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If Mortgage Debt is Not Paid in Full, Funds Beyond Mortgagee’s Bid are Not Surplus Proceeds

Posted By USFN, Monday, June 17, 2019
Updated: Tuesday, June 18, 2019

by Matthew Levine, Esq.
Trott Law, PC
USFN Member (MI, MN)

The Michigan Court of Appeals, once again, addressed the rights of a foreclosing mortgagee to foreclosure sale proceeds.  In re Claim for Surplus Funds, BAERE Co. v Specialized Loan Servicing, LLC, Case No. 344016, the foreclosing party, Specialized Loan Servicing, LLC. (“SLS”) brought a mortgage loan to foreclosure and submitted a bid in the amount of $20,300.00, which represented only a portion of the $51,915.75 total debt.   On the date of sale, a third party successfully purchased the property for $51,915.75. The Kent County Sheriff turned $20,300.00 over to SLS, however, the Sheriff held onto the remaining funds.

Prior to the foreclosure sale, BAERE Co. purchased the subject property from the mortgagor. Following the foreclosure both BAERE and SLS filed claims for the funds held by the sheriff. SLS claimed the funds as the mortgage remained unsatisfied. BAERE claimed the funds as the successor to the mortgagee under MCL 600.3252.  Given the fact that two parties claimed the same funds, the issue was left for the court to “make an order in the premises directing the disposition of the surplus moneys or payment thereof in accordance with the rights of the claimant or claimants or persons interested,” MCL 600.3252.

BAERE made two arguments that ultimately became the subject of appeal. First, it argued that, because SLS received $20,300.00 as proceeds from the sale, and a foreclosure satisfies the underlying mortgage, SLS was not entitled to the remaining funds. Second, BAERE argued that because SLS provided a specified bid in an amount less than the total debt, it was acquiescing to satisfaction of the debt in an amount less than the total debt. The Kent County Circuit Court found in favor of SLS and BAERE appealed. While this issue has been with the Michigan Court of Appeals, this represents the first published opinion directly on the topic.

The primary questions were whether the mortgage was satisfied upon receipt of its bid amount and whether there was a surplus. MCL 600.3252 includes the phrase “after satisfying the mortgage on which the real estate was sold.” The Court of Appeals noted:


The terms “satisfy” and “surplus” are not defined in the statute. As a result, we will consult the dictionary to determine the common and ordinary meanings of the words. See Krohn v Home-Owners Ins Co, 490 Mich 145, 156; 802 NW2d 281 (2011). The word “satisfy” is defined, in relevant part, as “to carry out the terms of (as a contract); DISCHARGE,” and “to meet a financial obligation to.” Merriam-Webster’s Collegiate Dictionary (11th ed). Merriam-Webster’s collegiate Dictionary (11th ed) defines “surplus,” in pertinent part, as “the amount that remains when use or need is satisfied.”


The Court of Appeals held that satisfaction of the mortgage, as used in MCL 600.3252, necessarily means satisfaction of the debt, unless the total amount due under the mortgage is paid. In the matter before the Court, the total debt was not paid, therefore, the mortgage was not satisfied. Specifically, the Court held


 it is unambiguous that ‘satisfying the mortgage’ refers to paying off the entirety of the debt secured by the mortgage. In other words, satisfying a mortgage and extinguishing the mortgage are not synonymous. It is therefore beyond dispute that respondent’s mortgage was not ‘satisfied,’ and no surplus funds existed for petitioner to seek.


BAERE alternatively argued that submission of a bid amount less than the total debt is an express agreement to accept less than the debt amount as satisfaction, thus any additional amount would constitute a surplus. The Court of Appeals held that a bid sheet is not a contract or a binding admission establishing the debt (“We are aware of no law requiring mortgagees to bid the full amount owed during a foreclosure sale, and we decline to create any such law.”)

It is, of course, possible that one of the parties will appeal this decision, and that the Michigan Supreme Court will agree to hear the matter; however, this appears to be an unlikely outcome. Assuming the Michigan Court of Appeals decision remains in place, it is expected that counties across Michigan will modify their procedures in order to comply with BAERE.   Until such a time that procedures fully complying with BAERE are implemented, each case should be reviewed on an individual basis for a determination as to whether the foreclosing entity is entitled to additional funds from the sheriff’s sale proceeds.

 

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USFN Briefing Follow-up: REO/Eviction

Posted By USFN, Monday, June 17, 2019

by Camille R. Hawk, Esq.

Walentine O’Toole, LLP

USFN Member (IA, NE)

During April’s REO/Evictions USFN Briefing, the panel covered a number of topics, including: legislative updates from Connecticut, California, New Hampshire and Ohio; case law updates from Rhode Island, Ohio, Illinois and the U.S. Supreme Court; and industry issues such as FEMA protection in Nebraska and Iowa and gas explosions in Massachusetts. Panelist Camille Hawk gives an update on Nebraska and Iowa flooding and disaster issues below.

Post webinar downloads and a schedule up upcoming topics
may be found on the USFN Briefings webpage.

As you likely are aware, there were announced major disaster declarations for several counties in Nebraska and Iowa due to recent flooding in March 2019.  FEMA coordinated efforts to assist those impacted. 

 

Lenders started placing files on hold in March for a period of time (originally through June 19, 2019) in order to assist borrows in their recovery process.  Between March 2019 and June 2019, the recovery in the states has been slow and much damage continues to impact homeowners, their businesses, and farming operations.   Examples of the impact include entire herds of livestock being lost, delayed ability to plant crops, and the inability to plant crops this year due to the washing away of the soil.  Many roads and bridges are destroyed by the water, resulting in closed roads that needed to be rebuilt.  

 

The impact is further worsened in several counties by additional rain and flooding in May and early June, which may result in extended FEMA holds. It is expected that those impacted, particularly the farm communities, will take years to fully recover.  

 

The specific farming impact is expected to trickle down to other industries locally and nationally, causing yet further financial hardships for homeowners.  Grocery prices and transportation prices are expected to increase, and those increases will not be limited to the Midwest.  The flooding in these states, along with the flooding in other areas of the country, will compound the resulting issues.  The FEMA holds may come to an end soon, but the impact will continue with increased defaults and increased need for loss mitigation.  Circumstances will turn around, but it will just take time. 

 

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Freddie Mac Adjusts Approved Attorney Fees

Posted By USFN, Monday, June 17, 2019

by Edward Kirn, Esq.
Powers Kirn, LLC
USFN Member (NJ, PA)

On April 18, 2019, Freddie Mac released its most recent Guide Bulletin to Servicers addressing many important items, including making adjustments to the approved attorney’s fees and title expenses associated with uncontested foreclosures, some much needed adjustments to the approved Servicer reimbursement amounts for attorney fees associated with specific bankruptcy services, and also made some adjustment to the expense limit for skip tracing and investigative reports.  The bulletin also addressed changes and updates to property insurance loss settlements, partial releases of a lien and grants of easements and an Investor reporting change initiative.

Freddie Mac and Fannie Mae have consistently led the industry in establishing standards and benchmarks to ensure that the law firms handling the default servicing legal representation are justly compensated for the work they perform.  To this end, they have been responsible stewards of the industry.  Freddie and Fannie have also been welcoming business partners, always receptive to discussing the pressing issues that face our industry and equally responsive in collaborating with USFN and other industry participants in developing working solutions to ensure that the default servicing industry operates as smoothly and efficiently as possible.

 

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U.S. First Circuit Court of Appeals Allows Integrated Business Record Exception to Hearsay

Posted By USFN, Monday, June 17, 2019

by Robert Wichowski, Esq.
Bendett & McHugh, PC
USFN Member (CT, MA, ME, NH, RI, VT)

On May 30, 2019, the First Circuit United States Court of Appeals handed down its decision affirming the judgment for Plaintiff in an appeal taken from the United States District Court for the State of Maine.  In an opinion written by former United States Supreme Court Justice David Souter, the First Circuit held that the District Court did not err in allowing into evidence a prior mortgage loan servicer’s business records without live witness testimony from the prior servicers where Maine State Courts require live witness testimony or testimony from a qualified witness with personal knowledge of the record keeping practices of the prior servicers for the admission of such records.

In the District Court case, US Bank (“plaintiff”) sued Jones (“defendant”) for breach of contract and breach of the underlying promissory note for her failure to make payments on her mortgage loan.  During plaintiff’s case, it submitted computer printouts which contained an account summary of the loan.  The account summary contained entries from a time before the current servicer serviced the loan.  The District Court admitted the summary as proof of the amount due on the loan with only witness testimony from a representative of the current servicer.

On appeal, defendant claimed that the records relied upon by the District Court should not have been admitted into evidence or relied upon by the court because the records were not supported by the testimony of a custodian or qualified witness with personal knowledge of the record keeping of the prior servicers.  Defendant argued that the witness for the servicer was not a qualified witness because she lacked knowledge about how prior servicers kept their records. Defendant also argued that to allow this exhibit into evidence would be inconsistent with the corresponding state court rule of evidence.    

Maine state courts, both on the trial level and upon appellate review, have been disallowing the entry of business records into evidence where there was no live witness testimony containing personal knowledge of the record keeping practices of prior loan servicers. (see KeyBank National Association v. Estate of Eula W. Quint, 2017 ME 237 (Dec. 21, 2017)). The Court of Appeals rejected both arguments holding that the Federal Rules of Evidence did not preclude the admission of such records and that since the Maine Rules of Evidence were functionally identical to the corresponding federal rules, they were procedural and not substantive and thus, the District Court did not have to defer to the state court’s interpretation of the rules. 

As such, and as the District Court found the witness to be knowledgeable, trained and experienced in analyzing the servicer’s records, the District Court did not abuse its discretion in allowing these records because the evidence presented demonstrated that the exhibit is what it claims to be and accurately reflects the data in the servicer’s database. The court was very clear that decisions of this type were to be made on a case by case basis and should involve a determination of the trustworthiness of the underlying information. 

While this decision is not blanket authority to proceed with prior servicer business records in the federal, and certainly not in the State Court in Maine, it provides a basis for admission of such records in Federal Court actions and brings some rare good news from a case that began in Maine.

 

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New Hampshire Bill Proposes Change in Foreclosure Process from Nonjudicial to Judicial

Posted By USFN, Monday, June 17, 2019

by Joseph A. Camillo, Jr., Esq.                                   

Brock and Scott, PLLC

USFN Member (AL, CT, FL, GA, MA, MD, ME, MI, NC, NH, OH, RI, SC, TN, VA, VT)

On January 2, 2019, the New Hampshire House of Representatives reintroduced “An Act relative to Foreclosure by Civil Action” under House Bill 270.  Like the 2018 introduction (HB1682-FN), it has passed in the House and was referred to the Senate Commerce Committee (where the bill was killed last year). This bill provides that foreclosure of a mortgage would be by a civil action in the superior court in the county in which the mortgaged premises or any part of it is located.  The bill would also repeal the provisions for nonjudicial power of sale mortgages pursuant to RSA 479:25 and reenact it to require commencement of foreclosure by civil action.

Specifically, the bill sets forth the process for a judicial foreclosure wherein all parties having an interest appearing of record at the registry of deeds up through the time of recording the complaint or clerk’s certificate must be joined. An exception would be a party in interest having a superior priority to the foreclosing mortgage, whose interest will not be affected by the proceedings. Parties with a superior interest must be notified of the action by sending a copy of the complaint by certified mail. Parties without a recorded interest may intervene in the action for purposes being added as party in interest any time prior to the entry of judgment.

The action shall be commenced pursuant to superior court rules and the mortgagee shall, within 60 days of commencing the action, record a copy of the complaint or clerk’s certificate in each registry of deeds where the mortgaged property lies. Furthermore, the mortgagee will have to certify and provide evidence that all steps mandated by law to provide notice to the mortgagor have been strictly performed. The complaint shall also contain a certification of proof of ownership of the mortgage note, as well as produce evidence of the mortgage note, mortgage and all assignments and endorsements of the mortgage note and mortgage.

Other requirements include that the complaint contain the street address of the mortgaged property; book and page number of the mortgage; state the existence of any public utility easements recorded after the mortgage but before the commencement of the action; state the amount due and what condition of the mortgage was broken, and by reason of such breach, demand a foreclosure and sale.

Within ten  days of filing the complaint, the mortgagee shall provide a copy of the complaint or clerk’s certificate as submitted to the court to the municipal tax assessor of the municipality in which the property is located, and if the property is manufactured housing as defined in RSA 674:31, to the owner of any land leased by the mortgagor.

