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South Carolina: Appellate Court Outlines Standard of Care for a Real Estate Closing Attorney’s Reliance on a Title Search

Posted By USFN, Tuesday, May 6, 2014
Updated: Monday, October 12, 2015

May 6, 2014

 

by Ron Scott & Reggie Corley
Scott Law Firm, P.A. – USFN Member (South Carolina)

In a recent South Carolina Court of Appeals decision, the court held that a real estate closing attorney could not be held liable, as a matter of law, simply because he relied on a title search performed by another attorney that failed to discover unpaid real estate taxes and a subsequent tax sale. [Johnson v. Alexander, App. Case No. 2011-196007 (S.C. Ct. App. Mar. 19, 2014)].

In the Johnson case, the purchaser hired Attorney A to close a purchase transaction. In turn, Attorney A hired Attorney B to perform a title search of the subject property. The court of appeals said that the standard of care for an attorney conducting a title search on property is different than the standard of care for a closing attorney who relies on the title search performed by another attorney. The court held that the past-due real estate taxes and the subsequent tax sale — all of which were available to the attorney searching title in the county records — would be the correct focus for determining the liability of the attorney who performed the title search. However, the court felt that in order for the closing attorney to be liable, his reliance on the second attorney’s title search results or his decision not to perform the title search himself must be shown to have been negligent.

In reversing the circuit court’s decision and remanding the case for trial, the appellate court specifically declined to address the issue of whether or not, and under what circumstances, an agency relationship exists, as a matter of law, between a real estate closing attorney and a person performing a title search under the real estate closing attorney’s direct supervision.

© Copyright 2014 USFN and Scott Law Firm, P.A. All rights reserved.
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Tennessee: Appellate Court Reviews Post-Foreclosure Deficiency

Posted By USFN, Tuesday, May 6, 2014
Updated: Monday, October 12, 2015

May 6, 2014

 

by Edward D. Russell
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

Earlier this year, the Tennessee Court of Appeals confirmed that a borrower, in attempting to avoid liability for a post-foreclosure deficiency owed under the foreclosed deed of trust, has a high evidentiary threshold to overcome the rebuttable prima facie presumption that the sale price obtained through foreclosure is equal to the fair market value of the property at the time of the sale. [FirstBank v. Horizon Capital Partners, LLC, No. E2013-00686-COA-R3-CV (Tenn. Ct. App. Feb. 3, 2014)].

T.C.A. § 35-5-118, entitled “Deficiency judgment sufficient to fully satisfy indebtedness on real property after trustee’s or foreclosure sale,” is part of Tennessee’s nonjudicial foreclosure statutory scheme. Section 35-5-118(a) provides that, in an action brought by a creditor to recover a balance still owing on an indebtedness after a trustee’s or foreclosure sale of real property secured by a deed of trust or mortgage, the creditor shall be entitled to a deficiency judgment in an amount sufficient to satisfy fully the indebtedness.

Absent a showing of fraud, collusion, misconduct, or irregularity in the sale process, the deficiency judgment shall be for the total amount of indebtedness prior to the sale plus the costs of the foreclosure and sale, less the fair market value of the property at the time of the sale. The creditor shall be entitled to a rebuttable prima facie presumption that the sale price of the property is equal to the fair market value of the property at the time of the sale. See Section 35-5-118(b). To overcome the prima facie presumption, the debtor must prove by a preponderance of the evidence that the property sold for an amount materially less than the fair market value of property at the time of the foreclosure sale. See Section 35-5-118(c).

In the FirstBank case, FirstBank held a foreclosure sale on three separate notes, secured by three separate parcels of property. One of the parcels was developed with a home, and the other two parcels were undeveloped. Following the foreclosure sale, and the subsequent sale of each of the three lots, a deficiency remained owing to FirstBank. FirstBank filed a complaint seeking a deficiency judgment. In opposition, the defendants contended that the amount sought in deficiency should be reduced, asserting that the sale price obtained was materially less than the fair market value of the properties at the time of the foreclosure sale.

Following FirstBank’s motion for summary judgment and argument by the parties, the trial court found that the defendants failed to establish that the sale price of the property was materially less than the fair market value at the time of the foreclosure sale. The value of the property sold at a foreclosure sale is not looked to in a deficiency case unless there is a charge of fraud in the manner of sale or a charge that the sale price was grossly inadequate.

The appellate court upheld the trial court’s ruling, determining that the issue in deficiency actions is the fair market value of the property at the time it is sold. The court refused to presume that an appraisal price equaled the fair market value of the property at the time of the foreclosure sale. Further, it held that the defendants, not FirstBank, were tasked with establishing that the property sold for materially less than the fair market value at the time of the foreclosure sale, citing Duke v. Daniels, 660 S.W.2d 793, 794 (Tenn. Ct. App. 1983) (where foreclosure sale is properly held, the sale price is conclusively presumed to be the value of the property sold; unless, the sale price is so grossly inadequate to shock the conscience of the court). Gross inadequacy is merely a method by which one attempts to prove fraud. Without there being at least a charge of fraud in the pleadings it would be inadmissible because the required claim or defense (as the case may be) of fraud must be pleaded and must be pleaded with specificity, not generally. Duke, supra, at 795.

The appellate court’s opinion in FirstBank continues the high burden placed on defendants in opposing deficiency judgment cases. The court reaffirmed that there is no bright-line percentage, above or below which the statutory presumption is rebutted. Instead, a court determining a deficiency judgment dispute considers the percentage difference, the condition of the property, and any other factors that may provide information concerning the marketability of the property.

A foreclosure sale price will only be deemed materially less when the difference in price is significant. See GreenBank v. Sterling Ventures, LLC, No. M2012-01312-COA-R3-CV (Tenn. Ct. App. Dec. 7, 2012), cited with approval by the appellate court in FirstBank. “The term ‘materially less’ still represents a pretty substantial difference. It’s a very difficult burden for a debtor to overcome. The debtor has to show a strong difference, a material difference.” Id. (The determination of materially less regarding a foreclosure sale price is to be made on a case-by-case basis under the particular facts presented. Courts cannot establish a bright-line percentage, above or below which the statutory presumption is rebutted).

A defendant’s claim as to the fair market value at the time of the foreclosure must be corroborated, and there must be evidence regarding the development and the economic climate in the surrounding area. Mere assertions will not suffice. The FirstBank decision confirms the defendant’s burden to overcome with admissible evidence the validity of the foreclosure sale price by establishing a material difference in the price obtained compared to the fair market value.

Additionally, the court in FirstBank upheld the right of the party seeking deficiency to an award of attorneys’ fees, finding that such an award, where expressly contemplated in the loan documents, complies with the American Rule that a party is entitled to attorneys’ fees if provided by statute or agreement.

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Wisconsin: Affidavits Under Attack

Posted By USFN, Tuesday, May 6, 2014
Updated: Monday, October 12, 2015

May 6, 2014

 

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

Recently foreclosure defense attorneys have taken a new aim focusing their attack on the sufficiency of creditor affidavits. The specific target is whether the creditor’s affidavit lays a proper foundation for the business records hearsay exception. The creditor is unable to prove the default and win its case without laying the foundation for the business records hearsay exception. The attacks are frequently successful. In response to this success, the content of lender affidavits must become more detailed and do more than mirror the language of the business records hearsay exception.

The most significant upset to creditor affidavits occurred in Palisades Collection LLC v. Kalal, (Wis. Ct. App. 2010) 2010 Wis. App. 38, 324 Wis. 2d 180, 781 N.W.2d 503. In this case, a Wisconsin appeals court took a sharp deviation from the Federal Rules of Evidence by finding that a creditor who acquired defaulted credit card debt did not lay a sufficient business records foundation under Wis. Stat. § 908.03(6) to prove the amount of the debt owed. The basis for the finding in Palisades was that the plaintiff did not show that it had personal knowledge of how the prior credit card company created, kept, and maintained their business records. Initially, the case was narrowly applied. However, lately there has been a rash of decisions toughening the standards for personal knowledge of the affiant regarding the creditor’s own business records. The heightened scrutiny is no longer limited to records acquired from another creditor as in Palisades.

The latest in these decisions striking down creditor affidavits, and which cannot be viewed as an anomaly, is U.S. Bank, N.A. v. Nelson, 2013 AP755 (not recommended for publication). The affidavit at issue in Nelson is an affidavit of Allen, an employee of Wells Fargo Bank, N.A., the servicer of the loan for U.S. Bank. The Allen affidavit contained the following averment: “In the regular performance of my job functions, I am familiar with business records created and maintained by Plaintiff for the purpose of servicing mortgage loans. These records (which include data compilations, electronically imaged documents, and others) are made at or near the time by, or from information provided by, persons with knowledge of the activity and transactions reflected in such records, and are kept in the course of business activity conducted regularly by Plaintiff. It is the regular practice of Plaintiff’s mortgage servicing business to make these records. In connection with making this affidavit, I have acquired personal knowledge of the matters stated herein by personally examining these business records.”

The language used in the Allen affidavit is noticeably similar to the business records hearsay exception found in statutes around the country including Wisconsin’s Statute § 908.03(6). While the trial court found the language to be sufficient, the court of appeals dissected the language and found it to be deficient. The court of appeals relied on Palisades to hold that the affidavit lacked an averment to show that Allen had personal knowledge as to how the records were created or made by her employer.

In reaching this decision, the appellate court considered whether Allen’s position at Wells Fargo allowed the court to infer that she had knowledge of how the records were made. The court also contemplated whether it could infer that Allen had personal knowledge of how the records were made from Allen’s statement that she is “familiar” with the records. However, the court found that familiarity with the records themselves is not equivalent to having personal knowledge of how the records were made and, ultimately, concluded that it could not make that inference.

Conversely, there are recent examples in Wisconsin case law illustrating sufficient language that would establish the business records foundation. In Bank of America, NA v. Neis, 2013 Wis. App. 89, 349 Wis. 2d 461, 835 N.W.2d 527, general averments regarding personal knowledge in addition to language seeking to satisfy the elements of the business records exception were found to be sufficient. Central Prairie Financial, LLC v. Yang, 2013 Wis. App. 82, 348 Wis. 2d 583, 833 N.W.2d 866, is a case in which the plaintiff was able to prove the amount of credit card debt owed, even though the debt had been acquired from another lender, due to a detailed affidavit from the plaintiff along with affidavits from the prior servicer of the debt.

Although the bar has been raised in Wisconsin, it is not insurmountable. Affidavits are required to be made by a qualified witness. The qualified witness must be someone who can aver to very specific facts. Those facts are necessary to prove that the affiant has the essential personal knowledge to lay the foundation for the business records hearsay exception. This involves the affiant explaining the substance of his or her knowledge and, more importantly, how that knowledge was acquired. More than a mere parroting of the language found in the business records hearsay statute is necessary to overcome this line of attack in a foreclosure.

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2014 Utah Legislative Update

Posted By USFN, Tuesday, May 6, 2014
Updated: Monday, October 12, 2015

May 6, 2014

 

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

The 2014 Utah legislative session resulted in five bills of interest to the default mortgage industry. Two of the bills, Senate Bill 20 and Senate Bill 130, have a direct impact on default mortgage servicers. The remaining three, Senate Bill 79, House Bill 16 and House Bill 315, have only limited, indirect impact. All five of the bills have been signed into law by the governor and are effective May 13, 2014 (except as noted in the discussion of Senate Bill 79, below).

Of the two bills having a direct impact, one, Senate Bill 130, requires prompt consideration by mortgage servicers and foreclosure trustees. It is discussed in detail below. The other four bills are also described briefly.

Senate Bill 130

Senate Bill 130 (Trust Deed Foreclosure Amendments) amends the provisions of Utah Code section 57-1-24.3. Senate Bill 130 clarifies some provisions in 57-1-24.3 and specifies that the single point of contact notice required by the statute must give the borrower at least 30 days in which to cure the loan default before foreclosure can be commenced. This change will require servicers whose single point of contact notice gives less than 30 days to change the notice to provide at least 30 days.

Senate Bill 130 also amends section 57-1-24.3 to require that the servicer provide the borrower with written notice of the servicer’s decision regarding foreclosure relief for which the borrower has applied. Previously, the statute did not specify that the servicer’s decision had to be in written notice form.

