the document, and personally view the signor’s signing of the document. An acknowledgment typically certifies that the signor acknowledged to the notary that she/he signed the document, and it is her/his signature. To ensure compliance, mortgage servicers should review their document templates immediately and work with their local law firms to revise them if needed.

Another major piece of legislation to pass this year, affecting residential real estate closings in Georgia, was House Bill 153 (HB 153). Sponsored by Representative Weldon with the support of the Real Property Law Section of the Georgia Bar Association, the bill was introduced in response to a 2014 Formal Advisory Opinion issued by the Supreme Court of Georgia regarding witness-only closings. The new law, effective July 1, 2015, allows any consumer involved in a one-to-four family residential real estate transaction (or a consumer debtor or trustee of a consumer debtor in a bankruptcy case involving a one-to-four family residential property) to file a civil action for damages stemming from a violation of the Georgia Supreme Court’s rules relating to the unlicensed practice of the law.

As for legislation that did not pass in 2015: SB 117 (which would have given condominium owners associations a super-priority lien for 6 months’ worth of unpaid assessments prior to a foreclosure sale, even as to the holder of a first-priority security deed) failed to make it out of the Senate Judiciary Committee. HB 115, which provided a borrower facing foreclosure with a statutory right to cure, passed out of the House Judiciary Committee but did not make it out of the House Rules Committee.

As a final note, the Georgia General Assembly operates on a biennial legislative term. Any bills that do not pass both chambers by Day 40, or cross over to the other chamber by Day 30 in the first year, will typically remain in the most recent committee to which they are assigned and be available for consideration the following year. If a bill does not pass in the second term, it is dead and will have to be reintroduced. This means that in addition to the new bills introduced in 2016, many of the bills from 2015 will still be in play next year.

Copyright © 2015 USFN. All rights reserved.
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Legislative Updates: Connecticut

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Mark Piech
and Adam Bendett
Bendett & McHugh, P.C.
USFN Member (Connecticut, Maine, Vermont)

On June 1, 2015 the Connecticut Legislature passed Substitute House Bill 6752, An Act Extending the Foreclosure Mediation Program (the Amendment). The Amendment makes one substantive and a few minor changes to the Foreclosure Mediation Program. A summary of some of the Amendment’s changed provisions are set forth below.

The effective date of the provisions of the Amendment is July 1, 2015. The Amendment extends the sunset provision of the Foreclosure Mediation Program through June 30, 2019. The original expiration date was June 30, 2016. Please note, any mediation application submitted prior to the expiration date will be subject to the Foreclosure Mediation Program.

Expanded Eligibility of Parties
— The mediation program has been expanded to cover non-borrowers that are permitted successors-in-interest. A “permitted successor-in-interest” is defined in the Amendment as a person who is a defendant in a foreclosure action with a return date on or after October 1, 2015, and is either: (A) the former spouse of a decedent-mortgagor, who acquired sole title to the residential real property by virtue of a transfer from the decedent-mortgagor’s estate or by virtue of the death of the decedent-mortgagor where title was held as joint tenants or tenants in the entirety; or (B) the spouse or former spouse of a mortgagor or former mortgagor who: (i) acquired title to the residential real property by virtue of a transfer from the mortgagor or former mortgagor where the transfer resulted from a court decree dissolving the marriage, a legal separation agreement, or a property settlement agreement incidental to such a decree or separation agreement, and (ii) ensures that all necessary consents to the disclosure of nonpublic personal financial information have been provided to the mortgagee in accordance with the Amendment. These parties may now participate in the Foreclosure Mediation Program. Please note, however, that some judges were typically referring such parties into the Foreclosure Mediation Program, either upon motion or sua sponte, so this statutory change does not practically alter successor-in-interest eligibility in many cases.

Mortgagee Requirement
— In addition to the other documents that a mortgagee must produce to the borrower and mediator within 35 days of the return date, all past agreements modifying the note or mortgage and current versions of all reasonably necessary loss mitigation forms must now be provided.

Pre-mediation Period — The Amendment also provides leeway to the court system in scheduling and providing the borrower’s financial documents to the mortgagee or its counsel. Prior to the passage of the Amendment, the mediator had 84 days from the return date to provide the borrower’s financial package to the plaintiff’s counsel. The Amendment now allows this 84-day deadline to be extended upon motion of the mediator for good cause shown. Because the court rarely enforced the previous deadline, this change has a limited practical impact.

Reporting from Court to Legislature — The Amendment continues the Chief Court Administrator’s obligation to submit a summary of the mediation program, and specified data collected by the mediators’ reports, to the legislature by March 1, 2016 and each year thereafter until March 1, 2019.

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Legislative Updates: Colorado

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Larry Castle
The Castle Law Group
USFN Member (Colorado)

This CO article appeared in the USFN e-Update (May 2015 ed.) and is reprinted here for those readers who missed it.

On April 21, 2015 the Colorado State Legislature passed House Bill 15-1142. The bill offers the opportunity to have electronic public trustee nonjudicial foreclosure sales through either the internet or other electronic medium. The law becomes effective on September 1, 2015. There are very few particulars contained within the new statute.

What we do know is that there is an additional fee of no more than $60, authorized by the statute to be added to the total public trustee fees for the use of the electronic sale process. This further fee must be paid by the foreclosing party prior to the sale.

We also know that the only requirements outlined in the bill are that the combined notice of sale and rights to cure and redeem sent by the public trustee to all interested parties, must identify: the electronic address for the sale; the location of computer workstations that will be available to the public; and how the public is to obtain instructions on accessing the sale and submitting bids. Furthermore, combined notice must provide a statement that the bidding rules will be posted on the internet, or other electronic medium used to conduct the sale, at least two weeks prior to the sale date.

For electronic sales only, the statute is amended to allow the holder of the evidence of debt, through its attorney, to submit both a minimum and maximum bid. Neither the holder nor its attorney needs to physically attend the sale in order to competitively bid. By statute, the electronic bid will be increased in increments incorporated into the electronic program used by the public trustee. The foreclosing party will not be able to set the incremental increases of the bid. It is important to note that Colorado statute also requires that the foreclosing party bid based upon the fair market value of the property, less reasonable costs of sale. Additionally, there will continue to be a post-sale right of redemption for junior lienholders. The redemption amount is the bid amount, plus allowable expenses from the sale date to the redemption date.

It is important to note that the new statute specifically states that the county, the officer, as well as employees of the county or officer acting in their official capacity in preparing, conducting, and executing an electronic sale are not liable for the failure of any device that would prevent a person from participating in the electronic sale process.

The legislature did not provide any guidance regarding the rules for the electronic sales, leaving that to the public trustees. This may create the possibility for each county public trustee (who may choose to have electronic sales) to design different rules and methodologies, as well as use different technologies.

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Legal Issues Update: Municipality Actions in Property Preservation: Detroit as an Example

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Matthew B. Theunick
Formerly with Trott Law, P.C.
USFN Member (Michigan)

On July 15, 2009 the Detroit Land Bank Authority (DLBA) held its first meeting. The DLBA was empowered through a seven-member board, appointed by the Mayor of Detroit and the Detroit City Council, with the authority to manage tax-reverted properties, to clear titles, and to buy, sell, demolish, and/or rehabilitate properties in the City of Detroit. From its initial genesis in mid-2009 to its current status as an institution with more than 56 full-time and 34 part-time employees, the DLBA has recently seen the scope of its work — and its reach — increase dramatically under the stewardship of Mayor Duggan (who came into office in 2013 in the wake of Detroit’s historic Chapter 9 bankruptcy.)

In its designated role to help clean up blight and abandonment in the City of Detroit, the DLBA has sold more than 125 homes in online auctions (via www.buildingdetroit.org) since May 5, 2015, collecting in excess of $2 million in sales. The home prices typically range from $1,000 to $100,000 in the auction sales, providing prospective buyers with unique opportunities to obtain bargain prices and the City with new owners who will hopefully become worthy stewards of these properties now, and into the future. (Estimates vary, but there are up to 78,000 vacant homes and/or abandoned buildings in the City, along with 90,000 vacant lots.)

While no one has seriously questioned the imprimatur of the DLBA’s mission and much of the good work that the DLBA has accomplished, the DLBA is, nonetheless, not without some compelling criticism. By way of illustration, in its efforts to ameliorate blight and abandonment in Detroit, one of the key weapons in the DLBA’s arsenal has been for the mayor and the DLBA to file a more-or-less, one-size-fits-all form complaint. Named as defendants in an in rem cause of action are twenty to thirty separate property addresses, with claims of common law public nuisance and statutory public nuisance, alleged in an effort to obtain agreements for the repair of the properties; to effectuate transfer of title to the properties; to possibly abate the alleged nuisance through demolition actions; along with seeking money judgments for the costs, fees, and expenses incurred by the City in abating the nuisance.

Problematic with the City’s form complaint is that it is typically assigned to the same judge to oversee the City’s claims for relief from the defendants. Additionally, the mayor & the DLBA immediately request an Ex Parte Order for Alternate Service, along with an Ex Parte Order to restrict the transfer or encumbrance of the properties, both of which are typically granted as a matter of course. Additionally, the form complaint seeks “equitable relief and/or compensatory relief from Defendants, and any and all owners and interest holders of record...”. The City then goes on to list a number of purported statutory and/or ordinance/code violations and alleges that, “The owners and interest holders of the Defendant properties have violated one or more of the following state laws and/or ordinances...”.

An obvious concern with the City’s form complaint is that it conflates the rights of mortgagors with that of mortgagees, as if they were one and the same. Typically, a bank or mortgage lender has simply provided the necessary funding to the property owner for the purchase of the subject property, and has had no direct involvement or control in the circumstances that led to the property’s current state. Also, in cases where the lender has not taken the property to a foreclosure sale, it generally lacks the power to effectuate change or rehabilitation of a property — short of filing its own action for waste, which only further adds to the overall cost of servicing the mortgage loan.

As such, while the City’s efforts to combat blight and abandonment in the City of Detroit are certainly laudable, the City’s endeavors to take outright title to the properties; to extract settlement agreements from the mortgagors and/or mortgagees for the rehabilitation of the properties; and/or to demolish the properties is often undertaken at a high cost to innocent parties — ones who have had no hand in the circumstances leading to the City’s current status. Thus, when presented with a complaint similar to that of the DLBA, care should be taken in timely responding to, and defending it. There are potentially high stakes involved, which could include losing the entire lien interest in the subject property, along with damages.

Copyright © 2015 USFN. All rights reserved.
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HOA Talk: North Carolina: HOA Dues Following Foreclosure —Purchaser at Risk?

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Lanée Borsman
Hutchens Law Firm
USFN Member (North Carolina)

Chapter 47 of the North Carolina General Statutes, which deals with the lien of homeowner and condominium association (HOA and COA) dues, was amended in 2013. [House Bill 331/Session Law 2013-202.]

North Carolina is not a “super lien” state. When the holder of a first mortgage forecloses, the purchaser at the foreclosure sale has, historically, been liable only for dues incurred from the date of the “acquisition of title” to the property. Until this legislative amendment, the recording date of the trustee’s deed has been used to determine the date of “acquisition of title.” This was true even on an FHA loan where the assignment of the bid to HUD could mean a delay in the recording of the trustee’s foreclosure deed for a long period of time. The purchaser at the foreclosure sale was not liable for any dues until the trustee’s deed was recorded, and the liability for any past-due amount prior to that date was pro-rated among all of the property owners.

Homeowners associations across the state rallied against the burdens being placed on the rest of the property owners as a result of delays in recording the trustee’s deed. The change came via clarification of the definition of “acquisition of title.” The amendment provides that the date used to determine this is the day the “rights of the parties become fixed,” otherwise known as the end of the upset-bid period, or confirmation of the sale, which is typically 10 days after the sale date. So, whether or not a trustee’s deed is immediately recorded, the liability for dues shifts to the purchaser at confirmation.

North Carolina is a one-deed state, so an assignment of the bid is all that is needed to record the foreclosure deed directly into HUD. The dilemma for servicers of FHA loans is whether to elect to move to a two-deed process rather than wait for conveyance instructions to record a deed. If record title is vested in the servicer, notification of delinquent HOA dues or any foreclosure of those dues would be required. Without a recorded deed, it is unclear whether the purchaser at foreclosure would be entitled to such notice. While more expensive, recording a pre-HUD-conveyance deed may be the best protection for servicers (who don’t want to risk losing the property to unpaid HOA dues) after they have gone through the process of completing a foreclosure.

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Legislative Updates: Utah

Posted By USFN, Friday, June 26, 2015
Updated: Friday, September 25, 2015

June 26, 2015

 

by Scott Lundberg
Lundberg & Associates
USFN Member (Utah)

This article appeared in the USFN e-Update (May 2015 ed.); it has been revised and is republished here.


