Article Library
Blog Home All Blogs
Search all posts for:   

 

Arkansas: An Examination of Accord and Satisfaction

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Kate A. Lachowsky
Wilson & Associates, PLLC
USFN Member (Arkansas, Tennessee)

Trammell v. Hooks is a case about the affirmative defense of accord and satisfaction. On December 14, 2010, Trammell and Hooks agreed on a sale price of $400,000 for the sale of real estate and businesses in Paragould, Arkansas. Trammell filed a breach of contract action against Hooks the following February, where he alleged that Hooks failed to pay in accordance with their agreement. Hooks denied that he breached their agreement and affirmatively pleaded that he tendered a lesser than agreed upon amount to Trammell in full payment as an accord and satisfaction. Trammell denied that an accord and satisfaction occurred. A jury in Green County Circuit Court found in favor of Hooks on Trammell’s breach of contract suit and the Court of Appeals of Arkansas affirmed.

It is well-settled law that an accord and satisfaction involves a settlement where a creditor agrees to accept a different consideration or less money than what he is owed. In order for there to be an accord and satisfaction, there must be a disputed amount involved and consent to accept less than the full amount in settlement of the whole before acceptance of the lesser amount. Trammell v. Hooks, 2013 Ark. App. 576. The dispute need not be well-founded; it simply must be in good faith. The elements of accord and satisfaction are identical to the elements of a contract: there must be an offer, acceptance of that offer, and consideration given. An accord and satisfaction is ultimately a new agreement and acceptance of the new agreement.

In this case, pursuant to the terms of the contract: $15,000 was due in January 2011 with monthly payments to follow, but the contract failed to set forth the due dates, the amounts of the payments, or an interest rate. On the same day as the execution of the contract, a warranty deed conveying the real property from Trammell to Hooks was executed by Trammell, but was not delivered to Hooks. In January 2011, Trammell’s accountant prepared an amortization schedule setting the interest rate, spreading the monthly payments over twenty years, and establishing the monthly payment due date. The amortization schedule indicated that at the end of the twenty-year period, Hooks would have paid $802,000 — more than double the contract price.

At trial, Trammell testified that Hooks had “no intention of paying all of that interest.” Hooks testified that he tendered $240,000 in cash to Trammell to pay off the contract and received a receipt from Trammell, who noted on the contract that it had been paid in full. Consequently, Trammell delivered the executed warranty deed to Hooks.

The court was required to determine whether there was some evidence of a dispute over what was owed and a manifestation of consent to accept less than what was owed, in order to support giving the Arkansas Model Jury Instruction 2431 on accord and satisfaction. The jury found that there was a settlement of less than the total owed.

On appeal, the Court of Appeals held that the trial court did not err because Trammell substantially increased the price by adding interest to the payment schedule, and it was clear that Hooks did not wish to pay the interest. This constituted evidence of a dispute over the debt. Under the facts presented, there were also indicators that the parties agreed to a tender of $240,000 as payment in full on the contract, such as acceptance of the payment and delivery of the warranty deed. Accordingly, the Court of Appeals affirmed the giving of the accord and satisfaction instruction to the trial jury.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

HOA Talk -Washington: Legislature Clarifies Redemption Statute, Somewhat

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Brian S. Sommer
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)

On April 23, 2013, Washington’s governor signed into law Senate Bill 5541. The bill provides a one-word amendment to RCW 6.23.010, Washington’s redemption statute, clarifying who may redeem a property sold at completion of a judicial foreclosure. The relevant portion of the prior law, enacted in 1899, stated that only a lienholder “subsequent in time” to the foreclosed lien qualifies as a redemptioner. Under standard origination practices, a mortgage would most often arise prior in time to a condominium association (COA) super-priority lien. The amendment took effect July 28, 2013 and clarifies that a lienholder “subsequent in priority” can redeem.

The “subsequent in time” phrase was interpreted in a 2012 appellate case, Summerhill Village Homeowners Association v. Roughley, to bar extinguished mortgage lenders from redeeming if foreclosed judicially by a COA super-priority lien. 270 P.3d 639 (Wash. App. 2012), amended by and reconsideration denied by 2012 Wash. App. LEXIS 1579 (July 6, 2012). Washington law, RCW 64.34.364(3), provides a COA with a super-priority lien senior to each mortgage for an amount equal to six months of assessments. In Summerhill, the mortgagee did not defend the COA collection lawsuit or pay the six-month super-priority lien prior to the COA sheriff sale. A third party purchased the condominium at the sheriff sale for $10,302, and the $191,800 mortgage was extinguished. The mortgagee argued that “subsequent in time” means “subsequent in priority.” The court held that the statute is unambiguous and ruled in favor of the sheriff sale purchaser. The court reasoned: “The legislature created the super-priority lien and did not amend the redemption statute. There is no sign of legislative confusion as to the difference between a lien subsequent in time and a lien prior in time but junior in priority.” The mortgagee in Summerhill did not appeal to the Washington Supreme Court.

Following Summerhill, the same Court of Appeals division published BAC Home Loan Servicing, LP v. Fulbright, 298 P.3d 779 (Wash. App. Apr. 8, 2013), review granted, No. 88853-1 (Sep. 4, 2013). Summerhill and Fulbright have identical fact patterns and statutes in question, but the mortgagee in Fulbright raised additional legal arguments not raised in Summerhill. Nevertheless, the Court of Appeals again held that the mortgagee extinguished by the COA super-priority lien was not a qualified redemptioner. The appellate court stated that the opinion was written to “amplify” Summerhill.

The Summerhill and Fulbright holdings created a cottage industry where third parties purchased condominiums at sheriff sales for a fraction of their value and free from an extinguished lienholder’s right to redeem. Besides the financial losses suffered by lienholders, the holdings exposed foreclosed borrowers unable to seek bankruptcy protection to deficiency judgments. In Washington, a foreclosure by a senior lienholder does not preclude the extinguished junior lienholder from suing on the note. See Beal Bank, SSB v. Sarich, 167 P.3d 555, 558 (Wash. 2007).

On September 4, 2013, the Washington Supreme Court granted Bank of America’s petition for review of Fulbright. When reviewing Fulbright, the Court of Appeals was not presented with the issue of retroactive application of SB 5541 because Fulbright was published on April 8, 2013, while the governor signed SB 5541 into law on April 23, 2013. However, the issue of retroactivity of SB 5541 is one of three issues presented by Bank of America in the petition for review accepted by the Supreme Court. In all likelihood, Fulbright will supersede the Summerhill reasoning. An opinion is expected in summer 2014.

Generally, statutory amendments apply prospectively. An amendment may apply retroactively when curative or remedial. However, retroactive application cannot supplant vested, contractual, or constitutional rights. A gray issue raised by enterprising sheriff sale purchasers is that SB 5541, which took effect on July 28, 2013, only applies to sheriff sales that occurred after July 28, 2013. Typically, a COA redemption period is one year from the sheriff sale date. Sheriff sale purchasers assert that the pool of redemptioners is a vested right established on the date of the sheriff’s sale. In comparison, the extinguished mortgagee would argue that SB 5541 was intended to apply retroactively, or the amendment has “immediate prospective application” and applies to the unexpired part of the redemption period. Severson v. Penski, 677 P.2d 198 (Wash. App. 1984). This matter was recently argued at the trial court level, and the trial court judge ruled in favor of the mortgagee. The sheriff sale purchaser plans to appeal.

Until the Supreme Court in Fulbright has the final word and the untold number of COA sheriff sales that occurred prior to July 28, 2013 run their course, uncertainties remain for lienholders.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

Encountering the Shaykamaxum Republic: Sovereign Citizens

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Jerry Morgan III
Wilson & Associates, PLLC
USFN Member (Arkansas & Tennessee)

Have you ever been to Shaykamaxum? Chances are, no matter how extensively you’ve traveled across the USA, you’ve never seen signs for Shaykamaxum. You’ve never encountered a Shaykamaxum police force, you’ve never seen border crossings identifying its boundaries, and you’ve never paid a tax to Shaykamaxum. This is because “Shaykamaxum” doesn’t exist, at least as an actual place.

That simple fact, however, has not stopped numerous borrowers throughout the country from claiming that Shaykamaxum does indeed exist. Furthermore, borrowers are claiming to be “diplomats” of the Republic of Shaykamaxum, and that such diplomatic status gives them immunity from the criminal code (either federal or state, depending on which crimes they’re accused of committing), as well as immunity from paying their various debts, including home loans.

To the casual observer, and even to most attorneys and judges, such claims would seem completely out of place, and perhaps unique. Sadly, the opposite is true. More and more borrowers are joining the ever-growing, ever-changing ranks of “sovereign citizen.” As the methods and needs of the sovereign citizen groups have evolved, so too have their litigation strategies.

Who are They?

Loosely defined, sovereign citizens are those who believe (or at least claim to believe) that there are really two governments in the United States: the “original” government that existed before some vast conspiracy infiltrated it, and the “illegitimate” government that now exists, which everybody else believes is genuine. Based on their belief that the current government is illegitimate, sovereigns will go to great lengths to separate themselves from its jurisdiction.

For many years, these ideas were primarily limited to various “supremacist” groups and tax evaders. However, during difficult economic times, sovereign ideas are routinely espoused by those who hope to avoid mounting debts, foreclosures, criminal prosecution, and other legal troubles. Consequently, the last decade has seen a vast increase in debtors turning to these nonsensical theories to avoid foreclosures, evictions, and other lawful collection efforts.

All across the country, courts have been encountering so-called “Moorish groups,” which are primarily radical groups with highly unusual legal theories. These groups tend to believe that their members are not required to follow most federal and state criminal laws or tax laws, and that they are justified in refusing to pay their debts. Many of them claim that their ancestors crossed the Atlantic from Africa to become the first people in this country, giving them “aboriginal” status. As such, they espouse certain unfettered rights, which the federal and state governments have no ability to infringe upon. Many of them assert that the only “real” money is gold or silver, which gives them an argument, as baseless as it may be, that their home loans were not really loans to begin with, meaning they are not required to repay them. Thus, one of the primary “rights” they have is the right to avoid paying their debts.

One such group in Tennessee and elsewhere is the “Shaykamaxum Atlan Amexem Empire, A [sic] Original Indigenous Nation” (Shaykamaxum Republic). The Shaykamaxum Republic has its own website (http://shaykamaxumrepublic.webs.com), appoints members with lofty sounding, though meaningless, titles (such as Emperor/King, Supreme Grand Chief, etc.), has set up its own equally meaningless court system (Grand Supreme Court of Ecclesiastical and Tribal Justice), and attempts to educate its members on avoiding federal and state laws, avoiding and eliminating their debts, and so forth.

Illustrative Litigation

One of the first suits involving the Shaykamaxum Republic began with an otherwise ordinary post-foreclosure detainer in Nashville, Tennessee filed by LaSalle Bank against the borrower, Wendy Johnson. LaSalle Bank filed the detainer in General Sessions Court on September 24, 2012. A previously unknown person, “Queen Chatura Waheeda Hatshipsue,” filed a notice of removal to federal court based on her claim of being “a diplomat and official of the Shaykamaxum Atlan Amexem Republic.” “Queen Hatshipsue” signed the notice of removal documents “on behalf of Wendy Johnson.” Interestingly, “Queen Hatshipsue” looked exactly like Wendy Johnson when she appeared for various hearings. Just as interesting, “Queen Hatshipsue” and Wendy Johnson never appeared in the same room at the same time.

