Article Library
Blog Home All Blogs
Search all posts for:   

 

Michigan: Lack of Notice Challenges to Wayne County Tax Foreclosures

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

by Caleb J. Shureb
Orlans Associates, P.C. – USFN Member (Michigan)

Michigan property tax foreclosure occurs when the property owner fails to pay their annual property tax assessment for three years. For example, delinquent 2013 property taxes would be foreclosed in 2016. As the delinquency progresses, the county treasurer is obligated to provide notice to both property owners and others who maintain interests in the property (such as mortgagees) through first-class, certified letters; newspaper notices; personal property visits; and postings upon the subject property. Lawsuits have been, on behalf of homeowners, asserting allegations that Wayne County failed to provide the required notices of tax foreclosure.

The Wayne County treasurer’s office has processed more than 100,000 tax foreclosures in the last decade. Often, mortgagees are not in the best position to determine if they have received all of the tax foreclosure notices under the law. While a lienholder will endeavor to protect its position from a tax foreclosure, it is not inconceivable that a security interest can be lost due to a homeowner’s failure to pay their property taxes. When this occurs, local legal counsel should be consulted.

The first step in determining whether the proper notices have been submitted by the county is the submission of a Freedom of Information Act (FOIA) request. Once those results are received, legal counsel can advise whether a post-foreclosure settlement is possible; whether a civil action should be filed; or if attendance at the auction to reclaim the property as the new owner is the best remaining option.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Michigan: Court of Appeals Reviewing Whether a Foreclosing Mortgagee is Entitled to Receive Third-Party Overbid Proceeds from Sheriff’s Sale

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

by Christene M. Richter
Orlans Associates, P.C. – USFN Member (Michigan)

A case currently pending before the Michigan Court of Appeals seeks to determine whether the foreclosing mortgagee is entitled to receive third-party overbid proceeds from a sheriff’s sale where the mortgagee submitted a specified bid for less than the total debt owed on its mortgage. [In Re Surplus Proceeds from Sheriff’s Sale]. While the term “overbid” is not defined by statute in Michigan, the term is commonly used by those conducting foreclosure sales to describe the amount by which a third-party purchaser outbid the foreclosing mortgagee to purchase the premises at a sheriff’s sale.

The dispute at hand concerns interpretation of the section of the nonjudicial foreclosure statute pertaining to disposition of surplus funds. The court has been asked to make a determination under MCL 600.3252 of whether submission of a specified bid operates to satisfy the mortgage, thereby precluding the foreclosing mortgagee from receiving overbid proceeds from a third-party sale. MCL 600.3252 provides that a surplus arises if there are excess funds derived from the sheriff’s sale “after satisfying the mortgage on which the real estate was sold….” When a surplus arises under these circumstances (i.e., after satisfaction of the mortgage on which the real estate was sold), the mortgagor, his legal representative or assigns, or any subsequent lienholders are potentially entitled to the surplus funds according to their respective interests in the property.

In the matter before the appellate court, the foreclosing mortgagee submitted a specified bid for substantially less than the mortgage debt. A third-party purchaser submitted an overbid of $11,000 to purchase the foreclosed property, which was still substantially less than the total mortgage debt. The sheriff’s office disbursed the full amount of sheriff’s sale proceeds to the foreclosing mortgagee, determining that the final sale price was less than the total mortgage debt.

The third-party purchaser obtained an assignment of the borrower’s right to any surplus proceeds, and filed a petition with the court to claim the $11,000 overbid. The third-party purchaser asserted that the mortgage was satisfied upon receipt of the sale proceeds in the amount of the foreclosing mortgagee’s specified bid, and the remaining $11,000 overbid was therefore a “surplus” as defined by MCL 600.3252.

On competing motions for summary disposition, the trial court ruled in favor of the sheriff’s office and the foreclosing mortgagee, determining that submission of a specified bid for less than the mortgage debt does not operate to satisfy the mortgage as contemplated by MCL 600.3252. The third-party purchaser appealed the trial court’s ruling. As of the date of this publication, the Michigan Court of Appeals has not scheduled a date for oral argument.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Illinois: New Foreclosure Mediation Program in Macon County Began May 2, 2016

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

by Lee S. Perres and Jill D. Rein
Pierce & Associates, P.C. – USFN Member (Illinois)

There are recent changes in Macon County with respect to mediations. The new mediation program has begun and is detailed below.

Mediation will be mandatory for all residential foreclosure actions filed on or after May 2, 2016. The circuit clerk has increased the filing fee of all foreclosures cases by $75 to defray the cost of the mediation program.

Macon County’s mediation program mirrors that of Champaign County. Macon County Administrative Order 2016-1 includes the required summons (Exhibit A), notice of mandatory mediation (Exhibit B), and the mandatory mediation rules (Exhibit C). If the homeowner wants to participate in mediation, the homeowner must attend a mandatory pre-mediation conference on the date specified on the summons (date shall be at least 42 days but not more than 60 days from the issuance of summons), at which time the homeowner must prepare and provide a pre-mediation packet to the plaintiff’s counsel.

The plaintiff must provide the homeowner with an itemized list of any missing information within 14 days of the pre-mediation packet being served on the plaintiff. The homeowner must provide any missing information within 21 days of being served with the itemized list. After the homeowner submits an initial pre-mediation packet, the case will be set for a status conference within 40 to 60 days. If the homeowner fails to appear or submit a pre-mediation packet after three pre-mediation conferences (not including the status conference), the mediation coordinator will file a report with the court terminating mediation services.

After all information is received, the plaintiff must file a Certificate of Readiness to Engage in Mediation and mediation will be scheduled within 45 days.

©Copyright 2016 USFN and Pierce & Associates, P.C. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Restarting the Statute of Limitations Clock

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

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

Although rules surrounding statutes of limitation vary among states, the difficulties faced by lenders across the country are relatively consistent. Many lenders have lost their ability to foreclose or collect on the note if too much time has passed from the original default date.

This problem is especially prevalent in judicial foreclosure states where foreclosure cases were dismissed for various reasons during the financial crisis and lenders are now trying to re-file foreclosure complaints. Although there are various situations in which the statute of limitations can be tolled, lenders are exploring alternate methods to restart the clock.

Before a loan is accelerated, some courts consider the failure to pay each month’s installment as a new default that restarts the statute of limitations clock. When a loan is accelerated, it is converted from an installment contract to a single-payment lump-sum debt, and the statute of limitations cannot be restarted until the loan is decelerated.

Recently, cases around the country have addressed whether a loan can be unilaterally decelerated (without the acknowledgement or consent of the borrower) and, if so, what actions will decelerate a loan. See Deutsche Bank Trust Company Americas v. Beauvais, No. 3D14-575, 2016 WL 1445415, __ So. 3d __ (Fla. 3d DCA Apr. 13, 2016) (mortgagee had no obligation to take any affirmative action to decelerate loan following dismissal of foreclosure action); Cadle Co. II, Inc. v. Fountain, 281 P.3d 1158 (Nev. 2009) (“Because an affirmative act is necessary to accelerate a mortgage, the same is needed to decelerate. Accordingly, a deceleration, when appropriate, must be clearly communicated by the lender/holder of the note to the obligor.”)

Due to the inconsistency of judicial rulings on this issue, lenders and servicers are exploring the need to formally decelerate a loan in an attempt to restart the statute of limitations clock instead of relying on the dismissal of the foreclosure complaint or other action.

Additionally, a recent case out of Utah highlights another possible scenario that may restart the statute of limitations clock. In Koyle v. Sand Canyon Corporation, 2016 WL 917927 (D. Utah Mar. 8, 2016), the district court discussed how a debtor’s bankruptcy case may impact the statute of limitations. Here, the court held that the bankruptcy tolled the statute of limitations. However, even if the statute of limitations had not been tolled, the court held that the borrower acknowledged the debt during his bankruptcy when he signed an Agreed Order in which he assented to pay his regular monthly payments under the loan.

In Koyle, the court found that this acknowledgement restarted the clock under Utah law and so the lender’s action was not barred by the statute of limitations. Moreover, if the statute of limitations had run, the court stated that the debt collector still could have foreclosed on the deed of trust, and that the statute of limitations would simply have barred enforcement of the note.

With each new case surrounding mortgage default and the statute of limitations, this area of law continues to evolve.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Michigan: $74.5 Million in Federal Funds to Fight Blight and to Assist Homeowners Avoid Foreclosure

Posted By USFN, Tuesday, May 10, 2016
Updated: Monday, May 2, 2016

May 10, 2016

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

The U.S. Department of Treasury approved a $74.5 million plan with the goal to eliminate blight in Detroit and Flint, as well as help all Michiganders (Michiganians) avoid foreclosure. This plan comes after the federal government added $2 billion to the Hardest Hit Fund program. Seventy-five percent of the money distributed will be used for blight elimination in Detroit and Flint.

The present allocation shows that Detroit will receive $41.9 million and Flint will receive $13.9 million. The remaining 25 percent will be used to support mortgage assistance programs throughout the state of Michigan. Specifically, those mortgage assistance funds will aid homeowners who have experienced a hardship impacting their ability to pay their mortgage, property taxes, or condominium fees.

Like many urban areas, Detroit and Flint have a significant population of abandoned homes, which commonly result in increased crime and a corresponding decrease in property values. As the mortgage industry has often seen, this is a recipe for an increased level of foreclosure activity. The continued aggressive approach of the Michigan State Housing Development Authority, with the assistance of the federal funds, has resulted in a positive trend of demolishing the abandoned homes thereby reviving numerous neighborhoods. (Thus far, Detroit has demolished 6,777 abandoned homes deemed unsalvageable). The overall result: communities that previously maintained high percentages of negative equity housing are starting to see viable home sale price increases — which, in turn, has served to decrease the number of overall foreclosures in these urban areas.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Federal Deposit Insurance Corporation Rules on Abandoned Foreclosures Clarified

Posted By USFN, Tuesday, May 10, 2016
Updated: Wednesday, May 4, 2016

May 10, 2016

by Ronald S. Deutsch
Cohn, Goldberg & Deutsch, LLC – USFN Member (District of Columbia)

The Federal Deposit Insurance Corporation (FDIC) promulgated a Financial Institution Letter on March 2, 2016, FIL-14-2016, which clarified its supervisory expectations with respect to foreclosure abandonment. These expectations are part of its guidance for ensuring sound institutional risk management practices.

Sometimes after initiating the foreclosure process, financial institutions may decide to discontinue such process based on a financial analysis that the cost to foreclose, rehabilitate, and sell a property exceeds its current market value. The FDIC noted that the borrower may have ceased property maintenance. As a result, not only may blight occur but crime may increase. These unintended consequences negatively affect the property subject to the foreclosure process, and may also negatively impact the neighboring properties and the local community.

As the FDIC wrote in its Financial Institution Letter, “The FDIC continues to encourage institutions to avoid unnecessary foreclosures by working constructively with borrowers and considering prudent workout arrangements that increase the potential for financially stressed borrowers to keep their properties.” The FDIC further wrote: “When workout arrangements are unsuccessful or not economically feasible, existing supervisory guidance reminds institutions of the need to establish policies and procedures for acquiring other real estate that mitigate the impact the foreclosure process has on the value of surrounding properties.”

