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Florida: Non-Resident Surety Bond Requirement Repealed

Posted By USFN, Thursday, April 7, 2016
Updated: Thursday, April 7, 2016

April 7, 2016

 

by Matthew L. Kahl
Aldridge Pite, LLP – USFN Member (California, Georgia)

Chapter 2016-43, Florida Laws, was approved by the Florida governor on March 10, 2016 and will become effective July 1, 2016.

The new law, which originated as Senate Bill 396, repeals Section 57.011, Florida Statutes, removing the requirement for a non-resident plaintiff in a civil action to post a surety bond in the amount of $100 for court costs.

Section 57.011 required this surety bond to be filed within 30 days after commencing an action and permitted the defendant to motion the court to dismiss the subject action if the plaintiff failed to file the bond (after 20 days’ notice to the plaintiff). Thus, this was a common affirmative defense or the basis for a motion to dismiss raised by borrower’s counsel in defending foreclosure actions. With the repeal of this section, civil actions will no longer be dismissed for this procedural deficiency.

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Michigan: Post-Foreclosure Abandonment is all about Occupancy

Posted By USFN, Thursday, April 7, 2016
Updated: Thursday, April 7, 2016

April 7, 2016

 

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

The vast majority of foreclosures in the state of Michigan receive a statutory six-month redemption period. During this period, the owner-occupants maintain all of the rights and privileges that they held prior to the foreclosure. In an effort to reduce blight and criminal activity, while simultaneously attempting to preserve the integrity of the local real estate market, the Michigan legislature provided MCL 600.3241a. This statute allows for a foreclosing mortgagee to reduce the typical statutory redemption period from six-months to 30 days (or until the required 15-day notice period expires, whichever is later).

Contrary to the belief of many real estate agents, the operative factor in determining abandonment is occupancy. While there are many definitions that can be applied to the term “abandoned,” MCL 600.3241a unambiguously states that there is a conclusive presumption that the premises have been abandoned if neither the mortgagor nor persons claiming under the mortgagor are presently occupying or will occupy the premises. (The reader will note that had the legislature intended to exempt the abandonment process from those properties that are listed for sale, or even simply secured, they certainly could have.)

In the event that a foreclosing mortgagee believes the property to be unoccupied, notification to their local counsel can result in a significant reduction in the redemption period. The abandonment process includes a notice that is posted at the time of making the official personal inspection; a copy of the notice is submitted by certified mail, return receipt requested, to the mortgagor at the mortgagor’s last-known address. This notice states that the foreclosing mortgagee considers the premises abandoned and provides the instructions by which a contest to the abandonment can be submitted.

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Washington: Appellate Court Reviews Statutory Authority to Evict a Foreclosed Former Owner

Posted By USFN, Tuesday, April 5, 2016
Updated: Thursday, March 31, 2016
April 5, 2016
 
by Joseph H. Marshall
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)

 

A recent troubling, unpublished judicial decision holds that the grantee of a trustee’s sale purchaser lacks statutory authority to evict a former owner from foreclosed premises, and that eviction is premature where the former owner can show “color of title.” Selene RMOF II REO Acquisitions II, LLC v. Ward, Wash. Ct. App., Div. 1 (Feb. 29, 2016).

 

Relief must be sought via an ejectment action, where title (not just possession) can be resolved. Servicers who purchase Washington assets — not at, but subsequent to, foreclosure sales — will be well-advised to consult with counsel about the proper procedure for evicting former owners on a case-by-case basis.

 

Division One of Washington’s Court of Appeals barred plaintiff Selene from evicting defendant Ward by means of unlawful detainer because Selene was not the trustee’s sale purchaser, and also because Ward claimed color of title based on a notarized, but unrecorded, 2004 quitclaim deed.

 

Background
In 2012, Selene bought the property from LaSalle Bank (as trustee for certain mortgage loan asset-backed certificates). LaSalle had purchased the property at a deed of trust foreclosure sale in January 30, 2009. Dreier, the grantor of that deed of trust, had purchased the property in 2007 from one Chester Dorsey, as attorney in fact for Fred and Grace Brooks; the Brookses had bought the property from Dorsey in his personal capacity in 2005.

 

Dorsey had been quitclaimed the property by Vanessa Ward in 2001, but Ward claimed that she never “followed through” with her conveyance to Dorsey and that he had fraudulently executed the 2001 deed. He then quitclaimed the property back to her in 2004; however, that deed was not recorded.
Selene filed the unlawful detainer in 2014, alleging that Ward occupied the property as a tenant.  Ward claimed that she was not a tenant and instead had color of title. The trial court granted a writ of restitution for Selene. Ward appealed and prevailed, with the appellate court analyzing questions of law.

 

Appellate Analysis
Firstly, Selene was not the purchaser at the trustee’s foreclosure sale; the LLC was the quitclaim grantee of the sale purchaser. Selene thus lacked authority to evict because the unlawful detainer statute gave only sale purchasers the authority to evict. The court noted that Selene presented no authority as to why it should be treated like a sale purchaser, and the court did not sua sponte examine the usual function of a quitclaim deed to convey any rights of the grantor to the grantee, presumably including any rights of a trustee’s sale purchaser.

 

Secondly, unlawful detainer only applies to persons who lack “color of title” under RCW 59.12.030(6). Noting that the statute itself did not define color of title, the court looked to an IRS tax foreclosure case, Puget Sound Investment Group, Inc. v. Bridges, 92 Wash. App. 523, 963 P.2d 944 (1998). Bridges held that the defendant therein had color of title via a statutory warranty deed (details of which the court omitted) and that the unlawful detainer statute did not provide for tax sale purchasers to bring evictions (though it so authorized deed-in-lieu grantees).

 

Like the Bridges defendant, Ward’s unrecorded quitclaim deed gave her color of title, thus rendering an unlawful detainer action premature until an ejectment action could resolve the issue. Selene, therefore, had the burden to establish superior title.

 

Finally (and somewhat perfunctorily), the court determined that Ward could defend against the unlawful detainer action even though she had not served and noted her motion to dismiss and, further, that Ward’s claims under RCW 61.24.040(1) were not waived (even though she had not restrained the trustee’s sale). Moreover, the appellate court found that the issues as to Ward’s bona fide purchaser status, the impact of the trustee’s deed, and Ward’s knowledge of the trustee’s sale were beyond the scope of the unlawful detainer action and appeal.

 

Although the Selene decision is unpublished and cannot be cited as precedent, there is little question that analogous facts appealed to Division One in Washington will likely yield a similar result unless this case is reconsidered. If a servicer purchases subsequently from the trustee’s sale purchaser, and a former borrower/owner produces some kind of deed, this may well raise sufficient color of title to defeat a summary eviction action.

