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South Carolina: Federal Court finds Law Firm Violated FDCPA Provisions in Demand Letter to Homeowners

Posted By USFN, 8 hours ago
Updated: 20 hours ago

October 17, 2018

by John S. Kay
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

It seems that law firms in the default servicing or debt collection industry have always had a target on their backs when it comes to the Fair Debt Collection Practices Act (FDCPA). Still, a recent decision may at least provide some guidance on avoiding certain FDCPA issues. In the case of Park v. McCabe Trotter & Beverly, P.C., No. 2:17-cv-657-RMG (D.S.C. Aug. 14, 2018), the U.S. District Court for the District of South Carolina issued an order and opinion with implications for mortgage servicers and their counsel. In Park, the court found that a debt collector law firm (McCabe) violated provisions of the FDCPA while attempting to collect past-due homeowners’ association (HOA) dues and assessments.

Background
The plaintiffs were homeowners in a housing development with a homeowners’ association. The HOA had previously retained the law firm to represent it in the collection of dues and assessments pursuant to the covenants and restrictions established for the development. The plaintiffs ceased paying assessments in 2006. In 2012, the HOA began imposing additional fines for numerous alleged violations, which included some daily fines. In 2015, the HOA requested that the law firm collect the unpaid dues and assessments from the plaintiffs.

The plaintiffs alleged that the law firm’s attempts to collect attorneys’ fees, in demand letters sent to the plaintiffs, were in violation of the FDCPA as those fees were not authorized by the development’s covenants and restrictions. The court agreed with the plaintiffs and found that attorneys’ fees were not authorized by the covenants and restrictions, unless they were part of the amount entered as a judgment in a legal action. The lesson is clear here — do not attempt to collect attorneys’ fees, or any other fees, until authorized by the contract in question.

Court’s Analysis
A more troubling aspect of the case, as far as law firms are concerned, deals with the way the debt was listed in a letter sent by the law firm to the plaintiffs. In the letter, the law firm stated that the plaintiffs’ “balance including attorneys’ fees is $19,965.76.” The court found the letter to be in violation of the FDCPA by failing to explain the lump-sum debt that the plaintiffs allegedly owed. The court attached significance to the fact that the letter simply indicated a total amount of debt (without further explanation or breakdown) and found that in doing so, the law firm “hid the true character of the debt.” As the letter only provided a lump-sum amount claimed to be due, the plaintiffs had no way to determine which parts of that figure constituted their unpaid fines, assessments, attorneys’ fees, or costs; and, therefore, could not assess the validity of the debt. The court found this to be a violation of sections 1692(e) and 1692(f) of the FDCPA and granted the plaintiffs’ motion for summary judgment.

In reaching its decision, the district court cited the Seventh Circuit case of Fields v. Wilber Law Firm, P.C., 383 F.3d. 562 (7th Cir. 2004), which also dealt with a lump-sum debt amount listed in a collection letter. The court’s opinion in Fields indicated that a possible, and easy, solution to compliance with sections 1692(e) and section 1692(f) would be to itemize the individual charges that comprise the total lump sum provided in the letter. In his decision in the Park case, Judge Gergel emphasized this language in his order granting summary judgment to the plaintiffs, making it clear that the law firm’s letter should have had an itemized breakdown of the lump-sum amount listed as due and owing by the plaintiffs.

Closing Words
Demand letters in South Carolina must contain a breakdown of any lump-sum debt totals in order to not run afoul of the FDCPA. Debt collectors can no longer list only a total debt figure in their collection or validation letters to borrowers without FDCPA implications. The question remains as to the detail required to avoid hiding “the true character of the debt.” For example, would a further breakdown be required for any items listed as “corporate advances” or “recoverable balance”? Since the district court in South Carolina relied on a Seventh Circuit opinion in the Park case, a review of that circuit’s opinions would seem to be in order for future guidance.

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Utilization of Land Reports for Real Estate Located within Federal Indian Reservations

Posted By USFN, 8 hours ago
Updated: 20 hours ago

October 17, 2018

by Blair Gisi
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

If you have ever reviewed title work for real estate located on a federal Indian reservation, you have likely encountered some additional requirements stemming from the tribal sovereignty recognized by the United States government. Contacting the Bureau of Indian Affairs (BIA) to request a land report to ensure that the real estate is, in fact, tribal land is warranted before taking on these requirements.

The BIA states that there are approximately 56.2 million acres of land held in trust by the United States for various Indian tribes and individuals.1 While there are various forms of “tribal land” (allotted lands, restricted status lands, or state Indian reservations), the key consideration here is whether the United States actually holds title in trust for an Indian Tribe or individual Native American. In other words, simply because the real estate is located on an Indian reservation does not necessarily mean that it is tribal land.

In one particular matter, a recently reviewed foreclosure title report included an additional requirement due to the real estate being located on the Prairie Band Potawatomi Indian Reservation in Northeastern Kansas. While potentially necessary, this further requisite would have likely added time and costs to the foreclosure action from additional steps, including the need to register to practice in tribal court and/or the need to register the state court judgment as a foreign judgment with the controlling tribal court. While researching this issue, it was discovered that the BIA Division of Land Titles and Records (and its 18 Land Titles and Records Offices) could expedite this process. This, ultimately, saved time and costs.

After contacting the regional Southern Plains Land Titles and Records Office (which covers Kansas),2 it was learned that a land report could be obtained for no charge — and within two weeks of the request. Receipt of the land report revealed that, while the subject real estate was located on the Prairie Band Potawatomi Indian Reservation, the United States government did own or hold the real estate in trust and, therefore, the real estate was not tribal land. Providing the land report to the title company resulted in a removal of the requirement at issue. Consequently, the foreclosure commenced without the need to involve the reservation or tribal council.

It should also be noted that prior to contacting the BIA Land Titles and Records office, this author’s firm reached out to the Kansas Native American Affairs office (the KNAA). The KNAA assisted in pointing out that the subject real estate could not have been tribal land based on a review of the chain of title and lack of involvement of the BIA in mortgaging this property to the current borrowers. The KNAA, however, was unable to generate the report necessary to remove the requirement at issue.


https://www.bia.gov/frequently-asked-questions
For a list of Land Titles and Records Offices as well as a map of the regions, visit: https://www.bia.gov/bia/ots/dltr.


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Connecticut: Distinction between “Special Defense” and “Counterclaim” affects Restoration of a Withdrawn Case to the Court’s Docket

Posted By USFN, 8 hours ago
Updated: 20 hours ago

October 17, 2018

by Peter A. Ventre
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut)

In Sovereign Bank v. Harrison, 184 Conn. App. 436 (Aug. 28, 2018), the trial court had restored a withdrawn foreclosure action to the court docket based on the defendant’s contention that she had a pending counterclaim, even though none had been pled at the time of the withdrawal. Rather, the defendant pointed to a special defense, which she then asserted was meant as a counterclaim. The appellate court reversed and remanded the case for the motion to restore to be denied.

Background
Prior to the scheduled trial date, the plaintiff withdrew its foreclosure action (subsequently commencing a foreclosure action in federal court). At that time the defendant had filed special defenses only, not any counterclaim. After the withdrawal, the defendant filed a motion to amend her answer to include a counterclaim; the trial court ruled that it had no jurisdiction until the matter was restored to its docket. The defendant thereafter filed a motion to restore, claiming that the third special defense was more properly construed as a counterclaim. The court granted the defendant’s motion, and the plaintiff appealed.

Analysis on Appeal
In its review, the appellate court noted that a defendant with a pending, effective counterclaim should not need to move to restore a plaintiff’s withdrawn case to the docket. Such a determination in the subject case turned on whether the defendant’s third special defense, if it was to stand as a counterclaim, asserted an independent cause of action — with a special defense which does not seek affirmative relief being purely defensive, and not an effective counterclaim. In overturning the lower court’s ruling, the appellate court found there was a failure to make that determination.

Specifically, the trial court’s reliance on the special defense allegation arising from the same transaction as that described in the plaintiff’s complaint was misplaced, with the appellate court stating: “Evaluating the defendant’s answer against the correct standard, it is clear that the allegation in the defendant’s third special defense cannot properly be constructed as a counterclaim.” The third special defense allegations merely challenged the amount of the debt owed to the plaintiff, which may be raised by way of special defense or by objecting to the plaintiff’s attempted introduction of the affidavit of debt in court. Nothing in the defendant’s pleadings “can reasonably be interpreted as a claim of entitlement to affirmative relief.” On the other hand, the court noted that if the defendant had pleaded payments in excess of the debt, then she would be entitled to affirmative relief and, therefore, the special defense could be considered a counterclaim.

In closing, the appellate court cautioned that while construing pleadings “broadly and realistically,” a trial court should not read into them “factual allegations that simply are not there” or “substitute a cognizable legal theory that the facts, as pleaded, might conceivably support for the noncognizable theory that was actually pleaded.”

Editor’s Note: The author’s firm represented the appellant (plaintiff) in the case summarized in this article.

© Copyright 2018 USFN and McCalla Raymer Leibert Pierce, LLC. All rights reserved.
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District of Columbia: Address Confidentiality Act of 2018

Posted By USFN, 8 hours ago
Updated: 20 hours ago

October 17, 2018

by John Ansell
Rosenberg & Associates, LLC – USFN Member (District of Columbia)

The District of Columbia recently passed legislation that may affect the ability of servicers and lenders to adequately assess title on certain properties in the District. The new statute (the Address Confidentiality Act of 2018) became effective October 1, 2018; it is designed to protect victims of domestic violence.

According to the terms of the Act, if an individual applies for the program and is certified as a victim of stalking, domestic violence, human trafficking, or a range of sexual offenses, the individual will be issued an identification card with a substitute address. The substitute address will be a mailbox to which mail will be sent, and from which the office that administers the program will forward mail to the program participant’s actual address.

From a real property title perspective, a participant in the program can submit a request to any D.C. government office or agency to remove all publicly accessible references to their actual address. This means that a participant may have their name removed from all publicly available land records, tax records, and court records. This can present challenges for the title industry, as well as loan originators and servicers. Thus far, D.C. has not provided crucial details. Namely, there is no indication yet of whether the redacted information will simply be absent, or whether mention will be made that the information is being withheld pursuant to this program. Consequently, a title search may come back with documents simply missing; e.g., a deed or deed of trust just not showing up in a title search, or the lack of a tax record appearing when performing an escrow analysis. Alternatively, the search results may reflect some notice that the information is being omitted, with or without explanation.

A further complication is that, as currently written, the statute does not allow program participants to selectively direct the release of information. Their only choice appears to be to remove themselves entirely from the program, hardly the route that persons fearing for their safety would choose. Overall, the potential implications of this statute upon title searches are significant, and until D.C. provides more information as to how such matters will be handled, the state of title in the District will remain uncertain.

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District of Columbia: Another Court of Appeals Decision affecting Foreclosures of Condominium Liens

Posted By USFN, 8 hours ago
Updated: 20 hours ago

October 17, 2018

by Tracy Buck and Sara Tussey
Rosenberg and Associates, LLC — USFN Member (District of Columbia)

On September 13, 2018 the District of Columbia Court of Appeals rendered a decision in 4700 Conn 305 Trust v. Capital One, N.A. in relation to foreclosures of condominium liens. The court considered the issue as to whether a condominium lien covering a period in excess of six months’ worth of outstanding assessments is entitled to super-priority status.

