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Post-PTFA: Minnesota

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

May 5, 2015 

 

by Kevin Dobie
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)

Although the federal PTFA expired on December 31, 2014, the PTFA requirements and tenant protections continue in this state, pursuant to Minnesota Statutes section 504B.285 subdivision 1a. The tenant notice requirements for foreclosure properties in Minnesota started in 2008. The first version of the statute called for a two-month notice. In 2010, after the enactment of the PTFA, the Minnesota legislature changed the statute to mirror the 90-day requirements in the PTFA, with two further requirements. In addition to the PTFA requirements, the Minnesota statute provides that: (1) the 90-day notice must be given to any tenant — not just a bona fide tenant; and (2) a tenant (or a bona fide tenant) is required to pay rent to the foreclosure purchaser and abide by all terms of the lease.

In 2013, the Minnesota legislature deleted the December 31, 2014 sunset provision in the state statute. Therefore, foreclosure purchasers must provide the notice requirements and honor bona fide leases for the foreseeable future. Accordingly, asset managers should continue to investigate whether the occupants are tenants and advise eviction counsel as soon as possible. Law firms and asset managers sending notices should reference the state statute rather than the PTFA; but, in general, the question of whether the PTFA applies to foreclosures completed before December 31, 2014 (or leases entered into before that date) is irrelevant.

In Minnesota, foreclosure purchasers must continue sending the 90-day notices for tenants, and must continue honoring bona fide leases. As for non-tenant occupants, there is no notice requirement; and foreclosure purchasers may commence eviction actions immediately after the redemption period expires.

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Post-PTFA: Look to the States (At Least for Now)

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

May 5, 2015

 

by Kevin Dobie
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)

On March 13, 2015, the “Permanently Protecting Tenants at Foreclosure Act of 2015” (H.R. 1354) was introduced. The legislation proposes to permanently extend the Protecting Tenants at Foreclosure Act of 2009. The bill was referred to the House Committee on Financial Services.

For the past several years, the federal Protecting Tenants at Foreclosure Act of 2009, Pub. L. No. 111-22, §§ 701-704, 123 Stat. 1660 (PTFA), has provided protections for certain bona fide tenants facing eviction. The PTFA expired on December 31, 2014, and asset managers will have to look to the state requirements for eviction actions.

In case you missed it, the PTFA required purchasers of foreclosure properties to send a 90-day notice to vacate to bona fide tenants prior to commencing an eviction action. The PTFA also compelled these purchasers to let certain tenants occupy the property for the duration of a bona fide lease; provided the lease was executed prior to the date the complete title was transferred to the foreclosure purchaser. (With one exception: a purchaser occupying the property as a primary residence could terminate the lease with a 90-day notice.)

Because the PTFA required action by foreclosure purchasers, the expiration of the PTFA has led to some uncertainty as to whether its provisions apply to foreclosures completed before the expiration date. It is fairly clear that the expiration of the PTFA means that its provisions no longer apply; nevertheless, many asset managers continue to mandate the 90-day notices for foreclosures completed before the expiration date. Adding to the complexity is the fact that most states have their own requirements for sending notices to quit prior to an eviction action. Reconciling the competing notice requirements requires a state-by-state analysis.

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Post-PTFA: California

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

May 5, 2015

 

by Charles E. Katz
Northwest Trustee Services, Inc.
USFN Member (California, Oregon)

The California Civil Code of Procedure (CCP) contains a framework that is essentially identical to the PTFA. Specifically, CCP § 1161b provides that a tenant/subtenant in possession of a rental housing unit under a month-to-month lease, or periodic tenancy at the time the property is sold in foreclosure, shall be given 90 days’ written notice to quit before the tenant/subtenant may be removed from the property. The section does not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.

In addition to the rights mentioned above, tenants/subtenants holding possession of a rental housing unit under a fixed-term residential lease (entered into before transfer of title at the foreclosure sale) shall have the right to possession until the end of the lease term, and all rights and obligations under the lease shall survive foreclosure, except that the tenancy may be terminated upon 90 days’ written notice to quit if any of the following conditions apply:


• The purchaser or successor in interest will occupy the housing unit as a primary residence.
• The lessee is the mortgagor or the child, spouse, or parent of the mortgagor.
• The lease was not the result of an arms-length transaction.
• The lease requires the receipt of rent that is substantially less than fair market rent for the property, except when the rent is reduced or subsidized due to a federal, state, or local subsidy law.

CCP § 1161b is currently slated to sunset on December 31, 2019.

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Post-PTFA: Alaska

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

May 5, 2015

 

by Mark Skolnick
RCO Legal-Alaska, Inc.
USFN Member (Arkansas, Oregon, Washington)

Alaska law makes no distinction between tenants and former owners in terms of the “notice to vacate” to which they are entitled. As such, with the sunset of PTFA, there is no state equivalent. The statute is AS 09.45.090, which defines “unlawful holding by force” and divides the situation into cases to which the Landlord Tenant Act applies and those to which it does not. Foreclosures usually fall in the second category, but both subsections read very similarly and further subdivide each category into subcategories based on the reason the tenancy is being terminated: failure to pay rent (7 days); violation of lease provision (10 days); deliberate infliction of substantial damage (24 hours); use for illegal purpose (5 days); or termination of an estate at will, expiration of lease term, or without the consent of the landlord and without a lease or agreement (0 days).

The number of days mentioned is the amount of time the occupant has to vacate after being served a written notice to quit. Default servicers typically see the zero days’ category, because after the foreclosure, the occupancy would be without a written lease or agreement and without the consent of the landlord. However, due to the lack of clarity in the law, as well as the courts’ historic concern for tenants being evicted unbeknownst to them for lack of notice by their foreclosed landlords, the courts have settled on 7-14 days as the appropriate time to allow for holdover tenants to vacate.

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Legal Issues Update: TILA Rescission Claims: U.S. Supreme Court Clarifies

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

May 5, 2015

 

by Jessica L. Blanner
and Brian H. Liebo
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)

In 1968, Congress first enacted the Truth in Lending Act (TILA) to help consumers avoid uninformed use of consumer credit, and to require disclosures to protect consumers against unfair or hidden credit billing terms. [See, 15 U.S.C. § 1601.] To that effect, TILA grants borrowers the right to rescind a loan in certain circumstances. Borrowers have an unconditional right to rescind a loan within three days following the loan’s consummation. After the three days, borrowers may rescind only if the lender failed to satisfy TILA’s disclosure requirements [15 U.S.C. § 1635(a), (f)].

However, this conditional right to rescind expires “three years after the date of consummation of the transaction or upon sale of the property, whichever comes first.” § 1635(f). Subsequent to the events that transpired in the below-discussed case, Congress transferred the rule-making authority under TILA to the Consumer Finance Protection Bureau. [See, Dodd-Frank Wall Street Reform and Consumer Protection Act, §§ 1061(b)(1), 1100A(2), 1100H, 124 Stat. 2036, 2107, 2113.]

For many years, it has been the practice within the Eighth Circuit that when a mortgage company was notified by borrowers that they intended to rescind their mortgage, the borrowers had to not only notice their intent within three years of the loan closing, but actually had to commence a lawsuit within the three-year time frame. Failure to do both actions within three years was tantamount to a waiver of the right to rescind according to district court judges. A recent decision by the U.S. Supreme Court has definitively established the law for this issue for all jurisdictions across the nation.

Earlier this year, the Supreme Court reversed the judgment of the Eighth Circuit Court of Appeals, and held that borrowers exercising their right to rescind a mortgage transaction under TILA need only provide written notice to the lender within the three-year period, and need not commence an actual lawsuit within that three-year period. Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. __ (2015).