 

Evictions in Washington can be converted to civil ejectment/quiet title actions, but the process will take longer than eviction proceedings, which are limited to right of possession determinations.

 

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The Utah Reverse Mortgage Act – How to Prove a Deceased Borrower Has Received Notice?

Posted By USFN, Tuesday, April 5, 2016
Updated: Thursday, March 31, 2016

April 5, 2016

 

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

During the 2015 general legislative session, the Utah legislature enacted The Utah Reverse Mortgage Act, Utah Code §§ 57-28-101, et seq., which codifies requirements for reverse mortgages in Utah and addresses the treatment of loan proceeds, priority, foreclosure, and lender default. Particularly troublesome, the Act stated that for defaulted reverse mortgages, prior to commencing foreclosure, the servicer must give the borrower written notice of the default and provide at least 30 days after the day on which the borrower receives the notice to cure the default.

As predicted in this firm’s 2015 legislative update (see USFN Report, Summer 2015 Ed.), this legislation has posed significant challenges to servicers of defaulted reverse mortgages. Servicers have had to implement procedures attempting to determine when a borrower receives a demand letter, either by (i) altering mailing practices to use some form of return receipt request, or (ii) using a third-party vendor or foreclosure counsel to accomplish the same. Still, such efforts are often ineffective because many notices return unclaimed or undeliverable. This is commonly due to the fact that the majority of reverse mortgage defaults are caused by the borrower’s death. 

While proof of receipt of the demand letter is more readily accomplished for a reverse mortgage in default because of the borrower’s non-occupancy of the property or failure to pay taxes or insurance, proof of receipt by a deceased borrower has proven quite difficult, if not impossible. Servicers and foreclosure counsel have been left to investigate whether any probate action has commenced and, if so, to serve the personal representative of the estate. In cases where no probate exists, service has been attempted upon potential heirs, if any. Accordingly, the demand process for defaulted reverse mortgages has been drawn out significantly, often resulting in servicers finding themselves in danger of violating investors’ “first legal” timeline requirements.

In short, full compliance with the requirement that a borrower of a defaulted reverse mortgage be given 30 days after the borrower receives a demand letter to cure the default has proven to be very challenging — leaving servicers to make the decision to proceed based on their “best efforts” to comply. Relief may be just around the corner, however, as proposed corrective legislation is currently before the Utah legislature. It would only require that a borrower be given a 30-day cure period from the date that the demand letter is sent to (not received by) the borrower.


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South Carolina: Supreme Court Dismisses Lawsuit by County Officials Seeking Rejection and Removal of MERS-Related Documents from the Public Index

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016
April 5, 2016
 
by John S. Kay
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

 

South Carolina now becomes the most recent state to have a legal decision weighing in on the validity of MERS documents, but not in the usual fashion that we have seen in most states. In fact, the result of the case does not resolve the issue as to whether MERS documents are valid in South Carolina at all. [Kubic v. MERSCORP Holdings, Inc., Op. No. 27619 (S.C. Sup. Ct. Mar. 30, 2016)].

 

County Administrators and Registers of Deeds in five South Carolina counties instituted lawsuits against MERSCORP, as well as various banks and mortgage servicers, alleging that those institutions had engaged in a practice of fraudulent recording of documents that disrupted the integrity of the public index. The South Carolina Supreme Court consolidated the lawsuits and assigned the case to a Business Court trial judge. MERSCORP and the banking institution defendants filed a motion to dismiss, asserting that the complaint failed to state a cause of action and that the action was barred by section 30-9-30 of the South Carolina Code (2007). The trial court denied the motion and the defendants petitioned the South Carolina Supreme Court for a writ of certiorari, which the Supreme Court granted.    

 

Section 30-9-30(B) provides that if the clerk of court or register of deeds reasonably believes that a document presented to him or her is materially false or fraudulent, or is a sham legal process, the clerk of court or register of deeds may refuse to accept the document for filing. The statute further provides that within thirty days of written notice of such a refusal by the clerk of court or register of deeds, the person presenting the document may commence a lawsuit requiring the clerk of court or register of deeds to accept the document for filing. 

 

The county administrators contended that the statute provided them, by implication, with a right to commence an action to remove MERS-related documents from the public index. The Supreme Court disagreed and found that the plain meaning of the statute afforded the right to bring such an action to the person attempting to file the document, rather than to the county clerk of court or register of deeds. Consequently, the trial court was reversed, and the Supreme Court dismissed the plaintiffs’ case.
 
So where are we regarding the MERS issue in South Carolina? The Supreme Court may have provided the answer in the decision itself. In dicta, the Court indicated “the statute already provides a remedy to government officials by allowing them to remove or reject any fraudulent records; by its express language a judicial blessing or directive is not required (and thus, not permitted) in performance of this executive function.” One can assume that the county administrators in South Carolina may start rejecting MERS mortgages and require lenders to commence a lawsuit in order to have the document recorded.

 

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SCRA Recommended Practices: Notices & Affidavits

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

by J.D. Fichtner
McCalla Raymer, LLC – USFN Member (Georgia)

Compliance with the federal Servicemembers Civil Relief Act (SCRA) (50 U.S.C.A. §§ 3901-4043) has always been, and remains, a major concern in the American mortgage servicing industry. The reasoning for the importance of compliance with this particular law is two-fold: One, there is a unique moral component to compliance with this law that does not necessarily exist with other laws. The idea behind the SCRA — to protect the rights and property of those who choose to fight for our country — is something that resonates with Americans. Second, the penalties for violating the SCRA are severe (See 50 U.S.C.A. § 4041). For example, the Department of Justice recently entered into a $123 million settlement with five major servicers for an estimated 1,000 SCRA violations.

Investor Concerns
Mortgage investors have begun raising major concerns regarding two facets of SCRA compliance: (1) sending notice of potential SCRA rights in any default or collections action; and (2) the filing of affidavits in judicial actions. The SCRA does not explicitly require that servicers perform either of these actions; however, there is an argument that the SCRA contemplates these actions. Additionally, following these methods is an effective way of showing compliance with the requirements of the SCRA.

Notices — The SCRA places the burden of notifying servicemembers and other protected persons upon “the Secretary” of the servicemember’s respected service (50 U.S.C.A. § 3915). In the majority of cases, this will be the Secretary of Defense. Nonetheless, it is best for firms and servicers to include information concerning potential SCRA benefits any time they are pursuing legal or collections action. This is in order to give anyone who may be protected the opportunity to come forward and assert his or her protection.