2015 was a fairly quiet legislative year in Utah, as it relates to legislation with an impact on mortgage servicers. Senate Bill 0120 (Regulation of Reverse Mortgages) will be of special interest to default servicers. House Bill 0227 (Real Estate Amendments), also discussed briefly below, addresses only origination. Both bills took effect on May 12, 2015.

Senate Bill 0120 (Regulation of Reverse Mortgages) — enacted the Utah Reverse Mortgage Act, Utah Code sections 57-28-101, et seq. It sets forth requirements for reverse mortgages in Utah and addresses the treatment of reverse mortgage loan proceeds, priority, foreclosure, and lender default. It contains a safe harbor for lenders making reverse mortgages insured by the U.S. Department of Housing and Urban Development, if they comply with the requirements found in 12 U.S.C. Section 1715z-20 and 24 C.F.R. Part 206.

The safe harbor does not apply to foreclosure. For defaulted reverse mortgages, the bill requires that, before commencing foreclosure, the servicer must give the borrower written notice of the default and provide at least 30 days after the day on which the borrower receives the notice to cure the borrower’s default. This requirement will necessitate a change in the breach or demand letters for servicers that currently allow 30 days from the day that the letter or notice is sent.

This change poses several challenges for servicers. First, the servicer will need to use some form of return receipt request with the notices in order to be able to determine when the borrower receives the notice. Even that, however, won’t eliminate the fact that some notices may go unclaimed or undeliverable. Since most defaults under reverse mortgages are the result of the borrower’s death, this is likely to be a commonplace occurrence. The statute is not clear on what happens in that event.

Corrective legislation is anticipated in the 2016 session. Until that occurs, servicers of reverse mortgages will have to give careful consideration to this issue.

House Bill 0227 (Real Estate Amendments) — amended a number of provisions relating to real estate. The principal areas of interest (to mortgage servicers) in the bill are: (a) modification of licensing requirements; (b) affirmative disclosure requirements associated with the lending process; and (c) prohibited conduct for those engaged in the business of residential mortgage loans.

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U.S. Supreme Court Holds that Parties May Consent to Adjudication by Bankruptcy Court of “Stern-Type” Claims

Posted By USFN, Monday, June 8, 2015
Updated: Thursday, August 27, 2015

June 8, 2015 

 

by Christopher J. Panos

Partridge Snow & Hahn LLP – USFN Member (Massachusetts)

 

The United States Supreme Court in Wellness International Network, Limited v. Sharif, 575 U.S. __ (May 26, 2015), answered one of the foremost questions left open after its decision in Stern v. Marshall, 564 U.S. 2 (2011) — is it permissible for litigants in a bankruptcy court to consent to a final adjudication of claims that are “‘core’ under the statute but yet prohibited from proceeding in that way as a Constitutional matter”? In Stern, the Supreme Court ruled that bankruptcy courts lack authority under the Constitution to adjudicate such claims because bankruptcy judges are not “Article III” judges.

 

Four years after deciding Stern, the Supreme Court has ruled that parties can consent to the bankruptcy court entering a final order on a “Stern-type claim” and that implied consent may be found as long as consent is “knowing and voluntary.” As the law develops regarding the authority of the bankruptcy courts, it is important for litigants to make an assessment of these issues when litigation is commenced in the bankruptcy court.

 

Sharif was an individual debtor in a chapter 7 proceeding. A creditor objected to Sharif’s discharge and sought a declaratory judgment that certain assets, held in trust by Sharif, were actually property of the bankruptcy estate. The creditor claimed that the trust was the alter ego of Sharif. After discovery violations by Sharif, the bankruptcy court entered default judgment against him. Sharif appealed. While the appeal was pending, the Supreme Court issued its opinion in Stern. Sharif then argued that the judgment entered by the bankruptcy court was unconstitutional because that court lacked authority over the alter ego claims. The district court upheld the judgment, but the Seventh Circuit Court of Appeals held that the parties could not consent to have the bankruptcy court enter final orders with respect to Stern-type claims. The Supreme Court reversed the Circuit Court, holding that parties can consent to have their disputes decided by a non-Article III judge. The case was remanded for a finding as to whether Sharif had, by his actions, consented to adjudication by the bankruptcy court. The Supreme Court advised in a footnote that the better practice would be for a court to rely on express consent and that may be required in some cases.

 

The majority opinion appeared to recognize the practicality of permitting bankruptcy courts to determine claims where the parties consent to such adjudication and the judicial efficiency that can be realized by that result. Chief Justice Roberts vigorously dissented, however, arguing that the majority had placed practicality over the separation of powers mandated by Article III of the Constitution.

 

While issues remain in the wake of Stern, the decision in Wellness International Network, Limited v. Sharif is a significant development in the evolving view of bankruptcy court authority and related practice. Litigants will be forced to make strategic decisions early in any case regarding whether to litigate claims in the bankruptcy court, or to seek final adjudication in the district court. In practice, even where consent is not given by all parties, many cases involving Stern-like claims will remain with the bankruptcy court to conduct some or all of the litigation, and either report and recommend findings and rulings to the district court or hand-off the case at the time of trial.

 

©Copyright 2015 USFN and Partridge Snow & Hahn LLP. All rights reserved. June e-Update

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U.S. Supreme Court Holds that a Chapter 7 Debtor Cannot Strip-Off a Wholly-Undersecured Lien

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Linda J. St. Pierre
Hunt Leibert – USFN Member (Connecticut)

On Writs of Certiorari to the U.S. Court of Appeals for the Eleventh Circuit, the United States Supreme Court rendered a decision in the consolidated cases of Bank of America, N.A. v. Caulkett and Bank of America, N.A. v. Toledo-Cardona, 575 U.S. __, 2015 WL 2464049, 2015 U.S. Lexis 3579 (Nos. 13-1421 and 14-163, June 1, 2015). The court held that a debtor in a chapter 7 case cannot “strip-off” or void a wholly unsecured junior mortgage under section 506(d) of the Bankruptcy Code.

This decision stems from the cases of In re Caulkett, 566 Fed. Appx. 879 (2014), and In re Toledo-Cardona, 556 Fed. Appx. 911 (2014), where the debtors moved to “strip-off” or void the junior mortgages of Bank of America in their chapter 7 cases. In each of these cases, the bankruptcy court granted the debtors’ motions, which were upheld by both the District Court and the Court of Appeals for the Eleventh Circuit. After granting Bank of America’s Writ of Certiorari, the U.S. Supreme Court reversed the judgments of the Court of Appeals.

In its analysis, the Supreme Court stated that a debtor may “strip-off” a junior mortgage only if the bank’s claim is “not an allowed secured claim,” and that a claim filed by a creditor is deemed “allowed” under § 502 if no interested party objects; or if, in the case of an objection, the bankruptcy court determines that the claim should be allowed under the Bankruptcy Code. In this case, the parties agreed that the claims were allowed claims but disagreed on whether the claims were secured.

In upholding its prior decision in Dewsnup v. Timm, 502 U.S. 410 (1992), the Supreme Court stated that Dewsnup defined the term “secured claim” in § 506(d) to mean a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim. Under this definition, § 506(d)’s function is reduced to “voiding a lien whenever a claim secured by a lien itself has not been allowed.” The Supreme Court rejected the debtors’ argument that Dewsnup should be limited to partially unsecured liens.

The Supreme Court held that a “secured claim” does not depend on whether a lien is partially or wholly underwater. Additionally, the Supreme Court rejected the debtors’ argument that § 506(d) could be redefined as any claim that is backed by collateral with some value. The Supreme Court reasoned that embracing that reading would give a different meaning to “secured claim” under § 506(a) and § 506(d). Lastly, the Supreme Court rejected the debtors’ argument that Nobelman v. American Savings Bank, 508 U.S. 324 (1993), controlled.

The Supreme Court observed that Nobelman involved the interaction between § 506(a) and § 1322(b)(2), which was an entirely separate provision. Further, the Supreme Court determined that to limit Dewsnup to that case would effectively give the term “secured claim” different definitions depending on the value of the collateral, and that doing so would effectively leave an odd statutory framework in place. If a court valued the collateral at one dollar more than the amount of the senior lien, the debtor could not strip the lien; but if it valued the property at one dollar less, the debtor could strip the lien.

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Rhode Island: Court Reviews Applicability of Foreclosure Mediation Statute

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Joseph A. Camillo, Jr.
Shechtman Halperin Savage, LLP – USFN Member (Rhode Island)

On May 15, 2015 a decision was issued by the Providence Superior Court for the State of Rhode Island and Providence Plantations, Fontaine v. U.S. Bank National Association. The case, which included several consolidated foreclosure matters, revisited the applicability of R.I.G.L. § 34-27-3.2 to loans that were over 120 days delinquent as of September 13, 2013, the date that the statute went into effect.

The 2013 version of the statute stated that “when a mortgage is not more than one hundred twenty (120) days delinquent, the mortgagee … shall provide to the mortgagor written notice … that the mortgagee may not foreclose on the mortgaged property without first participating in a mediation conference.” Under this version of the statute, any loan that was over 120 days delinquent as of September 13, 2013 was exempt from the requirement of sending the notice of mediation.

The statute was further amended on October 6, 2014, eliminating the language that limited its applicability to only those mortgages that were over 120 days delinquent as of September 12, 2013. The 2014 version of the statute, subsection (d), states that “The mortgagee shall, prior to initiation of foreclosure of real estate pursuant to 34-27-4(b), provide to the mortgagor written notice … that the mortgagee may not foreclose on the mortgaged property without first participating in a mediation conference.”

The Fontaine decision states that mediation notices are required to be sent on all loans, regardless of the date of default. In reaching its conclusion, the court looked at the plain meaning of the statute, and determined that since the exemption for loans over 120 days delinquent was left out of the final version of the statute, the intent of the General Assembly was to require notice of mediation to be sent to all mortgagors. In relevant part, subsection (m) of R.I.G.L. § 34-27-3.2 states that “Failure of the mortgagee to comply with the requirements of this section shall render the foreclosure void.” Therefore, looking to the plain meaning of the statute, it is likely that any foreclosure where mediation would have applied (but was exempt due to the date of delinquency) will ultimately be deemed invalid if the mediation notice was not sent.

In line with this judicial decision, it should be noted that the Rhode Island Department of Business Regulation has scheduled a public hearing (June 17, 2015 at 10:00 a.m., at the Department of Business Regulation: 1511 Pontiac Avenue, Cranston, Rhode Island 02920), at which they plan to discuss a proposed amendment to Banking Regulation 5, Section 5(B), which would exclude any exemption from the mediation requirements for loans that were over 120 days delinquent as of September 13, 2013. (The proposed amended regulation and a summary of proposed non-technical amendments are available for review here.)

What It Means for Servicing
As recently as Friday, May 22, 2015, several major title insurance companies issued an alert that for foreclosures initiated (meaning the notice of sale is sent) on or after September 13, 2013 and before October 6, 2014, the mortgagee may prove its exemption from compliance with the mediation requirements of R.I.G.L. § 34-27-3.2 by using the Affidavit of Exemption provided by the Rhode Island Department of Business Regulation in Banking Regulation 5, and checking off paragraph 3(B) of the affidavit (i.e., that the mortgagor was more than one hundred twenty days delinquent on or before September 12, 2013). For foreclosures initiated on or after October 6, 2014, the mortgagee must prove compliance with the mediation requirements of R.I.G.L. § 34-27-3.2 and the Affidavit of Exemption created by the Department of Business Regulation in Banking Regulation 5 will NOT be accepted as a substitute for compliance if paragraph 3(B) of the affidavit is checked off as the reason for the exemption.

Servicers will need to review any set sale that did not comply with the statute to determine whether to proceed to sale, or cancel in order to send the mediation notices. Furthermore, any sale that has proceeded, but the deed has yet to be recorded, also needs review. This is because not all of the major national title insurance companies have taken a position as to the insurability of title in such a scenario. Should these sales be deemed uninsurable, the sales will need to be rescinded to allow for mediation notices to be provided. If the deed has been recorded, court action would be necessary to rescind the sale.

Due to the above factors, many servicers are cancelling sales and re-starting the foreclosure to comply with the mediation statute.

©Copyright 2015 USFN and Shechtman Halperin Savage, LLP. All rights reserved.
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Foreclosure Procedures and Satisfaction of Due Process Rights

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Matthew Theunick
Formerly with Trott Law, P.C. – USFN Member (Michigan)

In Garcia v. Fannie Mae, the Sixth Circuit Court of Appeals was presented with one issue on appeal: whether or not the district court erred in dismissing the plaintiffs’ due process claim because it found that Fannie Mae was not a state actor for constitutional purposes when it foreclosed upon the plaintiff’s home? [2015 U.S. App. LEXIS 5532; 2015 FED App. 0064P (6th Cir. Apr. 7, 2015)]. The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.