This action originated in Minnesota, after the borrowers refinanced their home by borrowing $611,000 from Countrywide Home Loans, Inc. on February 23, 2007. Exactly three years later, on February 23, 2010, the borrowers mailed a letter of rescission to the lender, alleging TILA violations. The lender denied the rescission request, and the borrowers filed suit on February 24, 2011. The borrowers contended that their TILA claims were timely because they sent a notice of rescission on February 23, 2010. The U.S. District Court for the District of Minnesota rejected the borrowers’ arguments and granted the lender’s motion for judgment on the pleadings to dismiss the claims, holding that a suit for rescission filed more than three years after the loan’s consummation is time-barred (even if the borrowers mailed a notice of rescission within the three years). Jesinoski v. Countrywide Home Loans, Inc., 2012 U.S. Dist. LEXIS 54811 (D. Minn. Apr. 19, 2012). The Eighth Circuit Court of Appeals affirmed the district court’s judgment on the pleadings in favor of the lenders. Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092, 2013 U.S. App. LEXIS 18757 (8th Cir. 2013).

In a unanimous opinion written by Justice Scalia, the Supreme Court reasoned that while Section 1635(f) explains “when the right to rescind must be exercised, it says nothing about how that right is exercised.” Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. __ (2015). The Court also explained that Section 1635(a) does not explicitly provide that a lawsuit is required for a rescission, and concluded that a borrower only needs to provide written notice to a lender in order to exercise the right to rescind within the three-year time frame.

The Supreme Court reversed the judgment of the Eighth Circuit and remanded the case for proceedings consistent with its opinion. Notably, the Supreme Court did not consider whether the lender had in fact satisfied TILA’s disclosure requirements. Instead, the Supreme Court reasoned that since the only thing that the borrowers must do (to exercise the right to rescind) is to provide written notice within three years, the lower courts erred in dismissing the borrowers’ complaint.

The decision settles a circuit split on this question. While the Supreme Court’s holding appears borrower-friendly, the ruling is narrow, in that it solely addresses a notice-timing issue. Mailing a notice of rescission within three years of consummating a loan is sufficient to exercise the right to rescind, and a party seeking to rescind is not required to actually file a lawsuit within that three-year time period to preserve a rescission claim.

As a practice pointer, mortgage servicers should carefully monitor all borrower correspondence for timely loan rescission claims and properly address those notices, even if the borrowers have not yet filed lawsuits to enforce mortgage rescission rights.

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California Rent/Eviction Control Ordinances: A "Taking" or a Legitimate Exercise of Police Power?

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

May 5, 2015

 

by Kayo Manson-Tompkins
The Wolf Firm
USFN Member (California)

This article is an overview of rent control and just cause eviction ordinances, touching on how they can affect the ability of a lender to proceed with a “normal” post-foreclosure eviction. This summary is not intended to be an extensive or exhaustive review of the nuances of any particular city’s ordinances.


Synopsis
California has approximately ten cities subject to either a rent control ordinance and/or an eviction control ordinance. The rent/eviction control cities are Berkeley, Cotati, East Palo Alto, Los Angeles, Oakland, San Diego, San Francisco, San Jose, Santa Monica, and West Hollywood. The primary purpose of rent control ordinances is to limit or prohibit rent increases; however, a large portion of these cities also restrict the grounds to evict tenants. There are, of course, other requirements in some of the cities such as registering rental units, providing special notices, or obtaining a business license.

A case can be further complicated by California habitability statutes when there are abatement orders issued by the city for violations of building codes and/or occupancy of illegal units. For instance, Los Angeles evictions are additionally complex if the existing tenants are paying rent into the Rent Escrow Account Program, codified by Los Angeles Municipal Code §§ 162.00, et al., while repairs are completed pursuant to an abatement notice of some kind.

In order for lenders to evict after a foreclosure sale in California, they must follow the requirements of California Code of Civil Procedure (C.C.P.) § 1161a(b)(3), § 1161b and § 1161c. However, these statutes do not preempt rent control or eviction control ordinances. Where evictions are concerned, California law specifically states, “Nothing in this section is intended to affect any local just cause eviction ordinance. This section does not, and shall not be construed to affect the authority of a public entity that otherwise exists to regulate or monitor the basis for eviction” (C.C.P. § 1161b). This statement allows eviction controls to still function.

Rent control, in and of itself, is not an issue in most post-foreclosure cases since the owner is usually not renting. The restriction of rent is not considered a "taking," because each ordinance generally has a provision allowing for a just and reasonable rent increase. There have been other cases where a local rent control has been found unconstitutional for a specific reason, but the ordinance is usually amended to reflect a change that would allow the regulatory scheme to continue. The greater issue in a post-foreclosure unlawful detainer is eviction control, which was created to prevent landlords from evicting a tenant without cause in order to decontrol a unit.

The initial intent of eviction control was to prevent a landlord from evicting a tenant in good standing, in order to place a new tenant in the unit and charge a higher monthly rent. [Birkenfeld v. Berkeley, 17 Cal. 3d 129 (1976)]. To further this ideal, various cities enacted eviction control ordinances, some stricter than others, that would set forth the grounds where an eviction can proceed, or where the landlord has a “just cause” to evict. Here, the question shifts from rent control to eviction control. Are these ordinances considered a “taking” by state or federal law?

Constitutionality
California rent control provisions are a valid exercise of a city’s police power within that city’s own jurisdiction pursuant to the California Constitution, which states “A county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws” (Cal. Const., Art. XI § 7). The scope of this police power is subject to displacement by general state law where the charter or ordinance purports to regulate a field fully occupied by state law. [Birkenfeld v. Berkeley, 17 Cal. 3d 129 (1976)].

For example, the Costa-Hawkins Rental Housing Act preempts rent control provisions purporting to restrict the rental rates for dwelling units where the property has a certificate of occupancy issued after February 1, 1995, where the dwelling unit is already exempt pursuant to a local exemption, or where title of the dwelling unit is separate and alienable from the title to any other unit (Cal. Civ. Code § 1954.52). As such, some condos, single-family residences, and newly-constructed properties are not subject to rent controls. Costa-Hawkins does not regulate evictions, nor does it purport to exempt any dwelling unit from eviction controls.

As of the publishing of this article, rent control and eviction control ordinances continue to operate, with a few exceptions, and have not been found unconstitutional under federal law. One exception, for example, would be if an Indian reservation is on land that is exclusively regulated by the federal government, in which case that land would be exempt from local rent control or just cause ordinances. [25 U.S.C. § 415(a); 25 C.F.R. § 1.4]. Another federal exemption from rent control would be federally-assisted housing such as a HUD-insured mortgage where federal regulations empower HUD to preempt a municipal ordinance’s rent ceiling (24 C.F.R. §§ 246.5, et seq.), but only if it jeopardizes HUD’s economic interest. [Sea Castle Apartment, Ltd. v. Santa Monica Rent Control Board, 228 Cal. App. 3d 1540, 1546; 279 Cal. Rptr. 672, 675 (1991)].

Conclusion
For the time being, these rent control and eviction control ordinances do impact the lender’s ability to proceed with a normal post-foreclosure eviction within the limited number of cities having these ordinances. The ordinances are viewed as a valid exercise of a city’s police powers within its jurisdiction. Rent control is not considered a “taking,” nor is it considered an unauthorized exercise of judicial power; therefore, except as indicated above, rent control is not preempted by either state or federal law.