Many investors and servicers now require that their servicers and vendors send some notice of potential SCRA benefits. In almost every action contemplated in the servicing industry (whether it be foreclosure, eviction, etc.), notice is required to be mailed to the subject property and/or to the borrowers/owners/occupants. Correspondingly, it is sound to include SCRA benefits information in all notices that a servicer, law firm, or vendor may send.

Affidavits
— The SCRA does contemplate the filing of an affidavit attesting to the military status of defendants in civil actions, specifically in cases where a default judgment is sought or granted (50 U.S.C.A. § 3931). Section 3931 of the SCRA obliges all American courts to require plaintiffs to file an affidavit “stating whether or not the defendant is in military service and showing necessary facts to support the affidavit” or “if the plaintiff is unable to determine whether or not the defendant is in military service, stating that the plaintiff is unable to determine whether or not the defendant is in military service” in any civil action “in which the defendant does not make an appearance.”

While the SCRA induces all courts to follow this affidavit requirement, many courts do not apply this portion of the SCRA, either by not compelling that an affidavit as to military status of the defendant be filed prior to issuing a default judgment, or by not requiring sufficient language in the affidavit. Consequently, many investors and servicers now direct their law firms and vendors to file affidavits of military status in all judicial proceedings where they are listed as the plaintiff. The general practice is to file an affidavit asserting that the named defendant is not protected by the SCRA, along with a copy of a Defense Manpower Data Center (DMDC) record check showing the same. Many investors take this a step further and have very specific requirements regarding the form of the affidavits, the timing of the record checks, the execution and filing of these affidavits, as well as the language contained in the affidavit.

Correspondingly, a recommended practice would be to ensure that in every judicial action filed, an affidavit as to the military status of the defendants, along with a DMDC record check attached as an exhibit, is submitted. This ensures that, even if a court is not applying section 3931, the relevant entity is in compliance with the section and can prove this in a potential action regarding an SCRA violation. It is also prudent for the affidavit to contain language addressing anyone else who may be affected by the litigation but is not named as a defendant (i.e., occupants in an eviction action who are not named as defendants because they are not required to be).

This language can be as simple as something along the lines of “[Plaintiff] is unaware of the military status of any John/Jane Does who may be affected by this judgment.” With that being said, it is important to keep in mind that many courts have their own specific requirements as to what may be filed and what forms must be used. In certain jurisdictions, filing an affidavit not on the court’s forms may create more problems than it solves, especially if the court has its particular SCRA affidavit procedure that conflicts with this suggestion. Accordingly, every effort should be made to take varying jurisdictional requirements into consideration.

Conclusion
There are steps that can be taken to help ensure compliance with the SCRA that are not explicitly contemplated or required by the SCRA. This brief article covers two relatively easy points. Specifically, the inclusion of SCRA benefits information in all notices sent, and the filing of an affidavit as to the defendant’s military status in all judicial actions.

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Purchaser of Defaulted Debt Not Subject to FDCPA Liability because it Acts as Creditor, Not Debt Collector

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

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

The U.S. Circuit Court for the Fourth Circuit — which governs Delaware, Maryland, North Carolina, South Carolina, Virginia, and West Virginia — has issued a significant published opinion favorable to creditors in Henson v. Santander Consumer USA, Inc., No. 15-1187 (4th Cir. Mar. 23, 2016).

Plaintiff consumer borrowers alleged that Citi made loans to them for the purchase of automobiles and, when they defaulted, Citi repossessed the vehicles and sold the loans (bearing deficiency balances) to Santander. The complaint asserted that after Santander purchased the debt, it began communicating with plaintiffs in an attempt to collect the debts owed in violation of the FDCPA, allegedly misrepresenting the amount of the debt and Santander’s entitlement to collect it. The district court granted Santander’s motion to dismiss the complaint pursuant to Rule 12(b)(6) on the basis of Santander’s defense that it was not a debt collector under 15 U.S.C. § 1692a(6).

On appeal, the plaintiffs maintained that the default status of the debt at the time Santander purchased it determines its status as a debt collector because of one of the exclusions to the definition of “debt collector” contained in 15 U.S.C. § 1692a(6)(F)(iii). Excluded from the definitions is “any person collecting or attempting to collect any debt . . . owed or due … another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained ….” (Emphasis is the court’s.)

The Court of Appeals disagreed:

We conclude that the default status of a debt has no bearing on whether a person qualifies as a debt collector under the threshold definition set forth in 15 U.S.C. § 1692a(6). That determination is ordinarily based on whether a person collects debt on behalf of others or for its own account, the main exception being when the “principal purpose” of the person’s business is to collect debt. Id. at 8. (Emphasis is the court’s.)

The court noted that § 1692a(6) defines “debt collector” in two parts: classes of persons included within the term, and classes of persons excluded from the definition. The first part of § 1692a(6) “defines a debt collector as (1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector.” (Emphasis is the court’s.) The second part of § 1692a(6), defining the classes of persons excluded from the definition of “debt collector,” includes the exclusion in § 1692a(6)(F)(iii): “[t]he term [debt collector] does not include . . . any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.” Id. at 10.

Because the plaintiffs contended that Santander had purchased the debt before it engaged in the alleged unlawful collection efforts, the complaint failed to demonstrate that Santander was collecting debts owed to another. The second part of the definition did not, therefore, come into consideration — i.e., whether Santander was excluded from the definition of “debt collector” based on whether the debt was already in default when Santander obtained it. Simply put, the court cannot reach the plaintiffs’ claim that the debt was in default because that could only be considered if Santander were not seeking to collect its own debt.

The appellate opinion is significant on this principal point. It is also interesting because the court knocks down a number of other contentions made by the plaintiffs that might be replicated in other litigation brought by consumers, including that Santander, which had been a debt collector with respect to these same loans before it purchased them, remained a debt collector afterwards. The court observed that Congress’s intent in adopting the FDCPA was to target abusive conduct by persons acting as debt collectors. Because many financial companies such as Santander carry out a wide variety of activities (including lending money, collecting their own debt, servicing their own debt, and servicing other persons’ debts), the plaintiffs’ argument would have the effect of subjecting all of Santander’s activities to the FDCPA, which was not what Congress intended.

Henson clarifies the manner in which the analysis of whether a person is a creditor or a debt collector should be made. The plaintiffs had tried to turn the analysis on its head by arguing the exclusion first, before considering the principal definition. This judicial decision should provide clarity to all entities concerned about FDCPA compliance: providing they wait to commence collection activity until they have completed the purchase of the debt obligations, they will be acting as creditors and, therefore, largely immune from complaints relying on the FDCPA. And, if they had been debt collectors while acting for the noteholders under a prior arrangement, they can transform their status from debt collector to creditor.