Institutions should develop and maintain appropriate policies and practices pertaining to decisions to discontinue the foreclosure process. These policies and practices should address (1) obtaining and assessing current valuations and other relevant information on a property, (2) releasing liens due to litigation risk, and (3) notifying local government authorities and borrowers as to its actions. If the borrower has vacated the property, insured institutions should employ reasonable means similar to those used with payment collection to locate a borrower and provide notice. The FDIC’s supervisory activity will include a review of these policies and practices.

Moreover, during safety and soundness examinations, a review of the analyses supporting the decision made to initiate, pursue, or discontinue foreclosure proceedings — as well as to release liens — will be examined. The management of this process will also be reviewed, including efforts to contact local authorities and borrowers. Examiners will further review whether the lender’s consumer inquiry and complaint process adequately address the concerns raised.

©Copyright 2016 USFN. All rights reserved.
May e-Update


This post has not been tagged.

Share |
Permalink
 

Connecticut Appellate Court Confirms Standard for Attorney’s Fees for Withdrawn Cases

Posted By USFN, Tuesday, May 10, 2016
Updated: Wednesday, May 4, 2016

May 10, 2016

by Emily McConnell
Hunt Leibert – USFN Member (Connecticut)

Recently, the Appellate Court of Connecticut upheld the trial court’s decision denying the defendant’s motion for an award of attorney’s fees pursuant to General Statutes § 42-150bb. [Connecticut Housing Finance Authority v. Alfaro, 163 Conn. App. 587; 2016 Conn. App. LEXIS 96 (Mar. 8, 2016)].

Connecticut General Statutes allows for attorney’s fees to be awarded to a consumer who successfully defends an action based upon the contract or lease. (See § 42-150bb.) In this case, Alfaro, was one of the defendants in a foreclosure action of a mortgage on certain real property. After the case was filed, Alfaro responded with an answer including special defenses. The plaintiff then filed for a motion summary judgment, to which the defendant objected. Following that objection, the plaintiff withdrew the motion for summary judgment and thereafter withdrew the entire action.

Defendant Alfaro claimed that the withdrawal of the action was based on the defendant’s special defense that the plaintiff lacked standing to bring the action. Unfortunately for the defendant, there was no record of this being the case or any record of the reasoning behind the withdrawal of the plaintiff’s action.

While the court found that the defendant failed to prove that the case was withdrawn due to his defense, the court did not find that a defendant would be entitled to attorney’s fees if a defendant could prove that a case was withdrawn because of a defense or defenses posed. Since the defendant was not able to provide any proof that the plaintiff withdrew the case due to the merits of his defense, the court did not provide an answer on that scenario.

Instead the court found that the unilateral act of withdrawing an action does not constitute a prevailing of the defense on the merits of its answer or special defenses as required to recover attorney’s fees under § 42-150bb.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Tennessee Court of Appeals: Borrower May Overcome Statutory Rebuttable Presumption that Foreclosure Sale Price Equals Fair Market Value

Posted By USFN, Tuesday, May 10, 2016
Updated: Wednesday, May 4, 2016

May 10, 2016

by Jerry Morgan
Wilson & Associates, P.L.L.C. (Arkansas, Tennessee)

The Tennessee Court of Appeals has provided guidance on the statutory presumption that a foreclosure sale price is equal to “fair market value.”

In Eastman Credit Union v. Bennett, 2016 Tenn. App. LEXIS 229 (Mar. 31, 2016), the borrower was relocated by his employer and the debt fell into default. Prior to the foreclosure sale, a relocation company offered the lender $158,900 — which was about $10,000 less than the full debt. The lender declined and foreclosed two months later, entering the only bid in the amount of $95,000. Two months after the foreclosure sale, the lender sold the property for $125,000.

The lender filed an action seeking a deficiency judgment of around $53,000, asserting that $95,000 (the foreclosure sale price) was fair market value. Pursuant to Tenn. Code Ann. § 35-5-118(b), a creditor is entitled to a rebuttable prima facie presumption that the sale price of the property at foreclosure is equal to fair market value at the time of the sale.

The borrower contended that the offer of $158,900 from the relocation company two months prior to the foreclosure was fair market value. The trial court, noting the good condition of the foreclosed property and the neighborhood, along with the fact that the lender sold the property two months after the foreclosure sale for $125,000, held that $95,000 was not fair market value, and that the offer made prior to foreclosure of $158,900 was the closest true indicator of fair market value at the time of the foreclosure sale. The Court of Appeals of Tennessee held that the evidence did not preponderate against the trial court’s findings regarding fair market value.

That did not end the inquiry, however, as Tenn. Code Ann. § 35-5-118(c) states that to overcome the rebuttable presumption, a debtor has to prove by a preponderance of the evidence that the foreclosure sale price was “materially less” than the fair market value at the time of the foreclosure sale. Accordingly, the trial court had to determine if the foreclosure sale price of $95,000 was “materially less” than the fair market value of $158,900. If so, the presumption would be overcome, and the borrower’s deficiency liability would be limited to the difference between the total indebtedness prior to the sale (plus the costs of foreclosure) and the fair market value of the property.

The actual foreclosure sale price of $95,000 was 40 percent less than the fair market value of $158,900. The statute does not provide a definition of “materially less.” Moreover, Tennessee courts have not applied a “bright-line percentage” that would represent “materially less.”

The courts look to elements such as the condition of the property and “any other factors that may provide information concerning the marketability of the property and the surrounding area.” Courts have found, for example, that 11 percent less than fair market value was not “materially less,” nor was 15.8 percent less. Another court found that 78 percent less was materially less.

In Bennett, the trial court and the Court of Appeals found that 40 percent was materially less. The appellate court noted the condition of the property and the neighborhood, as well as the testimony from one of the creditor’s witnesses that all that would be needed was a “sales clean” of the property, with no repairs necessary in order to sell.

While this case does not technically break new ground, it does provide creditors with more guidance regarding deficiency judgments post-foreclosure. The judicial decision highlights the importance of striking a reasonable balance between preserving the creditor’s right to pursue a deficiency and protecting a borrower’s rights in determining the fair market value of the property.

©Copyright 2016 USFN. All rights reserved.
May e-Update


This post has not been tagged.

Share |
Permalink
 

Pennsylvania: HEMAP Program — New Form Act 91 Notice Must Be In Use by 9/1/16

Posted By USFN, Tuesday, May 10, 2016
Updated: Thursday, May 5, 2016

May 10, 2016

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

On April 30, 2016 the Pennsylvania Housing Finance Agency (PHFA) published a public notice in the Pennsylvania Bulletin revising its Statement of Policy regarding the Homeowner’s Emergency Mortgage Assistance Program (HEMAP) and — most importantly — updating the form Act 91 notice that must be sent to the mortgagors and owners of mortgaged property prior to the commencement of most foreclosure actions involving non-FHA insured mortgages in Pennsylvania. The new form notice must be implemented by September 1, 2016.

The revised form Act 91 notice is significantly different from, and is much shorter than, the one that has been in place for the last eight years. A downloadable version of the new form notice is available at http://www.phfa.org/consumers/homeowners/hemap.aspx. In addition, the entire revised Statement of Policy, which includes the amendments to the regulations to Act 91, and the industry advisory letter from PHFA’s executive director can be viewed at the same link. While this article addresses some of the highlights of the Statement of Policy, amendments, and advisory information, all should be reviewed in their entirety.

The new form notice contains a first page that provides general information regarding the HEMAP program and some of the rights that the homeowner may have under Pennsylvania law and the loan documents. This information must be supplied in both English and Spanish every time. PHFA has also developed additional language translations (which are available at http://www.phfa.org/consumers/homeowners/hemap.aspx) for use in situations where the servicer knows that the mortgagor/homeowner requires communication in a language other than English or Spanish.

The last two pages of the new form notice comprise the Account Summary, which includes details regarding the account, the delinquency, and the cure amount, among other specific account level detail. The format of the Account Summary is designed to make the information easily digestible by the homeowner. Both PHFA’s Statement of Policy and the amended regulations are specific in that there are to be no deviations from the form of notice, and that no additional notices or information are to be combined with the notice.

PHFA’s Statement of Policy is also very clear that PHFA presumes that the date on the notice is also the date the notice was mailed. This date is very significant to the homeowner because it is the date that triggers the start of the time period for the homeowner to meet with a consumer credit counseling agency in order to be eligible for a further stay of proceedings to apply for HEMAP. If the date on the notice pre-dates the postmark of the notice, the date of the postmark will take precedence for purposes of determining the timeliness of the face-to-face meeting.

A list of PHFA-approved consumer credit counseling agencies must still be provided with each notice, as has always been required. The list must be specific to the county in which the mortgaged property is located, and must be the most updated list available on the agency’s website (see Appendix C at http://www.phfa.org/consumers/homeowners/hemap.aspx). The most recently published list as of the date of this writing was posted by PHFA on April 1, 2016. The agency will be updating the list periodically beginning in 2017 on certain published dates. The scheduled dates for the coming year will be provided by public notice in the Pennsylvania Bulletin prior to the end of each calendar year.

PHFA is also in the process of designing a fact sheet that servicers will be encouraged to transmit to delinquent mortgagors/homeowners prior to sending the Act 91 notice. This mailing will not be required by statute or regulation, but will be urged by the agency. When the fact sheet is published and available, further information will be provided to the industry.

Lastly, PHFA has also announced in the revised Statement of Policy that it will publish a yearly schedule of fees and costs which it considers to be reimbursable through a HEMAP loan. The schedule will be published on PHFA’s website, with the first one to be available prior to the end of 2016 and effective for calendar year 2017.

©Copyright 2016 USFN. All rights reserved.
May e-Update


This post has not been tagged.

Share |
Permalink
 

Illinois: Appellate Court reviews two Central Issues – Standing & Prove-Up Affidavit Sufficiency

Posted By USFN, Tuesday, May 10, 2016
Updated: Thursday, May 5, 2016

May 10, 2016

by Lee S. Perres and Jill D. Rein
Pierce & Associates, P.C. – USFN Member (Illinois)

The Third District Court of Appeals recently affirmed the circuit court’s decision, holding that waiting more than two years after the assignment of mortgage to substitute party plaintiff is of no relevance to the issue of standing. [PennyMac Corporation v. Colley, 2015 Ill. App. (3d) 140964 (Dec. 14, 2015)]. The appellate court further held that a prove-up affidavit was sufficient even though all of the business records that the affiant relied upon were not attached to the affidavit but were filed with the court and available for inspection. On March 30, 2016 the defendants’ Petition for Leave to Appeal with the Illinois Supreme Court was denied.

Standing — On appeal, the defendants challenged the trial court’s denial of the motion to stay the sale and its granting of PennyMac’s motion to confirm the sale. The defendants contended that they demonstrated PennyMac’s lack of standing and asserted that CitiMortgage’s request to substitute plaintiff was untimely, and that the assignment did not establish PennyMac’s standing.