The most significant change brought about by Senate Bill 130 is a change in the language of subsection 57-1-24.3(12) which provides financial institution servicers an exemption from compliance with the requirements of the section. The statute’s requirement that the servicer designate and use a single point of contact was modified. A servicer which is a financial institution is now exempted from the pre-foreclosure single point of contact notice and other requirements of 57-1-24.3 if it makes use of “assigned personnel” in compliance with 12 C.F.R. 1024, Real Estate Settlement Procedures Act, “or other federal law, rules, regulations, guidance, or guidelines” governing the servicer and issued by the Fed, FDIC, OCC, NCUA, or CFPB.

This change, coupled with the implementation of the final servicing regulations by the CFPB in January 2014, qualify financial institutions (as defined in the bill) for complete exemption from the provisions of section 57-1-24.3. Financial institutions in compliance with the CFPB’s final servicing regulations are, therefore, exempt from compliance with section 57-1-24.3 in its entirety — effective May 13, 2014. Servicers should promptly analyze Senate Bill 130 and either (a) avail themselves of the exemption, or (b) take steps to ensure that their notices and procedures under section 57-1-24.3 comply with the changes enacted this year.

Other Bills
Senate Bill 20 extends the provisions of Utah Code section 57-1-25, subsections (1)(c), (3)(b), and (4) until December 31, 2016. Those subsections, which require that the foreclosure sale notice contain a specific notice to tenants regarding protections available under the federal Protecting Tenants at Foreclosure Act, were set to expire on December 31, 2014. This bill simply extends that sunset provision for an additional two years.

Senate Bill 79 enacts the Utah Uniform Real Property Electronic Recording Act (the Act). It provides for the immediate establishment of a commission to create electronic recording standards. It also provides for a phased implementation by class of county and authorizes the county recorder to collect an electronic recording surcharge to recover implementation costs. The focus of the Act is upon electronic recording of electronic documents. That part of the Act goes into effect July 1, 2015. Utah already has electronic recording of traditional paper documents in most counties.

House Bill 16 was enacted in an effort to cut down on the recording of nonconsensual “common law” liens against public officials. It requires anyone filing such a document for record to initiate a judicial proceeding to determine the enforceability of the lien and subjects anyone recording an unenforceable nonconsensual common law lien to liability for damages and criminal liability. If there is not a judicial determination of the enforceability of the lien within the time allowed by statute, the lien can be disregarded.

Finally, House Bill 315 requires parties asserting judgment liens against real property to file a separate information sheet with the county recorder.

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Arizona: Vacant Land Excluded from Anti-Deficiency Protection

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by David W. Cowles
Tiffany & Bosco, P.A. – USFN Member (Arizona, Nevada)

Earlier this year, the Arizona Court of Appeals shed a little bit of light on Arizona’s developing post-foreclosure anti-deficiency protection in BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 234 Ariz. 100 (Ariz. Ct. App. 2014). Until late in 2011, Arizona’s anti-deficiency protection was relatively clear and stable. The anti-deficiency statute only applied to property of 2.5 acres or less that is “limited to and utilized for either a single one-family or a single two-family dwelling.” A.R.S. § 33-814(G). As a consequence, if a borrower did not actually use the property as a dwelling, the protection did not apply. Borrowers would go to extremes to use the property as a dwelling — by camping out inside the barely framed, under-construction dwelling, for example.

In late 2011, the court of appeals issued its opinion in M&I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478 (Ariz. Ct. App. 2011), pet. rev. denied. Mueller changed the landscape by holding that if the borrower intended to use the property as a single one-family or a single two-family dwelling, that intention is dispositive. There was no need for the Muellers to camp out in their under-construction home to fall within the scope of anti-deficiency protection. What was a fairly easily applied bright-line rule was eliminated in favor of the elusive notion of intent.

The court of appeals in the recent Wildwood case cut back application of the new Mueller rule by holding that anti-deficiency protection does not apply where, as in Wildwood, the property was vacant and construction had not begun. Wildwood thus seems to restore some clarity, at least in cases where construction has unambiguously not begun. But the special concurrence in Wildwood notes that the “new” rule is not at all clear. If construction has begun, when does the Mueller rule of intent come into play? This is not at all clear. Similarly, it is not at all clear when construction does begin. Does construction begin when the plans are drawn, or when the grading begins, or when? Will borrowers now go to their vacant lots as soon as possible to put a two-by-four in the ground or to move some dirt? We will have to wait to see.

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Case Management of Foreclosure Matters in Philadelphia – An Organizational Shift

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Jill P. Jenkins
KML Law Group, P.C. – USFN Member (Pennsylvania)

Since 2008, the city of Philadelphia and the First Judicial District have seen significant changes in the way mortgage foreclosure matters are handled. Today, handling a foreclosure case in Philadelphia (for the lender and the borrower) can be a complex task, including tricky service issues, conciliation conferences, case management conferences and, more commonly in recent years, taking a case to a bench trial.

In years past, things in the mortgage foreclosure world were much different. With little court intervention, cases were often started and finished very quickly, with little delay or litigation involved at all. Very few cases actually became contested and, if they did, the parties controlled when a matter would be listed for trial if a resolution could not be reached. This gave all parties ample time to discuss resolution, serve discovery, prepare motions, and get ready for trial at their own pace, rather than in accordance with looming deadlines set by the court.

As we entered the 2000s, however, things began to shift towards more court-mandated appearances and court involvement in mortgage foreclosure cases. In 2004, the Mortgage Foreclosure Steering Committee formed in Philadelphia. The first of its kind in the city and still active today, it is a group of attorneys representing the lenders’ and the borrowers’ sides, led by The Honorable Annette Rizzo, a Common Pleas Court Judge. The committee meets regularly to discuss current issues in mortgage foreclosure and ways to improve the process in Philadelphia for both the lender and the borrower.

Formation of the group was only the beginning, however. In June 2008, the Philadelphia Mortgage Foreclosure Diversion Program began — now nearing its 6th anniversary. A court-ordered conciliation conference is scheduled for every owner-occupied mortgage foreclosure case. While the borrower is participating in the conciliation program, all proceedings are stayed. The program brings the borrower (or her representative) and a representative of the lender together to discuss how the mortgage foreclosure matter can be resolved amicably for both parties, through a number of possible options. Depending on the type of resolution that the borrower is seeking, this can involve a number of conferences over several months, where both sides meet to discuss how best to proceed towards achieving the chosen resolution.

Up until approximately one year ago, the court had continued the practice of not keeping mortgage foreclosure cases on a specific “track” for the purposes of discovery deadlines, dispositive motion deadlines, and an estimated trial date. This responsibility was left to the parties to determine when a case would be brought to trial, if a resolution could not be reached after the case was removed from conciliation.

Then, the world for mortgage foreclosure attorneys took a significant turn when the court started scheduling case management conferences. These conferences entailed a brief meeting of both parties and a “case management master” to discuss the case and set deadlines for discovery, dispositive motions, and to place the case into a trial pool, which would advise the parties as to the month the case would be called to trial. This conference also required both parties to prepare and present a “case management memorandum.” Moreover, many case management conferences would be scheduled at the same time, but would be called one at a time. This often caused a long period of waiting as more complex cases, such as personal injury or medical malpractice, completed their conferences so that a mortgage foreclosure case could be called, only to meet for a minute or two to be given a discovery deadline and trial date. It was difficult to see the benefit of attending these mandated conferences, sometimes spending hours at City Hall, when not a great deal of discussion regarding the discovery that was required and how long each party needed before a trial could be scheduled was needed for a mortgage foreclosure case.

More recently, it was noticed by the court that this method of case management may not be the right fit for mortgage foreclosure cases. Since December 2013, Philadelphia’s Court of Common Pleas began a new way of tracking its mortgage foreclosure cases. The court now is tracking the status of service of the complaint upon all defendants, and the status of the case after it is removed from the conciliation program, if a default judgment has not yet been entered against the defendants. Generally speaking, if proof of service is not on the docket within 90 days from the commencement of the action, a status conference will be scheduled in front of a judge who has taken ownership of mortgage foreclosure cases in recent months. At the status conference, the attorney is required to represent to the court why service has not yet been completed and when the attorney expects service will be completed.

Now fast forward four or five months, after service has been effectuated and the matter has run its course in conciliation or, in the alternative, the matter involves non-owner occupied property and never ventured into conciliation. The court will issue an order scheduling a case management conference. This may sound similar to what was done previously, but the court has now recognized that mortgage foreclosure matters in Philadelphia are unique, requiring different attention than a catastrophic injury case, business contract dispute, or asbestos lawsuit.

The Philadelphia Court is now holding a brief meeting of the parties with a court administrator, in a courtroom separate from the other case management conferences, so that appropriate deadlines can be quickly decided, and pro se litigants can address any questions they have with the court administrator and the lender’s attorney. Discovery and trial deadlines are still set and expected to be adhered to, but the case management conference itself is completed much more promptly. It appears, at least for now, that this style of case organization is here to stay in Philadelphia.

Not surprisingly, this latest method of tracking cases by the courts has forced firms to reorganize their tracking of cases as well. Firms now are required to calendar and attend court-ordered hearings and status conferences, keep strict calendars for discovery and trial dates (often in cases that are not contested), and confirm attorney coverage for all court appearances, among other new responsibilities. This has added another layer of complexity to the cases that has necessarily increased the costs of prosecuting the case.

It has yet to be seen whether this type of case management will be beneficial to either party or, ideally, to both parties. Given the fact that most mortgage foreclosure matters require similar deadlines for discovery and trial, could it be more efficient to simply issue a case management order with the same proposed deadlines for all mortgage foreclosure cases and allow parties with special, more complex cases to move for an exception? Is there a way to avoid having the court require a pro se litigant to take time off from his or her employment to come to City Hall for a conference to discuss the discovery deadline in a case where no discovery is required? Can another (possibly superfluous) court appearance in the already demanding schedule of the lender’s attorney be avoided? On the other hand, are these conferences providing another opportunity for both parties to be in the same room and discuss a resolution? These are all questions that will likely be addressed over the coming months.

The evolution of case management in Philadelphia has been interesting to observe. It is clear that the courts are open and willing to consider implementing a process that works best for everyone, including the lender, borrower, and court staff. There is still work to be done, but it appears that there is movement in that direction.

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Connecticut: Appellate Court Rules Defendant Cannot Use PSA to Challenge Standing

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Jeffrey M. Knickerbocker
Hunt Leibert – USFN Member (Connecticut)

On April 15, 2014, the Connecticut Appellate Court released an opinion that limited a defendant’s ability to examine a pooling and servicing agreement. Wells Fargo Bank, N.A., Trustee v. Strong, 149 Conn. App. 384 (2014). In Strong, the defendant actually raised two challenges. The first challenge was as to the plaintiff’s standing when, allegedly, the plaintiff had not complied with its own pooling and servicing agreement (PSA). The second challenge was that the court should have held an evidentiary hearing with respect to the plaintiff’s debt rather than accept the plaintiff’s affidavit of debt.

In order to obtain judgment in this matter, the plaintiff filed a motion for summary judgment. The defendant claimed that the motion for summary judgment should have been denied because there was a genuine issue of material fact. The material fact, argued the defendant, was that the note did not contain the full chain of endorsement. The defendant also asserted that the assignment of mortgage presented a genuine issue of fact because it was more than two years after the actual assignment, and the assignment was from the servicer rather than the depositor.

According to the defendant, the PSA required that: (1) all transfers to the trustee under the agreement are to be made by the depositor; (2) any mortgage note in the mortgage pool that is transferred and delivered to the plaintiff must contain a complete chain of endorsement from the originator to the last endorsee; (3) all of the mortgage loans to be conveyed to the plaintiff under the agreement must be transferred concurrently with the execution and delivery of the agreement; and (4) the plaintiff’s rights and responsibilities as trustee are strictly limited by New York trust law and the “policy and intention of the Trust to acquire only Mortgage Loans meeting the requirements set forth in th[e] [a]greement ...” Id. at 389.

The appellate court affirmed the lower court’s ruling and denied the appeal. In denying the appeal, the court ruled, “The issue of whether a mortgagor may challenge a foreclosing party’s standing on the basis of its noncompliance with a pooling and servicing agreement, to which the mortgagor is not a party and in which such mortgagor has no legal interest, is one of first impression for our appellate courts. Nonetheless, our law with respect to foreclosure actions and third party beneficiaries provides us with a sufficient basis to conclude that the court did not err in granting summary judgment in the present action.” Id. at 390.