In ruling on a motion to remand, the magistrate judge in LaSalle Bank v. Johnson, 2012 U.S. Dist. LEXIS 181093, (M.D. Tenn.), noted that “Queen Hatshipsue” had not given any indication that she was an attorney or otherwise had the ability to represent the apparently separate person named Wendy Johnson. The magistrate pointed out that “Queen Hatshipsue” may have been able to file a notice of removal on her own behalf if she was an occupant of the property, but that she had not done so, instead filing the notice on behalf of Wendy Johnson. The magistrate also stated that even if “Queen Hatshipsue” had filed the notice on her own behalf, she still would have needed the consent of Wendy Johnson, as all defendants who have been properly joined and served must consent to removal pursuant to 28 U.S.C. § 1446(b)(2)(A). Of course, because “Queen Chatura Waheeda Hatshipsue” was a purely fictional name, and “Queen Hatshipsue” and Wendy Johnson were one and the same, this was an insurmountable obstacle. The magistrate recommended, and the district court approved, that the motion to remand be granted.

Commenting on the Shaykamaxum Republic, the magistrate judge stated: “There is no indication that such a government exists or is recognized by the United States, such as to make this a case involving a federal question.”

Undeterred, “Queen Hatshipsue” filed a separate action in federal court: Hatshipsue v. LaSalle Bank, 2013 U.S. Dist. LEXIS 71012 (M.D. Tenn.), in which she made numerous sovereign-type allegations, including being a sovereign of the Shaykamaxum Republic. In a section of the complaint labeled “Subject Matter Jurisdictional Statement,” “Queen Hatshipsue” stated: “Shaykamaxum Atlan Amexem Empire has jurisdiction, however, we come in peace and love to solve this matter under Article VIII Section 9 of the Constitution for the full Autonomy States of Amexem.” The remainder of the complaint set forth numerous nonsensical claims, cited irrelevant state and federal statutes, and was, for all practical purposes, indecipherable. The magistrate judge stated that “the complaint does not contain a single comprehensible theory of recovery against any of the defendants.” Further, the magistrate noted: “There is no possible way that any Defendant can answer the Complaint and no possible way for the Court to glean from the Complaint any set of factual allegations that support a recognizable claim for relief.”

On May 20, 2013, the magistrate judge recommended dismissal. On June 19, 2013, “Queen Hatshipsue” filed a “Writ of Mandamus/Court Order” purporting to be from the “Grand/Supreme Court of Shaykamaxum Atlan Amexem Nation – International Jurisdiction – Judicial Tribunal Court of Record, A Court of Origin, Aula Regis.” That filing was construed to be a motion to remove to the “Supreme Court of Shaykamaxum.” The motion was denied, and the magistrate’s recommendation to dismiss the case was approved in its entirety.

As odd as these pleadings are, they are not unique. In 2013 alone, cases involving the fictitious Shaykamaxum Republic have been found in New Jersey and California. In the New Jersey case of Noble v. Thalheimer, 2013 U.S. Dist. LEXIS 13129, the plaintiff claimed to be “His Imperial Majesty, Emperor, Judah Abrahim Bey Isra’el of the Shaykamaxum Atlan Amexem Empire, A [sic] Original Indigenous Nation.” The case was dismissed with prejudice.

In the California case, Jolivette v. People of the State of California, 2013 U.S. Dist. LEXIS 145489, the plaintiff attempted to register a “judgment” from the “Shaykamaxum Grand/Supreme Court” with the U.S. District Court for the Eastern District of California. While that matter remains pending, the magistrate has issued an order to show cause for the plaintiff to show why the case should not be dismissed. The magistrate, citing LaSalle Bank v. Johnson, stated that “there is no indication that such a government exists or is recognized by the United States.”

Tennessee attorneys, it appears, will also have to continue dealing with the Shaykamaxum Republic claims. In another post-foreclosure case, Hayes v. Burns, 2013 U.S. Dist. LEXIS 119345 (M.D. Tenn.), the plaintiffs, Michael and Wendy Hayes, claimed to be citizens of the Shaykamaxum Republic. They sought $30,000,000 for various violations under both state and federal statutes, claiming that they were entitled to such damages under the “Constitution of the Shaykamaxum Republic, Atlan Amexem Empire” and the “Constitution of the Full Autonomy States of Amexem.” The magistrate judge, in his recommendation for dismissal, labeled the Shaykamaxum Republic “a mysterious alternative jurisdiction.” His recommendation was approved in all aspects by the district court, and the case was dismissed.

Borrowers claiming to be diplomats of this nonexistent republic have attempted to file judgments from the Shaykamaxum Republic “court” system; they have sent notices to creditors from the Shaykamaxum Republic “court” system requiring appearances for depositions and arbitrations, and have filed other non-binding documents in order to thwart legal attempts to collect on their debts.

Conclusion
As the above-referenced cases illustrate, those who are desperate to set aside otherwise valid foreclosures will stop at nothing to make their cases, no matter how illogical and nonsensical. Perhaps it’s a natural fit that they would join with “sovereign citizen” claimants in a final effort to continue residing in property for which they haven’t made a payment in years.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

Legislative Updates: New York

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Andrew Morganstern
Rosicki, Rosicki & Associates, P.C.
USFN Member (New York)

Judges have issued rulings and legislators have passed laws affecting mortgage foreclosures. It seems as though there is a competition between the judiciary and the legislature to enact rules that protect homeowners in the event of a foreclosure.

In response to the widespread reports of “robo-signing,” the Chief Administrative Judge issued an Administrative Order three years ago, requiring that plaintiff counsel file an affirmation with the court. In the affirmation, plaintiff’s attorney must state that a representative of the plaintiff confirmed the factual accuracy of the allegations in the complaint and in any supporting affidavits filed with the court as well as the accuracy of the notarizations. In order to prepare this affirmation, it is first necessary to obtain a written statement or affidavit from the servicer verifying the accuracy of these documents. The terms of this order are not a model of clarity, resulting in litigation as to its interpretation and even as to its validity.

Not to be outdone, the legislature enacted C.P.L.R. 3012-b, requiring that plaintiff’s counsel file a “certificate of merit” in most foreclosure actions commenced on or after August 30, 2013. For actions commenced prior to August 30, 2013, either an affirmation pursuant to the Administrative Order or a certificate of merit may be filed.

This new law applies to foreclosure actions where the defendant is a resident of the property and involves a “home loan.” A home loan is a loan made to a natural person, where the debt is incurred primarily for personal, family, or household purposes and is secured by a mortgage on a one- to four-family dwelling. A home loan does not include reverse mortgages. (Effective January 14, 2015, a home loan will no longer include a mortgage where the principal amount exceeds the conforming loan size for a comparable dwelling as set by the Federal National Mortgage Association).

The certificate of merit is filed with the complaint. The certificate is signed by the plaintiff’s attorney and certifies that the attorney has reviewed the facts of the case as well as the pertinent documents. The plaintiff’s attorney further certifies that based on consultations with representatives of the plaintiff “… there is a reasonable basis for the commencement of such action and that the plaintiff is currently the creditor entitled to enforce rights under such documents.”

Additionally, a copy of the mortgage or security agreement, the note or bond, and all assignments as well as any modification, extension, or consolidation agreement must either be attached to the summons and complaint or to the certificate. In the event that any of the required documents cannot be located, the attorney or a representative of the plaintiff must file an affidavit “… attesting that such documents are lost whether by destruction, theft or otherwise.”

Finally, this new law provides that if the plaintiff willfully fails to provide copies of the required documents, the court may dismiss the complaint or issue an order that grants relief “as is just.” Examples of appropriate relief include denial of interest, costs, or attorney’s fees.

Where it has been found that a servicer failed to negotiate in good faith, judges have imposed various types of penalties. However, appellate courts have found that it is inappropriate to grant sanctions unless they have been authorized by statute. The legislature has evidently been reading these cases since the law requiring a certificate of merit expressly provides judges with the authorization to impose almost any type of relief as may seem proper. Accordingly, in the event that there is willful failure by a plaintiff to file the necessary documents, it is clear that the court has the authority to mete out any sanction that it finds to be appropriate.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

Legislative Updates: District of Columbia

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Ronald S. Deutsch
Cohn, Goldberg & Deutsch, L.L.C.
USFN Member (Washington, D.C.)

On November 19, 2013, First American Title Insurance Company issued a bulletin updating its guidance on insuring sales of foreclosure and REO property in the District of Columbia. That bulletin supplements its prior bulletins and provides new guidance that permits nonjudicial foreclosures to resume, with some assurance of insurability, subject to various stipulations and the effect of new regulations to be promulgated shortly.

As background, the brakes were applied to the District of Columbia nonjudicial foreclosures on November 9, 2010 when the “Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010” was enacted by the City Council. That Act became effective on November 17, 2010 and was so successful in “Saving D.C. Homes from Foreclosure” that all residential foreclosure activity, effectively, ceased immediately. Thereafter, the lending and title insurance industries had widespread concerns with insuring title on foreclosed properties in the District. In response to those concerns regarding provisions that provided for voiding foreclosure sales under vaguely-defined circumstances, as well as several other items, the Council reacted by enacting the “Saving D.C. Homes from Foreclosure Temporary Amendment Act of 2011,” D.C. Law 19-41, which became effective November 26, 2011.

Reacting to further industry uneasiness, a plethora of emergency and temporary bills was enacted, which further modified and extended the 2010 and 2011 Acts. Final resolution of many of the concerns occurred when the D.C. City Council enacted Act 20-0156, “Saving D.C. Homes From Foreclosure Clarification and Title Insurance Clarification Amendment Act of 2013” on August 20, 2013, which became law on November 5, 2013.

As a result of the qualified assurance of receiving title insurance on nonjudicial foreclosures, two potential methods of foreclosure now exist. Each offers certain advantages and disadvantages. To briefly summarize the District of Columbia’s procedure, lenders seeking to foreclose nonjudicially on residential mortgages must first provide a notice of default (NOD – Form FM-1). The requisite NOD entails substantial details and time to complete.

Borrowers must be given the right to elect mediation prior to the initiation of nonjudicial foreclosures. At the mediation hearing, a discussion will take place with respect to alternatives to foreclosure. Lenders are required to participate in the process in “good faith.” Good faith has been defined to mean that lenders must: (a) evaluate the borrower’s eligibility for all available loss mitigation options and alternatives to foreclosure applicable to the residential mortgage in default, including the Home Affordable Modification Program and the Federal Deposit Insurance Corporation’s Loan Modification Program, and offer all options for which the borrower is eligible; (b) if the lender does not reach a settlement with the borrower(s) during mediation, an analysis of the net present value of receiving modified payments compared to the anticipated net recovery following foreclosure; and (c) provide a written explanation for the rejection of a proposed settlement involving a loss mitigation option or alternatives to foreclosure, which shall include an analysis of the proposal. This standard, arguably, is a higher one than that applied by D.C.’s sister state, Maryland.

A final mediation certificate must be furnished by the mediation administrator in order for lenders to proceed with a nonjudicial foreclosure. That certificate will be issued if the parties reach an agreement or if the borrower fails to elect mediation. If, however, the borrower and lender cannot come to a satisfactory resolution during mediation, the mediator prepares and submits a recommendation that the matter be concluded.

