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Trap for the Unwary: It’s a Crime for Mortgage Lenders & Servicers to Not Keep Certified Borrowers "Safe at Home"

Posted By USFN, Tuesday, February 4, 2020
Updated: Monday, February 3, 2020


by Brian Liebo, Esq. and Kevin Dobie, Esq.  
Usset, Weingarden & Liebo, PLLP
USFN Member (MN)

There are an ever-increasing number of people participating in programs across the country that protect the identities of certain borrowers. Unwary mortgage lenders and servicers can find themselves subject to criminal and civil penalties in certain states if they run afoul of the related laws. One such program is Minnesota’s “Safe at Home” project. 

Minnesota’s project, governed by Minnesota Statutes Chapter 5B and Minnesota Rules Chapter 8290, along with approximately 38 other states across the United States,  can provide home, work and school address confidentiality for people who fear for their safety for survivors of, among other things, domestic violence, sexual assault, or stalking. In Minnesota alone, there are over 3,000 program participants and the program is administered by the Office of the Minnesota Secretary of State.

When someone enrolls in Safe at Home, the state assigns a post office box address that the participant uses as a legal address for all purposes. Since all Safe at Home participants share the same assigned post office box, the participants are differentiated by a designated “lot number” that is unique to each participant. This lot number is not to be confused with those “lot numbers” typically contained in real property legal descriptions. The participant does not pick up their mail from that post office box. Instead, Safe at Home staff forward the first-class mail to the participant’s real residential address.  

The state certifies participants for the Safe at Home program in renewable terms of four years. Participants can lose the certification by changing their legal identity without advance notice or by using false information in conjunction with the certification. Also, certification can be lost if the mail forwarded by the Safe at Home office is returned as “undeliverable.” This latter issue is often relevant in mortgage default situations where a borrower abandons the home.

Impact of the Safe at Home Program on Mortgage Lenders and Servicers
A participant must disclose the address of the home to mortgage loan originators.  The participant will provide the lender with a Safe at Home program form, which will require the lender to conceal the mortgage record and will prohibit the sharing of their location information without signed consent from the participant.  The lender must also only use the participant’s assigned post office box address for mailed correspondence. For loans other than a home loan, such as vehicle loans or unsecured personal loans, a Safe at Home participant cannot be required to disclose their home address.

It is the responsibility of participating borrowers to affirmatively notify their lenders and servicers of their Safe at Home program participation and provide their assigned Safe at Home post office box address. If a lender or servicer wishes to contact the Safe at Home office to verify a borrower’s program participation, they must provide the potential participant’s name and lot number or name and date of birth. Thereafter, if a lender or servicer must disclose the name and address of the borrower participant to sell or service-transfer the loan, the lender must obtain the prior written consent of the participant and provide the name and contact information of the transferee to the participant, so that the participant may give the transferee the Safe at Home program notice. 

Safe at Home participants cannot, however, protect their information in property records retroactively. This means that if an individual purchases a property and obtains a mortgage without the required Safe at Home program procedures, the Safe at Home program will not apply. The Safe at Home office will not provide the required forms to individuals trying to enter the program after purchasing a home or when trying to refinance a mortgage that was not part of the program.

Once properly notified, the mortgage servicer or lender must accept a participant’s Safe at Home address as the person’s actual address of residence, school address, and as their address of employment. When mailing to a Safe at Home participant, the sender must always include the participant’s name and lot number.

A Safe at Home participant cannot be required to disclose his or her home address for financial account records. Thus, financial institutions must not require a participant to disclose his or her home address in order to be Customer Identification Program (CIP) compliant. For CIP compliance, instead of the participant’s home or business address, the financial institution is required to use a non-public, designated street address by the Office of the Minnesota Secretary of State, which can be obtained by calling (651) 201-1399.

If a mortgage servicer must serve a participant with legal process, the Office of the Minnesota Secretary of State acts as the agent for service of process for all program participants. In order for the Safe at Home office to accept service of process on behalf of a participant, the service documents must also include the participant’s name and lot number. This aspect presents an interesting issue for conducting nonjudicial foreclosures in Minnesota. The nonjudicial foreclosure statute in Minnesota requires that all “occupants” of the property be properly served with the foreclosure notices, in contrast to just all “borrowers.” Thus, service on the Secretary of State alone may be insufficient. Also, the foreclosure notices that are published and served would need to be limited as well to protect the Safe at Home borrower. Accordingly, it may be wise in such cases to proceed by judicial foreclosure, or carefully consider how the non-judicial foreclosure statutes can be complied with while also meeting the Safe at Home requirements.

Similarly, if a mortgage servicer or REO entity pursues an eviction action following foreclosure proceedings, they will want to ensure Safe at Home borrower or tenant occupants are protected from having their locations disclosed during the pendency of such an action. In various jurisdictions, it may be best to identify the case defendants as “John Doe and Mary Roe,” where acceptable to the courts, to maintain the required protections for program participants.

As a reminder, the Safe at Home participant is required to give private companies a special notice they obtain from the Safe at Home office. Receipt of the notice prohibits the private companies from sharing the participant’s name and location information with anyone unless the participant provides a prior written consent for a specific disclosure purpose. A violation of any of the provisions of the notice constitutes a misdemeanor punishable by imprisonment with a maximum time of 90 days, a fine up to $1,000, or both. 

As a practice pointer, it is critical that lenders and servicers have procedures in place to immediately identify Safe at Home participants, conceal and protect the participants’ location information system-wide, and ensure all future mailings are sent to the proper Safe at Home address. According to the Minnesota program administrator, a mortgage servicer is prohibited from even disclosing a participating borrower’s protected information to the servicer’s own agents and contractors. 

To comply with this legislation, a mortgage servicer should not share both the name and physical address of a program participant together to any third parties, absent written consent. For example, if a mortgage servicer wants a property inspection performed, the mortgage servicer should direct its vendor to inspect the physical address, without providing the name of the protected borrower to the agent conducting the inspection, unless written consent was provided by the Safe at Home participant expressly permitting the specific disclosure.

Finally, lenders and servicers will also want to coordinate with experienced, local counsel to help ensure full compliance with these types of laws through all aspects of servicing the mortgage loan.

Copyright © 2020 USFN. All rights reserved.

 

Winter USFN Report

 

Tags:  Minnesota Rules Chapter 8290  Minnesota Statutes Chapter 5B  Safe at Home 

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Decoding DiNaples: The Third Circuit Court of Appeals Analyzes the Use of QR Codes on Envelopes

Posted By USFN, Tuesday, February 4, 2020
Updated: Monday, February 3, 2020


by Lisa A. Lee, Esq.

KML Law Group, P.C.

USFN Member (PA, NJ)

 

Ah, “A Christmas Story.” It’s a classic. No matter what holiday you celebrate near the end of each year, you’ve likely seen it. Who can forget Ralphie’s epic quest to drink enough Ovaltine to earn his Little Orphan Annie Secret Society decoder pin? His anticipation when it finally arrives? (“Honors and benefits, already at the age of nine!”) And the crushing letdown when he finally decodes the message? (“’Be sure to drink your Ovaltine?’ A crummy commercial?!?”)

Times have certainly changed since Ralphie was growing up in the 1940s. Now “decoding” the information contained in a symbol, such as a quick response (“QR”) code, is simple as long as you have a smartphone. Progress is a wonderful thing, and anyone involved in a business that deals with a high volume of returned mail knows that having an automated system for sorting and routing that mail is important to an efficient operation. However, progress can sometimes come with heightened compliance risk, as was illustrated by the recent opinion of the U.S. Court of Appeals for the Third Circuit in the case of DiNaples v. MRS BPO, LLC, 934 F.3d 275 (3d Cir. 2019).

Before we get into the facts of DiNaples, a little history is in order. 

Rewind to 2014, when the Third Circuit was faced with a case in which a debt collector sent a collection letter to a consumer using an envelope with a clear window. The window was large enough to reveal several pieces of information printed on the letter inside, including both the consumer’s internal account number with the debt collector, and a QR code that, when scanned, revealed both the account number and the monetary amount of the debt. The case was Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d Cir. 2014), the holding of which seems axiomatic today. The Douglass Court found that revealing the personally identifiable information of the consumer in a way that was visible from the outside of the envelope violated the Fair Debt Collection Practices Act (“FDCPA”), specifically 15 U.S.C. §1692f, which prohibits a debt collector from using any “unfair or unconscionable” means to collect a debt, including:

[u]sing any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. 15 U.S.C. §1692f(8).

Notably, the Douglass Court declined to affirm the District Court’s reasoning that the information revealed by the debt collector met a “benign language exception” to §1692f(8).  The benign language exception evolved, and was embraced by the court below, because the plain language of §1692f(8) allows only for the inclusion of the debt collector’s address, and possibly its business name (if that name does not signal that debt collection is the nature of the business), on an envelope. Because more information is obviously necessary in order to send the mail at all, an exception for other “benign” language and symbols developed to prevent an absurd result from a literal reading of the statute. Id. at 302-303. This exception was meant to capture the use of language and symbols that did not serve to either 1) reveal the purpose of the letter as debt collection, or to 2) “humiliate, threaten or manipulate” the recipient. Id. at 301. Other courts of appeals had found such an exception for innocuous language on the face of an envelope, such as the phrase “Priority Letter.” See, Goswami v. American Collections Enterprise, Inc., 377 F.3d 488 (5th Cir.2004). 


In Douglass, however, the Court found that because the consumer’s account number was not “benign” as a threshold matter, they would not entertain the larger question whether such an exception was warranted as a general rule. In the Court’s eyes, the account number was a piece of information that, when revealed to third parties, could expose the consumer’s financial difficulties. Therefore, its revelation violated a core concept of the FDCPA, the prohibition on “invasion of privacy.” Id. at 303. Interestingly, the plaintiff in Douglass had declined to pursue her argument that inclusion of the QR code on the envelope violated the FDCPA. Because this issue had been abandoned, the Douglass Court did not address it at all, paving the way for the DiNaples case, which was first filed in the U.S. District Court for the Western District of Pennsylvania the following year in 2015.

The facts of the DiNaples case are simple. The debt collector sent DiNaples a collection letter in an envelope that contained a QR code printed on the outside. When scanned, the QR code revealed a string of numbers that included DiNaples’ internal account number with the debt collector.  DiNaples, 934 F.3d at 277. DiNaples filed a class action lawsuit alleging that inclusion of the QR code on the envelope violated §1692f(8) of the FDCPA. The District Court granted summary judgment in favor of DiNaples on the issue of liability, and the debt collector appealed.

On appeal, the Third Circuit starts out by confirming that DiNaples had standing to sue because she had suffered a “concrete” injury when the QR code embedded with her internal account number was revealed on the outside of the envelope. The Court notes in its analysis that disclosure of private information embedded in a QR code that “anyone could easily scan and read,” raises core invasion of privacy concerns. Id. at 280. Therefore, it was not necessary for DiNaples to show anything other than the revelation of her private information in order for her to establish standing to sue. Id. at 280.

Moving on, the Court turns to a discussion of the particular conduct of the debt collector, likening it to the conduct of the debt collector in the Douglass case. Id. at 281. The debt collector in DiNaples attempted to argue that Douglass was distinguishable because the QR code, unlike the account number at issue in Douglass, was “facially neutral” and did not reveal any information unless it was scanned by a third party, in effect arguing that a benign language exception should apply. Id. at 282. The DiNaples Court was not persuaded, having previously noted that the District Court had found that a QR code could be scanned by “any teenager with a smartphone app,” and that use of the code was not materially different that simply printing the account number on the envelope. Id. at 282. 