Although eviction control continues to function as a valid exercise of police power, California law states that “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful” (Cal. Civ. Code § 1636). California courts have held that in accordance with the foregoing, there is an implied covenant in every contract barring the parties from acting in such a way that would deprive a party of the benefits of a contract. [Floystrup v. City of Berkeley Rent Stabilization Board, 219 Cal. App. 3d 1309, 1318 (1990)]. With that in mind, this article ends with a query: Why then are lease agreements, renewed in perpetuity by eviction control ordinances in limited California cities, allowed to exist?

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South Carolina Supreme Court Reviews Equitable Subrogation

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Reginald P. Corley and Ronald C. Scott
Scott & Corley, P.A. – USFN Member (South Carolina)

The Supreme Court of South Carolina recently clarified the state’s position on the doctrine of equitable subrogation. In its ruling, the Supreme Court discussed the general principles of equitable subrogation, as well as defined what constitutes actual notice to a party seeking this relief. [Independence National Bank v. Buncombe Professional Park, LLC, Case No. 2013-000915].

Equitable subrogation essentially allows one party who pays off the claim or debt owned/held by another party to take the position of the payee. In this particular case, a bank refinanced a first mortgage and was attempting to use the doctrine of equitable subrogation to claim first mortgage priority over the existing “second” mortgage holder.

The facts of the case involve the refinance of a commercial transaction. The petitioner, Independence National Bank, held a first mortgage on property owned by the respondent, Buncombe Professional Park, LLC. The bank agreed to refinance the first mortgage with the LLC. David DeCarlis was the sole member of the LLC, and also held a “second” mortgage on the property. An attorney was hired to conduct the mortgage closing transaction. The attorney represented both the bank and the LLC, which is a common practice in South Carolina in non-adverse transactions (although not typical in a commercial transaction). The attorney had actual notice of the “second” mortgage held by DeCarlis, but didn’t communicate the existence of the mortgage to the bank. The attorney also did not obtain a release, satisfaction, or subordination of this mortgage.

The bank filed a foreclosure action alleging equitable subrogation. In order to be equitably subrogated to the original mortgage, the bank must show, among other factors, that it did not have actual notice of the DeCarlis mortgage. At the trial level, the Master in Equity ruled in the bank’s favor. The LLC appealed, and the South Carolina Court of Appeals reversed the Master in Equity’s decision, holding that the attorney was the bank’s agent, and the attorney’s actual knowledge of the DeCarlis mortgage constituted actual knowledge to the bank. The South Carolina Supreme Court reversed the appellate court’s decision, ruling that the attorney’s actual notice only constituted constructive notice to the bank.

Citing numerous cases, the Supreme Court held that the bank’s constructive notice did not defeat a claim for equitable subrogation. Therefore, the bank’s 2007 mortgage was equitably subrogated and was determined to have priority over DeCarlis’s 2006 mortgage.

Copyright 2015 USFN and Scott & Corley, P.A. All rights reserved.
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Michigan Court of Appeals Upholds Land Bank Statute in Kent County Case

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Scott Neal
Orlans Associates, P.C. – USFN Member (Michigan)

In a decision entered on December 18, 2014, the Michigan Court of Appeals upheld a ruling by the lower court to dismiss a lawsuit by a group of investors against the Kent County Land Bank Authority (KCLBA), in regards to obtaining title to tax foreclosed properties.

There were various legal and procedural claims in this case, including collateral estoppel, Fourteenth Amendment due process, notice, quiet title actions, and so on; but the defining point of the case involved statutory compliance. The group of investors, referred to in the opinion as the 3830 G parties, contended that Michigan law [specifically MCR 211.78m and MCL 124.755(6)], required the properties in question to be auctioned off at a tax foreclosure sale. The 3830 G parties argued that the KCLBA obtained title to the properties in violation of these laws, by being allowed to buy these properties directly from Kent County after Kent County had bought them from the Kent County Treasurer, which had obtained title to the properties via tax foreclosure.

The court found that the laws in question only required the properties to be offered at a tax foreclosure sale if the foreclosing governmental unit retained possession of the properties. In this case, the foreclosing governmental unit, the Kent County Treasurer, did not retain possession, but sold the properties to Kent County, which then sold them to the KCLBA.

The 3830 G parties attempted to use Rutland Township v. City of Hastings (1982) to argue that the transaction was a “ruse” because the KCLBA funded Kent County’s purchase of the property from the treasurer, making Kent County a “straw man.” The court rejected this argument because Rutland was factually dissimilar, and the defendants in Rutland admitted that their actions were specifically done to take property without approval of the township or State Boundary Commission; whereas the defendants in the current case acted for the health, safety, and welfare of the community.

This decision will uphold the right of Michigan land banks to continue their activities for the public good and urban renewal, promoting positive investment in the state’s great cities. It affirms the right of the land banks to continue operating as they have been for the past 15 years since the first land bank was started in Flint.

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Michigan: Expunging Deeds and Quiet Title Actions

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Jeffrey T. Goudie
Orlans Associates, PC – USFN Member (Michigan)

The case discussed here illustrates the importance of monitoring evolving foreclosure case law. In Trademark Properties of Michigan, L.L.C. v. Fannie Mae (Mich. App. No. 313296, Nov. 18, 2014), the Court of Appeals held that an affidavit based upon a reversed COA opinion could not expunge a sheriff’s deed or revive a foreclosed mortgage.

MERS foreclosed a condominium mortgage on May 11, 2010. Fannie Mae purchased the property at a sheriff’s sale on May 11, 2010 and recorded the sheriff’s deed ten days later. The property was never redeemed. The condominium association foreclosed on its lien for non-payment of assessments, and purchased the property at the sheriff’s sale on February 15, 2011, with a final redemption date of August 15, 2011. On August 9, 2011, the lender for MERS recorded an affidavit to expunge the sheriff’s sale to Fannie Mae. The affidavit averred that the sheriff’s deed was void ab initio, based on Residential Funding Co, LLC v. Saurman, 292 Mich. App. 321 (2011). [In Saurman, the COA had held that a mortgagee had no right to foreclose by advertisement under MCL 600.3204(1)(d) because it was not the noteholder with a property interest.] The condominium association then filed a quiet title action, arguing that the affidavit could not revive a foreclosed mortgage.

The Court of Appeals held that since the Michigan Supreme Court had reversed Saurman almost a year earlier, MERS’s contention that its mortgage interest still encumbered the property failed. The court also held that the Saurman reversal meant that the foreclosure had extinguished the MERS mortgage, and the association had the superior interest in the property.

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Maine: Supreme Judicial Court Reviews Notice of Default

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Santo Longo and Randall S. McHugh
Bendett & McHugh, P.C. - USFN Member (Connecticut, Maine, Vermont)

On February 26, 2015, the Maine Supreme Judicial Court issued a decision in CitiMortgage, Inc. v. Chartier, 2015 Me. 17 (2015), which narrowly interpreted notice of default provisions commonly found in many Maine residential mortgages. The court held that the notice of default, sent to the mortgagor by the servicer, did not comply with relevant provisions in the mortgage. This judicial decision will likely make proceeding to foreclosure in Maine more difficult, and will adversely impact many cases that have already been filed.

The language in the mortgage itself required the “Lender” to send the notice of default. Furthermore, the mortgage defined “Lender” as “Cornerstone Home Loans” and “any person who takes ownership of the Note and this Security Instrument” [emphasis added]. Cornerstone was the original lender and had previously sold the loan and assigned the mortgage. The court held that because the same entity did not own both the note and the mortgage at the time the servicer sent the notice, the notice was invalid. In fact, the court’s holding means that because the note and the mortgage were not owned by the same entity when the notice of default was sent, no “Lender” other than Cornerstone existed (as that term is defined in the mortgage) and, consequently, no party other than Cornerstone could have sent a valid notice of default at that time.