After review of the mediator’s report, the administrator shall do one of the following: (a) issue a preliminary mediation certificate, indicating that the lender acted in good faith; (b) issue a determination that the lender did not act in good faith; or (c) refer the matter to another mediator. This preliminary mediation certificate serves as an initial decision for a 30-day period, after which time the lender may request a final mediation certificate, provided that no appeal is filed. Appeals, of course, will entail delays. A determination by the mediator that a lender did not act in good faith can similarly be appealed. The recording of the final mediation certificate serves as “conclusive evidence” that the provisions of the Act have been complied with.

Finally, title insurance, is available only after the premises has been surrendered. Additionally, title insurance companies will require as a condition of underwriting that no litigation alleging defects in the foreclosure process has been commenced or threatened. Moreover, if the parties have been unable to agree to a resolution of the issues in mediation, title insurance companies will need to be contacted to determine whether the foreclosure will be insurable. Lastly, title insurance companies will require verification that the auction price is reasonable and that a recorded chain of assignments for mortgages has been provided. Thus, in short, title insurance is not assured if the borrower threatens litigation or where a mediation agreement has not been reached.

In any event, the nonjudicial foreclosure process, whether desirable or not, has received a qualified green light to shortly resume. During the hiatus of nonjudicial foreclosures, some lenders had attempted to move forward by conducting foreclosures judicially. That was met with mixed success as some judges raised issues with either the process itself or the submissions made. It is clear, however, that the new changes in the legislation recognize that judicial foreclosure is a valid process. Judicial foreclosures might offer more certainty. However, they can also cost more. Judicial foreclosures may take more or less time, but that depends on whether a borrower has elected mediation or has raised any nonjudicial contests.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

Consumer Financial Protection Bureau Amendments to the 2013 Mortgage Rules

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Donna M. Case-Rossato
Hunt Leibert -USFN Member (Connecticut)
and Wendy Walter
RCO Legal, P.S. -USFN Member (Arkansas, Oregon, Washington)

Final amendments to a number of the final mortgage rules and comments issued by the CFPB in January 2013 were published in the Federal Register on October 1 and October 23, 2013. By the time this article is published, our industry will be in full swing complying with, interpreting, and living with the new rules. The USFN Report has been reporting on these rules since they were first rolled out in January 2013. Winter, spring, and summer editions of the USFN Report in 2013 all discussed the rules and the implications they might have on default servicing.

In this article, we hope to round out that coverage, as well as provide a final overview of the last-minute changes happening in late fall 2013. The “final” final rules and comments cover a lot of ground, but there are some standouts that the mortgage servicing industry has been following for a number of months. First, we will cover the finalization of the “first notice or filing” rule, 12 CFR Sec. 1024.41(f), and what has become known as the “one document” implication for loss mitigation under 12 CFR Sec. 1024.41(b), which are addressed in the changes published on October 1, 2013.

Next we will address the major topics in the October 23rd update, which includes an interim final rule excepting loans in bankruptcy from the periodic statement and early intervention requirements and provides guidance for debt collector servicers when the borrower’s FDCPA “cease communication” rights are exercised.

Not covered in this article, but what is important to note, is that for the first time since the mortgage servicing rulemaking kicked off, the CFPB issued a bulletin on October 15, 2013. The bulletin is relatively difficult to locate and has been the source of frustration for servicers who had adapted their compliance tracking systems to review the federal register for changes in the law. Due to space limitations in this print publication, the link to the bulletin is referenced for readers who want to view the update: http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.

Defining “First Notice or Filing”

As an industry, we are used to equating first notice or filing to the Federal Housing Administration’s (FHA’s) definition of “first legal,” as defined for each state. The CFPB declined to utilize this definition in establishing “first notice or filing” under the final rules and comments as originally promulgated. 12 CFR Sec. 1024.41(f) specifically prohibits a servicer from making the first notice or filing required by applicable law to commence a foreclosure, either nonjudicial or judicial, unless a borrower’s mortgage loan is more than 120 days’ delinquent. Thus, it is imperative that there is certainty as to the definition of first notice or filing. It should not be open to interpretation. The original comments stated that first notice or filing should be determined under applicable state law. This is trickier than it may seem.

The original final rule and comment caused much debate as to whether the demand or acceleration letter or other state-mandated letters could be perceived to be the first notice (Is this considered to be a condition precedent under state law for a foreclosure? What about a state-mandated notice of availability of mediation?), thus possibly resulting in a 120-day period after default before those letters could be issued, regardless of contractual or state statutory provisions. Such a delay could cause greater difficulty for a borrower in loss mitigation programs such as state foreclosure mediation. The longer the delay in entering mediation, the less likelihood of a positive resolution for the consumer as the delinquency amount would be much larger.

After a good deal of commentary and input from many industry resources, the CFPB provided a much appreciated “bright line” rule, balancing the need to ensure that the borrower has been afforded as much time as possible to investigate loss mitigation and curative options versus the need for clarity in communicating the timing of options and possibility of foreclosure. Specifically, comment 41(f)-1 has been revised, with four new subparts adopted. This is intended to recognize and address the different types of foreclosure processes throughout the country.

For a judicial process, and referencing applicable state law, new comment 41(f)-1.i clarifies that a document can be considered first notice or filing if it is the earliest document required to be filed with a court or other judicial entity to commence the action or proceeding. By way of example, in Connecticut, the first set of documents filed with the court to commence the foreclosure action is the writ, summons, and complaint, with associated exhibits and attachments. The demand or acceleration letter is not filed with the court to commence the action. For a nonjudicial process, new comment 41(f)-1.ii clarifies that a document may be considered the first notice or filing if it is the earliest document required to be recorded or published to commence the foreclosure action.

Two additional new comments are 41(f)-1.iii and 41(f)-1.iv. The first is designed to address a process that is not covered by the judicial process and may be a subset of a nonjudicial process. In those instances where a court proceeding does not need to be commenced, and recording or publishing a document is not required to commence the action, the first notice or filing may be the first document that sets the foreclosure sale date. Comment 41(f)-1.iv further clarifies that if a document is provided to a borrower and it is not required to be filed, recorded, or published initially, it is not the first notice or filing. This recognizes that certain documents may be submitted later in the foreclosure process, either as an attachment or exhibit, but it is not needed initially. An example might be the demand or acceleration letter that may be submitted late in a judicial process as evidence that it was issued if there is a claim that it was not.

These four new comments do not apply to foreclosures commenced when the due-on-sale clause is violated or if the servicer is joining in the foreclosure action of a junior lienholder. They provide substantive guidance regarding when a foreclosure of the subject mortgage, whether judicial or nonjudicial, may be commenced by a servicer.

Loss Mitigation Amendments

Loss mitigation procedures are covered at length in 12 CFR Sec. 1024.41, and the attendant comments 41(b) through 41(d). This includes comments on receipt and evaluation of a loss mitigation package and determining whether it is complete, facially complete, and later discovered to be incomplete; requirements for review of a loss mitigation package; disclosure timing; determining protections; payment forbearance; and denial of loss mitigation options. Throughout its review, the CFPB recognized that a “complete” package may not always really be complete, through no fault of the borrower or the servicer. It recognized that the loss mitigation review process is complicated and ever-evolving, based upon information the borrower submits initially and subsequently. The process affords a borrower the chance to update information and give a clearer, more complete financial picture and a decision is not always based only upon the initial documents that are submitted.

Throughout the rule and comment amendments, the CFPB injects a standard of “reasonableness.” Comment 41(b)(1)-4 is amended to clarify that a servicer must use reasonable diligence to complete a loss mitigation package. A reasonableness standard is open to interpretation and should be approached with the utmost caution. Thus, should a servicer continue loss mitigation efforts and, if so, for how long, if all it receives is one document that complies with the requirements of the loss mitigation package? There was a great deal of comment from all sides regarding how to implement a strict timetable while recognizing that additional documents are often needed after what was originally thought to be a “complete” package is received. All stakeholders recognize that the primary goal is to offer loss mitigation solutions for which a borrower qualifies. The devil is in the details.

As always, a servicer must exercise due diligence and contact a borrower to request additional information [see comment 41(b)(1)-4.i.]. The CFPB is adopting comment 41(b)(2)(i)(B)-1, wherein a servicer must promptly request additional information, if needed. 12 CFR 1024.41(b)(2)(i) requires a servicer to review a loss mitigation package within five days; acknowledge receipt; inform the borrower whether the package is incomplete or complete. If incomplete, the servicer must provide a list of what is missing and the date by which the missing information must be submitted, based upon the stage of foreclosure.

Originally, four specific milestones were provided to address the aforementioned timing of delivery of information to the servicer, based upon stage of the foreclosure and prior delinquency:


1. The date wherein any information or document submitted by the borrower may be considered stale or invalid;
2. The date that is the 120th day of delinquency;
3. The date that is 90 days before a foreclosure sale; and
4. The date that is 38 days before a foreclosure sale.

The goal of the timetable is to encourage submitting a complete application as early as possible, without discouraging continuing efforts to complete that application over time if needed. However, the CFPB was concerned that the above timetable may be overly rigid and not allow for reasonable exceptions.

CFPB has opted to replace the four specified dates to require notices regarding timing of submission of additional information. Instead, the date is to be reasonable. In determining whether the date is reasonable, the corresponding comments suggest that the servicer use the date that saves the maximum amount of rights for the borrower under that section. The four previously specified dates can be considered as reasonable, though no longer mandated. Thus, in practice, it is anticipated that most servicers will utilize the original milestone dates, barring unusual circumstances. Whether this provides a safe harbor may only be determined through litigation.

This change towards a reasonable standard is seen in many of the remaining amended sections. While intended to provide the maximum amount of time to effectuate a loss mitigation resolution, this will most likely result in enough uncertainty that litigation will ensue. Defining reasonable is always a matter of opinion based on the specific facts and is the ultimate fodder for litigation, especially when interpreting new laws and regulations.

No Periodic Statements Required for Loans in Bankruptcy
The change excepting borrowers in bankruptcy from the periodic statement requirement came as a last-minute interim final rule, the rule that would become effective on January 10, 2014 like the rest of the mortgage servicing rules, but was opened for public comment. The rule itself is fairly simple: it amends 12 CFR 1026.41(e)(5) to state that a servicer is exempt from the requirements of the periodic statement requirements for a mortgage loan while the borrower is a debtor in bankruptcy under Title 11 of the U.S. Code.

The comments to the rule provide that a servicer must resume sending statements within a reasonably prompt time after the next payment due date that follows the earliest of any three potential outcomes in the borrower’s bankruptcy case: the case is dismissed, the case is closed, or the consumer receives a discharge. But the servicer does not have to communicate in any manner that would be inconsistent with applicable bankruptcy law or a court order in a bankruptcy case. If a case gets reinstated or revived, the exception to the periodic statement rule would revive as well, according to the commentary. This exemption also applies if one of the borrowers is in a bankruptcy case for a loan where there are “joint obligors.”

No Early Intervention Required for Loans in Bankruptcy
Servicers handling loans where the borrower files bankruptcy will not be required to contact borrowers under the early intervention rules in 12 CFR 1024.39. This exemption applies for the duration of the bankruptcy case; but if the case is dismissed, closed, or the borrower receives a discharge, the servicer will need to resume compliance with respect to any portion of the debt that is not discharged. This exemption also applies if one of the borrowers is in a bankruptcy case for a loan where there are “joint obligors.”