A 90 day right of redemption is also being proposed, wherein the property may be redeemed by the mortgagor, by the payment of all demands and the performance of all things secured by the mortgage and the payment of all damages and costs sustained and incurred by reason of the nonperformance of its condition, or by a legal tender thereof, within 90 days after the court’s order of foreclosure.

Most alarming is the clause that acceptance, before the expiration of the right of redemption and after the commencement of foreclosure proceedings, of anything of value to be applied on or to the mortgage indebtedness constitutes a waiver of the foreclosure. Unless an agreement to the contrary in writing is signed by the person from whom the payment is accepted or if the bank returns the payment to the mortgagor within ten days of receipt.  The receipt of income from the mortgaged premises that the mortgagee or the mortgagees assigns while in possession of the premises does not constitute a waiver of the foreclosure proceedings of the mortgage on the premises.

The mortgagee and the mortgagor may enter into an agreement to allow the mortgagor to bring the mortgage payments up to date with the foreclosure process being stayed as long as the mortgagor makes payments according to the agreement.  If the mortgagor does not make payments according to the agreement, the mortgagee may, after notice to the mortgagor, resume the foreclosure process at the point at which it was stayed.


As such, all mortgage foreclosures would take place following a civil action in superior court.  A mortgage foreclosure would be treated as a routine equity case estimated to have a filing fee of approximately $250.00.

The impact to servicers will be such that what was once a streamlined process, taking approximately 90-120 days, would be significantly extended to the same time frame that exists in other judicial states such as Maine, Vermont and Connecticut.  This would also require careful scrutiny of demands to determine how to comply with the historical nonjudicial paragraph 22 language in light of the new judicial process. 

Servicers can also expect a spike in contested matters by virtue of borrowers’ filing answers, affirmative defenses, counterclaims, and engaging in discovery, as well having to prepare witnesses to testify at trial.  Two aspects of the judicial process that were not mentioned are

 

1. the mediation process and

 

2. a nonjudicial notice and publication requirement for the sale, but either could be added to the proposed bill at a later date. 

 

In conclusion, this proposed bill, if passed, would make foreclosing in New Hampshire much more difficult, time consuming and expensive; and there is no doubt that all of the issues that have surfaced in the traditional judicial states will have to be similarly addressed and litigated in New Hampshire.

 

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Adoptive Business Records in Ohio’s Courtrooms

Posted By USFN, Monday, June 17, 2019

by Rick D. DeBlasis, Esq. and Charles E. Rust, Esq.
Lerner, Sampson & Rothfuss
USFN Member (KY, OH)

The “business records exception” of Ohio Evidence Rule 803(6) is an indispensable ally of the lender’s trial lawyer.  The rule against hearsay prohibits the use of records to prove a lender’s case, unless the record is offered by the testimony of the custodian or other qualified witness who has personal knowledge of the record-keeping system in which the record is maintained.  This requirement has made its way to the forefront of foreclosure litigation recently, due to the prevalence of servicing changes during the life a loan.  Now, the majority of Ohio’s appellate courts has addressed the nuances of authenticating adoptive business records, i.e., those created and maintained by a prior servicer.

In Ohio, the idea that the records of a prior servicer may be authenticated by a subsequent servicer originates from a 2006 credit card case in Ohio’s First District Court of Appeals.[1]  The court held that "exhibits can be admitted as business records of an entity, even when that entity was not the maker of those records, provided that the other requirements of [Evid.R.] 803(6) are met and the circumstances indicate that the records are trustworthy."[2]  The majority of Ohio’s Appellate Districts have directly adopted or discussed this general notion, or it has been applied by the respective common pleas courts.[3]  But this begs the question:  what circumstances indicate that the records of a prior servicer are indeed trustworthy?

Recently, some Ohio courts of appeals have held that “trustworthiness of a record is suggested by the profferer's incorporation into its own records and reliance on it.”[4]  Others have held that “[o]ne circumstance that indicates the trustworthiness of such a document proffered as a business record might be the ongoing relationship between the business creating the document and the incorporating business.”[5]  At a fundamental level, such logic is consistent with the notion that “[t]he rationale behind Evid.R. 803(6) is that if information is sufficiently trustworthy that a business is willing to rely on it in making business decisions, the courts should be willing to rely on that information as well.”[6]

It is likely not enough for an affiant to aver simply that the records of a prior servicer are incorporated into the records of the current servicer.[7]  The records of a prior servicer must be incorporated and relied upon in the ordinary course of business to meet the trustworthiness requirements of Evidence Rule 803(6).[8]  Thus, the summary judgment affidavit of a transferee servicer should explicitly indicate both incorporation of the records of the prior servicer into its own and reliance upon those records in the ordinary course of business.

Other averments can augment trustworthiness.  For example, the transferee servicer may have, or may have had, an ongoing relationship with the transferor servicer, such that the new servicer has become familiar with and relied upon, without issue, the old servicer’s record-keeping system for many years.[9]  The new servicer may have acquired the old servicer.[10]  Failure to include such language in the lender’s affidavit could be the difference between the court awarding summary judgment and the court finding a genuine issue of material fact warranting trial.

 

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[1] Great Seneca Financial v. Felty, 170 Ohio App.3d 737, 2006-Ohio-6618, 869 N.E.2d 30, ¶ 14 (1st Dist.).

[2] Id.

[3] See Ocwen Loan Servicing, LLC v. Malish, 2d Dist. Montgomery No. 27532, 2018-Ohio-1056, ¶ 23; Sec'y of Veterans Affairs v. Leonhardt, 3rd Dist. Crawford No. 3-14-04, 2015-Ohio-931, ¶¶ 57-59; Carrington Mtge. Servs., LLC v. Shepherd, 5th Dist. Tuscarawas No. 2016 AP 07 0038, 2017-Ohio-868, ¶ 34-36; U.S. Bank N.A. v. Hill, 6th Dist. Ottawa No. OT-17-029, 2018-Ohio-4532; Bank of New York Mellon v. Kohn, 7th Dist. Mahoning No. 17 MA 0164, 2018-Ohio-3728; RBS Citizens, N.A. v. Zigdon, 8th Dist. Cuyahoga No. 93945, 2010-Ohio-3511; Ohio Receivables, LLC v. Dallariva, 10th Dist. Franklin No. 11AP-951, 2012-Ohio-3165, ¶¶ 19-21; Green Tree Servicing, LLC v. Roberts, 12th Dist. Butler No. CA2013-03-039, 2013-Ohio-5362, ¶¶ 30-31.

[4] Ocwen Loan Servicing, LLC v. Malish, supra.

[5] PNC Mtge. v. Krynicki, 7th Dist. Mahoning No. 15 MA 0194, 2017-Ohio-808, ¶ 13; Sec'y of Veterans Affairs v. Leonhardt, supra, ¶ 59.

[6] U.S. Bank, N.A. v. Lawson, 5th Dist. Delaware No. 13CAE030021, 2014-Ohio-463, ¶ 20.

[7] Bank of N.Y. Mellon v. Roulston, 8th Dist. Cuyahoga No. 104908, 2017-Ohio-8400.

[8] See Deutsche Bank Trust Co. v. Jones, 2018-Ohio-587, ¶ 17.

[9] Ocwen Loan Servicing, LLC v. Malish, supra.

[10] Id.

 

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South Carolina Enacts Servicemembers Civil Relief Act

Posted By USFN, Monday, June 17, 2019

by John S. Kay, Esq.
Hutchens Law Firm
USFN Member (NC, SC)

In late April, the Governor of South Carolina signed House Bill 3180 to enact the South Carolina Servicemembers Civil Relief Act (“Act”). The Act took effect on April 26, 2019 and its provisions are applicable to contracts entered into, extended, or amended on or after July 1, 2019. The Act is intended to expand and supplement the protections of the federal Servicemembers Civil Relief Act ("SCRA"). The definition of “military service” will affect South Carolina National Guardsmen who are on active duty for a period of more than thirty days. The new Act also provides that the dependent of a service member engaged in military service has the same rights and protections afforded a service member under the Act and under the federal SCRA.

Specifically, the Act includes protections for South Carolina National Guardsmen under a call to active:

service authorized by the President of the United States or the Secretary of Defense for a period of more than thirty days in response to a national emergency declared by the President of the United States; or

- duty authorized pursuant to Article 15 for a period of more than thirty consecutive days. 


It is important to note that, in general, the federal SCRA applies to National Guard members on Title 32 duty only under limited and unusual circumstances. Those circumstances, however, happen to mirror those outlined above in the South Carolina version of the SCRA. So, the new statute actually does not provide any additional “call to duty” coverage for active duty status National Guard members other than that already provided for under the federal statute.

The Act does provide some other protections to service members, including the right to terminate certain kinds of contracts after receiving “call up” orders to relocate for a period of service for at least 90 days to an area that does not support the services provided under the contract.  Specifically listed in the statute are contracts for: telecommunication services, internet services, television services, gym memberships and satellite radio services. Unlike some provisions of the federal SCRA, the South Carolina version requires the service member to provide written notice of the termination of the contract to the service provider along with a copy of the orders requiring the service member to relocate.

The South Carolina SCRA allows the service member, a dependent, or the South Carolina Attorney General to bring a civil action against a person who intentionally violates a provision of the act and authorizes penalties that include injunctions, restitution and a civil penalty not to exceed $5,000.   Fifty percent of the civil penalties imposed would be remitted to the South Carolina general fund, and the balance may be retained by the Office of the South Carolina Attorney General to support enforcement or public education efforts related to the purpose of the new statute.

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North Carolina: Lost Notes Can Be Used in Power of Sale Foreclosure When Present Holder Lost Note

Posted By USFN, Monday, May 20, 2019

by Jeffrey A. Bunda, Esq.
Hutchens Law Firm
USFN Member (NC, SC)

In an October 2, 2018 published opinion from the North Carolina Court of Appeals, the Court confirmed that a lender who lost the original promissory note while it was in physical possession of the original note may proceed with a power of sale foreclosure proceeding before the Clerk of Court.

In In re Frucella, No. COA 18-212 (October2, 2018), the homeowners appealed the Clerk’s order authorizing a foreclosure sale for a hearing de novo before a Superior Court judge. At the Superior Court hearing, lender’s counsel presented a pair of “lost note” affidavit executed by the same affiant.

The first affidavit described the circumstances by which the lender seeking to foreclose came into possession of the original Note, and that after it obtained possession, the Note was lost. The second affidavit tracks the elements required to establish the right to enforce a lost promissory note under North Carolina’s U.C.C.§ 3-309 e.g., that the party seeking to enforce the Note had that right when it was lost; the loss was not the result of a transfer/assignment; and that a due and diligent search had been made to locate the Note and it could not be found. The Superior Court entered its own order authorizing a foreclosure sale, from which the homeowners appealed.

In affirming the trial court’s order, the Court of Appeals expanded the scope of “who” could avail themselves of North Carolina’s quasi-judicial foreclosure process. Although the Court had signaled its intent to head in this direction in an earlier unpublished decision in In re Iannucci, No. COA 16-738 (February7, 2017), the holding of the Frucella Court is contained in a published decision and, with that, carries the gravitas of precedent. Before Frucella, courts strictly held that only the “holder” e.g., party in possession of the original appropriately endorsed promissory note could use the streamlined power of sale foreclosure process.

However, under North Carolina’s Uniform Commercial Code, a party who was not the holder could still enforce the Note if it was either a non-holder in possession with the rights of a holder (example: missing or defective endorsement in the chain) or a party who had lost the Note while it was in possession of the Note. Those two classes of lender were previously required to file a judicial foreclosure proceeding, which entails formal litigation and all its trappings like discovery, mediation and trial, rather than being able to proceed with the more efficient power of sale foreclosure process.

In attempting to defeat the lender’s efforts to foreclose via the streamlined power of sale process, the homeowners presented evidence that parties prior to the petitioning lender had held the Note. Although, as the trial court noted, the homeowners “presented no credible evidence tending to show that any other entity is the holder of the debt or there is an actual controversy “regarding the foreclosing lender’s current status. In essence, the Court rejected the long-held urban legend that there is a risk of “multiple judgments” or “double jeopardy” of duplicative foreclosure actions when homeowners simply cast doubt that the party asking for payments isn’t the one who is entitled to collect them.