Under D.C. Code § 42-1903.13, condominium associations have a “super-priority lien” over first mortgage lienholders to the extent of six months of the unpaid condominium assessments immediately preceding acceleration. A super-priority lien is superior to all liens, including a first mortgage or deed of trust. Any unpaid condominium assessments beyond a super-priority lien are lower in priority to a first mortgage or deed of trust (the “junior condo lien”).

Some Appellate and Statutory History
In 2014, in Chase Plaza Condo. Ass’n, Inc. v. JPMorgan Chase Bank, N.A., the D.C. Court of Appeals held that an association’s foreclosure of its super-priority lien extinguishes a first deed of trust. This decision was based on the common law principle that foreclosure of a senior lien extinguishes all junior liens where the proceeds from a foreclosure sale are insufficient to satisfy a junior lien. The effect of Chase Plaza was that lenders were henceforth recommended to satisfy an association’s super-priority lien in advance of a condominium foreclosure sale to ensure that the lender’s first mortgage’s lien priority was preserved. If a super-priority lien was satisfied, the association could proceed with its sale; however, its sale would be subject to the lender’s first deed of trust.

In 2017 the D.C. condominium law was amended to require that Notice of a Condominium Foreclosure had to be sent to all junior lienholders of record (including lenders holding a first deed of trust) and that the notice must expressly state whether the association was foreclosing on its super-priority lien or junior condo lien. In March 2018, in Liu v. U.S. Bank N.A., the D.C. Court of Appeals held that an association could not waive its super-priority lien status. In doing so, the court held that an association could not foreclose on its super-priority lien plus advertise and hold the sale out to be subject to a first deed of trust. As such, lenders were thereafter recommended to not rely on advertisements or notices of sale stating that a condominium foreclosure would be subject to any first deed of trust. If the association stated that a condominium foreclosure was to be subject to a first deed of trust, lenders were still advised to satisfy the super-priority lien. Yet, in the Liu decision, the only outstanding assessments were for the most recent six months, and accordingly, the association could only foreclose on its super-priority lien because that was all it had.

More Recently from the Appellate Court
The D.C. Court of Appeals rendered yet another decision regarding condominium foreclosures. In 4700 Conn 305 Trust v. Capital One, N.A. (Sept. 13, 2018), the court held that where an association was foreclosing on a condominium lien for an amount greater than six months of assessments owed, the super-priority lien was included. The court did not consider the impact that this decision might have on condominium foreclosures that occurred prior to the 2017 amendment to the D.C. condominium law. Before the amendment, associations were not required by statute to send a Notice of Foreclosure Sale to any junior lienholders or holders of a first mortgage or deed of trust. Moreover, associations were not required to state within its notice the specific split condominium lien that the association was foreclosing on.

Prior to the 2017 statutory amendment, associations often foreclosed on the entire condominium lien without providing notice to junior lienholders. Based on 4700 Conn 305 Trust, those foreclosures of entire condominium liens included the association’s super-priority lien, effectively extinguishing first mortgages without any notice to its lienholders. While the potential impact of this holding is unsettling, the court left open the possibility for allegations to be raised by lenders based on equitable or contractual principles. For example, 4700 Conn 305 Trust has left lenders with recourse in claiming that those prior foreclosure sales of super-priority liens could be deemed: (1) invalid due to unconscionable sale prices; and (2) invalid due to the unconstitutionality of the District’s condominium law at that time due to the lack of notice requirement to lenders. The appellate court has left these arguments untouched as of yet; and, thus, that is what lenders are left with to defend their mortgage’s existence in these instances.


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Connecticut: Appellate Court Clarifies Redemption Period

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Joseph Dunaj
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

The Connecticut Appellate Court has clarified the exact time that a defendant’s right to redeem expires pursuant to a judgment of strict foreclosure. In the case of Real Estate Mortgage Network, Inc. v. Squillante, AC 39229 (Aug. 28, 2018), the appellate court had to determine whether a defendant’s law day was valid when it was scheduled on the same day that an appeal period expired.

Background
In Squillante, the trial court had entered a judgment of strict foreclosure and a law day was scheduled for June 8, 2015. On June 8, the trial court denied the defendant’s motion to open, but extended the law day until June 29, 2015 to allow the appeal period to expire. The 20-day appeal period would have normally expired on June 28, 2015; but, because June 28 was a Sunday, the expiration date was continued to the next business day of June 29, 2015 — the same day as the first scheduled law day. The defendant never filed an appeal and did not redeem on her law day.

Nine months later, the defendant filed another motion to open, claiming that title had not vested to the plaintiff because the appeal period expired on the same date as the first law day; therefore, it was ineffective. The trial court disagreed, finding that title had vested to the plaintiff. The defendant appealed.

Appellate Review
The appellate court ultimately determined that the law day was effective, despite being scheduled on the last day of the appeal period. Under Practice Book Section 7-17, a document must be filed before 5:00 P.M., otherwise the document will be deemed filed on the next business day. Therefore, the defendant’s appeal period expired at 5:00 P.M. on June 29, 2015. However, the court held that the defendant’s law day and right to redeem did not end until midnight on June 30, 2015.

The appellate court relied upon First Federal Savings and Loan Association of Rochester v. Pellechia, 37 Conn. App. 423 (1995), a case that determined how to count the time period to file a motion for deficiency judgment after title vests to a plaintiff. Accordingly, in Squillante, because the defendant’s appeal period expired 7 hours before the defendant’s law day expired (and did not otherwise shorten the appeal period), the law day was not ineffective and title vested to the plaintiff.

Conclusion
Squillante affirmatively determines the exact time when the law day and right of redemption expires. In effect, Squillante validates the frequent practice of some trial courts to extend a law day only 21 days when denying a motion to open judgment, despite the appeal period expiring on the same date. Of course, this requires that either all parties receive notice of the new law day in open court or that the clerk sends the notice timely. Given the delays in some courthouses, a foreclosing plaintiff should be diligent in reviewing the notices and ensuring when the appeal period expires.

In addition, Squillante does have some broader implications. Under federal rules of practice, a debtor can electronically file a bankruptcy petition at 11:59 P.M. and it will be deemed filed that day. Under Squillante, a foreclosing plaintiff is provided guidance in determining whether a filed bankruptcy petition does or does not prevent the vesting of title. Moreover, under Squillante, the appellate court has given its imprimatur to the ability of a defendant to redeem by tendering payment after 5:00 P.M., while recognizing the practical difficulties that may arise in accepting payment.

Editor’s Note: The author’s law firm represented the appellee (plaintiff) in the case summarized in this article.

 

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District of Columbia: Eviction Law Changes

Posted By Rachel Ramirez, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Matthew Fischer
Cohn, Goldberg & Deutsch, LLC – USFN Member (District of Columbia)

U.S. Marshal Service Changes (see https://www.usmarshals.gov/district/dc-sc/general/evictions.htm)

An eviction in the District can only occur in the presence of the U.S. Marshal Service (USMS). The USMS has recently made some significant changes to the way it handles the scheduling and execution of evictions. The new process began on August 13, 2018. Changes to note include the following items:


• Evictions will now be scheduled in advance. Previously, landlords were given approximately 24 hours’ notice and were required to appear with a large crew to handle the eviction.

• Tenants (and landlords) will receive notice of an eviction date at least two weeks in advance.

• The personal property of tenants will not be removed and can instead remain in the residential unit.

• Given that personal property does not have to be removed, landlords no longer need to arrange large crews to appear. Instead, the locks will be changed under the observation of the USMS.

• The USMS will still not allow the conduct of evictions on days when precipitation is falling or when below-freezing temperatures within the next 24 hours are forecasted.


Be aware that the above-referenced changes are associated with the USMS — as opposed to changes with the processes of the superior court (which are outlined below).

Legislative Changes

Eviction Procedure Reform Emergency Amendment Act of 2018 (see http://lims.dccouncil.us/Download/40653/B22-0895-Enrollment.pdf) — Recently, the D.C. City Council passed legislation to address perceived deficiencies in the eviction process. This legislation imposed additional requirements on landlords as a part of the eviction process:


• A housing provider (Landlords) must send notice, not fewer than fourteen days before the eviction, to the tenant by first-class mail to the rental unit; telephone or electronic communication (phone, text, or email); and by posting at the unit stating the date of the eviction. The notice must contain (1) the tenant’s name and address of the unit; (2) state the date of the scheduled eviction; (3) information that the eviction will be executed on that date unless the tenant vacates the unit and returns control to the owner; (4) a warning that any personal property left in the unit will be considered abandoned seven days after the time of eviction, excluding Sundays and federal holidays; (5) the phone numbers of the U.S. Marshal Service, Office of the Chief Tenant Advocate, and the D.C. Landlord Tenant Court; and (6) information that this constitutes the final notice prior to the eviction, even if the date is postponed by the court or USMS.

• Landlords must now address the issue of storage of personal property. Previously, the property would have been placed outside the unit as a part of the eviction process. With this legislation, property has to be held for seven days (“excluding Sunday and federal holidays”).

• At the time of the eviction, the landlord must post an additional notice (and send a copy of said notice by first-class mail to the address) of an emergency contact, which states the following: (1) the name and phone number of at least one representative whom the tenant may contact who can grant access to the rental unit; (2) the phone number of the Office of the Chief Tenant Advocate; (3) the phone number of the USMS; (4) the phone number of the D.C. Landlord Tenant Court; and (5) the text of the subsection of the emergency legislation.

• The Landlord must exercise “reasonable care” in the storage of personal property while it remains in the rental unit as required.

• The Landlord must grant the evicted tenant access to the unit to remove personal property, and such access must be for at least eight continuous hours at a time agreed upon by the parties without requiring the payment of rent or service fees.

• The Landlord may dispose of personal property that is abandoned (i.e., which has not been collected after the time periods stated above). Disposal of the property must be handled in a manner that is otherwise lawful (i.e., it should not be left outside).


Eviction Procedure Reform Temporary Amendment Act of 2018 (see http://lims.dccouncil.us/Download/40654/B22-0896-Engrossment.pdf) — Besides the bill listed above, there is additional legislation that has yet to go into force regarding the eviction process. Practitioners should note that amendments to the legislation may still be made and that additional legislation will likely be introduced and passed on this subject. An examination of this legislation will reveal that the substantive provisions generally remain unchanged from the above — however, with this legislation being considered “temporary” rather than “emergency” legislation. Thus, the real effect of the new statute as it stands is to extend the effect of the statute above until permanent legislation addressing the issue can be enacted.

 

For an explanation of the differences between “temporary” and “emergency” legislation, please see: http://dccouncil.us/pages/how-a-bill-becomes-a-law.

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Appellate Court Reviews Redemption Period on Reverse Mortgages

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Blair T. Gisi
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

The Kansas Court of Appeals recently offered a clear and unequivocal opinion regarding the proper redemption period on home equity conversion or reverse mortgages.