Affirming the trial court’s decision, the appellate court emphasized that “[w]here the plaintiff has moved for confirmation of the sale, it is too late for the defendant to assert a standing defense.” Id. at ¶ 11. The appellate court concluded that “[f]or whatever reason that CitiMortgage continued in the proceedings after the assignment, it was ‘master’ of its cause of action.” Id. at ¶ 14. The fact that CitiMortgage waited more than two years after the assignment to substitute PennyMac as the plaintiff is of no relevance, and the defendants were neither surprised nor prejudiced by the change of plaintiff. Id. at ¶ 14. Accordingly, the appellate court concluded that none of the defendants’ arguments was persuasive and did not necessitate that the sale be rejected based on the claim that PennyMac lacked standing. Id. at ¶ 14.

Prove-Up Affidavit Sufficiency — Additionally on appeal, the defendants challenged the trial court’s granting of PennyMac’s motion for summary judgment, maintaining that the prove-up affidavit was insufficient under Illinois Supreme Court Rule 191 because it did not attach relied-upon documents and was not based on personal knowledge. The appellate court affirmed the trial court’s granting of PennyMac’s motion for summary judgment, stating that the payment history, along with other documents filed with the court, satisfied the requirements for summary judgment prove-up affidavits. Id. at ¶ 19. The prove-up affidavit was properly supported with the payment history; the other relevant bank reports were filed with the court and were available for inspection. Id. at ¶ 18.

Furthermore, the court concluded that the prove-up affidavit established that the affiant had personal knowledge. Id. at ¶ 18. Therefore, the appellate court concluded that because the defendants failed to raise any genuine issue of material fact, the trial court’s granting of PennyMac’s motion for summary judgment was not in error. Id. at ¶ 19.

The opinion in Colley is published and is binding precedent; it allows plaintiffs to carry out foreclosures after an assignment of mortgage without substituting the party plaintiff right away. Moreover, the failure to attach all of the business records to the affidavit of prove-up is not fatal to the entry of summary judgment where the business records were filed with the court and were available for inspection.

Editor’s Note: The authors’ firm represented appellee PennyMac Corporation in the case summarized in this article.

©Copyright 2016 USFN and Pierce & Associates, P.C. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Wisconsin: Legislation Changes Foreclosure Process Involving Abandoned Properties and Reduces Redemption Time Periods during Foreclosure

Posted By USFN, Tuesday, May 10, 2016
Updated: Thursday, May 5, 2016

May 10, 2016

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

Significant changes to the foreclosure process under Chapter 846, Wis. Stats., have been enacted as 2015 Wisconsin Act 376, which became effective April 27, 2016. The Act’s changes relating to post-judgment pre-sale redemption periods are as follows:

Redemption Periods
Owner occupied, waiver of deficiency judgment, and property is less than 20 acres:

• If the mortgage was executed AFTER April 27, 2016, the redemption period will be 3 months.
• If the borrower demonstrates that a good faith effort is being made to sell the property, then the court may extend that period to 5 months.
• If the mortgage was executed BEFORE April 27, 2016 and recorded subsequent to January 22, 1960, then the redemption period will be 6 months.

Owner occupied, deficiency judgment, and/or property is more than 20 acres:
• If the mortgage was executed AFTER April 27, 2016, the redemption period will be 6 months.
• If the borrower demonstrates that a good faith effort is being made to sell the property, then the court may extend that period to 8 months.
• If the mortgage was executed BEFORE April 27, 2016, the redemption period will be 12 months.

Non-owner occupied and waiver of deficiency judgment:
• Regardless of whether property is more or less than 20 acres, and provided that the mortgage is recorded subsequent to May 12, 1978, the redemption period will be 3 months.

Non-owner occupied and deficiency judgment:
• Regardless of whether property is more or less than 20 acres, and provided that the mortgage is recorded subsequent to May 12, 1978, the redemption period will be 6 months.

Vacant and Abandoned Properties:
• Regardless of whether property is more or less than 20 acres, whether a deficiency judgment is sought, or when the mortgage was executed or recorded, the redemption period will be 5 weeks.

Abandoned Properties
The Act’s further changes relating to abandoned properties apply only to actions commenced on or after April 27, 2016. The Wisconsin Supreme Court had recently held that any party to a foreclosure action (or a city, town, village, or county) may move the court to find a property to be abandoned and to compel a sheriff’s sale within an undefined reasonable time after the expiration of a 5-week post-judgment pre-sale redemption period [The Bank of New York v. Carson, 352 Wis. 2d 205, 841 N.W.2d 573 (2015)]. Act 376 clarifies that only the foreclosing plaintiff (or a city, town, village, or county) may file such a motion. Further, if a property is found to be abandoned, within 12 months of the judgment, either a sheriff’s sale must be held and confirmed or the lender must satisfy the mortgage lien and vacate the judgment. If the lender does neither, only then may any party to the foreclosure action move the court to compel a sheriff’s sale.

Conclusion: The Impact of Act 376

For mortgages executed after April 27, 2016, lesser redemption periods will expedite the foreclosure process in Wisconsin. After obtaining judgment, if a property that was previously occupied is found to have become abandoned within 12 months of the judgment, the foreclosing lender should determine whether the value and overall condition of the property is such that it is in the lender’s best interests to schedule and move the court to confirm a sheriff’s sale or to, instead, release the lien and vacate the judgment.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

California: Borrower Lacks Standing Pre-Foreclosure to Challenge an Assignment of Deed of Trust

Posted By USFN, Thursday, May 5, 2016

May 10, 2016

by Parnaz Parto
The Wolf Firm – USFN Member (California)

As has been widely reported, the California Supreme Court recently ruled in a very limited opinion that it is possible for a borrower to have standing to challenge the validity of an assignment of deed of trust post-foreclosure sale. [Yvanova v. New Century Mortgage Corporation, 62 Cal. 4th 919 (Feb. 18, 2016)]. The California Court of Appeal has confirmed the limited nature of Yvanova in Saterbak v. JPMorgan Chase Bank, N.A., Case No. D066636, (Mar. 16, 2016).

In Saterbak the borrower filed suit prior to a foreclosure sale in order to cancel the assignment and obtain declaratory relief. The California Court of Appeal affirmed a trial court’s decision in holding that a borrower lacks standing to challenge a deed of trust on grounds that it does not comply with the pooling and servicing agreement for the securitized instrument.

At the outset, the appellate court readily rejected the borrower’s allegation that the trust bore the burden of proving that the assignment in question was valid and, instead, held that the borrower bears the burden to establish standing.

Borrower’s Contentions
The core of the borrower’s argument was that a preemptive action could be filed in order to determine if a trust may initiate a nonjudicial foreclosure sale. In order to prevent the sale, the borrower alleged that the assignment was void under the pooling and servicing agreement because Mortgage Electronic Registration Systems, Inc. (MERS) did not assign the deed of trust until years after the closing date, and the borrower also claimed that a signature on the assignment was “robo-signed.”

The appellate court recognized that California courts do not allow preemptive suits in the context of nonjudicial foreclosures “because they would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature” (internal quotations omitted). The appellate court distinguished the California Supreme Court ruling in Yvanova by holding that that ruling, identifying that a borrower has standing to sue for wrongful foreclosure by challenging an assignment where the defect in the assignment renders the assignment void, related specifically to a post-foreclosure context.

The appellate court additionally noted that the Yvanova ruling did not provide an opinion as to whether under New York law — which governed the subject trust — an untimely assignment to a securitized trust, made after the trust’s closing date, is void or voidable. In further support of the appellate court’s ruling that the borrower lacked standing, the court held that such an assignment is merely voidable by the beneficiary, and not void.

The borrower next claimed that the deed of trust conveyed standing to challenge the alleged defects in MERS’s assignment of the deed of trust because the deed of trust stated that only the “Lender” has the power to declare default and foreclose, and the “Borrower” has the right to sue prior to foreclosure in order to assert defenses. Notably, the appellate court relied upon Siliga v. Mortgage Electronic Registration Systems, Inc., 219 Cal. App. 4th 75, 84 (2013) and Herrera v. Federal National Mortgage Association, 205 Cal. App. 4th 1495, 1504 (2012) in rejecting the borrower’s claim, and held that the language in the deed of trust stating that MERS has the authority to exercise all the rights and interests of the lender includes the right to assign the deed of trust.

In addition, the appellate court pointed out that such provisions in the deed of trust give the borrower the power to assert any defense to avoid foreclosure and do not change the standing obligations under California law. The appellate court likewise rejected the borrower’s other contentions that the deed of trust conferred standing relating to the pre-suit notice provisions in the deed of trust and the necessity of containing restrictive language in the deed of trust having to do with attacks on assignments.

For the first time on appeal, and as the borrower’s last argument related to standing, it was asserted that the California Homeowner Bill of Rights (HBOR), which went into effect on January 1, 2013, provided the borrower with standing to challenge the assignment, particularly based on sections 2924.17(a) and 2924.12. Section 2924.17 states that an “assignment of a deed of trust ... shall be accurate and complete and supported by competent and reliable evidence.” Section 2924.12 permits a borrower to bring an action for damages or injunctive relief for material violations of section 2924.17. Since the subject deed of trust was assigned prior to the effective date of HBOR, the appellate court concluded that HBOR does not apply retroactively and, as a result, did not convey standing and new rights on appeal. In doing so, the appellate court left open the issue of whether there is standing to assert a wrongful assignment pre-foreclosure sale, if that assignment was executed post-HBOR.

Conclusion
Saterbak’s ruling addresses a borrower’s standing to challenge an assignment of deed of trust and is one of the first cases to distinguish and limit the recent Yvanova decision, by holding that a borrower does not have standing to challenge an assignment pre-foreclosure. This opinion is also one of the first to clarify the Yvanova decision by concluding that under New York law, an untimely assignment to a securitized trust made after the trust’s closing date is merely voidable by the beneficiary, and not void.

Of note is that the California Supreme Court issued an opinion on April 27, 2016, reviewing Keshtgar v. U.S. Bank, N.A., 226 Cal. App. 4th 1201 (2014) (opinion filed in Case No. S220012). Keshtgar is a case involving a pre-foreclosure challenge to an assignment of deed of trust. The California Supreme Court merely transferred the case back to the Court of Appeal “with directions to vacate its decision and to reconsider the cause in light of” Yvanova. For now, the Saterbak decision should help curtail the onset of litigation that is sure to result from the Yvanova ruling by narrowing that decision, and will likely have an effect on the Court of Appeal’s review of Keshtgar.

©Copyright 2016 USFN. All rights reserved.
May e-Update

 

This post has not been tagged.

Share |
Permalink
 

Washington: Deed of Trust Enforceability

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Joshua Schaer
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)

The Washington Supreme Court issued a decision in OneWest Bank, FSB v. Erickson (Feb. 4, 2016), reversing a Court of Appeals ruling that invalidated the lender’s deed of trust because an Idaho court had appointed a conservator who encumbered Washington property. The Supreme Court applied full faith and credit to the Idaho order and found that foreclosure was proper.