The expansion of the class of persons permitted to go before the Clerk in power of sale foreclosure proceedings may open the door to the third and final class of person – the non-holder in possession with the rights of the holder – to give the quasi-judicial foreclosure route a whirl. This ruling does not change the fact that North Carolina’s Uniform Commercial Code does not allow a servicer to use a lost note affidavit (LNA) in a power of sale foreclosure proceeding if the prior servicer lost the Note. In those situations, the loan must still be foreclosed judicially, unlike the vast majority of jurisdictions which allow a direct successor to rely on LNAs.

The Frucella expansion may change because as of press time, the homeowners have sought discretionary review to the North Carolina Supreme Court.


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South Carolina: Lender’s Loan Application Process Did Not Violate Attorney Preference Statute

Posted By USFN, Monday, May 20, 2019

By John S. Kay, Esq.
Hutchens Law Firm
USFN Member (NC,SC)

In 2017, the South Carolina Supreme Court issued a decision finding that the loan closing process used by Quicken Loans, Inc. (Quicken) in South Carolina did not constitute the unauthorized practice of law. Boone v. Quicken Loans, Inc., 803 S.E. 2d. 707 (S.C.2017).

Now, in its recent decision in Quicken Loans, Inc., v. Wilson, (S.C. Appellate Case No. 2016-001214 2019) the South Carolina Supreme Court has weighed in on whether the loan application process utilized by Quicken in the context of a residential real estate mortgage transaction violates the South Carolina Attorney Preference Statute (“SCAPS”), S.C. Code section 37-10-102 (2017).

In the Quicken Loans, Inc., v. Wilson case, Quicken brought a foreclosure action against the borrowers based upon a default on the note and mortgage. The borrowers objected and alleged the Quicken loan application process utilized at loan origination failed to comply with the requirements of SCAPS. SCAPS requires a lender to ascertain a borrower’s preference for an attorney to represent him or her in the upcoming loan closing. The lender can comply with the statute in one of two ways:

  • Preference information can be included on or with the credit application on a form similar to the one distributed by the South Carolina Department of Consumer Affairs; or
  • Provide written notice to the borrower of the preference information with the notice being delivered or mailed to the borrower no later than three business days after the application is received or prepared.

The telephonic process used by Quicken to ascertain the borrower’s attorney preference during the loan application process prompts the banker to ask the borrower as to whether the borrower will select an attorney to represent him or her in the transaction. If the borrower indicates that he or she does not have an attorney preference, the attorney preference form used by Quicken is prepopulated to specify that the borrower will not be using the services of legal counsel. If the borrower indicates that he or she does wish to use a specific attorney, the form prepopulates requesting the borrower contact the lender with his or her preference of attorney.


The Quicken system cannot generate a loan application without the attorney information being listed. If no attorney preference is listed, Quicken’s affiliate company receives the referral to act as the settlement agent and subcontracts with an attorney to perform those services.

The Special Referee assigned to hear the case granted the borrowers’ motion for summary judgment and found that the process used by Quicken did violate SCAPS. In addition, the Special Referee found that the process was “unconscionable”, as defined by the statute which would have the potential for forfeiture of finance charges and other penalties. On appeal, the South Carolina Department of Consumer Affairs appeared in the case and filed an amicus brief urging the Court to find that the attorney preference ascertainment process used by Quicken was a violation of SCAPS. The Supreme Court disagreed and held that the Quicken process did not violate SCAPS.

The Court found that the banker/agent asked the borrowers about their attorney preference and only prepopulated the form after ascertaining that the borrowers did not have a preference. Quicken then sent the attorney preference form to the borrowers within the required time period and the borrowers signed and returned the form without any questions. The Court also added that SCAPS did not require Quicken to provide a list of attorneys to choose from, nor require Quicken to ascertain that initial preference in writing. The Court further pointed out that that the process ascertained the borrowers’ preference information and obtained confirmation of that information in writing.

This case marks the second time that the loan origination process used by Quicken has been challenged in state court in South Carolina and Quicken has prevailed in both cases. Interestingly, the borrowers in Boonev. Quicken Loans, Inc. had also filed an action against Quicken in state court alleging a similar violation of SCAPS as that alleged in Quicken Loans, Inc., v. Wilson. The case was removed to Federal Court and Quicken prevailed in that case on summary judgment.

In Boone v. Quicken Loans, Inc. and Quicken Loans, Inc., v. Wilson, the Court took steps to point out that the borrowers had stated that they had no objection to the application process itself and, more importantly, did not state any objection to the attorneys assigned by the lender to handle the loan closing process. These two cases appear to show that the South Carolina Supreme Court is keeping its focus on protecting the consumer, but the Court will not find a violation of law if the lender is in compliance with the intent of the applicable case or statute, and there is clear evidence that the consumer has not been harmed in the transaction.


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New Jersey: Appellate Court Finds Lost Notes May Be Enforced Even if Not in Possession When Lost

Posted By USFN, Monday, May 20, 2019

by Michael B. McNeil, Esq.
Powers Kirn, L.L.C.
USFN Member (NJ, PA)

For years, lenders and servicers in New Jersey have faced uncertainty when seeking to prosecute a mortgage foreclosure where the underlying promissory note has been lost.

New Jersey’s version of the Uniform Commercial Code (UCC) uses the old language for section 3-309(a), which states that: “A person not in possession of an instrument is entitled to enforce the instrument if the person was in possession of the instrument and entitled to enforce it when loss of possession occurred[.]” N.J.S.A.12A:3-309(a).

Some courts around the country have strictly construed this language, holding that a party cannot enforce a lost note unless it was both in possession of and entitled to enforce the note when it was lost. See, e.g.,
Dennis Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F. Supp. 491(D.D.C. 1997). Notably, in response to this case and its progeny, the drafters of the UCC amended section 3-309 in 2002 to remove the possession requirement.

However, the New Jersey Legislature has not adopted the amendment to section 3-309 and there had been no reported decision addressing whether the Joslin Court’s reading of the section will apply in this State.

Thus, the stage was set for the recent decision in
Investors Bank v.Torres, 197 A.3d 686, 457 N.J. Super.53 (N.J. Super. Ct. App. Div. 2018). In this case, the note was lost at least a year prior to the transfer of the lost note affidavit and mortgage assignment to Investors Bank.

Predictably, the borrower relied upon the Joslin Court’s reading of section 3-309(a) and argued that Investors Bank was not entitled to enforce the note since it was not in possession of the note when it was lost.

However, the court expressly rejected the holding of Joslin, and instead held that the right to enforce a lost note is transferrable by one who was both in possession of and entitled to enforce the note at the time it was lost, and that to enforce the lost note, the transferee need only prove the terms of the instrument and the transferee’s right to enforce the instrument as required by section3-309(b).

The court reached this decision by reading section 3-309 in conjunction with other provisions of the UCC, which lead the court to the conclusion that this result furthers the UCC’s purpose of expanding commercial practices and of not denying transacting parties the benefits of their bargains.

The court also relied upon common law principles of assignment and equitable principles of unjust enrichment to prevent what, in the court’s view, would have been an otherwise absurd and unjust result.


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Status of Title Post FC Sale in North Carolina – You Better Get It Right the First Time!

Posted By USFN, Monday, May 20, 2019

by Jeremy B. Wilkins, Esq. and Devin Chidester, Esq.
Brock & Scott, PLLC
USFN Member (AL, CT, FL, GA, MA, ME, MD, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In North Carolina, once the clock strikes midnight on the 10-day statutory upset bid period1 the finality of the foreclosure process closes the door on prior owners. The remaining title issues, though, may prevent the door from being locked for good. Absent purchase by a third-party, the property is commonly anointed as Real Estate Owned(“REO”) and the former note holder must ensure the property is suitable or an expeditious preservation, marketing, and re-sale process.

If the subject property reaches status, impediments must be nonexistent as the former note holder will need to realize the liquidity of the asset to minimize potential loss. Accordingly, an essential element to successfully moving an asset in REO is the status of the title on the subject property at time of foreclosure, a process managed by local counsel.

Manifesting the intent of contractual obligations predicated on a future REO purchase/sale agreement requires knowing what type of title product is required post-foreclosure sale. Generally, the dividing line between moving foreclosed property is the difference between marketable and insurable title standards. Certain investors may require a less rigorous product than others2. Simply put, reviewing and approving the chain of title must be done correctly by local counsel from the onset of the foreclosure process or the post-sale implications may be damning to a property transfer.

In North Carolina, reviewing title for property in REO requires knowing how to fix title prior to the rights of the parties to the foreclosure becoming fixed3. This includes the validity of the procedural process of the foreclosure as set forth under Chapter 45 of the North Carolina General Statutes. Consequently, flaws in the foreclosure process can create flaws in the ability to market the subject property as an asset in REO. Therefore, a foreclosure must be prosecuted with a forward-looking mentality to deliver an asset in REO free of impediments. In other words, when viewing the asset post-foreclosure sale, the subject property’s title must have aged well. The challenge rests on the ability to cure title issues through a combination of clearing title by the foreclosing firm, cooperation with title insurance companies, and/or applying certain judicial intervention measures (i.e., judicial foreclosure, quiet title, declaratory actions, etc.).

Similar to the way an errant post on social media has the tendency to age terribly, so will a poor pre-foreclosure title product. If issues lurk after foreclosure, then reparations will require unwanted timeline delays and/or excessive and unnecessary costs.

Poorly aged title correlates to a lack of prudence in title examination and not using appropriate title curative measures. Unfortunately, in the post foreclosure context, reputational damage is extremely costly because one cannot exercise the delete function and start from scratch as you can on social media.

Under North Carolina law, you must slowly unwind the process, revise the public record, admit to the world that proper review was missed and a mistake exists. Hence, prudent review and proper due diligence are paramount when reviewing title at the beginning of the foreclosure process. Title documents provided to local counsel should mirror the level of quality of an attorney search. Proper measures will ensure the desired result for the asset, post-foreclosure sale, while executing to perfection the intended vision for the foreclosing note holder.

For the REO asset’s chain of title to age gracefully, local counsel must ensure pre-foreclosure title is rooted in achieving successful and marketable title in the future. The following tips are best practices to ensure the status of title ages elegantly. The following tips are sensible measures that can be taken in North Carolina, all within the control of local counsel, to ensure the foreclosure chain of title is delivered through the REO process flawlessly.

1. Foreclosure Title Search
Local counsel must ensure that the vendor completing the title search does so completely and accurately. The title search at foreclosure is performed at the beginning of the process but has implications throughout the entirety of the foreclosure. Starting with the first legal stage, the title search is supplemented with updates predicated upon milestones (pre-first legal, pre-hearing, pre-sale). The title search should be viewed in totality with the updates and vetted in all stages of the foreclosure. The more corners cut, the more the title ages terribly. Be thorough in review so decisions can be made with clarity.

2. In-house Title Curative
Local counsel should engage in house title curative measures to clear up title issues prior to a foreclosure sale expeditiously and find solutions that would bypass judicial intervention(e.g. procuring satisfactions of prior liens or curing errors in recorded documents by operation of statute through a curative affidavit, N.C.G.S.§47-36.2).

3. Title Claim Escalation
Local counsel should ensure title insurance coverage is identified early in the review process and title claims are handled expeditiously as needed. Moreover, title claims should be zealously escalated by local counsel striking a balance between continuity of title insurance coverage and prompt resolution of claimable issues.

4. Milestone Awareness
Local counsel must fundamentally grasp and act within the applicable foreclosure milestones promulgated by specific client service level agreements(“SLA”). Knowing the milestone stage and status of title product at that stage allows local counsel to control foreclosure advancement while ensuring finality of the REO asset transfer.

5. Be Forward-Looking During the Foreclosure Process
As discussed earlier, when local counsel starts the foreclosure process, the umbrella mindset for each file must consider the future ramifications so title will not age with impediments and time is carved out to fix issues before it is too late. In North Carolina, failure to critically think, control, and act, as it pertains to the status of title, may create a costly situation requiring sale rescission, court intervention, and unnecessary additional delay and costs. However, if local counsel takes the pragmatic, proactive approach from the onset of the foreclosure process and gets it right, title will age gracefully and move through REO as intended.

1 See Generally, N.C.G.S. §45-21.27

2 In North Carolina, marketable title is statutorily defined as a 30-yearperiod whereby the title is free and clear from defects. N.C.G.S. §47B-2. Thus, as a best practice, marketable title for REO should have a clear30-year timeframe. Insurable title carries a lower standard whereby defects may exist in the chain of title, but a title insurance company has agreed to provide coverage against said defects. Insurable title is contractually rooted and shorter search periods are more appropriate to determine the status of the chain of title for REO purposes.