With respect to the Due Process Clause of the U.S. Constitution, the Fifth and Fourteenth Amendments prohibit the deprivation of property by a state actor without due process of law. In Garcia, the borrowers alleged that there were violations of their Fifth and Fourteenth Amendment Due Process Rights. Ultimately, the borrowers’ challenge to government-sponsored enterprise (GSE) Fannie Mae was predicated upon the notion that Fannie Mae was a state actor for constitutional purposes, and that the borrowers’ due process rights were violated in the foreclosure by advertisement that occurred.

One of the traditional defenses brought by the Federal Housing Finance Agency (FHFA) as conservator of Fannie Mae and Freddie Mac against due process challenges was based upon the argument raised in Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 115 S. Ct. 961, 130 L. Ed. 2d 902 (1995). That is, that Fannie Mae and Freddie Mac are not governmental actors who can be held liable for due process clause violations, as the federal government does not have permanent authority to appoint a majority of the directors of the GSEs. This argument has proven successful in defending a number of due process challenges. Additionally, the FHFA contended in Syriani v. Freddie Mac Multiclass Certificates, 2012 U.S. Dist. LEXIS 179863, * 11-12 (C.D. Cal. 2012), that the temporary nature of the FHFA’s conservatorship also supports the conclusion that the GSEs have not been transformed into a governmental actor. See also Herron v. Fannie Mae, 857 F. Supp. 2d 87, 93 (D.D.C. 2012) (holding that because the FHFA’s conservatorship “is by nature temporary, the government has not acceded to permanent control over the entity and Fannie Mae remains a private corporation.”)

However, in Garcia, the Sixth Circuit affirmed the district court’s judgment, dismissing the due process challenges as without merit, on the grounds that the FHFA’s compliance with Michigan’s foreclosure by advertisement procedures satisfied the requirements of the Due Process Clause. In elaborating upon this compliance, the Sixth Circuit stated that the “notice requirements are not at odds with notions of due process under both common law and Supreme Court precedent.” Garcia at 12. The Sixth Circuit noted that the statute requires notice and opportunities to cure the default or redeem the property at several points before the borrower’s rights are fully extinguished. Id. Additionally, the Sixth Circuit pointed out that a foreclosed borrower’s ability to bring an action before expiration of the statutory redemption period satisfies the requirement that there be a hearing “at a meaningful time and in a meaningful manner.” Id. at 10. Thus, the Sixth Circuit’s opinion in Garcia provides further support to the FHFA against due process challenges to foreclosures by advertisement in Michigan, and arguably beyond.

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“Surrendered” Properties: Forced Vesting of Title in the Lender? Bankruptcy Courts Not Uniform

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Michael J. McCormick
McCalla Raymer, LLC – USFN Member (Georgia)

Since the financial crisis, debtors have tried several methods to transfer the title to surrendered properties back to the mortgage company in an effort to avoid having to pay property taxes or homeowners association (HOA) fees. Bankruptcy courts across the country have approached this issue in a less than uniform fashion.

Georgia
In In re Arsenault, 456 B.R. 627 (Bankr. S.D. Ga. 2011), the bankruptcy court determined that a mortgage servicer cannot be compelled to take affirmative steps to accept surrendered collateral. Moreover, the servicer’s failure to do so was not a violation of the automatic stay or confirmation order. Id., at 631.

Hawaii
In In re Rosa, 495 B.R. 522 (Bankr. D. Haw. 2013), in addition to a plan provision surrendering the property in full satisfaction of the debt, the debtor’s plan provided that “the Confirmation Order shall constitute a deed of conveyance of the property when recorded at the Bureau of Conveyances.” Although the trustee objected to the nonstandard plan provision, the mortgage company did not object or make an appearance. Accordingly, the bankruptcy court confirmed the debtor’s plan. Id., at 524 (citing In re Szostek, 886 F.2d 1405, 1413) (3d Cir. 1989) (“The general rule is that the acceptance of the plan by a secured creditor can be inferred by the absence of a timely objection”). See also In re Rose, 512 B.R. 790, 795 (Bankr. W.D.N.C. 2014) (Since a transfer of real property is not effective unless the deed is delivered and the grantee accepts it, Section 105(a) of the Code does not allow a bankruptcy court to permit a debtor to transfer property to his mortgage lender by fiat).

Tennessee
On the other hand, the U.S. Bankruptcy Court for the Middle District of Tennessee stated that equity required the court to fashion a remedy that would prevent eradication of the debtor’s fresh start in chapter 7, due to the nondischargeability of HOA fees. In re Pigg, 453 B.R. 728 (Bankr. M.D. Tenn. 2011). Here, the debtor had attempted to deliver a deed-in-lieu of foreclosure after parts of Nashville were flooded and her home was damaged. Although the bank had taken steps to physically possess the property, the bank took no steps to foreclose even though there was interest by a third-party investor. The court eventually determined that the bank and the HOA had consented to the trustee’s sale of the property by their inaction, and the debtor would be relieved of any interest in the property.

Oregon
A recent ruling has come from the U.S. District Court in Oregon — in the case of Bank of New York Mellon v. Watt (In re Watt), 2015 WL 1879680 (D. Or.).

In November 2006, Nicholas and Patricia Watt (debtors) took out a loan in the amount of $296,940 to purchase a second residence in Newport, Oregon (Property). The Property was a townhouse in a planned community subject to covenants and restrictions (CCRs) enforced by Meritage Homeowners Association (Meritage HOA). Pursuant to this transaction, the debtors executed a note and deed of trust that were eventually transferred to Bank of New York Mellon, as Trustee for Certificate Holders of the CWALT, Inc., Alternative Loan Trust 2006-OA21, Mortgage Pass Through Certificates Series 2006-0A21 (BNYM). The deed of trust held by BNYM created a secured first-position lien against the Property. Watt, at *1.

In 2012 the debtors stopped making their loan payments, thus materially defaulting under the note and deed of trust, resulting in BNYM commencing foreclosure proceedings. At the same time, the debtors incurred a significant amount of assessments as a result of failing to make repairs and by failing to pay HOA fees. These assessments created a lien that was subordinate to BNYM’s deed of trust pursuant to Or. Rev. Stat. § 94.709(1)(b). In addition, Bank of America held a junior consensual lien in the amount of $34,000, and Meritage HOA held a judgment lien against the Property in the amount of $225,000.

On March 12, 2014 the debtors filed for relief under chapter 13 of the Bankruptcy Code, thus halting BNYM’s foreclosure proceedings. The debtors scheduled the Property with a value of $271,220, and more than $346,000 was owed on BNYM’s note. Accordingly, there was no equity in the Property.

The debtors filed more than one plan; both of which received objections from Meritage HOA. On June 30, 2014 the debtors filed their second amended plan. Of significance was the provision in Paragraph 10 stating that “[u]pon entry of an Order Confirming this Chapter 13 Plan, the property at 56 B NW 33rd Place in Newport, Oregon shall be vested in” BNYM but that the vesting “shall not merge or otherwise affect the extent, validity, or priority of any liens on the property.” On the same day, the debtors responded to a previously-filed motion for relief from stay by BNYM by stating that the “Property is subject to homeowners association dues which continue to accrue so long as Debtor is on title so any delay on the part of Movant to foreclose causes damage to Debtor” and that the “Amended Plan filed by Debtors seeks to vest title to the property in the name of Movant pursuant to 11 U.S.C. 1322(b)(9).” The following day, Meritage HOA filed a response to the stay relief motion in support of the Second Amended Plan, requesting the court to address confirmation prior to granting BNYM’s motion. Id., at *1-2.

BNYM objected to the Second Amended Plan, arguing that confirmation thereof would force it to take title to the Property, subject to junior liens, and with the obligation to pay HOA dues and assessments. BNYM asserted that Section 1325(a)(5) was an exclusive statutory provision regarding confirmation of a chapter 13 plan and that no other provision, including Section 1322(b)(9), could enlarge these requirements. Id., at *2.

On October 15, 2014 the bankruptcy court issued its memorandum opinion granting BNYM’s motion for relief from stay and confirming the debtors’ second amended plan. In re Watt, 520 B.R. 834 (Bankr. D. Or. 2014). In making its decision, the bankruptcy court noted that debtors may find themselves in a situation where mortgage lenders are reluctant to foreclose, and because to “surrender” through bankruptcy does not divest the debtor of title, the debtor remains liable for post-petition HOA assessments. Even after acknowledging the Rosa and Rose cases (see supra, which held that a secured party could not be required against its will to take title to property surrendered in a bankruptcy proceeding), the court held that “[s]ection 1322(b)(9) permits confirmation of a plan that provides for vesting of property in a third party, such as a lien holder, without that party’s consent.” Moreover, “the Debtors carefully drafted paragraph 10 to make sure that Debtors were not altering the extent, priority, or validity of existing liens. This non merger language is important to preserve [BNYM]’s ability to complete a foreclosure post confirmation.” Watt, 2015 WL 1879680, at *2-3.

On October 31, 2014 BNYM filed its notice of appeal. BNYM asserted that the bankruptcy court erred as a matter of law in confirming the debtors’ chapter 13 plan because it did not meet any of the three requisite criteria listed in Section 1325(a)(5) of the Bankruptcy Code. On the other hand, the debtors contended that the substantive rights given to them by Congress under Section 1322(b) “are balanced with and not supplanted by the substantive obligations imposed on them by Section 1325(a),” such that they should be read together to allow vesting of property in a secured creditor, even without its consent. Id., at *3.

As expected, the district court explained that the debtors had the burden of establishing that their plan satisfied the requirements of the Bankruptcy Code for confirmation and, further, that Section 1322 of the Bankruptcy Code regulates the contents of a plan. Specifically, Section 1322(a) dictates what a plan “shall provide” while Section 1322(b) includes a list of terms that “may” be included. The relevant provision for this case was Section 1322(b)(9), which specifies that “the plan may ... provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or any other entity.” It was undisputed by the parties that this provision does not require consent. Id., at *3.

Confirmation of a chapter 13 plan is governed by Section 1325. Id., at *4 [citing In re Andrews, 49 F.3d 1404, 1407 (9th Cir. 1995)]. Bankruptcy Code Section 1325. Confirmation of plan expressly states: “(a) Except as provided in subsection (b) the court shall confirm a plan if – … (5) with respect to each allowed secured claim provided for by the plan – (A) the holder of such claim has accepted the plan; (B)(i) the plan provides that – (I) the holder of such claim retain the lien securing such claim until the earlier of – (aa) the payment of the underlying debt determined under nonbankruptcy law; or (bb) discharge under section 1328; and (II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and (iii) if – (I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and (II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or (C) the debtor surrenders the property securing such claim to such holder[.]”

The Bankruptcy Code does not define the terms “surrender” or “vesting” for purposes of chapter 13. However, “surrender” has been interpreted as the debtor’s relinquishment of his or her right to the property at issue, and then the creditor is free to accept or reject the collateral. Id., at *4 [citing Arsenault, 456 B.R. at 629-30 (“surrender of encumbered property leaves the secured creditor in control of the exercise of its remedies”)]. Conversely, “vesting” includes a present transfer of ownership. Id., at *4 (citing Rosa, 495 B.R. at 524). Thus in the context of real property, vesting is the mechanism that transfers title and terminates the debtor’s liability for post-petition HOA assessments.

The question presented for the district court was whether a chapter 13 plan is confirmable when the debtor proposes to surrender and inserts a nonstandard plan provision such as vesting, and the secured creditor opposes the inclusion of the nonstandard term. Id., at *5.

The district court ruled that confirmation under these circumstances was erroneous and that, essentially, the bankruptcy court had interpreted Section 1322(b)(9) as creating a fourth option under Section 1325(a)(5). Section 1325(a)(5) “unambiguously” states that a plan is confirmable “solely” where surrender is proposed. However, the debtors’ second amended plan not only proposed to surrender the Property, it forcibly transferred that interest and the liabilities to BNYM. This would necessarily open the door for “unintended and injurious” consequences: the lender assumes the burdens of ownership for which it did not contract, including personal liability. Id., at *5 (citing Rose, 512 B.R. at 795-96).

By confirming a plan that included non-consensual vesting in conjunction with surrender, the bankruptcy court read language into the Bankruptcy Code that is not there, and “frustrated the purpose” of the statute, which is to provide protection to creditors holding allowed secured claims. See McDaniel v. Wells Fargo Invs., LLC, 717 F.3d 668, 677 (9th Cir. 2013). The bankruptcy court’s interpretation transforms the secured creditor’s right into an obligation, thereby rewriting both the Bankruptcy Code and the underlying loan documents. Id., at *6.

On April 22, 2015 the district court vacated the bankruptcy court’s order of confirmation and remanded the case for further proceedings. Id., at *7. The debtors have filed a motion for reconsideration before the district court.