The court went on to state, “Our appellate courts have not required a foreclosure plaintiff to produce evidence of ownership deriving from a pooling and servicing agreement in making its prima facie case on summary judgment.” Id. at 399. Further, the court said, “plaintiff’s alleged noncompliance with the agreement did not impede the plaintiff’s ability to meet its burden of proving that it was entitled to summary judgment as a matter of law.” Id. at 401. Thus, the appellate court found that the lower court had properly rendered judgment in the plaintiff’s favor.

Likewise, the appellate court was not swayed by the defendant’s argument that the trial court should have had an evidentiary ruling in order to find the plaintiff’s debt. Connecticut rules specifically authorized a plaintiff to establish its debt using an affidavit. Connecticut Practice Book § 23-18 provides, in pertinent part: “(a) In any action to foreclose a mortgage where no defense as to the amount of the mortgage debt is interposed, such debt may be proved by presenting to the judicial authority the original note and mortgage, together with the affidavit of the plaintiff or other person familiar with the indebtedness ...” The defendant had failed to raise a defense regarding the debt. As such, the court could take the affidavit and was not required to hold an evidentiary hearing.

This is an important case in Connecticut in that it strengthens lenders’ ability to prosecute foreclosure actions as it removes the issue of small errors concerning compliance with a PSA. Further, this decision serves as a reminder to judges that it is acceptable to follow the rules and decline borrowers’ attempts to make extra work for the court and plaintiffs.

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Connecticut: The PTFA Does Not Preempt Eviction Statutes

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Meghan E. Smith
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

The Connecticut Appellate Court recently issued a decision where it discussed the applicability of the federal Protecting Tenants at Foreclosure Act (PTFA) to Connecticut eviction laws. In the case of Customers Bank v. Boxer, 148 Conn. App. 479 (2014), the appellate court affirmed the judgment of the trial court, which found that the defendant had failed to meet his burden of proof to establish that he was a bona fide tenant under the PTFA, thereby triggering the 90-day notice required by that act. On appeal, it was determined that there was sufficient evidence to support the trial court’s conclusion that the defendant did not establish that the value of the repairs or improvements made to the property was commensurate with the fair market value rent of the property.

The PTFA does not define the term “receipt of rent,” so the appellate court turned to the Connecticut General Statutes for guidance. The court specifically stated that the “PTFA does not preempt state law with respect to the requirements of eviction proceedings.” The appellate court went on to cite federal cases that have stated that the PTFA “does not create a federal right of action, but indeed provides directives to the state courts” and “the PTFA is not a recognized area of complete preemption” (emphasis added). Therefore, Connecticut eviction statutes are not preempted by the PTFA.

This is important in regards to Connecticut General Statutes § 47-19. This statute provides in relevant part that a lease exceeding one year is not effectual against any persons other than the lessor and lessee unless it is in writing, executed, attested, acknowledged, and recorded in the same manner as a deed of land. Tenants in summary process actions where the landlord has been foreclosed often present leases ranging from two to four years in term that have not been attested, acknowledged, and recorded on the land records. Frequently they will obtain counsel who will try to argue that the PTFA “preempts” C.G.S. § 47-19 and the lease is enforceable against the new owner. This Connecticut Appellate Court decision will assist greatly in defending against those arguments.

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Eighth Circuit: BK Appellate Panel Rules re Ch. 13 Plan Default

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

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

The Eighth Circuit Court of Appeals Bankruptcy Appellate Panel recently confirmed that a default in the mortgage payments pursuant to a confirmed chapter 13 plan is “cause” for relief from the automatic stay under 11 U.S.C. § 362(d)(1), regardless of the amount of equity cushion. CitiMortgage, Inc. v. Borm (In re Borm), __ B.R. __, 2014 Bankr. LEXIS 1254 (8th Cir. B.A.P. April 2, 2014). (The Eighth Circuit is comprised of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.)

CitiMortgage, the holder of a claim secured by the debtors’ residence, moved for relief from the automatic stay after the debtors failed to make post-petition payments pursuant to a confirmed plan. The plan provided that the debtors would make the post-petition payments directly to CitiMortgage. Without a response from the debtors, the bankruptcy court denied the motion sua sponte because the debtors had an equity cushion and the debtors were making some payments. The bankruptcy court suggested that CitiMortgage would have to wait until the mortgage debt exceeded the property value before it could obtain relief from the automatic stay.

CitiMortgage appealed the decision, and the Bankruptcy Appellate Panel (BAP) reversed the bankruptcy court. The BAP agreed with CitiMortgage and held that the amount of equity was irrelevant in light of the fact that the debtors defaulted on the required plan payments. Although not stated in the BAP’s decision, this author believes that the bankruptcy court used the “for cause” standard for relief in a pre-confirmation motion for relief from the automatic stay. Before confirmation, adequate protection and equity are certainly relevant under a § 362(d)(1) analysis (most often in a chapter 11 case), but once the plan is confirmed, the creditor and the debtor must live with the plan treatment.

While the standard for relief from stay upon a plan default is not uniform across the country, (e.g., at least one bankruptcy court in Colorado has held that a default in the mortgage payments under a confirmed plan is grounds for dismissal, not relief from stay), the standard in the Eighth Circuit is now clear. A failure to make the mortgage payments pursuant to a confirmed chapter 13 plan is “cause” for relief from stay under § 362(d)(1).

Editor’s Note: The author’s firm represented CitiMortgage, Inc. in the bankruptcy court and appellate proceedings summarized in this article.

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Georgia Bankruptcy Courts Review: Reopen Ch. 7 to Reaffirm a Mortgage?

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Brian Jordan
McCalla Raymer, LLC – USFN Member (Georgia)

On October 25, 2013, a bankruptcy court in the Southern District of Georgia (Savannah Division) held that a Chapter 7 case would not be reopened for the purpose of entering into a reaffirmation agreement where the agreement was not made prior to discharge. See In re Conner, 2013 WL 5781682 (Bankr. S.D. Ga. 2013).

Under Bankruptcy Code § 350(b), a case may be reopened to administer assets, to accord relief to the debtor, or for other cause. For a reaffirmation to be enforceable, Bankruptcy Code § 524(c) requires, among other things, that the agreement to reaffirm be made before the granting of a discharge. In Conner, the debtors motioned the court to reopen their Chapter 7 case for the purpose of filing a reaffirmation agreement so that they could pursue a loan modification with their mortgage lender. Although both debtors and the mortgage lender had agreed to reaffirmation terms as of the motion to reopen and no party had objected to the motion to reopen, debtors’ counsel stated that no reaffirmation agreement had been made prior to discharge.

The court held that, because no reaffirmation agreement had been made prior to discharge, it cannot be enforceable. Accordingly, as the reaffirmation agreement put forth by the debtors was unenforceable, the Chapter 7 case would not be reopened. This outcome echoes the Northern District of Georgia where a bankruptcy court there held that a Chapter 7 case may be reopened for the purpose of filing a reaffirmation agreement where the parties had agreed to all terms prior to discharge. See In re Farris, 2009 WL 6499264 (Bankr. N.D. Ga. 2009).

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Google Apps and MS Office 365

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Shawn J. Burke, Director, LoanSphere Sales Engineering
ServiceLink, A Black Knight Financial Services – USFN Associate Member
&
by Clifton D. Dillman, CIO
Firefly Legal – USFN Associate Member

From Shawn’s View

Is it obvious to you what Google Apps and Office 365 are? Furthermore, is it apparent that they are, in essence, competing technologies aimed at getting your back-office business? That Google Apps offers an alternative (even a free one) to buying Microsoft Office; or that Office 365 is trying to roll your Exchange Server, the money you pay for Microsoft Office, and some of your consumer desires (OneDrive cloud storage, etc.) into one package they hope you’ll pay for yearly? I was reminded recently during a USFN Technology Committee meeting that these subjects are not second nature to everyone — thus prompting this article.

First, what are Google and Microsoft each attempting? In a nutshell, they are trying to provide email and back-office services (Word, spreadsheets, access, database, email, documents, instant messaging, screen, etc.) to your organization.

Naturally when trying to decide options, look at your needs. For instance, I use both technologies in various businesses. When deciding which direction to go, generally consider whether you already have investments in Microsoft Office or Microsoft Exchange and whether you consider those critical to your business. If not critical or if you aren’t already invested, then return on investment will most quickly be achieved going down the Google Apps path. However, I would argue that if you’ve already made the investment, Office 365 might be worth your while.

For example, say that your operation uses Excel significantly — creating lots of charts, heavy on formatting, connecting to other data sources, and having lots of “sheets” powering your business — then making the switch is cumbersome. I don’t think anyone would contend that Excel has a ton of power and features in it; in fact many who tout Google Apps do so under the argument that it is more straightforward. If your team uses those Excel features, however, then giving them up has a cost. If that’s your company and you also use Word heavily and were integrated with Microsoft Exchange, then bringing all of those costs together into Office 365 might make sense. Remember that training your employees also has a soft cost, which goes beyond the licensing dollars.

I recognize that there will be people reading this who just want to shout “You’re wrong” at me. For them, the proliferation of Google Apps, their straightforward approach and extensive cloud storage integration, as well as the numerous “free resources” (templates, etc.), make any argument for Office 365 preposterous. Accordingly, I have asked a USFN Technology Committee colleague (and a proponent of Google Apps), Clifton Dillman of Firefly Legal to present a counterpoint to the Office 365 position.

From Clifton’s View

Thank you for the introduction Shawn. Let me say first that I am not completely against Office 365 and I fully understand your viewpoint. In fact, I agree with many, if not all, of your insights. My opinions must be prefaced with the simple fact that each one of us will have differing ideal scenarios dependent on our individual circumstances.

I think that Microsoft has made the transition to the cloud easier and easier through the years. Let’s look at the soft cost to transitioning to Office 365 first. During a recent Technology Committee meeting, a member mentioned that they still have users on Office 2003. I would argue that the transition to Office’s ribbon, introduced in Office 2007, would be just as difficult to overcome as beginning to use Google Apps — so the soft costs won’t really change in that scenario. I tend to agree that there could be a larger soft cost to transitioning to Google Apps, but note that the workforce is better equipped to learn new software and deal with the changes than they were ten or twenty years ago.

Shawn is absolutely right that Google’s features are not as robust as Office. Recently, I had a circumstance where I needed a document with a table of contents and associated page numbers. This is not possible in Google Apps. You can manually put them in, but who has the time for that? I went back to Office for this functionality. I have personally witnessed Google Apps really grow up in the short amount of time that it has been around (almost eight years). The great thing is that it will only get better.

In contrast, when Microsoft launched its “ribbon” — the very thing that hides even more of those functions no one uses — a Microsoft representative said that the ribbon removed the clutter. She stated that only a very small percentage of those advanced features were actually used by most people. Shawn may be an Office guru, who intimately knows and uses each and every ribbon function inside and out. I have to admit that I do not, but I also don’t need to, which makes Google Apps even more appealing.

I think that there are lots of options beyond the Google Apps and Office 365 debate, and that every circumstance has a different adoption path. I also believe that it’s healthy and worthwhile to discuss those options; bring them up with the third-party or internal IT staff that you are working with. The price point is a huge factor and Google continues to add more and more to its suite. One example: Google Draw is a great replacement for Microsoft Visio (expensive flowchart software) and it makes a lot of sense to look at it.

One of the challenges to this question is that there is no “right” answer. There might be answers that are more universally held; however, each organization needs to review both choices and ask questions. Not just questions about license costs, but also consider the soft costs of users who are used to a particular way of, or tool for, doing things. Final words: If you’re asking questions and thinking through what’s right for your operation, then you’re doing the smart thing. There’s no answer in a box here.

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Kansas: Appellate Court Bolsters Credit Agreement Statute

Posted By USFN, Tuesday, May 6, 2014
Updated: Tuesday, October 13, 2015

May 6, 2014

 

by Blair T. Gisi
South & Associates, P.C. – USFN Member (Kansas, Missouri)

A residential mortgage foreclosure case involved, among other issues, the effect of the borrowers’ failure to execute and to timely return a loan modification agreement. The bank had obtained summary judgment, relying on K.S.A. §§ 16-117 and 16-118. The Kansas Court of Appeals affirmed the trial court’s decision granting summary judgment to the bank on all issues. SunTrust Mortgage, Inc. v. Giardina, No. 109,840, 2014 WL 1193433 (Kan. Ct. App. Mar. 21, 2014), slip op.