3 Rights are fixed under N.C.G.S §45-21.27 (a), therefore, the high bidder has an insurance interest in the property and can demand a deed be tendered.

 

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Ohio Senate, House Bills Focus on Lending Industries, Notaries

Posted By USFN, Monday, May 20, 2019

by Ellen L. Fornash, Esq.
Anselmo Lindberg & Associates, LLC
USFN member (IL)

The State of Ohio was busy this past holiday season, passing three different bills, all signed by then-Governor John Kasich on December 19,2018, and scheduled to take effect 91 days after filing with the Secretaryof State.

House Bill 489
Entitled in short as a bill to “address financial institution regulation and consumer protection,” House Bill 489 was initially aimed at undoing some of the effects the Dodd-Frank had on smaller banks and credit unions while still protecting consumers.

The motivation behind the Ohio Financial Institutions Reform Act was to regulate banks only in a manner that would not affect the institutions soundness and security. The Bill permits analytics to be conducted on publicly available information regarding state banks, credit unions and entities registered and licensed in Ohio. However, if an institution meets certain requirements, said institution would be subjected to less frequent regulatory checks of no more than once every 24 months. Failure to comply exposes an institution to civil liability.

House Bill 489 adds a definition of “mortgage servicer” to Ohio Revised Code Section 1322, “Mortgage Brokers, Loan Officers.”

Also, Revised Code Section 1349.72,governing Consumer Protection was added and requires a person before attempting to collect a debt secured by residential real property to send written notice via US Mail to the residential address of the debtor if the debt is: 1) a second mortgage or junior lien on the debtor’s residential real property; and, 2) the debt is in default.

Written notice must be in 12-point font and must include:

  • The name and contact information of the person collecting the debt;
  •  The amount of the debt;
  • A statement that the debtor has a right to an attorney;
  • A statement that the debtor may qualify for relief under Chapter 7 or 13;
  • A statement that a debtor maybe able to protect his residence from foreclosure through the Chapter 13 process; and
  • If requested in writing by the debtor, the “owner” of the debt shall provide a copy of the note and loan history to the debtor.

Failure to comply authorizes civil liability, but also provides a bona fide error defense. The notice requirements set forth by this House Bill are strikingly similar to those imposed upon debt collectors under the Fair Debt Collection Practices Act, but extend these requirements to “persons” rather than debt collectors and pertain only to junior mortgages.

(Editor’s note: For more on Ohio Revised Code Sections 1322 and 1349.72, please see the article by Rick D. De Blasis and Charles E. Rust here).

House Bill 480
The next Bill to affect the lending industry is House Bill 480, which establishes requirements for multi-parcel auctions, which are not currently addressed in the Ohio Revised Code, and gives the Ohio Department of Agriculture the power to regulate the auctions.

House Bill 480 amends Ohio Revised Code sections 2329 (Execution against real property) and 4707(Auctioneers). The Bill defines a multi-parcel auction as one involving real or personal property in which multiple parcels or lots are offered for sale in whole or part. The Bill further establishes advertising requirements placed upon auctioneers, including the mandate that all advertisements short of road signs must state that the auction will be offered in various amalgamations, whether individual parcels, combinations or all parcels as a whole.

The Bill goes on to clarify that online auctions are to be held for seven calendar days (previously simply seven days), excluding the day the auction opens for bidding.

Senate Bill 263
Finally, Senate Bill 263, titled in short, the “Enact Notary Public Modernization Act,” increases requirements for commission of a notary and enacts requirements or notarization of electronic documents. Notably, to obtain a notary commission, one will now have to submit to a criminal records check completed within the preceding six months (R.C. 147.022). Already commissioned attorneys will be exempt from this requirement. Although the new requirement is not retroactive, notaries seeking to renew their commission will have to comply.

The bulk of the Bill is dedicated to online notarizations. The Bill permits a commissioned notary to apply to perform online notarizations via live video, electronic signatures and electronic notary seals. Online notary commissions expire after five years – including those issued to attorneys.

Those seeking online commission must participate in an educational course; non-attorney applicants must also pass a test. Bill 263 passes oversight of the appointment and revocation of notary commissions from the Court of Common Pleas to the Secretary of State. Lastly, in short, the Bill deems an online notarized document to be an “original document.”

While these changes do not have any effect on our current notary procedures, current non-attorney notaries in Ohio will have additional hoops through which to jump upon renewal of their current licenses.

State Supreme Court Rules in Bank of N.Y. Mellon v. Rhiel
Finally, closing with a case law update, the Supreme Court of Ohio sided with lenders when it issued its opinion in Bank of N.Y. Mellon v. Rhiel on December 20, 2018, when it held that:


 1. “In response to certified questions by the bankruptcy appellate panel, it was determined that the failure to identify a signatory by name in the body of a mortgage agreement did not render the agreement unenforceable as a matter of law against that signatory;” and

 

2. “It was possible for a person who was not identified in the body of a mortgage, but who signed and initialed the mortgage, to be a mortgagor of his or her interest.” Bank of N.Y. Mellon v. Rhiel, 2018-Ohio-5087, 2018 Ohio LEXIS 3007.

 

Both Marcy and Vodrick Perry initialed and signed a mortgage, however, the definition of “borrower “within the mortgage only included Vodrick’s name. The bankruptcy trustee determined that the mortgage did not encumber Marcy’s interest in the real property.

The bankruptcy court disagreed and allowed extrinsic evidence to make its determination that Marcy intended to encumber her interest. The Bankruptcy Appellate Panel for the US 6th Circuit Court of Appeals asked the Ohio Supreme Court to clarify, after noting the conflicting decisions of prior bankruptcy cases and controlling decisions issued by Ohio courts of appeals. The Ohio Supreme Court held that signing a mortgage may be enough to bind the signatory despite not being named in the body of the mortgage itself.


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Ohio Legislature Enacts New Requirements for Mortgage Servicers

Posted By USFN, Monday, May 20, 2019

by Rick D. DeBlasis and Charles E. Rust

Lerner, Sampson & Rothfuss

USFN Member (KY, OH)


On March 20, 2019, two provisions of Ohio law took effect, which impose new requirements on mortgage servicing.

Section 1322.07(A) - Certificate of Registration Requirements
First, an amendment to Revised Code Section 1322.07(A) requires mortgage servicers to obtain a certificate of registration from the Superintendent of Financial Institutions for the “principal office and every branch office” from which they conduct mortgage servicing in Ohio. Under the statute, unregistered persons are prohibited from conducting mortgage servicing in Ohio.

Additionally, “[a] registrant shall maintain an office location for the transaction of business as a mortgage lender, mortgage servicer, or mortgage broker in this state.” This language allows for two interpretations: 1) servicers are required to maintain a brick and mortar location in Ohio; or 2) servicers are required to maintain a brick and mortar location somewhere for the transaction of business in Ohio.

According to advisory guidance from Ohio’s Division of Financial Institutions,2017 amendments to the statute eliminated the brick and mortar requirement1. Because the most current amendment simply adds “mortgage servicer” to the existing statute, absent a contrary advisory opinion, the statute does not appear to impose Ohio brick and mortar requirements on servicers. Because the most current amendment simply adds “mortgage servicer” to the existing statute, absent a contrary advisory opinion, the statute does not appear to impose Ohio brick and mortar requirements on servicers.

Section 1349.72 - New Requirements for Junior Lien Collections
The second major change affects persons collecting debt that is in default and secured by “a second mortgage or junior lien” on residential real property. Though the new law raises many unanswered questions, Revised Code Section 1349.72 requires creditors and collectors of junior liens to provide defaulting debtors with an entirely new notice before attempting to collect the debt.

The new notice must:

  • Print in at least 12-point type
  • Provide contact information for the person collecting the debt
  • Include the amount of the debt• Include a statement that the debtor has a right to an attorney
  • Include certain specific notices about bankruptcy options

Section 1349.72 also requires the “owner” of a debt to provide a copy of the note and loan history to the debtor upon written request. For noncompliance, the statute authorizes a private right of action for aggrieved debtors but allows the collector a defense if the collector:


1) demonstrates that noncompliance was due to “bona fide error;” 2)sends a notice of error to the debtor within 60 days of discovery and prior to initiating action stating how it will make restitution; and 3) makes reasonable restitution to the debtor. “Bona fide error” is limited to “an unintentional clerical, calculation, computer malfunction or programming, or printing error.” Strict compliance with the new notice requirements should be a priority.

Given the potential for financial penalties and litigation, lenders and servicers, and their agents, operating in the State of Ohio are strongly encouraged to work with their attorneys to address the intricacies of these new requirements and develop strategies for compliance.

1 See Ohio Department of Commerce, Division of Financial Institutions, Ohio Residential Mortgage Lending Act H.B. 199 Implementation Guidance.

(Editor’s note: For information on Ohio House Bills 480 and 489, and Senate Bill 263, please see the article by Ellen L. Fornash here).

 


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CFPB: Year in Review & Advance

Posted By USFN, Monday, May 13, 2019

by Lance Olsen
McCarthy & Holthus, LLP
USFN Member (AZ, CA, CO, ID, NM, NV, OR, TX, WA)

Alan Wolf
The Wolf Firm
USFN Member (CA)

To properly review the work of the Consumer Financial Protection Bureau (referred to in this article as the “Bureau”) in 2018, we must start in 2017.

In November 2017, the former director of the CFPB resigned to pursue elected office. On the way out, the former director attempted to appoint his own successor; President Trump however appointed his own temporary head of the CFPB, Mick Mulvaney. Most observers seemed to agree that the Bureau director did not have the authority to name his or her own successor, and thus Mulvaney assumed control of the Bureau as 2017 ends (even though it wasn’t until July 2018 that a lawsuit challenging the authority of Mulvaney to act was finally dismissed).

With the change in leadership came a visible change in approach. As a Congressman, Mulvaney had criticized what he perceived to be a lack of oversight and accountability in the structure and operation of the Bureau. Against this backdrop, a change was observed early on in the focus and direction of regulation.

On January 16, 2018 the Bureau announced that it would engage in a rule making process to reconsider the Payday Rule put forward under prior leadership. The Payday Rule imposes restrictions on certain small loan practices and policies. As most of the provisions of that Payday Rule are not effective until August 2019, the January 2018 announcement was perceived by many as notice of the intent of the new Bureau to act independently of old policy.

In February 2018, the Bureau issued its Strategic Plan for the next five years. Within that plan, one significant change from the prior-issued plan was removal of the reference to the Bureau’s authority to enforce against unfair, deceptive or abusive acts or practices. Suggested in the new plan is a turn away from focus on perceived potential abuses to a protection of free and informed choice. Specifically, the new plan called for “free, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs.”

Also, in February 2018, members of the Office of Fair Lending and Equal Opportunity were transferred to  the Office of the Director and their mission was clarified as a focus on advocacy, coordination and education over enforcement. Whether by coincidence or design, 2018 saw nine reported settlements of consent orders resolving previously filed enforcement actions with one newly filed complaint.

By April 2018, the Bureau issued a “call for evidence to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers.” Once again, the call for evidence is viewed as an intent to focus more on protection of choice overactive effort to discover enforcement opportunities and push the envelope of consumer protection.

Finally, in June 2018, shortly before the deadline to nominate a permanent director of the Bureau, the White House nominated Kathy Kraninger, a direct report of Mick Mulvaney at the Office of Management and Budget, for confirmation by the United States Senate. Although not much is known about Kraninger’s views on the appropriate role and direction of the Bureau, those with concerns over Mulvaney’s stewardship have expressed concern over her apparent connection and past work under his tutelage.

Changes in 2019
It’s said that predicting the future is easy, the difficult part is in getting it right. With that admonishment, here is what has happened so far in 2019.

As expected, Kraninger was confirmed as the new Director of the Bureau in December. Since she was chosen as a disciple of Mulvaney, and has absolutely no consumer or financial regulatory experience, her path will most likely be to follow the actions of Mulvaney. However, recent actions have indicated that she does not feel obligated to follow through on all of Mulvaney’s initiatives. One example is the proposed changes to the Consumer Advisory Board.

New Position on Fair Debt Collection Practices Act
The Bureau also evidenced its new position on the Fair Debt Collection Practices Act (“FDCPA”) in filing an amicus brief supporting the position of the foreclosing creditor and its law firm in Obduskey v. Wells Fargo.