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Alabama: Redemption Period Shortened & New Notice Requirement

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Rebecca Redmond
Sirote & Permutt, P.C. – USFN Member (Alabama)

The Alabama governor signed Senate Bill 124 (Act No. 2015-79) into law on April 23, 2015. The new legislation, which becomes effective on January 1, 2016, amends Sections 6-5-248, 6-5-252, and 8-1-172 of Ala. Code (1975), and provides for partial prospective operation. The key text of the new law effectively shortens the redemption period from one year to 180 days for “residential property on which a homestead exemption was claimed in the tax year during which the sale occurred.” For all non-homestead residential property, the redemption period remains one year. This includes all commercial property, as well as residential property where no homestead exemption exists. Since foreclosed properties in Alabama can be marketed and sold during the redemption period, the shortened redemption period should not have any material impact on the foreclosure and REO process.

The new legislation also adds a notice provision to Ala. Code § 6-5-248. It requires, for the first time, a direct notice of foreclosure to be sent to the mortgagors(s), advising that he/she/they has/have a right under Alabama law to redeem his/her/their property. This notification must be provided along with the publication notification that runs in newspapers, and must also be provided to the mortgagor(s) via certified mail to the property address at least 30 days prior to the foreclosure sale. This new notice requirement is found in § 6-5-248(h)(emphasis added). It provides as follows: “(h) The mortgagee who forecloses residential property on which a homestead exemption was claimed in the tax year during which the sale occurred shall give notice to the mortgagor who signed the mortgage in substance as follows: ‘Alabama law gives some persons who have an interest in property the right to redeem the property under certain circumstances. Programs may also exist that help persons avoid or delay the foreclosure process. An attorney should be consulted to help you understand these rights and programs as a part of the foreclosure process.’ This notice shall be mailed to the mortgagor at the address of the property subject to foreclosure at least 30 days prior to the foreclosure date by certified mail with proof of mailing. This notice also shall be included in the notice required pursuant to Section 35-10-13. For foreclosed residential property on which a homestead exemption was claimed in the tax year during which the sale occurred, the period of time during which a right of redemption may be exercised shall not begin until notice is given in accordance with this subsection. A defective notice, or the failure to give notice, will not affect the validity of the foreclosure, including the transfer of title to the property. All actions related to the notice requirement must be brought within two years after the date of foreclosure, or the action shall be barred.” Ala. Code (1975) § 6-5-248(h).

As noted above, this new legislation does not become effective until January 1, 2016.

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Connecticut: Mailing Notices of Default Requires Affirmative Evidence of Delivery

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Adam L. Avallone
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

A discretionary statement in a note secured by a mortgage that the note holder “may” send notice before accelerating payment, accompanied by a statement in the mortgage that notice of default “shall” be given, imposes an obligation to provide notice of a default in payment of the note as a condition precedent to acceleration of the debt. Provident Funding Associates, L.P. v. Sohn, 2015 Conn. Super. LEXIS 54 (Conn. Super. Ct. Jan. 12, 2015). The trial court’s opinion further holds that a failure to comply with giving proper notice of default is a valid affirmative defense to foreclosure, even though the defense does not meet the traditional requirements of defenses to foreclosure in Connecticut, in that it does not implicate the making, validity, or enforcement of the note or mortgage. A simple denial of receipt of the notice of default is sufficient to defeat a plaintiff’s summary judgment motion by creating a genuine issue of material fact. As a result, in order to obtain judgment, the plaintiff must present its evidence in a full court trial.

While the general holding in the case is fairly well-settled in Connecticut, the court’s analysis of the plaintiff’s evidence in support of summary judgment concludes that a mere statement that a notice was sent in compliance with the mortgage is insufficient in the face of a general denial. In other words, the court ruled that the pleadings alone created a genuine issue of material fact that is sufficient to defeat summary judgment.

The court noted that Section 15 of the Mortgage (which was a Uniform FNMA/FHLMC Instrument) provides in relevant part: “Any notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.” (Emphasis added.) In this case, the plaintiff relied on an affidavit stating that the defendant “was duly notified in writing by the Plaintiff in accordance with the terms of the Note and Mortgage of the default and that failure to cure the default may result in acceleration of the debt.” A copy of the December 15, 2011 letter was attached as “a true and accurate copy of the default letter.”

The court concluded, “For all that the affidavit says, the letter could have been mailed or it could have been faxed or emailed or hand delivered or sent by courier. There is simply no evidence supportive of a finding that it was posted with the U.S. Postal Service. The purported default letter bears no legend or marking of any kind indicative of the manner of its transmission, nor is any such documentation separately provided.”

The decision in Sohn makes clear that in the face of a denial of receipt, affirmative evidence of the actual sending of the notice is required, demonstrating compliance under the note and mortgage. A plain reading of the mortgage reveals that mailing is sufficient, so long as sent by first-class mail. If sent by other means, proof of delivery is required. The court’s decision leaves open the question of what constitutes sufficient evidence of mailing or receipt.

This case illustrates the importance of maintaining and providing to counsel business records and documents evidencing policies and procedures of the mailing of notices. As the mailing of these notices is often a condition precedent to the institution of a foreclosure action, a foreclosing plaintiff can easily find themselves with a dismissed action, requiring restart.

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Illinois: Major Changes to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance

Posted By USFN, Monday, June 8, 2015
Updated: Friday, September 25, 2015

June 8, 2015

 

by Lee Perres and Jill Rein
Pierce & Associates, P.C. – USFN Member (Illinois)

On April 15, 2015, the City Counsel of the City of Chicago passed amendments to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, also known as the “Keep Chicago Renting” Ordinance (the Ordinance). The published amendments are slightly different from the original proposed changes that were made available by the City. The amendments were published on May 6, 2015 and go into effect 90 days after publication. Accordingly, the changes to the Ordinance are effective on August 4, 2015.

The amendments, among other changes, amend various provisions of the original Ordinance, expand upon the definition of “qualified tenants,” as well as define “unlawful conversion” and “unlawful hazardous unit.” The amendments add a section clarifying when qualified tenants are to be provided with required notices under the Ordinance. The amendments also include new provisions to Section 5-14-050, which require relocation assistance to be paid to tenants in unlawful hazardous units or in instances where there has been an unlawful conversion. An analysis of the published amendments is below.

Overview of Changes

The definition of a “qualified tenant” has been expanded. See Section 5-14-020. The new amendment states that a qualified tenant can include a tenant who is a “child, spouse, or parent of the mortgagor” as long as the tenant did not reside in the same “dwelling unit with the mortgagor.” This change makes the Ordinance similar to current Illinois law. Previously, the distinction had not been made between a mortgagor who resides in the same dwelling unit with the mortgagor, and a mortgagor who resided in the same multi-unit building as the mortgagor. As such, where a foreclosure of a multi-unit building has occurred, and a tenant is the “child, spouse, or parent of the mortgagor,” the tenant could possibly be considered a “qualified tenant” if the other requirements of Section 5-14-020 are met.

The terms “unlawful conversion” and “unlawful hazardous unit” are defined. The new amendment states in Section 5-14-020 that “unlawful conversion means any dwelling unit that is an illegal or unlawful conversion, as that term is defined in Section 17-17-0240.5.” Section 17-17-0240.5 defines conversion, illegal or unlawful (units) as “[a]ny change to a building that results in the creation of one or more dwelling units that are illegal under the Zoning Ordinance either because they exceed the number of dwelling units permitted in the zoning district where the building is located, do not comply with the bulk and density standards of the zoning district where the building is located, or were created without a required special use.” See Section 17-17-0240.5.


The new amendment defines “unlawful hazardous unit” as “a dwelling unit that is hazardous based on life safety or sanitation conditions, as prescribed in rules promulgated by the commissioner.”

A provision has been added to the notice to tenants required under Section 5-14-040. The notice to tenants must contain the following statement: “You may go to the City of Chicago Department of Business Affairs and Consumer Protection’s website for additional information regarding your rights and obligations under the Ordinance or phone the City of Chicago’s 311 Service Center to file a complaint.” See Section 5-14-040(a)(1).

Further, these changes require that the notice to tenants, mandated under Section 5-14-040, must now contain the date that the notice was mailed. See Section 5-14-040(a)(1).

Also, a provision has been added to the Ordinance requiring the new owner to provide a Tenant Information Disclosure Form (Form) with the notice required under Section 5-14-040(a). See Section 5-14-040(b). As of the preparation of this article, the Form is not available from the City. The Ordinance provides that a tenant shall complete and return the Form to the person identified in the Form to receive it. It does not, however, require the tenant to comply and does not relieve the property owner of the requirement to extend the lease, offer a replacement unit, or pay the relocation assistance fee.

Further added are provisions to Section 5-14-050, stating what a new owner of a tenant-occupied property must do in order to advise a tenant of his or her rights under the Ordinance. The Ordinance mandates that after a foreclosure of an unlawful hazardous unit or unlawful conversion, a relocation fee is paid to a qualified tenant, or a replacement unit is offered and accepted by the tenant.

After a foreclosure, if it is discovered that a rental unit is a “unlawful hazardous unit or unlawful conversion,” and the tenant is a “qualified tenant” as used in the statute, the new owner “shall pay a one-time relocation assistance fee of $10,600 to the qualified tenant unless the owner offers, and the tenant accepts the owner’s offer” of a new rental agreement of a replacement unit with a rental rate that does not exceed 102 percent of the current rental rate. See Section 5-14-050.

Detailed Analysis of New Sections

Additional Language to Section 5-14-040
— The notice to tenants required under Section 5-14-040 of the Ordinance must contain the following statement: “You may go to the City of Chicago Department of Business Affairs and Consumer Protection’s website for additional information regarding your rights and obligations under the Ordinance or phone the City of Chicago’s 311 Service Center to file a complaint.” See Section 5-14-040(a)(1). The notice to tenants must now contain the date that the notice was mailed. See Section 5-14-040(a)(1).

The notice to tenants mandated under Section 5-14-040(b) provides that a Tenant Information Disclosure Form (Form) must be provided with the notice required under Section 5-14-040. [Section 5-14-040 requires that within 21 days of becoming the owner of a foreclosed rental property, a specific notice is to be sent to any tenant of a foreclosed rental property, advising the tenants that, under certain circumstances, they may be able to obtain relocation assistance.] Within 21 days of receipt of the Form, the tenant shall complete and return the Form to the Owner. [“Owner” is defined as “any person who alone, or jointly or severally with others is: (1) pursuant to a judicial sale of a foreclosed rental property, the purchaser of the foreclosed rental property after the sale has been confirmed by the court and any special right of redemption has expired; or (2) a mortgagee which has accepted a deed-in-lieu of foreclosure or consent foreclosure on a foreclosed rental property. ‘Owner’ includes the owner and his agent for the purpose of managing, controlling or collecting rents.” See Section 5-14-020 of the Ordinance.]

However, the failure of the tenant to return the Form does not relieve the Owner of either providing a new lease or replacement rental unit, or providing the relocation assistance fee. See Section 5-14-040(b). The City of Chicago advises that the Form is currently being drafted by the Department of Business Affairs and Consumer Protection.

Additional Language to Section 5-14-050
— Under the amendments to the Ordinance, Section 5-14-50(a)(2) has been expanded upon to extend coverage to “unlawful hazardous unit[s]” and units which are “unlawful conversion(s)”. Although not specifically used as examples, unlawful hazardous units and unlawful conversion rental units generally include basement and attic units that do not contain proper emergency exits. In the event a building is foreclosed that contains a unit that is an “unlawful hazardous unit or unlawful conversion”, then the owner: “shall pay a one-time relocation assistance fee of $10,600 to the qualified tenant unless the owner offers, and the tenant accepts the owner’s offer of, a rental agreement at a replacement rental unit with an annual rental rate that does not exceed 102 percent of the qualified tenant’s current annual rental rate; and for any 12 month period thereafter, does not exceed 102 percent of the immediate prior year’s annual rental rate. The replacement rental unit may be located either in the same foreclosed rental property or at another location (emphasis added).”

In Section 5-14-050(a)(2), the commissioner may prescribe by rule conditions under which an owner may offer a qualified tenant residing in an unlawful hazardous unit to extend or renew, at the tenant’s option, the tenant’s current rental agreement — with an annual rental rate that complies with Section 5-14-050(a)(1), if the owner makes all necessary repairs to correct any life safety or unsafe sanitary conditions.

As such, the amendment requires that the owner pay the $10,600 unless the qualified tenant accepts the owner’s offer of a new lease “with an annual rental rate that does not exceed 102 percent” of the qualified tenant’s current annual rental rate. See Section 5-14-050(a)(2). This provision stands out from other provisions within the Ordinance because the owner could offer the extended lease, and if the qualified tenant did not accept the lease, the one-time relocation assistance fee did not have to be paid. However, as Section 5-14-050(a)(2) is currently written, the qualified tenant could reject the offer for a replacement unit and the one-time relocation assistance fee of $10,600 would be required.