© Copyright 2016 USFN and Hutchens Law Firm. All rights reserved.
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Official Bankruptcy Forms – Some Changes, Effective 4/1/2016

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

by USFN Staff

Effective April 1, 2016, automatic adjustments were made to dollar amounts stated on several Official Bankruptcy Forms. The adjustments apply to cases filed on or after April 1, 2016. For detailed information, see http://www.uscourts.gov/rules-policies/pending-rules-amendments/pending-changes-bankruptcy-forms. Among the changed forms is Official Form 410, Proof of Claim, Line 12.

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New Mediation Program in the First Judicial Circuit of Illinois Effective April 1, 2016

Posted By USFN, Tuesday, April 5, 2016
Updated: Thursday, March 31, 2016
April 5, 2016
 
by Mary Spitz
Anselmo Lindberg Oliver LLC – USFN Member (Illinois)

 

The First Judicial Circuit of Illinois (which includes the counties of Alexander, Jackson, Johnson, Massac, Pope, Pulaski, Saline, Union, and Williamson) recently approved and implemented a Mandatory Mortgage Foreclosure Mediation Program, effective April 1, 2016. The program, administered by the Dispute Resolution Institute, logistically bears a large resemblance to the mediation program in Champaign County, Illinois. Specifically, it is an opt-out program with an “Initial Intake Conference” that the lender and/or the lender’s counsel is not allowed to attend.
 
The program is limited to borrower-occupied residential property only; further, borrowers who are currently seeking relief in bankruptcy may not proceed with mandatory mediation. The program administrator will determine eligibility for mediation on a case-by-case basis at the initial intake conference, and will then set a pre-mediation conference date, which requires the appearance of lender and lender’s counsel (in person or by telephone).

 

If an agreement cannot be reached through participation in pre-mediation conferences, the program administrator may set a formal mediation. If the matter goes to a formal mediation, the lender’s counsel must appear in person, and the lender must be available in person or by telephone. Upon either reaching an agreement or determining that mediation is no longer helpful, the program administrator or the mediator will terminate mediation and the matter will return to the trial court for either dismissal of the action or further foreclosure proceedings.

 

When compared with the other mediation programs in Illinois, there is nothing of particular note or concern regarding this mediation program recently implemented in the First Judicial Circuit. It is much of the same that is seen in other Illinois counties.

 

Additionally, the counties within the First Judicial Circuit are located in the very southern-most tip of Illinois where the populations are very small. As a result, the volume of cases in these counties is also very small. Therefore, lenders should not anticipate a large number of mediations occurring in these counties moving forward.
 

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Foreclosure Relief and Extension for Servicemembers Act of 2015 was Signed by the President

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

by Jienelle R. Alvarado
Trott Law, P.C. – USFN Member (Michigan)

On March 31, 2016 the Foreclosure Relief and Extension for Servicemembers Act of 2015 (the Act) was enacted, becoming Public Law No. 114-142. The Act amends the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 by extending the time period in the provision of the Servicemembers Civil Relief Act (SCRA) that grants safeguards to active duty servicemembers against foreclosure.

Specifically, the protections provided by 50 USC § 3953 (previously cited as 50 USC Appx § 533) will be extended for one year following the completion of the servicemember’s military service. The one-year protection under § 3953 of the SCRA will continue through December 31, 2017. Absent further amendments, the extended time period under § 3953 of the SCRA will revert back to the prior version on January 1, 2018.

 

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Foreclosure Relief and Extension for Servicemembers Act of 2015 was passed by Congress

Posted By USFN, Tuesday, April 5, 2016
Updated: Tuesday, April 19, 2016

April 5, 2016

 

by Jienelle R. Alvarado
Trott Law, P.C. – USFN Member (Michigan)

On March 21, 2016 the Foreclosure Relief and Extension for Servicemembers Act of 2015 (the Act) was passed by Congress, and the bill is awaiting the President’s signature. The Act amends the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 by extending the time period in the provision of the Servicemembers Civil Relief Act (SCRA) that grants safeguards to active duty servicemembers against foreclosure.

Specifically, the protections provided by 50 U.S.C. § 3953 (previously cited as 50 U.S.C. Appx § 533) will be extended for one year following the completion of the servicemember’s military service. The one-year protection under § 3953 of the SCRA will continue through December 31, 2017. Absent further amendments, the extended time period under § 3953 of the SCRA will revert back to the prior version on January 1, 2018.

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FHA Rule Change Reduces Cap on Late Fees

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

by Rebecca B. Redmond
Sirote & Permutt, P.C. – USFN Member (Alabama)

FHA servicers and lenders: There’s another rule change. Under FHA’s reduced late fee cap, which became effective March 14, 2016, late charges for case numbers assigned on or after the rule’s effective date will be limited to four percent of principal and interest. Taxes and insurance can no longer be factored into late charge calculations.

This new cap on late fees — one of the many changes set forth in the recently revised FHA handbook (i.e., online FHA Single Family Housing Policy Handbook 4000.1) — is sure to add to the ever-increasing compliance costs for servicers as fees decrease. Meanwhile, pressure mounts on lenders to provide proper closing cost disclosures in light of this revised rule. Compliance is mandatory.

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Connecticut: Appellate Court Provides Guidance on Amended Rule

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

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

The Connecticut Appellate court has provided guidance on an amended court rule. [See Citigroup Global Markets Realty Corporation v. Christiansen, 163 Conn. App. 635 (2016)]. The rule, Connecticut Practice Book § 61-11, limits the automatic stay provisions in a foreclosure matter where multiple motions to open the judgment have been filed.

Here in Connecticut an appeal is possible after a final foreclosure judgment. In a foreclosure, each time the court sets a law day (which triggers the day that title passes to the plaintiff) an appeal would be possible. Upon entry of judgment, an automatic stay occurs for the time period in which the defendant has to appeal. During that automatic stay period all actions to enforce a judgment are stayed. This includes the running of the law days and, accordingly, the plaintiff’s title vesting date.

As the court stated in Christiansen: “Prior to October, 2013, a court’s denial of a motion to open a judgment of strict foreclosure automatically stayed the running of the law days until the twenty-day period in which to file an appeal from that ruling had expired, and, if an appeal was filed, that initial appellate stay continued until there was a final determination of the appeal.” The court described the rule change as follows: “Practice Book § 61-11 was amended effective October 1, 2013, however, to address this problem by the addition of subsections (g) and (h). Practice Book § 61-11(g) applies in this appeal and provides in relevant part: ‘In any action for foreclosure in which the owner of the equity has filed, and the court has denied, at least two prior motions to open or other similar motion, no automatic stay shall arise upon the court’s denial of any subsequent contested motion by that party, unless the party certifies under oath, in an affidavit accompanying the motion, that the motion was filed for good cause arising after the court’s ruling on the party’s most recent motion ....’”