In its amicus brief, the Bureau made two main policy arguments. First, it argued that nonjudicial foreclosures are not subject to the FDCPA, except in those limited circumstances where the foreclosure is done where “there is no present right to possession of the property claimed as collateral through an enforceable security interest.” Section 1692f(6)(A).In short, the Bureau took the position that the FDCPA is only applicable if you foreclose where there was no right to foreclose.

Next, the Bureau made a policy argument that if you follow state law, you do not violate the FDCPA. Specifically, the Bureau states:


Nonjudicial foreclosure is ‘the enforcement of [a] security interest’ 15U.S.C. 1692a(6), and filing a notice with a public trustee is undisputedly a necessary step in that process in Colorado. Deeming such activities debt collection could bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures. No sound basis exists to assume Congress intended that result.

In a 9-0 opinion, the Supreme Court agreed with the CFPB and industry on holding that one who does no more than enforce security interests does not fall within the definition of a debt collector. It appears likely that in its formal rule making, which as of press time is reportedly set for later in the spring, the Bureau will take the position that the FDCPA has no application to the mortgage servicing industry, as long as there is a right to foreclose under state law and the state laws are followed.

States Will Take Consumer Positions Abandoned by the Bureau; States Will Not Be as Effective as Bureau
Third, it appears that States are ready and willing to take up the consumer positions apparently abandoned by the Bureau but may not be entirely able to — they lack the resources and skills to make the same impact as the Bureau. The push by states to replace the Bureau has evolved into two paths: 1) State Bureau type legislation; and 2) Prosecution of the Bureau’s rules and regulations by state attorneys general.

State bureau type legislation includes the following:

 

1. Maryland Consumer Financial Act of 2018

 

2. New Jersey’s existing Division of Consumer Affairs adds an Office of Consumer Protection Established to enforce the enhanced Consumer Fraud Act

 

3. Pennsylvania Consumer Financial Protection Bureau

 

 Even without this new legislation, state attorneys general have significant powers to enforce certain types of Federal consumer legislation. For example, Section 1042 of the Consumer Financial Protection Act (CFPA) empowers state attorneys general to bring civil actions to enforce the provisions of the CFPA as well as regulations issued by the Bureau under Title X of Dodd-Frank— including the dreaded provision prohibiting unfair, deceptive or abusive acts or practices (UDAAP).See 12 U.S.C. § 5552 (effective June 29, 2012).


In addition, various federal consumer protection statutes give direct enforcement authority to state attorneys general including the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Fair Credit Reporting Act. Indeed, when Mulvaney spoke at the National Association of Attorneys General conference in February 2018 he invited the state attorneys general to act under these provisions declaring that he would be “looking to the state regulators and state attorneys general for a lot more leadership when it comes to enforcement.”

While Mulvaney’s statement may be viewed as the Bureau’s nod to the belief that states “know better” how to protect their own consumers, having states take the lead has the practical effect of weakening the enforcement mechanism. By bowing out of the process, the states have lost the power, resources and information provided by the Bureau to conduct joint investigations, coordinate enforcement actions and negotiate joint settlements.

In fact, where states have pursued multi-state enforcement actions, without the Bureau’s involvement, they are often hampered by fewer resources with the result of much smaller penalties against mortgage servicers and other industry players. This trend is likely to continue as states take the lead in pursuing consumer issues.

The Bureau has been a fascinating study in the wide swing of a pendulum. Despite attempts to ameliorate those wide swings, 2019 looks to be a better year than most for a mortgage servicer.


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Recent U.S. Supreme Court Decision to Have Significant Industry Impact

Posted By USFN, Wednesday, May 8, 2019

by Richard P. Haber, Esq.
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

In its most significant opinion impacting default law firms in several years, the United States Supreme Court issued its decision in Obduskey v. McCarthy & Holthus LLP on March 20,2019. The issue decided whether McCarthy & Holthus LLP (“McCarthy”) is considered a “debt collector” for purposes of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., (the “FDCPA”). In a 9-0 decision, the Court held that McCarthy– and therefore other default firms and trustee companies whose primary business is the pursuit of nonjudicial foreclosures– is not a “debt collector” for purposes of the majority and most meaningful provisions of the FDCPA.

The case stemmed from a nonjudicial foreclosure that McCarthy pursued against Dennis Obduskey in the State of Colorado. The specific question arose from the FDCPA’s statutory definition of “debt collector” which, in relevant part, is:


[A]ny person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, either directly or indirectly, debts owed or due or asserted to be owed or due another.

For the purpose of section 1692f(6)of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement `of security interests.15 U.S.C. § 1692a(6).


The Court has characterized the first section as the “primary definition “and the second section as the “limited-purpose definition.” A party included in the primary definition is subject to the full extent of the FDCPA, including its main requirements: that a “mini-Miranda” warning be given when communicating with a debtor; that a debt validation notice be sent by the debt collector; that, upon receiving a consumer dispute as to the validity or amount of a debt, the debt collector cease collection activity until it verifies the debt; and the prohibition on making false, deceptive or misleading representations in connection with a debt, such as misstating a debt’s “character, amount, or legal status.”

However, a party covered only by the limited-purpose definition is merely subject to the FDCPA’s requirement that it not “tak[e] or threaten to take any nonjudicial action to effect dispossession or disablement of property if: (A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from dispossession or disablement.” 15 U.S.C. § 1692f(6).

McCarthy argued that because its primary business – the pursuit of nonjudicial foreclosures where no deficiency judgment is permitted – is plainly the enforcement of security interests, it is subject only to the limited-purpose definition. The firm further argued that by using the word “also “in the limited-purpose definition, Congress could not have meant for enforcers of security instruments to be included in the primary definition.

Obduskey, the homeowner, countered by arguing that it was possible or McCarthy to be covered by both the primary and limited-purpose definitions, rather than just one or the other. He argued that the limited-purpose definition was meant to capture parties who do not outwardly seek to collect debt by sending demand letters and having other direct communications with consumers, such as the “repo man” who has no interaction with the consumer at all but merely comes in the middle of the night to repossess a car.

McCarthy, and various amicus curiae in support of its position (including USFN), also argued that subjecting the firm to the Act would cause conflict with state foreclosure laws, which was not an intention of Congress when enacting the FDCPA. For example, the FDCPA limits debt collectors from communicating with third parties about the debt, but Colorado foreclosure law requires advertising the foreclosure sale. Thus, accepting Obduskey’s position would mean that McCarthy was violating the FDCPA merely by following Colorado foreclosure law anytime it advertised a foreclosure sale.

Finally, McCarthy argued that the legislative history of the FDCPA supports its interpretation because there was, at one point, competing bills before Congress – one of which would have clearly included enforcers of security instruments in the primary definition and one that would have completely excluded enforcers of security instruments from the Act altogether. The final statute was therefore a compromise of the two bills, whereby the limited-purpose definition was created to regulate only certain activity of security instrument enforcers.

Obduskey also advanced some other arguments, including that McCarthy did more than just “enforce” a security instrument and therefore the other acts it took should bring it within the primary definition. Additionally, Obduskey argued that a ruling in favor of McCarthy would create a “loophole” in the FDCPA, allowing those pursuing foreclosures to engage in various abusive practices otherwise forbidden by the Act.

In reaching its conclusion that McCarthy is only subject to the limited-purpose definition of “debt collector” and not the primary definition, the Court relied on the three primary arguments outlined above:(1) the Act’s text itself ; (2) a determination that Congress wanted “to avoid conflicts with state nonjudicial foreclosure schemes”; and (3) the legislative history of the FDCPA.

While the Court made sure “not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls,” the decision makes clear that default firms and trustee companies whose primary business is the pursuit of nonjudicial foreclosures are not subject to the vast majority of FDCPA requirements. In the same way, a firm whose principal business purpose is the pursuit of foreclosures in a judicial state where the foreclosure judgment simultaneously acts as a money judgment against the borrower personally, is a “debt collector” covered by the full extent of the FDCPA because of the money judgment component.

With respect to judicial foreclosures, the Court specifically stated “whether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day,” but there is a good argument that the holding in
Obduskey v. McCarthy& Holthus LLP extends to firms specializing in judicial foreclosures that result only in in rem judgments, without an in persona deficiency component.

Because the term “debt collector” is defined based on the “principal purpose” of the business, an interesting question is how the
Obduskey v. McCarthy & Holthus LLP decision will impact multistate firms that practice in both judicial and nonjudicial states. Arguably a firm can have only one “principal purpose” and if a majority of the firm’s revenue is generated from nonjudicial foreclosures, judicial foreclosures where there is no deficiency judgment and other non-collection-related activities, it would seem that the firm as a whole should be excluded from the primary definition of “debt collector.”

Another open question is what effect, if any, this case will have on the banks and servicers whose loans are at issue. The
Obduskey v. McCarthy & Holthus LLP decision arguably affects only the default firms and trustee companies that are on the front lines pursuing nonjudicial foreclosures. It seemingly does not change the fact that servicing a mortgage loan for another party would capture a bank or services within the FDCPA’s primary definition of debt collector because those banks and servicers are entities “who regularly collects or attempts to collect, either directly or indirectly, debts owed or due or asserted to be owed or due another.”

Finally, it remains to be seen whether Congress reacts to the decision by amending the FDCPA. The Court was clear that it ruled based on the text of the Act as currently drafted and its perception of Congressional intent. But, of course, Congress is free to amend the Act if it wants to sweep nonjudicial foreclosure firms and trustee companies into the broader FDCPA requirements.


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Recent Cases Help to Interpret the Fair Debt Collection Practices Act

Posted By USFN, Wednesday, May 8, 2019

by William H. Meyer
Martin Leigh PC 
USFN Member (KS, MO) 


Property Preservation is Not Debt Collection Under FDCPA —
Schlaf v. Safeguard Prop., LLC, 899 F.3d459 (7th Cir. 2018)

In Schlaf v. Safeguard Prop., LLC, a property preservation company was sued by a borrower under the Fair Debt Collection Practices Act (“FDCPA”). After the borrower had been in default, the property preservation company was directed by the lender to inspect the property and to leave a door hanger that requested the borrower to contact the lender. On these facts, the borrower sued the preservation company. The borrower claimed that the inspection was abusive and that the door hanger did not make disclosures required by 15 USC § 1692g and §1692e (11) (i.e. creditor name, amount of debt, the debtor’s right to dispute the debt, mini-Miranda statement).

The 7th Circuit disagreed with the borrower, ruling that the preservation company was not a debt collector and therefore not subject to the FDCPA. In reaching that conclusion, the 7th Circuit relied on the door hanger’s text which contained no payment demand, no settlement offer, no payment options, no reference to the borrower’s debt, and listed only the lender’s name and telephone number. The 7th Circuit also found it persuasive that the preservation company made no attempt to collect payments and instructed its employees not to discuss the reason for the inspection.

The Federal Circuits Split on if the FDCPA Applied to Nonjudicial Foreclosures — Obduskey v. Wells Fargo, 879 F.3d 1216 (10th Cir. 2018)

In Obduskey v. Wells Fargo, a law firm nonjudicially foreclosed on the borrower’s home. The law firm initiated the foreclosure by sending the borrower a notice stating its intent to foreclose, details about the debt and a disclosure that the law firm may be considered a debt collector attempting to collect a debt.

The borrower responded and disputed the debt. The law firm did not respond and proceeded to foreclose. The borrower sued the law firm asserting that the law firm violated the FDCPA by failing to respond to the borrower’s debt validation request. Recognizing a split among the federal circuits, the 10th Circuit ruled that nonjudicial foreclosures are not covered by the FDCPA and that the law firm was not obligated to respond to the borrower’s debt validation request.

Additionally, the 10th Circuit reasoned that if the FDCPA applied to nonjudicial foreclosures, then a trustee foreclosing a deed of trust would essentially always breach the FDCPA in order to comply with Colorado’s statutory scheme for conducting nonjudicial foreclosures.

In reaching its conclusion, the 10th Circuit limited its opinion to nonjudicial foreclosures. The Court found that judicial foreclosures do contain an element of debt collection because such a lawsuit could result in deficiency judgment and presumably the FDCPA would be held to apply to judicial foreclosures.

On March 20, 2019, the Supreme Court affirmed Obduskey v. Wells Fargo and resolved the circuit split regarding the FDCPA’s application to nonjudicial foreclosures. The Supreme Court’s decision is discussed in this feature article.