The debt collector in DiNaples also argued that, even if its conduct violated the FDCPA, it should be able to avail itself of the bona fide error defense contained in 15 U.S.C. §1692k(c). That section provides that a debt collector cannot be held liable for a “violation that was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” Id. at §1692k(c). The Court looked to the Supreme Court’s holding in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich L.P.A., 559 U.S. 573, 130 S.Ct. 1605, 176 L.Ed.2d 519 (2010), for the proposition that “the bona fide error defense in §1692k(c) does not apply to a violation of the FDCPA resulting from a debt collector’s incorrect interpretation of the requirements of that statute.” Id. at 604–05, 130 S.Ct. 1605, and went on to find that the conduct in DiNaples was not protected as a bona fide error because the debt collector intentionally printed the QR code on the envelope. The facts that the debt collector was well intentioned and did not believe that it was violating the FDCPA did not change the analysis that the conduct resulted from a mistake of law, rather than from a mistake of fact. Id. at 282.

The DiNaples opinion serves as a cautionary tale, and as a reminder for all who are compliance minded that what’s on the outside of an envelope is just as important as what’s on the inside.


Copyright © 2020 USFN. All rights reserved.

 

Winter USFN Report

  

Tags:  Douglass v. Convergent Outsourcing  quick response (“QR”) code  technology 

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California Governor Signs Statewide Rent Control Bill

Posted By USFN, Tuesday, February 4, 2020
Updated: Monday, February 3, 2020


by Kayo Manson-Tompkins, Esq.

The Wolf Firm

USFN Member (CA, ID, OR, WA)


California has painstaking rent control and eviction control ordinances in cities such as Los Angeles, Santa Monica, San Francisco, Oakland, and Berkeley, to name a few. Historically, however, in reality there have only been a few cities with rent control ordinances. Therefore, for most of California the standard process for post-foreclosure evictions has been used. The California legislature introduced and passed Assembly Bill 1482 designed to establish statewide rent control and despite opposition from landlords and mortgage servicers, the Governor signed the bill, which became effective January 1, 2020.

The primary purpose of this bill was to prevent landlords throughout the state from arbitrarily raising rental amounts. This Bill caps rental increases to 5% plus inflation, or 10%, whichever is lower. The Act will sunset January 1, 2030.

New Civil Code Sections 1946.2 and 1947.12 became effective January 1, 2020. These sections prohibit property owners from terminating a lease of a tenant who has been occupying the property for 12 months, without “just cause” and the “cause” must be stated within the notice. Additionally, there is a new requirement that a notice of violation and opportunity to cure must be served before the notice of termination, for those instances where the violation is curable. Furthermore, a no-fault “just cause” eviction will require relocation assistance of at least the equivalent of one month’s rent. If the relocation is not paid, the notice of termination will be declared void. These provisions cannot be waived by the tenant, and if an attempt is made to do so, the waiver of rights provision will be declared void. It is important to note that despite the “statewide” provisions there is nothing to prevent existing local rent control and eviction control ordinances from having a higher level of protection for their tenants.  

Pursuant to the California Constitution (Cal Const, Art. XI § 7), California rent control and eviction control provisions are a valid exercise of a city’s police power within that city’s own jurisdiction. More specifically it states that “a county or city may make and enforce within its limits all local, police, sanitary and other ordinances and regulations not in conflict with general laws”. The scope of this police power is subject to displacement by general state law where the charter or ordinance purports to regulate a field fully occupied by state law. (Birkenfeld v. Berkeley, (1976) 17 Cal. 3d 129).

California has 482 cities and for those cities that do not currently have a rent or eviction control ordinance, they may opt to simply abide by the provisions of the newly enacted statutes. Cities may however, if they want additional requirements, to create their own “rent control” ordinance or a “just cause” eviction ordinance. The question remains what existing ordinance(s) will become the template for drafting their ordinance. Property owners can only hope that the majority of cities will either elect to simply follow the limited provisions of Civil Code Sections 1946.2 and 1947.12 or alternatively create uniform more limited ordinances, as opposed to mirroring the rigorous existing ordinances in Los Angeles, Santa Monica, San Francisco, Oakland, and Berkeley, by way of example.  

Servicers should ensure that they have procedures in place s to determine who is occupying the property as soon after the foreclosure sale as possible. Furthermore, it is imperative that the eviction attorney be notified of whether there are tenants in the property, as the type of occupancy will require different notices, as well as a relocation fee in order to remove tenants from the premises.

This article is not intended to be an extensive or exhaustive review of all the nuances of either rent control or just cause eviction control ordinances, but rather an introductory overview of what the new statewide rent control statutes provide and how it affects the ability of a servicer to proceed with a normal post-foreclosure eviction.


Copyright © 2020 USFN. All rights reserved.

 

Winter USFN Report

 

Tags:  Assembly Bill 1482  California  REO/Eviction 

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Associations and Receiverships: Will the Mortgagee Be Required to Pay?

Posted By USFN, Tuesday, February 4, 2020
Updated: Monday, February 3, 2020


by Jane E. Bond, Esq. and Matthew Morton, Esq.

McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

 

Receivership and homeowners’ associations are strange bedfellows.  Instead of filing an action to collect assessments, associations are turning towards receivership actions.  A receivership action allows a receiver to be appointed to manage and rent the property out with such funds used to recoup expenses and assessments along with an equitable lien for any expenses or assessments not recovered from the rental of the property. 

 

In Florida, this process is authorized by Fla. Stat. §720.3085(1)(e), (8)(a) and (8)(f) and further requires the association to serve and provide the lender with a copy of the petition before obtaining an order granting same if the lender is going to be responsible for any amounts associated with the receivership.

 

This issue played out in Fannie Mae v. JKM Servs., LLC, 256 So. 3d 961 (Fla. 3d DCA 2018).  In JKM, the association filed an action for a receiver for units subject to foreclosure actions or soon-to-be-filed foreclosure actions.  Id. at 964. The court granted the petition and appointed JKM Services as the receiver on behalf of the association.  Id. Subsequently, the lender completed their foreclosure action, was the successful bidder at the foreclosure sale and acquired title to a property under this receivership.  Id. at 965.  The receiver never notified the lenders of the receivership and, even after foreclosure was filed, never asserted its existence in the foreclosure action.  Id.

 

The lender sought the safe harbor amount due to the association.  Id. Instead of receiving the safe harbor amount, the lender received an amount from the receiver which included multiple years of past due assessments, receiver’s fees and attorneys’ fees, among other expenses.  Id.  The lender filed a motion to intervene in the receivership to limit amounts to safe harbor, which was denied.  Id.  In reversing, the court held that the lender was not a party to the initial petition for receivership nor were they noticed of same until such time as they became owner of the property.  As such, the court in JKM held that the lender did not become liable or responsible for the fees or any amounts beyond the safe harbor amount. Id. 969.

 

In light of the rationale of JKM, it is important that any lender served with such a petition take immediate action to oppose and prevent the entry of an order of receivership.  The question becomes how should a lender protect its interest?

First, the lender should review whether the mortgage includes a clause regarding the appointment of a receiver or assignment of rents.  If either exists, they should be asserted in opposition to any petition. Second, the lender should review the loan and, if appropriate, move forward with foreclosure.  Lastly, the lender should review whether the property is vacant or occupied by someone other than the borrowers as Fla. Stat. §702.10 allows a court to order mortgage payments be deposited monthly with the clerk of court until judgment is entered. 

 

If it appears that the court will appoint a receiver, a lender should assert in opposition that any receivership be granted for a limited duration, that any expenses above a specified amount be approved by the court before being incurred and that monthly statements be filed with the court reflecting how monies received are applied. 

 

In summary, receivership actions have become a tool used by associations to try to benefit from those properties, but it only becomes an effective tool if the lender is noticed and fails to take action to address same.  As such, any attempt to obtain a receivership should be addressed timely to avoid the imposition of a receivership.

Copyright © 2020 USFN. All rights reserved.

 

Winter USFN Report

 

Tags:  Florida  Foreclosure - HOA  Receiverships 

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Clarifying 'Usual Place of Abode' in SCRA Collection Cases

Posted By USFN, Tuesday, February 4, 2020
Updated: Monday, February 3, 2020


by Blair Gisi, ESQ. 
SouthLaw, P.C. 
USFN Member (IA, KS, MO, NE)

In overturning the default judgment granted against the debtor in Coastal Credit, LLC v. McNair, 446 P.3d 495 (Kan. Ct. App. 2019), the Kansas Court of Appeals has recently made an important ruling regarding service of process on active military debtors.

The debtor in McNair was in active status in the Army and stationed in Africa when the financing contract he had entered into to purchase a car went into default.  After the default, the creditor repossessed the car, sold it, and then filed a limited action against the debtor to pursue the remaining deficiency.

While the debtor was stationed in Africa, his family was living in Manhattan, KS and in February 2014, the process server executed service upon the debtor’s family at the “usual place of abode” per the process server’s field notes.  It was also noted that that the debtor was in the military and stationed in Africa until June 2014.

The debtor failed to respond or appear to any of the subsequent pleadings and hearings and after complying with the relevant Servicemembers Civil Relief Act (SCRA) requirements, default judgment was granted against the debtor in August 2015.  When the debtor noticed his wages being garnished in October 2017, he sought to set aside the judgment and disgorge the garnished funds.

To support his motion, the debtor argued that the service was ineffective since the debtor was not served at his “usual place of abode” as defined by Coleman v. Wilson, 1995 Kan. App. Unpub. LEXIS 932 (Ct. App. Dec. 1, 1995).  In that case, this court held that a military service person's usual place of abode is where the person lives, eats, sleeps, and works at the time of the attempted service.  However, the district court denied debtor’s motion on the grounds that service on the debtor’s wife at their Manhattan, Kansas residence as the usual place of abode and that the service was valid.  Debtor timely appealed that ruling.

Focusing on the “usual place of abode” argument, which comes from Kan. Stat. Ann. § 61-3003, the Court of Appeals overturned the district court. 

The Court of Appeals began its analysis with the legislative intent of K.S.A. 2018 Supp. 77-201 which provides:

Usual place of residence' and 'usual place of abode,' when applied to the service of any process or notice, means the place usually occupied by a person. If a person has no family, or does not have family with the person, the person's office or place of business or, if the person has no place of business, the room or place where the person usually sleeps shall be construed to be the person's place of residence or abode.

Finding that the legislative intent of the statute was clear and unambiguous, the Court of Appeals applied the statute to mean that the debtor’s usual place of abode in this situation was “the room or place where he usually slept,” which at the time, was in Africa.  The Court of Appeals went on to further state that a person’s usual place of abode may be determined on a case-by-case basis and had the debtor been on vacation or brief business trip to Africa, for instance, then the Manhattan would have constituted his usual place of abode.  Here, the active military deployment to Africa for six months was enough to shift his usual place of abode from his family’s residence to Africa.

The Court of Appeals also made an interesting distinction between a family’s usual place of abode the debtor’s usual place of abode in finding that that there was ineffective service on the debtor, stating that they are not necessarily the same and that the family’s usual place of abode does not control the debtor’s usual place of abode.

When attempting service on an active military debtor, the McNair case serves as an outline for both the scrutiny the debt collector may face in obtaining a default judgment as well as the additional steps that may be necessary in ensuring the judgment can withstand that scrutiny.

Copyright © 2020 USFN. All rights reserved.

Winter USFN Report

 

Tags:  Bankruptcy  Kansas  Servicemembers Civil Relief Act (SCRA) 

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December 2019 Member Moves + News

Posted By USFN, Thursday, January 16, 2020

 

Lerner, Sampson & Rothfuss (USFN Member – KY, OH) was in the holiday giving spirt and collected four large bins of non-perishable food and personal care items for the Freestore Foodbank, 4 large bags of toys for the Marine Toys for Tots Foundation, $600 in monetary donations and also again sponsored five children from Child Focus.