In the wake of Chartier, servicers and lenders seeking to foreclose Maine mortgages will need to ensure that ownership of the note and ownership of the mortgage are united in a single entity before a notice of default is sent; and that the notice is sent by, or on behalf of, that entity. What this means is that for loans with similar mortgage provisions, the mortgage will need to be assigned to the owner/investor before the notice of default is mailed. For pending mortgage foreclosures where the notice of default did not comply with the terms of the mortgage, it is anticipated that some of those pending cases will ultimately be dismissed, or the courts may enter judgments for the defendants. Because the Chartier holding is so recent, it is too early to tell how aggressive Maine’s lower courts will be when applying the high court’s reasoning (in that case) to pending foreclosure actions.

Importantly, the relevant language found in the mortgage in Chartier is also found in the standard residential mortgage form used throughout Maine. As a result, the number of cases affected will be significant. The impacts of Chartier are something servicers and lenders, who are foreclosing mortgages in this state, will want to monitor, and respond appropriately.

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Connecticut: Bankruptcy Court Reviews Whether a State Court Can Award Committee for Sale’s Fees and Costs during a Pending Bankruptcy Case

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

A bankruptcy court in the District of Connecticut has held, again, that it is not a violation of the automatic stay of Bankruptcy Code Section 362(a) for a state court to award committee fees and costs while a bankruptcy is pending. [In re Tasillo (Piecuch v. Tasillo), 2015 Bankr. LEXIS 11, (Case No. 14-21683, Jan. 5, 2015)].

In Connecticut, if a foreclosure sale is ordered by the state court, the state court will appoint an attorney (referred to as a “Committee of Sale”) to conduct the sale. In the course of the sale, the committee must, among other tasks, hire an appraiser, conduct a title search, advertise in the newspaper, and field phone calls from prospective buyers. Typically, in each sale, there are thousands of dollars of costs that the committee must pay out of his/her own funds until the court approves the fees and costs. Once the court approves the fees and costs, the plaintiff, as required by statute, must pay them. In the past, if a bankruptcy is filed prior to the sale, committees would file a motion with the state court to be paid for the fees and costs incurred up until the filing of the bankruptcy. Once the court ordered the fees to be paid, the plaintiff would pay them. Last year, a judicial decision by the Connecticut Court of Appeals changed that procedure.

In Equity One, Inc. v. Shivers, 150 Conn. App. 745, 93 A.3d 1167 (2014), the Connecticut Court of Appeals found that ordering committee fees, when a bankruptcy case was pending, was a violation of the automatic stay. Based on the Shivers opinion, Connecticut courts have been denying committees’ motions for fees when a bankruptcy is pending. In the Tasillo state court action, the court appointed Gregory W. Piecuch, Esq. to be the committee to sell the subject property. The debtor, Robert Tasillo, was the defendant in the foreclosure action in which the state court had appointed Piecuch. After Tasillo filed a voluntary chapter 13 bankruptcy petition, Piecuch filed a motion with the state court to have his fees and costs paid, which was denied based on Shivers.

After the state court’s denial of his motion for fees, Piecuch filed a “Motion for Relief from the Automatic Stay or Motion to Determine That the Automatic Stay Does Not Apply” with the bankruptcy court. U.S. Bankruptcy Judge Dabrowski held that the automatic stay does not apply to the motions for committee fees and, notably, the bankruptcy court specifically referenced the Shivers decision. In light of Shivers, Judge Dabrowski also reviewed earlier bankruptcy court decisions (including one of his own), still finding their reasoning more persuasive than that of Shivers.

Accordingly, in Connecticut, it appears that the law on whether a state court can grant a motion for committee fees and expenses, while a bankruptcy stay is in effect, is unsettled. Although the state appellate court has held that it is not allowed, the recent bankruptcy court ruling in Tasillo says otherwise.

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Massachusetts Bankruptcy Court Holds That Homestead Protection is Available for Certain Home Offices

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Thomas J. Enright
Partridge Snow & Hahn LLP – USFN Member (Massachusetts)

The U.S. Bankruptcy Court for the District of Massachusetts recently issued a decision in the case of In re Catton, shedding light on the Massachusetts homestead statute and its application to home offices. The Massachusetts homestead statute, found at Mass. Gen. Laws c. 188, permits an owner to declare a homestead on a “single-family dwelling, including accessory structures appurtenant thereto” for the purpose of protecting it from the debtor’s creditors up to a certain amount. In Catton, the trustee objected to the debtor’s claim of a homestead exemption on his home, due to the fact that the property also served as the debtor’s insurance agency office. Because the municipal tax assessor described the property as an “office” and taxed the property at a split tax rate, and the debtor’s own appraiser described the property as a “two unit mixed use property,” the trustee contended that the Massachusetts homestead statute was unavailable to the debtor.

In examining the applicability of the homestead statute to the debtor’s property, the bankruptcy court noted that the “point where a single family dwelling with a self-contained commercial use crosses the line from residential to commercial and thus becomes ineligible for homestead protection is not identified in the [homestead] statute,” and recognized that no Massachusetts court had yet appeared to have tackled this issue. Ultimately, the bankruptcy court adopted an approach focusing on “predominance” and determined that a fact-intensive, case-by-case inquiry into the predominant use of the property was necessary in deciding the applicability of the homestead statute.

In holding that the predominant use of the debtor’s property was residential, the bankruptcy court observed that over sixty percent of the property’s square footage served as the debtor’s dwelling. Additionally, the property was zoned such that a home occupation is only permitted where the commercial use is “clearly incidental and secondary to the use of the premises for residential purposes.”

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South Carolina: Default Mitigation Management Portal

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Andrew A. Powell
Scott and Corley, P.A. – USFN Member (South Carolina)

One of the bankruptcy judges for the District of South Carolina (Judge John Waites) recently issued new Chamber Guidelines for cases assigned to him. As part of these guidelines, effective April 10, 2015, all loss mitigation negotiations must occur under the Default Mitigation Management (DMM) portal. The DMM portal is an electronic interface that allows servicers and borrowers to exchange documents and communicate about loss mitigation. Barring a court order stating otherwise, the DMM portal will be the exclusive method for loss mitigation review. Furthermore, as part of these new procedures, the bankruptcy court must enter an order prior to the commencement of any loss mitigation review between the servicer and the borrower.

These guidelines provide that creditors/servicers have an affirmative duty to update the court of any and all non-DMM loss mitigation developments. Therefore, if your company solicits borrowers for loss mitigation, it is recommended that you contact your local bankruptcy counsel to ensure that the court is being properly and timely updated. Failure to abide by these new requirements could result in sanctions from the bankruptcy court.

Please note that this new procedure only affects loans that are involved in bankruptcy cases assigned to Judge John Waites. These changes do not apply to all South Carolina bankruptcy cases. Specifically, and at this time, bankruptcy cases assigned to Judge Helen Burris or Judge David Duncan do not require the use of the DMM portal and will not be affected by these new guidelines. A copy of Judge Waites’s Chamber Guidelines may be found here.

©Copyright 2015 USFN and Scott & Corley, PA. All rights reserved.
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Chapter 7 BK Statement of Intention to Surrender — What about a Change of Mind?

Posted By USFN, Thursday, April 9, 2015
Updated: Wednesday, September 23, 2015

April 9, 2015 

 

by Charles Pullium and Tom Holmes
Millsap & Singer, LLC – USFN Member (Missouri)

When a debtor files a chapter 7 petition, bankruptcy law requires that the debtor state his intention to surrender, reaffirm, or redeem property in which a creditor has a secured interest. This statement of intention must be filed within 30 days of the filing of the bankruptcy petition, or on or before the date of the meeting of creditors, whichever is earlier. Bankruptcy law also provides that the debtor must perform his intention within 30 days from the first date set for the meeting of creditors. 11 U.S.C. § 521.