FDCPA Compliance in Conjunction with New Servicing Rules
Recognizing the potential conflict that exists within the Fair Debt Collection Practices Act and some of the new servicing rules, the Bureau covered this subject in the interim rule published on October 23rd. Essentially, servicers are not required to comply with a borrower’s request to “cease communication” under FDCPA Section 805(c) if the servicer is attempting to comply with the servicing rules regarding periodic statements and ARM adjustment notices. However, if the borrower sends a “cease communication” request covering the time when the servicer is required to engage in early intervention, the servicer is exempt from compliance with 12 CFR 1024.39, the early intervention rules.

Conclusion
Overall these bankruptcy and FDCPA exemptions are good news for the industry. It demonstrates that the Bureau has listened to the comments of the industry, Chapter 13 trustees, and parties involved in the bankruptcy process. The comments provided in the 30 days after the rule was issued indicate that the major trade organizations representing mortgage banking are satisfied with the exemptions. Predictably, consumer organizations weren’t as happy with the last-minute exemptions and it is likely that a dialogue regarding intersections between the FDCPA and bankruptcy law will continue into early 2014.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

BANKRUPTCY UPDATE Credit Reporting and Reaffirmation Agreements

Posted By USFN, Tuesday, February 4, 2014
Updated: Monday, October 12, 2015

February 4, 2014

 

by Deanna Lee Westfall
The Castle Law Group, LLC
USFN Member (Colorado, Wyoming)

Recently, home mortgage reaffirmation agreements have come up in a new light. Although generally disfavored by courts as an act to impose a soon-to-be discharged personal obligation against the debtor, courts are now considering what the benefits are of a reaffirmation agreement. Specifically, courts are asking whether debtors should be allowed to reaffirm a debt after a discharge in order to request credit reporting from their mortgage servicer. Alternatively, courts are looking at ways to encourage or require credit reporting post-discharge on current loans, even without a signed reaffirmation agreement. The issue is whether failing to credit report impairs the promised “fresh start” of bankruptcy. See, e.g., In re Mahoney, 368 B.R. 579 (Bankr. W.D. Tex. 2007).

In response to debtor requests for credit reporting post-discharge, one bankruptcy court in Tennessee is allowing cases to be reopened for the limited purpose of filing a reaffirmation agreement, without requiring the usual fee for reopening cases. While creative, the Tennessee approach appears to be contrary to the Bankruptcy Code’s requirement that reaffirmation agreements be filed prior to entry of the discharge in order to be effective. The Tennessee approach also fails to ensure that credit reporting recommences. A mortgage servicer may still choose not to credit report out of an abundance of caution that the late-filed reaffirmation agreement appears to be an attempt to re-impose personal liability after the discharge, thereby running afoul of the discharge injunction.

The matter arises in Chapter 7 cases in which the debtor receives a discharge of personal liability on the note, while the lien attached to the property remains enforceable solely against the property. Thus, in order to maintain the property, the debtor must make regular monthly mortgage payments.

Although Section 521 of the Bankruptcy Code and the Official Form Statement of Intentions provide that the borrower shall reaffirm, redeem, or surrender the collateral on secured debts, debtors often simply “stay and pay” or ride through the bankruptcy without doing any of the three enumerated options. This leaves the debtor and creditor in a unique situation post-bankruptcy. The debtor does not owe a debt and, thus, the mortgage servicer would not typically report.

Recently, courts have been asking why servicers do not credit report on loans that pass through bankruptcy under the “stay and pay” scenario. In other words, if the debtor was current throughout their bankruptcy and remained current, why is there no credit reporting by the servicer to assist the borrower in rebuilding credit? Alternatively, the courts appear to be asking whether creditors may report only on current loans but not on defaulted loans post-petition. Reporting on post-petition defaults could be interpreted as interfering with the debtor’s discharge by negatively reporting on a defaulted debt.

A furnisher, as creditors are known under the Fair Credit Reporting Act, is primarily charged with reporting accurate information. There is no requirement to report, but what is reported must be accurate. In the absence of a reaffirmation agreement, filed within the timelines set by the Bankruptcy Code, is it accurate to report payments? Stated differently, is there a debt owed by the individual upon which the creditor can report? These questions point back to a possible reconsideration by the bankruptcy courts of the general distaste for reaffirmation agreements.

© Copyright 2014 USFN. All rights reserved.
Winter USFN Report

This post has not been tagged.

Share |
Permalink
 

Satisfactions of Mortgage and Payoff Statements

Posted By USFN, Thursday, January 9, 2014
Updated: Monday, October 12, 2015

January 9, 2014

 

by Amy M. Kieffer and William Foshag
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

On December 12, 2013, Governor Walker signed Wisconsin Senate Bill 290 into law. This new law is codified at Wis. Stat. § 708.15 and provides a new mortgage satisfaction option for residential real property, as well as sets out the rights of a settlement agent, a person who is obligated under a security instrument, or their authorized agent to request a payoff statement from the secured creditor.

Mortgage Satisfaction

The new law allows a title insurance company acting directly or through an authorized agent to serve as a satisfaction agent. Upon, or at any time after, full payment or performance of the secured obligation or payment, a satisfaction agent with authority from the landowner may give the secured creditor notice that the agent may submit for recording an affidavit of satisfaction of the security instrument against residential real property. The law specifies the information that must be included in the notice, such as that the satisfaction agent has reasonable grounds to believe that the property is residential real property and that the secured creditor received full payment.

The satisfaction agent may, after providing notice, submit the affidavit of satisfaction to the register of deeds for recording if the secured creditor authorizes the agent to do so or if the secured creditor does not, within 30 days of the notice, record a satisfaction.

The satisfaction agent may not submit an affidavit of satisfaction for recording if the agent receives notice from the secured creditor that the security instrument has been assigned. In that case, the satisfaction agent must provide notice to the assignee. A satisfaction agent also may not submit an affidavit of satisfaction if the agent receives notice that the secured obligation has not been satisfied, unless the agent has reasonable grounds to believe that the person who paid the payoff amount reasonably and detrimentally relied upon an understated payoff amount.

Payoff Statements
The new law also addresses payoff statements. The person or settlement agent, or the authorized agent, may give notice to the secured creditor requesting a payoff statement for a specified date that is not more than 30 days from the date the notice is given. The secured creditor must issue the payoff statement within seven business days after the effective date of the notice. The law further specifies the information that must be included in the payoff statement. The secured creditor may not charge the person for the first payoff statement that person requests in any two-month period.

If the payoff statement is understated, the secured creditor may send notice of the corrected payoff amount, but the secured creditor is prohibited from denying the accuracy of the payoff amount as against any person who reasonably and detrimentally relies on the understated amount. If the secured creditor receives payment as provided for in the payoff statement, the creditor must accept the payment and record a satisfaction of mortgage within 30 days. The secured creditor may then seek recourse against the obligated person for any amount that was incorrectly not included in the payoff statement.

Penalties

The new law also contains penalties against a satisfaction agent who records an affidavit of satisfaction erroneously or with knowledge that the statements in the affidavit are false, and contains penalties against a secured creditor for failing to timely send a payoff statement.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Memphis: Vacant Property Registration

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

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

The city of Memphis, Tennessee entered the vacant property registration (VPR) arena by passing its version in April of 2013 (Ordinance # 5477), although it did not immediately begin implementing and enforcing the ordinance. Memphis has now developed an online registry, pursuant to the ordinance. In furtherance of this, it issued a press release at the beginning of the fourth quarter (in early October 2013), urging mortgagees to begin registering their applicable properties and paying the $200 per year registration fee.

The city’s VPR form can be found at http://www.cityofmemphis.org/Portals/0/pdf_forms/VacantPropertyRegistration.pdf.

They have also set up FAQs, which can be viewed at http://www.cityofmemphis.org/Portals/0/pdf_forms/vpr_faqs.pdf.

Ultimately, though, the ordinance may not have as much of an impact on servicers and mortgage companies as VPR ordinances in other jurisdictions. This is due to its wording (and this has been confirmed with the city attorney’s office), which provides that the ordinance is only applicable to vacant properties that are also tax delinquent. That is a point that bears repeating and restating: Even though a bank-owned property is vacant and/or abandoned, it is only subject to the city’s VPR ordinance if it is also tax delinquent.

The ordinance, however, does not specify whether the tax delinquency is specific to Memphis City taxes or county (Shelby) property taxes, or both. Clarification of this point was requested from the city attorney’s office, which has now confirmed that only Memphis City property tax delinquencies are to be considered in determining application of the Memphis VPR ordinance – not county (Shelby) property tax delinquencies.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

New York: Settling the Case When the Borrower Lacks Legal Representation

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

by Bruce J. Bergman
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. – USFN Member (New York)

The compulsion to settle mortgage foreclosure cases in these still-troubled times need not be explored here. But a question does arise: can the matter be settled with confidence if the borrower is not represented by counsel? The immediate concern would be that the borrower could disavow the settlement on the ground that he or she was not properly represented and therefore had erred in settling the case and wants a new path. The matter arose in a new case in the context of a not uncommon settlement in open court [Liquori v. Liquori, 106 A.D.3d 1249, 966 N.Y.S.2d 543 (3rd Dept. 2013)].

It should be immediately noted that this is less of an issue when settlements are committed to writing. Then, the papers would specifically recite that the borrower was advised to obtain counsel and declined, or the borrower has waived the right to counsel and fully understands the terms of this agreement, etc. But the courtroom is a more daunting arena and in the stead of a written stipulation, something will be orally placed on the record. Thus, there may not be advance preparation of protective provisions. That was the situation that arose in the above-referenced foreclosure case — with the answer, under the circumstances, that the settlement could not be assailed for want of the borrower having counsel. A quick look at the facts should be enlightening.

Husband and wife borrowers defaulted on a mortgage, which precipitated a foreclosure action and a settlement conference in court. The husband and wife had squared off in a matrimonial action and although the wife had counsel for that case, she came to court on the foreclosure without an attorney, something she specifically advised the court was her election.

An oral stipulation was entered into on the record whereby both husband and wife agreed to deed the property back to the plaintiff-lender in exchange for a discontinuance of the action and waiver of any personal liability against them, in essence a deed-in-lieu. Thereafter, the wife refused to execute the deed and when the lender moved to enforce the settlement agreement that had been placed on the record, the wife cross-moved to vacate the stipulation.

The court ruled that the stipulation was enforceable, for the usual reason that such stipulations of settlement are favored and binding and are to be strictly enforced, not to be set aside in the absence of fraud, collusion, mistake, or accident. That the party seeking to avoid the settlement had not been represented by counsel at the time of the stipulation, although relevant, is in itself insufficient to void such a stipulation — especially where the party was advised by the court to retain counsel and chose not to do so.

Moreover, at the conference the court asked the wife whether she had talked to an attorney and when she said “no,” inquired as to whether she had had an opportunity to engage counsel. She responded “yes,” and the court still suggested that she might need a lawyer to help her. She replied that no, she did not. Finally, the court clearly explained the settlement terms and asked the wife whether she understood and whether she was prepared to agree to those terms — to which she said “yes.”