Within 21 days “after the date upon which the tenant returns or should have returned” the Form pursuant to Section 5-14-040, the owner shall provide notice to the qualified tenant that the owner is “paying the required relocation fee or offer to extend or renew the qualified tenant’s rental agreement, or provide a rental agreement for a replacement rental unit, whichever is applicable …” See Section 5-14-050(a)(3). If a qualified tenant “fails to accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement unit, whichever is applicable, within 21 days of receipt of the offer [unless more time is provided by the commissioner of business affairs and consumer protection] … the owner shall not be liable to such tenant for the extension or renewal of the tenant’s rental agreement; provided that a qualified tenant’s refusal to accept the owner’s offer for a replacement rental unit or to extend or renew the tenant’s current rental agreement for an unlawful hazardous unit pursuant to [5-14-050(a)(2)] does not affect the tenant’s right to payment of relocation fee.” See Section 5-14-050(a)(3). [The definition of “qualified tenant” has been expanded by the amendments to the Ordinance to include “(1) a tenant in a foreclosed rental property on the date that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence.” See Section 5-14-020. A bona fide lease is considered bona fide only if: “(i) the mortgagor or any child, spouse, or parent of the mortgagor residing in the same dwelling unit with the mortgagor, is not the tenant; the lease was a result of an arms-length transaction; and (iii) the lease requires the receipt of rent that is not substantially less than fair market rent for the property, or the rental unit’s rent is reduced or subsidized due to a government subsidy.] Although the term “replacement unit” is not defined within the Ordinance, it appears that the unit offered as a replacement must be a similar size, in a similar location, and contain similar amenities.

When Section 5-14-050(a)(3) of the Ordinance is read with Section 5-14-050(a)(2) (which provides that the relocation assistance fee of $10,600 to a qualified tenant is not required if the option to extend the tenant’s lease is not accepted), the addition of Section 5-14-050(a)(3) would limit the time frame of when the owner would have to make the necessary one-time payment of the $10,600 relocation fee. As such, under the amendment, if the Form is provided to the tenant, and no response is given within 21 days, the owner must still make an offer for lease renewal or a payment of the one-time relocation fee (within 21 days), and wait 21 days for a response. As such, within approximately 42 days (not accounting for time delays with mailing) of the tenant receiving the Form, the owner will know if a new lease will need to be offered, if a one-time payment must be provided, or if an eviction can occur.

However, there is a provision within Section 5-14-050(a)(3), which states that additional time can be provided to a qualified tenant, as “established by the commissioner of business affairs and consumer protection,” to “accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement rental unit … within 42 days of the offer …” See Section 5-14-050(a)(3).

Editor's Note: The Tenant Information Disclosure Form (“Form”) required by the amendments to Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance (the “Ordinance”) and corresponding Rules are now available:
http://www.cityofchicago.org/content/dam/city/depts/bacp/Rules/keepchicagorentingrules20150729.pdf.
The Form can also be found on the
City's website. The amendments go into effect on August 4, 2015.

©Copyright 2015 USFN and Pierce & Associates, P.C. All rights reserved.
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TILA and the Filtering of Post-Jesinoski Rescission Notices

Posted By USFN, Monday, May 11, 2015
Updated: Friday, September 25, 2015

May 11, 2015

 

by T. Matthew Mashburn
Aldridge Connors LLP– USFN Member (Georgia)

In my previous USFN e-Update article (Feb. 2015 ed.) regarding the United States Supreme Court’s decision in Jesinoski v. Countrywide Home Loans, Inc., No 13-684, 574 U.S. __ (Jan. 13, 2015), some anticipated problems were identified that could arise from what was written in the Court’s opinion, and more importantly, what was NOT written in that opinion. In this article, possible options are presented that lenders might proactively take to handle an increase in notices of rescission, should the notices materialize as expected.

Background
In the Jesinoski case, the Supreme Court of the United States (SCOTUS) was asked to answer a very straightforward and very narrow question: after the automatic three-day right of rescission expires, if a consumer has the right to rescind a loan because of some error in the disclosures, must the consumer file a lawsuit and have a court declare the rescission effective, or does TILA allow the consumer to rescind the loan by simple written notice to the lender?

In an opinion written by Justice Scalia, SCOTUS unanimously answered: a simple written notice is sufficient because TILA says nothing about a lawsuit being required for rescission. TILA gives the qualifying consumer an absolute right to rescind a qualifying loan within three days of consummation by providing a simple written notice to the lender. Upon rescission, the lender has to return any money the borrower has given the lender and cancel any security interest in the consumer’s property. Should the lender fail to provide proper disclosures at loan closing, the borrower has up to three years to rescind the loan (now accomplished by simple written notice according to Jesinoski).

The Problem
After the three-day initial rescission period expires, the borrower is given the loan proceeds. Yet, TILA applies the exact same rescission procedure as it does before the borrower has received any loan proceeds. [One would think that 15 U.S.C. § 1635’s reference to “(b) Return of money or property following rescission” would be primarily concerned with the repayment of the loan proceeds by the borrower to the lender. It is not.] Thus, the lender still has to return any money that the borrower has given to the lender (borrower’s counsel has argued that this means ALL monthly payments that have been received by the lender prior to the rescission); the lender has to cancel any security interest in the consumer’s property (borrower’s counsel argues that this means the lender now has an unsecured loan, whether the borrower pays the debt or not). Then — and only then — must the borrower repay the loan proceeds. But what about the situation where the borrower is broke? The statute is silent. As long as a lawsuit was required to rescind, this serious defect in the statute was handled by the courts, which uniformly required that the loan principal be repaid in order for the collateral to be released. “… [W]e’ve not found a single case in the 45-year history of this Act where the borrower has gotten any kind of windfall. We’ve looked extremely hard at this.” [Statement of David C. Frederick, Proceedings in Case 13-684 (Official Transcript), p. 8.]

This gatekeeping role traditionally played by the courts was one of the main pillars presented by lender’s counsel at oral argument before the Supreme Court. [Statement of Seth P. Waxman, Official Transcript, p. 27.] Indeed, the absence of any direction from the Supreme Court on this defect in the law is surprising given that Justices Scalia, Alito, Kennedy, Sotomayor, and Ginsburg all asked questions at oral argument predicated on borrowers behaving badly.

Since Jesinoski, the borrower is able to rescind the loan with a simple written notice, and according to the plain language of the statute, the lender is required to cancel the security interest without regard to whether the borrower has returned the loan proceeds (or even can return the loan proceeds).

Unless — and until — this defect in the statute is corrected, every single case is predestined to end up in exactly the same place where SCOTUS decided it would not: in court. Rather than putting the onus on the borrower to take the case to court for clarification as to the parties’ respective rights and obligations, the burden is now squarely placed on the lender — whom, previously, did not have the initial burden.

This change is a desirable result according to the Consumer Finance Protection Bureau (CFPB), in its presentation at oral argument. [The CFPB appeared as amicus curiae on behalf of the consumers. The CFPB has jurisdiction to administer TILA.] “If I wanted to foreclose, for instance, on the property and I needed my security interest to be absolutely rock solid in order to do that, then I might bring a declaratory judgment action, or I might, in the context of the foreclosure, ask the court to declare that the rescission was invalid.” [Statement of Elaine J. Goldenberg, Official Transcript, p. 21.] Thus, the CFPB did not address nonjudicial foreclosures, except to suggest that the lender should seek a declaratory judgment (thus, defeating the entire concept of a nonjudicial foreclosure). The option to seek a declaratory judgment in all nonjudicial foreclosures where the lender does not want to risk suit is an unacceptable answer to lenders, who might choose not to offer products like home equity lines of credit, thus costing consumers a very valuable financing option.

This uncertainty was made even more troublesome by the comment from the CFPB attorney that the lenders would be forced into a position of guessing what to do, and would have to pay damages if the lender “guesses” wrong on the issue of whether there was a rescission and proceeds to collect on the loan anyway. “If the lender guesses wrong, then it may be that it will subsequently be held liable for damages for guessing incorrectly and for failing to follow the unwinding procedures under Section 1635(b) when it should have done so.” [Statement of Elaine J. Goldenberg, Official Transcript, p. 19.] However, lenders do not wish to be in a position of guessing. Lenders cannot properly price loans on the basis of guesswork. Again, rather than operate on the basis of guesswork, lenders might opt to not offer the product at all (and may look to trigger any “pay on demand” or “credit freeze” feature in the currently existing loans so that the problem does not become worse).

The question that the Supreme Court did not answer was, who will fill the gatekeeping role that courts (and the cost of litigation) had been playing in weeding out non-meritorious claims? Caught in all of this uncertainty, lenders have been struggling to bring some order to the post-Jesinoski environment. Lenders are searching for ideas and suggestions for dealing with, responding to, and otherwise processing a wave of rescission notices inspired by Jesinoski (the vast majority of which will be determined to be without merit after great cost, expense, and delay). [The first three reported cases, following Jesinoski, all involve plainly non-meritorious claims. In re Residential Capital, LLC, Case No. 12-12020 (Bankr. S.D. N.Y. Apr. 9, 2015); Taylor v. Wells Fargo Bank, N.A., Civil Action No. 14-617 (D.C. D.C. Mar. 25, 2015); Lagrant v. U.S. Bank National Association, Civil Action No. 3:14-cv-809-HEH (D.C. Va. Mar. 16, 2015).]

The Jesinoski decision did not acknowledge the critical gatekeeping function of the phrase “[t]he procedures prescribed by this subsection shall apply except when otherwise ordered by a court.” 15 U.S.C. § 1635(b) (emphasis supplied). Subsection (b) was added in the 1980 amendments for the express purpose of preventing the sort of abuse that will be unleashed by Jesinoski.

A straight reading of the plain terms of the statute reveals that “unwinding” the transaction after the loan proceeds have been distributed, according to the same system that is used before the loan proceeds have been distributed, yields a nonsensical result.


Scalia, J.: …[Y]ou are urging that the statute creates a system in which a creditor who has a secured interest, simply because somebody comes up almost 3 years later and says, “you didn’t give me two copies of this particular document, I got only one copy,” and even if that’s not true, immediately the secured interest is converted into an unsecured interest. That is a huge difference. And I find it difficult to believe that’s what Congress intended. Mr. Frederick: Well, the language of the statute actually makes that very clear, and so do the regulations. [Colloquy of Justice Scalia and Mr. Frederick, Official Transcript, pp. 5-6.]

Prior to Jesinoski, most courts either modified the statutory procedure, refused to follow the statutory procedure, or “expressly rejected the regulatory scheme and, substituting their own notions of equity, turned the statutory process around.” [Keest and Sarason, Truth in Lending, 2d Edition, National Consumer Law Center, § 6.9.1.4.1, p. 247.] Clearly, lenders cannot exercise equitable powers in the way of a court to modify, reject, or reverse the statutory scheme of “unwinding.” However, by taking the resolution of the issue of rescission out of the courts and placing it in the lender’s mailroom, the Supreme Court has created a vacuum where the guiding hand of the courts previously existed.

Possible Lender Responses

Should the lender do something or nothing in the face of this new uncertainty? There is some support for the argument that the proper response of a lender, to a notice under Jesinoski, is simply to do nothing. At oral argument, it was stated that the CFPB’s position was that “an invalid notice of rescission that’s not timely has no effect in the world.” [Note that this statement has two requirements. An “invalid” notice that is also “not timely.”] “… it puts no requirement on the lender to do anything and you can see that from the language of Section 1635(b).” [Statement of Ms. Goldenberg, Official Transcript, p. 18.]

Furthermore, during the Circuit Court of Appeals split in the run-up to Jesinoski, the Third Circuit Court of Appeals (which was on the side of the split that was ultimately adopted by SCOTUS) wrote, in deciding Sherzer v. Homestar Mortgage Services, 707 F.3d 255 (3rd Cir. 2013), that “[b]y sending a notice of rescission, the obligor becomes obliged to tender any property he has received from the lender ‘[u]pon the performance of the creditor's obligations.’ 15 U.S.C. § 1635(b). Thus, a notice of rescission is not effective if the obligor lacks either the intention or the ability to perform, i.e., repay the loan” (emphasis supplied). [Statement of Ms. Goldenberg, Official Transcript, p. 18.] Had the Supreme Court included either one of these concepts in its opinion in Jesinoski, the incentive for borrowers to send bogus notices of rescission might have been tempered.

While a blanket policy of doing nothing has operational efficiency and has some arguable support from the CFPB and the courts, it also runs the risk of inflaming a jury or a judge in the rare case where the notice was actually legitimate and timely. (We can easily visualize the operations manager of a lender on the witness stand in front of a jury in a wrongful foreclosure suit: Question by Borrower’s Counsel: Upon receipt of the borrower’s notice declaring that you had failed to comply with TILA, and thus were obligated to unwind the transaction under this critically important consumer protection statute, what did you do? Response from Lender’s Representative: It is our policy to ignore notices of rescission.

Accordingly, while doing nothing might arguably be permitted, doing something is usually the preferred course of action, if for no other reason than demonstrating that the lender takes this important piece of consumer protection legislation seriously.