The borrowers defaulted on a mortgage loan, but proceeded to work with the bank to modify their loan. The borrowers made all required loan modification trial payments and were approved for a loan modification. A proposed loan modification agreement was sent to the borrowers with explicit instructions to sign, notarize, and timely return the proposed agreement along with the first required payment. The borrowers did make the monthly payments for August and September 2011 as set forth in the proposed agreement, but failed to timely return the loan modification agreement itself and provided no proof at all that they ever executed the document.

SunTrust viewed the borrowers’ failure to both sign and timely return the loan modification agreement as a rejection of the offer to modify the loan. Accordingly, SunTrust advised the borrowers that they remained in default and that failure to cure the default would result in foreclosure proceedings. There was no cure, so SunTrust proceeded with a foreclosure suit, which ultimately resulted in the lower court granting judgment in favor of SunTrust, despite the borrowers’ raised defenses. The borrowers’ appeal followed.

The Kansas Court of Appeals held that the proposed loan modification agreement fit within the state statutory definition of “credit agreement” and, as such, that the material terms of the credit agreement must be in writing and signed by both the creditor and the debtor for it to be relied upon for any legal or equitable action. The appellate court found that the failure of the borrowers to come forward with a copy of the loan modification agreement signed by the parties precluded the defense of an implied agreement based on course of dealing or partial performance. In addition, the court concluded that under the plain language of the mortgage and the note that SunTrust’s acceptance of the borrowers’ payments did not waive the bank’s rights to file the foreclosure action.

In addition to the loan modification issue, the appellate court considered two other issues. The first was the oft-repeated argument that SunTrust holding the note and Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for SunTrust, holding the mortgage resulted in a splitting of the note and mortgage. The appellate court held that by the language of the mortgage, MERS acted as the express agent of SunTrust and, therefore, that the note and mortgage were never separated. Secondly, the appellate court found that a consent order entered into by SunTrust and the Federal Reserve was not a material issue to bar summary judgment because the borrowers were not a party to the consent order and the consent order did not have the force and effect of law.

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LEGAL ISSUES UPDATE -Foreclosure Process: “Debt Collection” Under FDCPA?

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Valerie Holder
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)

In 1977, the Federal Debt Collection Practices Act (FDCPA) was enacted to “eliminate abusive debt collection practices by debt collectors, [and] to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged.” FDCPA § 1692(f)(6)802(e), 15 U.S.C. 1692(e). As the economy took a downward turn in recent years, more consumers were unable to repay their debts, and actions against “debt collectors” increased. Debt Collection (Regulation F); Advanced Notice of Proposed Rulemaking, Federal Register 78 (12 Nov. 2013): 67851. With consumers not making mortgage payments, uncertainty exists regarding whether an enforcer of a security instrument meets the definition of a “debt collector” under the FDCPA.

Courts have held that “enforcement of a security interest through a nonjudicial forfeiture does not constitute the collection of a debt for purposes of the FDCPA.” Baranti v. Quality Loan Service Corp., 2007 WL 26775 *3; Roman v. Nw. Tr. Services, Inc., C10-5585BHS, 2010 WL 5146593 *3 (W.D. Wash. Dec. 13, 2010); Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002); Jordan v. Kent Recovery Services, 731 F. Supp. 652, 657-58 (D. Del. 1990). In some states the nonjudicial process eliminates the ability to obtain a deficiency judgment, while a judicial foreclosure allows for a monetary judgment and pursuit of deficiency; there is more uncertainty regarding whether judicial foreclosure is fairly characterized as debt collection.

Two recent opinions from two different courts held that enforcement of a security instrument in nonjudicial and judicial foreclosure is not debt collection.

Judicial Foreclosure on Deed of Trust

Doughty v. Holder addressed whether the judicial foreclosure of a deed of trust constitutes “debt collection,” as defined under the FDCPA. 2014 WL 220832 (E.D. Wash.). In Doughty, the author’s firm commenced an action for judicial foreclosure of a deed of trust on behalf of the beneficiary. The complaint sought judgment against defendants for monies due and specified that the plaintiff waived any right to a deficiency judgment. That is, the plaintiff sought nothing more than to foreclose on the deed of trust. One of the named defendants was Cheryl Doughty (Cheryl), daughter of the deceased borrower Raoul Doughty. Cheryl was named as a defendant to divest her of her interest in the property.

An individual named “Sheryl Doughty” was mistakenly served with the summons and complaint based upon the belief that she was the “Cheryl Doughty” named in the complaint. Sheryl Doughty (Sheryl) was dismissed from the judicial foreclosure action. Sheryl brought a separate action against the author and her firm for violation of the FDCPA, claiming that they were debt collectors who engaged in unfair and deceptive acts. Following a motion for summary judgment filed by the author and her firm, the court held that “[s]o long as the foreclosure proceedings, be they non-judicial or judicial, involve no more than mere enforcement of security interests, the FDCPA does not apply.” The court found that the plaintiffs were served with a lawsuit naming them as defendants and the lawsuit’s sole purpose was to foreclose potential interests in the subject real property. Even assuming the FDCPA applied here, the court further found that there were not any abusive collection practices. In summary, the court granted the motion for summary judgment filed by the author and her firm and judgment, without an award of attorney fees, was entered.

Nonjudicial Foreclosure
In Dillon v. Chase Home Finance, LLC, 2014 WL 466212 (E.D. Mo.), plaintiffs sued the foreclosing lender and its counsel, seeking to enjoin a foreclosure sale and alleging FDCPA violations. The court determined that the FDCPA did not apply because the lender’s counsel was acting as a trustee under a deed of trust and was therefore not acting as a debt collector. Further, the court held that foreclosing on a security interest is not debt collection activity for the purposes of § 1692g, as the FDCPA specifically says that a person in the business of enforcing security interests is not a debt collector for the purposes of § 1692(f)(6), which reasonably suggests that such a person is not a debt collector for purposes of the other sections of the FDCPA.

The court also cited a federal case in Mississippi, which held that a law firm that serves as trustee or represents a mortgagee in a nonjudicial foreclosure is not a debt collector. Fouche v. Shapiro & Massey, LLP, 575 F. Supp. 2d 776, 781 (S.D. Miss. 2008). Ultimately, the court in Dillon granted the motion to dismiss filed by the defendants.

Conclusion
The ambiguity present in the definition of “debt collector” under the FDCPA needs to be addressed and clarified. The two cases discussed here support the proposition that the foreclosure process is not debt collection. However, other states and circuits have held to the contrary. See Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006) (holding that the FDCPA applies to lawyers conducting a deed of trust foreclosure who inform the debtor of the amount required to reinstate the mortgage); Kaltenbach v. Richards, 464 F.3d 524 (5th Cir. 2006) (holding the FDCPA can apply to a party whose principal business is enforcing security interests); Glazer v. Chase Home Fin. LLC, 704 F.3d. 453 (6th Cir. 2013) (holding that mortgage foreclosure is debt collection under the FDCPA); Reese v. Ellis, Painter, Ratterree & Adams, LLP, 687 F.3d 1211 (11th Cir. 2012) (holding that a foreclosure firm qualified as a debt collector under the FDCPA because it regularly engaged in the business of collecting debts).

Congress could not have intended that a federal statute would be interpreted to provide inconsistent guidance to foreclosing attorneys and trustees. The FDCPA needs to be amended or the Supreme Court of the United States should provide clarification on the statute to rectify the discrepancy across the nation regarding who or what qualifies as a debt collector.

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HOA Talk -Michigan: Condo Association Fees Upon Acquisition of Title

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Matthew B. Theunick
Trott & Trott, P.C.
USFN Member (Michigan)

In a “for publication” opinion, the appellate court affirmed a decision of the Oakland County Circuit Court regarding the entry of a judgment ordering the plaintiff to pay defendant $15,597.90 in condominium assessments and late fees for a condominium unit assessed between March 8, 2011, and April 30, 2013. [Wells Fargo Bank v. Country Place Condominium Association, No. 312733, __ Mich. App. __ (Mar. 18, 2014)].

For the legal practitioner, this opinion offers guidance as to an issue of first impression concerning when condominium assessments are attributable to a party after a foreclosure sale by advertisement. In reviewing this matter, the court ruled that MCL § 559.158 controls over MCL § 559.211 and, further, noted that a party is not liable for association fees incurred “prior to the acquisition of title.”

In elaborating upon what constitutes “acquisition of title” within the meaning of § 559.158, the court observed that the statute does not require that the purchaser have “absolute title,” just a “title,” and an equitable title is a form of title. As such, the court held that the plaintiff-purchaser at the March 8, 2011 sheriff’s sale acquired a “title” interest in the real property and was therefore responsible for condominium assessments from the date of the sheriff’s sale going forward, as opposed to the date of the expiration of the statutory redemption period when legal title would vest.

The consequences of this judicial decision are that foreclosure sale purchasers will now be responsible for condominium assessments during the statutory redemption period, wherein they do not yet have legal title to the real property or full, absolute title, but only an equitable title interest.

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VACANT PROPERTY REGISTRATION: Illinois

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Jill Rein
Pierce & Associates, P.C.
USFN Member (Illinois)

Late last summer, the U.S. District Court for the Northern District of Illinois, Eastern Division, ruled in a case filed by the Federal Housing Finance Agency (FHFA) contesting a Chicago vacant property registration ordinance. [FHFA v. City of Chicago, No. 11 C 8795, 2013 WL 4505413 (N.D. Ill, Aug. 23, 2013)].

As background: In July 2011, the Chicago City Counsel passed an ordinance that was effective November 19, 2011, requiring “mortgagees” to file a registration statement for each “vacant” building in the city of Chicago thirty days after the property became vacant or sixty days after a default on a mortgage, whichever is later. The ordinance requires “mortgagees” to register and pay a $500 registration fee in the event the owner does not register the building.

The FHFA, on its own behalf and as conservator of Fannie Mae and Freddie Mac, filed a lawsuit alleging the ordinance unlawfully regulates FHFA, Fannie Mae, and Freddie Mac in their capacity as mortgage investors and mortgagees. The court agreed with the FHFA, holding that the ordinance is preempted by the Housing and Economic Recovery Act and, alternatively, it violates FHFA’s immunity from taxation.

However, on April 3, 2014, the parties entered into an agreed order of dismissal of the case, under which Fannie Mae and Freddie Mac agreed to voluntarily register vacant properties and the city agreed to waive all fees for such registration. Fannie Mae and Freddie Mac also agreed to waive any right to monetary damages or to recover any registration fee, fine, or penalty previously paid to the city of Chicago for vacant property registration prior to the date of the agreed order.

Editor’s Note: Within Freddie Mac’s Bulletin 2014-7 (dated April 29, 2014), the Order of Dismissal and Memorandum of Understanding between FHFA and the city of Chicago can be viewed (begins at page 3 of the PDF). Fannie Mae’s Lender Letter LL-2014-03 (dated April 30, 2014) contains a city of Chicago Vacant Property Ordinance update.

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VACANT PROPERTY REGISTRATION: New York

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Robert H. King
Rosicki, Rosicki & Associates, P.C.
USFN Member (New York)

Vacant property news came to the forefront of New York foreclosure law earlier this year. There’s legislation pending that would increase the number of land banks, require foreclosure plaintiffs to maintain vacant properties upon notification that the property is abandoned, and create a statewide registry to track abandoned homes.

In a February 21, 2014 press release, the New York State Attorney General’s office lauded the Home Owner Protection Program, which claims responsibility for 6,600 approved and pending loan modifications, but took issue with the lengthy foreclosure process for the increased number of vacant and abandoned properties.

Under current law, a foreclosure plaintiff is only required to maintain a property when a judgment of foreclosure and sale has been obtained. However, when the chief administrative judge for the Office of Court Administration imposed administrative rules, which some say were designed to slow down the foreclosure process in 2010 and 2011 during the economic recession, the pathway to obtain such a judgment narrowed to a trickle. It could appear that New York State is struggling with conflicting policies: Keep homeowners in their homes at all costs but, at the same time, speed up the foreclosure. This conflict is evident in the courts of Kings and other counties, which began to summarily dismiss foreclosure actions for failure to prosecute.

Currently pending in both houses of the New York State Legislature are companion bills that would amend the Real Property Actions and Procedure Law to allow summary foreclosure proceedings for vacant or abandoned properties. The proposed legislation will allow a foreclosing plaintiff who reasonably believes a property to be vacant or abandoned to make the allegation in the complaint and to move for a judgment of foreclosure, even when a defendant serves an answer but fails to contest the allegations that the property is vacant or abandoned.