In Kansas, a defendant owner of a property may redeem any real property sold under execution within twelve months from the date of sale [K.S.A. §60-2414(a)]. However, lenders and servicers are often allowed to shorten that redemption period to three months under K.S.A. § 60-2414(m), which provides that if a default occurs “before 1/3 of the original indebtedness secured by the mortgage or lien has been paid, the court shall order a redemption period of three months.” In other words, if the unpaid principal balance is 2/3 or more of the original principal balance at the time the Petition to Foreclose is filed, the redemption period is three months.

Prior to the decision in Reverse Mortgage Solutions, Inc. v. Goldwyn, 2018 Kan. App. LEXIS 36 (Kan. Ct. App. July 6, 2018), the question often arose as to where reverse mortgages fell within the redemption period context. On the one hand (and without delving into the nature of a reverse mortgage as the court did in Goldwyn), borrowers are generally not making payments to reduce the principal balance, such that the three-month redemption period will nearly always apply. On the other hand, given the lack of clarity on the matter, the equitable nature of foreclosures in Kansas, a propensity for borrower-friendly courts, and the potential public relations or similar concerns, lenders and servicers often elected to forego asserting that the appropriate redemption period is three months — settling for the initial twelve-month redemption period.

In deciding Goldwyn, which involved the foreclosure of a reverse mortgage, the court took into account the various considerations mentioned above and flatly sided with the letter of the law. It addressed these concerns regarding how to assess the redemption period by very clearly stating, “since [the borrower] had paid back less than one-third of the original indebtedness, the redemption period was properly set at three months.” Goldwyn at 14. This ruling provides the basis to assert a shorter redemption period and to expedite the foreclosure process in the majority of foreclosures of reverse mortgages.

Of note, the court in Goldwyn made a less-than-subtle suggestion to the Kansas legislature that this issue may need to be re-evaluated with attention paid to the redemption period on reverse mortgages, given the equities involved. While this recent judicial clarification will prove to be useful for the time being, it will be interesting to see whether legislative action follows.

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Washington State Court of Appeals Defines Acceleration and Reviews Statute of Limitations

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Wendy Walter
McCarthy Holthus LLP — USFN Member (Washington)

In a recent published decision, the Washington State Court of Appeals assisted creditors by more clearly defining acceleration in the context of a foreclosure of residential property in a nonjudicial case [Merceri v. The Bank of New York Mellon, No. 76706-2-1, 2018 Wash. App. LEXIS 1923 (Aug. 13, 2018)].

Background
The trial court had granted summary judgment to a borrower who was seeking to quiet title to her real property by claiming that the creditor had exceeded the six-year statute of limitations (SOL) on enforcement of her deed of trust. The borrower’s argument was that the notice of default and intent to accelerate, apparently issued to comply with the uniform instrument requirements to deliver a 30-day notice, and using the language “if the default is not cured … the mortgage payments will be accelerated with the full amount … becoming due and payable …” had triggered acceleration on March 18, 2010 (the date by which the 30-day notice of default was expired).

Following that notice, the loan had been transferred and the subsequent beneficiary and servicer issued several monthly payment statements (indicating the amount to reinstate the loan), and the successor nonjudicial foreclosure trustee had issued a notice of trustee’s sale on June 1, 2016. The borrower sued shortly after the notice of trustee’s sale, contending that more than six years had elapsed from the March 18, 2010 date and the date of the notice of trustee’s sale. The notice of trustee’s sale indicates the full amount required to pay off the debt.

Appellate Review
While reversing the trial court, the appellate justices analyzed the installment contract theory of default in Washington State; the accruing of the statute based on each missed payment; and whether the creditor must take affirmative action (known to the payor) that it intends to declare the whole debt due. The court in Merceri cites a 1909 Washington Supreme Court case, which holds that “[A] provision hastening the date of maturity of the whole debt is for the benefit of the payee, and if he does not manifest any intention to claim it, before tender is actually made, there is in law no default such as will cause the maturity of the debt before the regular time provided in the agreement.” Coman v. Peters, 52 Wash. 574, 578, 100 P. 1002 (1909).

The court applied this precedent to the facts at hand and found that the notice of default didn’t accelerate the loan. Additionally, neither were the monthly statements the affirmative act needed to fully accelerate the debt because they didn’t show the fully accelerated balance.

Conclusion
Creditors, beneficiaries, and servicers who are seeing challenges in Washington State relating to statute of limitations defenses and quiet title actions should analyze their cases to determine whether a payment statement — all required now since 2014 under the RESPA rules promulgated by the Bureau of Consumer Financial Protection — might help to limit an SOL defense or prove useful in a quiet title action. Merceri is a positive and much needed ruling in Washington.

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2018 Utah Legislative Changes affecting Default Mortgage Servicing

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Brigham J. Lundberg
Lundberg & Associates, PC – USFN Member (Utah)

The 2018 Utah legislature passed a few bills affecting Utah mortgage servicing, liens, and evictions. The effective date for these bills was May 8, 2018. House Bill 108, SAFE Act Exemptions, amended the Utah Residential Mortgage Practices and Licensing Act (RMPLA). House Bill 168, Political Subdivision Lien Authority, made minor changes and clarifications regarding the lien rights and priority of municipalities for recurring and non-recurring charges. Senate Bill 159, Forcible Entry and Detainer, made important changes to Utah eviction actions, personal property evictions, and the rights of the respective parties therein. Senate Bill 188, Uniform Unsworn Declarations Act, codified the Act detailing the limits and addressing the validity of the use of unsworn declarations in certain situations. Finally, while not passed in this legislative session, two potentially impactful bills (regarding statutory notice via publication, and the statute of limitations for foreclosures) were introduced, and defeated, which may be indicative of future legislation to be brought.

SAFE Act Exemptions
House Bill 108 amends the Utah RMPLA, primarily to define terms and to exempt certain nonprofit corporations from the RMPLA’s provisions. The amended version of the RMPLA now includes a definition for “balloon payment,” which is defined as a required payment in a mortgage transaction that: (i) results in a greater reduction in the principal of the mortgage than a regular installment payment; and (ii) is made during, or at the end, of the loan’s term.

Additionally, the amended RMPLA now exempts from its provisions a nonprofit corporation that, in addition to the other criteria already set forth in the RMPLA, (i) is exempt from paying federal income taxes; (ii) has as the nonprofit corporation’s primary purpose serving the public by helping low-income individuals and families build, repair, or purchase housing; (iii) does not require, under the terms of the mortgage, a balloon payment; and (iv) to perform loan originator activities, uses only unpaid volunteers or employees whose compensation is not based on the number or size of the mortgage transactions that the employees originate. Similarly, an employee or volunteer for a nonprofit corporation is exempt from the RMPLA’s provisions while working within the scope of the nonprofit corporation’s business, provided that such nonprofit corporation either meets the criteria above, or is a community development financial institution.

Political Subdivision Lien Authority
House Bill 168 clarifies that no lien rights exist for direct recurring (i.e., monthly) charges for goods and services (e.g., garbage collection) provided by local political subdivisions (municipalities). That is, these types of liens are provided no lien status or priority at all. Additionally, this bill grants lien rights to municipalities for some non-recurring charges, but the municipality must file actual liens for those amounts, and such liens will have priority based on filing date. Generally speaking, these liens should not cause any priority issues with foreclosures as they follow the rule of “first in time, first in right” and will be recorded and appear as actual liens on a foreclosure title report.

Finally, House Bill 168 clarifies that if charges levied by a municipality are statutorily authorized to be on the tax notice, then they are allowed to be certified and become part of the property taxes. Such charges would take priority over consensual liens, just as property taxes do now. There is no requirement for a separate notice of lien for these items, as they simply show up on the property tax notice after being certified to the treasurer. Please note that, in the 2018 legislative session, no categories of charges were added to the “statutorily authorized” category that did not already have statutory authorization. (The legislature could make future changes, but did not do so with this bill.)

Ultimately, House Bill 168 should not cause any changes to a trustee’s previous approach to nonjudicial foreclosures and lien priority in the state of Utah.

Forcible Entry and Detainer
Senate Bill 159 modifies the Utah statute governing forcible entry and detainer, which is relied upon in prosecuting post-foreclosure eviction actions. The bill expands the options for providing service of a notice to quit, specifically for situations in which a tenant “controls” a property but may not actually reside or work there. The bill also permits the court to schedule an initial occupancy hearing before a substitute judge, instead of the assigned judge, to expedite the eviction process.

While previously the judge had discretion to award costs and reasonable attorney fees to the prevailing party, this bill makes the award of such fees and costs mandatory. Finally, with respect to personal property evictions, this bill defines the term “abandonment,” and amends the statutory notification process for abandoned personal property. Of note, where it previously expressly authorized the removal of only the eviction defendant’s abandoned personal property, this bill amends the statute to state that any abandoned personal property remaining in or on the premises may be removed pursuant to the statutory removal process.

Uniform Unsworn Declarations Act
Senate Bill 188 enacts the Uniform Unsworn Declarations Act, including defining its relevant terms, providing the applicability of the act, addressing the validity of unsworn declarations, addressing a declaration’s required medium, and outlining the form of an unsworn declaration. The bill also repeals provisions related to unsworn declaration in lieu of affidavit and the Utah Uniform Unsworn Foreign Declarations Act. The provisions of this act do not apply to documents that are recorded pursuant to Utah’s nonjudicial foreclosure statute, but will most likely affect the ability of process servers, sheriffs, constables, and private investigators to utilize unsworn declarations in lieu of sworn affidavits, in some situations.

Defeated Legislation
Two pieces of proposed legislation pertaining to the mortgage default industry that were not enacted, but may return in future legislative sessions, include: House Bill 301, Legal Notice Amendments; and House Bill 384, Trust Deeds and Statute of Limitations. Both bills garnered some support among legislators but, ultimately, could not muster enough votes to be enacted. However, these bills should be viewed as informative as to potential future legislative efforts.

House Bill 301 sought to exempt certain entities (principally, municipal governments) from requirements to provide legal notice via publication when such notice could be given in another suitable manner (e.g., personal service). The bill, meant to save municipalities on high publication costs, was ultimately too controversial — as the vague language in the bill left the determination of adequate notice to the sender — and some legislators feared it would lead to increased litigation and a lack of transparency on the part of municipal governments. Others feared it might erode notice by publication provisions in the nonjudicial foreclosure statute. As some point in the future, it is anticipated that a challenge will be made to the necessity of continuing to use newspaper publications as a required form of notice in Utah nonjudicial foreclosure actions.

House Bill 384 was an effort by plaintiffs’ attorneys to legislatively undo the precedent of statute of limitations case law in Utah. Currently, the case law in Utah is favorable to lenders and servicers in allowing some leeway with respect to avoiding statute of limitations issues and completing foreclosure actions. It is unclear whether such legislation should be expected in future years as the legislation’s sponsor (and really its only ardent supporter) retired from the House at the conclusion of the 2018 legislative session.

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FDCPA: Eighth Circuit Reviews “Ceasing Communication” in Context

Posted By USFN, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

by Paul Weingarden and Brian Liebo
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)

Background
In the decision rendered in Scheffler v. Gurstel Chargo, P.A. (8th Cir. Aug. 27, 2018), the court notes that the plaintiff Scheffler “is a former debt collector who has litigated a number of FDCPA claims against other debt collectors. Gurstel is a law firm engaged in debt collection.”