Shelby NusralaMartin Leigh PC (USFN Member – KS, MO) is proud to announce that our Director of Administration, Shelby Nusrala, received her Certified Legal Manager (“CLM®”) designation on November 4, 2019.  Obtaining the CLM credential is a significant achievement that requires a mastery of the essential knowledge, skills, and abilities of a professional legal manager in the areas of human resource management, organizational development, financial management, business management, legal industry, technology, operations, communications, and self-management. 

To earn a CLM, candidates must apply their professional experience, complete educational coursework, and pass a comprehensive exam that covers all areas of legal management.  In 2018, Shelby received her Professional in Human Resources (PHR®) certification.  Ms. Nusrala is an integral part of MLPC’s day-to-day operations and passing these two exams exemplifies her ongoing commitment to growth both personally and professionally.  Congratulations Shelby!


Copyright © 2020 USFN. All rights reserved.

 

Tags:  Certified Legal Manager  Lerner  Martin Leigh PC  Sampson & Rothfuss  Shelby Nusrala 

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USFN Publications Year in Review – 2019

Posted By USFN, Wednesday, January 8, 2020

by James Pocklington, Publications Committee Chair                         
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

and Jessica Rice, Publications Committee Vice Chair 
Trott Law, P.C.        
USFN Member (MI, MN)

2019 was an active year, with events ranging from organizational changes at USFN to landmark legal decisions like Obduskey v. McCarthy & Holthus LLP. Below are links to content that was published in USFN publications throughout the year, categorized by jurisdiction and subject matter.

 

Foreclosure/General

Bankruptcy

REO

Legislative/Regulatory

National

Supreme Court Grants Certiorari in FDCPA Statute of Limitation Case 3/25/19

Obduskey v. McCarthy & Holthus LLP Supreme Court Decision a Win for the Industry 3/27/19

USFN Briefing Follow-up: Obduskey v. McCarthy Holthus LLP 4/15/19

Federal Court Clarifies Mortgage Servicer Responsibilities after Loan Transfers 4/15/19

Recent U.S. Supreme Court Decision to Have Significant Industry Impact 5/8/19

Controlling What You Can When Managing a Natural Disaster Event 7/17/19

U.S. Supreme Court Sets Legal Standard for Violations of Bankruptcy Discharge Order 7/8/19

USFN Briefing Follow-up: Bankruptcy 10/14/19

USFN Briefing Follow-up: REO/Eviction 6/17/19

July 2019 USFN Briefing Follow-up: REO/Eviction 8/12/19

CFPB: Year in Review & Advance 5/13/19

Freddie Mac Adjusts Approved Attorney Fees 6/17/19

 

 

First Circuit

U.S. First Circuit Court of Appeals Allows Integrated Business Record Exception to Hearsay 6/17/19

Chase v Thompson Prior Holding Vacated by First Circuit Court of Appeals 7/31/19

 

 

 

Third Circuit

Recent Cases Help to Interpret the Fair Debt Collection Practices Act 5/8/19

 

 

 

Fifth Circuit

Fifth District Court Holds Bank Entitled to Designate Corporate Representative for Deposition 7/16/19

Fifth Circuit Clarifies Servicer’s Loss Mitigation Obligations 7/16/19

 

 

 

Sixth Circuit

Recent Cases Help to Interpret the Fair Debt Collection Practices Act 5/8/19

 

 

 

Seventh Circuit

Recent Cases Help to Interpret the Fair Debt Collection Practices Act 5/8/19

 

 

 

Eight Circuit

Federal Court Clarifies Mortgage Servicer Responsibilities after Loan Transfers 4/25/19

 

 

 

Eleventh Circuit

 

Eleventh Circuit Court of Appeals Maintains Mortgage Statements Don't Violate Bankruptcy Code 10/10/19

 

 

Arizona

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

3/25/19

 

 

 

California

California Supreme Court Limits Application of the State’s Anti-Deficiency Statute 7/15/19

California 5th Appellate District Reverses an Award of Attorney’s Fees Following Granting of Temporary Restraining Order 12/18/19

 

California Eviction Timelines Changing 10/15/19

California State Military and Veterans Code Updated 3/25/19

Central District of California Loan Modification Management Pilot Program Streamlines Review Process 12/18/19

California to Allocate $331 Million to Provide Legal Assistance to Renters and Homeowners 12/18/19

 

Connecticut

Appellate Court Rules Originating Lender Not Liable for Alleged Bad Acts by Mortgage Broker 4/15/19

Connecticut Supreme Court Reversal Will Affect Foreclosure Disputes 8/12/19

Connecticut Appellate Enforced Mortgage Where Witness Not Present at Closing 10/15/19

Trial Court Decision on Standing, Laches, Unclean Hands Upheld on Appeal 10/21/19

Awarding Committee for Sale’s Fees and Costs Does Not Violate Automatic Stay 12/18/19

Connecticut Case Addresses Bankruptcy Stay’s Impact on Judgments of Strict Foreclosure 12/18/19

Crumbling Foundation in Connecticut and Appraiser Liability 12/18/19

Awarding Committee for Sale’s Fees and Costs Does Not Violate Automatic Stay 12/18/19

Connecticut Case Addresses Bankruptcy Stay’s Impact on Judgments of Strict Foreclosure 12/18/19

July 2019 USFN Briefing Follow-up: REO/Eviction 8/12/19

 

Georgia

 

 

July 2019 USFN Briefing Follow-up: REO/Eviction 8/12/19

 

Illinois

Illinois Court Finds General Denial as Admission Condition Precedent 7/17/19

 

July 2019 USFN Briefing Follow-up: REO/Eviction 8/12/19

 

Kansas

Reverse Mortgage Redemption in Kansas 8/12/19

 

Total Debt Bids in Kansas 10/10/19

 

 

 

Maryland

I Can Name That Tune in One (Lost) Note 8/12/19

 

 

Important Changes to the Enforceability of Maryland Tax Liens 8/12/19

Michigan

If Mortgage Debt is Not Paid in Full, Funds Beyond Mortgagee’s Bid are Not Surplus Proceeds 6/18/19

 

 

 

Nebraska

 

 

USFN Briefing Follow-up: REO/Eviction 6/1719

 

New Hampshire

 

 

 

New Hampshire Bill Proposes Change in Foreclosure Process from Nonjudicial to Judicial 6/17/19

New Jersey

New Jersey: Appellate Court Finds Lost Notes May Be Enforced Even if Not in Possession When Lost 5/20/19

 

 

New Jersey Enacts Nine Bills Affecting Residential Foreclosure Process 7/15/19

New York

New York Court of Appeals Considering Two Key Statute of Limitations Cases 12/18/19

 

 

New York Announces Creation of Consumer Protection and Financial Enforcement Division 7/15/19

North Carolina

In re George: Innocence Won 3/25/19

Status of Title Post FC Sale in North Carolina – You Better Get It Right the First Time! 5/20/19

North Carolina: Lost Notes Can Be Used in Power of Sale Foreclosure When Present Holder Lost Note 5/20/19

 

 

 

Ohio

Adoptive Business Records in Ohio’s Courtrooms 6/17/19

 

 

 

Ohio Senate, House Bills Focus on Lending Industries, Notaries 5/20/19

Ohio Legislature Enacts New Requirements for Mortgage Servicers 5/20/19

Oklahoma

Oklahoma Recognizes Priority of Mortgage Over HOA Liens 10/15/19

 

 

Oklahoma Amends Statute Regarding Sheriff’s Appraisals 10/15/19

Oregon

 

 

Tips for Oregon REO Property Owners in Navigating the New Landlord-Tenant Terrain 8/12/19

 

Rhode Island

Rhode Island Federal Court Ruling Could Change GSE Nonjudicial Foreclosure Process Across the Country 4/15/19

 

 

 

South Carolina

South Carolina: Lender’s Loan Application Process Did Not Violate Attorney Preference Statute 5/20/19

 

 

 

South Carolina House Bill 3243 Streamlines Filing Fees for Real Estate Documents 10/15/19

South Carolina Legislature Authorizes Department of Revenue to File Tax Liens Statewide with an Online Database System 4/15/19

South Carolina Enacts Servicemembers Civil Relief Act 6/17/19

Vermont

 

Pretty Penny to Pay for Violating Rule 3002.1(c) 10/15/19

 

 

Washington

Could Your Loan be at Risk? 10/15/19

 

 

 

 

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Central District of California Loan Modification Management Pilot Program Streamlines Review Process

Posted By USFN, Wednesday, December 18, 2019



by Joseph C. Delmotte, Esq. and Gilbert R. Yabes, Esq.
Aldridge Pite, LLP
USFN Member (CA, GA, HI, ID, NY, OR, UT, WA)

Over the past several years, a growing number of districts across the country have identified an opportunity to provide an additional avenue for borrowers to pursue their loss mitigation options under the supervision of the bankruptcy courts resulting in the creation of numerous programs. Although the broad purpose of these loss mitigation programs is the same and there are similarities in the way they’re structured and implemented by the bankruptcy courts, there are also a number of differences amongst the programs. The states and districts which recently adopted such programs have had the benefit of observing more long-standing programs to determine what works and what does not in order to implement more functional and efficient programs.

The United States Bankruptcy Court for the Central District of California is one of the recent districts to implement a court supervised loss mitigation program and in so doing; it has incorporated several distinct features which offer the potential for an improved, more streamlined review process.  As indicated by its name, the Loan Modification Management Pilot Program (“LMM Program”) is currently only a pilot program with a small number of selected judges participating though the program recently expanded to include several additional judges. According to the LMM Program procedures, the goal of the program is to facilitate communication and the exchange of information in a confidential setting and to encourage the parties to finalize a feasible and beneficial agreement under the supervision of the Bankruptcy Court for the Central District of California.

One of the primary distinguishing characteristics of the LMM Program is the role of the program manager. The person in this role is both experienced in bankruptcy loss mitigation and actively involved from the commencement of the program in facilitating the exchange of information and documentation between the parties to ensure the process moves forward in an expeditious manner. Furthermore, unlike many other districts which appoint a mediator at the outset and permit multiple mediation hearings, the LMM Program does not appoint a mediator unless mediation is requested at the completion of the review process which likely results in fewer required mediation hearings.

The LMM Program also utilizes mandatory forms for its motions and orders which simplifies the process required to commence and terminate the LMM Program, as well as the process for obtaining court approval to enter into a finalized loan modification agreement. All of these factors combine to make the LMM Program one of the most efficient and user-friendly court supervised loss mitigation programs available.

Given their popularity and unique ability to provide a transparent yet confidential forum to conduct the loss mitigation review process under the supervision of the bankruptcy courts, loss mitigation programs similar to the LMM Program in the Central District of California will likely continue to expand to other districts and states across the country. Furthermore, if the LMM Program is any indication, bankruptcy courts interested in adopting similar loss mitigation programs in the future will have a strong vantage point to design better, more efficient processes based on their ability to analyze and review the successful features of currently existing programs. 
 


Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  Bankruptcy  Loan Modification Management Pilot Program  United States Bankruptcy Court for the Central Dis 

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New York Court of Appeals Considering Two Key Statute of Limitations Cases

Posted By USFN, Wednesday, December 18, 2019


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

New York’s Court of Appeals (highest court) is currently considering two statute of limitations (“SOL”) cases relating to mortgage foreclosures, providing hope that 2020 will be the year that servicers and their counsel finally get some relief, or at least clarity and predictability. 