The law as proposed defines vacant property as a property not occupied by a mortgagor or a tenant with a lease agreement in possession prior to the foreclosure action, and presents one of the following situations: (1) property is not maintained by the mortgagor in accordance with law; (2) the property is a risk to health, safety, or public welfare; (3) the property is subject to uncorrected municipal violations or housing codes; (4) a written statement by the mortgagor of expressed intent to abandon the property; or, (5) there is reasonable indicia of abandonment. If these bills pass in their current form, the anticipated effect will be a reduction in time frames in obtaining a judgment of foreclosure and sale — at least for vacant properties.

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POST-FORECLOSURE EVICTIONS: Tennessee

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by J. Skipper Ray
Wilson & Associates, PLLC
USFN Member (Arkansas, Tennessee)

In December of last year, the Tennessee Supreme Court issued its ruling in Johnson v. Hopkins, 2013 Tenn. LEXIS 1010, a decision that continues a trend of hammering away at creditors’ ability to evict via a “summary” process after a foreclosure in Tennessee. Based on the ruling, creditors will no longer be able to have borrower/defendants’ purported appeals from General Sessions Court to Circuit Court summarily dismissed based on the defendant’s failure to post the appeal bond called for in the eviction statute.

The vast majority of post-foreclosure eviction cases are initially filed in Tennessee’s Courts of General Sessions. General Sessions is a court that is akin to district courts in some states. It is a more informal court that is a level below circuit court (also known in some states as superior court). Tennessee law provides for an automatic right to appeal a decision made in sessions court, to circuit court, with said appeal being de novo. De novo means that the case is heard over again, as if for the first time, with no deference given to the decision rendered below (in sessions court).

This ability to appeal applies to all types of cases, not just evictions. The appealing party need only post a bond that promises to pay the costs of the appeal. An additional barrier has existed, however, for a borrower-occupant appealing an eviction judgment to circuit court. The Tennessee eviction statute calls for, in addition to the standard appeal bond for costs, the posting of a cash bond, equivalent to the amount of one year’s worth of rent, for the property whose possession is at issue. Prior to December 2013, a creditor was usually able to summarily obtain dismissal of an eviction case appealed to circuit court, as most defendants were unable to post a cash bond in the required amount.

Johnson v. Hopkins, however, has changed that. The Tennessee Supreme Court ruled that the additional bond provided for in the eviction statute is not jurisdictional. Accordingly, the failure to post the cash bond for a year’s rent does not prevent the circuit court from obtaining jurisdiction of the appeal. (Current case law in Tennessee holds that the appeal bond for costs is jurisdictional; i.e., if the bond is not timely posted, the circuit court never obtained jurisdiction of the appeal, rendering the sessions court’s judgment final.)

The result of this ruling is that a creditor who has obtained property via foreclosure in Tennessee, when faced with a contested eviction action where the occupant appeals the sessions court ruling from sessions to circuit court, will almost always have to put on the same case twice. This is not to mention, if it’s a contested case, that the creditor’s attorney has already appeared in sessions court at least twice — if not three or four times. Furthermore, in terms of the defendant’s out-of-pocket costs, perfecting the appeal is relatively inexpensive (one can usually be perfected for less than $250). The creditor’s attorney has to start over in circuit court, which is a more formal court, and requires more formal pleadings. If the creditor is looking to avoid a trial, and thus sending a witness, this usually means formal discovery and a summary judgment motion. All of this adds up to lengthy timelines that are often measured in years rather than days.

So, what are some possible answers? One alternative would be filing eviction actions in circuit court initially, rather than in sessions court. It takes longer for a case in circuit court, as compared to sessions, but with the new possibility of a guaranteed inexpensive appeal, it can make more sense to start out where one is likely to end up. Creditors may also want to consider increasing relocation assistance offers or being receptive to entering into month-to-month leases (or other term length) with occupants. It has reached the point where it is easier to evict for a defaulted lease than after a foreclosure, due to the delays of which borrowers are able to avail themselves.

One of the main reasons borrowers are able to delay eviction actions in either court (sessions or circuit) is that pursuant to a Tennessee Court of Appeals opinion issued in early 2007, borrowers are able to raise “wrongful foreclosure” as a defense to an eviction action. This is in spite of the eviction statute, which provides that “the merits of title will not be inquired into.” (Many other eviction statutes in the southeastern states have this exact same language).

Prior to 2007, in order to contest a foreclosure, a borrower would have to file a lien lis pendens and complaint in chancery court, with the borrower carrying the burden of proving that the foreclosure was wrongful. In 2007, borrowers began asserting a “wrongful foreclosure” defense to eviction, which can be burdensome to creditors since it is a defense that arose out of case law. Thus, “wrongful foreclosure” is loosely defined, if at all, and existing definitions come from a handful of cases, which of course are based only on the facts in those cases.

The practical effect of all of this is that the pendulum has swung from the borrower filing a lawsuit and carrying the burden of proving a wrongful foreclosure claim to the creditor having to put on proof establishing the foreclosure’s validity. Doing so can often be a moving target since, in practice, a creditor’s attorney may not know exactly what the borrower is claiming to have been wrongful about the foreclosure. For all intents and purposes, this has resulted in Tennessee becoming a state that requires obtaining judicial confirmation of a nonjudicial foreclosure in the context of borrower-contested evictions.

This trend gives no deference to the fact that a deed is of record, vesting title to the property in the creditor (assuming the creditor was the high bidder at the foreclosure sale). It is almost as if when recording the deed, one should record along with it documentary evidence of all steps required by the deed of trust and applicable law, coupled with a video recording of the foreclosure sale itself. The prudent borrower’s counsel should pay heed to the recorded deed, however, and not simply ignore it.

Some creditors are somewhat ahead of the curve in how they are dealing with the lengthening eviction timeline issue in Tennessee. These creditors are responding by putting these properties into online auctions and selling them to local investors, as there is no temporary restraining order, injunction, or lien lis pendens, etc. in place that would otherwise prevent the sale of the property and/or conveying clear title to the property.

A local (taxpaying and voting) investor is less likely to encounter the eviction delays that are beginning to plague large out-of-state creditors in Tennessee. Of course, the creditors will likely take more of a loss disposing of the property via an online auction than they would have had following the traditional route of obtaining vacancy and marketing the property through a realtor. In the end though, those losses no doubt will be made up the same way as always: down the road in the way of higher origination costs, interest, and fees collected from those who timely pay their bills.

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POST-FORECLOSURE EVICTIONS: Illinois

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Jill Rein
Pierce & Associates, P.C.
USFN Member (Illinois)

In Illinois evictions are handled differently depending on whether the party occupying the property is a prior mortgagor/owner, or a tenant or an occupant.

Prior Mortgagors or Owners — If the party to be evicted is a prior mortgagor or owner, the process is much simpler than when the party is not. Because a prior mortgagor or owner is a party to the judicial foreclosure action, a court order is entered in the foreclosure case ordering that the named mortgagors or owners be evicted. (The language to evict the named mortgagors or owners is contained in the order confirming sale.)

If a prior mortgagor or owner does not vacate the premises when required (30 days after the order confirming sale is entered by the court), the order confirming sale, containing the language allowing the eviction, is placed with the sheriff in the county where the property is located to have the party evicted. Once an order is placed with a sheriff, the time it takes to evict varies significantly depending on the county where the property is located.

Other Occupants — Evicting occupants who are not prior mortgagors/owners is much more complicated and time-consuming. These occupants and tenants of the property are not named in the judicial foreclosure action and cannot be evicted through the mortgage foreclosure action. Accordingly, no language is contained in the order confirming sale ordering their eviction. A separate lawsuit must be filed with the court to obtain an order to evict these occupants. This lawsuit is called a forcible entry and detainer action. Once this lawsuit is completed, and a court order is obtained allowing for the eviction of these occupants, this order must then be placed with the sheriff of the county where the property is located.

In addition to the need for a separate lawsuit to evict a tenant or an occupant who is not a prior mortgagor or owner, there are several laws and ordinances enacted to specifically protect these individuals from being evicted too quickly or without proper notice. These laws exist on the federal, state, and local levels in Illinois. When the laws conflict, compliance with the strictest applicable statute or ordinance is necessary.

Federal Law — Under the Protecting Tenants at Foreclosure Act (PTFA), a bona fide tenant cannot be evicted from a foreclosed property without at least 90 days’ notice. Furthermore, if there is a bona fide tenant in the property, and his lease was entered into prior to the execution of the deed in the foreclosure action, he is entitled to occupy the property until the end of the remaining term of that lease. (Exception: where the foreclosed property is sold to a purchaser who will occupy the property as a primary residence, then the lease can be terminated on the date of sale to this new purchaser, subject to the receipt of the above-mentioned 90-day notice.) If no lease exists, or the lease is terminable at will pursuant to state law, the occupant must still receive the 90-day notice before a forcible entry and detainer action can be filed.

A bona fide tenant under the PTFA is defined as follows:

  • The mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
  • The lease or tenancy was the result of an arms-length transaction; and
  • The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a federal, state, or local subsidy.


Accordingly, under this federal statue a forcible entry and detainer action cannot be filed with the court until the 90-day notice has been given and the lease term has expired (if a bona fide tenant resides in the property).

Illinois Statutes — Illinois has several statutes dealing with the eviction of tenants and occupants in foreclosed properties who are not the former mortgagor or owner.

735 ILCS 5/15-1701 requires that a 90-day notice of intent to file a forcible entry and detainer action be served on the occupant before the action can be filed. (This is similar to, and concurrent with, the 90-day notice requirement in the federal PTFA).

735 ILCS 5/15-1508.5 states that if a purchaser at a foreclosure sale wants to collect rent due and owing from a known occupant, or terminate a known occupant’s tenancy for non-payment of rent, the purchaser at the sale must make a good faith effort to ascertain the identities of all occupants of the property and provide a particular notice to the occupants in a particular manner.

Following the judicial sale, but no later than 21 days after the confirmation of sale, the purchaser must make a good faith effort to ascertain the identities and addresses of all occupants of the property.

Following the judicial sale, but no later than 21 days after the confirmation of sale is entered by the court, the purchaser must serve a written notice on all known occupants (by delivering a copy to the occupant or by leaving the notice with some person of the age of 13 years or upwards who is residing on, or in possession of, the premises; or by sending a copy of the notice by first-class mail, addressed to the occupant), which includes the following information: (i) Identify the occupant being served by the name known to the holder or purchaser; (ii) Inform the occupant that the mortgaged real estate at which the dwelling unit is located is the subject of a foreclosure and that control of the mortgaged real estate has changed; (iii) Provide the name, address, and telephone number of an individual or entity whom the occupants may contact with concerns about the mortgaged real estate or to request repairs of that property; (iv) Include the following language, or language that is substantially similar: “This is NOT a notice to vacate the premises. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights that you may have.”; (v) Include the name of the case, the case number, and the court where the order confirming the sale has been entered; and (vi) Provide instructions on the method of payment of future rent if applicable.

If the identity and address of an occupant of a dwelling unit is identified more than 21 days after the confirmation of sale is entered, the purchaser shall provide the above notice within seven days of ascertaining the identity and address of the occupant.

Within 21 days of confirmation of sale, the purchaser must also post a notice on the primary entrance of each dwelling unit subject to the foreclosure action containing the following information: (i) Inform occupant that the dwelling unit is the subject of a foreclosure action and that control of the mortgaged real estate has changed; (ii) Include the following language: “This is NOT a notice to vacate the premises.”; (iii) Provide the name, address, and telephone number of an individual or entity whom the occupants may contact with concerns about the mortgaged real estate or to request repairs of that property; and (iv) Provide instructions on the method of payment of future rent if applicable.

735 ILCS 5/9-207.5 is the Illinois statute that is equivalent to the federal PTFA. It states that a purchaser may terminate a bona fide lease only (i) at the end of the term of the bona fide lease, by no less than 90 days’ written notice, or (ii) in the case of a bona fide lease that is for a month-to-month or week-to-week term, by no less than 90 days’ written notice. If the purchaser at a judicial sale plans to occupy the premises as his primary residence, any lease may be terminated subject to the 90-day notice requirement.