The case involves a credit card debt for which Gurstel obtained judgment against Scheffler in 2009, and later communications between Scheffler and Gurstel. Specifically, Scheffler sent the defendant law firm a “cease further communications letter” under the FDCPA. Thereafter, the law firm served a garnishment summons upon Scheffler’s bank in an attempt to collect the judgment and sent Scheffler a copy of the summons with a statement advising him to contact a collection representative with any questions.

In response, Scheffler did call a Gurstel collection representative. When the conversation turned to the underlying debt, Scheffler asked “OK, so what am I gonna do about that?” When the representative suggested a settlement, Scheffler warned that he had sent the law firm a cease communications letter and that the firm violated the letter’s directive. Scheffler then sued the law firm, alleging various violations of the FDCPA, including provision 15 U.S.C § 1692c(c), entitled “Ceasing communication.” After the dismissal of his case at the U.S. District Court level, with prejudice, this appeal followed.

Appellate Review
The “Ceasing communication” provision of the FDCPA reads in part: “If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt . . .” However, the FDCPA expressly exempts certain communications, including those made “to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor.” Id. at § 1692c(c)(2).

In reviewing Scheffler’s claims, the appellate court first disposed of the garnishment summons issue by noting that prior precedent held that sending a garnishment notice following a cease of communications demand is not a violation. See Scheffler v. Messerli & Kramer P.A., 791 F.3d 847, 848 (8th Cir. 2015). Further, the court concurred that the law firm’s inclusion of an invitation for the consumer to call with questions was not in itself a violation, nor was the language deceptive to an unsophisticated consumer since it was clear, concise, accurate, and fell within the ceasing communication exception of the FDCPA.

Scheffler contended that there should be liability under the FDCPA’s “unsophisticated consumer standard” and that the law firm’s communication was deceptive. The court described the “unsophisticated consumer standard” of the FDCPA as “designed to protect consumers of below average sophistication or intelligence without having the standard tied to ‘the very last rung of the sophistication ladder.’” Id. The court further reasoned that “[t]his standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters.”

Perhaps the best news for the default industry involves the court’s review of the FDCPA claims surrounding the phone call between Scheffler and the law firm. The Eighth Circuit agreed with the Ninth Circuit that the FDCPA does not prevent a debt collector from responding to a debtor’s post-cease letter inquiry regarding a debt. See Clark v. Capital Credit and Collection Services, Inc., 460 F.3d 1162 (9th Cir. 2006) at 1170. “Indeed, to hold that a debt collector may not respond to a debtor’s telephone call regarding his or her debt would, in many cases, ‘force honest debt collectors seeking a peaceful resolution of the debt to file suit in order to resolve the debt — something that is clearly at odds with the language and purpose of the FDCPA.’” Id. (quoting Lewis v. ACB Business Services, Inc., 135 F.3d 389, 399 (6th Cir. 1998)).

In Scheffler, the appellate court agreed with the district court’s finding that Scheffler’s call to the law firm to discuss his debt was “an unsubtle and ultimately unsuccessful attempt to provoke [the law firm] into committing an FDCPA violation.” The appellate court further noted that “[e]ven if [the law firm’s] communication can be construed as an effort to collect on the debt in violation of the cease letter, it occurred after Scheffler called and asked a question about the underlying debt. An unsophisticated consumer would know that by behaving like Scheffler, he was waiving his rights under § 1692c(c) so as to allow the debt collector to answer his question. We hold Scheffler voluntarily and knowingly waived his cease letter for purposes of allowing [the law firm] to answer his question, and therefore [the law firm] did not violate Scheffler’s rights under § 1692c(c) by briefly discussing a possible resolution of the debt during the phone call.” The Eighth Circuit then affirmed the district court’s summary judgment order granted Gurstel in its entirety.

Closing Words
As a practice pointer, this case suggests that within the Eighth Circuit, if a debtor actually initiates the call, the creditor should be free to answer questions about the debt even when there has been a cease and desist letter, so long as there is no pressure or threatening language during the call to collect the debt. These calls should be closely monitored for FDCPA compliance and recorded, but it is a significant step in the right direction to deny FDCPA claims when it is the debtor who actively seeks out communication with the creditor.

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USDA Proposed Rule - Streamlining the Loss Claims Process

Posted By Rachel Ramirez, Tuesday, September 11, 2018
Updated: Friday, September 7, 2018

September 11, 2018

from USDA Rural Development SFHGLP

On August 23, 2018, a Proposed Rule was published in the Federal Register seeking comments on proposed changes to streamline the loss claim process for lenders who have acquired title to property through voluntary liquidation or foreclosure; clarify that lenders must comply with applicable laws, including those within the purview of the Consumer Financial Protection Bureau; and better align loss mitigation policies with those in the mortgage industry. Instructions for providing comments are included in the Federal Register Notice. [Note that written or email comments on the proposed rule must be received on or before October 22, 2018 to be assured for consideration.]

Questions regarding this announcement may be directed to Single Family Housing Guaranteed Loan Program in the Rural Housing National Office at 202-720-1452.

 

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Application of the Maryland Collection Agency Licensing Act to Residential Foreclosure Actions (Blackstone v. Sharma Decision, 8/2/2018)

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Andrew J. Brenner
BWW Law Group, LLC – USFN Member (Maryland)

On August 2, 2018 the Court of Appeals of Maryland (the Court), the highest appellate court in the state, reversed the June 6, 2017 controversial decision of the Court of Special Appeals of Maryland in Blackstone v. Sharma,1 and held that the Maryland Collection Agency Licensing Act (MCALA)2 is not applicable to foreign statutory trusts. As a result, many Maryland foreclosure proceedings, previously suspended due to non-compliance with MCALA, may now proceed in their normal course.

The legal question presented in the consolidated cases was whether the Maryland General Assembly intended for a foreign statutory trust, as owner of a delinquent mortgage loan, to obtain a license as a collection agency under MCALA before substitute trustees instituted a foreclosure action against a homeowner who defaulted on his or her mortgage.3 The Court of Appeals ultimately concluded that the legislative history, subsequent legislation, and related statutes make clear that the 2007 amendment did not expand the scope of MCALA to include mortgage industry players initiating foreclosure actions.

Analysis of the Court of Appeals of Maryland
In Blackstone v. Sharma, the Court concluded that the plain language of MCALA is ambiguous as to whether the Maryland General Assembly intended foreign statutory trusts, acting as special purpose vehicles in the mortgage industry, to obtain a license as a collection agency. Md. Code (1992, 2015 Rep. Vol.), Bus. Reg. (BR) §§ 7-301, et seq. The Court, therefore, analyzed the legislative history, subsequent legislation, and related statutes in order to determine the legislative intent in enacting the original version of MCALA in 1977 as well as the reason the Department of Labor, Licensing, and Regulation (DLLR or Department) requested a departmental bill to revise MCALA in 2007.

Original MCALA Legislation — With respect to the 1977 MCALA legislation (Original Legislation), the Court emphasized that the legislature grouped together a subsection of exempted actors including banks, trust companies, savings and loan associations, and mortgage bankers. The Court of Appeals interpreted the plain language of the Original Legislation to support the idea that the General Assembly intended to exempt all of the aforesaid groups based on the similar consideration that they were all part of the mortgage industry. Overall, the Court concluded that the language of the original collection agency statute and the pertinent legislative history indicated that the scope of the initial licensing requirement was limited to an industry of collection agencies, which largely consisted of small businesses collecting medical and retail accounts by contacting debtors via telephone.

2007 Amendment to MCALA — In 2007, the DLLR requested Maryland House Bill 1324, which changed the definition of “collection agency” to include “a person who: (1) engages directly or indirectly in the business of: … collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” The Court of Appeals determined that the language of House Bill 1324 does not unambiguously indicate whether DLLR requested the bill in order to expand the scope of MCALA to industries beyond the ordinary understanding of collection agencies.

When a department requests legislation, that department is required to submit a bill request directly to the governor’s office for review and approval. The Court of Appeals reviewed the DLLR’s “Proposal for Legislation 2007 Session” and determined that the DLLR did not intend to regulate or license any actors outside the scope of the collection agency industry. Instead, the DLLR requested the 2007 department bill in order to ensure that all actors within the collection agency industry were complying with the licensing requirements. More particularly, in the “Proposal for Legislation 2007 Session” the DLLR requested the 2007 bill to specifically regulate actors in the “collection industry” that employed a loophole in MCALA’s licensing requirement by purchasing the delinquent consumer debt for “goods and services,” via a purchase contract that “may closely resemble the terms of a collection agency agreement[.]”4 

The Court of Appeals also reviewed several other documents evidencing the legislative history of the 2007 amendment including, but not limited to, the:


1. Floor Report, House Bill 1324, Collection Agencies – Licensing, Economic Matters Committee of the House of Delegates, 2007 Leg., 423th Sess. (Md. 2007);
2. The written testimony of the Commissioner of Financial Regulation and Chairman of the Collection Agency Licensing Board, Charles W. Turnbaugh;5 
3. The written testimony of consumer member of the Collection Agency Licensing Board, Susan Hayes;6 and
4. The written testimony of member of the Collection Agency Licensing Board, Eileen Brandenberg.7 


After review of the legislative history documentation, the Court of Appeals concluded that the General Assembly did not intend to significantly enlarge the scope of MCALA to entities outside of the collection agency industry. Instead, the 2007 legislation merely served as a way to regulate those collection agencies that exploited a loophole that occurred when an agency would enter into an agreement with their client in which the agency agreed to collect the debt they bought, rather than acting as an agent for the original creditor. These types of agreements put the collection agencies outside of the Collection Agency Licensing Board’s authority.

MCALA’s Relationship with Subsequent and Related Legislation — The Maryland General Assembly enacted foreclosure policy bills during the 2008, 2009, and 2010 legislative sessions that: (1) amended the recordation requirements of mortgages; (2) added requirements to the foreclosure process; (3) created a comprehensive mortgage fraud statute to protect homeowners in foreclosure; (4) altered the mortgage lender and mortgage originator licensing requirements; and (5) extended legal protections for homeowners in foreclosure and mortgage default.8 In addition, the Court of Appeals accepted the proposals of the Standing Committee on Rules of Practice and Procedure to amend the Maryland Rules in 2009 and 2010 in order to strengthen the requirements in foreclosure proceeding filings.9 These changes to the Maryland Code and Maryland Rules created a comprehensive scheme, which regulates the actors in the mortgage industry for the purpose of protecting homeowners10 (hereinafter referred to as “Mortgage Foreclosure Law Reform”).

When comparing the legislative history of MCALA against the (almost contemporaneous) Maryland Mortgage Foreclosure Law Reform, the Court of Appeals concluded that the General Assembly consciously separated the consumer debt collection agency industry under MCALA from the mortgage industry.11 The General Assembly did not intend MCALA to regulate mortgage industry actors involved in foreclosure proceedings because the legislature addressed the exact issue in subsequent legislative sessions.