In Freedom Mtge. Corp. v. Engel, 163 A.D.3d 631 (2d Dep’t 2018), lv. app. granted 103 N.Y.S.3d 12 (APL-2019-00114), which the Court has already agreed to consider on the merits, the issue is whether a lender who exercises the right to accelerate by initiating foreclosure may revoke that election by voluntarily discontinuing the foreclosure action at a later date. The Appellate Division, Second Department found that a lender cannot, by discontinuance alone, revoke the election to accelerate a mortgage debt. However, this is inconsistent with prior New York decisions holding that the discontinuance of a case renders all allegations null and void, as if never made. There is no logical reason why the election to accelerate made in a complaint should not be deemed revoked when all other allegations are voided by the discontinuance.

In Bank of New York Mellon v. Dieudonne, 171 A.D.3d 34 (NY App. Div. Second Dept., March 13, 2019), the servicer has asked the Court of Appeals for permission to appeal from a ruling that rejected a line of cases standing for the proposition that a mortgage drawn on the Fannie Mae/Freddie Mac Uniform Instrument could not be deemed accelerated until the entry of final judgment (i.e., when the borrower loses the contractual right to cure arrears and reinstate the installment contract). In Dieudonne, the Appellate Division, Second Department, held that the lender’s right to accelerate is independent of the borrower’s right to reinstate. The Court held that “[c]ontrary to the plaintiff’s contention, the reinstatement provision in paragraph 19 of the mortgage did not prevent it from validly accelerating the mortgage debt.” Even though “[t]hat provision effectively gives the borrower the contractual option to de-accelerate the mortgage when certain conditions are met”, the lapsing of that right is not a condition precedent to acceleration.

USFN will be moving for permission to file an amicus brief in support of Freedom Mortgage in the Engel case, and has already filed a motion for permission to file an amicus brief in support of the servicer’s motion in Dieudonne. In the brief filed with its motion, USFN argued several policy reasons why SOL reform is needed as it pertains to mortgage foreclosures in New York. Among the reform suggestions offered to the Court by USFN are that Engel and Dieudonne should both be reversed. While these reversals would not necessarily be a cure-all for SOL challenges in New York, they would certainly go a long way to removing the time bar that prevents the foreclosure of many loans today. Stay tuned for updates in the coming months!

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  amicus brief  Bank of New York Mellon v. Dieudonne  foreclosure  Freedom Mtge. Corp. v. Engel  New York Court of Appeals 

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California 5th Appellate District Reverses an Award of Attorney’s Fees Following Granting of Temporary Restraining Order

Posted By USFN, Wednesday, December 18, 2019



by Kayo Manson-Tompkins, Esq.
The Wolf Firm
USFN Member (CA)

One provision of the California Homeowner Bill of Rights (“HBOR”) awards a borrower attorney’s fees and costs for violating HBOR.  See Civil Code section 2924.12.  If a foreclosure sale has not taken place, a borrower can file an action and seek to enjoin the sale due to a material violation of the HBOR statutes. 

Typically, the borrower will seek a temporary restraining order (“TRO”) and will provide only one day's notice that he/she will be going into court to seek the TRO.  Since there is little prior notice, and/or often counsel is unable to obtain authorization to appear at the TRO hearing, the court grants the TRO.  The court schedules an order to show cause (OSC) hearing for approximately 15 days in the future.  It is at this hearing that the parties have an opportunity to present to the court the arguments and evidence as to whether a preliminary injunction should be granted by the court.

In Lana Hardie v. Nationstar Mortgage LLC (2019), 32 Cal. App. 5th 714, Hardie filed an ex parte application for a TRO and requested fees and costs within the body of the memorandum of points and authorities.  Although there was a discussion during the hearing that the court was only granting a TRO and not awarding fees and costs, the actual form order awarded $3,500.00.  Nationstar Mortgage immediately filed an appeal.

The trial court had a lengthy discussion on whether it was appropriate to grant fees and costs at the TRO stage.  It looked first to the statute itself.  Section 2924.12 states:

 

 “A court may award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section.  A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.”

 

The court stated that the plain meaning of the statute is to award fees and costs to a borrower who obtained “injunctive relief.”  The statute does not distinguish between temporary, preliminary or permanent, so under this plain meaning, the attorney's fees are authorized.  Therefore, section 2924.12 authorizes a court, "in its discretion", to award fees and costs to a prevailing party who obtains a TRO.  However, the appellate court reversed the lower court's ruling, based on a procedural issue as the request for the TRO was not adequately noticed.

The importance of the Hardie decision is to send a clear message that one cannot ignore an ex parte hearing for entry of a TRO.  The risk of an award of attorney fees is very real.  It is important to remember that some orders are issued on a court form which includes fees and costs, regardless of whether it was properly requested.   As a result, irrespective of whether or not the ex parte papers notice a request for fees and costs, steps should always be taken to appear at all TRO hearings.

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  California  California Homeowner Bill of Rights  Lana Hardie v. Nationstar Mortgage LLC 

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California to Allocate $331 Million to Provide Legal Assistance to Renters and Homeowners

Posted By USFN, Wednesday, December 18, 2019



by Kayo Manson-Tompkins, Esq.

The Wolf Firm

USFN Member (CA)

 

As part of the National Mortgage Settlement entered into in 2012, funds were allocated to the states to assist with the housing crisis and California was allotted over $400 million.  The State Legislature enacted Gov. Code 12531, which provided that funds could be used to offset general fund expenditures for the 2011-2014 fiscal years.  In 2014, the National Asian American Coalition filed a suit against the Governor, Director of Finance, and the State Controller seeking the return of the funds.   

The Court of Appeals in 2018 held that $331 million was to be returned and directed Governor Newsom to return the funds for its intended purpose.  During the 2019 legislative session, Senate Bill 113 was approved by the governor and will take effect immediately.

As a result of this bill, $331 million will be deposited into a trust for non-profit organizations to provide legal assistance to homeowners to prevent a foreclosure, defend an eviction, or to aid housing counselors in other housing related situations.  The ultimate goal will be to provide an ongoing source of funds to legal aid organizations to assist renters and homeowners.

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  California  California Senate Bill 113  National Mortgage Settlement 

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Awarding Committee for Sale’s Fees and Costs Does Not Violate Automatic Stay

Posted By USFN, Wednesday, December 18, 2019


by Kevin Galin, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

 

The Connecticut Supreme Court recently visited the question of whether state courts have jurisdiction to extend the automatic stay provisions of 11 U.S.C. § 362 (a) (1) to motions by those court appointed attorneys that administer foreclosure sales (called “committees for sale” or “committees” in Connecticut foreclosure practice. The committees perform duties similar to auctioneers) to recover fees and expenses from non-debtor foreclosure plaintiffs.  In a decision stemming from a writ of error filed by the committee for sale, the Court held that an award of a committee’s fees and costs during a bankruptcy stay does not violate the applicable provisions of the Bankruptcy Code.

In U.S. Bank, N.A. as Trustee v. Jacquelyn N. Crawford et.al, 333 Conn. 183 (2019), the trial court entered a judgment of foreclosure by sale, and pursuant to Connecticut practice, appointed a committee to conduct the sale. After the sale had been conducted but prior to the sale approval, the defendant-mortgagor filed for Chapter 13 bankruptcy protection, automatically staying the proceedings. The committee nonetheless filed a motion pursuant to Connecticut General Statute § 49-25,[1] which sought to recover fees and expenses incurred prior to the filing of the bankruptcy petition in preparing and conducting the sale.

The trial court considered itself bound by Equity One, Inc. v. Shivers, 150 Conn. App. 745 (2014), a prior Connecticut Appellate Court decision which held that such motions for award of committee’s fees were prohibited from being awarded as violative of the automatic bankruptcy stay provisions of 11 U.S.C. § 362 .  In doing so, the Appellate Court in Shivers held that even though the committee’s motion did not directly affect the defendant, since these fees and costs would be able to be sought by plaintiff at the conclusion of the case, such a motion was subject to the stay.  Relying upon Shivers, the trial court here denied the committee’s motion. The committee’s writ of error followed.

In Crawford, the Connecticut Supreme Court overrules Shivers to the extent that Shivers held that state courts have jurisdiction to extend the automatic stay provisions to proceedings against non-debtors, in particular, the committee for sale appointed in a foreclosure action. The Court first visits the issue of whether or not the denial of the committee’s motion for an award of attorney’s fees is a reviewable issue, which the Court finds that it is.[2] The Court then acknowledges that while the writ of error was rendered moot during the pendency of the writ of error, in that the automatic stay was terminated by virtue of the defendant-mortgagor’s bankruptcy case being dismissed, the claim is reviewable under the capable of repetition, yet evading review exception to the mootness doctrine. 

In doing so, the Court describes this issue to be one that is “of some public importance” as a committee for sale functions as an arm of the court in a judicial sale and that under the Shivers holding, attorneys may be more reluctant to serve as sale committees if they run the risk of being rendered unable to recover their fees and expenses promptly, and without having to seek a judgment from the bankruptcy court, if the debtor declares bankruptcy.

Crawford reinforces the significance of the public policy served by resolving foreclosures expeditiously and further emphasizes the importance of the sale committee’s role in doing so.   It also highlights the relationship between federal bankruptcy proceedings and state court foreclosure actions, clarifies the responsibility of a mortgage servicer to pay committee of sale fees and expenses, notwithstanding a pending bankruptcy of a defendant, and now puts Connecticut state law with respect to this issue in line with most of the holdings of the Bankruptcy Courts for the District of Connecticut. Although there is a split of authority amongst Connecticut’s Bankruptcy courts on the payment of fees and costs during a bankruptcy, further challenges on this issue in Bankruptcy Courts are expected.



[1] General Statutes § 49-25 provides in relevant part: ‘‘[I]f for any reason the sale does not take place, the expense of the sale and appraisal or appraisals shall be paid by the plaintiff and be taxed with the costs of the case. . . .’’

[2] Justice McDonald’s dissenting opinion, with whom Justices Mullins and Kahn join, while conceding that the Shivers decision is inconsistent with the conclusions reached by several federal bankruptcy courts, disagrees with the majority result insofar as the majority finds that the denial of a motion for an award of committee’s fees is an immediately appealable order and therefore the substantive issue should not be reached.

Copyright © 2019 USFN. All rights reserved.

December e-Update


Tags:  Connecticut Supreme Court  Foreclosure  U.S. Bank N.A. as Trustee v. Jacquelyn N. Crawford 

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Connecticut Case Addresses Bankruptcy Stay’s Impact on Judgments of Strict Foreclosure

Posted By USFN, Wednesday, December 18, 2019



by Joseph Dunaj, Esq
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)


In the case of Seminole Realty, LLC v. Sekretaev, 192 Conn. App. 405 (2019), the Connecticut Appellate Court has released an important opinion concerning the intersection of federal bankruptcy law and judgments of strict foreclosure; specifically, the effect of a bankruptcy court order imposing a stay on a pending law day.  In Seminole Realty, a judgment of strict foreclosure had initially entered in 2014, with a law day being set.  The defendant, however, engaged in a scheme to delay the foreclosure by filing multiple bankruptcy petitions to gain the benefit of the automatic bankruptcy stay under 11 U.S.C. § 362(a).  In 2018, the foreclosing plaintiff obtained an order of in rem relief under 11 U.S.C. § 362(d)(4), so that any further petition filed within two years would not impose a stay on the foreclosure.  The plaintiff then filed a Motion to Reset the law days. 

Prior to the scheduled hearing, the defendant filed another Chapter 13 Bankruptcy Petition, which did not impose a stay because of the in rem relief order.  At the hearing on the Motion to Reset, the court scheduled a law day of August 15, 2018.  On July 10, 2018, the bankruptcy court entered an order suspending the prior in rem relief order.  On September 18, 2018, the bankruptcy court then vacated its July order.  The foreclosing plaintiff then applied for an execution for ejectment, to gain possession of the premises, which was issued on November 29, 2018, from which the defendant appealed, claiming that the law days became ineffective upon the bankruptcy court’s July 10th order imposing a stay, and thus title never vested in the plaintiff.