So, what happens if the debtor expresses his intention to surrender a property in his statement of intention, but changes his mind at a later date? Unless the debtor sought and received an extension of time to amend the statement, he may be stuck. A bankruptcy court in Florida recently held this to be the case. See In re Failla, S.D. Florida, 11-34324. In that case the debtors, who defaulted on their note and mortgage, filed a chapter 7 bankruptcy petition along with their statement of intention in which they declared their intention to surrender the property. The debtors’ schedules properly listed the property and the secured lien, and the debtors did not dispute the debt. The debtors then sought to amend their statement of intention to declare an intention to reaffirm the debt. However, the amendment was untimely and did not result in a valid amendment of the original statement.

Four months after the filing of the bankruptcy petition, the debtors received their discharge. When the mortgage creditor resumed foreclosure activity, the debtors actively opposed the action in the state court. The mortgage creditor then went back to the bankruptcy court and sought an order from the court compelling the debtors to surrender the property pursuant to the statement of intention. The bankruptcy court found the creditor’s argument to be persuasive and ordered the debtors to surrender the property. In doing so, the court posed and answered a number of interesting questions.

First, what must a debtor do, or not do, to perform his intention to surrender? There are generally two views: (1) the debtor must take affirmative action to actually turn over the property; or, (2) which is the more common opinion, the debtor cannot take action to impede the lawful course that would normally be pursued in state court by a secured creditor. This is to say that a debtor may not actively defend or contest a foreclosure in a state court if the debtor previously admitted the validity of the debt and stated an intention to surrender the property in a bankruptcy case that resulted in the debtor’s discharge.

Second, to whom must the debtor surrender the property? The debtors in the Failla case cite a single case in support of their position that the property should be surrendered to the bankruptcy trustee. In re Kasper, 309 B.R. 82, 85-86 (Bankr. D.D.C. 2004). The debtors contend that they did surrender the property to the trustee, who then abandoned the property as an asset of the estate, thereby reverting the property interest back to the debtors upon the trustee’s abandonment.

However, the majority opinion, and the one that the court takes in the Failla case, is that the property must be surrendered to the secured lienholder. The Eleventh Circuit Court of Appeals stated that, “Allowing a debtor to retain property without reaffirming or redeeming gives the debtor not a “fresh start” but a “head start” since the debtor effectively converts his secured obligation from recourse to nonrecourse with no downside risk for failing to maintain or insure the lender’s collateral. Section 521 mandates that a debtor who intends to retain secured property must specify an intention to redeem or reaffirm.” In re Taylor, 3 F.3d at 1516.

A debtor, who persists in his refusal to surrender the property by actively defending a foreclosure suit in this type of situation, may be putting his discharge in jeopardy or, as the Failla case suggests, committing fraud. The refusal to surrender also constitutes a violation of 11 U.S.C. § 521(a)(2), which requires a debtor to perform his intention with respect to such property within 30 days after the meeting of creditors.

The relevance of a debtor’s past bankruptcy case cannot be overlooked when litigating a foreclosure or other subsequent, related matter. A debtor may be precluded from taking inconsistent positions in related matters and may be bound to perform a prior intention.

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Wisconsin: Increase in Mediation Fees

Posted By USFN, Thursday, April 9, 2015
Updated: Thursday, September 24, 2015

April 9, 2015 

 

by Patricia Lonzo
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

Ten counties in Wisconsin are implementing a substantial increase in the mediation fee that is charged by the foreclosure mediation programs. There is a Notice of Availability of Mediation form that is currently required to be served with the Summons and Complaint, informing borrowers of their right to request mediation. The form has been updated by the mediation programs to reflect the change and must be used as of April 1, 2015.

The pre-April 1 mediation fee for the relevant counties is $150 for both the borrower and servicer to participate in mediation. The mediation fee charged by the mediation programs for applications submitted by borrowers effective April 1, 2015 is $400 for the borrower and $600 for the servicer. The ten counties implementing the increased mediation fee are Milwaukee, Waukesha, Kenosha, Racine, Dane, Dodge, Marathon, Portage, Sauk, and Wood. Participation in the mediation program by the servicer is voluntary, except in the counties of Kenosha and Racine. If the borrower requests mediation in Kenosha or Racine, the servicer is required to participate.

Mediation programs in Wisconsin are established and governed on a county level; therefore, this change only impacts the identified counties.

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Washington: Foreclosure Mediation — Looking Back and Looking Forward

Posted By USFN, Thursday, April 9, 2015
Updated: Thursday, September 24, 2015

April 9, 2015 

 

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

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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Wisconsin Supreme Court Interprets Statute regarding Abandoned Properties in Foreclosure

Posted By USFN, Monday, March 9, 2015
Updated: Wednesday, September 23, 2015

March 9, 2015 

 

by William (Nick) Foshag
Gray & Associates, L.L.P – USFN Member (Wisconsin)

The foreclosure process in this state, after judgment but before sale, has traditionally been driven by the foreclosing lender. The Wisconsin Supreme Court’s recent interpretation of Wis. Stat. § 846.102, however, appears to put the debtor, other parties, or a municipality in the driver’s seat as well — at least in relation to abandoned properties. [The Bank of New York Mellon v. Carson, 2015 WI 15 (Feb. 17, 2015)]. In Carson, the Supreme Court found that when a finding of abandonment is made in a foreclosure action, a circuit court may order the foreclosing lender to schedule a sheriff’s sale, and that it may determine the reasonable time after the redemption period in which the sale must be held.

In the case, the foreclosing lender had obtained a default judgment with a waiver of any deficiency. Later, the borrower filed a motion asking that the judgment be amended to indicate that the property was abandoned, and to order the lender to schedule a sheriff’s sale. The circuit court refused, and the borrower appealed.

The Court of Appeals and the Supreme Court interpreted § 846.102(2) to allow any party to the case, or a municipality, to support a request for finding the property to be abandoned; and, if abandoned, that the inclusion of the word “shall” within § 846.102(1) mandates that the lender schedule a sheriff’s sale.

Impact of the Carson Decision
 This ruling affects ALL properties in foreclosure. Foreclosing lenders should regularly inspect all properties in foreclosure (every 30 days) throughout the entire foreclosure process, and regularly communicate the results of these inspections to foreclosure counsel so that appropriate action can be taken.

• Prior to obtaining judgment, foreclosing lenders should determine whether the value and overall condition of the property is such that it is in the lender’s best interests to continue. Once a judgment has been entered, depending on the circumstances, it may be very difficult — if not impossible — to vacate the foreclosure judgment.

• After obtaining judgment, if a property that was previously occupied is found to have become abandoned, the lender should determine whether the value and overall condition of the property is such that it is in the lender’s best interests to attempt to either: amend the judgment to allow for a sheriff’s sale to be held sooner, or to attempt to vacate the judgment and/or dismiss the action.

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Missouri: Removing Motor Vehicles after Foreclosure

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Benjamin C. Struby
Millsap & Singer, LLC – USFN Member (Missouri)

Pick a scenario: You have just obtained title to a property through foreclosure and your property preservation company has reported back to you that the property is vacant, save a motorcycle in the driveway; or, the former owner of the property that is boarded in your REO inventory used a barn on the acreage as a boat repair shop and, in his haste to vacate, left two boats on the land; or, your local real estate agent visited a newly acquired property to deliver a cash-for-keys offer, only to find the property vacant of people and personal property, except that a car is parked in the front yard.