After a majority of the Maryland Mortgage Foreclosure Law Reform legislation was passed in 2008 and 2009, the General Assembly enacted the Maryland Statutory Trust Act in 2010.12 The Maryland Statutory Trust Act requires foreign statutory trusts to “register with the State Department of Assessments and Taxation prior to conducting business …” in Maryland.13 A “statutory trust” constitutes any unincorporated business, trust, or association that filed an initial certificate of trust in Maryland and is governed by a governing instrument.”14 The Maryland Statutory Trust Act stated that “[i]n addition to any other activities which may not constitute doing business in this State, for the purposes of this subtitle, the following activities of a foreign statutory trust do not constitute doing business in this State … (5) Foreclosing mortgages and deeds of trust on property in this State[.]”15 The defaulting homeowners in the consolidated cases asserted that the language of the Maryland Statutory Trust Act does not limit the scope of MCALA, because the act specifically states that the Maryland Statutory Trust Act language excluding foreclosure actions is only “for purposes of [that] subtitle …” and not to be applied to MCALA.16 

In reconciling MCALA with the Maryland Statutory Trust Act, the Court of Appeals held that when viewing MCALA, the Maryland Mortgage Foreclosure Law Reform legislation, and the Maryland Statutory Trust Act together, it becomes clear that the General Assembly sought to regulate and license a separate collection agency industry that assists creditors in obtaining consumer debt (or buys that debt, whether at a discounted price or contingently, to pursue on its own account) when it enacted and revised MCALA. In 2008 and 2009, the legislature enacted specific procedures and requirements for any person, party, or entity seeking an in rem foreclosure proceeding. Then in 2010, the General Assembly enacted a registration statute for statutory trusts and foreign statutory trusts under the Maryland Statutory Trust Act. When enacting the Maryland Statutory Trust Act, the legislature specifically exempted the trusts from obtaining registration when simply seeking a foreclosure, recognizing that the previous Mortgage Foreclosure Law Reform would provide the required procedures and protections. The Court of Appeals felt that this reading prevents any direct conflict and gives effect to all of the General Assembly’s individual policy goals.17

Conclusion
The Court ultimately held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under MCALA before its servicer or substitute trustees filed foreclosure actions in various circuit courts. As such, the Court held that the circuit courts improperly dismissed the consolidated cases solely on the basis that the two foreign statutory trusts,18 which owned the mortgage loans in each of the cases, were not licensed as a collection agency under MCALA before the substitute trustees instituted the foreclosure proceedings.

There is nothing in the DLLR’s 2007 Maryland House Bill request form, the fiscal and policy note, or the written testimonies that suggest DLLR was proposing to license and regulate the mortgage industry by revising the definition of “collection agency” under MCALA. Overall, the legislative history of the 2007 departmental bill reveals that the changes did not intend to expand the scope of MCALA beyond the collection agency industry. Similarly, there is nothing in the legislative history of the Maryland Mortgage Foreclosure Law Reform suggesting that the General Assembly considered MCALA to be licensing the mortgage industry actors. The Statutory Trust Act of 2010 decided that statutory trusts were not doing business in Maryland when foreclosing on deeds of trust, recognizing that previous Maryland foreclosure law reform would dictate the requirements for the in rem proceeding. Consequently, the Court of Appeals held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under MCALA before its substitute trustees filed a foreclosure action in the circuit court, and that foreign statutory trusts are outside the scope of the collection agency industry that is regulated and licensed under MCALA.


On June 6, 2017 the Court of Special Appeals reported its opinion in the combined cases of Blackstone v. Sharma, Sept. 2015 No. 1524, and Shanahan v. Marvastian, Sept. 2015, 1525. The Court of Special Appeals upheld the dismissal of two foreclosure actions initiated on behalf of a Delaware Statutory Trust (DST) because the DST was not a licensed collection agency pursuant to the Maryland Collection Agency Licensing Act, Bus Md. Code. Reg. §§ 7-101, et seq. It also held that any judgment entered as a result of the foreclosure actions would be void. The Blackstone v. Sharma, opinion of the Court of Appeals constitutes the aforesaid two cases consolidated before the Court of Special Appeals as well as two additional actions appealed to the Court of Appeals directly from the circuit court proceedings. (also referred to as the “consolidated cases”). Said cases are known as Blackstone v. Sharma; O’Sullivan v. Altenburg, No. 45, Sept. Term 2017; Shanahan v. Marvastian, No. 40, Sept. Term 2017; and Goldberg v. Neviaser, No. 47, Sept. Term 2017.
Maryland Code Ann., Business Regulation, §§ 7-301, et seq.
The Court of Appeals declined to address the question of whether the Court of Special Appeals’ previous ruling in Finch v. LVNV Funding, LLC, 212 Md. App. 748, 759 (2013), should apply to mortgage foreclosure judgments. More specifically, the Court stated that the question of whether a judgment entered in favor of an unlicensed debt collection agency is void did not need to be addressed because the application of the Finch holding to the mortgage foreclosure industry incorrectly assumes that the MCALA licensing requirement applies to foreign statutory trusts.
Proposal for Legislation 2007 Session, Department of Labor, Licensing, and Regulation (Md. 2007).
Charles W. Turnbaugh, Testimony in Support of HB 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
Susan Hayes, Statement on House Bill 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
Eileen Brandenberg, Testimony in Support of House Bill 1324, Hearing on House Bill 1324 before the Economic Matter Committee of the H.D., 2007 Leg., 423th Sess. (Md. 2007).
See e.g., 2008 Md. Laws, ch. 1; 2008 Md. Laws, ch. 2; 2008 Md. Laws, ch. 3; 2008 Md. Laws, ch. 4; 2008 Md. Laws, ch. 5; 2008 Md. Laws, ch. 6; 2008 Md. Laws, ch. 7; 2008 Md. Laws, ch. 8; 2009 Md. Laws, ch. 4; 2009 Md. Laws, ch. 615; 2010 Md. Laws, ch. 485; 2010 Md. Laws, ch. 323;
See One Hundred Sixtieth Report of the Standing Committee on Rules of Practice and Procedure (2009); One Hundred Sixty-Sixth Report of the Standing Committee on Rules of Practice and Procedure (2010).
10 See Maryland Code Annotated, Real Property, §§ 7-101, et seq.; MD Rules 14-201, et seq.; MD Code Regs. 09.03.12.01, et seq.
11 See Rose v. Fox Pool Corp., 35 Md. 351, 360 (1994).
12 See Maryland Code Ann. Corps & Assoc., §§ 12-901, et seq.
13 Dep’t Legis. Servs., Fiscal and Policy Note, Senate Bill 787, at 3 (2010 Session).
14 See Maryland Code Ann. Corps & Assoc., §§ 12-101(d).
15 See Maryland Code Ann. Corps & Assoc., §§ 12-908(a)(5).
16 See Maryland Code Ann. Corps & Assoc., §§ 12-908(a).
17 See Immanuel, 339 Md. At 87.
18 The foreign statutory trusts identified in the consolidated cases were Ventures Trust 2013 -I-H-R and LSF9 Master Participation Trust.


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Rhode Island: Recent Amendment to Mediation Statute Revives 45-Day Notice of Intent to Foreclose

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

There has been a significant change in Rhode Island law that will impact pending foreclosure sales. Specifically, last month Governor Raimondo signed legislation making changes to section 34-27-3.2, which deals with requirements for foreclosure mediation conferences (the Act). The legislation makes the following changes to the Act:


1. Extends the sunset date of the Act from July 1, 2018 to July 1, 2023.
2. Limits the initial fee charged for mediation to $100 from $150, while increasing the mediation conference fee from $350 to $400.


The issue that impacts pending sales is that the legislators inadvertently amended an older 2013 version of RIGL 34-27-3.2 rather than the 2014 version. The 2014 version of the statute repealed RIGL 34-27-3.1, the section requiring the 45-Day Notice of Intent to Foreclose/Credit Counseling Notice (NOI). Because they amended the 2013 version of the statute, it did not contain the repeal of the 45-Day NOI requirement (RIGL 34-27-3.1). Consequently, the 2014 version of 34-27-3.2 that repealed 34-27-3.1 sunset at the end of June 2018. The ramification is that foreclosures for the time being are again subject to the 45-Day NOI requirement (34-27-3.1).

This author’s firm has discussed this subject with the title insurance companies, and they have confirmed that 34-27-3.1 notices are again required for any foreclosure that was initiated on or after July 1, 2018 (meaning the sending of the 30-Day notice of sale). Any foreclosure auction where notices were sent after July 1, 2018 will have to be cancelled so that the 45-Day NOI can be sent. There is some discussion (and hope) that the legislature will reconvene in an emergency session to correct the error, but there is no confirmation at this time that this will happen.

If servicers/banks are unsure as to how this impacts their pending sales in Rhode Island, they should reach out to their counsel for an update of which sales need to be cancelled to allow the 45-Day NOI to be sent.

The Department of Business Regulation (Banking Division) has provided a template that is required to be used when the notices are sent; view here. Please note that there must be a valid assignment of mortgage in existence (at the time that the credit counseling notice is sent) into the “mortgagee” referenced in the NOI, and in whose name the nonjudicial foreclosure will be pursued.

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Iowa: Probate Estate Not Needed to Complete In Rem Foreclosure

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ryan C. Holtgraves
Petosa Law LLP – USFN Member (Iowa)

The Iowa Court of Appeals recently held that when pursuing an in rem foreclosure against a deceased mortgagor’s real estate, a probate estate need not be opened if known and unknown heirs are served in accordance with Iowa’s Land Title Standards. U.S. Bank v. Parrott, No. 17-0513 (Iowa Ct. App. July 18, 2018).

Background
In Parrot, the mortgagor died and the loan fell into default. U.S. Bank commenced an in rem foreclosure action, and the pre-foreclosure title work indicated that a probate estate had not been opened for the deceased mortgagor. The bank proceeded to name the decedent’s sons, as well as unknown heirs and unknown parties claiming any interest in the decedent’s real estate, as defendants.

U.S. Bank followed longstanding practice and served the unknown parties by publication in accordance with Iowa Rules of Civil Procedure 1.311 and 1.312. No party answered the petition, and U.S. Bank filed an application for default judgment.

Following a recent trend in Iowa’s Seventh Judicial District, the district court denied the motion, ruling that a probate estate must be opened to identify the unknown heirs and interested parties in order for the court to have jurisdiction over the unknown parties.

Appellate Analysis
The Iowa Court of Appeals, after reviewing Title Standards 7.8(1) & (4) and Iowa Code Sections 654A(5) and 654.5(1)(c), determined that the district court abused its discretion in denying default judgment against the unknown parties.

Standard 7.8(1) states that there is no need to open an estate when completing an in rem foreclosure on real estate owned by a deceased mortgagor. Additionally, Standard 7.8(4) states that if no probate estate has been opened, the foreclosure should name all unknown parties with an interest in the estate.

The appellate court, giving deference to the Iowa Land Title Standards, concluded that the district court could exercise jurisdiction over unknown parties served by publication. Further, the Court of Appeals observed that even if a probate estate were opened, the method of service on unknown parties would be the same under Iowa’s Probate Code.

Conclusion
The Parrot decision follows Iowa’s Title Standards and upholds the longstanding practice in this state of naming and serving unknown interested parties (serving them by publication) when foreclosing in rem.