Prior to 2002, the general presumption in Connecticut was that a law day in a judgment of strict foreclosure was indefinitely stayed by a bankruptcy petition 11 U.S.C. § 362(a).  Citicorp Mortgage v. Mehta, 39 Conn. App. 822, 824 (1995).  That changed with the Second Circuit decision of Canney v. Merchs. Bank (In re Canney), 284 F.3d 362 (2nd Cir. 2002).  In In re Canney, the Second Circuit held that because a strict foreclosure was merely a time limitation on a particular action (the time to redeem), and not a positive act to enforce a judgment, the limited stay of 11 U.S.C. § 108(b) applied instead.  In Provident Bank v. Lewitt, 84 Conn. App. 204 (2004), the Connecticut Appellate Court adopted the holding of In re Canney, and held that a judgment of strict foreclosure is subject to 11 U.S.C. § 108(b), and the filing of a bankruptcy petition serves to only extend a law day 60 days, rather than stay the law days indefinitely. 

The state legislature adopted Conn. Gen. Stat. § 49-15(b) in response to In re Canney and Lewitt.  Under that statute, when a mortgagor files a bankruptcy petition under any title of the Bankruptcy Code, the judgment of strict foreclosure is automatically opened by operation of law, but only as to the law days, with the other terms of the judgment remaining in place.  The effect of the statute is to prevent the passage of the law days upon the filing of a bankruptcy petition and avoid the result of In re Canney & Lewitt.  At that time (pre-BAPCPA), all bankruptcy petitions imposed a stay, and while efforts have been made to correct the now-outdated statute, the state legislature has been slow to act.

In Seminole Realty, the issue before the Appellate Court was the impact of the bankruptcy court’s July 10th order on the pending law day.  The Appellate Court held that Conn. Gen. Stat. § 49-15(b) only applies upon the filing of a bankruptcy petition, and only applies when a petition is filed after a court sets a law day pursuant to a judgment of strict foreclosure.  Further, the Appellate Court held that when the statute does not apply, the prior case law of In re Canney and Lewitt applies.  The Appellate Court found that when the bankruptcy court imposed a stay on July 10th, the law day was automatically extended 60 days under 11 U.S.C. § 108(b), and when the defendant failed to redeem by the expiration of his law day, title vested absolutely to the Plaintiff.

The Appellate Court’s holding in Seminole Realty has potentially broad implications.  As stated above, the court has re-affirmed the validity of the prior case law, when the strictures of Conn. Gen. Stat. § 49-15(b) do not expressly apply.  A foreclosing plaintiff would be mindful to review Seminole Realty and whether or not its holding would be beneficial to argue, especially in an aged foreclosure case with multiple bankruptcy filings.  Further, the Appellate Court in Seminole Realty, by highlighting some of the shortcomings of Conn. Gen. Stat. § 49-15(b), appears to either show its willingness to address the statute in future cases or seeks to invite the legislature to further amend the statute.  Surely, time will show how the statute will further evolve.

 

Copyright © 2019 USFN. All rights reserved.

December e-Update

 

Tags:  Bankruptcy  Connecticut  Connecticut Appellate Court  Foreclosure  Seminole Realty LLC v. Sekretaev 

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October 2019 Member Moves + News

Posted By USFN, Monday, November 4, 2019


Bendett & McHugh, P.C.
(USFN Member – CT, MA, ME, NH, RI, VT) held its 9th Annual Miles for Miracles 5k and Family Fun Walk/Run to benefit Connecticut Children’s Medical Center (CCMC) on September 21, 2019. This year the firm was able to raise $15,000 for the hospital! The firm has raised over $60,000 for CCMC since their first race back in 2010. The firm has also named two new partners: Eva M. Massimino and Sonja J. Bowser.



Lerner, Sampson & Rothfuss
(USFN Member – KY, OH) had a fundraiser for October Breast Cancer Awareness and raised $1300 to benefit the Cris Collinsworth ProScan Fund.



Martin Leigh PC
(USFN Member – KS, MO) proudly announces the addition of two new shareholders, Amy Ryan and Greg Todd. Amy is Martin Leigh’s partner in its St. Louis/Clayton office and has been with the firm since 2007. Amy manages the St. Louis office and staff while maintaining her litigation practice for Martin Leigh’s clients. Greg, a partner in the Kansas City office, has been with the firm since 2014 and manages the Missouri creditor’s rights practice and the firm’s bank transactional work. Amy and Greg have consistently exceeded the expectations of clients, the firm and its employees, exhibiting the leadership, business acumen, dedication, and legal expertise that is critical in delivering Martin Leigh’s exceptional legal services to its clients. Greg Todd and Amy Ryan join shareholders Steven M. Leigh, Thomas J. Fritzlen, Jr., and Beverly M. Weber in the executive leadership of Martin Leigh PC.

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Pretty Penny to Pay for Violating Rule 3002.1(c)

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Nisha B. Parikh, Esq. and Steven Lindberg, Esq.
Anselmo Lindberg & Associates
USFN Member (IL)

The United States Bankruptcy Court for the District of Vermont recently imposed sanctions against a mortgage servicer for violations of Rule 3002.1(c) of the Federal Rules of Bankruptcy Procedure in three consolidated cases: In Re Gravel, In Re Beaulieu and In Re Knisley, 2019 WL 2710197 (D. Vt. June 27, 2019). Rule 3002.1(c) requires that a notice be filed itemizing all recoverable fees, expenses or charges advanced post-petition by a creditor. The notice shall be filed within 180 days of the fees being incurred and shall be served on a debtor, debtor’s counsel and the trustee. 

In the consolidated cases, which all involved violations of Rule 3002.1(c), the U.S. District Court remanded the matter back to the bankruptcy court solely to focus on the court’s authority to impose punitive sanctions for violations of the bankruptcy code, ultimately levying a $300,000.00 sanction to the mortgage servicer. In its opinion, the court held the imposition of sanctions was warranted because the mortgage servicer violated Rule 3002.1(c) by failing to file Notices of Post-petition Mortgage Fees, Expenses and Charges (PPFNs).

Further, the mortgage servicer sent the debtors approximately 25 incorrect mortgage statements listing fees and costs incurred during the bankruptcy which showed the loan to be in default, post-discharge, when the loans were already determined to be current. As a result, the Chapter 13 trustee filed a motion in each case requesting that the court impose sanctions against the servicer.

In Gravel, the court entered a Debtor Current Order on May 20, 2016, determining the debtors cured all prepetition mortgage defaults and were current on their post-petition mortgage payments and any other charges or amounts due under their mortgage. Five days after the Order was entered, the Gravels received a mortgage statement from the servicer which listed outstanding property inspection fees in the amount of $258.75, even though the servicer failed to file a PPFN for those fees during the bankruptcy.

Similar to Gravel, in Beaulieu, the debtors received a mortgage statement less than three weeks after the court entered a Debtor Current Order which included a $30.00 fee for Non-sufficient funds  and another $56.25 fee for a property inspection. Again, the servicer did not file PPFNs regarding those fees during the bankruptcy.

Finally, the Knisley case mirrors the first two. In Knisley, although a Debtor Current Order was not yet entered, the servicer sent the debtors mortgage statements that included charges of $246.50 for property inspection fees and $124.50 in late charges. These charges were over 180 days old and, similar to the other consolidated cases, the servicer again failed to file PPFNs in the bankruptcy case.

By including charges on the debtors’ mortgage statements without filing PPFNs, the servicer was found to be in direct violation of Rule 3002.1(c) in all three cases. Although the fees were technically recoverable against these debtors pursuant to their respective loan documents, the servicer did not comply with the requirements of the Bankruptcy Code. These relatively small charges ultimately cost the servicer hundreds of thousands of dollars because it did not file PPFNs, which would have allowed the fees to survive a discharge and be recoverable against the debtors.

In all Chapter 13 bankruptcy cases, a mortgage creditor has 180 days from the date charges are incurred to file a PPFN. It is best practices for PPFNs be filed every 180 days to protect a creditor’s ability to collect fees, expenses, and/or other charges incurred during the course of a bankruptcy.

Outstanding and unpaid PPFNs should also be included in a creditor’s response to the trustee’s Notice of Final Cure. This will ensure that the court, debtor(s), and trustee are fully advised of the amounts due and owing to a creditor at the time the trustee filed the notice. To avoid sanctions, it is imperative that creditors consult with their local counsel to determine what fees, expenses, and/or charges are recoverable over the course of a Chapter 13 bankruptcy and can be collected post-discharge.

The servicer is currently appealing the decision, and updates will be provided through e-Update as they become available.

 

Copyright © 2019 USFN. All rights reserved.

 

Fall USFN Report

 

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Accepting Differences in Order to Advocate for Others

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019

Introduction by
Sally Garrison, Esq.
The Mortgage Law Firm, PLLC
USFN Member (AZ, CA, HI, OK, OR, WA)

Interview by
Jorge Rios-Jimenez
BDF Law Group
USFN Member (TX, GA, CO, CA, NV and AZ)

Diversity and inclusion are the watchwords of modern business. In addition to being equitable and just, there are compelling business reasons for promoting diversity and inclusion. In a rapidly changing and increasingly challenging environment, businesses must be adaptable. A diverse and inclusive workforce reduces turnover, provides stability, and fosters innovative problem solving through different perspectives to see opportunities and pitfalls that could otherwise be overlooked. USFN has established a new Diversity and Inclusion Committee dedicated to providing education and programming on this critical, and often misunderstood, area.

The first program sponsored by this committee was featured at the USFNdustry Forum in Nashville, Tennessee in June. Jessica Pettitt, M.Ed., CSP, author, comedian, and nationally recognized speaker, spoke to the attendees about being “Good Enough Now,” pushing everyone to start having the difficult conversations. In taking those risks, leaders establish a corporate mindset of learning and the habit of building diversity and inclusion over time. She challenges business leaders to take an honest inventory and move from abstract aspirations to action-based leadership. Jessica made her case in her signature voice: insight wrapped in humor. The audience was inspired, energized, and ready to start the conversation.

For those who were not able to be there, Diversity and Inclusion Committee member Jorge Rios-Jimenez interviewed Jessica to give our readers a sample of what we learned at the Forum.

How do you effectively gain buy-in from participants/employers to educate them on building welcoming and productive teams?
You can't. This is a hard answer to give and it is a typical question I get asked. I, nor you, nor anybody can make anyone do anything. You just have to work with those that are interested, even if that means doing this important work all alone as you can. These small gestures set an example for others that this work matters and is your best recruitment tool. There is a TON of research about increasing profits, talent retention, diverse recruitment, and the like and the positive effects (and affects) of diversity work that builds welcoming and productive teams and none of this is motivation for everyone to buy in. More research isn't the answer. Trying to try to set an example for work matters is all that is left to be effective. Along the way, others will feel more welcomed and become more productive.

Diversity and inclusion has been a hot topic for some time, but as of recently there seems to be more traction in expanding our awareness. Inevitably, some organizations have tried to work on this but have missed the mark. What would you recommend as something to avoid in starting these efforts?
I would avoid several things. First - a lot of organizations create metrics, like "increase diversity by 10%," without knowing what the current diversity is or even the organization's definition of diversity. There also isn't a functional timeline associated with this goal so it can never fail, nor can it ever be done. Second - trying to do diversity and inclusion work without any form of measurements. Painting a mural and having a "mandatory fun" potluck won’t solve problems without a measured plan to note current status, progress, as well as a process to respond to issues gathered. Organizations often ask for input and then do nothing with it. This feels even worse than never being asked in the first place. Third - don't set someone or a small group of interested people up to fail. Organizations often respond to the need for Diversity, Equity, and Inclusion (DEI) work by creating a committee or an affinity group, or maybe even hiring a staff position and then give these tapped resources the responsibility to do DEI work with no resources, budgets, or institutionalized support. The organization leaders can check a box and it looks like these folks just aren't successful. Lastly - thinking that Diversity, Equity, and Inclusion work has a finish line. This work is never done. It can't be boiled down into a worksheet and is about a holistic cultural shift.