Under this statute, a bona fide lease is:

  • The mortgagor or the child, spouse or parent of the mortgagor is not the tenant; [Note: Notwithstanding the requirements of a bona fide lease, a child, spouse, or parent of the mortgagor may prove by a preponderance of evidence that a written or oral lease that otherwise meets the requirements of a bona fide lease is actually bona fide under this statute.];
  • The lease was the result of an arms-length transaction;
  • The lease requires the receipt of rent that is not substantially less than fair market rent for the property or the rent is reduced or subsidized pursuant to a federal, state, or local subsidy; and
  • Either the lease was entered into on or before the date of the filing of the lis pendens on the residential real estate in the foreclosure or the lease was entered into or renewed after the date of the filing of the lis pendens on the residential real estate in the foreclosure and before the date of the judicial sale of the residential real estate in foreclosure, and the term of the lease is for one year or less.


A written lease for a term exceeding one year that is entered into or renewed after the date of the filing of the lis pendens on the residential real estate in foreclosure and before the date of the judicial sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for the term of one year.

An oral lease entered into before the date of the judicial sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for a month-to-month term, unless the lessee proves by a preponderance of evidence that the oral lease is for a longer term. In no event shall an oral lease be deemed to be a bona fide lease for a term of more than one year.

A written or an oral lease entered into on or after the date of the judicial sale and before the date of the order confirming the sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for a month-to-month term.

City of Chicago Ordinance — Chapter 5-14 of the Municipal Code of Chicago, “Protecting Tenants in Foreclosed Rental Property Ordinance.” The ordinance has several sections, dealing with, among other things, eviction protection and relocation assistance, as well as addressing the registration of foreclosed rental property. For more on the ordinance, read on.

Eviction Protection and Tenant Relocation Assistance (5-14-050) — The owner (the purchaser of a foreclosed rental property after the sale has been confirmed by the court and any special right to redeem has expired, or a mortgagee who has accepted a deed-in-lieu of foreclosure or consent foreclosure on a foreclosed rental property) of a foreclosed rental property (defined below) shall pay a one-time relocation assistance fee of $10,600 (per unit, not per occupant) to a qualified tenant (defined below) unless the owner offers such tenant the option to renew or extend the tenant’s current rental agreement with an annual rental rate that: (1) for the first twelve months of the renewed or extended lease, does not exceed 102 percent of the qualified tenant’s current annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102 percent of the immediate prior year’s annual rental rate. This provision does not apply to an owner who became an owner prior to the effective date of this act (9/24/13), a bona fide third-party purchaser, or an owner who will occupy the rental unit as the person’s principal residence.

“Foreclosed Rental Property” means: (a) A building containing one or more dwelling units that are used as rental units, including a single-family house; or a dwelling unit that is subject to either the Condominium Property Act or the Common Interest Community Association Act that is used as a rental unit; (b) For which legal and equitable interests in the building or dwelling unit were terminated by a foreclosure action pursuant to the Illinois Mortgage Foreclosure Law; and (c) One or more of the units are occupied on the date a person becomes the owner.

“Qualified Tenant” means a person who: (a) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (b) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence. For the purposes of the definition, a lease shall be considered bona fide only if:

  • The mortgagor or the child, spouse, or parent of the mortgagor is not the tenant;
  • The lease was a result of an arms-length transaction; and
  • 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 the government subsidy.


Any relocation fee must be paid no later than seven days after the day of complete vacation of the rental unit by the qualified tenant by certified or cashier’s check. The owner may deduct from the relocation fee all rent due and payable for the rental unit occupied by the qualified tenant prior to the date on which the rental unit is vacated, unless such rent has been validly withheld or deducted pursuant to state, federal, or local law.

An owner is not liable to pay the relocation fee to any qualified tenant who (1) does not enter into a rental agreement after being offered a renewal or an extension of the tenant’s rental agreement with a rent in an amount that complies with this ordinance, or (2) against whom the owner has obtained a judgment for possession of the rental unit. If an owner fails to comply with this section, the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee and other damages to which they may be otherwise entitled. The owner shall comply with this section of the ordinance until the property is sold or transferred to a bona fide third-party purchaser. If a qualified tenant is evicted for cause, the owner is not liable for any relocation assistance provided under this section.

Written Notice to Tenants (5-14-040) — No later than 21 days after a person becomes the owner (the date of sale confirmation or acceptance of a deed-in-lieu or consent judgment of foreclosure) of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed rental property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance. The notice shall be given in English, Spanish, Polish, and Chinese and be as follows:


“THIS IS NOT A NOTICE TO VACATE THE PREMISES. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any right that you may have.
Pursuant to the City of Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, if you are a qualified tenant you may be eligible for relocation assistance in the amount of $10,600 unless the owner offers you the option to renew or extend your current written or oral rental agreement with an annual rent that: (1) for the first twelve months, does not exceed 102% of the immediate prior year’s annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102% of the immediate prior twelve-month period’s annual rent. The option to renew or extend your lease shall continue until the property is sold to a bona fide third-party purchaser.
If you are eligible as a qualified tenant and the owner fails to pay you the relocation assistance that is due, you may bring a private cause of action in a court of competent jurisdiction seeking compliance with the Protecting Tenants in Foreclosure Rental Property Ordinance, Chapter 5-14 of the Municipal Code of Chicago, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.”

 

The notice shall also include the name, address and telephone number of the owner, property manager or owner’s agent who is responsible for the foreclosed rental property.

If the owner ascertains the identity of a tenant more than 21 days after becoming the owner, the owner shall provide the notice within seven days of ascertaining the identity of the tenant.

The notice must be served by: (a) Delivering a copy of the notice to the known tenant; (b) Leaving a copy of the notice with some person of the age of 13 years or older who is residing in the tenant’s rental unit; or (c) Sending a copy of the notice by first-class or certified mail, return receipt requested, to each known tenant, addressed to the tenant.

The notice must also be posted on the primary entrance of each foreclosed rental property no later than 21 days after a person becomes the owner (the date of sale confirmation or execution of a deed-in-lieu or entry of consent judgment of foreclosure). An owner may not collect rent from any tenant until the written notice is served and posted.

Registration of Foreclosed Rental Property (5-14-060) — No later than 10 days after becoming the owner of a foreclosed rental property, the owner shall register such property with the commissioner. The registration shall be in a form and manner prescribed by the commissioner and shall contain the following information:

  • Name, address, and telephone number of owner;
  • Address of foreclosed rental property;
  • If more than one unit is located in the property, the number of rental units in the property and whether each rental unit was occupied by a known tenant at the time the person became the owner. If occupied, the name and address of each known tenant;
  • If the foreclosed rental property consists of only one rental unit, the name of the known tenant at the time the person became the owner;
  • Name, address, and telephone number of the owner’s agent for the purpose of managing, controlling, or collecting rents and any other person not an owner who is controlling such property, if any;
  • Name, address, and telephone number of a natural person 21 years of age or older, designated by the owner as the authorized agent for receiving notices of code violations and for receiving process, in any court proceeding or administrative enforcement proceeding, on behalf of such owner in connection with the enforcement of this code. This person must maintain an office, or actually reside, in Cook County, Illinois. An owner who is a natural person and who meets the requirements of this subsection as to location of residence or office may designate himself as agent;
  • An affidavit signed by the owner that lists, by rental unit, all of the qualified tenants at the time the person became the owner; and
  • Any other pertinent information reasonably required by the commissioner.

 

Any owner who fails to register under this section shall be deemed to consent to receive, by posting at the foreclosed rental property, any and all notices of code violations and all process in an administrative proceeding brought to enforce code provisions concerning the property.

The owner shall pay a $250 fee at the time of registration.

If any of the pertinent information changes, the owner shall file a statement indicating the nature and effective date of the change within 10 days after the change takes effect.

If the property is sold to a bona fide third-party purchaser the owner shall, within 10 days of such sale or transfer, notify the commissioner in writing in a form and manner prescribed by the commissioner.

If the property becomes vacant after registration pursuant to this section, the owner shall comply with the vacant building registration requirement of chapter 13-12, if applicable.

Remedies (5-14-070) — A tenant may bring a private cause of action seeking compliance with sections 040 and 050, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.

Waiver of Right Not Allowed (5-14-080) — No rental agreement offered or entered into by an owner after the effective date of this chapter may provide that a tenant agrees to waive or forego the rights and remedies provided under this chapter and any such provision in a rental agreement is unenforceable.

Violation-Penalties-Liability (5-14-100) — Any person found guilty of violating this Chapter, or any rule or regulation promulgated hereunder, shall be fined not less than $500 nor more than $1,000. Each failure to comply with respect to each person shall be considered a separate offense and each day that a violation exists shall constitute a separate and distinct offense.

Conclusion — As this article tries to make clear, when an eviction of a tenant or an occupant who is not the prior mortgagor or owner of the property is required in Illinois, there are many statutes and ordinances that must be considered. This makes the process a complicated and time-consuming one. Although the various statutes and ordinances do, at times, contradict one another, the most restrictive one applicable for the specific property must be followed.

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Spring 2014 USFN Report

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POST-FORECLOSURE EVICTIONS: Georgia

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 214

 

by Kent E. Altom & Greg S. Krivo
McCalla Raymer, LLC
USFN Member (Georgia)

When it to comes to an eviction, time is the currency. As lender’s counsel, one cannot obtain possession of the property fast enough for a client. The foreclosed borrower’s objective is to remain in the property as long as possible and, more specifically, to do so without having to make any payments to the lender or into the court’s registry. Foreclosed borrowers, with or without assistance of counsel, are always seeking novel ways to protract dispossessory actions. Discussed here are a few tactics being utilized by foreclosed borrowers in this state to cause delay, as well as some pointers on how to overcome these obstacles.

The Phantom Appeal
— A defendant in Georgia has seven days to appeal a final order and writ of possession. (See O.C.G.A. § 44-7-56.) To comply, a defendant must file a notice of appeal with the lower court that entered the order/writ. Upon filing the “appeal,” the defendant is provided a cost bill requiring the defendant to pay the costs to have the transcript transferred to the superior court. If the defendant fails to make this payment, the lower court will not transfer the matter, and the superior court will have no knowledge of the appeal. The “appeal” remains in limbo, and a lender cannot execute the writ of possession. If the sheriff were to arrive at the property to execute the writ, the defendant would need only present the notice of appeal to forestall the eviction. To avoid costly or indefinite delays, lender’s counsel should obtain a copy of the cost bill provided to the defendant and calendar the time in which the defendant has to pay that bill, plus three days for mailing, and then contact the superior court and inquire as to whether payment was made. If there was no payment, a motion to dismiss the appeal pursuant to O.C.G.A. § 5-6-48 should be filed promptly, which requires payment within 20 days. It is best practice to include a proposed order. Lastly, it is imperative to follow-up with the judge’s staff because it is not likely that the superior court will consider the matter or set it for hearing. The lower court, having already adjudicated the matter, is unlikely to proceed further without a request from lender’s counsel.

The Direct Appeal — Here, too, the objective of litigious defendants is to prolong the dispossessory process for as long as possible. This often leads to continuous appeals, moving from one judicial venue to the next — often without any meritorious claim to the property. Defendants in Georgia have seven days to appeal a final order and writ of possession. (See O.C.G.A. § 44-7-56.) If the defendant’s appeal to the superior court is unsuccessful, he cannot appeal directly to the court of appeals; instead, the defendant must seek a discretionary appeal. (O.C.G.A. § 5-6-35(a)(11) “[A]ppeals from decisions of the superior courts reviewing decisions of … lower courts by certiorari or de novo proceedings … shall be by application for discretionary appeal.”) Pro se defendants and defendants’ attorneys unfamiliar with dispossessory actions will often attempt to lodge a direct appeal to the court of appeals. Unfortunately, O.C.G.A. § 5-6-48 does not empower the superior court to dismiss this improper appeal. A response to the direct appeal should be immediately filed with the court of appeals citing O.C.G.A. § 5-6-35(a)(11). Thereafter, the court of appeals should deny the direct appeal, allowing a lender to proceed with execution of the writ of possession.