Assuming the lender does something, what should it do? The notices of rescission prompted by Jesinoski will fall into one of four possible categories: (1) untimely letters that have no merit; (2) untimely letters that would have had merit had they been sent at the proper time; (3) timely letters that have no merit; and (4) timely letters with merit. The great failing of Jesinoski is that there is no downside to the borrower sending a notice of rescission in bad faith. Rather than the “price of admission” to assert a rescission as being the cost to hire a lawyer (and the time and trouble to litigate the case), Jesinoski reduces the “price of admission” to the cost of a postage stamp. Indeed, there might be great benefit to the unscrupulous borrower in sending a meritless notice of rescission because the lender will be delayed while it processes the letter. [Sotomayor, Justice: “… the bank, as soon as it receives the notice of rescission – one of the benefits for people who don’t want to pay a mortgage is that it suspends the mortgage payments; correct? Mr. Frederick: That’s correct.” Official Transcript, p. 10.]


The Big Sort — Since the Supreme Court’s opinion acknowledged that the three-year statute of limitations, which was established sixteen years ago in Beach v. Ocwen Federal Bank, 523 U.S. 410, 411-13, 118 S. Ct. 1408, 140 L.Ed.2d 566 (1998), was still in effect, the initial sorting will be between timely and untimely rescission letters. This can be referred to as the “Big Sort” because (1) it will take the least amount of time to analyze, and (2) if the arguments that have been put forward in actual existing cases since the time of the Jesinoski opinion are any indication, this will be the largest number of letters. This “Big Sort” might be possible to accomplish with “one touch” (the person opening the letter might be trained to spot the statute of limitations and determine whether the closing pre-dates the letter by more than three years). In such a case, the letters can be filed under “without merit” or generate a standard rejection letter. As referenced above, a standard rejection would probably be preferred over no response at all. A standard rejection response would also place the onus back on the borrower to seek redress in the courts. Further, filing the notice and the rejection in the loan file will help with due diligence in the sale of the notes or in the event of foreclosure.

The Little Sort — With all untimely letters thus eliminated from the notice pool, the lender will now turn to timely letters. This pool will contain (1) timely letters without merit, and (2) timely letters with merit. Most letters will be without merit because currently there is no penalty to the consumer for asserting a meritless claim, and a potential reward for doing so. In order to determine whether the letter has merit or is meritless, the lender should create categories for claims, with some categories warranting more attention than others.

The current range of meritless claims is the “one copy” allegation. In this claim, the consumer denies receiving two copies of the notice of rescission at the closing (even despite having signed an acknowledgment at closing that he or she did receive two copies). Unfortunately, this claim was given support by counsel for the consumers at the oral argument in Jesinoski. “There is confusion here on this particular form because the – what this says – what is [sic] says is, ‘The undersigned each acknowledge receipt of two copies.’ It doesn’t say, ‘The undersigned each acknowledge each receiving two copies.’” [Statement of Mr. Frederick, Official Transcript, p. 51. Of course, lenders might consider changing their right of rescission forms to head off this argument.]

Timely notices, without merit: These will receive a standard rejection as well. This rejection should be drafted by counsel with experience in consumer lending and, specifically, with experience in dealing with right of rescission issues. Claims that are not part of nationwide or internet trends can be forwarded to counsel for further evaluation and, ultimately, rejection.

Responding to notices of rescission that have merit: Once the letters have been sorted and a timely notice with potential merit has been identified, the unwinding process of 15 U.S.C. § 1635(b) is finally triggered. Here, the CFPB clearly anticipates that there will be an exchange between the borrower and the lender. “In that circumstance, I would certainly start by going to the borrower and trying to work it out privately, which is, I think, what Congress primarily intended when it set up the scheme.” [Statement of Ms. Goldenberg, Official Transcript, p. 21.] If this exchange is successful in resolving the issue, the matter is concluded. If the exchange is not successful in bringing about a resolution, then the parties will be back in court.

Conclusion

Until the Courts, the Congress, or the CFPB clarify the confusion created by the Jesinoski decision, lenders should create a “triage” for identifying and processing notices of rescission, and developing policies for (1) either rejecting or ignoring untimely notices; (2) identifying and rejecting non-meritorious letters; and (3) identifying meritorious letters, which will then be responded to in a timely and appropriate fashion.

If the lender and the consumer cannot resolve the issue, then litigation will inevitably ensue. For the time being, the response to timely, seemingly meritorious notices will necessarily include a request that a court modify the terms of the statute and require repayment of the loan as a condition for rescission. Ironically, this is the exact position that nearly all cases were in before the Supreme Court issued its opinion in Jesinoski.

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Minnesota Legislature Clarifies Foreclosure Publication Statutes

Posted By USFN, Monday, May 11, 2015
Updated: Friday, September 25, 2015

May 11, 2015

 

by Brian H. Liebo
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)

After identifying a growing area of litigation challenging foreclosures in Minnesota, this author’s firm reached out to the Minnesota Bar Association and the Minnesota Bankers Association to advocate for a necessary change to the legal publications statutes. These efforts were fruitful, and the Minnesota legislature passed a clarifying law this session under bills HF953 and SF1147.

Governed by a provision under Chapter 580 of Minnesota’s Foreclosure by Advertisement statutes, notices of sheriff’s sales must be published for six weeks prior to sheriff’s sales in qualified newspapers. For over a century, it has been the accepted custom and practice in Minnesota to publish those notices in any qualified newspapers located in the same county as the mortgaged property. Using a county-wide standard, the newspaper selection could be made based on the best quality and pricing among a larger pool of newspapers. Consistent with this practice, the Minnesota Secretary of State maintains a list of qualified legal publishers in Minnesota, which is arranged by county as the first category on the list.

Borrowers seeking to challenge foreclosures have been arguing that the newspaper selection standard should be closer to a city-based standard — rather than a county-based one — even if that would reduce competition by narrowing the selection of available legal publishers and, therefore, increase pricing that mortgage servicers and reinstating borrowers would have to pay. Under the narrower standard, if a small city only has one qualified newspaper, the publisher could charge whatever price it wanted for publishing legal notices because it would have a captive market. There is no Minnesota statute capping what newspapers can charge for such publications.

In the past few years, borrowers’ attorneys have been bringing court actions challenging foreclosures to promote the use of a narrower standard for selecting newspapers. They have been taking advantage of vague and undefined terms in related publication statutes to tie up properties in litigation. For example, one applicable statute, Minnesota Statutes Section 331A.03, requires that public notices be published in newspapers likely to give notice in the “affected area” or “to whom it is directed.” Unfortunately, neither of these terms is defined in any Minnesota statute or case law. The “affected area” for a foreclosure notice could be just the mortgaged parcel, its neighborhood, the city in which the mortgaged parcel is located, or its county. Also the “persons to whom foreclosure notices are directed” could be construed as just the borrowers, potential bidders, sheriffs conducting the sales, etc.

After persuasive prompting, bills were introduced in the Minnesota legislature to address the growing problem with the publication statutes. This new law, to be codified as Minnesota Statutes Section 580.033, now explicitly provides that a county-based standard for selecting newspapers for publishing foreclosure notices is proper. The new statute clearly provides that “publication of the notice of sale shall be sufficient if it occurs in a qualified newspaper having its known office of issue located in the county where the mortgaged premises, or some part thereof, are located.” This new statute also allows a foreclosing party to publish in a qualified newspaper having its known office of issue located in an adjoining county. However, the foreclosing party then has a higher standard to meet because the newspaper must also establish that a “substantial portion of the newspaper’s circulation is in the county where the mortgage premises, or some part thereof, are located.”

This clarifying new statute allows foreclosing parties to avoid having to contend with the vague standards of Section 331A.03 and provides greater certainty and predictability in selecting appropriate newspapers to publish foreclosure notices. It should also help in avoiding the litigation that resulted from the past applicability of an unclear statutory section to mortgage foreclosure.

The Minnesota legislature also added a curative statute under Minnesota Statutes Section 582.25 related to foreclosure notice publications. These statutes cause various errors to automatically “cure” with the passing of time, so the issues can no longer be raised to overturn a completed foreclosure. In this case, any errors made by a foreclosing party in complying with the new publication statute will automatically “cure” after one year has passed from the date of the expiration of the redemption period.

The new laws will be effective for all cases where the Notice of Pendency for Foreclosure is recorded on or after July 1, 2015. These notices of pendency are recorded prior to the time of the commencement of the foreclosure proceedings, which is the date of first publication.

The new publications statute will benefit parties seeking to foreclose mortgages by advertisement, as well as title companies insuring the transactions, since it creates more certainty in the laws governing these proceedings. By assuring a broader standard for selecting qualified newspapers, the new publication statute also helps to ensure that newspapers publishing legal notices will operate in a competitive environment, so that foreclosing parties can select qualified newspapers not only by location but also by factoring in pricing and quality of product among a larger pool of qualified newspapers.

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Minnesota Legislature Adds to Mortgage Reinstatement Requirements

Posted By USFN, Monday, May 11, 2015
Updated: Friday, September 25, 2015

May 11, 2015

 

by Brian H. Liebo
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)

Working with the Minnesota legislature through the Minnesota Bankers Association, this author’s firm was able to significantly alter a piece of legislation that would have otherwise created large difficulties and delays for mortgage servicers seeking to foreclose mortgages in Minnesota.

In a recent case, the federal district court in Minnesota held that a mortgage servicer must provide a reinstatement quote to a requesting borrower within twenty-four hours of the request under Minnesota Statutes Section 580.30. That statute was silent on the deadline for providing reinstatement figures to requesting borrowers. In this legislative session, the Minnesota legislature introduced a bill to amend the statute (in response to the federal case) to provide a longer response time than twenty-four hours.

However, the original bill introduced in the legislature still only gave mortgage servicers a total of three days to provide reinstatement figures following a borrower’s request. Further, this original bill did not address which alternatives would be available if a mortgage servicer needed more than three days’ time to respond to a reinstatement inquiry, including the scenario of a borrower faxing a request late on a Friday night. As a result, the original bill would have effectively required that the mortgage servicer completely stop pending foreclosures altogether in situations where they were unable to provide borrowers with reinstatement quotes within three days of the request.

Additionally, the original bill did not contain any language allowing mortgage servicers to postpone foreclosures in order to provide reinstatement figures if they were unable to meet the three-day deadline. Moreover, the original bill did not restrict the amount of times that a borrower could submit reinstatement quote requests. Thus, borrowers seeking to disrupt and delay foreclosure proceedings could repeatedly submit reinstatement requests under the original bill.

Upon seeing the original bill language and recognizing its troublesome implications, Usset, Weingarden & Liebo, PLLP (UW&L) reached out to the parties involved in negotiating the terms of the original bill. Both the Minnesota Bankers Association and Legal Aid were receptive to UW&L’s concerns and accepted verbatim the “safe harbor” language that the law firm submitted. That language provides the following: “If the amount necessary to reinstate the mortgage was not mailed to the mortgagor within three days of receipt of the request, no liability shall accrue to the party foreclosing the mortgage or the party’s attorney and the foreclosure shall not be invalidated if the mortgage reinstatement amount was mailed by first class mail to the mortgagor at least three days prior to the date of the completed sheriff’s sale.” This language was carried into the final bill version passed into law.

Based on this new language, mortgage servicers will have far more breathing room in complying with borrower requests for reinstatement figures, and will also have the option to postpone sheriff’s sales, where necessary, to give this information, without having the entire foreclosure invalidated for doing so. Borrowers will also be assured of getting reinstatement figures prior to the sheriff’s sale. Mortgage servicers can now provide reinstatement quotes within three days of a request, or ensure that they convey a reinstatement quote at least three days before the date of the final sheriff’s sale as an alternative (and can postpone the original sale to accomplish this). The reinstatement quotes must be effective for seven days or until the foreclosure sale, whichever occurs first.

In a related development, the legislature also adopted into these bills additional language drafted by this author’s firm for another statute. This language will be an additional curative statute provision under Minnesota Statutes Section 582.25. These provisions cause various errors to automatically “cure” with the passing of time, so that the issues can no longer be raised to overturn a completed foreclosure. In this particular situation, any errors made by a foreclosing party in connection with publishing or mailing notices for postponements of sheriff’s sales will automatically “cure” after one year has passed from the date of the expiration of the redemption period.

Finally, these bills contain a provision simply clarifying that if a borrower postpones a sheriff’s sale under Minnesota Statutes Section 580.07, subdivision 2 (for five or eleven months, whichever is applicable, in exchange for a five-week redemption period), and the related foreclosure is stopped and then restarted, the new redemption period is not permanently five weeks for any future foreclosures, unless the bankruptcy stay provision of the statute applies.

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Colorado State Legislature Passes Bill for E-Sales

Posted By USFN, Monday, May 11, 2015
Updated: Friday, September 25, 2015

May 11, 2015

 

by Larry Castle
The Castle Law Group – USFN Member (Colorad)

On April 21, 2015, the Colorado State Legislature passed House Bill 15-1142. The bill offers the opportunity to have electronic public trustee nonjudicial foreclosure sales through either the internet or other electronic medium. The law becomes effective on September 1, 2015. There are very few particulars contained within the new statute.