Safe Harbor Language in a Debt Collector’s Notice to a Borrower Does Not Protect the Debt Collector from Misleading Information Also Contained in the Notice - Boucher v. Fin. Sys. of Green Bay, 880 F.3d 362 (7th Cir. 2018)


In Boucher v. Fin. Sys. of Green Bay, a debt collector sent a Wisconsin borrower a notice that closely tracked safe harbor language that 7th Circuit had previously ruled to comply with the FDCPA—except for one thing. The debt collector’s notice indicated that the Wisconsin borrower may be liable for “late charges and other charges.” The borrower sued the debt collector under the FDCPA asserting that the “late charges and other charges” language in the notice violated the statute. The debt collector countered that its notice tracked the safer harbor language and the notice could not violate the FDCPA as a matter of law.

Basing its decision in part on Wisconsin law, the 7th Circuit found the debt collector’s notice was misleading to an unsophisticated consumer particularly given that Wisconsin law does not allow a debt collector to recover late charges and other charges. Accordingly, the 7th Circuit agreed with the borrower that the notice was confusing to the unsophisticated consumer.

In addition to limiting the value of “safe harbor” language, the 7th Circuit cautioned lower courts against dismissing FDCPA claims based upon deceptive notices. That is because the 7th Circuit suggests that “district court judges are not good proxies for the ‘unsophisticated consumer’ whose interest the [FDCPA] protects.”


A Technical Violation of the FDCPA’s Mini-Miranda Requirement is Not Always Actionable – Hagy v. Demers & Adams, 882 F.3d 616 (6th Cir. 2018)

In Hagy v. Demers & Adams, the lender and borrower settled a dispute pursuant to which the borrower quit claimed secured property to the lender and the lender waived its right to pursue a deficiency. The lender’s lawyer sent a confirmation letter to the borrower’s attorney confirming the settlement. However, that letter did not contain the obligatory § 1692e (11) disclosure (i.e. this is a communication from a debt collector).

Despite the completed settlement, the lender continued to attempt to collect the deficiency against the borrower. That resulted in the borrower suing the lender’s law firm and asserting a § 1692e (11) violation. Reasoning that even if the law firm’s letter constituted a procedural violation of the FDCPA, the 6th Circuit rejected the borrower’s claim because the letter was true (the dispute had been settled and the lender had agreed to waive the borrower’s deficiency) and because the borrower could not articulate how the borrower was harmed by the letter. Furthermore, the borrower used the law firm’s letter to defend itself from the lender’s attempt to collect on a settled debt.

Debt Collector’s Failure to Notify a Borrower that a Debt Dispute Must Be Made in Writing is Actionable Under the FDCPA - Macy v. GC Srvs. L.P., 897 F.3d 747 (6th Cir. 2018)

In Macy v. GC Srvs. L.P., a debt collector notified a borrower that the borrower had 30 days to dispute the debt identified in the notice. However, the debt collector’s notice did not state the borrower’s debt dispute must be made in writing. The borrower sued alleging that the debt collector’s notice violated § 1692g (a)(4) of the FDCPA.

The debt collector moved to dismiss, arguing that the alleged violation (i.e. the notice’s failure to state the borrower must dispute the debt in writing) did not constitute harm sufficiently concrete to satisfy the FDCPA’s injury in fact standing requirement. The district court denied the debt collector’s motion to dismiss. The debt collector then petitioned the 6th Circuit for interlocutory review and the Court granted that request.

On appeal, the 6th Circuit ruled that the debt collector’s notice – which failed to advise the borrower that a debt dispute must be in writing –was potentially actionable and the Court declined to dismiss the case at the motion to dismiss stage of the proceedings. However, the 6th Circuit’s opinion mentioned that, for purposes of its analysis of the debt collector’s motion to dismiss, that the Court was precluded from considering information from outside of the complaint showing that the debt collector treated verbal debt disputes the same as “written” disputes. It is possible that the 6th Circuit may have ruled differently had the case not been at the motion to dismiss stage where the Court was required to assume that all allegations in the complaint were true.

This case’s result is intriguing given that in another 2018 decision (Hagy v. Demers & Adams), the same 6th Circuit Court of Appeals ruled that a minor or procedural violation of the FDCPA was not actionable.

A Debt Collector’s Duty to Verify a Debt is Very Limited - Walton v. EOS CCA, 885 F.3d 1024 (7th Cir. 2018)


In Walton v. EOS CCA, a creditor notified debtor that the debtor owed an outstanding balance on a closed telephone account. The creditor further advised the debtor if the balance was not paid then the account would be turned over to a collection agency. The account was then turned over to a debt collector who sent a notice that incorrectly stated the debtor’s account number but the remaining information in the notice was correct (i.e. debtor’s name, address, amount owed and social security number).The debtor disputed owing the debt.

In response to the debtor’s dispute, the debt collector verified that the debt information that it received from the creditor matched what was in the debt collector’s notice to the debtor. (The debt collector did not separately contact the creditor to verify that the initial information that the creditor initially provided to debt collector was correct.) The debt collector also reported the debt to credit reporting agencies but noted in the report that the debt was disputed.

On these facts, the debtor sued the debt collector under the FDCPA alleging that the debt collector failed to “reasonably” investigate the information the debtor disputed because the debt collector did not separately contact and confirm the account information with the creditor.

The 7th Circuit agreed with the debt collector and concluded that the debt collector’s obligation to verify a debt was very limited. It ruled that it “would be both burdensome and significantly beyond the [FDCPA’s] purpose to interpret § 1692g(b) as requiring a debt collector to undertake an investigation in whether the creditor is actually entitled to the money it seeks.”


The Federal Circuits Are Split on When the FDCPA’s One-Year Statute of Limitations Period Begins to Run -
Rotkiske v. Klemm, 890 F.3d 422 (3rd Cir. 2018)

In Rotkiske v. Klemm, a law firm obtained a default judgment against a borrower for $1,500 in 2009. However, the borrower was never actually served with process because someone other than the borrower accepted service. In 2014, the borrower discovered the judgment while applying for a loan. In 2015, the borrower sued the law firm under the FDCPA for wrongfully taking the judgment.

The law firm moved to dismiss the lawsuit as being time barred by the FDCPA’s one-year statute of limitations period. The law firm argued that the limitations period runs from the date of the alleged FDCPA violation (i.e., the 2009 judgment) and not from the date the violation is alleged to have been discovered (i.e., in 2014). The 3rd Circuit, recognizing a split in authority with the 4th and 9th Circuits, ruled that the FDCPA’s statute of limitations runs from the date the alleged violation occurred. In this case, that was in 2009 when the law firm obtained the default judgment and not in 2014 when the borrower discovered the alleged FDCPA violation.

Tax Collection is Not Debt Collection Under the FDCPA - St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., 898 F.3d 351 (3rd Cir. 2018)


In St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., a motorist failed to timely pay highway tolls. A debt collector mailed the motorist a payment demand. However, the motorist’s account number was visible from outside of the letter’s envelope. Based on that violation, the motorist sued the debt collector under the FDCPA.

On appeal, the 3rd Circuit addressed two issues: 1) the fact the motorist’s account information was visible from outside the envelope actionable given the debt collector’s argument that the motorist could not have been damaged by this act; and 2) is collecting an unpaid highway toll or tax the collection of a debt under the FDCPA?

The 3rd Circuit ruled that revealing a debtor’s account number through an envelope window implicates a core FDCPA concern (protecting a debtor’s privacy), and such violations are always actionable under the FDCPA. However, the 3rd Circuit ruled collecting a highway toll is more akin to tax collection. The 3rd Circuit ruled, following a host of other authorities, that tax collection is not a debt encompassed by the FDCPA. Accordingly, the FDCPA does not apply to tax collection. This result is interesting in that the collection was not handled by the government itself but by anon-governmental debt collector.

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USFN Briefing Follow-up: Obduskey v. McCarthy Holthus LLP

Posted By USFN, Tuesday, April 16, 2019

by Caren Jacobs Castle, Esq.
The Wolf Firm
USFN Member (CA)


As a follow up to the April 3 USFN Briefing webinar on the U.S. Supreme Court’s decision in the case of Obduskey v. McCarthy Holthus LLP, several questions were submitted that the presenters were unable to address due to time constraints.  Here is insight into two of the more common questions from the webinar.

Does the sending of reinstatement or payoff letters fall within the Obduskey decision, or alternatively does it fall within the Fair Debt Collection Practices Act (“FDCPA”)?

What we do know is Obduskey covers the four corners of each state’s nonjudicial foreclosure process.  As the Court noted …”we here confront only steps required by state law, we need not consider what other conduct (related to, but not required for, enforcement of a security instrument) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act” (Justice Breyer, Opinion of the Court).

Therefore, to determine if reinstatement or payoff letters constitute actions of a debt collector or a security-interest enforcer, one must look to the four corners of the state statute.  Are the providing of the figures statutorily required, or alternatively, contractually required?  If they are statutorily required Obduskey should control and the sending of the letters should fall outside of the FDCPA.  If, however, the statute does not specifically require the trustee and/or attorney who is conducting the nonjudicial foreclosure to provide reinstatement or payoff letters, then the outcome is no longer clear.  One can anticipate that the next line of litigation post-Obduskey will be surrounding the issues of just what is included within the four corners of the state statute and what is not.

What are examples of violations of the FDCPA in the nonjudicial foreclosure scenario, by way of example, commencing a foreclosure in violation of the automatic stay, commencing a foreclosure on a released security instrument, or commencing a foreclosure in the name of an improper party (no assignment of the security instrument or endorsement of the note).

Steps taken prior to the commencement of the foreclosure may not be protected under the Obduskey decision.  Pre-foreclosure notices, such as a contractually or investor required breach or demand letters, that are not a statutorily required prerequisite to commencement of the foreclosure would appear to be outside the Supreme Court decision.  Similarly, loss mitigation letters sent by the firm or trustee, if not statutorily required, would fall outside of the Supreme Court decision.  If commencing a nonjudicial foreclosure against a nonexistent lien could be deemed abusive, a time barred debt, or in the name of a party who is not the current holder or beneficiary, could be deemed abusive collection efforts, then FDCPA may well apply.  As the Court states, “this is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices…enforcing a security interest does not grant an actor blanket immunity from the Act” (Justice Breyer, Opinion of the Court).

Each firm and trustee will need to continue to appropriately evaluate each matter to ensure foreclosure is proceeding with proper authority and documentation.  One should always remember that regardless of FDCPA applicability, there are state consumer protection statutes that may not mirror the FDCPA distinction between debt collector and security instrument enforcer.  As previously noted, while Obduskey does provide clarification that conduct required to complete a nonjudicial foreclosure is not conduct by a debt collector, just what conduct is outside the Obduskey decision remains to be litigated. 

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Appellate Court Rules Originating Lender Not Liable for Alleged Bad Acts by Mortgage Broker

Posted By USFN, Monday, April 15, 2019

by Jeffrey M. Knickerbocker, Esq.

Bendett & McHugh, PC
USFN Member (CT, MA, ME, NH, RI, VT)

 

In Bank of America v. Gonzalez, 187 Conn.App. 511 (2019), the Connecticut Appellate Court upheld a decision by the trial court whereby the trial court found the originating lender was not liable for the alleged bad actions of the mortgage broker.  The complaint stated that on or about March 20, 2006, the defendant executed a note (the “note”) in favor of Mortgage Capital Group, LLC (“Mortgage Capital”).  On the same day, to secure the Note, defendant executed a mortgage (the “mortgage”) on the property that was the subject of the foreclosure. 

The defendant filed an answer and special defenses and pleaded that the note and mortgage were unenforceable because of alleged fraudulent inducement, negligent misrepresentation, equitable estoppel, unconscionability, duress and unclean hands.  Each of the special defenses alleged misconduct by David J. Bigley, an alleged employee and/or agent of the original lender and mortgagee, Mortgage Capital.  Bigley was actually a mortgage broker for a company named Main Street Mortgage, LLC.  Bigley, and the closing attorney, Thomas Battaglia, are cousins, which is a fact that was not disclosed to defendant.  Further, Bigley held a mortgage on the property that would be paid off by the sale of the property to defendant, another fact not disclosed to defendant.  In order to prevail on these special defenses, the defendant was required to prove that Bigley was an agent or employee of Mortgage Capital. See CitiMortgage, Inc. v. Coolbeth, 147 Conn. App. 183, 192, 81 A.3d 1189 (2013), cert. denied, 311 Conn. 925, 86 A.3d 469 (2014).