The Default Order — It is common that a defendant in a dispossessory proceeding will fail to appear at the hearing. When this happens, assuming everything was properly filed, the evicting party is entitled to a final order and writ of possession. An issue arises when a defendant attempts to appeal this magistrate court’s ruling. In Georgia, the defendant cannot appeal a default judgment and review can only be made by certiorari to the state/superior court of that county (O.C.G.A. § 15-10-41(b)(2)). Accordingly, the court to which the defendant appealed lacks jurisdiction to consider the appeal. Even if the defendant files a petition for writ of certiorari, the petition is often subject to denial as improper (O.C.G.A. §§ 5-4-1, et seq. sets forth the specific procedure for obtaining a writ of certiorari). O.C.G.A. § 5-4-3 lists several very specific requirements for properly filing a petition for writ of certiorari. For instance, the defendant is required to plainly and distinctly set forth errors alleged to have occurred at the magistrate court level. Additionally, the defendant is required to provide bond and good security as well as a certificate from the officer whose decision or judgment is the subject matter of complaint (O.C.G.A. § 5-4-5). Absent the bond and certificate, the court clerk cannot issue the writ of certiorari to the magistrate court to transfer the entire record of its proceeding for review. These provisions are mandatory, with the bond or certificate being a condition precedent to the filing of a defendant’s petition and failure to comply requires dismissal of the petition. [Calloway v. Georgia Real Estate Commission, 89 Ga. 823, 81 S.E.2d 540 (1954); see also Hartsfield Co. v. Luddy, 45 Ga. App. 507, 165 S.E.2d 452 (1932) (superior court acquires no jurisdiction of case where failure to comply with statute shown).] Further, a defendant must obtain a sanction of the court prior to filing a petition and, upon filing the petition with the court clerk, petitioner must obtain an endorsed sanction of the appropriate judge (O.C.G.A. § 5-4-3). Like the bond, absent the sanction of the judge, the clerk may not issue the writ of certiorari. [See Cobb County v. Herren, 230 Ga. App. 482, 496 S.E.2d 558 (1998) (“Viability of a petition for a writ of certiorari is also contingent upon the party obtaining the sanction of the appropriate judge ... Sanctioning is an integral part of the application for certiorari, and without it, the certiorari process cannot move forward”) (citations omitted.).] Any failure by a defendant to adhere to the requirements of filing a proper petition for writ of certiorari requires dismissal of the petition.

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POST-FORECLOSURE EVICTIONS: California

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Kayo Manson-Tompkins
The Wolf Firm, A Law Corporation
USFN Member (California)

For some time now, California law has provided special protection to tenants in post-foreclosure evictions. Initially, this protection resulted in tenants receiving a 30-day post-foreclosure notice to quit instead of the otherwise standard three-day notice to quit given to the prior owners and other non-tenant occupants (California Code of Civil Procedure § 1161a(b)(3)). In 2008, California tenant protection was expanded by legislation, providing the post-foreclosure tenant a 60-day notice to quit if the tenant had a month-to-month lease or periodic tenancy. This was followed by the 2012 Amendment, providing the tenant with a 90-day notice to quit if the tenant were a bona fide tenant (§ 1161b).

Although these changes significantly increased the time period for post-foreclosure tenant evictions, evictions were made even more difficult by Assembly Bill 2610 (effective January 1, 2013). This bill amended California Civil Code § 2924.8 and California Code of Civil Procedure (CCP) §§ 415.46 and 1161b, providing even greater tenant protections (discussed below) and has basically resulted in a far greater percentage of eviction defendants claiming to be tenants and, of those purported tenants, a large percentage falsely claiming to have unexpired leases.

Special Notice to Tenants in the Notice of Trustee’s Sale
— Civil Code § 2924.8 sets the stage for a difficult or elongated eviction. In addition to posting and mailing the notice of trustee sale, a foreclosure trustee must also now concurrently post and mail a separate notice in English, Spanish, Chinese, Tagalog, Vietnamese and Korean to all “Residents of property subject to foreclosure sale.” The notice advises “residents” that the foreclosure may affect their right to continue to live in the property. It notifies them that the property may be sold at foreclosure and the new owner may offer a new lease or rental agreement or give them a 90-day notice to quit. It then states that they may be able to stay longer than 90 days if they have a fixed term lease, or if they are in a “Just Cause Eviction” city, in which case they may not have to move at all. Having this language mailed and posted with the notice of trustee’s sale invites abuse. Although the legislature intended to protect tenants who were victims of borrowers collecting rents knowing that a foreclosure sale was imminent, the new requirements open the door to the creation of a lease for the specific purpose of delaying the eviction.

90-Day Notice to Quit — From 2008, as referenced above, California CCP § 1161b required tenants with a lease to be given a 60-day notice. Due to an amendment to CCP § 1161b, which became effective January 1, 2013, the purchaser at a foreclosure sale was required to give a 90-day notice. The purchaser bore the burden to prove that a tenant was not entitled to protection. Furthermore, if a fixed term lease was entered into prior to the foreclosure sale, the tenant had a right to stay in possession until the end of the lease term, unless the purchaser was able to prove that the lease was not bona fide, in which case a 90-day notice applied. It has become standard practice that judges would demand that any tenant coming forward be given a 90-day notice if the tenant presented a lease or rental agreement, regardless of arguments that they were not a bona fide tenant. In addition, California CCP § 1161c required a special notice to be attached to a post-foreclosure notice to quit, informing tenants of their rights and providing websites about where to go for help. This notice, as with the special tenant notice attached to the notice of trustee’s sale, opens the door for occupants to claim and/or create a tenancy status, which causes delays in the eviction proceedings.

Interpretation of Federal PTFA — Prior to the amendment of CCP § 1161b, on May 20, 2009, Congress enacted under Title VII the Protecting Tenants at Foreclosure Act of 2009 (PTFA) to provide bona fide tenants with a 90-day notice to quit. Although the PTFA was originally set to expire at the end of 2012, operation of the PTFA extends through the end of 2014 following passage of the Dodd-Frank financial reform bill of 2010. The amendment also clarified that notice of foreclosure shall be deemed to be the date title is transferred. Therefore, as long as a tenant’s lease is dated any time prior to the foreclosure sale itself, the tenant was protected. (Note that S. 1761 is currently pending, which would make PTFA permanent.)

A recent appellate court decision further clarifies the tenant’s rights [Nativi v. Deutsche Bank National Trust Company, 2014 S.O.S. H037715 (Cal. Ct. App. Jan. 23, 2014)]. The appellate court took great lengths to review interpretations of PTFA by Senators Kerry and Dodd, legislative history, HUD, FDIC, and OCC. All entities were in agreement that no tenant may be evicted prior to receiving a 90-day notice. Moreover, if a tenant has an unexpired lease, a landlord/tenant relationship exists until the lease expires and, thus, no notice to quit can be sent until after expiration of the lease, or if the property is subject to a rent or eviction control ordinance, or is part of a Section 8 contract, until the protections under those programs end. Of course, if the tenant fails to pay the rent or is otherwise in breach of the existing lease, the successful purchaser has the right to pursue eviction under standard landlord/tenant grounds.

In Nativi, the respondent made the argument that PTFA did not apply because the tenants occupied an illegal garage unit and thus were not bona fide tenants. However, the appellate court held that they saw no language or legislative history exempting illegal rental units from PTFA protection. The court reasoned that if they accepted the bank’s position, it would circumvent the PTFA and frustrate its fundamental public policy purpose. The appellate court further stated that rather than exercising supremacy or preemption, Congress intended to supplant less protective state law but not any state law that provided longer periods or additional protections to the tenants. The purchaser at the foreclosure sale takes subject to a bona fide tenancy for a term, but it retains the power to terminate the lease upon a breach of the lease. In addition, for those that file or remove a case to federal court for a determination, the appellate court held that PTFA did not create a private cause of action under federal law. Instead, the court found that Congress intended tenant rights established by PTFA to be enforceable under state law. (Here, too, it should be noted that S. 1761 is currently pending, which proposes to make PTFA permanent as well as grant tenants an explicit right to sue.)

Reviving the Old Claim of Right to Possession — California CCP § 415.46 was amended to “revive” the old claim of right to possession post-judgment. Initially, a typical challenge arose through an individual coming forward at the time of lockout and claiming a right to possession under CCP § 1174.3. This challenge required an additional hearing to determine whether the plaintiff had a right to possession against the claimant and, as a consequence, court dockets became crowded with these types of hearings. In an attempt to remedy this situation, California enacted CCP § 415.46 (effective January 1, 1991), which provided that if the unknown occupants were served with a Prejudgment Claim of Right to Possession (PJC) together with the complaint and did not come forward to be added as a defendant, any judgment obtained would be effective as to all unknown occupants. However, effective January 1, 2013, an exception was created for post-foreclosure rental housing units such that tenants may file a claim of right to possession under CCP § 1174.25 at any time before a judgment is entered; or under CCP § 1174.3 to object to the enforcement of judgment, whether or not a PJC was served. For post-foreclosure evictions, this amendment has rendered serving a PJC ineffective.

Purpose of Amendments vs. Abuse by Tenants — The California legislators enacted these amendments in order to protect tenants who had fallen victims to borrowers collecting rents, knowing that their homes were being foreclosed upon. The PTFA was enacted to promote public policy and for the purpose of protecting tenants from being displaced and suddenly made homeless due to a foreclosure. However, as with many public policies and laws, there are going to be those who will try to abuse the system. Many former owners will create lease agreements prior to the foreclosure sale in order to collect rents with no intention of curing their mortgage loan delinquency, or without any intent to protect the rights of the tenants to whom they rent their homes. Then, there are former owners who continue to reside in the property and rent rooms out to tenants. Nevertheless, as was evident in Nativi v. Deutsche Bank National Trust Company, the purchaser at a foreclosure sale needs to make sure that it exercises due diligence in determining who is occupying the property, as well as obtaining a copy of the tenant’s lease. If the lease has not expired, then it must be honored. If the lease has expired, or if the tenant merely has a month-to-month tenancy, then the tenant is entitled to a 90-day notice, unless the property is subject to a rent control or eviction control ordinance, or there is a Section 8 contract in effect, in which case the tenant could possibly stay longer.

Asset Managers’ Role in Light of the Amendments — Asset managers need to be aware of the California statutory changes that have created the additional tenant rights described in this article. Additionally, they must make certain that all efforts are made to investigate who is occupying the property. This investigation should include all of the following: (1) obtaining a copy of the lease, (2) obtaining proof of payment of rent, and (3) obtaining proof that utilities are in the tenant’s name. Furthermore, they need to know what jurisdictions have eviction or rent controls. As was evident with the appellate court’s position in Nativi v. Deutsche Bank, “due diligence” means more than just “driving by” the property. It is imperative to make contact with the occupants and know what obstacles are present that will impact the eviction.

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POST-FORECLOSURE EVICTIONS: Arizona

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by David W. Cowles
Tiffany & Bosco, P.A.
USFN Member (Arizona, Nevada)

Judges in Arizona who preside over forcible entry and detainer (FED) actions no longer have discretion to deny a request to impose a stay pending appeal, notwithstanding the fact that the governing statute and rules plainly confer such discretion. That is the holding of Grady v. Barth ex rel. County of Maricopa, 233 Ariz. 318, 312 P.3d 117 (Ct. App. 2013), issued by the Arizona Court of Appeals late last year.

Before Grady, when a stay pending appeal was contested, and the FED action was one brought by a plaintiff who acquired the residence at a trustee’s sale, the judge decided the issue by assessing the defendant’s likelihood of success, the harm a stay might cause to plaintiff or defendant, and public policy. That the judge had discretion was clear. “The appeal ... shall not stay execution of the judgment unless the superior court so orders.” A.R.S. § 12-1182(B). And the eviction rules of procedure recognize that a stay request could be denied by providing for appellate review of a “court’s decision denying a stay.” ARIZ . R.P. Evic. A 17(c).

Arizona law makes issues of title irrelevant in these cases, and an FED defendant cannot prevail by contending that the trustee’s sale was improperly held and thus that plaintiff has no right to possession of the property. A.R.S. § 12-1177(A) (“On the trial of an action of forcible entry or forcible detainer, the only issue shall be the right of actual possession and the merits of title shall not be inquired into.”); Curtis v. Morris, 186 Ariz. 534, 925 P.2d 259 (1996) (reasoning that interpreting § 12-1177(A) otherwise “would convert a forcible detainer action into a quiet title action and defeat its purpose as a summary remedy”). Before Grady, judges had no difficulty finding no chance of success on appeal on the part of a defendant whose only defense was the contention that the trustee’s sale was improper in some way, and, consequently, they had no difficulty denying the request for a stay pending appeal.