Background: In 2007, Erickson’s father (McKee) executed a quitclaim deed for the subject property conveying title to Erickson. Erickson failed to record that instrument until 2011. In the interim, an Idaho court appointed a conservator to manage McKee’s property, which included facilitating a reverse mortgage that Erickson also approved. When McKee died, OneWest — as successor in interest to the originating lender — commenced a judicial foreclosure and Erickson sued to stop the process.

Erickson asserted three theories: (1) that OneWest should have known she possessed title to the property when the reverse mortgage was originated; (2) that the conservator lacked authority to encumber Washington property; and (3) that OneWest did not hold the secured note it was seeking to enforce. The trial court granted summary judgment to OneWest.

The Supreme Court agreed with this outcome and reversed the Court of Appeals, holding that Washington courts must give full faith and credit to the Idaho proceeding, and Erickson could not collaterally attack the resulting decision. The Supreme Court found that the Idaho orders at issue fell within that court’s in personam jurisdiction to adjudicate McKee’s interest in out-of-state property, and did not rise to the level of directly transferring legal title because the mortgage was not a conveyance under Washington law (which adopts a lien theory).

The Supreme Court further ruled that Erickson took title to the property subject to OneWest’s reverse mortgage because Erickson’s “secret” interest was not publicly recorded, even though the quitclaim deed had been disclosed in earlier court records.

Additional findings were made by the Supreme Court on other issues raised in the case, including admissibility of the Idaho order as a business record, proper notarization of the deed of trust, and OneWest’s status as the note holder. All matters were resolved in OneWest’s favor.

Erickson provides clear guidance that deeds of trust may still be enforced in Washington even when they were originated by virtue of extrajurisdictional authorization.

The Supreme Court’s opinion is at http://www.courts.wa.gov/opinions/pdf/912831.pdf.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

Michigan: Substantive BK Rule Changes (Eastern District)

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Kim Rattet
Trott Law, P.C.
USFN Member (Michigan)

At the start of 2016 the U.S. District Court for the Eastern District of Michigan entered Administrative Order 16-AO-006, calling for fundamental changes to the Local Bankruptcy Rules. The revised local bankruptcy rules, which went into effect February 1, 2016, are directly impacting the local practices in consumer bankruptcy cases, particularly as they relate to chapters 7, 11, and 13. As such, it is worth reviewing the adjustments that are taking place to satisfy the new guidelines.

Chapter 13 — Changes relating to chapter 13 bankruptcy cases were especially extensive:
• Under E.D. Mich. Rule 2015-3, there are new rules for trustee’s procedures following a chapter 13 plan completion. It was previously stated that “any pre-petition or post-petition defaults have been cured and the claim is in all respects current, with no escrow balance, late charges, costs or attorney fees owing.” Now, the language has been updated to eliminate the latter portion. As such, the current rule reads: “with respect to any secured claim that continues beyond the term of the plan, any pre-petition or post-petition defaults have been cured. [E.D. Mich. L.B.R. 2015-3(a)(3)].
• Clarity has also been added to Section (a)(4) of chapter 13 cases, which outlines that in instances where the stay has been terminated as to a creditor, the response to a notice of a final cure under Fed. R. Bankr. P. 3002.1 no longer applies.
• Lastly, payment changes are now in place that allow for a “Notice of Inability to Comply with Timing Requirements.” Applicable for creditors whose claims are secured by a mortgage where the debtor’s payment obligation is susceptible to change multiple times in a 60-day period, a creditor may file a “Notice of Inability to Comply with Local Rule 3001-2(a) Deadline” as an attachment to any proposed payment change filed under subpart (a). Should an objection not be made within 14 days, or unless otherwise stated by the court, the trustee must execute the payment change stated in the notice of payment change versus the previous 21 days after service of the notice.

Chapter 7 — There is now a new form that must be used in chapter 7 reaffirmation agreements. For a reaffirmation without an attorney certification, a coversheet must be included with the motion as specified in § 524(k)(1) and Fed. R. Bankr. P. 4008. The motion needs to be titled and filed in the ECF event, “Motion for Approval of Reaffirmation – Presumption of Undue Hardship Applies.”

Chapter 11 — For chapter 11 bankruptcy cases in which a combined plan and disclosure agreement are entered, there is a seven-day window prior to the first scheduled date of the confirmation hearing to file an election, as outlined under § 1111(b).

All Bankruptcy Cases — There are also several revisions to general bankruptcy requirements. Listed below are a few of the noteworthy changes:
• Transfer of Claims – According to E.D. Mich. L.B.R. 3001-1, “any assignments or other evidence of a transfer of claim filed after the proof of claim has been filed must include the claim number of the claim to be transferred.”
• Motion for Relief from the Stay or Stipulation – This new requirement is interesting as it eliminates any timing advantage for filing a motion for release versus filing a stipulation. As written in the approved changes, any motion seeking relief from the stay must be served under Fed. R. Bankr. P. 4001 and signed by all interested parties (i.e., the debtor, trustee, any party with interest in the property, or any party requesting notice). In the event that the signatures of all required parties are not received, a motion to approve the stipulation must be filed.
• Procedure for Ex Parte Motions – Under E.D. Mich. L.B.R. 9037, an official procedure has been established for parties seeking to restrict access to documents containing protected private information. The unredacted information must be in violation of the Fed. R. Bankr. P. 9037(a) before a party can file an ex parte motion, which will restrict access to the pleading while the motion is pending. Upon granting the motion, there is a seven-day window to file a redacted replacement document.

For a complete breakdown of all of the changes, visit the website for the U.S. Bankruptcy Court for the Eastern District of Michigan (http://www.mieb.uscourts.gov/).

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

California: Challenging an Assignment Post-Foreclosure: Borrower has Standing

Posted By USFN, Monday, May 2, 2016

May 2, 2016

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

The California Supreme Court has held that a borrower has standing to challenge an assignment of a deed of trust post-foreclosure. [Yvanova v. New Century Mortgage Corporation, 2016 Cal. LEXIS 956; WL 639526 (Feb. 18, 2016)]. Specifically, the Court concluded that, “a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale.”

This was a very surprising result. The great weight of authority in California — and throughout nonjudicial states — had been that a borrower did not have standing to challenge an assignment of mortgage, and thus a foreclosure could not be overturned if there was an improper assignment. [See, e.g., Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal. App. 4th 497, 156 Cal. Rptr. 3d 912 (2013); Siliga v. Mortgage Electronic Registration Systems, Inc., 219 Cal. App. 4th 75, 161 Cal. Rptr. 3d 500 (2013); Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256, 129 Cal. Rptr. 3d 467 (2011); and Herrera v. Federal National Mortgage Assn., 205 Cal. App. 4th 1495, 141 Cal. Rptr. 3d 326 (2012)].

The California Supreme Court disagreed with this logic, stating that the borrower does not owe monies to the “world at large” but to the entity that is legitimately entitled to payment and to enforce the debt against the security. The “harm” caused to the borrower is the loss of his home. The Supreme Court reversed the Court of Appeals’ judgment and remanded the case to reconsider whether Yvanova could file an amended complaint to plead wrongful foreclosure.

Borrowers now have another arrow in their quiver to potentially shoot down otherwise valid foreclosures. Cognizant of the upheaval this ruling would cause, the Supreme Court tried to carefully limit its holding. First, the Court made clear that its decision was limited to the issue of whether a borrower has standing to challenge an assignment of the deed of trust in a post-foreclosure proceeding. By doing so, the Court did not overturn decisions that precluded borrower standing on challenges made pre-foreclosure sale. Specifically, the Court stated:

"[D]isallowing the use of a lawsuit to preempt a nonjudicial foreclosure, is not within the scope of our review, which is limited to a borrower’s standing to challenge an assignment in an action seeking remedies for wrongful foreclosure … the concrete question in the present case is whether plaintiff should be permitted to amend her complaint to seek redress, in a wrongful foreclosure count, for the trustee’s sale that has already taken place. We do not address the distinct question of whether, or under what circumstances, a borrower may bring an action for injunctive or declaratory relief to prevent a foreclosure sale from going forward."

Additionally, the Court made clear that it expressed no opinion as to whether the assignment was actually void, or whether any other challenges made by the borrower to the foreclosure were valid.

The immediate outcome of the Yvanova decision is that lenders and servicers will no longer be able to use a demurrer to quickly, and cost effectively, resolve litigation challenging the assignment (i.e., seek dismissal for the borrower-plaintiff’s failure to state a cause of action). Instead the matter will have to be litigated, thereby causing increased discovery costs as well as more lengthy and costly trials. Further, and despite the Court’s clear language that its ruling only applied to post-foreclosure actions, a rash of cases wrongfully using the Yvanova decision to challenge pending foreclosures can be anticipated.

Potential Title Claims — Finally, it is expected that the Yvanova case will result in previously precluded title claims now being raised in eviction proceedings. California eviction judges generally follow longstanding judicial decisions that title issues are not properly before the court in an eviction proceeding. For example, Old National Financial Services, Inc. v. Seibert, 194 Cal. App.3d 460 (1987), states at 465:

“... where the plaintiff in the unlawful detainer action is the purchaser at the trustee’s sale, he or she ‘need only prove a sale in compliance with the statute and the deed of trust, followed by a purchase at such sale and the defendant may only raise objections on that phase of the issue of title. Matters affecting the validity of the … primary obligation itself … are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment.’ (citations omitted).” (Emphasis is the court’s.)

The reasoning behind this rule is simple: “Because of its summary character, an unlawful detainer action is not a suitable vehicle to try complicated ownership issues …” [Mehr v. Superior Court, 139 Cal. App. 3d 1044, 1049 (1983)].

Nonetheless, even prior to the Yvanova decision, there were some California eviction judges who ignored precedent and believed that defendants were able to raise title issues as a defense to eviction, especially where those title issues related to alleged wrongful assignments. The Yvanova decision adds fuel to this fire.

Another case now pending before the California Supreme Court may definitively decide whether or not title issues can be raised in eviction proceedings. That is, Boyce v. T.D. Service Co., 235 Cal. App. 4th 429 (2015), which was ordered de-published pending review. Although the primary issue in Boyce concerns whether the lower court was in error in granting judgment based on res judicata, the underlying defense by the borrower was an alleged void assignment. The Boyce case has been ongoing since 2012, and the California Supreme Court was awaiting its decision in Yvanova before rendering an opinion in Boyce.

If the California Supreme Court allows defendants to litigate title in eviction actions, it will transform an otherwise summary proceeding into a lengthy and expensive trial. However, even if the pending decision in Boyce limits the ability to litigate title issues in eviction actions, Yvanova holds that a borrower has the right to challenge the validity of the beneficiary’s right to foreclose in a post-sale wrongful foreclosure action. Accordingly, the borrower can simply seek a stay of the summary eviction action, pending the separate title litigation. Of course, this will cause significant delays in obtaining possession of the property.