The matter went to trial and the court found that the plaintiff had presented prima facie evidence to support the judgment of strict foreclosure. The court rejected the defendant’s special defenses, finding that the defendant had not satisfied his burden of proving that Bigley was an agent or employee of Mortgage Capital.  The appellate court reviewed the evidence presented in the trial court to determine if the evidence supported the trial court’s decision.  The appellate court considered the mortgage loan origination agreement, signed by the defendant on January 30, 2006, which identified Main Street Mortgage, LLC, as an independent contractor and licensed mortgage broker under the laws of the state of Connecticut. This document provided in relevant part: “In connection with this mortgage loan we are acting as an independent contractor and not as your agent. We will enter into separate independent contractor agreements with various lenders.”

Similarly, the mortgage broker fee disclosure, signed by the defendant on January 30, 2006, provided in relevant part: “The mortgage broker will submit your application for a residential mortgage loan to a participating lender with which it from time to time contracts upon such terms and conditions as you may request or a lender may require.... The mortgage broker may be acting as an independent contractor and not as your agent.”

Finally, the mortgage broker fee disclosure also provided: “You may work with the mortgage broker to select the method [by] which it receives its compensation depending on your financial needs, subject to the lender’s program requirements and credit underwriting guidelines.” The “Good Faith Estimate,” also signed by the defendant on January 30, 2006, provided that it was “being provided by Main Street Mortgage, LLC, a mortgage broker, and no lender has yet been obtained.”

On cross examination, the defendant testified he had no evidence that Mortgage Capital set Bigley’s hours or supplied any office supplies to Bigley. He further testified that he had no evidence that Mortgage Capital provided or told Bigley who to get as customers.  In short, there was no evidence that the mortgage broker and originating lender had anything other than an independent contractor relationship.

This case shows the importance of maintaining the origination file.  The origination documents were instrumental in establishing the relationship between the originating broker and the lender.

 

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Federal Court Clarifies Mortgage Servicer Responsibilities after Loan Transfers

Posted By USFN, Monday, April 15, 2019

by Paul Weingarden, Esq. & Brian Liebo, Esq.
Usset, Weingarden & Liebo, PLLP
USFN Member (MN)


In Hrebal v. Seterus, Inc. (D. Minn., 2019), a Federal District Court situated in the 8th Circuit issued an order which presents a cautionary warning to loan servicers.  The case illustrates the potential perils when servicing loans following a service transfer, and specifically in reporting delinquencies under the Fair Credit Reporting Act (“FCRA”). 

In October 2007, Minnesota resident Charles Hrebal entered into a mortgage with the originating lender. When Hrebal ran into financial problems, he filed a Chapter 13 Bankruptcy listing four delinquent payments on his mortgage.  For unknown reasons, the original lender filed a proof of claim (“POC”) for only two out of the four payments, and in response Hrebal filed an amended plan reflecting that lender’s lower claimed delinquency.  The plan was approved without objection.  As in most such plans in the district, the trustee paid the lender past due amounts during the plan period to pay the pre-petition arrears in full, and Hrebal directly maintained his ongoing payments post-petition.  During the bankruptcy, the original lender recognized its POC filing error, but did not file an amended POC despite numerous notes found in its servicing records concerning the discrepancy.

The loan was subsequently service transferred to Seterus, Inc.  Seterus continued to receive monthly post-petition payments during the bankruptcy proceedings and did not raise the missing prepetition payments issue during the pendency of the bankruptcy case.  Also, when Hrebal called to inquire about his mortgage’s status, Seterus appeared to inform him that he was “current on all payments.”  In 2015, Hrebal completed his plan and was granted a discharge.

Unfortunately, the issue of the missed prepetition payments reared its ugly head when Seterus raised for the first time that two payments were still due post-petition in response to a Trustee’s Notice of Final Cure.  Seterus’ corporate witness later asserted that, even though Hrebal made every monthly payment after entering bankruptcy, the erroneous POC filed by the original lender resulted in Hrebal “walking out of bankruptcy still two payments behind.”

Thereafter, Hrebal discovered that Seterus reported the loan delinquent to the three major credit reporting agencies (“CRAs”) after Hrebal wrote Seterus and the CRAs to dispute the reported delinquency.  According to the court’s findings, Seterus refused to notify the CRAs that the debt was disputed, never reviewed the prior servicer’s notes, nor changed its internal records concerning the dates of the alleged delinquency. 

Hrebal sued Seterus for violating the FCRA, claiming damages to reputation and emotional distress, and both parties moved for summary judgment.  The parties primarily disputed whether Seterus provided “inaccurate” or “materially misleading”  information to the CRAs when Seterus reported Hrebal as delinquent on his mortgage shortly after successfully completing a Chapter 13 bankruptcy plan, as well as whether Seterus’s alleged FCRA violations were willful.

The first issue facing the court was whether the two missing payments from the original lender’s POC survived the bankruptcy discharge, in which case the credit reporting by Seterus of Hrebal being “two payments behind as he exited bankruptcy” might have been “technically accurate.”   However, the district court judge refrained from analyzing the bankruptcy issues due to split authority, and believed that the court could resolve the FCRA claims without opining on that “complex” bankruptcy law question.  

Turning to the FCRA claims, the court recognized that the FCRA requires furnishers of credit information to provide accurate information to CRAs, and if informed by a CRA that a consumer is disputing any information appearing on their credit report, the furnisher must conduct a reasonable investigation of records to determine whether disputed information can be verified.  See, 15 U.S.C. § 1681s.  Courts across the country have generally held that “a fairly searching inquiry, or at least something more than a mere cursory review” is required under the FCRA for such an investigation to be reasonable.  Also, multiple circuit courts have held that “even if credit information is technically correct, it may nonetheless be inaccurate if, through omission, it creates a materially misleading impression.” 

During an exhaustive factual review, the court found a number of servicing errors starting with the initial, mistaken POC.  These purported errors included servicing records Seterus never reviewed when responding to the CRAs which easily should have been found per the court.  This caused inadequate responses by Seterus resulting in possibly "misleading and inaccurate reporting” which triggered the right for the borrower to claim damages. 

Citing the record, the court noted:  “…perhaps most importantly, [Seterus employees] could have marked Hrebal’s delinquency as ‘disputed’, but never did….”, noting testimony that it was a Seterus blanket policy to never do so which in the court’s opinion may have evidenced a "willful or reckless disregard for compliance with the FCRA.” 

The district court denied Seterus’s request to be dismissed from the litigation and the judge set the matter for trial.  The court found a jury could reasonably find that Seterus breached its FCRA duties by simply reaffirming Hrebal’s delinquency without any mention of a dispute.  That response rendered Seterus’s credit reporting inaccurate because, through omission, it created a materially misleading impression that Hrebal was more financially irresponsible than he actually was, according to the court.  The court further explained that a reasonable juror might find Seterus’s omission especially misleading because Hrebal had just successfully completed a long Chapter 13 bankruptcy plan, received a discharge, and had not missed a mortgage payment in over five years.

It is important to note that this is just an order denying Seterus summary judgment motion, not a final order assessing liability. It is unknown if the case will be settled, won at trial or appealed.   But it should be read as a cautionary lesson by noting that if the original lender had acted on the improper information it found on its POC; or if Seterus had read the prior servicing notes and records; or followed guidelines noting that the debt was disputed for purposes of credit reporting, then this case perhaps might never have been filed.

As an important practice pointer for mortgage servicers, it is always prudent to carefully review prior servicing notes when receiving loans, especially whenever a servicing dispute is raised, to ensure responses to inquiries and records are entirely accurate and appropriate. 


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South Carolina Legislature Authorizes Department of Revenue to File Tax Liens Statewide with an Online Database System

Posted By USFN, Monday, April 15, 2019

by John S. Kay, Esq. 
Hutchens Law Firm
USFN Member (SC)


The South Carolina Legislature has passed a new law that has far-reaching implications for those searching land records in the state of South Carolina. Traditionally, the South Carolina Department of Revenue (“SCDOR “) has filed tax liens against individual taxpayers for nonpayment of state taxes by filing a lien with the county recorder in the county where the taxpayer resides. The tax lien would then become a lien against any real property owned by the taxpayer in that particular county for a period of ten years. However, the recorded lien would not affect property owned by the taxpayer located in counties other than the one where the lien is filed. This traditional system of recording may change drastically with the passage of Senate Bill 160, which was signed into law by the governor on March 28, 2019 and will go into effect on July 1, 2019.

The new law supplements Section 12-54-122(G) of the South Carolina Code by allowing the South Carolina Department of Revenue to “implement a statewide system of filing and indexing liens which must to be accessible by the public over the Internet”.  The new lien would have a permanent date and time stamp, the name of the taxpayer, and the amount of tax and penalties. The most important aspect of the new law is that a lien filed with any new system implemented by the SCDOR would be effective statewide from the date and time it is recorded and available to the public over the internet. This means that a lien filed by the SCDOR will automatically become a lien against any property owned by the defaulting taxpayer in South Carolina.  The lien becomes effective statewide upon one filing without transcribing the lien to all of the different counties in the state.  It is important to note that the new law does not extend the current ten-year life span of a recorded tax lien.

Once a new online system is implemented by the SCDOR, Clerks of Court and Registers of Deeds, the current county officials charged with recording tax liens in individual counties in South Carolina, are relieved of any statutory obligations for filing and maintaining newly filed tax liens. This does not absolve the county offices from maintaining tax liens already recorded in their offices.  Assuming that the SCDOR will only list new tax liens on their system of record, title abstractors and attorneys must continue to check tax liens in the county where a parcel of real property is located until the ten-year statute of limitations period expires for those liens.  Once the system has been in effect for ten years, title examiners may then stop searching the individual county tax records and use only the statewide database for a title search for tax liens.

While the new law does not require the SCDOR to implement a new system, the law was created in anticipation of the SCDOR implementing such a system and we expect that they will do so. Once the system goes into effect, persons searching titles in South Carolina must check both the new system for tax liens and continue to check the individual county tax lien index for older tax liens recorded prior to the start date for a new SCDOR system. Since numerous mortgage servicers utilize nationwide title companies to perform title searches for their loans in default, these servicers and title companies must be aware of the implementation of a new tax lien filing system by the SCDOR so that they make certain they are able to adequately search titles in South Carolina.

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Rhode Island Federal Court Ruling Could Change GSE Nonjudicial Foreclosure Process Across the Country

Posted By USFN, Monday, April 15, 2019

by Joseph A. Camillo, Jr., Esq.                                    

Brock and Scott, PLLC

USFN Member (AL, CT, FL, GA, MA, MD, ME, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In August of this year, the United States District Court for the District of Rhode Island was presented two cases seeking a ruling that Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”) are government actors, and thus, violated Fifth Amendment due process rights by conducting non-judicial foreclosures. See Sisti v. Federal Housing Finance Agency (“FHFA”), 2018 WL 3655578 (D.R.I. Aug. 2018).  FHFA, FNMA and FHLMC moved for judgment on the pleadings, which was denied by Judge McConnell as “…it is not ‘beyond doubt’ that plaintiffs cannot prove their claims against the agency.”  Based on the denial, FHFA, FNMA and FHLMC filed a motion to amend the August 2, 2018 order to include the certification necessary to allow defendants to petition the U.S. Court of Appeals for the First Circuit for interlocutory review under 28 U.S.C. §1292(b).  On October 15, 2018, McConnell denied the motion allowing the case to proceed.

The case stems from two unrelated foreclosures: a 2012 foreclosure sale of Sisti’s home by FHLMC and a 2014 foreclosure sale of Boss’ home by FNMA.   In both instances, the properties sold back to the respective government-sponsored enterprises (“GSEs”) and state court actions to evict commenced.  Both borrowers seeking to defend the evictions sued FNMA, FHLMC and FHFA in separate Federal Court actions, alleging that the entities are government actors and violated the borrowers’ Fifth Amendment due process rights by conducting non-judicial foreclosures. The defendants moved for judgment on the pleadings, and the cases were consolidated for oral argument as they presented the same legal issues

In denying defendants (FHFA, FNMA and FHLMC) the motion for judgment on the pleadings, the court found that the plaintiffs could prove that FNMA and FHLMC are government actors for the purposes of constitutional claims and thus the case could proceed.  This was based on the court’s application of the three-part test articulated by the Supreme Court in
Lebron v. National Railroad Passenger Corp. 513 U.S. 374 (1995) which asked: 1) whether the government created the entity by special law; 2) whether the entity furthers governmental objectives; and 3) whether the government retains for itself “permanent authority” to appoint a majority of the directors of that entity. 