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Slowly Clarifying Minnesota’s Vague Dual Tracking Statute

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

Since its enactment in 2013, Minnesota and Eighth Circuit courts have gradually whittled away at the ambiguities of Minnesota’s dual tracking statute (Minn. Stat. § 582.043). Most recently, the Eighth Circuit sided with the lender — while also declining to make a determination on a key question that remains unclear within the statute: what constitutes a “complete loss mitigation application.” [Wilson v. Wells Fargo Bank, N.A., No. 16-3213 (8th Cir. July 17, 2018) (unpublished).]

Background
In Wilson the borrower challenged the underlying foreclosure based on alleged violations of Minnesota’s dual tracking statute. The borrower’s primary argument was that Wells Fargo violated subdivision 6(c) of the dual tracking statute. This subdivision provides that if a servicer receives a loss mitigation application after the sale has been scheduled, it must halt the foreclosure sale and evaluate the application.

The borrower contended that her submission of a Hardship Affidavit Form (which stated she was requesting review of her current financial situation to determine if she qualified for temporary or permanent mortgage relief options) was her loss mitigation application. The court disagreed; stating that while “loss mitigation application” has not been defined by Minnesota state courts it was persuaded by the ruling in Wells Fargo Bank, N.A. v. Lansing, No. A14-0868, 2015 WL 506655 (Minn. Ct. App. 2015). Lansing did not elaborate on what constituted a “complete” application, and the Wilson court similarly did not define what constituted a complete application because it was undisputed that the application was not even substantially complete.

Appellate Analysis
Servicers have been challenged to design policies and procedures for Minnesota loss mitigation in the face of statutory silence as to what constitutes a loss mitigation application. The Bureau of Consumer Financial Protection (BCFP) regulations define and require a complete application. The Eighth Circuit focused its analysis on subd. 6 by distinguishing between a request for loss mitigation and an application for loss mitigation. In the past, receipt of a Hardship Affidavit may have been enough to meet a core documents standard and necessitated halting the foreclosure, but the Eighth Circuit viewed receipt of the Hardship Affidavit as merely a request for loss mitigation, not a formal loss mitigation application. Consequently, Wells Fargo was not required to halt the foreclosure.

Takeaways
The Wilson court’s higher standard of completeness is akin to BCFP regulations that require a borrower to provide all information and documents requested by the servicer. If Minnesota courts follow the Eighth Circuit’s non-binding decision in Wilson, the inconsistency between Minnesota law and BCFP standards for loss mitigation applications goes away. For now, Wilson is a lender-friendly court’s attempt at imposing a “completeness” requirement under a vague statute.

The borrower also contended that Wells Fargo failed to give her a “reasonable amount of time” to provide the documents requested in order for Wells Fargo to complete the application review. Subdivision 5(2) of the dual tracking statute provides that after a servicer receives a request for a loan modification, it must exercise reasonable diligence in obtaining documents and information from the mortgagor in order to complete the application and review it. The borrower did not introduce any evidence showing that 32 days was an unreasonable amount of time. As such, the court found that the borrower’s claims under this subdivision failed as well.

Minnesota’s dual tracking statute remains vague and silent on a few requirements that differ from federal law, presenting challenges for servicers and their attorneys.

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Statute of Limitations and Foreclosure: Another Federal Court in Ohio Considers the Issue

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ellen L. Fornash
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

Northern District of Ohio (U.S. Bankruptcy Court)
After considering state court precedent on the same issue, the U.S. Bankruptcy Court ruled earlier this year that enforcement of both a note and foreclosure of a mortgage could be time-barred by a six-year statute of limitations. In re Fisher, Case No. 17-40457, 2018 Bankr. LEXIS 1275 (Bankr. N.D. Ohio Apr. 27, 2018).

While not binding on state court foreclosure actions, the Fisher decision nevertheless foretold of a potential impact on mortgage lenders and servicers. It warned of a strategy by which borrowers might avail themselves and their homes of the encumbrances of their mortgages by effectively extinguishing mortgage liens that have not been pursued within the confines of R.C. 1303.16(A). Lenders and loan servicers were well-advised to pursue any claims on both the note and mortgage within the six-year statute of limitations, should a time come when federal or state courts decided to deviate from recent state precedent and, instead, follow the rationale set forth by the bankruptcy court for the Northern District of Ohio. That day has arrived.

Southern District of Ohio (U.S. District Court)
In yet another blow to the rights of the mortgagee, the U.S. District Court for the Southern District of Ohio (Eastern Division) diverged from recent state precedent set forth by the Ohio Court of Appeals (Eighth District) and followed the interpretation of the above-referenced bankruptcy court in Fisher. See the Opinion & Order issued in Baker v. Nationstar Mortgage LLC, 2018 U.S. Dist. LEXIS 121686, 2018 WL 3496383 (Ohio S.D. July 20, 2018).

The Ohio Revised Code limits an action to enforce an obligation of a party to pay a note to six years after the acceleration of the debt. R.C. 1303.16(A). However, an action to collect on a note is separate and distinct from one to foreclose a mortgage. Deutsche Bank Nat’l Trust Co. v. Holden, 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243 (Ohio 2016). Holden has been interpreted by the Eighth District Court of Appeals as to permit foreclosure of a mortgage, even when a note has become time-barred. Bank of New York Mellon v. Walker, 2017-Ohio-535, 78 N.E.3d 930 (Ohio Ct. App. 8th Dist. 2017). Rather, the statute of limitations to foreclose a mortgage has been governed by the more generous time frame set forth in R.C. 2305.04, which governs contracts. Holden, as interpreted by the Eighth District, is the prevailing law in Ohio. Until now.

Background of the Baker case — A 2008 foreclosure action was dismissed post-judgment by agreement of the parties due to a failure to name necessary parties to the action. [Baker v. Nationstar Mortgage LLC, 2018 U.S. Dist. LEXIS 121686, 2018 WL 3496383]. Following the dismissal, in 2014, the lender began collection activity on the debt. The debtors initiated action against Nationstar seeking, among other claims, declaratory judgment and injunctive relief extinguishing any rights of Nationstar to enforce the mortgage loan. The debtors contended that R.C. 1303.16(A) limited the time to enforce the mortgage to six years from May 22, 2008 (the accelerated due date of the mortgage).

The Southern District of Ohio relied on In re Fisher, which presented an almost identical argument. Both federal courts noted that the lack of precedent in Ohio districts (other than the 8th) weighed heavily in their decisions to find favor with the debtors’ contention that “when the note is time-barred, the mortgage is also barred.” Bruml v. Herold, 14 Ohio Supp. 123, 125 (Ohio C.P. Geauga Cty. 1944); see also, Hopkins v. Clyde, 71 Ohio St. 141, 149, 72 N.E. 846, 2 Ohio L. Rep. 342 (Ohio 1904). The two federal courts also relied heavily on the rationale in Kerr v. Lydecker, which held that the statute of limitations for enforcing a note and a mortgage were one and the same. Kerr v. Lydecker, 51 Ohio St. 240, 253, 37 N.E. 267 (1894).

In Baker, the Southern District of Ohio held that Holden effectively, but improperly — and perhaps unintentionally — overturned Ohio precedent set forth by Kerr. For this reason, the Southern District of Ohio declined to follow Holden and found the ruling in Fisher to be more persuasive. Nationstar was barred by the six-year statute of limitations from foreclosing the debtors’ mortgage. Moreover, the court in Baker found Nationstar liable for violations of the Fair Debt Collection Practices Act in threatening legal action on a debt after the statute of limitations had expired.

Conclusion
As feared, the influence of the holding by the bankruptcy court in Fisher has spread beyond the realm of bankruptcy proceedings. What was previously one persuasive decision has expanded in the federal court system, unsettling the mortgage industry and overturning years of settled practice and understanding. Lenders, loan servicers, and law firms should expect to see increased litigation on this topic in cases where mortgage foreclosure is being sought more than six years post-acceleration.

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Connecticut: Does an Untimely Appeal Invoke the Automatic Appellate Stay?

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Joseph Dunaj
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

In a case of first impression, the Connecticut Appellate Court held that a defendant’s untimely appeal did not invoke the automatic appellate stay and, thus, title vested to the plaintiff — despite the untimely appeal filing. [Deutsche Bank National Trust Company, Trustee v. Fraboni (Conn. App. Ct. June 26, 2018)].

Background
In Fraboni, the trial court had initially entered a judgment of strict foreclosure in 2014. On May 9, 2016 (after multiple extensions of the law day) the trial court denied the defendant’s latest motion to open judgment. However, sua sponte, the court extended the law day to June 28, 2016 to allow the 20-day appeal period (from the motion denial) to expire.

On June 27, 2016 the defendant filed an appeal of the May 9th decision. The plaintiff moved to dismiss that appeal on dual grounds: (1) that the appeal was untimely; and (2) that the appeal was also moot because the untimely appeal did not trigger the automatic appellate stay. Accordingly, the law days had run unabated, and title had vested to the plaintiff. The defendant opposed the motion to dismiss and also moved for permission to allow the late appeal, which the plaintiff opposed. The appellate court dismissed the appeal, without any articulation, and denied the motion for the late appeal.

The plaintiff then applied to the trial court for an execution for ejectment to obtain possession of the property. The defendant objected on the grounds that the late appeal had triggered the automatic appellate stay and, therefore, title had never vested to the plaintiff. Rather than rule on what it deemed a novel issue, the trial court granted the joint motion of the parties and reserved the matter to the appellate court for consideration.

Appellate Court’s Analysis
The question before the appellate court was whether an untimely appeal ever triggers an appellate stay. Connecticut Practice Book § 61-11(a) states: “Except where otherwise provided by statute or other law, proceedings to enforce or carry out the judgment or order shall be automatically stayed until the time to file an appeal has expired. If an appeal is filed, such proceedings shall be stayed until the final determination of the cause.” The plaintiff contended that the two sentences had to be read conjunctively, so that only a timely appeal could continue the appellate stay. The defendant maintained that the two sentences should be read disjunctively, so that even an untimely appeal would trigger the automatic stay.

The appellate court sided with the plaintiff, holding that the sentences must be read conjunctively. Because the defendant failed to file a timely appeal, and did not seek a discretionary stay or take other action to prevent the law day, the untimely appeal did not prevent the vesting of title to the plaintiff. The appellate court commented on the defendant’s position that “it seems more absurd to construe the rule to allow a party who has sat on his rights to use an untimely appeal to reinstate the expired automatic stay and thereby thwart a plaintiff’s legally proper efforts to collect or to proceed with a foreclosure once a judgment has been rendered and the defendant has failed to file a timely appeal.”

Closing Words
The appellate court’s position is very favorable to foreclosing plaintiffs. It precludes a borrower from utilizing an untimely appeal as a method of delaying a foreclosure. However, it must be noted that a foreclosing plaintiff should still take a proactive approach in contesting any untimely appeal. The appellate court discussed the fact that the plaintiff had moved to dismiss the appeal on the partial grounds of untimeliness, and although the appellate court did not consider that fact in its ultimate analysis, it can be inferred that should a plaintiff fail to raise the timeliness issue on the appeal, then the plaintiff’s failure may constitute a waiver to later argue that no appellate stay existed. A foreclosing plaintiff would be well served to raise the untimeliness issue to prevent such a waiver.