If you work with post-foreclosure properties, whether in an REO department or on a conveyance team, chances are that you have been faced with one of the above scenarios — or at least something similar. What can be done to remove the car/boat/motorcycle (or any other kind of motor vehicle) from the property? To start, be resigned to the fact that you may need to have an eviction performed. Missouri, like many other states, is considered a “must-evict” state, where an eviction should be performed if personal property remains after foreclosure.

It certainly can be a frustrating proposition to have to wait on the eviction process to run its course, so it is best to explore other avenues that might allow you to bypass a full eviction. If the agent can locate the former occupant, a simple visit to the new residence to encourage voluntary removal will often suffice. If the former occupant cannot be located, or can be found but refuses to remove the vehicle, then you may be able to go another route: contact the local sheriff’s department.

Missouri Statute Section 304.157 provides that a motor vehicle (defined as “motor vehicle, trailer, all-terrain vehicle, outboard motor or vessel”) that is abandoned on private property may be removed by the sheriff’s department. Accordingly, if all that remains at the property is a motor vehicle, instruct your local agent to make contact with the sheriff’s department to inquire into these services. By doing so, perhaps you can avoid the sometimes-lengthy eviction process.

Unfortunately, the above-referenced statute does not guarantee that the authorities will remove the vehicle, as the statute uses “may” remove instead of “shall” remove, thus making the removal a discretionary act of the sheriff’s department. In practice, you will find that some counties will agree to remove the vehicle under the authorization that the statues provide, while others respond that an eviction must be completed.

If the sheriff’s department declines your request to remove the vehicle, then fall back to an actual eviction suit. From a timeline standpoint, the eviction action should be started right away to ensure that no time is lost while the sheriff’s department is contacted. After judgment and at lockout, any motor vehicle can be towed and left at the nearest public road for removal by the sheriff’s department under Missouri Statute Section 304.155.

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Missouri: Mobile Homes — Conversion to Real Property

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Michael D. Holman
Millsap & Singer, LLC – USFN Member (Missouri)

In March 2011, Missouri adopted new statutory provisions regarding affixation of mobile homes and their conversion from personal property to real property. The new rules create a rigorous process by which the owner of a mobile home, and the real estate on which the home sits, manifests his intent that the mobile home (once personal property) be given the vaunted status of real property, like a traditional site-built home. The process, while not without its own shortcomings and fresh challenges, has served to remove some ambiguity and risk, and has given definition to what was once a process based on observation and interpretation.

Previously, all that was required was that the home be permanently attached to the land and that there was unity of ownership between the home and real property. At best, the public record might have reflected a rider/addendum to a deed of trust where the borrower pledged the mobile home as additional collateral, and attested that it was — or would be — permanently attached to the land. Not only was there room for interpretation as to what qualified as “permanently attached,” there was no guarantee that a borrower would ever follow through and take steps to affix the mobile home.

Though movement of a mobile home under any circumstances is no small feat, lenders looked for the home to be embedded in a permanent concrete foundation or strapped to piers instead of merely resting on cinderblocks, waiting for the wheels to be re-mounted and the mobile home towed away. For the underwriters, the risk of the mobile home being removed in the dead of night left them feeling vulnerable, so they did what they could to mitigate the risk of loss. They were also faced with the risk that liens may have attached to the personal property, which would not be readily apparent in the same way that liens against real property might be, especially when the certificate of title for an “affixed’ mobile home might be misplaced under the mistaken belief that it was no longer relevant or valid.

In contrast, the current statute requires that documents be filed in the public record under penalty of perjury, both with the Recorder of Deeds for the county where the property is located and with the Department of Revenue’s Motor Vehicle Bureau. The two primary forms used during the affixation and conversion process are the Form 5312 “Affidavit of Affixation,” and the Form 5314 “Application for Confirmation of Conversion,” both of which are ultimately submitted to the Department of Revenue before their records are updated to reflect that the mobile home has lost its motor vehicle title and has gained an “affixation title.” The Affidavit of Affixation speaks to the physical attachment of the property, and the Application for Confirmation of Conversion swears to the quality of title. These are two issues that are essential to the affixation and conversion analysis, but which were not documented under the old statute. By making both of these documents available to the public, there should be no question as to whether a mobile home is treated as part of the real property in Missouri.

Despite statutory language to the contrary “grandfathering” manufactured homes deemed affixed prior to 2011, Missouri underwriters have taken the position that no ALTA-7 endorsements will be issued unless the current statutory affixation and conversion process has been completed. It becomes the subsequent owner’s responsibility to ensure that the new requirements are met. For a foreclosing lender, this can add between three to six months before a property is ready to market out of REO once the foreclosure sale is completed. When conveyance to HUD or the VA is contemplated, the existence of an uninsurable manufactured home creates a “title issue” that may prevent a clear owner’s policy and substantially delay completion of the process.

Beyond the timeline implications, a lender is required to make certain sworn statements to be recorded with the Recorder of Deeds and filed with the Missouri Department of Revenue; namely, that: (1) the manufactured home is, or shall be, permanently affixed to the real estate; (2) the home has the characteristics of site-built housing and is part of the land; (3) the home was built in compliance with the federal Manufactured Home Construction and Safety Standards Act; and (4) the home is, or shall be, assessed and taxed as an improvement to the land. The lender must further affirm under the penalty of perjury that the information contained in the Application for Confirmation of Conversion (Form 5314) is true and accurate as pertains to the certificate of title and the existence (or nonexistence) of additional security interests/liens against the manufactured home.

These sworn statements cannot be taken lightly, nor can the documents be signed as a matter of form. Given the gravity of the required statements, one option to limit exposure is to file a suit for replevin and declaratory judgment to affirm title to the manufactured home and obtain judgment stating that the mobile home is to be treated as affixed, prior to completing the statutory affixation and conversion process. Another is to request a detailed property inspection post-foreclosure sale for the purpose of gathering all necessary information about the manufactured home and to confirm affixation that would meet HUD requirements. Where doubt remains as to how “affixed” a particular manufactured home is, an engineer’s report from a licensed structural engineer can be requested to supplement information previously gathered from site inspections, appraisals, or other information gleaned from the loan file.

As we get further from the statute’s effective date, it is anticipated that new manufactured homes will be properly affixed at origination/initial placement and duly converted under the current rules, and that only pre-2011 manufactured homes will require additional corrective action to clarify title to the manufactured home. Until then, it is necessary that all involved parties continue to work together closely to address the special issues whenever a manufactured home is added to the mix.

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Managing Timelines in the Oregon Foreclosure Avoidance Program

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Erik Wilson
RCO Legal, P.S. – USFN Member (Arkansas, Oregon, Washington)

Since August 4, 2013, the Oregon Foreclosure Avoidance Program requires certain beneficiaries to engage in mediation with grantors prior to filing judicial and nonjudicial foreclosures. For background on this program, see “Mediation Updates from Four States: [including] Oregon,” USFN Report (summer 2013 ed.).

The mediation program extends the overall foreclosure timeline that a beneficiary faces when foreclosing a residential trust deed in Oregon. When a beneficiary, or its servicing agent, initiates a pre-foreclosure mediation, the waiting begins. Mediation Case Manager (MCM) can set a first conference date up to 85 days out from the date that the beneficiary begins the process. In MCM’s report to the Oregon Foreclosure Avoidance Program Advisory Committee, it is noted that “initial sessions rarely occur on the notice date” [MCM Advisory Committee Report delivered June 26, 2014]. MCM reports that 62 percent of cases met at least two times, with 24 percent meeting more than two times. The program allows the neutral facilitator to schedule a subsequent session over a party’s objection one time. Any further subsequent sessions must be set by mutual agreement of the parties. With an average of 60 days between sessions, this adds a substantial delay to a beneficiary or servicer filing a foreclosure action.