In dispute amongst the parties was the third prong of this test, namely whether the government has retained permanent authority to appoint a majority of the directors of that entity.  Many courts in the past have found, and
FNMA, FHLMC and FHFA argued, that FHFA’s conservatorship of the GSEs is temporary under the Housing and Economic Recovery Act (“HERA”).  This court however rejected this argument, concluding that FHFA “…effectively controls Fannie Mae and Freddie Mac permanently” because of its control over the duration of the conservatorship, which Judge McConnell described as “in perpetuity.

This recent ruling allows the case to move forward and is not a decision on the merits.  If GSEs are found to be government actors, then constitutional protections may apply which could trigger changes to the GSE non-judicial foreclosure process across the country.  This could range from foreclosing in the servicer’s name to protections found in judicial foreclosures, such as the opportunity to have an evidentiary hearing, to be represented by counsel, or to have a neutral hearing officer adjudicate the matter.

 

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Obduskey v. McCarthy & Holthus LLP Supreme Court Decision a Win for the Industry

Posted By USFN, Wednesday, March 27, 2019

by Richard P. Haber, Esq.

McCalla Raymer Leibert Pierce, LLC

USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

In a great win for the industry, the United States Supreme Court decided last week that default firms and trustees specializing in nonjudicial foreclosures are not “debt collectors” and therefore not subject to the majority of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., (the “FDCPA” or the “Act”). In a unanimous decision issued on March 20, 2019 in the matter of Obduskey v. McCarthy & Holthus LLP, the Court considered whether the actions taken by McCarthy & Holthus LLP (“McCarthy”) in connection with a nonjudicial foreclosure in the State of Colorado rendered it a “debt collector” pursuant to the Act.

The question arose from the FDCPA’s statutory definition of “debt collector” which, in relevant part, is:

[A]ny person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, either directly or indirectly, debts owed or due or asserted to be owed or due another.

*             *             *

For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

15 U.S.C. § 1692a(6).

The Court has characterized the first section as the “primary definition” and the second section as the “limited-purpose definition.” A party included in the primary definition is subject to the full extent of the FDCPA, including its main requirements that a debt validation notice be sent by the debt collector; that, upon receiving a consumer dispute as to the validity or amount of a debt, the debt collector cease collection activity until it verifies the debt; and the prohibition on making false, deceptive or misleading representations in connection with a debt, such as misstating a debt’s “character, amount, or legal status.”

However, a party subject only to the limited-purpose definition is merely subject to the FDCPA’s requirement that it not “tak[e] or threaten[ ] to take any nonjudicial action to effect dispossession or disablement of property if: (A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from dispossession or disablement.” 15 U.S.C. § 1692f(6).

Relying on (1) the Act’s text itself; (2) a determination that Congress wanted “to avoid conflicts with state nonjudicial foreclosure schemes”; and (3) the legislative history of the FDCPA, the Court concluded that McCarthy is only subject to the limited-purpose definition of “debt collector” and not the primary definition. Accordingly, default firms and trustees who specialize in nonjudicial foreclosures are no longer subject to the vast majority of FDCPA requirements. 

While the Court made sure “not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls,” default firms and trustee companies whose primary business is the pursuit of nonjudicial foreclosures, can now rest a little easier from the standpoint of compliance and litigation risk in connection with the FDCPA. With respect to judicial foreclosures, the Court specifically stated “whether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day,” but it seems that there would be a strong argument that the holding in Obduskey extends to firms specializing in judicial foreclosures that result only in in rem judgments, without an in personam deficiency component.

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A Resolution for 2019: Speak with Substance*

Posted By USFN, Monday, March 25, 2019

by Lisa Lee, Esq.
KML Law Group, P.C.
USFN Member (NJ, PA)



Do meetings that you lead ever look like this? Maybe they do, but you just don’t realize it? Could it be that the people on the other end of calls that you run look like the ones seated at this table? No one wants that! Here’s a way to avoid it: Resolve to speak with substance.


One common complaint about lawyers is that they use a lot of words to say essentially nothing. A lot of other types of business leaders are accused of the same thing. A big part of this phenomenon is the use of “Corporate Speak.”

When I think of “corporate speak,” I think of any phrase or saying that sounds super fancy, but actually means nothing. In fact, it’s almost always worse than that. Often these bits of jargon beg another question.  And, if that question is not one that you provide a meaningful answer to right away, it leaves the listener very annoyed when they realize that you have attempted to dazzle them with completely empty words. 

Consider how you would feel after reading this description of a law firm in our space:

“Our firm leverages vertically integrated synergies to affect a paradigm shift and to move the needle in a way that is scalable and utilizes every best practice known to the industry. Let us do your heavy lifting using our robust, game changing core competencies. If you want to raise the bar, the bottom line is you should hire us – we will give you 110 percent!”

Okay, that is an exaggeration and is NOT a real example of a description of a firm in our space.  But sometimes a sales pitch comes off this way. It doesn’t say anything of substance.  As a matter of fact, it ends with a lie. No one can give 110% ever, because there is no such thing.

I consider myself to be hypersensitive to all things corporate speak. That said, I still sometimes catch myself telling someone I’ll “circle back” with them or will start with “the low hanging fruit.” I annoy myself when I hear these types of things come out of my mouth. So, I resolve for 2019 to speak with substance.

When a difficult problem arises, I promise not to drill down, take a deep dive, open the kimono (really?), peel back the onion, consider all the moving parts, reinvent the wheel or go back to the drawing board. No longer will I say that I will take it to the next level, run it up the flagpole, take it offline, run the numbers, ballpark it, think outside the box or hit the ground running when describing my approach to such a task. Instead, I will clearly and specifically detail the next steps I will take and when and how I will provide updates and results.

When scheduling conflicts happen, I will not go on about having a hard stop, being out of pocket, not having the bandwidth or needing to loop someone in, reach out down the road or touch base later. To cut through all of that, I will just plainly provide my availability and not go on about how very busy and important I think I am (isn’t that what one means when they say they “don’t have the bandwidth”).

When speaking to our team, I won’t blather on about pushing the envelope, creating a win-win situation, having skin in the game, playing hardball, creating buy-in, hitting the nail on the head, making hay or the elephant in the room. What people want to hear is factual information about why we are doing what we’re doing, what exactly is expected and when, and the results we are looking to achieve. That is what I resolve to deliver, and it will require that I speak with substance. 

How about you?  Are you with me?  Will you resolve to give it 110%?

(Oh, wait…)

* At our Annual Retreat in November, we conducted an informal survey of the members in attendance, tasking them with listing the most annoying words or phrases they hear continually in meetings or conference calls.  The results inspired us to provide this follow up, which incorporates the “corporate speak” examples our members most often cited.

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In re George: Innocence Won

Posted By USFN, Monday, March 25, 2019

by Devin Chidester, Esq. 

Brock and Scott, PLLS

USFN Member (AL, CT, FL, GA, MA, ME, MD, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In re George[1] handed down by the North Carolina Court of Appeals on February 19, 2019 examines the balance between improper foreclosure and ownership rights of a third-party purchaser of the foreclosed property.  In George, owners of a property[2] in Mecklenburg County, NC were foreclosed upon by their community’s HOA for failure to pay unpaid dues totaling $204.75.  During the foreclosure, service was attempted by sending certified and first-class mailings to all known addresses[3] as well as having the county sheriff attempt to personally serve respondents at the subject property.  The foreclosure was granted and a foreclosure sale was conducted on January 12, 2017.  The property was purchased by a third-party (KPC Holdings) and transferred to National Indemnity (“NI”) shortly thereafter.  The property owners filed a motion to set under Rule 60(c), citing lack of personal service.  The superior court ruled in favor of the property owners and voided the foreclosure while also setting aside any subsequent deed chains.

 

Upon appeal, two issues were raised: 1) whether improper service voids an entire foreclosure (first legal through deed recording) and 2) a good faith third-party purchaser’s title will be impacted by the voided foreclosure.  On the issue of service, the Court of Appeals examined whether the property owners were deprived of constitutionally protected due process rights and/or the procedural requirements of North Carolina’s Rules of Civil Procedure.  The Court of Appeals held that as long as the intended notice was reasonably calculated to reach the intended person then that person is not deprived of due process simply because they did not receive actual notice.  The foreclosing party sent notice via multiple mailings and in-person service by the sheriff.  This satisfied the reasonableness requirement because the methods required under law were used to attempt service, thus the property owners were not deprived of property without notice and opportunity to be heard. 

As for the issue of personal service, North Carolina allows personal service by leaving notice with an individual or with a person of suitable age at the individual’s dwelling house or usual place of abode.  The subject property was occupied by the owner’s children, and the owners infrequently visited the property, nor did they claim it to be their residence.  Furthermore, when the county sheriff attempted personal service he unintentionally served one of the property owners’ children who signed the sheriff’s notice using her mother’s name.  Thus, the property owners were not properly served pursuant to North Carolina law and the foreclosure was void as a result.  However, the majority opinion from the Court of Appeals differed from the trial court’s conclusion.  Although the trial court correctly identified the legal flaw in personal service and correctly voided the foreclosure, it incorrectly set aside the deeds to the third-party purchasers. 

Pursuant to N.C.G.S. § 1-108, title to property sold to a good faith purchaser for value is not affected by the set aside of a foreclosure.  KPC was a purchaser for good faith due to the lack of knowledge or reason to believe in any defects in the foreclosure.  KPC did not have reason to believe anything in the record or foreclosure was invalid, so the deed chain was not impacted by the voided foreclosure. 

 

The property owners are victims of improper foreclosure, but the statutory authority is clear that innocent, good faith purchasers for value shall retain title regardless of the voided foreclosure.  In re George should be a reminder of the importance of quality legal work.  An innocent third-party purchaser may prevent the need to redo the foreclosure, but poor legal work opens unwanted and expensive doors of restitution.

[1] -- S.E.2d --, 2019 WL 660956 (2019)

[2] Clamore and Hygiena George owned the property in Mecklenburg County but did not live there.

[3] The Georges lived in the Virgin Islands.  Their children lived at the home.


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United States District Court for the District of Arizona Rules a Notice of Intent to Accelerate May Decelerate the Loan

Posted By USFN, Monday, March 25, 2019

by Julie Molteni, Esq.                                   

Quality Loan Service Corp.

USFN Member (CA)

Kristin McDonald, Esq.

McCarthy & Holthus LLP
USFN Member (AZ, CA, CO, ID, NM, NV, OR, TX, WA)

The United States District Court for the District of Arizona ruled that, in certain circumstances, the notice of intent to accelerate may constitute a deceleration of the loan when evaluating a statute of limitations claim.  Hummel v. Rushmore Loan Mgmt. LLC, 2018 U.S. Dist. LEXIS 132358 (D. Ariz. Aug. 7, 2018). 

 

In Hummel, borrowers sought to quiet title and enjoin a non-judicial foreclosure of the property.  They alleged that Arizona’s six year statute of limitation barred the foreclosure from proceeding.  The borrowers defaulted on their loan in 2009 and in February of that same year, the servicer issued a notice of intent to accelerate the loan.  In February 2011, the servicer sent a second notice of intent to accelerate.  A Notice of Trustee’s Sale was recorded in February 2013, but the sale was cancelled the following month.  While other foreclosure notices and notices of intent to accelerate were issued, the court focused on the 2009 and 2011 notices of intent to accelerate when evaluating the statute of limitations claim.

 

Despite noting that there was a question of fact as to whether or not the loan accelerated in 2009, the court ruled that the statute of limitations defense was not available to the borrower because the 2011 notice of intent to accelerate actually decelerated the loan.  In making this conclusion, the court noted that the 2011 notice of intent to accelerate that was sent to the borrower contained the necessary language to revoke the acceleration.  Specifically, the notice contained statements conveying that (1) the borrower is in default, (2) the borrower has a right to cure the default by paying less than the full debt, and (3) the creditor might accelerate the debt if the borrower does not cure the default.   Since the 2011 notice was transmitted to the borrower and contained the requisite statements, the court held that for the purposes of evaluating the statute of limitations, the 2011 notice of intent to accelerate actually decelerated the loan.  It granted summary judgment on the issue in favor of the servicer and beneficiary.

 

This ruling provides post-Andra R Miller Designs LLC v. U.S. Bank NA[1] clarity for processing non judicial foreclosures with aged defaults. 


[1] The case of Andra R Miller Designs LLC v. U.S. Bank NA, 244 Ariz. 265 (Ct. App. 2018), held that the Notice of Sale accelerates the loan.

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