Two previous motions to open the judgment had been denied against the defendant in Christiansen. The third motion did not have an accompanying affidavit. As a result, the court found that the law days continued to run, and title vested in the plaintiff. Because title vested, the court found the appeal moot. Upon vesting, there was no longer any practicable relief that the court could afford the defendant.

Christiansen shows that the Connecticut Practice Book has been cured to prevent a borrower from endlessly extending the law day. It worked in this case, as title could vest since there was no appellate stay in effect.

Editor’s Note: The author’s firm represented the substituted plaintiff, Mid Pac Portfolio, LLC, in the case summarized in this article.

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California: Office of the Los Angeles City Attorney Receivership Program

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

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

On August 12, 2015 Los Angeles City approved a receivership program in order to address the ongoing “blight” that has continued to exist with vacant properties (City of Los Angeles Report No. R15-0212). Under this program, if the efforts of Code Enforcement and Building & Safety have not resulted in a remedy or abatement of the violations or nuisances, contract attorneys will be hired to file a receivership action. Once a receiver is appointed, the receiver will take steps to remedy or abate the violations or nuisances; a secured loan can be obtained to do so.

This loan will have first lien priority over all existing liens secured by the property in order to recover full costs of abatement, as well as the costs associated with the receivership (including attorneys’ fees and costs). Under the program servicers and investors may encounter properties where the amount of recovery post-sale has been significantly reduced by the receiver’s first-priority lien. Another option for a receiver is to force a sale of the property so as to recover these costs.

As a reminder, Los Angeles has a foreclosure registration requirement whether the property is vacant or occupied. The city also has a vacant registration program regardless of whether the property is in foreclosure. Furthermore, once the property has gone to sale, there is a registration program for REOs.

To prevent incurring stiff penalties (and, if applicable, having a receiver appointed) it is imperative that servicers and investors review their Los Angeles, California portfolios. Go to Los Angeles Housing Department Foreclosure Registry Program at http://hcidla.lacity.org/ForeclosureInformation and have your property preservation company register the properties.

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Alaska Supreme Court Rules that Foreclosure is “Debt Collection” Under FDCPA, and Opens Back Door to Liability under Unfair Trade Practices Act

Posted By USFN, Tuesday, April 5, 2016
Updated: Wednesday, April 6, 2016

April 5, 2016

 

by Richard Ullstrom
RCO Legal – Alaska, Inc. – USFN Member (Alaska)

A divided Alaska Supreme Court has ruled that nonjudicial foreclosures constitute “debt collection” under the federal Fair Debt Collection Practices Act (FDCPA), making a foreclosure trustee a “debt collector” even if the trustee confined its activities to those required to process the foreclosure. The Court also held that an FDCPA violation was per se a violation of the Alaska Unfair Trade Practices and Consumer Protection Act (UTPA), departing from established case law holding that the UTPA did not apply to transactions involving real property, including nonjudicial foreclosures.

In Alaska Trustee, LLC v. Ambridge, the foreclosure trustee sent the Ambridges a statutorily-required Notice of Default (NOD) that complied with Alaska law but which did not state the total amount of the debt as required by the FDCPA. The Ambridges sued, claiming that this violated the FDCPA and UTPA, although they had not been deceived by the NOD in any way. The trial court ruled in favor of the Ambridges, and the Alaska Supreme Court affirmed.

On the FDCPA claim, the Supreme Court chose to follow the line of cases determining that foreclosure constituted “debt collection” even when no demand for payment of the debt was made and the actions of the foreclosure trustee were only those needed to enforce the creditor’s security interest in the collateral. The dissenting justice opined that this nullified the exclusion of enforcers of security interests from most of the FDCPA, but the majority reasoned that this exclusion applied only to auto repossession agencies and similar entities.

On the UTPA claim, the majority ruled that the FDCPA breach also violated the UTPA because the FDCPA provided that a violation was to be considered an unfair or deceptive act or practice in contravention of the Federal Trade Commission Act (FTCA). The Alaska UTPA, in turn, prohibits unfair or deceptive acts or practices and requires that the Alaska courts give consideration to interpretations of the FTCA in applying the UTPA. Thus, even though the NOD was not objectively unfair or deceptive, it was considered a UTPA violation simply because it violated the FDCPA. In reaching this result, the Supreme Court distinguished longstanding precedent that the UTPA did not apply to real property transactions, including foreclosures, by noting that “there are different avenues to coverage under the UTPA.”

The ruling in Ambridge is significant because the UTPA provides for an award of full attorney fees to a successful plaintiff, which will encourage borrowers’ attorneys to find violations of the FDCPA or federal laws with similar provisions, such as TILA.

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Washington: Proposed House Bill 2897 Expands “Criminal Trespass” Definition

Posted By USFN, Thursday, March 31, 2016
by Kimberly M. Raphaeli
RCO Legal, P.S. – USFN Member (AK, OR, WA)

 

Washington has traditionally been a squatter-friendly state. However, recent news stories about squatters taking over homes and refusing to leave, while property owners are helpless to stop them, have resulted in an outcry by concerned citizens. The law currently requires property owners to file an eviction action or, other civil lawsuit, to obtain a writ of restitution before the sheriff can step in and forcibly remove squatters from a home. This can be difficult when a property owner does not know the identity of the persons and may not have the financial ability to pursue a civil action. While a property owner wades through this difficult legal process, the home and neighborhood suffers. Illegal activity may be present; property damage may be ongoing — all while property values decline in the neighborhood.

 

Lawmakers have taken note and introduced House Bill 2897. The bill proposes to expand the definition of criminal trespass in the first degree to include an individual not listed as a tenant on a rental agreement or as a guest in an affidavit signed by the owner of the property, who refuses to leave immediately upon demand and surrender possession of the premises to the owner (a “tenant by sufferance”). This means a property owner, after written demand to the squatters, may contact law enforcement to report an active criminal trespass and receive assistance without needing to file a civil action.

 

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Chapter 13 Trustee Issues Position Statement Regarding Notices of Payment Changes under Bankruptcy Rule 3002.1

Posted By USFN, Thursday, March 31, 2016
by Edward J. Boll III
Lerner, Sampson & Rothfuss, LPA – USFN Member (OH & KY)

 

Faye English, one of two chapter 13 trustees in Columbus, Ohio in the Southern District of Ohio, has issued a Position Statement regarding her office’s treatment of late-filed Notices of Payment Changes.
 
Rule 3002.1 of the Federal Rules of Bankruptcy Procedure (FRBP), which became effective December 1, 2011, concerns chapter 13 claims that are: (1) secured by a security interest in the debtor’s principal residence; and (2) provided for under 11 U.S.C. §1322(b)(5).