Beneficiaries are required to provide “… a description of any additional documents the beneficiary requires to evaluate the grantor’s eligibility for a foreclosure avoidance measure …” [ORS 86.729(4)(b)(H)]. However, document issues remain the primary cause of delay. [MCM Advisory Committee Report delivered June 26, 2014].

Very often, grantors will attend a first resolution conference without having provided a complete loss mitigation application to the beneficiary. This can turn the first conference into a document collection and coordination session, rather than a discussion about options available to cure the default. Reaching out to the grantor through its housing counselor, or attorney, to identify the missing and necessary documents is a good first step to shorten the timeline and reach resolution. To this end, good working relationships among the repeat players have been key in resolving document issues in advance of first conferences, and lead to more substantive and meaningful discussion of foreclosure alternatives during the session. The other way that beneficiaries can combat delay is to withhold consent from scheduling subsequent conferences. This limits the number to two conferences, unless all parties agree to another. Restricting the number of conferences in this manner has resulted in more grantors coming to the table with complete packages at the first meeting.

Beneficiaries and servicers are naturally sensitive to increased delays in the already-lengthy Oregon foreclosure process. By taking proactive steps to prevent delays and providing borrowers with clear instructions when notifying them of missing or incomplete loss mitigation applications, timelines to resolve the default or begin foreclosure can be shortened considerably.

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Guidelines for Effective File Transfers: USFN White Paper

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Alberta Hultman, USFN Executive Director & CEO

USFN is pleased to announce the availability of a new white paper, “Guidelines for Effective File Transfers,” which was developed over the last eight months by members of USFN, select clients, and advisors. The document is in a “scenario planning” format, outlining the steps that may be taken — given the circumstances of a particular event — when a transfer of files is made.

The scenarios include: servicer to servicer, law firm to law firm, a combination of these, or when a servicer or firm closes shop. Its intent is to provide sensible guidance for affected parties, while allowing for a company or firm to adapt the Guidelines to its own internal process.

The Guidelines can be found at:
http://www.usfn.org/AM/Template.cfm?Section=Home&Template=/CM/ContentDisplay.cfm&ContentFileID=8206.

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Fast-Track Legislation Resource Center

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Wendy Anderson, Esq.
Safeguard Properties Management, LLC – USFN Associate Member

Safeguard Properties recently introduced a Fast-Track Legislation Resource Center to monitor state-by-state legislation related to expediting foreclosure procedures for vacant and abandoned properties that are languishing in the process, exposing those homes to additional risks. The easy-to-navigate, interactive map tool provides industry professionals with a resource to stay abreast of the latest fast-track legislation, along with links to applicable media coverage.

Fast-track legislation has the potential to help rebuild communities by establishing a standard definition for an abandoned property in each state, as Illinois and New Jersey did when they enacted foreclosure fast-track laws in the past two years. Determining proper candidates for expedited foreclosure is a critical component to fast-track legislation and addresses one of the biggest challenges that the mortgage industry faces when properties go into default: which of the approximately 18 million vacant properties in the U.S. are “abandoned”? The ability to more clearly identify abandoned properties can offer important guidance, as well as help to mitigate risk for the mortgage industry and their field service partners, tasked with protecting and maintaining those properties as they proceed through foreclosure.

Because the process of rebuilding can only start after an abandoned property moves through foreclosure and into new hands, accelerating the process offers lawmakers and business leaders an effective means to ultimately revitalize struggling neighborhoods, stem blight, stop the out-migration of residents, and uphold property values.

For assistance in staying on top of recent developments in fast-track legislation, explore the new Fast-Track Legislation Resource Center. Further, as a starting point for state legislators and policy makers, the Mortgage Bankers Association’s Vacant and Abandoned Property Working Group and the New York MBA have compiled “Principles to Expedite the Foreclosure Process for Vacant and Abandoned Properties.” Additionally, the Ohio MBA version can be viewed here.

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Connecticut: Appellate Court Reviews Standing to Foreclose

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Alex-John Ricciardone
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

In a recent Connecticut Appellate Court opinion, the court addressed whether a mortgagor can challenge standing to foreclose a mortgage on appeal if the party failed to challenge it at trial. [Eastern Savings Bank v. Cortese, 2014 Conn. App. LEXIS 546]. The court concluded that a mortgagor who does not object or challenge a mortgagee’s introduction of an original, signed promissory note and mortgage into evidence at trial cannot raise the issue on appeal. Once a trial court accepts the mortgagee’s prime facie case and finds the mortgagee a holder of a note entitled to enforce it without objection and enters judgment, the issue is settled.

In Cortese, the plaintiff sought to foreclose two mortgages on real property that a defendant owned. The defendant filed an answer, special defenses, and a counterclaim that resulted in the matter going to a bench trial. At trial, the plaintiff proffered the original, signed promissory notes and mortgages into evidence to prove its prima facie case that it was the holder of the notes and entitled to enforce them. The defendant submitted no objection to the admission of evidence. At the conclusion of the trial, the court entered judgment for the plaintiff on the complaint and counterclaim.

During a post-trial hearing to determine the amount of debt, the defendant challenged subject matter jurisdiction on the grounds that the complaint did not contain an allegation that the plaintiff was the holder of the note, and thereby standing was lacking for the entry of the judgment of foreclosure. The plaintiff petitioned the court to allow it to file an amended complaint to include the allegation. The court rejected the defendant’s arguments, and allowed the plaintiff to amend its complaint to conform to the uncontested facts presented at trial.

On appeal, the defendant challenged the trial court’s subject matter jurisdiction and its discretion in allowing the plaintiff to amend its complaint. The appellate court quickly disposed of the subject matter challenge, and held that the trial court’s determination that the plaintiff was the holder of the note (based upon the plaintiff’s uncontested admission of evidence) was “not erroneous.” The court pointed out that, at trial, the defendant never objected to the admission of the evidence, nor challenged the prima facie evidence showing that the plaintiff was the note holder.

In addressing the defendant’s argument that the trial court abused its discretion, the appellate court reiterated that a trial court has discretion in allowing a plaintiff to amend its complaint after judgment. The court held that since it was clear that the plaintiff was foreclosing on the mortgages as the holder of notes, the amendment “did nothing more than conform the complaint to the proof adduced at trial.” There were no surprises to the defendant, nor was there any prejudice. The court then affirmed the trial court’s foreclosure judgment. This appellate judicial decision should help foreclosure plaintiffs in Connecticut combat dilatory pleadings challenging standing after judgment has already been entered in a case.

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Connecticut: Appellate Court Reviews Foreclosure Sale Winning Bid

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

In a decision officially released on February 3, 2015, the Connecticut Appellate Court found that a trial court did not abuse its discretion when approving a foreclosure sale with a winning bid that was less than 43 percent of the appraised value. [National City Real Estate Services, LLC v. Tuttle, 155 Conn. App. 290 (2015)]. On appeal, the record showed that on January 22, 2013, a judgment of foreclosure by sale was entered. When entering judgment, the court found the property value was $490,000. At the auction on May 25, 2013, the opening bid was $157,639.63. There were forty-two bids made. The final winning bid was $210,500. The winning bid is only about 42.9 percent of the appraised value. On May 30, 2013, the committee filed a motion for approval of the sale. In an objection to that motion, the borrowers asserted that approval of the sale was inequitable. It appears that borrowers’ counsel was looking for the court to adopt a bright-line rule, which the court refused to do.