Grady changes the landscape, and reads discretion right out of the statute. Oddly, Grady’s holding is based on reasoning that applies only to commercial FED actions. In a commercial FED, there is no discretion. Arizona’s supreme court held some time ago that the discretion given by A.R.S. § 12-1182(A) is taken away by the more specific A.R.S. § 33-361, which applies only to a commercial landlord-tenant relationship. Tovar v. Superior Court, 312 Ariz. 549, 647 P.2d 1147 (1982). Grady uses this inapplicable reasoning to support holding that in a residential trustee’s sale FED, the judge has no discretion to deny a request for a stay pending appeal.

Bad reasoning aside, Grady changes things. Going forward, one who acquires occupied residential property at a trustee’s sale may be saddled with the pre-sale occupant for the entire time it takes an appeal to run its course — about 18 months. Investors who purchase properties at trustee’s sales to refurbish and resell them may well shy away from bidding on occupied properties. Relocation assistance agreements under which the occupant agrees to vacate the property by a date certain in exchange for a sum certain are commonplace and, after Grady, they may become an invaluable tool. If, all things considered, it is better that the property be unoccupied and immediately marketable, it is now worthwhile to consider offering more attractive relocation assistance agreements precisely to avoid facing a stay pending appeal.

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Spring 2014 USFN Report

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Proposed New BK Rules: USFN Bankruptcy Committee Stands Watch

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Edward J. Boll III
Lerner, Sampson & Rothfuss, LPA
USFN Member (Ohio, Kentucky)

The USFN Bankruptcy Subcommittee has been hard at work analyzing, discussing, and debating the 354 pages of Proposed Amendments to the Federal Rules of Bankruptcy Procedure (FRBP). On August 15, 2013, new bankruptcy rules and forms were unveiled that would, amongst other things, mandate a form Chapter 13 Plan to be used nationally and require almost immediate action in bankruptcy cases to file proof of mortgage servicers’ claims. After being invited to submit comments on the new rules and forms, USFN summarized its discussions and submitted comments to the Committee on Rules of Practice and Procedure. Here is a summary:

Proposed Changes Governing POC Filing is Inconsistent with Existing Ethical and Legal Rules
The proposed rule changes attempt to resolve the challenges inherent in Chapter 13 plan confirmation hearings, which are typically held prior to existing deadlines to file proofs of claim (POC) in a case. The proposed rule shortens the time for filing a POC to 60 days after the petition date (as opposed to approximately 120 days under the current rules). The proposed rule then provides an additional 60 days for filing required documentation. Simply put, creditors have 60 days to file the POC with the figures and 120 days to file the loan documents. Unfortunately, the 120-day cushion does not apply to much more than the loan documents. If an escrow account has been established in connection with the claim, the deadline to file the required escrow account statement prepared as of the date the bankruptcy was filed with the POC will be 60 days from the bankruptcy filing. This proposed bifurcated process creates a conflict.

The previous amendments, effective in 2011, increased the detail and required documentation to support mortgage POCs and provided sanctions for incomplete filings. Further, the person signing the POC must verify: “I declare under penalty of perjury that the information provided in this claim is true and correct to the best of my knowledge, information, and reasonable belief.” Additionally, attorneys signing the POC must meet the requirements of FRBP Rule 9011 — the rule requiring the attorney filing the document to certify to the best of the attorney’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, that the proof of claim is warranted and has evidentiary support. Executing and filing a claim as allowed by the proposed rule without a review of supporting documentation raises the question of whether the signor is violating the terms of execution and possibly Rule 9011.

Proposed Changes Governing POC Filing Increases Administrative Expenses for Everyone
The bifurcated claim process creates the potential for double the amount of filings for every POC and a review of claims at two points in time instead of one, thereby increasing the administrative burden and associated costs. It is logical to presume that the claim amounts would be verified for plan feasibility at 60 days post-petition and again when the supporting documentation is later filed. Servicers, servicers’ counsel, Chapter 13 trustees and their staff, as well as borrowers and their counsel will be taxed with this additional review, with the likely result being increased costs to borrowers in higher attorney and trustee fees.

As an alternative, USFN recommended decreasing the total time for filing a POC to 90 days post-petition rather than impose a two-step process. This adjustment would allow plans to be confirmed in a timely manner, decrease administrative burdens, and allow a reasonable time for the creditors to submit fully verified claims. The National Conference of Bankruptcy Judges, whose membership is restricted to actively serving or retired bankruptcy judges, shared a similar recommendation by commenting that it “believes it would be better to set a single, longer period during which both the Proof of Claim and the attachments must be filed together rather than separate periods for different parts of a single Proof of Claim.”

Proposed Changes Governing POC Filing are Unclear as to No-Asset Chapter 7 Cases
The proposed rule can be read to require POCs in “No Asset” Chapter 7 cases, which would increase administrative burdens and costs without any benefit. As an alternative, USFN requested that the rules clearly indicate that the timeline for Chapter 7 proofs of claim is solely for those cases in which a notice of possible distribution is filed by the trustee.

Amendments Streamlining Chapter 13 Plan Confirmation
The proposals increase the burdens on mortgage creditors, while shortening timelines. In addition, the same mortgage creditors are required to comply with additional requirements imposed by the CFPB and National Mortgage Settlements. The increased responsibilities, combined with shortened timelines, conflict with the goals of increasing factual accuracy of claims and transparency. Further, the proposed rules will result in additional strains on the bankruptcy system, including courts, debtors, trustees, and creditors. This will bring more costs, which may ultimately interfere with a debtor’s ability to obtain a fresh start.

What’s Next?

The Advisory Committee will decide whether to submit the proposed amendments to the Committee on Rules of Practice and Procedure and will likely publish a new version of the form plan and rules, with a new comment period ending August 15, 2014. The proposed amendments would then become effective on December 1, 2015, if they are approved and if Congress does not act to defer, modify, or reject them.

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Rhode Island: Mortgagor Standing to Challenge Assignments Still in Flux

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by David J. Pellegrino & Christopher M. Wildenhain
Partridge Snow & Hahn, LLP – USFN Member (Massachusetts)

In recent months, the Rhode Island Supreme Court issued its long-anticipated decision on whether a mortgagor has standing to challenge assignments of mortgage: Mruk v. Mortgage Electronic Registration Systems, Inc. (MERS), 82 A.2d 527 (R.I. 2013). Although Mruk appears to follow the mortgagor standing exception announced in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282, 291 (1st Cir. 2013), Chhun v. Mortgage Electronic Registration Systems, Inc., 84 A.3d 419 (R.I. 2014), a decision subsequent to Mruk, overlooks the distinction between a “void” and a “voidable” challenge to an assignment and, arguably, erases it altogether. As a result, Rhode Island law governing the standing of mortgagors to challenge assignments extends at least as far as it does in Massachusetts, if not further.

In Mruk, the Rhode Island Supreme Court affirmed the grant of summary judgment to the defendants, but held that the lower court erred in concluding that mortgagors lacked standing to challenge assignments. In doing so, the court adopted the framework for mortgagor standing established in Culhane. Like the Culhane court, the court in Mruk confined standing “to the circumstances of a mortgagor challenging an ‘invalid, ineffective, or void’ assignment of the mortgage” and concluded that a “mortgagor does not have standing to challenge the shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title.” Mruk, at 536. The defendants were ultimately entitled to summary judgment because MERS was a valid mortgagee and no factual issues remained.

In Chhun, the Rhode Island Supreme Court potentially extended mortgagor standing by concluding that a mortgagor had standing without first conducting the “void/voidable” analysis discussed in Mruk. In reversing a 12(b)(6) dismissal, the court commented that allegations regarding a signatory’s lack of authority to make an assignment for a corporation, “if proven, could establish that the mortgage was not validly assigned ...” Chhun, at 423.

This statement contradicts Rhode Island law providing that unauthorized corporate officer actions are voidable and may be ratified by the corporation, Duncan Shaw Corp. v. Standard Mach. Co., 196 F.2d 147, 152-154 (1st Cir. 1952), and the First Circuit’s interpretation of Culhane in Wilson v. HSBC Mortgage Services, Inc., No. 13-1298, 2014 WL 563457, at *6-8 (1st Cir. Feb. 14, 2014). This discrepancy has prompted the Chhun defendants to seek reargument. Contrary to what was suggested in Mruk, the question of Rhode Island mortgagor standing to challenge assignments of mortgage may go well beyond Culhane. As the state’s high court hears further appeals in this area, it will likely be asked to reconcile these contradictions.

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Pennsylvania: Amendments to Rules of Civil Procedure re Postponed Sales and re Notice to Junior Lienholders

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Lisa A. Lee
KML Law Group, P.C. – USFN Member (Pennsylvania)

On March 7, 2014, the Pennsylvania Supreme Court approved a recommendation of the Civil Procedural Rules Committee to amend Pennsylvania Rules of Civil Procedure 3129.3 and 3135. These amendments do not place any new requirements on servicers but, in one instance, do require additional actions to be taken by counsel when a sheriff’s sale is postponed to a new date.

Rule 3129.3 governs the procedure for postponing or continuing sheriff’s sales. The current rule requires that a postponed sale date must be publicly announced at the sale where the property was originally scheduled to be sold, but does not require any further notice to any party of the postponed sale date. The amendment to the Rule sets forth a new requirement that the plaintiff must: (1) file a notice of the date of the continued sale with the prothonotary at least 15 days prior to the continued sale; and (2) file a certificate with the sheriff confirming the filing of the notice.

The amended Rule also provides that the sheriff shall continue the sale to the next available date if the notice and certificate have not been timely filed. The amended Rule is specific that non-compliance with these requirements is not a basis for setting aside a sheriff’s sale unless raised prior to the delivery of the sheriff’s deed and, even then, there must be a showing of prejudice for a sale to be set aside for this reason.

Rule 3135 governs the procedure regarding sheriff’s deeds. The amendment to this Rule sets forth alternative options for use in the situation where a plaintiff has failed to provide notice of a sheriff’s sale to a junior lienholder. The amended Rule allows for a petition to be filed requesting either that the junior lien be divested, or that a sheriff’s sale be held at which the junior lienholder in question may be the only other bidder aside from the plaintiff.

These amendments to the Rules were effective April 7, 2014.

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Sixth Circuit: Freddie Mac is Not a Government Actor

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Jessica Berg
Trott & Trott, P.C. – USFN Member (Michigan)

On February 7, 2014, the U.S. Court of Appeals for the Sixth Circuit ruled that Freddie Mac is not a government actor that can be liable for alleged constitutional violations in Mik v. Federal Home Loan Mortgage Corporation, No. 12-6051, 2014 U.S. App. LEXIS 2332, 2014 WL 486214 (6th Cir. 2014). The Sixth Circuit affirmed the U.S. District Court for the Western District of Kentucky’s dismissal of the tenants’ claim that Freddie Mac, as a government actor, violated their Fifth Amendment due process rights by failing to provide proper notice prior to evicting them following the foreclosure of the mortgage granted by their landlord. (The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.)

In holding that Freddie Mac is not a government actor for constitutional challenges, the Sixth Circuit relied primarily on the framework set forth by the United States Supreme Court in Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995). In Lebron, the court set forth a three-pronged test to determine whether a government-created entity is a government actor for purposes of constitutional challenges. Specifically, it held that, where “the Government creates a corporation by special law, for the furtherance of governmental objectives, and retains for itself permanent authority to appoint a majority of the directors of that corporation, the corporation is part of the Government for purposes of the First Amendment.” Id. at 399.

In Mik, the Sixth Circuit relied on two additional federal court opinions interpreting Lebron with respect to whether Freddie Mac is a government actor. In Mik, the Sixth Circuit cited American Bankers Mortgage Corp. v. Federal Home Loan Mortgage Corp., 75 F.3d 1401 (9th Cir. Cal. 1996), which held that “the government … does not ‘control[] the operation of [Freddie Mac] through its appointees.’” American Bankers Mortgage Corp., 75 F.3d at 1407 (citing Lebron, 513 U.S. at 398). The Sixth Circuit also cited Syriani v. Freddie Mac Multiclass Certificates, No. 12-3035, 2012 U.S. Dist. LEXIS 179863, 2012 WL 6200251 (C.D. Cal. July 10, 2012), for the proposition that Freddie Mac is not a government actor even though the Federal Housing Finance Agency became Freddie Mac’s conservator in 2008.

The issue of whether Freddie Mac is a government actor for constitutional purposes was only one of several issues in Mik; however, it was a significant one. Mik is of great importance because it disposes of several similar arguments in the Sixth Circuit put forth by borrowers seeking to end the nonjudicial foreclosure process on the basis that foreclosure by advertisement is unconstitutional where Freddie Mac is the owner of the loan.

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