What we do know is that there is an additional fee of no more than $60, authorized by the statute to be added to the total public trustee fees for the use of the electronic sale process. This further fee must be paid by the foreclosing party prior to the sale.

We also know that the only requirements outlined in the bill are that the combined notice of sale and rights to cure and redeem sent by the public trustee to all interested parties, must identify: the electronic address for the sale; the location of computer workstations that will be available to the public; and how the public is to obtain instructions on accessing the sale and submitting bids. Furthermore, the combined notice must provide a statement that the bidding rules will be posted on the internet, or other electronic medium used to conduct the sale, at least two weeks prior to the sale date.

For electronic sales only, the statute is amended to allow the holder of the evidence of debt, through its attorney, to submit both a minimum and maximum bid. Neither the holder nor its attorney needs to physically attend the sale in order to competitively bid. By statute, the electronic bid will be increased in increments incorporated into the electronic program used by the public trustee. The foreclosing party will not be able to set the incremental increases of the bid. It is important to note that Colorado statute also requires that the foreclosing party bid based upon the fair market value of the property, less reasonable costs of sale. Additionally, there will continue to be a post-sale right of redemption for junior lienholders. The redemption amount is the bid amount, plus allowable expenses from the sale date to the redemption date.

It is important to note that the new statute specifically states that the county, the officer, as well as employees of the county or officer acting in their official capacity in preparing, conducting, and executing an electronic sale are not liable for the failure of any device that would prevent a person from participating in the electronic sale process.

The legislature did not provide any guidance regarding the rules for the electronic sales, leaving that to the public trustees. This may create the possibility for each county public trustee (who may choose to have electronic sales) to design different rules and methodologies, as well as use different technologies.

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Utah: 2015 Legislative Action

Posted By USFN, Monday, May 11, 2015
Updated: Friday, September 25, 2015

May 11, 2015

 

by Scott Lundberg
Lundberg & Associates – USFN Member (Utah)

2015 was a fairly quiet legislative year in Utah, as it relates to legislation with an impact on mortgage servicers.

However, Senate Bill 0120 (Regulation of Reverse Mortgages) will be of special interest to default servicers, while on the other hand, House Bill 0227 (Real Estate Amendments) addresses only origination. Both bills are effective May 12, 2015.

Senate Bill 0120 (Regulation of Reverse Mortgages) — enacts the Utah Reverse Mortgage Act, Utah Code sections 57-28-101, et seq. It sets forth requirements for reverse mortgages in Utah and addresses the treatment of reverse mortgage loan proceeds, priority, foreclosure, and lender default. It contains a safe harbor for lenders making reverse mortgages insured by the U.S. Department of Housing and Urban Development, if they comply with the requirements found in 12 U.S.C. Section 1715z-20 and 24 C.F.R. Part 206.

With respect to foreclosure, the bill requires that the servicer give a borrower written notice of the default, and provide at least 30 days after the day on which the borrower receives the notice to cure the borrower’s default. This requirement will necessitate a change in the breach or demand letters for servicers that currently allow 30 days from the day that the letter or notice is sent.

House Bill 0227 (Real Estate Amendments) — amends a number of provisions relating to real estate. The principal areas of interest (to mortgage servicers) in the bill are: (a) modification of licensing requirements; (b) affirmative disclosure requirements associated with the lending process; and (c) prohibited conduct for those engaged in the business of residential mortgage loans.

Another bill, House Bill 0221, which would have changed the procedure for foreclosure of owners association assessment liens from nonjudicial to judicial, was introduced in the 2015 session but did not leave committee.

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State-by-State: Washington: Foreclosure Mediation

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by Susana Chambers (Davila)
RCO Legal, P.S. – USFN Member (Arkansas, Oregon, Washington)

This article appeared in the USFN e-Update (April 2015 ed.) and is reprinted here for those readers who missed it.

Washington’s Foreclosure Fairness Act (FFA) was enacted in 2011 as an amendment to the Washington Deed of Trust Act, RCW § 61.24, the statutory guidance for nonjudicial foreclosure in Washington State. The FFA established a foreclosure mediation program (Mediation Program), which is administered by Washington’s Department of Commerce (Commerce). Commerce reports annually to the legislature on the performance and results of the Mediation Program.

Looking Back – Best Practices Established: Over the last three years, foreclosure mediation “best practices” have emerged as a result of more than 6,300 mediation referrals in the state. Beneficiaries with organized mediation groups who regularly employ these best practices generally experience success in the Mediation Program.

By now, most beneficiaries have successfully adapted to the Washington foreclosure mediation program, and the beneficiaries’ attorneys often find that the bank mediation representative on the phone is familiar with the mediation process in Washington. However, avoidable delays still occur, resulting in additional mediation sessions and unnecessarily elongating foreclosure timelines. To avoid these delays and the inevitable expense of additional attorneys’ fees and mediation costs associated with them, beneficiaries should consider the following best practice suggestions:

 

  • Assign the same underwriter for the loss mitigation review who will also be available to attend the mediation session. This continuity provides stability to the mediation process and is consistent with federal rules regarding a specific point of contact.
  • Beneficiary representatives participating in mediation should be familiar with the loan investor’s guidelines and be prepared to explain, in detail, the reason for a denial for modification, or other loss mitigation option. It was the legislature’s intent that the foreclosure mediation provide transparency for the borrower; this includes clearly explaining any denial for loss mitigation options and providing the applicable investor guidelines to the mediation parties.
  • Beneficiaries should promptly review borrower applications for loss mitigation upon receipt and stay in close contact with their attorney’s office about incomplete documentation, so that the financial package does not become stale-dated. Consistent with the Consumer Financial Protection Bureau’s Regulation X, beneficiaries should already be notifying the borrower (within five business days of receipt of their financial package) of any missing information needed to complete the financial package. (12 CFR § 1024.41.)
  • During the mediation session, beneficiaries should request a private caucus with their attorney if they are unsure of how to respond to a legal question during the mediation session.


Beneficiaries who utilize these suggested practices generally experience more success in the Mediation Program, such as: fewer mediation sessions, shortened foreclosure timelines, less risk of a “bad faith” finding from the mediator, and reduced likelihood of litigation.

Looking Back – Commerce’s Annual Report: In October 2014, Commerce published its third annual report to the legislature on the status and progress of the Mediation Program. Commerce reported that from July 2011 through June 2014, it had received 6,319 referrals to mediation. Of the mediation referrals, Commerce deemed 88 percent of them eligible for mediation, and they were then assigned to one of the 126 approved foreclosure mediators in the state.

Now that the Mediation Program has been in existence in Washington for nearly four years, the results of the program have become clear; of the 4,059 mediated cases reported by Commerce:

 

 

  • 883 resulted in agreements where the borrowers stayed in their homes through modification of the loan, repayment of the arrears, or reinstatement of the loan;
  • 248 resulted in agreements where the borrowers did not keep their homes — such as a pre-foreclosure sale, deed-in-lieu of foreclosure, or cash for keys;
  • 1,359 mediations resulted in no agreement between the parties; and
  • 1,569 did not occur. The majority of these mediation cases were closed because an agreement was reached between the parties before the mediation occurred — primarily, the borrower was offered, and accepted, a loan modification.

Borrowers were found to have mediated “not in good faith” more often than a beneficiary. Commerce reported that there were 362 cases where the borrower did not mediate in good faith, and 199 cases where the beneficiary did not mediate in good faith.

The failure of a beneficiary to mediate in good faith constitutes a defense to the nonjudicial foreclosure action and may be a violation of the Consumer Protection Act, RCW § 19.86. A borrower's failure simply allows the beneficiary to move forward with the nonjudicial foreclosure, but does not result in any other legal consequence to the borrower.

Looking Forward – The Foreclosure Fairness Fund: For each Notice of Default issued on owner-occupied residential real property in Washington, the beneficiary is required to pay a $250 fee into the Foreclosure Fairness Fund (Fund). This is commonly referred to as a “foreclosure tax.” The money deposited into the Fund is allocated amongst several groups as provided by RCW § 61.24.172:

 

 

  • 71%: Housing Finance Commission — goes to Homeowner Counseling.
  • 18%: Department of Commerce — goes to Program Implementation and Administration.
  • 6%: Office of the Attorney General — goes to Consumer Protection.
  • 3%: Department of Financial Institutions — goes to Education and Outreach.
  • 2% Office of Civil Legal Aid — goes to Homeowner Legal Representation.


As of June 30, 2014, a total of $15,908,275 had been deposited into the Fund. The highest amount of quarterly deposits into the Fund was during the second quarter of 2013, a total of $2,097,750. Since then, deposits into the Fund have dramatically dropped. For the second quarter of 2014, the total deposits were $916,500, less than half of the deposits reported in that same quarter, the year before. As the funding of the Mediation Program continues to drop, the public resources available to support the program will also decrease.

Looking Forward – Exemption from the Mediation Program: Besides the decreasing budget of the Fund, RCW § 61.24.174, provides some beneficiaries an exemption from the foreclosure tax if they certify that they are FDIC-insured institutions, and that they issued less than 250 notices of default in the preceding year. As of January 31, 2015, over 200 beneficiaries appeared on the exemption list — nearly double the number exempted from mediation in 2011. As foreclosures are anticipated to continue declining, more beneficiaries will become eligible to be exempted from mediation, further shrinking the number of beneficiaries participating in the foreclosure mediation program, and further reducing the foreclosure tax paid to Commerce.

Conclusion: The FFA, amended three times since its implementation in 2011, does not include a sunset date for the Mediation Program. As foreclosures continue to decline throughout the nation, the long-term viability of the Mediation Program in Washington remains questionable for fiscal and practical reasons.

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REDEMPTION: Michigan: Statutory Changes

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by Jessica Rice
Trott Law, P.C.
USFN Member (Michigan)

The legislature was very busy in 2014. The good news is that some of the bills that were passed, pertaining to Michigan’s foreclosure by advertisement statute, turned in a different direction than has been seen over the past six years or so. The enacted bills seek to clean up the foreclosure by advertisement statute and, more importantly, offer greater protections to foreclosing lenders.

Michigan is a redemption state, where borrowers typically enjoy the benefit of a six-month redemption period. This time frame can vary in limited circumstances, but for the most part, six months is the norm. Historically, the redemption period has been a time when the mortgagor is entitled to retain possession of the property, may lease it out, or may even sell it and redeem the foreclosure sale. While this is still true, enactment of the above-mentioned bills brought about changes to the redemption statute that provide purchasers at the foreclosure sale with greater rights to protect their interest in the property during the redemption period.

Inspections
More specifically, the amended redemption statute now contains a provision wherein the purchaser may inspect the exterior and interior of the property periodically during the redemption period. If the property is found to meet certain requirements under this new provision, then the revised statute goes further to allow for the commencement of summary proceedings to seek possession of the property.

While this may seem like a fairly straightforward change, it is a significant departure from past practice. The statute outlines a very specific process that must be followed in order to proceed with the inspections. The statute requires the purchaser to send multiple letters to the property in order to be able to proceed with an interior inspection. The first of these letters serves as informational under MCL 600.3237. This letter must set forth the name and contact information for the purchaser at the foreclosure sale, the date and the amount of the foreclosure sale, as well as the redemption expiration date. The letter also provides the information contained in MCL 600.3238 regarding the purchaser’s rights to an inspection, in addition to the requirements and procedures for proceeding with it. This letter further establishes a rebuttable presumption regarding liability for damages for failure to allow the inspection, or failure to notify the purchaser if the property is going to be surrendered.

As for the subsequent letters called for under the statute, there are specific requirements for these, too. The focus of these letters is on the actual inspections, including the scheduling, results, and any follow-ups as permitted by the statute. Given the nature of these letters, it is recommended that foreclosing lenders use their local presence, such as property preservation specialists and brokers, to send the letters as they will be the parties conducting the inspections and assessing the property.

Evictions

The statute also allows for the commencement of eviction proceedings. This is permissible under the statute if an inspection is unreasonably refused, or if damage to the property is imminent or has occurred. It is important to note that the term “unreasonably refused” is not defined in the statute. Accordingly, it is likely that there will be issues with the interpretation of this term between foreclosing lenders and borrowers. If that becomes the case, the determination as to whether an inspection was unreasonably refused will need to be made by the presiding judge. Unlike the lack of a definition for “unreasonably refused,” MCL 600.3238(11) provides a list of what is considered “damage” under this statute, but it is important to note that this is not an exhaustive list.