The California Supreme Court has spoken and, while it has tried to limit its ruling, the practical effect will be an increase in the frequency of litigation and a rise in the cost of that litigation.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

MERS Challenges Statute Affecting “Nominee” Recording Fees: Connecticut Supreme Court Upholds Statute

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Adam L. Bendett
and Robert J. Wichowski
Bendett & McHugh, PC
USFN Member (Connecticut, Maine, Vermont)

In the case of MERSCORP Holdings, Inc. v. Malloy, 320 Conn 26 (Feb. 23, 2016), the Connecticut Supreme Court has upheld the validity of a statute that tripled the recording fees for any entity referring to itself as a “nominee.” The Connecticut State Legislature amended Connecticut General Statute § 7-34a(a)(2) and § 49-10(h) in 2013 to increase the cost of recording documents related to a mortgage by the nominee of that mortgage. For a release of mortgage or assignment of mortgage, the recording costs increased from $53 to $159 for the first page; the cost for each additional page has not changed and remains at $5. Similarly, the recording of a mortgage increased from $53 for the first page to $159, with the cost for each additional page still $5.

The legislation also altered the allocation of the recording fees. In Connecticut, land records are kept on a town-by-town basis and are maintained by the town clerks of each town. For example: prior to 2013, out of the $53 fee for recording the first page of a mortgage, the state received $38, the town received $3, and the town clerk received $12. After July 2013, from the $159 paid to record the first page of a MERS mortgage, the state receives $110, the town receives $39, and the town clerk retains $10. Allocations are similarly adjusted for the increased recording fees imposed on MERS assignments and releases. The recording fees for all other filers not identified as a “nominee of a mortgagee” were unchanged by the legislation.

The parties agreed that Mortgage Electronic Registration Systems, Inc. (MERS) is presently the only entity that qualifies as the nominee of a mortgage and that the legislature passed the bill with MERS in mind. Accordingly, MERS and MERSCORP Holdings, Inc. are the only two entities required to pay the increased fees. The parties also agreed that the purpose of the legislation, at least partially, was a revenue enhancing measure to help balance the state budget.

The Lawsuit — MERS had initially filed the lawsuit on July 2, 2013 against representatives of the state, seeking, inter alia, that the court declare the referenced statutes as unconstitutional under the equal protection clause of both the federal and state constitutions as well as the dormant commerce clause of the U.S. Constitution. After hearing argument on the parties’ cross-motions for summary judgment, the trial court granted summary judgment in favor of the defendants, upholding the constitutionality of the statutes. The plaintiffs appealed to the Appellate Court; the Supreme Court transferred the case to its own docket sua sponte (i.e., on its own motion).

Following argument and consideration of the many amicus briefs — including those filed by the American Land Title Association, the Connecticut Bankers Association, the Connecticut Mortgage Bankers Association, and the Connecticut Fair Housing Center — the Supreme Court affirmed the judgment of the trial court and upheld the constitutionality of the increased recording fees.

In upholding the trial court’s ruling, the Supreme Court considered these recording fees a hybrid of taxes and user fees because the fees are used to both compensate the town clerks for the service of recording and maintaining the documents, as well as to generate revenue for the state and the municipalities.

Equal Protection Analysis
— In deciding whether the increased recording fees violate the equal protection provisions of the federal and state constitutions, the Court held that the statute did not affect a fundamental right or suspect class and therefore (so long as the increased fee was rationally related to some government purpose) assessing nominees such as MERS a higher recording fee would not infringe equal protection. Further, the Court opined that the primary purpose of the tax or fee was to raise more money to help balance the state budget. The Supreme Court proceeded to hold that the increased fee was rationally related to this legitimate purpose of raising revenues. It found “at least” two conceivable bases on which the legislature might have reasonably imposed higher recording fees on nominees such as MERS.

First, it found that the legislature may have concluded that MERS was better able to shoulder the recording costs (although it later stated in its dormant commerce clause analysis that most of the increased costs were borne by homeowners). Second, it reasoned that the legislature may have determined that the MERS system reduces the number of assignments recorded over the life of a mortgage loan and, therefore, the initial recording fee for a mortgage in favor of MERS as nominee — as well as the final fee paid for a release or an assignment out of the MERS system — compensate for the lost recording fees that would have been due without the MERS system.

Dormant Commerce Clause — With respect to this clause of the U.S. Constitution, the criteria that the Court considered in determining the constitutionality question was whether the law was facially discriminatory against interstate commerce; and, secondly, even if it were found to be facially neutral, whether the law’s practical effect was to impose an undue burden on interstate commerce.

The Court determined that the law was not facially discriminatory. It found that the law on its face did not favor Connecticut-based financial companies when, in fact, most of the recording fees would likely be paid by Connecticut residents in mortgage closings, and not by out-of-state banks or mortgage servicers who will receive the benefits of the MERS recordings because assignments of mortgages will not be required. In addition, the Court found that there was no existing Connecticut-based nominee database system, or one likely to be created, to compete with the MERS system due to the national nature of the secondary mortgage market. Also, the Court found the intention of the statute was not to impose the increased fees on only a mortgage transaction with a national character, but solely on nominees that utilized MERS or any other virtual recording system implemented to facilitate the transfer of loans on the secondary market. Furthermore, the Court found that MERS was not substantially similar to other companies because of the manner in which it used the public land records, which gave MERS greater benefits.

Lastly, the court found that the statute and the increased recording fees on MERS documents did not impose an undue burden on interstate commerce. This holding was based, in part, on the fact that the increased fees were not found to have adversely impacted the MERS business model or the secondary market in general in Connecticut.

Conclusion — Absent a successful petition for certiorari to the U.S. Supreme Court, which must be filed on or before May 23, 2016, it would appear as though the increased recording fees for MERS-related documents are the law in Connecticut. The increased recording fees seem to have been successfully implemented by the adoption of a statute by the state legislature — as an alternative to previously unsuccessful lawsuits against MERS, by deed recording offices in other states, for loss of recording revenues occurring as a result of the utilization of the MERS system.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

The End of the “Good Through” Quote? Even Asking for Estimated Fees and Costs may Violate FDCPA

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Steven J. Flynn
McCalla Raymer, LLC
USFN Member (Georgia)

Graham H. Kidner
Hutchens Law Firm
USFN Member (North Carolina, South Carolina)

Lee S. Perres
Pierce & Associates, P.C.
USFN Member (Illinois)

Recent federal court decisions have sent mixed messages to the financial services industry regarding the legality of including estimated fees and costs in communications submitted to borrowers — in connection with the payoff or reinstatement of consumer loans, as well as in judicial proceedings seeking to collect on consumer debts.

Third Circuit
Courts sitting in the Third Circuit (comprised of Delaware, New Jersey, Pennsylvania, and the District of the Virgin Islands) have issued a line of decisions that appear to support a commonsense approach to the issue: inclusion of estimated fees and costs in reinstatement correspondence (and in judicial filings seeking to collect on consumer debts) will not violate the Fair Debt Collection Practices Act (FDCPA), provided the communication or filing conspicuously identifies those estimated fees and costs as not yet having been actually incurred as of the date of the correspondence or filing.

See Kaymark v. Bank of America, N.A., 783 F.3d 168, 175 (3d. Cir. 2015) (holding that inclusion in verified foreclosure complaint of estimated fees and costs, which had not yet been incurred by law firm as of the date complaint was filed, violated FDCPA, but noting that complaint “did not convey that the disputed fees were estimates or imprecise amounts”); McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240 (3d. Cir. 2014) (correspondence from law firm to debtor violated FDCPA where attorneys’ fees and costs included in amount claimed to be due and owing from debtor had not yet been incurred, and where such fees and costs were not identified in correspondence as being estimated); Stuart v. Udren Law Offices, P.C., 25 F. Supp. 3d 504, 511 (M.D. Pa. 2014) (inclusion of estimated attorneys’ fees and costs in payoff statement sent by law firm to borrower did not violate 15 U.S.C. § 1692e, where such fees were clearly marked in correspondence as being “anticipated” and where payoff statement notified borrower that such anticipated fees and costs were “not yet due, but may become due during the time period set forth in [the payoff statement]” (alteration supplied)); and Beard v. Ocwen Loan Servicing, LLC, 2015 WL 5707072, at *7-8 (M.D. Pa. 2015) (loan servicer, law firm, and law firm employee violated the FDCPA by transmitting reinstatement quote to borrower that included fees and costs not yet incurred where reinstatement quote did not clearly and conspicuously notify the borrower that such fees and costs were merely “anticipated,” and had not yet been incurred as of the date reinstatement quote was transmitted).

Eleventh Circuit
Late last year, the Eleventh Circuit Court of Appeals weighed in on the issue of the propriety of including “estimated” attorneys’ fees and costs in reinstatement and payoff quotes to borrowers with its unreported decision in Prescott v. Seterus, Inc., 2015 WL 7769235 (11th Cir. Dec. 3, 2015). The Eleventh Circuit is comprised of Alabama, Florida, and Georgia. In Prescott, the Court of Appeals appeared to adopt a “bright-line” approach to the issue, holding that the inclusion of “estimated” attorneys’ fees in a reinstatement quote provided to the borrower violated two provisions of the FDCPA — despite the fact that the fees and costs in question were clearly marked as “estimated” and were listed in a separate section of the letter labeled “Estimated Charges Through 9/27/2013.”

In reversing the trial court’s grant of summary judgment to the loan servicer on the borrower’s FDCPA claims, the appellate court held that the inclusion by the loan servicer of estimated attorneys’ fees in the reinstatement balance provided to the borrower violated 15 U.S.C. § 1692f(1), which prohibits a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt,” including “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” (Alteration supplied.) The court reasoned that the inclusion of estimated fees in the reinstatement quote violated 15 U.S.C. § 1692f(1) because the terms of the borrower’s security instrument did not obligate the borrower to pay estimated fees, but required the borrower to pay only those attorneys’ fees that were actually incurred by the lender up to the time that the reinstatement quote was provided to the borrower.

In Prescott, Seterus made use of the Fannie Mae/Freddie Mac Florida uniform mortgage instrument, likely the most widely-used mortgage document in Florida (with similar versions in wide use across the country). The Prescott court also determined that the inclusion by the servicer of estimated attorneys’ fees and costs in the reinstatement quote provided to the borrower violated 15 U.S.C. § 1692e(2)(B), which prohibits debt collectors from making the false representation of any “compensation which may be lawfully received by any debt collector for the collection of a debt.” The court explained that the loan servicer could not lawfully receive the estimated fees from the borrower under the terms of the borrower’s security instrument because those fees had not yet actually been incurred at the time the reinstatement quote was provided to the borrower.

Citing the “least sophisticated consumer” standard utilized to evaluate claims brought under the FDCPA, the Eleventh Circuit also determined that the least sophisticated consumer would not have understood the terms of his or her security instrument to require the payment of “estimated” or “anticipated” fees and costs in order to reinstate the borrower’s loan. Further, the court held that the loan servicer was not entitled to escape liability under the FDCPA based upon a “bona fide error” defense, as the loan servicer’s inclusion of the estimated attorneys’ fees in the reinstatement balance was not the result of a factual or clerical error. (The Eleventh Circuit also reversed the district court’s grant of summary judgment to the loan servicer on the borrower’s claim under the Florida Consumer Collections Practices Act.)