 

While reserving the right to proceed in any manner that is appropriate based upon the facts of each case, Trustee English provided the following guidance:

 

“Conduit Trustee Pay-All” Cases
Late-Filed Notices of Payment Change — In cases where any mortgage on the principal residence is being paid via conduit, the trustee will object to any Notice of Payment Change (NOPC) that was not filed at least 21 days before the new payment amount is due, as required by FRBP 3002.1(b). During the time an objection to a late-filed NOPC is pending, the trustee will continue to pay the mortgage at the previously filed, and allowed, payment amount.

 

Where the new payment is a decrease from the prior payment, it would appear that the late-filed NOPC is harmless and would benefit the debtor in the eyes of Trustee English. Pursuant to FRBP 3002.1(i)(1), the trustee will generally request an order allowing the late-filed NOPC as of its effective date.

 

In the event that allowing the late-filed NOPC will result in an overpayment to the mortgage holder, the trustee will request an order finding that the pre-petition arrearage is reduced by the amount of the overpayment. If there is no balance remaining on the pre-petition arrearage, the trustee will request an order finding that the next conduit payment is reduced by the amount of the overpayment. If there is no balance remaining on the pre-petition arrears and there are no further conduit payments to be made, the trustee will request an order directing the mortgage holder to return the overpaid funds to the trustee.

 

Where the new payment is an increase from the prior payment, it would appear that the late-filed NOPC results in harm to the debtor in Trustee English’s view. Pursuant to FRBP 3002.1(i)(1), the trustee will request an order disallowing the late-filed NOPC and will further request a finding that precludes the mortgage holder from presenting the omitted information, in any form, as evidence in a contested matter.

 

Payment Changes in Proofs of Claim — Where a proof of claim includes payment changes beyond the initial post-petition payment amount, the trustee will not recognize the payment changes. The mortgage holder must file a separate NOPC in compliance with FRBP 3002.1(b).

 

“Direct Pay” Cases
In direct pay cases, the trustee will take no action with respect to Notices of Payment Changes.

 

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Connecticut Supreme Court Upholds Statute Affecting “Nominee” Recording Fees

Posted By USFN, Thursday, March 31, 2016
by Robert J. Wichowski
Bendett & McHugh, PC – USFN Member (CT, ME, VT)

 

In the case of MERSCORP Holdings, Inc. v. Malloy, 320 Conn. 26 (Feb. 23, 2016), the Connecticut Supreme Court 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 greatly increase the cost of recording any documents related to a mortgage by the nominee of that mortgage. The legislation did not alter or affect the recording fees for filers not identified as a “nominee of a mortgagee.”

 

On July 2, 2013, facing the effective date of the legislation of July 15, 2013, MERSCORP Holdings, Inc. and Mortgage Electronic Registration Systems, Inc. (as joint plaintiffs) filed an action in Connecticut Superior Court against various officials of Connecticut. The lawsuit requested an order declaring the above-referenced statutes unconstitutional and, therefore, void and ineffective for any purpose. After the plaintiffs were unsuccessful in seeking a temporary injunction that would have exempt them from the legislation, the parties filed cross-motions for summary judgment. The trial court granted summary judgment in favor of the defendants; the plaintiffs appealed. The Connecticut Supreme Court transferred the matter from the Appellate Court docket to its own docket on its own motion, indicating a matter of public interest.

 

Non-parties to the case (amici) filed briefs in the appeal. After argument and consideration of each of the amici briefs, the Supreme Court issued an extensive opinion addressing, and denying,  each of the plaintiffs’ claimed grounds for unconstitutionality.

 

The parties had agreed that one of the reasons that the legislation was enacted was to generate revenue and balance the budget, which amounted to a legitimate purpose for the legislation. Accordingly since the legislation served a legitimate purpose, and because the plaintiffs did not discount every conceivable potential legitimate purpose for the legislation, the legislation did not violate the equal protection clauses of the United States or the Connecticut constitutions. The legislation was likewise not found to violate the dormant commerce clause of the U.S. Constitution, as the increase in fees does not inhibit interstate commerce.

 

Because the plaintiffs failed to meet the extremely weighty burden necessary to overturn a statute on constitutional grounds, the ruling of the trial court granting summary judgment for the defendants was affirmed, effectively ending the challenge of MERS to this statute.

 

Editor’s Note: Further coverage of the Malloy case summarized in this article will be published in the USFN Report (spring 2016 Ed.).


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Ninth Circuit: Holdover Foreclosed Borrower Filing for Bankruptcy after Eviction Judgment and Writ of Possession Has No Equitable Possessory Interest

Posted By USFN, Thursday, March 31, 2016
by Kathy Shakibi
McCarthy & Holthus LLP - USFN Member (WA)

 

An unlawful detainer action is designed as a summary process limited in scope to a determination of the right of possession of property; however, unlawful detainer actions do not always proceed within their anticipated scope and timeline. In the case of post-foreclosure evictions, challenges to the foreclosure may be raised in the incorrect court, notices of removal may be filed with courts lacking jurisdiction, and bankruptcy protections may be improperly sought.

 

Recently, the U.S. Court of Appeals for the Ninth Circuit addressed a scenario where unlawful detainer proceedings had resulted in a judgment and writ of possession in the state court, and the holdover foreclosed borrower filed a bankruptcy petition prior to the lockout. Eden Place, LLC v. Perl (In re Perl), 2016 U.S. App. Lexis 246 (9th Cir. Jan. 8, 2016). The Court of Appeals held that the lockout was not a violation of the bankruptcy stay because the debtor’s continued physical possession did not amount to an equitable possessory interest. (The Ninth Circuit is comprised of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.)

 

In Perl, the debtor owned a duplex that was foreclosed upon and purchased by a third party. The third party timely recorded a trustee’s deed upon sale, which perfected and transferred title. The purchaser then commenced an unlawful detainer action. After the purchaser had obtained a judgment and writ of possession, but before the lockout occurred, Perl filed a skeletal chapter 13 petition with no schedules, financial affairs statement, or proposed plan. The sheriff subsequently completed the lockout pursuant to state law, and Perl filed an emergency motion to enforce the automatic stay — asserting that the lockout interfered with his equitable interest based on his continued physical possession of the property.

 

The bankruptcy court determined that Perl had a bare possessory interest, which was a protected interest subject to the automatic stay, and ruled that the purchaser had violated the bankruptcy stay by proceeding with the lockout. No further determination regarding sanctions or damages was made because Perl failed to appear at the creditors’ meeting, and the bankruptcy case was dismissed. The purchaser appealed to the Bankruptcy Appellate Panel (BAP), which upheld the lower bankruptcy court’s ruling. The purchaser then appealed to the Ninth Circuit.