Under all of these circumstances, there was no doubt that the wife had assented to the settlement and the court was not going to reverse and let her out of the bargain. Of course, this raises the question as to whether the settlement would be so sacred if the record were not so clear that she truly understood and also specifically waived the right to counsel. While that point might be open to question, such procedures where the court inquires about counsel and assures that the unrepresented parties understand the situation are commonplace. That will therefore generally assure that the settlement remains immune to attack.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Minnesota’s Bankruptcy Community Undergoes Significant Transition

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2015

 

by Orin J. Kipp
Wilford Geske & Cook, P.A. – USFN Member (Minnesota)

Over the past year, the landscape of Minnesota’s bankruptcy community has been significantly transformed. With the sad passing of Judge Nancy Dreher and the retirement of Judge Dennis O’Brien, three new bankruptcy judges have been appointed to the Minnesota bench. These appointments come after more than a decade without a change to Minnesota’s bankruptcy panel. In addition, longstanding Chapter 13 Trustee Jasmine Keller retired, making way for the appointment of a new Standing Chapter 13 Trustee for the District of Minnesota.

Judge Kathleen Sanberg, formerly of the Minnesota Tax Court, was appointed to the bankruptcy bench towards the end of 2012. Judge Sanberg replaces Judge Robert Kressel, who is retired and is on recall status. Prior to being appointed to the Tax Court, Judge Sanberg was a partner at Faegre & Benson (now Faegre Baker Daniels), where she practiced in the areas of financial institutions, loan workouts, and bankruptcy.

In mid-2013, Judge Michael Ridgway was appointed to the bench. Before joining Chief Judge Kishel and Judges Kressel, O’Brien, and Sanberg, Judge Ridgway served as a trial attorney at the Office of the U.S. Trustee. Due to his experience within the local bankruptcy community, Judge Ridgway is a familiar face to members of the bankruptcy bar.

Shortly after the appointment of Judge Ridgway, Judge Katherine Constantine was appointed to replace the retired Judge O’Brien. Prior to appointment, Judge Constantine chaired Dorsey & Whitney’s Bankruptcy and Financial Restructuring Practice Group.

Most recently, the U.S. Trustee appointed Gregory Burrell as Standing Chapter 13 Trustee. Mr. Burrell is a native of New Orleans and brings much experience and training in the area of bankruptcy law. His appointment was a result of the retirement of Jasmine Keller.

These are major fluctuations for a bench and bar that have seen little change in the past years. While the impact and implications of these appointments have yet to be realized, the local bar is excited to welcome the new additions.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Illinois: Statute’s Expiration Date is Extended

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

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

On December 26, 2013, the expiration date of the Illinois statute referenced below was extended from January 1, 2014 to January 1, 2016, where the mortgagor applies for assistance under the Making Home Affordable Program on or before December 31, 2015.

Statute 735 ILCS 5/15-1508 (d-5) — Making Home Affordable Program. The court that entered the judgment shall set aside a sale held pursuant to Section 15-1507, upon motion of the mortgagor at any time prior to the confirmation of the sale, if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program established by the United States Department of the Treasury pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and (ii) the mortgaged real estate was sold in material violation of the program’s requirements for proceeding to a judicial sale.

© Copyright 2014 USFN and Pierce & Associates, P.C. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Connecticut: Notices to Quit, "Record Owner", and Wholly-Owned Subsidiary

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

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

In a recent decision, the Connecticut Superior Court held that although the property was held by a subsidiary of a bank that took title through a foreclosure, the bank was not the “record owner” of the property, and the summary process action was dismissed. [OneWest Bank v. Connolly, 2013 Conn. Super. LEXIS 2063 (Sept. 17, 2013)].

The subject property was foreclosed by a bank. That bank then transferred the property to a subsidiary it owned, which would be conveying the property in the REO sale. Thereafter, the bank served the occupants of the property with a notice to quit, listing the bank, rather than the subsidiary, as the owner. The subsidiary later conveyed the property to an LLC, which filed a motion to substitute party plaintiff in the summary process action. The defendants objected to the motion on the ground that the notice to quit was defective.

The court found that even though evidence showed that the record owner was a wholly-owned subsidiary of the landlord listed on the notice to quit, the landlord named on the notice to quit was not the record owner at the time the notice to quit was served, thereby rendering the notice to quit defective.

The landlord listed on the notice to quit must be the owner of the premises by virtue of an instrument recorded on the local land records. It is important to check the chain of title prior to serving a notice to quit in order to identify the current record owner; otherwise a landlord risks having to restart the eviction action.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Connecticut: Intervention by Mortgagee Allowed in Fire Insurance Lawsuit

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

by Geoffrey K. Milne
Hunt Leibert – USFN Member (Connecticut)

In a case of first impression, the Connecticut Supreme Court allowed intervention by the note holder and mortgagee in a lawsuit pertaining to a fire insurance claim (Austin-Casares v. Safeco Insurance Company of America).

BSI Financial Services, Inc., as note holder and mortgagee, filed an appeal to reverse a trial court’s refusal to allow intervention in a claim for an insured loss brought by Austin-Casares against Safeco. The subject fire insurance policy contained a one-year contractual limitation of action. The trial court concluded that BSI could not intervene as a matter of right; there was no evaluation by the trial court as to whether a basis for permissive intervention existed.

The fire occurred on October 26, 2008. Plaintiff Austin-Casares’s complaint was filed on October 12, 2009 — within Safeco’s one-year contractual limitation. Safeco denied coverage, claiming the plaintiff concealed material facts or circumstances. BSI, as holder of the note and mortgage, filed a motion to intervene on March 22, 2011. The trial court denied BSI’s intervention as untimely for not having been filed within one year of the fire loss.

A four-part test assesses a party’s capacity to intervene: (1) intervention must be timely; (2) the intervenor must have a direct and substantial interest in the subject matter; (3) the intervenor’s interest must be impaired without intervention; and (4) the intervenor must not be represented adequately by any other party to the litigation.

The Connecticut Supreme Court determined that the timeliness of BMI’s intervention more than two years after the fire loss was not a topic subject to plenary review, but would be evaluated as to whether or not the trial court abused its discretion. The Supreme Court emphasized that the trial record did not reflect any consideration of BSI’s argument that its motion to intervene should be viewed as relating back to the plaintiff’s original complaint or any assessment of potential prejudice to either party that might stem from a decision to grant or deny the motion to intervene.

The specific limiting language in Safeco’s policy precluded “action” unless brought within one year. BSI contended that the threshold question, which the trial court failed to address, was whether the motion to intervene constituted an “action” or was merely tantamount to amending the plaintiff’s complaint. The Supreme Court concluded that “as a matter of law, the motion to intervene relate[d] back to the original complaint and [wa]s not a separate action for purposes of intervention.”

The Supreme Court accepted BSI’s contention that it was seeking the precise relief sought in the plaintiff’s original complaint, which was payment for fire-damaged property, and did not involve any new or different facts, theories, or claims. BSI merely wanted to be paid first from any payment under the policy. The case was remanded to the trial court to enable a proper exercise of legal discretion based upon permissive intervention.

Editor’s Note: The author’s firm represented BSI in the proceedings summarized in this article.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

Arkansas: State Supreme Court Reviews Predatory Lending Case

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

by Courtney McGahhey Miller
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

The Arkansas Home Loan Protection Act prohibits predatory lending in the home mortgage market and bars certain practices regarding high-cost home loans. A.C.A. §§ 23-53-101, et seq. The Arkansas Supreme Court recently relied upon a portion of the Act in evaluating a Columbia County circuit court’s determination that a lender’s actions were unconscionable and predatory. In Gulfco of Louisiana, Inc., D/B/A Tower Loan of Springhill, Louisiana v. Brantley, 2013 Ark. 367 (2013), the court reviewed the denial of Gulfco’s request to foreclose on the Brantleys’ home.

The Brantleys, who reside in Arkansas, obtained four loans from Gulfco in its Louisiana location over a two-year period, all with very high finance charges and annual interest rates ranging from 24.09 to 40.20 percent. The first loan was obtained to pay household bills that were about to become delinquent. The second loan was used to pay the first loan, a hospital bill, delinquent property taxes, and to purchase a logging truck. To secure the second note, the Brantleys executed a mortgage on their home. The third loan was used to pay arrears on the second loan and to pay household bills. The final loan was used to pay off the third loan and pay an arrearage on the mortgage.

Gulfco filed a notice of default and intention to sell in the circuit court, and planned to foreclose upon the Brantleys’ home. The Brantleys filed a petition for preliminary injunction, asserting that the notes were unconscionable, as Gulfco took advantage of their lack of sophistication and induced them to mortgage their home with knowledge that they did not have stable, full-time employment.

On appeal, the Arkansas Supreme Court reviewed the standards regarding unconscionability. An act is unconscionable if it affronts the sense of justice, decency, and reasonableness. The court relied upon the totality of the circumstances surrounding the negotiation and execution of the mortgage. Consideration was given to the gross inequality of bargaining power between the parties, whether the Brantleys were aware of and comprehended the provisions at issue, and whether there was a belief by Gulfco that there was no reasonable probability the Brantleys would fully perform the contract.

Gulfco was aware that Mr. Brantley worked part-time for a moving company and Mrs. Brantley only earned $120 per week. Gulfco was also aware that the Brantleys fell behind on the first loan because work was slow and Mrs. Brantley became ill. Gulfco’s loan agent called the Brantleys about the delinquency on the first loan and suggested that they take out a second loan.

The court then turned to the Arkansas Home Loan Protection Act. The Act prohibits lending without due regard to repayment. A creditor cannot make a high-cost home loan unless the creditor reasonably believes the obligors will be able to make the scheduled payments based upon a consideration of their current and expected income, current obligations, employment status, and financial resources other than the borrower’s equity in the house that secures repayment. A.C.A. § 23-53-104(l). Any violation of the Act is an unconscionable or deceptive act or practice under the Arkansas Deceptive Trade Practices Act. A.C.A. § 23-53-106(a).

The Supreme Court determined that the evidence showed the Brantleys were not capable of making payments from the beginning. Subsequent loans were made to pay off prior notes or bring payments current. Despite their demonstrated inability to pay, Gulfco continued to loan the Brantleys money. Each loan, with high fees and interest rates, placed the Brantleys further in debt, to the point where default was practically inevitable. The court held that the circuit court did not err in refusing to enforce the mortgage, as doing so would contravene the public policy of Arkansas.

© Copyright 2014 USFN. All rights reserved.
January e-Update

This post has not been tagged.

Share |
Permalink
 

HOA Talk -Oregon: Beware “Jumping” Priority of COA Liens

Posted By USFN, Monday, December 9, 2013
Updated: Tuesday, October 13, 2015

December 9, 2013

 

by David C. Boyer
RCO Legal, PC
USFN Member (Alaska, Oregon, Washington)

In Oregon, condominium association (COA) liens can obtain priority — or “jump” priority — over a first trust deed of record. Accordingly, any loan in default within a planned community should be carefully and promptly assessed.

Under Oregon’s Condominium Association Trust Act (ORS 100.105, et seq.), any assessments or fees due under a condominium declaration has the ability to jump priority. To do so, the COA must provide notice to the lender of record (the “Notice to Lender”). If a foreclosure of the trust deed is not initiated within 90 days from the date of the Notice to Lender, the COA lien jumps priority. In judicial foreclosures, which have recently been the predominant form of foreclosure in Oregon, a foreclosure has been generally perceived as being initiated upon the first legal filing.