The Aftermath
Following the Prescott decision, one concern is the adoption of a “one-size-fits-all” approach that fails to recognize, firstly, that Prescott is an unreported decision impacting only three states; and, secondly, some other states either require the inclusion of estimated fees by statute or the state’s judges insist on the provision of payment quotes to include estimated fees and costs for the “good through” date.

Another concern is distinguishing between an “estimated” expense and an “incurred” expense, which may at first appear to be straightforward, but is not. A fee or cost may be incurred and known; estimated, but not yet incurred; or, incurred but still estimated (e.g., because the precise amount is not known until the invoice is delivered or the vendor has confirmed the expense amount). Moreover, the decision in Prescott hinged on the agreement between the lender and borrower as contained in the security instrument. While this language is uniform to all security instruments for GSE-backed loans, other security instrument forms are in use that may contain different terms with respect to the collection of fees and costs.

Federal versus State
While avoiding the practices found to be unlawful in Prescott will protect debt collectors from liability in Alabama, Florida, and Georgia, following Prescott in other states may well land a debt collector in hot water. In Illinois, for example, state law requires payoff demand statements to be valid for “the lesser of a period of 30 days or until the date scheduled for judicial sale.” The statute specifies that the payoff demand statement “shall include ... estimated charges (stated as such) that the mortgagee reasonably believes may be incurred within 30 days from the date of preparation of the payoff demand statement.” This presents a Hobson’s choice: violate federal law and risk an FDCPA lawsuit, or violate state law and risk sanctions from the court that may also impact the foreclosure case.

It is possible that federal law may preempt state law in such conflict situations, but that would require a judicial decision in the requisite jurisdiction — the resolution of which would likely take a number of years as the case proceeds through the appeals process.

While servicer and law firm behavior may change following Prescott, borrower conduct will not. The typical borrower does not contact the law firm for updated figures before tendering payment and usually tenders payment at the end of the “good through” period. As Prescott informs us, both the provision of a payment quote containing estimated charges that have not been incurred, and accepting that payment, constitute a violation of the FDCPA in at least three states. The contrary may be true in three other states, and the issue is open for decision in most of the rest.

Some state laws may require the inclusion of estimated fees and costs in payment quotes. If servicers or law firms provide payment quotes with “good through” dates but without estimated charges, they need to be aware of the “Groundhog Day” phenomenon. That is, the borrower is provided with a payment quote with a “good through” date, the borrower tenders payment on the last day, the tender is rejected as “short” because there are now new “actual” charges to add to the quote, a revised quote is provided with an extension to the “good through” date, and then this process repeats itself.

One solution may be for servicers that do not qualify as debt collectors to take over the payment quote process, because they could then provide estimated fees without risking violating the FDCPA. Note, however, that the CFPB may still use the powers granted to it under the Dodd-Frank Act to pursue financial service providers for unfair, deceptive, or abusive acts or practices even if the provider is not subject to the FDCPA. [12 U.S.C. § 5536(a)(1)(B)].

Alternatively, a state-by-state approach needs to be worked out. Local requirements and customs can be taken into account when providing payment quotes, with the statements drafted so as to minimize FDCPA exposure while simultaneously making a reasonable effort to follow the local requirements.

Prescott requires servicers and their law firms to rethink the entire approach to providing payoff or reinstatement quotes. Some specific points for deliberation are conveniently listed below.

“PAYOFF AND REINSTATEMENT QUOTES – SOME SPECIFIC POINTS FOR CONSIDERATION”

• Is the only “safe” quote one that simply presents the actual amount due as of the date of the quote, with no estimated fees and no “good through” date?
• If a court can determine that a payment quotation that carefully delineates estimated charges is a violation of the FDCPA because it misleads the “least sophisticated consumer,” then does a quote specifying an amount due and a “good through” date (e.g., 30 days hence) also mislead the consumer because his tender of that amount is met with a new demand several hundred, or thousand, dollars higher?
• In many situations, servicers are not debt collectors with respect to their delinquent borrowers. Following foreclosure referral, in most jurisdictions it is likely the law firm would be considered a debt collector when communicating with delinquent borrowers, exposing the firms to possible FDCPA liability. Providing payoff and reinstatement quotes is not properly a part of the foreclosure referral, but has become a task passed on to the law firms. To avoid or limit their legal risks, law firms may decide to forego their involvement in the providing of payment quotations.
• Servicers may want to take over the activity of communicating payment quotes to borrowers. They can then control the entire process and manage the risks associated with it.
• It may be necessary, in those states where it is even possible, to put the foreclosure on hold when providing a payment quote so as to (hopefully) avoid incurring new fees and costs.
• Before providing the payment quote, to the extent of being feasible and appropriate, servicers may wish to make any then-due corporate advances (e.g., for taxes or insurance), as well as necessary property inspection and preservation payments.
• Alternatively, servicers may be able to block any corporate advances or other payments for the “good through” period, provided that doing so would not result in any adverse situation or violate an investor or insurer requirement.
• If servicers continue providing “good through” dates, it may be necessary for them to do one or both of the following: provide short “good through” periods (e.g., 5 days) and absorb any advances, fees, and costs incurred during the “good through” period, including legal fees and costs.
• Will servicers guarantee to pay law firms for all of the fees and costs that are ultimately incurred? Even if a servicer agrees, for whatever reason, to accept a short tender?

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

Rhode Island — Supreme Court Confirms HOA Priority Over a First Mortgage

Posted By USFN, Monday, May 2, 2016

May 2, 2016

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

From the late 1980s to the present, “super-priority” lien laws have been enacted throughout the country, enhancing the power and ability of a homeowners association (HOA) to collect fees at the peril of mortgage holders. These statutes are the single biggest emerging threat to lenders due to confusion as to how priority legislation works. Given the high number of defaults, many first and second mortgage interests have been lost due to misconceptions about priority lien laws.

In December 2015 the Rhode Island Supreme Court confirmed the super-priority aspect of a condominium lien foreclosure sale under the Rhode Island Condominium Act, Title 34 Chapter 36.1-3.21, et seq. [Twenty Eleven, LLC v. Botelho, 127 A.3d 897, 2015 R.I. LEXIS 112 (R.I. 2015)]. The Court ruled that a first mortgage and all other junior liens are extinguished by an HOA sale where the mortgagee failed to either (i) pay the assessments, or (ii) exercise its right of redemption.

In order to fully appreciate the Botelho decision, it is helpful to look at the history of the super-priority lien. In the 1980s HOA/condominium liens were junior to a mortgage interest and meaningless. Associations were unable to collect the fees necessary to ensure the maintenance of the buildings and common areas. For this reason, lenders were unwilling to make these types of loans as condominiums were considered high risk collateral due to their deteriorating conditions. The high risk classification changed when super-priority lien statutes were enacted, improving associations’ ability to collect fees on a timely basis. With the help of the super-priority lien, most associations began to have healthier balance sheets and better maintained buildings. This made them more attractive as collateral and offered a gateway to first-time homeownership.

The super-priority lien is a double-edged sword, however, because the very legislation that makes the collateral more viable also grants an HOA the power to extinguish a lender’s mortgage interest. The statutory scheme specifies a “split-lien” concept: a priority HOA lien consists of a “super-priority” lien that is higher in priority than the first mortgage, as well as a “priority” lien for any additional unpaid assessments that is lower in priority to the first mortgage but higher in priority to a second mortgage and junior liens.

R.I.G.L. 34-36.1-3.16 (b)
— creates a super-priority lien for six months of regular condominium assessments; up to $2,500 in attorneys’ fees, and up to $5,000 for foreclosure costs. When any portion of the unit owner’s share of the common expense has been delinquent for at least sixty days, the association shall send a notice stating the amount of the delinquency to the unit owner and to the first mortgagee by certified and first-class mail. If the delinquent amounts are not paid, the HOA has the right to proceed to foreclose its lien. The statute sets forth very specific notice requirements. Additionally, the first mortgagee has a 30-day right of redemption. In order to redeem the property, the first mortgagee must tender payment of all assessments due on the unit, together with all allowable attorneys’ fees and costs incurred within 30 days of the date of the post-foreclosure sale notice; otherwise the right of redemption terminates and the unit is conveyed free of the mortgage.

Turning to the facts in Botelho: the borrower purchased a condominium unit financed by a loan that was secured by a first mortgage on the property. He fell delinquent on his condominium assessment fees, and the association sold the property to Twenty Eleven, who received a deed conveying title to property upon payment of the purchase price. PNC Bank (holder of the first mortgage) did not redeem the association’s lien within the statutory time period. The borrower had also fallen behind on his mortgage payments. After the association’s foreclosure sale, PNC sought to exercise its nonpayment remedies and foreclose on its mortgage. As owner, Twenty Eleven filed suit to enjoin the foreclosure sale and to quiet title, seeking a declaration that PNC’s interest was extinguished by the condominium lien foreclosure. In a bench decision, the superior court determined that PNC’s mortgage survived the association’s sale and Twenty Eleven’s ownership interest was subject to the PNC mortgage; PNC’s motion to dismiss was granted. On appeal, the Rhode Island Supreme Court reversed and remanded the matter for further proceedings.

In its decision, the Supreme Court confirmed the “split-lien” concept as “unconventional” and that the drafters of the Uniform Condominium Act intended to “’… strike[] an equitable balance between the need to enforce collection of unpaid assessments and the obvious necessity for protecting the priority of the security interests of mortgage lenders.’ Commissioners’ Comment 2 to § 34-36.1-3.16 ….” The Supreme Court cited other cases interpreting the plain meaning of the statute, including “‘however unconventional, the super[-]priority piece of the [condominium assessment] lien carries true priority over a [first mortgage or] first deed of trust’ SFR Investments ….” [SFR Investments Pool 1, LLC v. U.S. Bank, 334 P.3d 408, 413 (Nev. 2014)].

The Supreme Court further addressed the balance of a minimal condominium assessment nullifying a much larger loan, identifying solutions and actions that first mortgagees can take such as: (1) “’… pay the 6 *** months’ assessments demanded by the association rather than having the association [foreclose] on the unit.’… This payment can then be added on to the principal balance of the mortgage”; (2) “… require payment of assessments into an escrow account …”; or (3) redeem under § 34-36.1-3.21(a)(4) by “… tendering payment to the association in full of all assessments due on the unit together with all attorneys’ fees and costs incurred by the association in connection with the collection and foreclosure process within 30 days of the date of the post-foreclosure sale notice sent by the association ….” The Court observed that the notice requirement to first mortgagees demonstrates the legislative intent that foreclosure on a super-priority lien extinguishes a first mortgage “… because it provides the first mortgagee with notice of the lien and an opportunity on the front end to satisfy the lien in order to avoid foreclosure (and, thus avoid losing its security interest) ….”

The Botelho case is confirmation that a first mortgage will be extinguished by a foreclosure sale of a super-priority HOA lien in Rhode Island. Accordingly, upon receipt of any document that appears to be legal in nature from a condominium/HOA, lenders and servicers should immediately contact counsel and forward all documents for review. It is at this critical stage that immediate action must be taken to protect the mortgage interest and mitigate costs.