Similar to the inspection process, there are very specific measures that must be met before beginning an eviction. The statute provides that before the eviction can proceed, the purchaser must send another notice advising the mortgagor of the intent to commence the eviction action if the damage, or condition causing the belief that damage is imminent, is not repaired or corrected within seven days after receipt of the notice. This certainly is open to interpretation because the foreclosing lender may have a different opinion than the mortgagor as to whether the damage has been repaired. If this issue arises, it is wise to consult with local counsel to determine the best course of action. The statute also indicates that the foreclosing lender can work with the mortgagor to create procedures, or a timeline, to repair the damage. If the repairs are made in accordance with those timelines, the eviction may not proceed. Here again, this is open to interpretation. Conversely, if the mortgagor does not repair the damage within seven days or by the agreed-upon timeline, a determination can be made as to whether it is advisable to proceed with filing an eviction action in the local district court.

Once it is decided to start an eviction action, it is important that the complaint includes detailed information as to the nature of the action and the findings at the property. This could include, but is not limited to, copies of the required letters that were sent to the property pursuant to the statute, as well as affidavits and photos reflecting the inspection findings from the inspectors.

It is likely that there could be a difference of opinion between the parties at the eviction hearing as to repairs and/or whether an inspection was unreasonably refused. This is further reason as to why it is imperative that the judge is aware of the statute and that all necessary information is presented to the court. Ultimately, if at the eviction hearing the court grants a judgment for possession in favor of the purchaser, the right of redemption is extinguished and title in the property vests to the purchaser. This is a significant departure from prior practice in that the borrower would be divested of his redemption rights prior to the expiration of the typical six-month statutory redemption period.

As with any change, there are likely to be hiccups. Because this is a substantial shift from a longstanding history of closely-guarded redemption rights in Michigan, it can be anticipated that there will be resistance. There are, also, likely going to be some risks in proceeding under the terms of this new provision. This is due to the fact that the revised statute tends to contradict the traditional notions of the mortgagor’s rights during the redemption period, and any type of infringement on those rights could be construed as a violation. Therefore, it will be crucial for purchasers to comply with all of the requirements of the statute. It is also possible that judges may not yet be familiar with these changes, and may be hesitant to divest borrowers of their redemption rights during the redemption period. To help ensure that any potential issues are mitigated, all options and any best practices should be discussed with local counsel before proceeding under this provision of the revised statute.

Abandoned Properties
While these changes certainly offer greater protections to foreclosing lenders, something to keep in mind is that this provision is not applicable to abandoned properties. Rather, the Michigan foreclosure by advertisement statute includes sections that specifically pertain to abandoned properties. If a particular property has been abandoned, the redemption period can be shortened once certain requirements are met. Local counsel will be able to assist with this process in the event that the property is abandoned, as defined by the applicable statutory sections during a foreclosure by advertisement.

Conclusion
When used properly, the changes to the foreclosure by advertisement statute will benefit foreclosing lenders by protecting their interests in foreclosed properties during the redemption period. These additional protections should help prevent damage to properties. In those situations where damage has occurred and is not appropriately rectified, a lender now has recourse to seek to obtain possession of the property much sooner than has ever been permissible. While it is important to proceed cautiously and to seek guidance from local counsel, these changes are most certainly a change for the better.

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REDEMPTION: Alabama: Ad Valorem Tax Sale Redemption

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by Jeff G. Underwood
Sirote & Permutt, P.C.
USFN Member (Alabama)

Benjamin Franklin once said, “An investment in knowledge pays the best interest.” When it comes to investing, nothing will pay off more than educating oneself. An investment opportunity in Alabama, in which local residents and out-of-state investors regularly participate, involves annual ad valorem property tax sales.

Alabama ad valorem taxes are paid in arrears. Taxes become due October 1 for the previous year and are delinquent if unpaid by December 31, subject to penalties and interest. The state is comprised of 67 counties, and each will conduct a tax sale for unpaid taxes, usually in late April or early May of the following year. The current vested owner is provided notice of the sale, and notice is given for three successive weeks in a newspaper of general circulation for the county where the property is situated. The sale occurs on the prescribed date within the legal hours of operation.

Normally, one of three scenarios occurs: (1) the property owner pays the taxes at sale or prior thereto; (2) there are no bidders at the tax sale, and the land subject to the delinquent ad valorem taxes is sold to the state of Alabama (State); or (3) the land subject to the delinquent ad valorem taxes is purchased by a third-party investor.

Redemption — The property owner, or his mortgagee of record, has three years from the date of the tax sale in which to redeem the taxes, or risk a tax deed being issued in the name of the purchaser at the tax sale.

Tax redemption where the land from a tax sale has been sold to the State is fairly routine. The property owner or mortgagee requests a redemption application from the county and pays the amount due to the county revenue commissioner’s office when submitting the completed application. The county will then issue a redemption certificate to the redeeming party.

Where the property is sold to a party other than the State, the process is as follows: A tax purchaser can “bid in” excess funds (overbid) and the county may compute the statutory interest (12 percent per annum) based upon the total amount (taxes plus overbid) and refund the overbid to the tax purchaser separately; or, the redeeming party may be forced to pay the amount, including taxes, accrued interest, penalties, and the overbid amount. The redeeming party would make a separate application to the county for a refund of the overbid post-tax sale redemption.

Procedures Changed — Prior to November 19, 2013, the tax redemption procedure where the property was sold to a party other than the State was similar to that where the property was sold to the State. Pursuant to Ex parte Foundation Bank (In re CMC Properties, LLC v. Emerald Falls, LLC), 146 So. 3d 1 (Ala. 2013), the Alabama Supreme Court ruled that the redeeming party must present verification to the county that the tax purchaser has been reimbursed for any hazard insurance premiums paid by the tax purchaser on a residential structure located on the property with interest at 12 percent per annum, as well as for the value of all preservation improvements made on the property with interest at 12 percent per annum.

Redemption Affidavit — The Alabama Department of Revenue crafted a redemption affidavit for use by the various counties. The affidavit must be executed, before a Notary Public, by both the property owner (or the mortgagee if the property has been foreclosed) and the tax purchaser. For the most part, counties will allow each signatory to execute a separate form, but at least one county requires both signatures to be affixed to one affidavit. In addition, counties will generally provide the original tax redemption application and affidavit forms simultaneously, so that signatures can be obtained. Some counties, however, apply a different standard and require the fully executed and notarized redemption affidavit to be submitted before the county will release the redemption application. Unfortunately, this can create unnecessary delays.

Prior to November 2013, there were very few investors that took advantage of Code § 40-10-122(b) and (c). The potential for abuse by certain investors in determining the value of the “preservation improvements” is a distinct possibility. Should the redeeming party disagree with the value of those improvements, Alabama law provides a mechanism for determining the value.

Valuation of Preservation Improvements — Alabama Code § 40-1-122(d) requires the redeeming party to make a written demand upon the tax purchaser for a statement of the value of all permanent or preservation improvements made since the tax sale. The tax purchaser has 10 days from receipt of that demand to provide his list of improvements. Within 10 days of receipt of that response, the proposed redemptioner shall either accept the value so stated by the purchaser, or appoint a referee to ascertain the value.

The redemptioner shall notify the tax purchaser of his disagreement and inform the tax purchaser of the appointed referee’s name. Within 10 days of the receipt of this notice, the tax purchaser shall also appoint a referee and provide the redemptioner with that person’s name. Within 10 days of their appointment, the two referees shall meet and confer on a just award. If the two referees cannot agree, they will jointly select an umpire. A majority vote shall be made within 10 days after the umpire’s selection; that award is final between the parties.

The costs and timelines associated with redeeming tax properties, where the property has been sold to a party other than the State, will be decidedly higher as a result of the Foundation Bank decision. Many more investors will take advantage of the preservation improvements valuation component of the law where properties have been foreclosed and tax purchasers are allowed to take possession of a vacated property.

These tax purchasers could perform so-called “improvements” at exaggerated costs and place renters/occupants in the property. This would cause delays in redeeming the property and in evicting the occupants. Further, the tax purchaser could elect to not cooperate in executing the redemption affidavit, thus holding up the redemption process even more. By doing so, the current owner or mortgagee would suffer the additional costs and expenses associated with the referee/umpire settlement process, as well as having statutory interest continue to accrue during the disputed period of time.

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Post-PTFA: Washington

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by LaRee L. Beck
RCO Legal, P.S.
USFN Member (Arkansas, Oregon, Washington)

In Washington (upon the PTFA’s expiration), the notice requirements afforded tenants, following foreclosure of an occupied premises, are outlined in Revised Code of Washington (RCW) 61.24.146 and 61.24.060. Washington law differs from the PTFA in that a determination as to a tenant’s “bona fide” status is not required because “tenant” is more loosely defined.

Pursuant to the Residential Landlord-Tenant Act, RCW Chapter 59.18, a tenant is defined as “any person who is entitled to occupy a dwelling unit primarily for living or dwelling purposes under a rental agreement.” The tenant is only afforded 60 days’ written notice to vacate the premises. It is entirely within the new owner’s discretion to negotiate a new rental agreement with the existing tenant, or simply terminate his or her tenancy. RCW 61.24.060(2) sets forth how the notice to the tenant is to be given, and includes specific language that must be included in the written notice to vacate. All notices are to be sent by first-class mail and either certified or registered mail, return receipt requested.

If the occupancy status of the parties residing on the premises is unknown, it is best to include language in the notice to vacate referencing the new owner’s right to possession on the twentieth day following sale (for non-tenant situations) per RCW 61.24.060(1), in addition to the tenant’s notice language as described above. For foreclosure sales that occurred prior to the PTFA’s sunset date — December 31, 2014 — it may be advisable to use a combination notice, which states that the PTFA may apply to the occupant’s tenancy, and includes the alternate 90-day notice-to-vacate language of the PTFA, as well as a request for additional documentation from any purported tenant.

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Post-PTFA: Oregon

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by Colin Mackenzie
RCO Legal, P.S.
USFN Member (Arkansas, Oregon, Washington)

After the sunset of the PTFA on December 31, 2014, Oregon’s notice requirements for tenants after the foreclosure of an occupied property reverted to the pre-PTFA notice requirements. Because Oregon’s previous, and now current, rules only applied to trustee sales, the method of foreclosure now determines the notice requirements for tenants.

Oregon Revised Statutes (ORS) 86.782(6)(C) outlines the notice requirements that apply if property purchased at a trustee sale includes a dwelling unit subject to the Oregon Residential Landlord-Tenant Act (ORS chapter 90), and the individual that occupies the property is a bona fide tenant. If the bona fide tenancy is month-to-month or week-to-week, or the purchaser intends to occupy the property as a primary residence, the tenant must be provided a 30-day notice to vacate. If the bona fide tenancy is a fixed term tenancy, the tenant must be provided a 60-day notice to vacate.

ORS 86.782(h) defines a “bona fide tenancy” in essentially the same terms as the PTFA, meaning that: (1) the tenancy was an arms-length transaction that occurred before the date of the foreclosure sale; (2) the tenant is not the mortgagor or the child, spouse, or parent of the mortgagor; and (3) the rent paid was not substantially less than the fair market rent for the property.

Additionally, a separate written notice of the change in ownership must be provided to all occupants within 30 days after the date of sale, and before or concurrently with service of a written termination notice. The contents of the notice of change in ownership are outlined in ORS 86.782(5)(b) and (d), and include information about the tenants’ rights to notice prior to an eviction action, as well as information about where to obtain legal and other assistance. If the notice of the change in ownership is not sent within 30 days after sale, the new owner is automatically deemed to be the tenant’s new landlord, and is saddled with the duties and obligations that follow. It is recommended that the notice of change in ownership be sent as soon as possible following a trustee sale.

Judicial foreclosures in Oregon operate under a different set of statutes than nonjudicial trustee sales. Neither ORS chapter 88 (foreclosure of mortgages) nor ORS chapter 18 (which contains the procedures for sheriff’s execution sales) provides any additional protections to tenants after a sheriff’s execution sale. Since the PTFA sunset, the same rules apply to both tenants and former owners following an execution sale; neither are provided any additional protection, and both may be evicted using Oregon’s eviction procedures any time from the date of sale, forward.

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Post-PTFA: North Carolina

Posted By USFN, Tuesday, May 5, 2015
Updated: Friday, September 25, 2015

May 5, 2015

 

by Lanée Borsman
Hutchens Law Firm
USFN Member (North Carolina)

Unlike some other states, the North Carolina legislature did not enact a statutory framework similar to the PTFA. As a result, post-foreclosure eviction notices included a combination of state and federal requirements. NCGS § 45-21.29 requires that a ten-day notice to vacate be sent to any parties remaining in possession. Since the occupancy status of those parties was usually unknown, that notice also incorporated the required notices under PTFA for bona fide tenants. If it was discovered that the occupant was a bona fide tenant, the PTFA protections and time frames would be followed. If not, the state rules would govern and the ten-day notice would apply.

The expiration of the PTFA should simplify the eviction notice procedure by eliminating the dual, or “combo platter,” notices in North Carolina. Once all of the cases in the pipeline have worked their way through the system, it should be back to the old way in North Carolina, servicers and investors willing — and the only combo platters we’ll be looking for, contain seafood.

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