Requirements to Jump Priority

A COA lien can establish priority ahead of a trust deed by recording and providing a Notice to Lender that includes: the name of the borrower, date and recording number of the trust deed, name of the condominium, unit number, and the amount of unpaid assessments (ORS 100.450(7)). Further, the notice must contain the following in 10-point font: “NOTICE: The lien of the association may become prior to that of the servicer pursuant to ORS 100.450 (Association lien against individual unit).”

The notice must be accompanied with an affidavit providing the date and person to whom notice was served (ORS 100.450(f)). If the borrower is in default under the terms of the trust deed, then the COA lien notice can establish priority if the servicer fails to initiate a foreclosure or complete a deed-in-lieu of foreclosure within 90 days. The COA lien includes all associated attorneys’ fees and interest.

SB 558: Opening the Door to COA Lien Priority?
The recent passage of Senate Bill 558 (SB 558) has failed to clarify when foreclosure of a trust deed is “initiated,” an important term because such initiation prevents a COA lien from jumping priority.

SB 558 requires a beneficiary under a residential trust deed to request a resolution conference with a borrower for purposes of negotiating foreclosure avoidance measures prior to bringing a judicial foreclosure suit, unless the beneficiary is eligible to claim exemption from the requirement. [SB 558, Section 2(1)(a)].

The requirement to request or participate in a resolution conference does not apply to a beneficiary if the beneficiary submits a sworn affidavit to the attorney general, stating that during the preceding calendar year the beneficiary did not commence or cause an affiliate, subsidiary, or agent of the beneficiary to commence more than a total of 175 actions to foreclose a residential trust deed, either by judicial foreclosure or by nonjudicial foreclosure. [SB 558, Section 2, 1(b)(A)].

SB 558 permits either a beneficiary or grantor to request a resolution conference. Whether a resolution conference is initiated by a borrower or a servicer, several steps must be completed before a servicer is able to retain the certificate of compliance that must be attached to the first legal filing in a judicial foreclosure suit.

Since proper notice of a COA lien provides the COA the ability to jump the priority of a trust deed if a foreclosure is not initiated within 90 days of the notice, the question becomes: When is a judicial foreclosure initiated in terms of the new requirements under SB 558? Instances can certainly be anticipated where a COA provides a servicer with notice of a lien pursuant to ORS 100.105, and the requirements of SB 558 obstruct a servicer’s ability to file a judicial foreclosure suit prior to the expiration of 90 days. There is no clear guidance in SB 558 indicating whether or not the servicer in such a situation has initiated a foreclosure by requesting a resolution conference.

Arguably, the request for a resolution conference is the initiation of a foreclosure under the new requirements to foreclose in Oregon. However, no rules or case law provide a clear answer. While recent case law may help servicers return to more nonjudicial foreclosures, mediation requirements cannot be avoided (mediation is required under Senate Bill 1552 for nonjudicial foreclosures). (Editor’s Note: For further insight into the most recent changes to Oregon foreclosures, see the Oregon segment of Mediation: Foreclosure Updates from Four States, USFN Report (Summer 2013 ed.).)

Is it a COA or an HOA?

One of the first steps in any new foreclosure case in a single family or multi-unit development is assessing whether a COA or Homeowners Association (HOA) runs with the property. HOAs are governed under the Planned Community Act (ORS 94.550 to 94.783). If an HOA covers the property, then there is no risk of assessments, fees, or a lien taking priority over the trust deed. HOA liens are subordinate to first and second trust deeds and are generally acknowledged as junior by the subject HOA.

The organizing documents of an HOA typically provide covenants that give the association authority to lien for unpaid dues and any subsequent attorneys’ fees connected with collection (ORS 94.709). However, as against third parties, a claim of lien is not perfected until it is recorded (F.N. Realty Services v. Oregon Shore Rec. Club, 133 Or. App. 339 (1995)). Thus, HOA liens have priority according to their respective recording date, and do not relate back to when organizing documents (bylaws, declarations of incorporation, etc.) or amendments were recorded.

Lenders and servicers should quickly take action on any Notice to Lender. Correspondingly, when assessing a foreclosure within a COA, counsel should carefully review any COA letters, declarations, or liens recorded in the real property records. If a COA lien notice is discovered, counsel should be promptly notified so that an assessment can be made as to whether ORS 100.105 requirements have been satisfied. If all notice requirements have been met, swift steps must be taken to initiate a foreclosure within 90 days to avoid losing priority to the COA lien.

Conclusion
A COA’s ability to jump priority continues to plague servicers. However, with proper oversight, foreclosures can be managed to provide servicers with the ability to maintain priority and save on the growing costs of Oregon foreclosures. While the full effects of SB 558 are still unknown, servicers and their outside counsel need to pay particular attention to any COA notice so that they may act timely to maintain lien priority.

©Copyright 2013 USFN. All rights reserved.
Autumn USFN Report.

This post has not been tagged.

Share |
Permalink
 

Texas: Important New Law re Expedited Foreclosure Application

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by G. Tommy Bastian
Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (Texas)

Due to new Texas lawmaking, mediation may be compelled when a borrower files a response to a Texas Rule of Civil Procedure § 736 expedited foreclosure application that seeks the mandatory court order required by the Texas Constitution to foreclose a home equity, reverse mortgage, or home equity line of credit loan. [See House Bill 2978, effective June 14, 2013.] In addition, this new legislation allows Rule 736 applications to be personally served by a sheriff, constable, or qualified process server. Previously, only the clerk of the court served each respondent with the citation for expedited foreclosure and a Rule 736 application by mail.

Personal service will probably lessen many judges’ reluctance, and often refusal, to sign a Rule 736 default order that allows a foreclosure to proceed. From a servicer’s perspective, and apparently because of a quirk in the new rule, the convergence of the mediation and the personal service rule means that servicers should consider serving respondents by personal service because it eliminates court-ordered mediation. The cost of service remains the same (whether the clerk serves each citation or each citation is personally served by the sheriff, constable, or authorized process server).

How the mediation rule will work in practice will likely evolve through trial and error. As a condition precedent to mediation, the borrower must file a timely response to the Rule 736 application. If a response is not filed, there is no mediation. When a response is filed, the court must set a hearing to determine whether mediation should commence — unless, as indicated above, the borrower was personally served with the Rule 736 application.

Once the borrower files a response, the court on its own motion, or at the request of a respondent or servicer, must set a hearing on whether mediation is necessary. If mediation is ordered, it can be conducted by telephone with the court coordinating the logistics of a telephone hearing. Further, the parties can agree on a mediator or, if the parties cannot agree, the court will appoint a mediator. Mediation costs are to be divided equally between the parties.

In addition, effective on or before March 1, 2014, new legislation requires the Texas Supreme Court to adopt mandatory foreclosure forms as part of the Texas Rules of Civil Procedure loans requiring a court order to foreclose, which include home equity, HELOCs, and reverse mortgages. At a minimum, the promulgated forms will include a Rule 736 application form and its supporting affidavit form, which must be executed by the servicer and must meet Texas motion for summary judgment standards, and a new citation form if the clerk of the court serves the respondent. As long as a mortgage servicer uses the Texas Supreme Court’s affidavit form, the judges’ current propensity to refuse a servicer’s standard form of affidavit as competent evidence in a Rule 736 proceeding should be significantly curtailed.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

Rhode Island’s Innovative Foreclosure Law: Navigating the Path Forward

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by Rebecca L. Washington

Brennan, Recupero, Cascione, Scungio & McAllister, LLP – USFN Member (Rhode Island)

R.I.G.L. 34-27-3.2 and the Opportunity to Mediate
A new and progressive law, R.I.G.L. 34-27-3.2, has really shaken things up in the Rhode Island foreclosure arena. This law mandates that certain borrowers in Rhode Island be given the opportunity to participate in mediation, also known as conciliation, in an attempt to obtain a workout or other alternative to foreclosure with their lender. This law went into effect September 13, 2013.

The law is modeled after the five local ordinances already put in place by Providence, Cranston, Warwick, East Providence, and Warren. Like the local ordinances, the law only applies to 1-4 unit owner-occupied residential properties. It is important to note, though, that mortgagees headquartered in Rhode Island who service their mortgages in the state and provide full mortgage service functions, including loss mitigation, in Rhode Island, are exempt from this law.

The statewide law supersedes the five local ordinances and shall apply to all new foreclosure files moving forward, in lieu of the local ordinances. R.I.G.L. 34-27-3.2 applies a strict deadline that all lenders must comply with: mortgagees are required to notify owners of their right to a mediation conference BEFORE the mortgage is 120 days delinquent by mailing “3.2 Notices” to not just borrowers, but also to any owners on title. These 3.2 Notices have been promulgated by the Rhode Island Department of Business Regulation and they must be mailed, in triplicate, to the borrowers and owners in English, Portuguese, and Spanish. Simultaneously, the mediation coordinator at Rhode Island Housing, Archie Martins, must be notified and a $150 fee must be made payable to Rhode Island Housing for the mediation service (regardless of whether the borrower/owner actually requests a mediation). It is important to note that this $150 is a cost to the mortgagee that cannot be passed on to the mortgagor. And, Rhode Island Housing has been certified by the Department of Business Regulation to provide these mediation services.

A key difference exists between the statewide foreclosure law and the five local ordinances that have been in existence for a few years: If and when a foreclosure was conducted improperly under the local ordinances, the clerk at the registry of deeds had the option of rejecting the foreclosure deed and accompanying affidavits. If this were to happen, the mortgagee had the ability to start again — a second chance if you will — to get it right. However, because the new statewide law has imposed a 120-day delinquency deadline in an attempt to alert borrowers early on of their right to mediate, if a mortgagee now misses that deadline and fails to conduct the foreclosure process properly, its only recourse is to move forward with a judicial foreclosure. As a mortgagee can never again go back in time and ensure that the borrower receives timely notice of his or her right to mediate, mortgagees must seek court action to foreclose on the secured property.

3.2 Notices, then 3.1 Notices

Once the 3.2 Notices have been mailed to all borrowers and owners on title, a 60-day timeline begins to run within which the borrower or owner must take action and request mediation with the lender through Rhode Island Housing. If within the 60-day time frame, the borrower and lender are able to work out an agreement (which is defined as a trial period, a loan modification, forbearance, or any sort of workout whatsoever), that agreement must be reduced to writing. If the borrower defaults again on that written agreement within 12 months from the date of the agreement, then no further mediation is necessary and the lender may move forward with the foreclosure process.

However, if the borrower defaults on this written agreement more than 12 months after the agreement became effective, then the lender must abide by RIGL 34-27-3.2 all over again and the mediation process must once again be offered to the borrowers and any owners on title.

Now, if this 60-day period passes and no workout is achieved, the mortgagee must state, in writing, why a workout was not feasible. Mortgagees must then mail out a separate notice, the 3.1 Notice, which is mandated by R.I.G.L. 34-27-3.1. It may seem awkward to send 3.2 Notices prior to sending 3.1 Notices; however, there is a method to the madness. The 3.2 Notices that go out to all borrowers and owners on title are mediation notices, designed to inform borrowers and owners of their right to mediate with their lender. The 3.1 Notices, however, are sent after this mediation period has expired and advise borrowers of their right to further foreclosure counseling (akin to a last-resort attempt to help the borrowers avoid foreclosure).