In your experience, what is the biggest challenge in implementing diversity and inclusion in an organization?
The biggest challenge is all players recognizing that a problem doesn't have to be experience for it to matter to someone else. We all have VERY different lived experiences and we must accept these differences without getting defensive and accept them as truth and do something about them until we find ourselves advocating for others before we are even told of a concern.

What would you say has been your greatest accomplishment in guiding others to stand up and take action?
Laughter is the best community builder as well as an equalizer so that we can work together with one another, heal wounds, decrease ignorance, and increase the connections with one another both in and outside of the office.

What are common misunderstandings people have with regards to diversity and inclusion?
That the work needs to be done by someone else. This work must be a part of every person's life in as many ways as possible from all of our privileged and marginalized identities and experiences. There will always be more elements to learn about ourselves and that is our responsibility and not that of those targeted, excluded, or feeling left out.

What advice do you offer to avoid unconscious bias?
There is no way to avoid unconscious bias. We can only work to become more conscious of our unconscious positive and negative bias.

 

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Attorney Development: Building the Best of the Best

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Jeremy B. Wilkins, Esq.

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

Capable and thoughtful attorneys are the cornerstone of any law firm or corporate legal department, and this is particularly true in today’s heavily regulated mortgage default servicing industry.  To maximize attorney competency, it is incumbent upon leadership to guarantee both a platform and the opportunity for an attorney to grow and develop during their tenure with the organization.  Therefore, a concrete plan must be set forth within each firm or corporate legal department to attain this goal.

The starting point for attorney development are the laden principles outlined with the American Bar Association’s Rules of Professional Conduct (“RPC”), specifically the conduct  governing the responsibilities of managing and supervisory attorneys (“managing” attorney).[1]  Pursuant to Rule 5.1,managing attorneys are responsible for ensuring that the conduct of those they supervise conforms to the Rules of Professional Conduct.  This duty of oversight is a considerable obligation because requirements under the rules are often broadly defined, far reaching in scope, and juxtaposed against obligations of other individuals., For instance, all attorneys are bound to professionalism individually, but in some circumstances, liability is imputed to a managing attorney for ethical shortcomings of a subordinate attorney[2].  Therefore, a managing attorney has every motivation to facilitate development of subordinate attorneys.  With these two ethical provisions working synergistically, attorney development becomes an essential aim for any organization.

Attorney Mentoring (Phase 1) – Striking the Right Baseline
With the oversight framework of Rule 5.1 set forth as guidance, the managing attorney must make reasonable assurances that all lawyers within the organization are abiding by the RPC. The best measure for meeting the reasonable assurances standard is a total investment in the development of the attorney. 

The first step of attorney development is a robust mentoring program commencing on their first day with the law firm.  Each attorney should be assigned a mentor that will immediately start assisting the newly hired mentee attorney with navigating through the basics, thereby cultivating an atmosphere of progressive growth through measured and strategic exposure to legal matters (including courtroom appearances), client development, and comprehension of an organization’s operations. 

When it comes to exposure to legal matters, there should be a broad-based approach to different aspects of the industry to generate maximum exposure for the attorney enhancing the attorney’s learning curve.  Diversity of legal work is paramount to long-term development.  As such, a mentoring program requires a framework that ensures valuable experiences for the mentee.  For instance, a mentor should ensure the mentee has necessary resources available to achieve early success within appointed legal work.  Essentially, this means that a mentor should help early accomplishments while developing confidence through performance.  This program must be documented to track the progress of the attorney and allow for a layering of increased legal exposure based upon the mentee attorney’s success at each stage.  This also includes the documenting of coachable moments for the mentee attorney.  This is the most effective way to learn to experience a degree of learnable remediation early on for the mentee attorney. 

Balancing training, oversight, and on-the-job performance are cornerstones of a successful mentoring program, without this equilibrium the program will be fruitless long term.  In many ways, the mentoring program is predicated upon having a successful mentor in place as this, in turn, will bolster the success of the mentee attorney’s development.  Moreover, a strong mentor will create an example for the mentee attorney, consequently establishing the foundation for a healthy cycle of the mentee attorney subsequently becoming a mentor down the road.  If the mentor does not do his or her part of the mentee attorney development, it will create a roadblock in the cycle of development, which may negatively impact organizational culture. 

The mentoring program should also emphasize the importance of client development and overall relationship development.  In the mortgage default servicing industry, long-term relationship building is a key component of an organization’s long-term success.  Law firms and corporate legal departments should embrace the view that a fundamental part of a mentee attorney’s development is learning how to cultivate relationships within the industry.  This comes with calculated exposure to industry conferences and events, as well as placing the mentee attorney in situations whereby they are interacting with clients and vendors concerning legal matters at an early stage of their development.  If the mentor fails to strike a balance with the relationship aspect of the mentee attorney’s development and maintains a protection of the old guard in the industry, any desires to build a generational organization will be impeded.  It is vital for a mentee attorney to get exposure on a calculated basis with industry clients and colleagues at a level commensurate with their demonstrated developmental proficiency.

Lastly, with respect to the mentoring platform, mentee attorneys should receive training and development in operational matters.  The mortgage default servicing industry is a unique blend of legal and operational functions.  While it is likely preferable that attorneys focus on legal issues with non-attorney staff handling operational matters, it is also important in the industry that every attorney possess a basic acumen of the operational principles, duties, and functions within the organization.  By gaining this operational understanding and appreciation, the mentee attorney will increase their overall effectiveness as an attorney and a leader within the organization.  Furthermore, it creates an environment of cohesion within the organization as the mentee attorney will effectively and naturally start adhering to oversight principles as dictated by the Rules of Professional Conduct with respect to responsibility over non-attorneys.[3]  Producing a well-rounded attorney with a wide range of experiences early on via a strong mentoring program will bolster the organization’s attorney developmental profile in the mortgage default servicing industry.

Attorney Mentoring (Phase 2) - Continual Learning, Continued Growth, and Continued Advancement
Mentoring does not stop at the intersections of work performance and involvement in organization operations.  An attorney should never stop learning and their development is predicated upon that premise.  In addition to state mandated continual education requirements, learning must continue in practice as well.  Learning and education come in varying degrees of importance and may have varying degrees of results.  However, a mentor that encourages regular education and learning opportunities ensures the mentee attorney develops alongside changes within the mortgage default industry.  In addition to state specific organizations geared to promote educational opportunities for attorneys, there are innovative member-based institutions, such as USFN, within the industry offering a litany of educational opportunities through conferences, publications, and webinars among other services.  Recognition, awareness and exploitation of opportunities for continual learning will place a natural emphasis on successful attorney development.

As the mentee attorney matures through the mentoring platform, the growth curve should be accelerated.  The best way to heighten expectations is through additional challenges and duties.  The mentee attorney should look to engage in the training of staff and the training of industrywide partners.  This will increase the mentee attorney’s visibility inside and outside the organization.  In turn, the mentee attorney’s confidence will grow, thereby enhancing the quality and image of the organization. 

Further growth paths should include exposure to industry conferences and events as means to reward the mentee attorney, by investing in their growth acceleration.  There is no substitute for imputing confidence and faith in an attorney as means to recognize their efforts.  Moreover, such exposure can also enhance organizational strength by creating the ability to be adaptable to the everchanging industry perspectives. 

Lastly, the mentee attorney should understand that with their development comes the potential for advancement within the organization.  Mentee attorneys must see the ability to move up within the organization if their actions and performance dictate such merit.  A clear and concise attorney advancement path that comports culturally and organizationally, will further bolster attorney development as it goes hand in hand with an attorney mentoring platform. 

In conclusion, to be the best, develop the best.  In the mortgage default servicing industry, law firms and corporate legal departments should strive to have the best attorneys serving their organization.

 

[1] ABA Model Rules of Professional Conduct (Rules of Professional Conduct) Rule 5.1., or applicable state specific rule, for example North Carolina Rules of Professional Conduct Rule 5.1 – Responsibilities of Principals, Managers and Supervisory Attorneys.  

[2] See Rule 5.1(c) of the Rules of Professional Conduct

[3]  ABA Model Rules of Professional Conduct (Rules of Professional Conduct) Rule 5.3 – Responsibilities of Principals, Managers and Supervisory Attorneys.  

 

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Crumbling Foundation in Connecticut and Appraiser Liability

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Peter A. Ventre, Esq. 
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

In Renewal Capital, LLC v. Joshua Martin, et al., Superior Court, Judicial District of Hartford at Hartford, Docket No. HHD-CV18-6088271-S, a lender, RCN Capital Funding, LLC (“RCN”), brought an action claiming the appraiser was negligent in failing to discover, and disclose in his appraisal report the presence of pyrrhotite which causes crumbling foundation in homes, and therefore the foundation of the property appraised was defective requiring replacement. RCN claimed that if such defect was provided in the appraisal, it would not have made the loan to the borrower, Renewal (an original party to the case which had been withdrawn).  RCN also alleged First American Staff Appraisals, Inc. was vicariously liable for the negligence of its appraiser. The court granted defendants’ motion for summary judgment, issuing a Memorandum of Decision (8/16/2019).

The initial argument addressed whether Connecticut General Statutes §36a-755(b) applied, which provides an appraiser is not liable to a third party unless there is an intentional misrepresentation in the appraisal.  Though the appraiser was retained under contract with a third party to conduct the appraisal, the court held the appraiser had a “functional relationship” with the plaintiff identified as the “intended user” of the appraisal, which the court held rendered the statute inapplicable; the court noted the plaintiff did not allege in the complaint any intentional misrepresentation. 

The defendants argued, and the court found, that the appraisal contained limiting language with regard the duties and responsibilities of the appraiser in conducting an appraisal. RCN attempted to attack the appraisal language as exculpatory language for the appraiser to use to escape their own negligence, which is disfavored by courts.  The court, however, found the appraisal language instead limited the scope of the appraiser’s duties and responsibilities, and insulated the appraiser from liability for failing to detect problems that would be discernable only with additional engineering or testing.  To support their position, the defendants submitted two affidavits, from its expert (a certified residential real estate appraiser) and the actual appraiser.  The appraiser testified it was not communicated to him, or brought to his attention, that there was a concern with the foundation. The appraiser testified that he is not qualified to conduct testing to discern the existence of crumbling foundation as an appraiser because he lacked the requisite skill, training, knowledge, and qualifications of a licensed home inspector or professional structural engineer to conduct such testing.  The expert testified in her affidavit that the duty of discerning crumbling foundation belongs to a qualified licensed home inspector or a professional structural engineer and is not the responsibility of an appraiser under the Uniform Standards of Professional Appraisal Practice.  The court found the plaintiff failed to proffer any admissible evidence to rebut defendants’ contention that based on the limiting language in the appraisal, they did not have a duty, or the ability, to discover the foundation was defective and would need to be replaced. 

The court held the plaintiff attempted to introduce a new theory of liability, “geographical incompetence,” for the first time in its opposition to the motion for summary judgment to circumvent the legal effect of the limiting conditions in the appraisal.  RCN alleged in their complaint that the defendants negligently failed to discover and disclose the actual presence of pyrrhotite resulting in the defective crumbling foundation.  However, the plaintiff failed to allege in the complaint a geographical competence theory claiming that the appraiser should have known, based on publicly available information, that there was a risk or generalized risk, that pyrrhotite was present.  The Judge notes in a footnote (#8) that RCN abandoned its actual claim of negligence as plead in its complaint.  The court held that at this stage of the case it would be fundamentally unfair and prejudicial for RCN to interject a new theory for the first time in opposition to a motion for summary judgment.