The earlier the priority amounts are determined and paid, the less association legal fees and costs are included in the priority amount. For that reason, a written request to the association should be made for a statement or ledger identifying all amounts owed, to which the HOA response is due within ten days. Thereafter, all efforts should be made to identify the priority amount and have it paid. Should the first mortgagee fail to protect its lien and a sale occurs, arrangements should be made to redeem immediately. Even if a lender/servicer finds that the post-sale redemption period has expired extinguishing the mortgage, in a small number of instances other options may exist, such as contesting the sale process or negotiating with the high bidder.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

Post-PTFA: A Look at the States (One Year Later): North Carolina

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Graham H. Kidner
Hutchens Law Firm
USFN Member (North Carolina, South Carolina)

Although the federal Protecting Tenants at Foreclosure Act (PTFA) expired December 31, 2014 when Congress declined to extend its terms, North Carolina enacted legislation effective October 1, 2015 to provide similar protections to tenants occupying foreclosed residential property. North Carolina Session Law 2015-178 added a new section to the power of sale foreclosure statute, § 45-21.33A, which provides that:

• A foreclosure sale purchaser who does not intend to occupy the property as his primary residence “shall assume title subject to the rights of any tenant to occupy the premises until the end of the remaining term of the lease or one calendar year from the date [that] the purchaser acquires title, whichever is shorter.”
• The tenant’s rights are qualified:
(i) He may not be the borrower — or spouse, parent, or child of the borrower;
(ii) There must be a written lease that is not terminable at will, and the rent must not be substantially less than fair market value; and
(iii) If there is an “imminently dangerous condition” [as defined in N.C.G.S. § 42-42(a)(8)] on the premises as of the date of acquisition, then the tenant has no right to continue occupying the premises.
• The tenant must be provided with at least a 90-day notice to vacate if: (a) the purchaser will occupy the premises as his/her primary residence; (b) the tenant has only an oral lease; or (c) if the lease is terminable at will.

There are no reported (or even unreported) judicial decisions interpreting the new section, but litigation can be expected. As was the case with the federal PTFA, litigation is likely to focus on such topics as: what documents are sufficient to establish a lease (a “written lease” is required under the NC law); when did the lease begin and when does it end; and what qualifies as “substantially less” than fair market rent?

As was also a problem in complying with the federal law, both identifying the tenant and communicating successfully with him to obtain accurate information about the claimed tenancy will be among the difficulties faced by mortgage lenders and investors taking title to REO after the foreclosure sale.

If a tenant does not qualify for either the lease assumption or the 90-day notice period, the standard 10-day notice period prevails (for residential properties containing less than 15 rental units). N.C.G.S. § 45-21.29.

Copyright © 2016 USFN and Hutchens Law Firm. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

Post-PTFA: A Look at the States (One Year Later)

Posted By USFN, Monday, May 2, 2016

May 2, 2016

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

More than a year following the expiration of the federal Protecting Tenants at Foreclosure Act (PTFA), asset managers are still negotiating the state-by-state approach to addressing tenants occupying foreclosed properties. While some may find the piecemeal approach difficult and daunting, the PTFA is unlikely to make a comeback any time soon.

Federal S.730 and Federal H.R.1354 were introduced in March 2015 to make the PTFA permanent. Federal S.1491 was introduced in June 2015, proposing the same permanent PTFA bill within a larger piece of legislation (the Community Lender Regulatory Relief and Consumer Protection Act of 2015). Hearings have been held on this second piece of legislation, and Senate cosponsors have signed onto S.1491 as recently as November 2015, but there has been no activity since then. All three bills remain in their respective Senate and House committees. The website govtrack.us gives each of the bills a 1 or 2 percent chance of becoming law.

PTFA critics assert that the act does not address long-term leases, and it is expensive to prove that a lease is not bona fide, which is often required when a landlord and tenant enter into a below-market rate lease shortly before the foreclosing entity acquires the property. In general, proving that a lease is not bona fide requires an expert witness on the rental market and, oftentimes, the real estate listing agent is not familiar with rental rates in the area in order to testify to such. Proponents of the act note that it is unfair that tenants may be summarily evicted shortly after entering into a bona fide lease, especially where the tenant is current on his rent payments.

Asset managers must continue to monitor eviction laws on a state-by-state basis. As for Minnesota, the state law largely mirrors the PTFA, and it is likely here to stay. In Minnesota, foreclosure purchasers must send a 90-day notice to all tenants and must continue honoring bona fide leases for the duration of the lease. If the mortgagor or a close relative is the occupant, there is no notice requirement, and foreclosure purchasers may commence eviction actions immediately after the redemption period expires.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report

 

This post has not been tagged.

Share |
Permalink
 

Post-PTFA: A Look at the States (One Year Later): Illinois

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by John Blatt
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

While it has been more than a year since the expiration of the federal Protecting Tenants at Foreclosure Act of 2009 (PTFA), the sunset of the PTFA has had little effect on post-foreclosure eviction timelines in states that have passed their own version of the act. Illinois serves as an example of this as it passed its own version of the PTFA in 2013. While Illinois timelines remain largely unchanged, a local ordinance in the City of Chicago has dramatically increased the time and cost of post-foreclosure evictions.

Illinois post-foreclosure evictions proceed according to the Forcible Entry and Detainer Act (FED), which used to allow owners to proceed against any occupants with a mere 7-day demand notice. The PTFA increased the notice requirement to bona fide tenants in all states to 90 days, unsurprisingly impacting case timelines. Prior to the PTFA’s expiration, Illinois amended the FED to impose the same 90-day demand notice requirement.

Bona fide leases are defined by the Illinois Mortgage Foreclosure Law as follows: (1) the tenant is not the mortgagor or a member of their immediate family; (2) the lease was the result of an arm's-length transaction; (3) the lease requires the payment of rent that is not substantially less than fair market value, unless the rent is reduced or subsidized by a federal, state, or local subsidy; and (4) the lease was either (a) entered into before the filing of the foreclosure lis pendens, or (b) entered into after the lis pendens, but the term of the lease is for one year or less.

While similar to the PTFA, bona fide leases in Illinois directly relate to the filing of the foreclosure lis pendens. This addition was likely included to address the growing amount of tenants presenting 4-year leases that were entered into on the eve of the foreclosure sale.

Determining the existence of bona fide tenants is complicated by the fact that mortgagor-landlords in foreclosure often do not keep accurate records of leases and payments made by their tenants. This imperfect information places evicting plaintiffs at a distinct disadvantage because they cannot assess who has a bona fide lease before the notice must be served. Serving an occupant with a 7-day demand is attractive, but risky, as the presentation of a bona fide lease renders the eviction void. Judges across Illinois often find leases bona fide under the most tenuous of circumstances. If a bona fide tenant does appear, the 7-day demand is no longer sufficient and the eviction must be dismissed, which increases the costs and time of an otherwise straightforward case. Because of the risks inherent in serving occupants with the 7-day demand, most owners conservatively continue to serve all occupants with a 90-day demand.

Chicago — The most onerous undertaking imposed on post-foreclosure purchasers in Illinois falls within the confines of the City of Chicago. On September 23, 2013 the City of Chicago enacted the Keep Chicago Renting Ordinance (KCRO), which mandates that post-foreclosure purchasers allow bona fide tenants to remain in the unit provided that they stay in good standing (i.e., they pay rent). The KCRO excludes not-for-profit owners that have been operating as such for at least the last five years and their primary purpose is to provide financing for the purchase or rehabilitation of affordable housing. Very few owners fall into this narrow exclusion. Thus, the City of Chicago forces most post-foreclosure purchasers to become landlords.

Under the KCRO, an owner must offer a bona fide tenant a renewal or extension of their current lease for twelve months, and the monthly rent must not exceed 102 percent of the prior year’s lease. The statute mandates lease extensions in perpetuity until the building is sold to a third-party purchaser, the tenant chooses to move, or the owner refuses to offer further lease extensions. Failing to offer a bona fide tenant a lease extension subjects the owner to a mandatory cash-for-keys arrangement whereby the owner must pay $10,600 in relocation assistance per rental unit.

The provisions of the KCRO cannot be taken lightly; the statute provides bona fide tenants a private right of action for violations. The penalty for ignoring the KCRO is a statutory fine of $21,200 (including attorneys’ fees and costs). Tenants in foreclosed rental properties are aware that the going rate for vacating the property is $10,600, which has dramatically increased the cost of cash-for-keys settlements.

Nevertheless, the KCRO is not without weakness and a constitutional challenge may unwind the statute in its entirety. The Illinois Constitution prohibits local governments from enacting ordinances that conflict with statutes passed by the Illinois Legislature. In 1997 the Illinois Legislature passed the Rent Control Preemption Act (RCPA), which prohibits local governments from controlling the amount of rent charged for leasing private property. The KCRO stands in direct conflict with the RCPA by forcing owners to offer leases, but limiting rent to 102 percent of the prior year. The KCRO’s rent control provision is not severable and, therefore, a successful challenge will render the entire statute unconstitutional. Unfortunately, striking down the KCRO will require a ruling at the appellate level, which takes time. Until then, post-foreclosure owners must adhere to the strict terms of the KCRO or suffer potentially costly consequences.

In summation, while Illinois post-foreclosure evictions have not varied significantly since the sunset of the PTFA, the KCRO is wreaking havoc in the City of Chicago. The KCRO is vulnerable to a constitutional challenge, but until the appellate court issues a favorable ruling, owners must be vigilant in their adherence to the statute’s guidelines.

Author’s Note: For a more in-depth analysis of the KCRO, see Post-Foreclosure Evictions: Illinois by Jill Rein in the USFN Report (Spring 2014 Ed.) posted in the online Article Library at www.usfn.org.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report


This post has not been tagged.

Share |
Permalink
 

Post-PTFA: A Look at the States (One Year Later): Florida

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Roger Bear
Florida Foreclosure Attorneys, PLLC
USFN Member (Florida)

In June 2015 Florida Statute 83.561 was enacted. The statute provides that if a tenant is occupying residential premises that are the subject of a foreclosure sale, upon issuance of a certificate of title (COT) following the foreclosure sale, the purchaser named in the COT takes title subject to the rights of the tenant. The statute specifies that the tenant may remain in possession of the premises for 30 days following the date of the purchaser’s delivery of a written 30-day notice of termination. The statute sets out a form for the 30-day notice of termination, which must be substantially followed. The distribution of the written termination notice shall be by mailing or delivery, or — if the tenant is absent from the premises — by leaving a copy at the residence.

The form of termination notice specified by the statute is set out in the text box below:

[FLORIDA] NOTICE TO TENANT OF TERMINATION
You are hereby notified that your rental agreement is terminated on the date of delivery of this notice, that your occupancy is terminated 30 days following the date of the delivery of this notice, and that I demand possession of the premises on (date). If you do not vacate the premises by that date, I will ask the court for an order allowing me to remove you and your belongings from the premises. You are obligated to pay rent during the 30-day period for any amount that might accrue during that period. Your rent must be delivered to (landlord’s name and address).