A key difference is that although the 3.2 Notices must be mailed to both borrowers and owners on title, the 3.1 Notices are only required to be mailed to borrowers. Now, R.I.G.L. 34-27-3.1 requires that after these 3.1 Notices are mailed, borrowers be given an additional 45 days before the mortgagee initiates the foreclosure process and the notice of foreclosure sale letters are mailed. Thus, on the 46th day after the 3.1 Notices are mailed, the notice of foreclosure sale can be mailed to the borrowers. This letter informs them as to when the foreclosure auction will take place and when news of the sale will be published in a local newspaper.

Exemption from R.I.G.L. 34-27-3.2

There are some foreclosure properties that are exempt from the new Rhode Island foreclosure law, R.I.G.L. 34-27-3.2: If any foreclosure involves a borrower that was delinquent for 120 days or more before 9/13/13, then this new law DOES NOT APPLY and 3.2 Notices do not have to be sent to the borrowers and owners on title. However, if a foreclosure involves a borrower that was delinquent for less than 120 days before 9/13/13, then the new foreclosure law does apply and the new 3.2 Notices must be mailed.

Recording the Foreclosure Deed
In order to record a foreclosure deed, the mortgagee will have to provide the appropriate certification to show that it has complied with the requirements of the new law. If the foreclosure in question is exempt from R.I.G.L. 34-27-3.2, then a 3.2 exemption affidavit must be recorded to explain why this particular property is exempt.

Conclusion
This new foreclosure mandate has a significant effect on lenders, as they must now decipher which of their files are exempt from the new law versus those files that must comply with the new law. Rhode Island foreclosure attorneys are fielding numerous inquiries from their lender clients and servicers. The Department of Business Regulation has proven instrumental in assisting both firms and lenders through this period of adjustment. Although it is anticipated that these next few months might endure some bumps along the way, the Department of Business Regulation and Rhode Island Housing are both pillars of information to guide the way until lenders are completely comfortable implementing the new law.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

North Carolina: Evolving Title Curative Legislation

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by John Madulak
Hutchens Law Firm – USFN Member (North Carolina)

If you mention the number .410 to a hunter, memories of their first shotgun and firearms safety courses come to mind. It’s only fitting that House Bill 410 is North Carolina’s shotgun approach to solving manufactured home title issues, a field that’s been largely untouched since 2002. However, opinions differ as to whether the legislature hit its target or if they need to reload and re-aim.

The manufactured housing statutes enacted in 2002 provided a measure to permanently affix a home to land pursuant to N.C. Gen. Stat. § 47-20.6 and N.C. Gen. Stat. § 47-20.7. They allow the owner of both the home and land to file a document with the register of deeds that permanently affixed the home to the land on recordation.

However, if you flushed out a certificate of title during your title hunt, you faced two unpalatable options for resolution, the first of which involved stalking the cooperation of the listed parties. Filing a civil suit also got the job done but, like a fox hunt, it expended a great amount of time and energy. Filing repossession affidavits under the UCC remained a viable option in certain cases, but its season was short and it gave rise to poachers who filed such repossession forms far beyond their intended scope.

Enter House Bill 410, which alters the provisions of N.C. Gen. Stat. § 20-109.2. Section (a)(1) is a new part of this law, which allows an owner of real property to file an affidavit with the North Carolina Division of Motor Vehicles to cancel a manufactured home title. Under this section, it is assumed that the title is surrendered when it cannot be located, so the affiant does not have to be the listed owner on the certificate of title, but must submit a copy of the tax card confirming the home is taxed as real property in lieu of the title.

At first blush, this appears to be a magic bullet, but the gun jams under section (b)(3), which if read literally still requires the affiant to assert he owns both the land and the manufactured home. Others reach an opinion that the wording of section (b)(3) is a typographical error, and that the statute is a dog that will hunt as drafted.

One thing is clear — any lienholder must release its interest prior to cancellation, meaning that the old cancellation methods apply if you encounter a stubborn or dissolute lienholder. Calling your title insurance carrier before canceling a certificate of title under this provision is wise, and should keep you from shooting yourself in the foot.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

The UCC and Lien Priority: The Answers Lie Within

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

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

“In the past few years, the courts have been witness to many abuses in the mortgage industry: forged paperwork, inflated claims, “robo-signers,” etc.” Knigge v. SunTrust Mortg., Inc., 472 B.R. 808, 811, 2012 Bankr. LEXIS 1895, 77 U.C.C. Rep. Serv. 2d (Callaghan) 432, 2012 WL 1536343 (Bankr. W.D. Mo. 2012). “While it is incumbent on the Court to be vigilant for these abuses and to protect debtors from overreaching creditors, the Court must also be wary of debtors trying to ride the wave of anti-creditor sentiment to evade liability on valid claims, based on insignificant, technical irregularities, notwithstanding admissions that they borrowed money, secured the loan with a deed of trust, mortgage, etc., and have suffered no abuse by the lender whatsoever (i.e., no improper foreclosure, no excessive fees, no nonfeasance or malfeasance). Notably, these debtors don’t usually allege that they owe the money to a different entity or that a different entity has the standing to enforce a mortgage; rather, they seek to shed the lien and loan altogether — despite the fact they’ve suffered no harm other than the reality that they have to repay the loan to keep their property.” Id. at 812.

Describing all of the various and creative claims mortgagors have used to attack foreclosures would likely prove an impossible task, but a trend has developed around the nation and in Missouri to analyze many borrower claims and the corresponding lender rights or claims of standing in the context of the Uniform Commercial Code (UCC).

Missouri has adopted the UCC, and the UCC as adopted by Missouri governs the enforceability of negotiable notes. Application of the UCC “is straightforward regarding this question of who may enforce the Note.” United States Bank Nat’l Ass’n v. Burns, 406 S.W.3d 495, 497, 2013 Mo. App. LEXIS 990, 2013 WL 4520014 (Mo. Ct. App. 2013). Applying the UCC, the court in Burns held that since U.S. Bank was the holder of the note, which had been endorsed in “blank,” U.S. Bank was therefore also entitled to enforce the deed of trust. Id. at 499. In the case, the Court of Appeals for the Eastern District of Missouri rejected the borrower’s primary argument that a recorded assignment from MERS to U.S. Bank demonstrated a lack of right to enforce the deed of trust. In doing so, the court not only explicitly held that the question of a proper assignment was “irrelevant” in light of U.S. Bank holding the actual note, but also refused to find any significance to the borrower’s claim that an entity described as “MERS, as nominee” presented an infirmity in U.S. Bank’s right to enforce the note.

The UCC is certainly not a new body of law in Missouri nor is its application to the enforcement or transfer of notes a recent concept. To the contrary, the law was written and adopted specifically to address these issues. But the Burns case is significant precisely because it is the clearest and most recent application in Missouri law of the UCC in the context of lien priority of a deed of trust. Both the state and federal courts in Missouri have increasingly looked to the UCC to determine cases, and their legal analysis will prove to be applicable in a broad array of suits involving lien priority, standing, lender liability, right to enforce, and a host of other issues related to mortgage litigation.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

Connecticut: Court Finds Jurisdiction Despite Stationery Header

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

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

On October 30, 2013, in a case captioned U.S. Bank, National Association successor-in-interest to Wachovia Bank, N.A. as Trustee of JP MORGAN 2004-A3 v. Bailey, docket number FST-CV-10-6003100-S, the court found that the plaintiff had standing. The defendants filed a confusing motion to dismiss, alleging nine separate reasons for dismissing the action. The court did not find in favor of defendants on any of the alleged jurisdictional deficiencies.

The court held an evidentiary hearing to consider the defendants’ motion to dismiss. The plaintiff’s witness was employed by PHH Mortgage. At the hearing, the plaintiff’s witness introduced the note. Testimony established that the defendants had executed the note in favor of Merrill Lynch Credit Corporation. The note contained endorsements, which according to the witness, were all placed on the note in 2004. The court found this testimony credible because the trust was formed in 2004, as evidenced by the name of the plaintiff. The witness also introduced into evidence the mortgage and the mortgage assignment to the plaintiff. Defendants’ counsel did not elicit anything of note in cross-examination.

The defendants’ only evidence was hundreds of pages of correspondence from the servicer (Cendant Mortgage and, later, PHH Mortgage). Each page of correspondence had either of those names on the right corner. In the left corner, each page contained the name “Merrill Lynch Credit Corporation.” The defendants’ theory of the case was that Merrill Lynch Credit Corporation was the only entity entitled to enforce the mortgage, despite the endorsements, testimony, and assignment of mortgage. The court found that the letters established that PHH was, in fact, the servicer for this loan.

The plaintiff’s witness rebutted the defendants’ exhibit by explaining that the loan number on the correspondence showed who the investor was for the note and mortgage. Plaintiff’s witness further testified that the loan number established that the plaintiff, not Merrill Lynch Credit Corporation, was the proper plaintiff.

The court ruled that the plaintiff’s evidence sufficiently established standing, and found that the defendants failed to prove that any other party had standing. The defendants failed to provide any evidence regarding the authority of the persons who endorsed the note. The court also found that the defendants failed to offer any evidence regarding the endorsements, despite having raised the argument in the written motion to dismiss. The defendants’ motion pointed out that two of the endorsements had been signed by the same person for two separate entities. However, the endorsements clearly showed that he was an agent for one of the entities, and the defendants failed to produce any evidence that the endorser did not have authority to execute the allonge.

While the plaintiff was successful in this matter, the case underscores the importance of correspondence being correct. Had the letters not had the name “Merrill Lynch Credit Corporation” on them, the defendants would have been deprived of any evidence whatsoever. All correspondence to borrowers should be clear and accurate, and there should not be any extraneous information, such as the name of the original lender in the letterhead.

Editor’s Note: The author’s firm represented the plaintiff in the matter summarized in this article.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

Attachment of Foreign Judgments in Arkansas

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by Angela Boyd
Wilson & Associates, P.L.L.C. – USFN Member (Arkansas, Tennessee)

Judgments entered against a defendant in one jurisdiction can be registered in another jurisdiction. These are referred to as foreign judgments and, once registered, have the same force and effect as a judgment rendered in the new jurisdiction. The process for registering foreign judgments is found in the Uniform Enforcement of Foreign Judgments Act, which was codified as Arkansas Code Annotated §§ 16-66-601, et seq.

In a recent appellate court decision, Harris v. Temple, 2013 Ark. App. 605 (3rd Div. Oct. 23, 2013), the Arkansas Court of Appeals took a closer look at the time frames for the attachment of foreign judgments to real property in Arkansas. In that case, Harris obtained a judgment against Temple in Louisiana. Two years later, Harris filed a petition with an Arkansas Circuit Court to register the judgment in that jurisdiction. Temple owned property with his wife as tenants by the entirety in that jurisdiction. An order was entered by the circuit court to register the judgment. One month later, Temple filed a motion with the Arkansas circuit court to set aside the judgment. Temple subsequently died, which resulted in title transferring immediately to his wife. A second motion to set aside the judgment was filed with the circuit court by Temple’s son. Neither the original motion filed by Temple, nor the subsequent motion filed by his son, was decided until after Temple’s death, when both motions were ultimately denied.