The court noted the defendants raised several evidentiary issues as to the information submitted by the plaintiff in favor of its objection to the motion for summary judgment, including as to Plaintiff’s expert report. The court found the articles in the report which served as the basis for and were incorporated into that report were unsubstantiated and inadmissible hearsay. This is the first case in Connecticut in which a lender attempted to seek recovery from an appraiser as a result of having made a loan on a property with a crumbling foundation.  

For more information regarding Connecticut’s crumbling foundation crisis, please see the e-Update Archives at https://www.usfn.org/page/USFNeUpdate


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California Eviction Timelines Changing

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Mark S. Bosco, Esq., Leonard J. McDonald, Esq. and Megan E. Lees, Esq.
Tiffany & Bosco, P.A.
USFN Member (AZ, CA, NM and NV)

California Assembly Bill 2343, Cal. Civ. P. §§1161 and 1167 were amended and effective September 1, 2019, the Notice Period and Response Deadline in an eviction action will exclude weekends and judicial holidays. Accordingly, in counting a three-day notice to pay rent or quit, or a three-day notice to perform covenant or quit, or in responding to a complaint for unlawful detainer, Saturdays, Sundays and judicial holidays are excluded. See Cal. Civ. P. §§1161 and 1167.

Currently, weekends and judicial holidays are included in calculating the notice period and response deadline in an eviction proceeding. It is critical that all internal notice and service timelines for California evictions now excludes weekends and judicial holidays, effective September 1, 2019.

 

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Trial Court Decision on Standing, Laches, Unclean Hands Upheld on Appeal

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

In U.S. Bank v. Fitzpatrick, 190 Conn. App. 773 (2019), the Connecticut Appellate Court upheld the decision of a trial court which entered a judgment of strict foreclosure[1] in favor of plaintiff.  This was, in fact, the second foreclosure against this particular defendant involving the same mortgage.  The first action was not resolved through foreclosure mediation, and the plaintiff had thereafter prevailed in establishing liability of the defendant on a motion for summary judgment, defeating the defendant’s defenses which challenged plaintiff’s standing to foreclose. However, before the plaintiff secured a final foreclosure judgment in this initial foreclosure, the case was dismissed pursuant to the court’s docket management program, and the court declined to open that dismissal, which necessitated the restarted, second foreclosure action.   The borrower then attempted to challenge the second foreclosure action by claiming that the length of time (six years) from the time of the default to the commencement of the action, precluded the mortgagee and holder of the note from enforcing the note and mortgage. In addition, the defendant again claimed that the plaintiff lacked standing.  The trial court rejected the borrower’s arguments the mortgagee could not enforce the mortgage, and the appellate court affirmed that decision.  Fitzpatrick v. U.S. Bank, 173 Conn. App. 686, cert denied 327 Conn. 902 (2017).      

As far as the standing argument, the defendant claimed that the two specific endorsements on the note, neither to the plaintiff, required the court to find that the plaintiff was not the holder of the note and therefore the plaintiff lacked the standing to foreclose. The trial court rejected these arguments and found that the note was endorsed in blank, making same bearer paper.  Further, the appellate court had found “…(t)he defendant did not address the blank endorsement contained on page three of the note in his memorandum of law in support of his motion to dismiss or in his supplemental objection to the plaintiff's motion for summary judgment.” U.S. Bank, Nat'l Ass'n v. Fitzpatrick, supra, 190 Conn. App. at 781, n.9.  Defendant argued that a voided endorsement somehow invalidated the other endorsements.  Neither the trial court nor the appellate court were swayed by this argument.

The defendant also claimed that the trial court erred in entering a judgment of foreclosure because of defendant’s laches and unclean hands argument.  Laches is a defense that alleges that there has been inexcusable delay which prejudices the defendant.  The defense of unclean hands alleges that the defendant should be granted equitable relief in this foreclosure case because plaintiff had acted unfairly.  Defendant claimed that summary judgment, which can only be granted when there is no genuine issue of fact and when plaintiff is entitled to judgment as a matter of law, was inappropriate because issues existed as to whether (1) the plaintiff's delay in commencing this action caused the debt to become greater than his equity in the property, (2) the value of the property declined as a result of the plaintiff's delay, and (3) the plaintiff's delay had been fair, equitable and honest.  The trial court had observed from the record of the first foreclosure that delays were caused by the defendant during the first action by his efforts to extend foreclosure mediation.  The appellate court pointed out that defendant failed to provide any evidence to support his assertions.  Accordingly, the appellate court found that bald assertions of the defendant were insufficient to satisfy his burden to preclude the entry of judgment in plaintiff’s favor.

This case underscores the importance of avoiding unnecessary delays in foreclosure actions. An unnecessary delay can be used, unsuccessfully in this case, as an equitable means, known as laches, to defend a foreclosure action in Connecticut, where there is no specific statute of limitations on foreclosures.


[1] The rare form of judicial foreclosure in Connecticut and Vermont that permits a lender to take title without a sale.

 

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Oklahoma Recognizes Priority of Mortgage Over HOA Liens

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Kim Pogue Jenkins, Esq.
Baer & Timberlake, P.C.
USFN Member (OK)

 

In a case of first impression, the Oklahoma Court of Civil Appeals held that a prior recorded mortgage held priority over a homeowners association lien, as the homeowners association lien was inchoate and unenforceable until the homeowners failed to pay assessments due. At issue in CIT Bank, N.A. v. Heirs, Personal Representatives, Devisees, Trustees, Successors and Assigns of McGee, 444 P.3d 496, 2019 OK CIV APP 36, was when a homeowners association lien becomes effective.

The real property involved is located on a residential and golf course development in Love County, Oklahoma. The Dedication of Restrictions, Conditions, Easements, Covenants, Agreements, Liens and Charges, Falconhead, Phase 1 (“Dedication”) was properly recorded on March 15, 1971. The Dedication provided that each purchaser of a lot in the subdivision would, by accepting a deed to the lot, agree to pay all assessments determined by the Falconhead Property Owners Association, Inc. (“HOA”) and that the obligation to pay would constitute a lien upon the property running with the land. Edward and Laura McGee (“homeowners”) purchased a lot in Falconhead in 1996 subject to this Dedication.  In 2005, the homeowners executed a Home Equity Conversion Mortgage in favor of Financial Freedom Senior Funding Corporation, which was recorded on November 14, 2005, and was subsequently assigned to CIT Bank, N.A. (“CIT”).  CIT filed a suit for foreclosure of its mortgage on May 13, 2016. The HOA recorded a Lien Statement on May 20, 2016, after the homeowners failed to pay assessments, and CIT amended its complaint to join the HOA in its foreclosure.

CIT moved for summary judgment, and the HOA responded with a counter-motion for summary judgment in which it claimed priority over the mortgage. The HOA asserted that its lien “came into being and existed” from the time the homeowners accepted a deed in 1996. In support of its assertion, the HOA claimed that the mortgage holder was on notice of the lien and the contents of the Dedication. The HOA cited Grindstaff v. Oaks Owners Association Inc., 386 P.3d 1035, 2016 OK CIV APP 73, to say that adhering to the terms of the Dedication is a contract between the HOA and the homeowners, and cited to First National Bank v. Melton & Holmes, 9 P.2d 703, 1932 OK 149, to say that “a legal contract which creates a lien, does so upon the date of execution of the contract where language creating the lien is in praesenti.”  The HOA interpreted the language quoted above from the Dedication to mean that the lien was created at the time of recording the Dedication, and that the duty to pay assessments constituted an actual lien on the land, not the potential to become a lien. The HOA further noted that it is irrelevant when payment of assessments or payments on a promissory note are paid or not paid; time of creation of the lien is what is relevant. (See 42 O.S. §9 “A lien may be created by contract, to take immediate effect, as security for the performance of obligations not then in existence.”)  Finally, the HOA argued that language in the Dedication provided that HOA liens thereunder would be subordinate to construction mortgages, and that the HOA could voluntarily subordinate its lien to other mortgages if it so chose. The CIT mortgage was not a construction mortgage, and the HOA did not subordinate its lien to the mortgage.

The District Court of Love County granted summary judgment in favor of CIT, finding that its mortgage lien had priority over the lien of the HOA, and the Oklahoma Court of Civil Appeals affirmed, stating that the Dedication only gave the HOA a future right to make assessments and create a lien.

In its analysis, the Court of Civil Appeals looked at case law regarding the nature and priority of other liens. Quoting First Nat’l Bank of Tulsa v. Scott, 249 P. 282, 1925 OK 986, the Court compared the HOA lien to that of an ad valorem tax lien, wherein “the lien securing payment of those taxes does not attach until the amount of the assessment is subsequently determined and the tax becomes due and delinquent.” The Court determined that any lien created by the Dedication was inchoate, as one could not determine amounts due or how to discharge the lien. The Court went on to find that a lien may become choate and attach, but it cannot take priority over a previously perfected lien. U.S. v. Home Fed. Sav. & Loan Ass’n of Tulsa, 418 P.2d 319, 1966 OK 135.

The Court also compared the HOA lien to that of a mechanics and materialmen’s lien as provided by 42 O.S. §141. A “prior recorded mortgage takes precedence over a materialmen’s lien accruing after the recording of such mortgage, even to the extent of attaching to the improvements placed upon the mortgaged premises afterwards by the materialman.” Thompson v. Smith, 420 P.2d 526, 1966 OK 214. The Court reasoned that since a portion of the HOA assessments were used for maintaining common areas in the development, the lien was analogous to a materialmen’s lien and was not entitled to priority over the prior recorded mortgage. The Court did not consider the fact that the mortgage was a reverse mortgage to be relevant to the argument. The Court concluded by finding that the HOA lien was “inchoate and did not mature into an enforceable lien until December 2015” and that the HOA “perfected its lien on May 20, 2018, well after the Bank’s mortgage had been recorded.” In holding that CIT’s mortgage lien was first in time and prior to the HOA lien, the judgment of the District Court was affirmed.

While it will remain necessary to include homeowners association lien holders in foreclosure actions in Oklahoma, mortgagees may rely on this decision and this Court’s analysis to establish priority of the prior recorded mortgage over subsequently perfected HOA liens.

 

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South Carolina House Bill 3243 Streamlines Filing Fees for Real Estate Documents

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Reggie Corley
Scott & Corley, P.A.

USFN Member (SC)

 

On May 16, 2019, South Carolina House Bill 3243 (S.C. Code Section 8-21-310), the Predictable Recording Fee Act, was signed into law by Governor Henry McMaster. In doing so, South Carolina joined the ranks of 18 other states that determine real estate document recording fees based on a “predictable fee” basis. Currently, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, North Dakota, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming all calculate their recording fees using a predictable fee method.

The new South Carolina bill, which took effect with all county Register of Deeds/Clerk of Court offices on August 1, 2019, aims to streamline the filing of real estate documents statewide. The Predictable Recording Fee Act accomplished this by creating foreseeable fees for many commonly recorded real estate documents. The Act outlines numerous types of documents followed by a corresponding flat fee, due upon recordation. Prior to this Act, to calculate the amount owed for recording a document, most documents had a flat recording fee plus an additional variable fee. The additional variable fee was determined by the document’s total page count. When a document was submitted, the pages had to be counted for filing by the submitter. The document’s pages were then counted again, a second time, by county employees to ultimately calculate the total cost to file the document. This method was more time consuming than the new flat filing fee method.  House Bill 3243 ultimately eliminated the page counting method in favor of a predictable flat fee, based on the document type. Some examples of how real estate documents are classified and charged under the new bill are as follows: Deed to Real-Estate - $15.00; Mortgage - $25.00; Assignment of Mortgage - $10.00; Satisfaction/Release of Mortgage - $10.00; and a plat or survey not part of or attached to another document to be recorded - $25.00.