Florida Statute 83.561 does not apply if:
(a) The tenant is the mortgagor in the subject foreclosure or is the child, spouse, or parent of the mortgagor in the subject foreclosure.
(b) The tenant’s rental agreement is not the result of an arm’s-length transaction.
(c) The tenant’s rental agreement allows the tenant to pay rent that is substantially less than the fair market rent for the premises, unless the rent is reduced or subsidized due to a federal, state, or local subsidy.
If any of these three exceptions apply, a termination notice is not required, and upon issuance of a COT following the foreclosure sale, the purchaser named in the COT may immediately seek the issuance of a writ of possession.

Florida is a judicial foreclosure state, and the new statute only applies to foreclosure sales held as part of a judicial foreclosure proceeding. Therefore, the new statute does not apply to properties acquired through a deed-in-lieu of foreclosure.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report


This post has not been tagged.

Share |
Permalink
 

Legislative Updates: Ohio

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Andrew Top
and William L. Purtell
Lerner, Sampson & Rothfuss
USFN Member (Kentucky, Ohio)

House Bill Aims to Facilitate Faster Foreclosures — Ohio HB 134 was unanimously passed in the Ohio House of Representatives on November 17, 2015 and, as this article is being written in early spring, is in the Ohio Senate for deliberation. This bill proposes many changes to the foreclosure process in Ohio that are aimed at facilitating faster foreclosures in certain situations. As with most legislation, changes can be expected during the legislative process. Below is a summary of three key sections of the bill.

Expedited Foreclosures — The section of the proposed legislation that is receiving the greatest attention is the proposal for “expedited” foreclosures on residential properties proved to be vacant and abandoned. Under the current version of the proposed legislation, once a complaint in foreclosure is filed, a mortgagee can file a motion to request an expedited foreclosure from the court. Once the motion for the expedited foreclosure is filed, the court is then required to rule on that motion no later than 21 days after the last default date of service on a defendant. Before the court can grant the judgment and expedited foreclosure, the mortgagee must make several different showings to the court.

First, the mortgagee must show by a preponderance of evidence that there is a monetary default, and that the mortgagee has standing to bring the foreclosure action. Secondly, the mortgagee must show by clear and convincing evidence that at least three of the following eleven factors exist: (1) the utilities to the property have been disconnected; (2) the windows or other entrances are boarded up; (3) the doors to property are smashed and/or broken off; (4) trash or debris has accumulated on the property; (5) the furnishings and/or window treatments are removed; (6) the property is the object of vandalism; (7) a mortgagor has submitted a written statement confirming that the property is abandoned; (8) a governmental official determines that no one appears to reside in the property after an inspection; (9) a government official provides the court with a written statement attesting to the vacancy and abandonment; (10) the property has been sealed by the government authority; or (11) there are other indicators of vacancy and abandonment. Then, the court must confirm that the borrower is in default of answer contesting the complaint in foreclosure, and that no defendant has contested the determination of vacancy or abandonment by any other written instrument. If the court is satisfied that all of the above elements are proven, the court may rule in favor of the mortgagee on the vacant and abandoned issue and it will, at the same time, award a decree of foreclosure in the same entry. The sheriff is then required to sell the vacant/abandoned property within 75 days of the praecipe for order of sale submitted by the mortgagee.

Second Sale Provision — In addition to the “expedited” element, changes are made to the foreclosure sale and deed process. Each sale advertisement will include a provision for a second sale, which shall be held 7-30 days after a first sale that failed for lack of bids. At this second sale, there will be no minimum bid required. The sheriff shall, however, require a deposit of $5,000 to $10,000 to cover the costs and taxes in the event that the winning bid is insufficient to cover these costs. In addition, once the sale is complete, the sheriff will be statutorily required to record the prepared deed within 14 days after sale confirmation. If this is not completed for any reason, the purchaser can ask the court to order the plaintiff to record a certified copy of the confirmation entry in lieu of a deed. The clerk will separately issue a certified copy of the confirmation to the auditor, who cannot refuse the transfer of the property due to any taxes that have accrued since the date of sale.

Post-Sale Taxes — The proposed legislation provides that the purchaser at sale will be liable for all pro-rated taxes as of the date following the sale. Rather than having the county estimate the current-year taxes and hold a pro-rated amount for the next tax bill (which slows down the confirmation process and sometimes requires an additional second confirmation entry), the buyer simply accepts title subject to all taxes that accrue the day after the sale.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report


This post has not been tagged.

Share |
Permalink
 

Legislative Updates: Nebraska

Posted By USFN, Monday, May 2, 2016

May 2, 2016

by Camille R. Hawk
Walentine, O’Toole, McQuillan & Gordon, L.L.P.
USFN Member (Nebraska)

While vacant property ordinances are not new to many of you across the United States, Nebraska (specifically, Omaha) has its first “Vacant and Abandoned Property Ordinance.” We creditors’ attorneys watched with some concern as these kinds of ordinances were sweeping across the nation, wielding power against creditors as lienholders — often in the form of a stick and not a carrot. Granted, it is best that properties be maintained for all involved. No one, including the creditor, wants a deteriorating or dilapidated property, which then reduces its value, as well as the value of the properties surrounding it, or causes a danger to the public.

Further, the general taxpayer should not have to foot the bill for the responsibilities of owners who allow their properties to be in disrepair. That being said, with the passage of these types of ordinances, the creditor as a lienholder and not an owner can now be held responsible for the abandoned and vacant properties, often with great burden and financial impact.

Chapter 48 of the Omaha Municipal Code (entitled “Property Maintenance Code of the City of Omaha”) now includes Division 15 (entitled “City of Omaha Vacant and Abandoned Property Ordinance”). It became effective December 2, 2015 and covers the City of Omaha and properties within a three-mile radius of the city. Simply put, it established a vacant and abandoned property registration program wherein owners and sometimes lienholders (i.e., the “responsible party”) must register the properties, pay a $500 registration fee every three months, and provide evidence of maintenance of the properties.

The applicable properties must be vacant and show evidence of vacancy. Additionally, the lienholder can become the responsible party in the event that the property is the subject of a decree of foreclosure in favor of the lienholder, a deed-in-lieu of foreclosure that has been delivered to the lienholder, or in the event that the lienholder is the highest bidder at a foreclosure sale.

The responsible party must register the abandoned real property and pay the fee within thirty days of the notice to do so from the Permits and Inspections Division (P&I Division). The registration is to be done with a form specified by the P&I Division. Failure to timely register an abandoned real property, neglected building, or vacant parcel as defined within the ordinance can lead to registration by the city itself, with fees and penalties assessed upon the land and against the responsible party. Failure or refusal to perform such duties outlined in the ordinance can also lead to personal liability of the responsible party, including but not limited to criminal violations and penalties.

The responsible party (specifically the lienholder) must have timely and regular inspections of the abandoned real property and is responsible to ensure that the property is well secured and maintained. The use of property managers does not negate the duties of the responsible party, and the inspection requirements become even more frequent.

A property may be removed from the registration requirements under certain circumstances, but the registration is non-transferrable; a new registration is required for each change of ownership. A thorough review of the new ordinance is a must for anyone, creditor or attorney, dealing with real property in and around Omaha, Nebraska.

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report



This post has not been tagged.

Share |
Permalink
 

Legislative Updates: Illinois

Posted By USFN, Monday, May 2, 2016

May 2, 2016

 

by Michael Anselmo
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

In an effort to balance the scales in an environment that is increasingly shifting towards condominium associations in Illinois, a series of bills were recently introduced in the Illinois House of Representatives. While many of these affect the rights of the owners of condominium units, one bill in particular (HB4490) has the potential to affect the post-foreclosure market. If passed, it would represent a significant benefit for lenders and servicers in regards to fees and assessments claimed due by condominium associations.

HB4489 — states that a unit owner has the right to fairness in litigation, allows unit owners to bring actions against the association without naming other homeowners, voids any provision limiting a unit owner’s right to commence litigation against the association, provides that a unit owner’s compliance with a demand does not affect his ability to challenge the demand, requires reasonable attorney fees to be awarded to the unit owner or association under certain circumstances, states that (in litigation) the board must represent the best interest of all owners, and provides that, in litigation, the association may not be represented by counsel who also represents the board of managers.

HB4491 — provides for certain defenses for a unit owner in a forcible action and puts limits on the association seeking attorney fees.

HB2606 — requires that any person who makes payments for common expenses shall be furnished a copy of any legally binding agreement between the unit owner’s association and each management company retained by the association.

The problem at hand is that the current Illinois Condominium Property Act (ICPA) contains a confusing “reach back” provision that allows associations to charge REO buyers for certain prior unpaid assessments. Currently, section 9.2 of the ICPA states that “[a]ny attorney’s fees incurred by the Association arising out of a default by any unit owner … shall be added to, and deemed part of, his respective share of the common expense.” 765 ILCS 605/9.2(b). Under section 9(g)(4) of the ICPA, the association has the ability to collect from an REO buyer “the proportionate share, if any, of the common expenses for the unit which would have become due in the absence of any assessment acceleration during the 6 months immediately preceding institution of an action to enforce the collection of the assessments.” In simpler terms, a purchaser at an REO transaction must pay the association up to six months of unpaid assessments owed by the previous owner.

Attorneys in Illinois are sharply divided over whether, and to what extent, an REO buyer is responsible for pre-foreclosure association attorney fees. This has caused a deluge of disputes over pre-foreclosure attorney fees prior to — and at — Illinois REO closings. House Bill 4490 appears to be aimed at this problem.

HB4490 — would amend section 9.2 to read, “[i]f a court awards attorney’s fees incurred by the Association arising out of a default by any unit owner … the Association may add these fees to the unit owner’s respective share of the common expense. No attorney’s fees may be added to the unit owner’s part of the common expense unless a court first awards attorney’s fees.” (Proposed changes are underlined for clarity.)

One major issue that mortgagees currently have to deal with when attempting to sell a foreclosed property in an REO transaction is association attempts to collect unpaid assessments under section 9(g)(4), which often include large amounts of attorney fees in addition to prior assessments. While the payment of these back-assessments is ultimately the responsibility of the subsequent purchaser, it frequently ends up being the seller’s problem as disputes stall the transaction. Buyers who are represented by counsel will often refuse to pay the back-assessments, contending either that it is not their client’s responsibility or that the fees are too high. This leaves the REO seller with a Hobson’s choice between paying the illegitimate fee demands or foregoing the sale.

If passed, HB4490 would clarify that attorney fees may only be included in common expenses — including those allowed for by section 9(g)(4) — if a court previously awarded those fees. Unless associations can present a court order awarding fees, they would have no claim for them at an REO closing.

HB4490 would not solve all issues that section 9(g)(4) creates. It would, however, clear a particularly intractable roadblock that has derailed many REO transactions and forced payment of unjustified association demands in others. [As this article was going to press, HB4490 had been re-referred to the Rules Committee. Further developments will be covered in future USFN publications.]

Copyright © 2016 USFN. All rights reserved.
Spring 2016 USFN Report


This post has not been tagged.

Share |
Permalink
 
Page 10 of 29
 |<   <<   <  5  |  6  |  7  |  8  |  9  |  10  |  11  |  12  |  13  |  14  |  15  >   >>   >| 
Membership Software Powered by YourMembership  ::  Legal