Temple’s wife filed a declaratory judgment to deem the judgment unenforceable on the basis that the judgment did not attach to the subject property because she became the sole owner at the time of Temple’s death, and the judgment was not final until after Temple’s death when the motions to set aside were denied. On the other hand, Harris argued that the judgment was final as of the date that the judgment was registered and that the pending motion to set aside did not prevent the attachment of the lien. The court agreed with Harris and held that the foreign judgment was final and enforceable as of the date the order was entered to register the judgment. The motion to set aside the judgment did not affect the enforceability of the judgment and did not prevent the lien from attaching to the property. Therefore, the lien attached to the property prior to Temple’s death, and Temple’s wife obtained title subject to the judgment.

The ruling clarifies that, in Arkansas, foreign judgments attach to real property in a jurisdiction at the time the order is entered to register the judgment in that district, regardless of any pending motions to set aside that judgment. Therefore, any registered foreign judgments must be reviewed and analyzed when conducting title searches, especially when determining lien priority in the context of foreclosure or other mortgage servicing activities.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

Successfully Navigating the Logistical Challenges of Commercial Foreclosure

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by Charles L. Hahn & Steven A. Jacobs
Trott & Trott, P.C. – USFN Member (Michigan)

The foreclosure-related challenges of property management, maintenance, and security are significant for commercial mortgage lenders: from managing rental income and tenancy rates, to preventing vandalism, navigating potentially contentious landowner disputes, and maintaining property value through regular maintenance. It takes little time for even a thriving property to become a costly liability.

As a result, it is essential to work closely with a legal expert who has demonstrated expertise in dealing with these challenging circumstances, and knows how to protect lender investments. What follows is a review of the most effective mechanisms available to lenders looking to preserve their properties.

Documentation
Promptly assembling the correct loan documentation is critical to protecting both collateral and continued cash flow. Commercial loan documentation provides the legal tools needed to safeguard the collateral, whereas important addenda and clauses provide the lender the power to act decisively through the assignment of rents and appointment of receivers. Efficiently preparing and enforcing loan documents depends on the preparedness of the lender/servicer, as well as its property management and legal teams.

Rental Income Control
An agreement for assignment of rents can be an important tool in re-directing cash flow from the tenants’ lease agreements to the lender, allowing that income to be applied to the loan balance after payment of expenses. In some cases, this rental income can be collected concurrently with a foreclosure action and continue through the redemption period, making the assignment of rents a mechanism that allows cash flow to be obtained while bypassing the defaulted borrower.

Maintenance

The drawback of acting upon an assignment of rents is that it can potentially decrease motivation for borrowers to continue maintaining the premises, as operating expenses will not be reimbursed through the rental receipts. Lenders/servicers should be prepared to take over responsibility for the premises in its entirety, and have a detailed maintenance plan in place to maintain asset value.

Management Expertise

With cooperative borrowers/mortgagors, a negotiated property management transfer may be possible after executing the assignment of rents. It is essential to hire a property management company with a professional skill set that is well suited to the property in question — it makes little sense to hire a property management company specializing in multi-family operations to manage a mixed-use commercial property. If a management resolution cannot be reached, a judicial action may be filed to insert a receiver to manage the collateral.

Receivership
Most commercial loan documentation includes powers for lenders to take control of the property through a receivership. Even when loan agreements lack such powers, existing laws frequently fill in the gaps. Lenders/servicers should have compelling reasons to request a receiver appointment. Items such as unpaid taxes or insurance, current property use and condition, management capabilities of the mortgagor, or difficulties collecting rent are all important considerations for a court when deciding whether to displace a mortgagor of its interest. Receivership can be a temporary damage control tool or part of a comprehensive foreclosure procedure when a complete takeover and liquidation are needed. In either situation, swift acquisition of asset control is important, as property conditions can deteriorate rapidly. The primary drawback to a receivership is the overall expense, and a cost-benefit analysis is warranted before proceeding.

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

The CFPB steps into the FDCPA: More Alphabet Soup or Meaningful Structure and Guidance?

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by Wendy Walter
RCO Legal, P.S. – USFN Member (Arkansas, Oregon, Washington)

On November 6, the Consumer Financial Protection Bureau (CFPB or Bureau) published its advanced notice of proposed rulemaking covering the Bureau’s intention to begin rulemaking in the area of the Fair Debt Collection Practices Act (FDCPA). For firms and clients with compliance systems and policies tailored to the current state of the law in debt collection, this announcement signals the beginning of a change to the law as we currently know it.

The CFPB issued 162 questions covering six major topics, including transfer of information from original creditor to the debt collector; validation notices, disputes and verifications; communication with third parties; unfair, deceptive, and abusive acts or practices and questions about how the Bureau should define “unfair;” collection of time-barred debts; and debt collection in the litigation process and procedures in suits collecting debts. The Bureau’s goal is to clean up some areas in the law that might not be clear to consumers, areas that create impossible situations for the industry, and to overall help create a standard of conduct in the collection of debts.

For transfers of information, the Bureau wants to know if debt buyers are aware of pending or prior disputes, cease-communication requests, or whether the consumer was represented by counsel. In the advance notice of proposed rulemaking (ANPR), the Bureau also discusses the extent to which consumers should have the right to obtain more information about the debt, whether there should be a requirement for the debt collector to provide a regular statement, and the extent to which a consumer should get notice when the debt is sold.

On the subject of the validation process, the Bureau is asking questions that seem to indicate a new standard validation form may be on its way. The form might rephrase the way borrower rights are described to make them easier for the consumer to understand; it might explain all consumer rights under the FDCPA including the right to request that communication cease, the right to have collection efforts stopped during the investigation and validation of the debt, the right to have communication go through an attorney if the consumer is represented; and the new form might clarify the total amount owed provision and possibly require that debt collectors break out the fees from the “principal,” explain the principal concept, and possibly disclose the charge-off date and charges and fees incurred since that date. The Bureau thinks the statements might need more information in order to properly identify the loan or account that is being collected including, but not limited to: identification of joint borrowers, partial disclosure of the social security number, account number of the original creditor, name of the original creditor, name of brand associated with the debt, and the type of debt being collected. Another topic the Bureau explores is the fact that the majority of non-English speaking consumers in the U.S. are Spanish-speaking, and it asks whether the notices should be in English and Spanish to be clearer and understandable.

The Bureau has more questions about the dispute process. If a debt is disputed, should a debt collector have a deadline by which to respond and validate a debt? Should there be a form for responding and validating a debt? Another question, one that is well-taken in our industry given the volume of frivolous disputes seen in mortgage servicing: should there be a standard for a consumer when disputing a debt? In other words, the Bureau wants to know if it makes sense to require a consumer to submit basic information or documentation to support a dispute under the FDCPA.

The Bureau is also focused on technology, social media, cell phones, and text messages as methods of communicating with consumers and the extent to which debt collection communication is occurring in these contexts.

As an industry, we could add to the discussion, highlight the overlap between the new national servicing rules in RESPA and TILA, and work towards a carve-out of the foreclosure process and keeping it distinct from debt collection. Now that the questions the Bureau is asking are known, it might be time to start the discussion. The comment period ends February 10, 2014 — and what else do we have to do between now and then? Wait a minute, aren’t there some new servicing rules to worry about?

© Copyright 2013 USFN. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 

Federal Court Decision Requires Changes to Reverse Mortgage Program

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by Ginny Rutledge & Elizabeth Loefgren
Sirote & Permutt, P.C. – USFN Member (Alabama)

A recent opinion by the U.S. District Court, District of Columbia, ruled that regulations promulgated by the Secretary of the Department of Housing and Urban Development (HUD) conflict with federal law. This holding may lead to more protections against foreclosure for surviving spouses of mortgagors who took out reverse mortgages under HUD’s Home Equity Conversion Mortgage (HECM) program.

In Bennett v. Donovan, __ F. Supp. 2d __, 2013 WL 5424708 (D.D.C. Sept. 30, 2013), widowed spouses of mortgagors with HECM reverse mortgages (plaintiffs) filed suit and claimed protection from foreclosure, even though they themselves were not obligors of the notes secured by the mortgages and were not listed on the deeds of their homes. Based on the language of the uniform HECM reverse mortgages and 24 C.F.R. § 206.27, the lender can demand full payment of the loan if the mortgagor “dies and the property is not the principal residence of at least one surviving [mortgagor.]” Since the surviving spouses were not mortgagors or borrowers who executed the notes, the lenders initiated foreclosure.

The surviving spouses filed suit and claimed that § 206.27 violated 12 U.S.C. § 1715z-20(j), a HECM provision that prohibits HUD from insuring a HECM reverse mortgage unless the mortgage provides that the homeowner’s obligation is deferred until, among other events, the homeowner’s death. Subsection (j) also states that “homeowner” includes the spouse of the homeowner. Accordingly, the plaintiffs asserted that § 206.27 violated the statute and the lender should not be able to foreclose if the deceased mortgagor is survived by a spouse. The district court first dismissed the case due to lack of standing, but the Court of Appeals reversed and remanded it back to the district court. Bennett v. Donovan, 797 F. Supp. 2d 69 (D.D.C. 2011) reversed in Bennett v. Donovan, 703 F.3d 582 (D.C.Cir. 2013).

In its 2013 opinion, the district court held that HUD violated § 1715z-20(j) when it insured the reverse mortgages of the plaintiffs’ spouses pursuant to agency regulation, which permitted their loan obligations to come due upon their death regardless of whether their spouses (plaintiffs) were still alive. The court performed a Chevron analysis and ruled that the statute was clear on its face and Congress likely intended to include the death of the homeowner’s “spouse” as a condition-precedent of the deferral of the loan obligation, regardless of whether the spouse was a mortgagor or borrower. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S. Ct. 2778 (1984) (outlining a two-step process courts must follow in determining whether to defer to an agency’s interpretation of a statute).

Interpreting the statute otherwise would render the definition of a “homeowner” in subsection (j) meaningless. The court also noted that Congress’s use of the word “spouse” was specific to that subsection, confirming that “Congress drafted the statute with an understanding that spouses could be distinct from homeowners, and that scenarios might arise where reverse mortgages would be entered into by only one of two spouses but still affect the non-mortgagor spouse.” Although the court was unable to require HUD to follow a precise set of steps to remedy the legal error, it did remand the case to HUD for further proceedings consistent with its opinion. HUD has been given the direction to protect the surviving spouse of a reverse mortgage borrower and has the discretion to determine how to accomplish that task.

The Federal Housing Authority’s (FHA) HECM program provides reverse mortgages to those who are 62 years or older and allows elderly homeowners to obtain additional income by borrowing against the equity in their homes. At loan origination, the mortgagor’s spouse may not sign the note for multiple reasons: one spouse may have taken out the reverse mortgage before the marriage, one spouse may be under the age of 62 and thus ineligible for an HECM, or the younger spouse may not be named in order to qualify for a larger loan amount. In order to prevent the foreclosure challenges involved with reverse mortgages, a lender should identify all parties with an interest in the property at loan origination, including not only the spouse but also parties who have a title interest in the property. The lender should also consider requiring all parties with such an interest to execute the note. Otherwise, lenders will continue to face challenges when foreclosing reverse mortgages when the reason for default is due to the death of the borrower who signed the note and the property is still occupied by the non-obligated surviving spouse or the non-obligated party with a title interest in the property.

© Copyright 2013 USFN and Sirote & Permutt, P.C. All rights reserved.
November/December e-Update

This post has not been tagged.

Share |
Permalink
 
Page 21 of 26
 |<   <<   <  16  |  17  |  18  |  19  |  20  |  21  |  22  |  23  |  24  |  25  |  26
Membership Software Powered by YourMembership  ::  Legal