 

The Ninth Circuit started its analysis with the premise that filing a bankruptcy petition accomplishes the: (1) creation of a bankruptcy estate, which includes all legal or equitable interests of the debtor in property as of the date of filing, 11 U.S.C. § 541, and (2) imposition of a stay applicable to a number of acts, including any act to obtain possession of property of the estate. 11 U.S.C. § 362(a)(3). The Court of Appeals then examined whether the debtor had any legal or equitable interest in the property. Under the state law, title to the property had transferred to the purchaser and was perfected. The unlawful detainer court had further adjudicated the issue of possession and, by entering a judgment and writ of possession, had extinguished Perl’s possessory interest in the property. Where the BAP had held that the continued physical possession had conferred on the debtor a protectable equitable possessory interest in the property, the Ninth Circuit disagreed.

 

The Court of Appeals reasoned that concluding that an occupying resident retains an equitable possessory interest is inconsistent with the state eviction laws (specifically California Code of Civil Procedure § 1161a), which contemplate a final and binding adjudication of rights of immediate possession. The unlawful detainer judgment and writ of possession divested Perl of all legal and equitable possessory rights. Accordingly, the sheriff’s lockout did not violate the automatic stay.

 

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Ninth Circuit: TILA’s Notice of Loan Transfer is Not Retroactive

Posted By USFN, Thursday, March 31, 2016

by Kathy Shakibi
McCarthy Holthus LLP – USFN Member (WA)
 
Federal law requires the sending of a written notice to a borrower when a loan is sold or transferred, in addition to when the servicing of the loan is transferred. While the latter notice requirement has existed since before the financial crisis of 2008, [Real Estate Settlement Procedures Act, Title 12 U.S.C. §2605(b)], the former notice provision is comparatively recent. It was enacted in 2009 as an amendment to the Truth in Lending Act (TILA), Title 15 U.S.C. § 1641(g). The U.S. Court of Appeals for the Ninth Circuit has held that TILA’s notice provision is not retroactive. [Talaie v. Wells Fargo Bank, NA, 808 F.3d 410 (9th Cir. Dec. 14, 2015)].
 
The Talaie plaintiffs had brought a putative class action against Wells Fargo and US Bank in connection with a loan modification on their residence. Various state and federal law claims were alleged, including that when their mortgage loan was transferred from Wells Fargo to US Bank in 2006, they were not provided written notice of the loan transfer under TILA. Since TILA’s notice provision was enacted in 2009, the requirement would apply to the Talaie loan only if the provision operated retroactively.
 
TILA’s notice provision requires that “not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer.” If the new creditor does not provide written notice, the statute authorizes a private right of action for actual damages, penalty, and attorney fees. The Ninth Circuit based its analysis on the U.S. Supreme Court decision in Landgraf v. USI Film Products, 511 U.S. 244 (1994), which considered four principles in determining whether to apply a statute retroactively. That is, if a new statute would (1) impair the rights that a party possessed when he or she acted, (2) increase a party’s liability for past conduct, or (3) impose new duties with respect to a completed transaction, then (4) courts should not give retroactive effect to the statute without clear congressional intent favoring retroactivity. Id at 280.
 
The concerns discussed in Langdorf were present in Talaie. At the time of the loan transfer, the defendants had a right to sell or transfer without notice, and retroactive application of the statute would increase the defendants’ liability for past conduct, as well as impose new duties on completed transactions. Next, the Ninth Circuit looked at the text and history of section 1641(g) and found no clear indication that Congress intended for the statute to apply to loans that had transferred prior to its enactment. The Court of Appeals reasoned that Congress would not have subjected creditors to liability and penalty without providing a way to comply with the statute (for loans predating its enactment). Accordingly, the Ninth Circuit held that section 1641(g) does not apply retroactively because Congress did not express a clear intent that it do so.
 
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Washington: House Bill 2954 Provides for Study of Consumer Protections for Manufactured Homes Buyers

Posted By USFN, Tuesday, February 23, 2016
Updated: Wednesday, February 24, 2016

February 23, 2016

 

by Susana Chambers
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)

In the wake of a series of articles published by The Seattle Times, critical of the lack of consumer protections for buyers of manufactured homes in Washington State, legislators recently passed House Bill 2954. The February 1 bill tasks the Washington Department of Commerce (Commerce) to study the sale and financing of manufactured homes, and to develop a comparison of consumer protections provided to buyers of manufactured homes contrasted to those available to the buyers of residential property under Washington’s Deed of Trust Act.

Owners of residential property in Washington currently enjoy greater consumer protections — including extended timelines to cure defaults, foreclosure mediation, and a prohibition against deficiency judgments for obligations secured by a deed of trust. Over the next year, Commerce will study manufactured home sale and financing methods, disclosure requirements and practices, repossession processes, and the status of manufactured homes under state law pertaining to real property.

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Washington: Proposed House Bill 2897 Expands “Criminal Trespass” Definition

Posted By USFN, Tuesday, February 23, 2016
Updated: Wednesday, February 24, 2016

February 23, 2016

 

by Kimberly M. Raphaeli
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)

Washington has traditionally been a squatter-friendly state. However, recent news stories about squatters taking over homes and refusing to leave, while property owners are helpless to stop them, have resulted in an outcry by concerned citizens. The law currently requires property owners to file an eviction action or, other civil lawsuit, to obtain a writ of restitution before the sheriff can step in and forcibly remove squatters from a home. This can be difficult when a property owner does not know the identity of the persons and may not have the financial ability to pursue a civil action. While a property owner wades through this difficult legal process, the home and neighborhood suffers. Illegal activity may be present; property damage may be ongoing — all while property values decline in the neighborhood.

Lawmakers have taken note and introduced House Bill 2897. The bill proposes to expand the definition of criminal trespass in the first degree to include an individual not listed as a tenant on a rental agreement or as a guest in an affidavit signed by the owner of the property, who refuses to leave immediately upon demand and surrender possession of the premises to the owner (a “tenant by sufferance”). This means a property owner, after written demand to the squatters, may contact law enforcement to report an active criminal trespass and receive assistance without needing to file a civil action.