Prior to the trial court’s approval of the foreclosure sale, borrowers’ counsel had filed a written objection. The plaintiff filed a reply, citing to LaSalle Bank, N.A v. Randall, 125 Conn. App. 31 (2010). In LaSalle, the appellate court upheld a sale in which the winning bid was 40 percent of the appraised value, which is a larger difference than in the present case. Armed with the knowledge of this case law at a hearing on July 15, 2013, the trial court asked the borrowers’ counsel to distinguish the subject case facts from the facts in LaSalle. Borrowers’ counsel incorrectly answered that the disparity between the bid and the market value was larger in this case than in LaSalle. The appellate court pointed out that plaintiff’s counsel was able to correct that answer for the trial judge. This highlights the importance of the preparation for these types of hearings, including doing legal research and providing a memorandum for the court’s reference.

Also during oral argument on July 15, 2013, the trial judge asked, “what’s to say if there’s another sale that they’re going to get [a higher bid]?” In response, borrowers’ counsel stated that “that’s the chance that everybody’s going to take,” and then he returned to his argument that the final bid was well below fair market value.” National City Real Estate Services, LLC v. Tuttle, supra, 155 Conn. App. at 294. Thus, borrowers’ counsel had not provided any evidence, nor could he, that another sale would yield a different result. On November 15, 2013, the trial court granted the motion for approval of the sale over the borrowers’ objection.

The appellate court recognized that a trial court could, under certain circumstances, refuse to approve a sale. The appellate court cited to First National Bank of Chicago v. Maynard, 75 Conn. App. 355, 361; 815 A.2d 1244 (it is “generally recognized that the grounds [that] would warrant a court’s refusal to approve a [foreclosure] sale are fraud, misrepresentation, surprise or mistake” [internal quotation marks omitted]), cert. denied, 263 Conn. 914, 821 A.2d 768 (2003). In Tuttle, the borrowers could not argue that any of those grounds existed.

Further, the appellate court looked at the borrowers’ own actions. Specifically, the auction took place when it was raining heavily. Despite the heavy rain, the borrowers did not allow access to the property for either an inspection or to conduct the auction. On appeal, the court found that “it could fairly be argued that the defendants’ own actions may have contributed to a lower sale price.” National City Real Estate Services, LLC v. Tuttle, supra, 155 Conn. App. at 297.

This case demonstrates that unless there is a compelling reason, a servicer should not bid more than the debt merely because the property is valued much higher than the debt. In Connecticut, if a plaintiff does bid more than the debt, the difference must be deposited with the court for distribution to other lienholders or to the borrowers. Additionally, Tuttle shows the importance of doing extra work in certain circumstances, including providing a trial brief to assist the court.

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Amendments to the U.S. Bankruptcy Court for the Southern District of California Local Bankruptcy Rules and Forms

Posted By USFN, Friday, March 6, 2015
Updated: Wednesday, September 23, 2015

March 6, 2015 

 

by Megan E. Lees
Pite Duncan, LLP – USFN Member (California, Nevada)

Certain amendments to the Local Bankruptcy Rules (LBR) and local bankruptcy forms for the U.S. Bankruptcy Court for the Southern District of California have gone into effect recently.

Effective March 1, 2015, all motions for relief from the automatic stay in the Southern District that are filed to foreclose upon a security interest, or to pursue unlawful detainer actions, must substantially conform to Local Bankruptcy Forms CSD 1160 and CSD 1163. Additionally, the Southern District adopted amended its Local Bankruptcy Rules (also effective March 1, 2015), which can be viewed at the following link: http://www.casb.uscourts.gov/pdf/announcements/GLLBRAPCombined.pdf.

A more detailed discussion regarding the changes to Local Bankruptcy Forms CSD 1160 and CSD 1163, as well as the relevant amendments to the LBR, is set forth below:

1. Amendments to Local Bankruptcy Forms CSD 1160 and CSD 1163: Motions for Relief from the Automatic Stay and Unlawful Detainer

Beginning March 1, 2015, all Southern District motions for relief from the automatic stay (MFR) to foreclose upon a security interest or for unlawful detainer (UD) actions will be prepared by this author’s firm on revised Local Forms CSD 1160 or CSD 1163. As a result, any forms currently in use for Southern District MFR should be updated to conform to these new local forms. The revisions to the MFR forms are limited and mostly non-substantive. Aside from some subtle stylistic changes to the amended MFR and UD MFR forms, references to subsections (4), (5), and (6) of LBR 4001-2(a) have been replaced by a broader, more general reference to LBR 4001-2(a), which governs all of the required content in a MFR, including the requirement to provide a post-petition accounting of payments in a chapter 11 or 13 case, provide admissible evidence of value where relevant, and admissible evidence of the specific facts that constitute cause for relief. From a practical standpoint, this revision will not alter the requirement to provide the specific information required by the subsections of LBR 4001-2(a), and essentially only changes the appearance and format of Local Forms CSD 1160 and CSD 1163.

2. Amendments to Local Bankruptcy Rules

In light of the lengthy amendments to the Southern District Local Bankruptcy Rules, only those amendments deemed the most relevant are detailed here. More specifically, Local Bankruptcy Rules 3002-1, 3002-2, and 9018-1 are discussed below. Although not addressed here, please note that significant amendments were made to LBR 9013, which sets forth the rules for motion practice and contested matters in the Southern District, including notice and hearing requirements.

a. LBR 3002-1: Notices for Chapter 13 Cases Where No Proof of Claim Has Been Filed by the Creditor Holding a Claim Against the Debtor’s Principal Residence

LBR 3002-1 provides that a creditor holding a claim secured by a chapter 13 debtor’s principal residence may electronically file mandatory notices of mortgage payment change and notices of post-petition mortgage fees, expenses, and charges on the court’s claims register, pursuant to Federal Rule of Bankruptcy Procedure (FRBP) 3002.1(b) and (c), regardless of whether the creditor previously filed a proof of claim in the case. Accordingly, creditors who have yet to file their proof of claim, or previously elected to refrain from filing a proof of claim in a chapter 13 case, must still file any required payment change notices on the claims register in order to comply with the requirements of the Federal Rules of Bankruptcy Procedure.

b. LBR 3002-2: Objection to Notice of Payment Change

LBR 3002-2 sets forth the requirements for objecting to a creditor’s notice of mortgage payment change filed pursuant to FRBP 3002.1(b). Specifically, LBR 3002-2 requires a debtor objecting to a notice of mortgage payment change to obtain a hearing and file/serve an objection with Local Form CSD 1184 (Request and Notice of Hearing) on the creditor, chapter 13 trustee, and U.S. Trustee with at least 21 days’ notice to the creditor. The rule further provides that the creditor’s response to the objection must be filed within 14 days after service of the objection. As a result, creditors should be vigilant in reviewing and responding to any objections to payment change notices, and to also attend any scheduled hearings on the same. Finally, if debtors dispute any payment change notices in the context of a pending motion for relief from the automatic stay, creditors should raise the lack of any prior objection to the payment change notices in reply to the same.

c. LBR 9018-1: Documents Containing Personal Identifiers

LBR 9018-1 provides that all requests to restrict public access to documents, including proofs of claim and attachments, containing any of the personal identifiers enumerated in FRBP 9037(a) must be made by motion to restrict (redact) the document. The rule further provides that the party bringing the motion must file the amended document with the redacted information concurrently with the motion to restrict access. A hearing will not be required, as the amended rule specifically delegates the entry of an order on a motion to restrict to the clerk of the court as an administrative function. Accordingly, LBR 9018-1 allows creditors to streamline the process for restricting and redacting documents containing personally identifiable information without the necessity for a hearing or entry of an order by the bankruptcy judge assigned to the case. As a result, creditors and their counsel should take advantage of, and comply with, this expedited procedure when filing motions to restrict.

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