Ultimately, the benefit of the predictable fee method is to reduce the chances of penalties or documents being rejected, which can cause delays in completing real estate transactions. The predictable fee structure can save time and money for the recorder, submitter, and ultimately the consumer. Lenders, settlement agents, and lawyers filing documents on behalf of clients are just a few examples of who will benefit from this newer method of calculating recording fees.

 

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Could Your Loan be at Risk?

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Janaya L. Carter, Esq.

The Wolf Firm
USFN Member (CA, ID, OR, WA)

 

Although the Northwest traditionally trails behind the rest of the country on many legal issues, statute of limitations defenses (and for that matter offenses) have firmly arrived in the State of Washington. It is becoming more common to see borrowers in Washington seek quiet title judgments under RCW 7.28.300 based on a statute of limitations argument.

Promissory Notes, as written contracts, are subject to a six-year statute of limitations under Washington’s RCW 4.16.040.  The statute requires action upon a written contract to be commenced within six years of one of several events depending on the type of note and the conduct of the parties.   Washington courts have ruled the limitations period begins to run on an installment note when each installment becomes due. Herzog v. Herzog, 23 Wash.2d 382, 388, 161 P.2d 142 (1945). “But if an obligation that is to be paid in installments is accelerated, the entire remaining balance becomes due and the statute of limitations is triggered for all installments that had not previously become due.” 4518 S. 256th, LLC v. Gibbon, 195 Wash. App. 423, 434-35, 382 P.3d 1 (2016). The courts have clarified that in order for note acceleration to occur, the holder of the note must act “in a clear and unequivocal manner which effectively apprises the maker that the holder has exercised his right to accelerate the payment date.” Glassmaker v. Ricard, 23 Wash. App. 35, 38, 593 P.2d 179 (1979). Thus, “[s]ome affirmative action is required; some action by which the holder of the note makes known to the payors that he intends to declare the whole debt due.” Weinberg v. Naher, 51 Wash. 591, 594, 99 P. 736 (1909).

Traditionally, challenges by borrowers have focused on whether acceleration has occurred or whether the lender was attempting to collect installment payments falling outside of the statute of limitations.  At least initially, the pathway to successfully defending a statute of limitations case for the client seemed clear as a question of establishing readily discernable facts.  Even in circumstances where a question arose as to whether the statute of limitations had run, lenders could make arguments in favor of tolling, for abandonment of the acceleration through dismissal of the action or discontinuance, or for de-acceleration of the debt. 

Recently the well-worn trail has become overgrown and less discernable as Washington trial and appellate courts, as well as the 9th Circuit Court of Appeals, have changed the landscape with respect to statute of limitations arguments.  In cases where the borrower has received a bankruptcy discharge and failed to submit installment payments to the lender following that discharge within the following six years, there is a chance that a court will bar the enforcement of the lender’s deed of trust or expunge it from the title record as time-barred.

Of particular note and concern are the cases of Edmundson v. Bank of America, NA, 194 Wash.App. 920, 931, 378 P3d 272 (2016), Silvers v. U.S. Bank Nat. Ass’n, 2015 WL 5024173 (W.D. Wash. Aug. 25, 2015),  and most recently Hernandez v. Franklin Credit Mgmt. Corp., No. C19-0207-JCC, 2019 U.S. Dist. LEXIS 136543 (W.D. Wash. Aug. 13, 2019), U.S. Bank NA v. Kendall, 2019 Wash. App. LEXIS 1704, at *4, 2019 WL 2750171 (Wash. Ct. App. 2019) (noting that although a deed of trust's lien is not discharged in bankruptcy, the limitations period for an enforcement action "accrues and begins to run when the last payment was due" prior to discharge), and Jarvis v. Fannie Mae, Case No. C16-5194-RBL, 2017 U.S. Dist. LEXIS 62102 at *6 (W.D. Wash. 2017), aff'd mem., 726 Fed. App'x. 666 (9th Cir. 2018) ("The final six-year period to foreclose runs from the time the final installment becomes due . . . [which] may occur upon the last installment due before discharge of the borrower's personal liability on the associated note").

In Edmundson, the Court of Appeals held that the borrowers’ bankruptcy discharge, which terminated their personal liability under the promissory note, triggered the statute of limitations within which the lender was entitled to foreclose.   The Court reasoned that since the borrowers no longer owed payments after the discharge order released their personal liability, the statute of limitations was triggered by the payment before the discharge.  Id.  This ruling was reinforced by Courts in Silvers and Jarvis. In Silvers, the Court ruled that the right to enforce the Deed of Trust began to run from the last time any payment on the Note was due and the borrowers remained personally liable.   The borrowers were liable through the payment just before their January 25, 2010 discharge, causing the statute of limitations to begin running on January 1, 2010. In Jarvis, brought as a quiet title action by the borrowers, the Court entered summary judgment in favor of the borrowers, ruling that under RCW 7.28.300, the borrowers were entitled to quiet title because their discharge triggered the statute of limitations.  The Court noted that “[t]he [bankruptcy] discharge … alert[s] the lender that the limitations period to foreclose on a property held as security has commenced” and that “[t]he last payment owed commences the final six-year period to enforce a deed of trust securing a loan.”

In each of the above cases, borrowers had ceased to make regular payments prior to their bankruptcy discharge and made no payments to the lender thereafter.  Under common understanding, lenders could foreclose on the security instrument, but would be precluded from obtaining any personal judgment against the borrowers. 

But what of the scenarios in which a borrower continues to make installment payments after their bankruptcy discharge, and the loan is never escalated into a default status by the lender or its servicing agent.  Recent changes to RCW 4.16.270 provide some measurable comfort concerning loans in this scenario by codifying the common law.  The statute reads:

 

when payment has been or shall be made upon any existing contract prior to its applicable limitation period having expired, whether the contract is a bill of exchange, promissory note, bond, or other evidence of indebtedness, if the payment is made after it is due, the limitation period shall restart from the time the most recent payment was made. Any payment on the contract made after the limitation period has expired shall not restart, revive, or extend the limitation period.

 

RCW 4.16.270.  As this change to the law is very recent, there is no published case at this time interpreting the result of payment post-discharge by a borrower and its relative effect in resetting or restarting the statute of limitations clock. The question of whether a statute of limitations has run continues to be complex and fact intensive.  Each loan scenario is unique, and courts may take a hard line on the discharge and statute of limitations questions set forth above. 

To ameliorate their risk, it is critical for lenders to institute a process identifying loans that have been in bankruptcy to determine if a discharge was granted.  Once identified, lenders should work with local counsel to determine if possible tolling events have occurred, identify a deadline, and develop strategies for initiating foreclosure.  Certain events in the history of a loan, such as loss mitigation efforts may be helpful in defeating a challenge to the loan on a statute of limitations basis.  For example, in Thacker v. Bank of N.Y. Mellon, No. 18-5562 RJB, 2019 U.S. Dist. LEXIS 40734 (W.D. Wash. Mar. 13, 2019), the court ruled that the borrower’s certification in connection with his applications for loan modification was a written acknowledgement of the debt, did not evidence an intent to not pay it, and effectively restarted the statute of limitations, avoiding a loss on the loan.  Lastly, there may be additional western states besides Washington where the statute of limitations is similarly codified and possibly more restrictively interpreted by the courts. Lenders will want to consider identifying those States and assessing post-discharge loans to identify risk associated with the 9th Circuit’s ruling in Jarvis.

 

Copyright © 2019 USFN. All rights reserved.

 

Fall USFN Report

 

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Oklahoma Amends Statute Regarding Sheriff’s Appraisals

Posted By USFN, Tuesday, October 15, 2019

by Kim Pogue Jenkins, Esq.
Baer & Timberlake, P.C.
USFN Member (OK)

Foreclosure attorneys in Oklahoma may see a change in the method Sheriffs employ for appraisal of real property prior to Sheriff’s Sale. The Oklahoma Legislature amended 12 O.S. §759, effective November 1, 2019.

Prior to the amendment, a Sheriff was directed to appoint three disinterested persons who have taken an oath of impartiality to make an appraisal upon actual view of the real property. While retaining this provision, the amended statute provides an alternate option for the Sheriff to appoint a “legal entity” to make the appraisal. The legal entity must also provide an affidavit of impartiality and make its appraisal upon actual view. However, the appraisal of the legal entity “shall be developed by the legal entity using at least three independent, credible sources, each of which has estimated the real value of the subject property independently.” All other provisions of §759 remain unchanged.

Effects of the new statute are uncertain. It is possible that the appraisal by a legal entity could be less expensive. Should a Sheriff choose to appoint a legal entity instead of the three disinterested persons, foreclosure attorneys might be required to amend their appraisal forms provided to the Sheriff. Additionally, the requirement that the legal entity base its appraisal on “credible sources” could provide a means for defense counsel to challenge the validity of the appraisal.

While it remains undetermined at this time which Sheriffs may be considering the alternative “legal entity” appraisal, the Sheriff of one major county in Oklahoma is examining implementation of the new option.

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October e-Update

 

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Connecticut Appellate Enforced Mortgage Where Witness Not Present at Closing

Posted By USFN, Tuesday, October 15, 2019

by Jeffrey M. Knickerbocker, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, NE, NH, RI, VT)

The borrower in Wells Fargo Bank, N.A. v. Fratarcangeli, 192 Conn.App. 159 (2019), argued that her mortgage was unenforceable because only one witness was present when she executed and delivered the mortgage to lender.  Requirement to convey land are found in Conn. Gen. Stat. § 47-5, which states in part, “(a) All conveyances of land shall be: (1) In writing; (2) if the grantor is a natural person, subscribed, with or without a seal, by the grantor with his own hand ... and (4) attested to by two witnesses with their own hands.”

The borrower alleged that at the closing there was a notary, and the notary supplied a false witness in an effort to validate the mortgage.  The borrower further alleged that such conduct constituted fraud and rendered the mortgage unenforceable.

The trial court granted the Plaintiff’s motion to strike the borrower’s claims with regard to the witnesses at the execution of the mortgage deed.  In Connecticut, a motion to strike is similar to a motion to dismiss under Fed.R.Civ.P. 12(b)(6).  Like the federal motion to dismiss, the motion to strike is based solely on pleadings with no consideration to the evidence. 

The trial court, and the appellate court in upholding the trial court’s decision, relied on Connecticut’s validating statute.  That statute, which is found at Conn. Gen. Stat. § 47-36aa, provides, in part, ‘“(a) Conveyancing defects. Any deed, mortgage ... or other instrument made for the purpose of conveying, leasing, mortgaging or affecting any interest in real property in this state recorded after January 1, 1997, which instrument contains any one or more of the following defects or omissions is as valid as if it had been executed without the defect or omission unless an action challenging the validity of that instrument is commenced and a notice of lis pendens is recorded in the land records of the town or towns where the instrument is recorded within two years after the instrument is recorded ... (2) The instrument is attested by one witness only or by no witnesses ....”  The appellate court found that the language of the statute was “plain and unambiguous.”  The appellate court found that other statutes had an exception for fraud, but the validating statute had no such exception.  Based on the fact that the statute does not have an exception to fraud, the court found that the validating statute applied to this action. The appellate court further upheld the trial court’s granting of the Plaintiff’s motion to strike the allegations concerning the execution of the mortgage.

This is an important case in Connecticut because some trial courts had refused to strike similar defenses based on allegations of fraud.  This appellate court decision establishes that having a witness added after the loan closing does not automatically invalidate the mortgage deed.  While the appellate court has applied the validating statute to this case, at closing a mortgagee would be well served by having two witnesses at a closing for a new mortgage. 

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October e-Update

 

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