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Connecticut: Evidentiary Hearing re Standing not Required

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

In a recent decision, the Connecticut Appellate Court held that a borrower was not entitled to an evidentiary hearing on standing. Bank of America v. Kydes, 183 Conn. App. 479, 489 (July 17, 2018). To necessitate an evidentiary hearing, the borrower must first have presented support of a genuine issue of fact that called the bank’s standing into question. In addition, the appellate court found that standing could be established by the plaintiff’s pleadings, as well as the defendant’s admissions.

Procedural Timeline
The plaintiff commenced this action in 2012.

• On March 13, 2014 Defendant filed an answer and defenses. Several of the defenses alleged that Plaintiff had “made false and fictitious claims without any supporting admissible evidence,” and thus lacked standing.
• On March 13, 2015 Defendant filed a motion to dismiss, which the court denied because Defendant did not appear on the date the motion was scheduled for argument.
• On May 14, 2015 Plaintiff served Defendant with requests for admissions. The requests included admissions that Plaintiff was the holder of the note when the plaintiff commenced the action.
• On June 4, 2015, without answering, Defendant filed a motion for protective order.
• On July 17, 2015 the court sustained Plaintiff’s objection to the motion for protective order.
• On July 29, 2015 Plaintiff filed a “Notice of Intent to Rely on the Requests to Admit.”
• On July 31, 2015, six weeks after the deadline to respond, Defendant responded to the requests for admission by denying them all without limitation or qualification.
• On July 31, 2015 Plaintiff filed a motion for summary judgment, which relied on the requests for admissions because they were deemed admitted due to Defendant’s failure to timely answer them.


The court looked to case law precedent to find that, once the plaintiff presents the note to the court, the burden is on the defendant to present evidence to challenge standing. ‘“The defendant [must] set up and prove the facts [that] limit or change the plaintiff’s rights ....’ (Citation omitted; emphasis omitted; internal quotation marks omitted.) Deutsche Bank National Trust Co. v. Cornelius, 170 Conn. App. 104, 110-11, 154 A.3d 79, cert. denied, 325 Conn. 922, 159 A.3d 1171 (2017).” The court also found that the admissions from the failure to timely respond to the requests were dispositive. Moreover, the failure to ask the court for permission to withdraw or amend the admissions, in accordance with the rules, meant that the defendant admitted all matters as to which admissions were requested.

Closing Words
This case shows the importance of having the original note in Connecticut. Once the original note is presented to the court, the burden to challenge standing is shifted to the defendant. Further, merely making accusations — without an evidentiary basis — is insufficient for a defendant to obtain an evidentiary hearing.

Editor’s Note: The author’s firm represented the appellee (substitute plaintiff) in the case summarized in this article.

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Illinois: Second District Withdraws and Reissues Opinion on Standing

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Masum Patel
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

The Illinois Second District Court of Appeals issued its revised ruling in U.S. Bank Trust N.A. v. Lopez, 2018 Ill. App. (2d) 160967 on May 4, 2018. The original ruling was slated to be a victory for defendants on the issue of standing in Illinois. However, the reissued opinion reaffirms the current state of Illinois law, reestablishes the status quo concerning what has been known about standing in Illinois, and allows foreclosing lenders to breathe easier and remain confident in their current practices.

Background

Initially, the Second District reversed a Circuit Court of DuPage County ruling that struck, among other things, the defendant’s affirmative defense of lack of standing based upon the fact that the promissory note attached to the plaintiff’s complaint was specially indorsed to HUD, while the plaintiff was instead U.S. Bank Trust (as owner trustee for Queen’s Park Oval Asset Holding Trust). U.S. Bank filed a petition for rehearing, which spurred the Second District’s reversal of that original November 14, 2017 ruling.

Rehearing
Upon rehearing, the Second District withdrew its ruling and reissued a new opinion, finding that U.S. Bank did have standing to foreclose despite the note attached to its complaint being indorsed to HUD. The court based its reissued ruling on the fact that U.S. Bank amended its complaint to revise the statement of its capacity to foreclose from “legal holder” of the note to “non-holder in possession of the note with rights of a holder.” The Uniform Commercial Code (which Illinois has adopted) makes clear that a non-holder in possession with the rights of a holder can enforce a note.

Ultimately, the Second District came to the conclusion that U.S. Bank did possess the requisite capacity to foreclose. While the defendants were correct in asserting that a party must have standing at the time the suit is filed, the reissued opinion illustrates that by amending its complaint to state that it was a non-holder in possession of the note, by presenting the original note in court, and by producing an assignment of mortgage that predated the complaint, the plaintiff showed that it had standing at the time the suit was filed.

Significance
Why should lenders and servicers care? As previously stated, the original ruling positioned itself to be a sideways victory for defendants in foreclosure and would have left the issue of standing in Illinois up in the air. Now, the revised ruling reaffirms the basic and well-established notion that standing must be established at, or prior to, “first legal,” and that the correct capacity to sue must be pleaded in the complaint. While the plaintiff in Lopez later amended its complaint to correct its capacity, if it were not truly a “non-holder with the rights of a holder” at the time the case was filed, dismissal would have been proper.

Accordingly, it is vitally important to: (1) assert the appropriate capacity from the day the complaint is filed to avoid these issues altogether; and (2) ensure that any note indorsements and collateral documentation are thoroughly reviewed prior to referral and complaint filing. Failure to take caution in this review and preparation may result in a case at any stage — Lopez was post-sale confirmation — being unwound and dismissed. This can require a complete restart (or worse); a future filing is barred if Illinois’s single refiling rule is violated.

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Kentucky Enacts the Uniform Power of Attorney Act

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ellen L. Fornash
Anselmo Lindberg & Associates, LLC– USFN Member (Illinois)

The Commonwealth of Kentucky has established Revised Statutes Chapter 457, short-titled the Uniform Power of Attorney Act, to codify provisions stemming from the Uniform Power of Attorney Act of 2006. The Chapter applies to any power of attorney created before, on, or after the effective date of July 14, 2018. This new chapter defines a power of attorney, its durability, and governs its execution, termination, and application.

KRS 457.050 is of particular interest as it governs the requirements for an execution of power of attorney by mandating that the power of attorney be signed by the principal (or by another at the direction and in the conscious presence of the principal) in the presence of two disinterested witnesses. The signature of the principal on the power of attorney will be deemed genuine if acknowledged by a notary public. Lenders and servicers who have documents executed by a power of attorney on their behalf, or accept loan documents executed by a power of attorney on behalf of a borrower, should be aware of these particular execution requirements.

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Massachusetts: Continued Focus on Credit Card Debt Collection

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Julie Moran
Orlans PC – USFN Member (Delaware, Massachusetts, Michigan)

Over the past year, collection practices of the consumer credit card industry have been the target of considerable action by virtually all branches of the government of the Commonwealth of Massachusetts, a state whose history of aggressive protection of consumer rights is well documented. With the leadership change at the CFPB and recent actions by the Bureau appearing to embrace a less strident approach to enforcement, states such as Massachusetts are stepping in to fill a perceived void.

Senate Bill 120
Legislatively, Senate Bill 120 (An Act Relative to Fairness in Debt Collection) is pending before the Senate Ways and Means Committee. S.120 — one of several bills focused on debt collection practices — applies to most types of consumer debt, creditors including debt buyers, and the attorneys who represent them. The bill further restricts the income available for wage garnishment; reduces both the time and method of calculating the applicable statute of limitations and the duration of judgments on debts; allows a consumer to avoid a court appearance and examination under oath in a supplementary proceeding by submitting an affidavit of no assets; and liberalizes the attorney’s fees awarded to a successful consumer while restricting those awarded to a successful creditor.

Rules of Civil Procedure
The judicial branch of the Commonwealth has also focused on credit card debt collection. In 2016, an Ad Hoc Committee of the MA Court Standing Advisory Committee on the Rules of Civil Procedure was formed to study alleged abuses in revolving credit agreement cases, including credit card matters, filed in courts of the Commonwealth. Described abuses included inadequate verification of the address of the consumer and difficulties that the consumer encountered in determining the identity of the original creditor.

On May 23, 2018 the committee issued amendments to the Massachusetts Rules of Civil Procedure (Mass. R. Civ. P.) in the form of two new rules, effective January 1, 2019. The press release can be viewed here. Mass. R. Civ. P. Rule 8.1 and Rule 55.1 apply to any “Action” in which the plaintiff seeks to collect a debt relative to a transaction primarily for personal, family, or household purposes pursuant to a revolving credit agreement. Many of the requirements under the new rules originated from requirements under rules in other states surveyed by the committee and appear to be particularly aimed at large volume debt buyers. View the new rules here.

Rule 8.1 — Under this rule, any complaint filed in an action must be accompanied by one or more affidavits, a statute of limitations certification, and relevant supporting documentation. There is no specific requirement that the information be produced in separate affidavits, although, given the expansive information required, several affidavits may be necessary. It can be expected that the process of assembling and producing the requisite documents will be laborious and involve careful and thorough redaction. The entire complaint package must be served on the defendant.

The party executing the affidavits must attest to having acquired the requisite personal knowledge in making the affirmations. The “affidavit regarding debt” must recite the identity of the current owner of the debt, including the identity of any retailer sponsor; a chronological listing of all prior owners, including the dates of transfer, the date and amount of the last payment, date of charge-off, and the amount of debt at such time. For the portion of the debt incurred after charge-off, a detailed itemization of the amount, terms, and the method of calculating the debt owed must be included. The “affidavit providing documentation of debt” must include legible copies of the notice of charge-off sent to the consumer; proof that the debt was incurred; the applicable terms and conditions; and evidence of signing or acceptance of the same; or, if absent, the most recent monthly statement showing a purchase, payment, or balance transfer. The most arduous requirement, particularly where the debt may have been transferred multiple times, will be proof of virtually every transfer of the ownership of the debt (including the bill of sale, assignment, etc.) specifically referring to the consumer or his/her account.

The “address verification affidavit” must include supporting documentation showing that the defendant’s residential address has been verified within three months prior to filing the complaint by a variety of means and, in most cases, by multiple means. The affidavit must describe the verification methods selected and the dates of the same. If the applicable database or municipal records show more than one address in the last twelve months, the affiant must explain why that address was chosen and include the verification documents.

The plaintiff or its counsel must execute a certification that the statute of limitations (SOL) has not expired, a description of any choice of law/limitations provisions, and the statute relied upon in establishing the SOL.

Rule 55.1 — The affidavit to be submitted at the time of entry of a default judgment under new Rule 55.1 requires counsel for the plaintiff to sign, serve, and file an affidavit affirming that — based on a personal review of the documentation filed and served under Rule 8.1 — it complies with the requirements with any exceptions noted and that plaintiff is entitled to judgment as claimed. The request for entry must be served on the defendant in accordance with existing rules and in compliance with Rule 8.1 at his/her residential address. The clerk must be satisfied that the plaintiff has fully complied with Rule 8.1 and Rule 55.1 before entering a default judgment. Otherwise, the clerk must notify the parties and dismiss the action without prejudice unless (within 30 days of the notice) the plaintiff shows cause why the action should not be dismissed.