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Ohio Supreme Court: Revised Code Closes Door on Mortgage Avoidance Actions

Posted By USFN, Monday, February 22, 2016
Updated: Wednesday, February 24, 2016

February 22, 2016

 

by Rick DeBlasis
Lerner, Sampson & Rothfuss – USFN Member (Kentucky, Ohio)

On February 16, 2016 the Ohio Supreme Court closed the door on mortgage avoidance actions based on a defect in execution where the mortgage has been recorded. See, In re Messer, Slip Opinion 2016-Ohio-510. Effectively reversing 200 years of Ohio jurisprudence, a unanimous Court held that R.C. 1301.401, a new provision of the Ohio Revised Code, (1) applies to all recorded mortgages in Ohio; and (2) acts to provide constructive notice to the world of the existence and contents of a recorded mortgage that was deficiently executed. Syllabus. Compare Johnston v. Haines, 2 Ohio 55 (1825) (“… the mere fact of recording a deed, without the legal requisites, gives it no validity.”); Citizens National Bank v. Denison, 165 Ohio St. 89, 133 N.E.2d 329 (1956) (“A mortgage by two persons is not properly executed in accordance with the provisions of R.C. 5301.01, and is not entitled to record under R.C. 5301.25, and the recording thereof does not constitute constructive notice to subsequent mortgagees, where there is a failure to follow the statutory requirements …”).

The Messer case began, as defective mortgage cases often do, in the bankruptcy court. Darren and Angela Messer are owners of a home located in Canal Winchester, Ohio, which they bought with the help of a first mortgage loan. The Messers initialed each page and signed the mortgage. It is recorded with the county recorder. However, there is no notary signature following the acknowledgement clause.

The Messers filed a chapter 13 bankruptcy petition. Their chapter 13 plan provides, in part, that the debtors will file an adversary complaint in the bankruptcy court, exercising the trustee’s “strong-arm power” whereby a bona fide purchaser may avoid a defective mortgage and treat its holder as an unsecured creditor to receive, with all other unsecured creditors, a fraction of its claim. The plan was confirmed, and the Messers instituted the adversary proceeding. The mortgagee moved to dismiss, asserting that R.C. 1301.401 enacts a change in Ohio law, such that an interest holder can no longer claim bona fide purchaser status and can no longer seek to avoid a defective, but recorded, mortgage. The bankruptcy court noted:

Upon reviewing the briefing of both Parties and the arguments made at the hearing on Defendant’s Motion to Dismiss, this Court determined that its interpretation of O.R.C. § 1301.401 would be dispositive of the case. Upon research, this Court found no interpretation of O.R.C. § 1301.401 by the Supreme Court of Ohio – or any other court. There is no dispute in this case that the Mortgage was improperly executed under O.R.C. § 5301.01, and there is no dispute that prior to the enactment of O.R.C. § 1301.401 the Plaintiffs could have avoided the mortgage. The questions concern whether the new statute changes the result.

The Supreme Court focused entirely on the language of R.C. 1301.401, which it found to be clear, broad, and unambiguous. If the mortgage is of record, defects in its execution will not render it subject to attack by an erstwhile “bona fide purchaser.”

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Proportionality Requirement in Revised Fed. R. Civ. P. 26(b)(1): U.S. District Court of Connecticut Interprets

Posted By USFN, Monday, February 22, 2016
Updated: Wednesday, February 24, 2016

February 22, 2016

 

by Jennifer M. McGrath
Hunt Leibert – USFN Member (Connecticut)

Discovery under the Federal Rules has long been governed by the principles of proportionality; however, the revised Rule 26(b)(1) — effective December 1, 2015 — has put increased importance on the concept and made it a central term of the Rule, which now reads:


Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable. Rule 26(b)(1) (emphasis added).


The U.S. District Court of Connecticut is among the first to interpret the revised Rule in the context of a discovery dispute, and can be utilized to prohibit depositions of a party. In Williams v. Rushmore Loan Management Services LLC, 3:15-cv-00673 (RNC), an action concerning alleged violations of the Fair Debt Collection Practices Act (FDCPA), the plaintiff sought to depose two employees of the defendant loan servicer when, procedurally, he had already moved for summary judgment based on liability. The defendant loan servicer filed a motion for protective order, asserting that the FDCPA provides a maximum statutory penalty of $1,000 [15 U.S.C. § 1692K (a)(2)]; there is no provision for punitive damages, and the plaintiff was limited to actual damages [Gervais v. O’Connell, Harris & Associates, Inc., 297 F. Supp. 2d 435, 439-40 (D. Conn. 2003)], which he had described as “garden variety” emotional distress.

On February 16, 2016 the court granted the loan servicer’s motion for protective order, finding the requested depositions of the servicer’s employees to be of “marginal utility” in the case, and holding that the cost of preparing for (and taking) the out-of-state depositions was “disproportionate to the needs of the case and the plaintiff’s potential recovery.”

The court’s decision in Williams sets an important precedent and reinforces the parties’ obligations to consider proportionality when serving discovery. By requiring litigants to show a logical nexus between the claims and defenses in an action and the discovery sought, the court eliminates “unnecessary or wasteful discovery” (as U.S. Supreme Court Chief Justice Roberts instructed in his 2015 Year-End Report, which was cited by the Connecticut District Court in Williams).

Counsel for loan servicers can utilize this recent decision to limit or prohibit deposition practice in consumer claims under the FDCPA, RESPA, and other statutory claims in which the actual damages are relatively small.

Editor’s Note: The author’s firm represented Rushmore Loan Management Services, LLC in the summarized proceedings.

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Iowa Supreme Court: Interprets Foreclosure Judgment Statute of Limitation

Posted By USFN, Thursday, February 4, 2016
Updated: Friday, February 19, 2016

February 4, 2016

 

by Benjamin W. Hopkins
Petosa, Petosa & Boecker, L.L.P. – USFN Member (Iowa)

On January 29, 2016 the Iowa Supreme Court issued its decision in U.S. Bank National Association v. Callen, Iowa No. 14–1536, conclusively interpreting Iowa’s foreclosure judgment statute of limitation to bar enforcement of the judgment only, not the underlying mortgage.

The case involved a foreclosure judgment entered in February 2010. The mortgagee filed a notice of rescission in March of 2012, after the two-year limitation period set forth in Iowa Code Section 615.1.

Subsequently, the mortgagee filed a foreclosure action in October 2013. The mortgagor raised counterclaims for quiet title and wrongful foreclosure, contending that the notice of rescission was untimely and that the mortgagee’s right to foreclose the underlying mortgage was lost with the running of the two-year statute of limitation.

The case rested on the interpretation of the phrase “all liens” in Iowa Code Section 615.1, which provides that two years after entry of a foreclosure judgment, “all liens shall be extinguished.” The mortgagor urged the interpretation of “all liens” to include the underlying mortgage lien. However, the Supreme Court affirmed the lower courts’ rulings, concluding that when interpreted in light of the statute as a whole, “all liens” referred only to foreclosure judgment liens. Consequently the mortgagee retained the right to foreclose the mortgage.

Editor’s Note: The author’s firm represented the appellee U.S. Bank National Association in the case summarized in this article.

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