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North Carolina Court of Appeals: In re Worsham

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Devin Chidester
Brock & Scott, PLLC – USFN Member (North Carolina)

Recently, the North Carolina Court of Appeals handed down an opinion addressing application of the Rules of Civil Procedure (NCRCP), primarily Rule 52, in the context of a power of sale foreclosure. [In the Matter of the Foreclosure … Worsham, 2018 WL 3233086 (N.C. Ct. App. July 3, 2018).]

Background
The facts presented in Worsham are as follows: In June 2012, HSBC Bank USA, N.A. (HSBC) commenced a power of sale proceeding on property owned by the Worshams. The clerk of court denied the foreclosure because of lack of evidence that HSBC was the holder of the underlying debt (a requirement of North Carolina’s foreclosure statute N.C.G.S. § 45-21.16(d)).

Four years later, another foreclosure was attempted based on a recorded assignment of the deed of trust into HSBC. At the second foreclosure hearing, the clerk cited “insufficient evidence was presented to sustain the substitute trustee’s authority to proceed with the foreclosure” and again denied HSBC the right to foreclose. HSBC appealed the clerk’s denial and after a de novo review, the superior court allowed the foreclosure to proceed.

The Worshams appealed the order allowing foreclosure, contending that the foreclosure should not proceed because, as a matter of law, the superior court order findings were “unsupported by competent evidence,” and the order itself lacked required fact findings and conclusions of law.

Appellate Analysis
The Court of Appeals reversed and remanded the foreclosure based on the lack of findings of fact and conclusions of law within the superior court order allowing foreclosure. The court hinged its opinion on whether Rule 52 of the NCRCP applied in a nonjudicial foreclosure. Following the case of In re Lucks, a power of sale foreclosure is contractual and not a judicial proceeding, and the rules of civil procedure do not apply “unless explicitly engrafted into the statute.” [In re Foreclosure of Lucks, 369 N.C. 222, 225, 794 S.E.2d 501, 504 (2016).]

The appellate court reasoned that Rule 52 is applicable because, under N.C.G.S. § 45-21.16(d), “[t]he act of the clerk [or trial court] in … finding or refusing to so find is a judicial act[.]” As such, pursuant to Rule 52, an order allowing foreclosure must: make fact findings on issues; declare the conclusions of law arising on the facts found; and enter judgment accordingly with specific findings of the ultimate facts established by the evidence, admissions, and stipulations.


The superior court order lacked findings as to HSBC’s status as holder and only “summarily concluded” that HSBC had a right to foreclose.1 The status of holder is a requirement to foreclose under N.C.G.S. § 45-21.16(d) and was a main point of contention by the Worshams at the clerk and trial court level. Further, the appellate court found that the lack of evidence of a valid debt was absent from the superior court order. That order contained a reference to neither party disputing the default. The actuality of default was also a main issue of contention by the Worshams. As a result, the Court of Appeals reversed and remanded the matter in order for the lower court to make the requisite findings required per applicable NCRCP.

Take Note
The Worsham case serves as a reminder that success at trial is predicated on findings of fact and proper conclusions of law by the court, and an order is only as good as it is written.


1 See page 7 of the opinion outlining the order provided by the superior court. Traditionally, orders are provided to the judge by the prevailing party of a foreclosure matter.


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South Carolina: New Operating Order Regarding Conduit Plans in Chapter 13 Cases

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

For the District of South Carolina, Chief Bankruptcy Judge Duncan and Senior Bankruptcy Judge Waites have joined together in issuing a new Operating Order regarding conduit procedures in Chapter 13 cases (Operating Order 18-03) (New Order), effective August 1, 2018.

It is likely that the New Order will result in a significant increase in the number of conduit plans filed in Chapter 13 cases in South Carolina. Previously, conduit plans were required only under certain, limited circumstances. Pursuant to the New Order, however, all Chapter 13 plans that address claims secured by the debtor’s principal residence (not other real property) must be filed as conduit plans unless one of the following conditions/circumstances exists.

Exceptions to conduit plan requirement:

• Motion to value or surrender said property;
• Payment in full of the secured claim on primary residence over life of the plan;
• Non-filing co-debtor will pay secured claim on primary residence in full directly to the creditor;
• Plan requests loss mitigation/mortgage modification;
• Loan is current at time of petition/conversion;
• Debtor’s delinquency is less than 30 days; or
• Good cause exists (such as agreement to dismiss with prejudice if the debtor fails to make direct payment).


Note that the New Order maintains the court’s provision from its prior Operating Order, which states that the Chapter 13 trustee will not disburse funds to the mortgage creditor under a conduit plan unless, and until, the mortgage creditor has filed a compliant proof of claim.

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Protecting Tenants at Foreclosure: Sometimes the Sun Does Not Set

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

 

by Richard M. Nielson
Reimer Law Co.
USFN Member (Kentucky, Ohio)

The Reenactment
President Trump signed Senate Bill 2155 (The Economic Growth, Regulatory Relief and Consumer Protection Act) on May 24, 2018. The primary purpose of this bill was to revise significant portions of the Dodd-Frank Act, which was originally passed in 2010.

One of the ancillary provisions in this legislation was a repeal of the sunset provisions of The Protecting Tenants at Foreclosure Act of 2009 (PTFA or Act). The PTFA was initially enacted in 2009 with a sunset of the law’s provisions in 2012. Prior to its expiration in 2012, the sunset provision was extended to 2014. No legislation passed in 2014 to further extend the legislation, so the PTFA expired at that time. This new legislation resurrected the Act effective June 23, 2018 without any further sunset provision.

Mortgage servicers and REO companies had to deal with the issues created by the PTFA when it was initially enacted, so most have some experience in this regard. However, many have likely changed their rules since it sunset, and there are always new people in the industry. Accordingly, a refresher on eviction law in general, and how reenactment of the PTFA effects it, should prove helpful.

PTFA vs. State Law
Historically, the creation of a landlord and tenant relationship, the rules governing that relationship, the process for evicting tenants, and the interplay of those rules with the foreclosure statutes have been matters of state and municipal law. These laws and customs vary significantly from jurisdiction to jurisdiction. The reenacted PTFA has once again created certain minimum rights that are afforded to some tenants throughout the country.

After the PTFA was first enacted, a number of states adopted their own version of the Act providing similar, or more generous, benefits. In addition, many cities enacted ordinances granting tenants additional rights. When the PTFA sunset in 2014, purchasers of foreclosed property were once more free to deal with tenants as state law permitted. This left some jurisdictions with state and local rules similar to the PTFA, but others with virtually no comparable requirements. With the resurrection of the Act, mortgage investors, servicers, REO companies, and their attorneys must (again) alter their policies, procedures, and forms to ensure compliance with the terms of the federal law.

PTFA’s Objective
The general purpose of the PTFA is to provide legitimate tenants, who are living in properties that are going through the foreclosure process, with some protection from a sudden eviction. There are situations where tenants could be paying fair market value rent to a property owner while, unbeknownst to the tenant, the owner is in foreclosure. In those unfortunate situations the tenant might not know anything about the foreclosure until the purchaser at the foreclosure sale actually attempts to gain possession of the house. The tenant may then have very little time to react to the situation. The PTFA attempts to standardize how the new owner deals with those legitimate tenants in foreclosed properties and provide some minimum protection for those who might be harmed.

The Terms of the PTFA
Under the terms of the Act all “Bona Fide Tenants” (BFTs) in residential property must be given a minimum of 90 days’ notice before eviction proceedings can begin.

An occupant is not a BFT under the Act if they are the mortgagor, or if they are a child, the spouse, or a parent of the mortgagor. However, the occupants could be considered a BFT if they are another type of relative of the mortgagor — such as a sibling, an aunt, or an uncle.

If any occupant is not one of the excluded relationships, they are a BFT if they became a tenant through an “arm’s length transaction” and if they pay an amount that is not “substantially below” the “fair market rent.”

If the occupant is a BFT and meets the arm’s length and fair market tests, then the new owner must honor the terms of the lease. This would include giving them at least 90 days’ notice, but more if the lease term is longer.

Processing a Potential PTFA Claim
As soon as legal title to the property transfers to the new owner, the applicability of the PTFA must be considered. The new owner should make all reasonable attempts to determine if the property is occupied. If the property is in fact occupied, then the owner must try to find out the identity of each occupant, how they may be related to the former owners, and the terms of any lease they may have. If the property is occupied by multiple parties, it is possible that some occupants may be BFTs and others may not. To the extent state laws or municipal ordinances provide more generous rights to occupants, and to the extent a tenant might be protected under bankruptcy law or the Servicemembers Civil Relief Act, the owner must consider those issues as well.

Unless the new owner can conclusively determine that no individual who is potentially entitled to PTFA benefits (or other state and local benefits) occupies the property, the new owner should send a notice to all potentially entitled occupants. At a minimum, the notice should advise the occupants of the new owner and start the time period on the 90-day notice if applicable. Other disclosures may need to be in the notice, and some items will vary from state to state.

Once a potential BFT notifies the new owner of the existence of a lease (either oral or written) then the owner must consider whether the terms as described constitutes a true “arm’s length transaction,” and whether the alleged rent payment is “substantially below” a “fair market rent.” Each of these questions is very fact-specific, so there is a fair amount of judgment involved in the decision making process. It is best to look at the totality of the circumstances in every situation. The person making the decision must consider the practical differences between each city and state in coming to a reasonable conclusion. Moreover, the resulting decision may, in part, be based upon a servicer’s or REO vendor’s risk tolerance.

Assuming it is concluded that the occupant should be treated as a BFT, the new owner must honor all of the terms of the lease. They may not pick and choose which terms are enforceable. At a minimum, the BFT is entitled to a 90-day notice to vacate, but if the written lease calls for a longer term, that term must be honored.

It is worth noting that there is an exception to this rule: the new owner may cancel the lease if they intend to occupy the home as their primary residence. However, the owner would still need to provide the tenant with at least 90 days’ notice to vacate the premises. In addition, if the lease involves government-subsidized rent payments, other issues may need to be addressed.

If the Occupant is a Tenant, Does that Mean the Owner is a Landlord?
If the occupant is determined to be a tenant under the terms of the PTFA, is the new owner in fact a landlord for all purposes? In other words, does the new owner have to accept rent; and do they have to undertake any of the other obligations and affirmative duties set forth in the lease or placed upon landlords by state and local law? Further, does this mean that the new owner has to potentially register as a landlord in the city where the property is located?

These are all risk issues not addressed by the PTFA. Many states and municipalities have codes requiring landlords to provide certain notices and maintain properties to a specified standard. What if the property was not up to those standards when the new owner took possession? Does the new owner need to undertake those repairs? If someone is injured on the property, is the new owner “responsible” as a landlord? Some laws require landlords to provide sufficient amounts of heat and water as well as security and safety. Is the new owner subject to those requirements as well? What if the prior owner held a security deposit from the tenant? Is the new landlord responsible for returning those funds?

The resurrection of the PTFA brings back these — and numerous other — issues that will continue to be litigated. It also reestablishes many risk and regulatory challenges that those who handle REO properties will need to address promptly.

Copyright © 2018 USFN. All rights reserved.
Summer USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

 

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