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HOA Talk -Michigan: Condo Association Fees Upon Acquisition of Title

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Matthew B. Theunick
Trott & Trott, P.C.
USFN Member (Michigan)

In a “for publication” opinion, the appellate court affirmed a decision of the Oakland County Circuit Court regarding the entry of a judgment ordering the plaintiff to pay defendant $15,597.90 in condominium assessments and late fees for a condominium unit assessed between March 8, 2011, and April 30, 2013. [Wells Fargo Bank v. Country Place Condominium Association, No. 312733, __ Mich. App. __ (Mar. 18, 2014)].

For the legal practitioner, this opinion offers guidance as to an issue of first impression concerning when condominium assessments are attributable to a party after a foreclosure sale by advertisement. In reviewing this matter, the court ruled that MCL § 559.158 controls over MCL § 559.211 and, further, noted that a party is not liable for association fees incurred “prior to the acquisition of title.”

In elaborating upon what constitutes “acquisition of title” within the meaning of § 559.158, the court observed that the statute does not require that the purchaser have “absolute title,” just a “title,” and an equitable title is a form of title. As such, the court held that the plaintiff-purchaser at the March 8, 2011 sheriff’s sale acquired a “title” interest in the real property and was therefore responsible for condominium assessments from the date of the sheriff’s sale going forward, as opposed to the date of the expiration of the statutory redemption period when legal title would vest.

The consequences of this judicial decision are that foreclosure sale purchasers will now be responsible for condominium assessments during the statutory redemption period, wherein they do not yet have legal title to the real property or full, absolute title, but only an equitable title interest.

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Spring 2014 USFN Report

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VACANT PROPERTY REGISTRATION: Illinois

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Jill Rein
Pierce & Associates, P.C.
USFN Member (Illinois)

Late last summer, the U.S. District Court for the Northern District of Illinois, Eastern Division, ruled in a case filed by the Federal Housing Finance Agency (FHFA) contesting a Chicago vacant property registration ordinance. [FHFA v. City of Chicago, No. 11 C 8795, 2013 WL 4505413 (N.D. Ill, Aug. 23, 2013)].

As background: In July 2011, the Chicago City Counsel passed an ordinance that was effective November 19, 2011, requiring “mortgagees” to file a registration statement for each “vacant” building in the city of Chicago thirty days after the property became vacant or sixty days after a default on a mortgage, whichever is later. The ordinance requires “mortgagees” to register and pay a $500 registration fee in the event the owner does not register the building.

The FHFA, on its own behalf and as conservator of Fannie Mae and Freddie Mac, filed a lawsuit alleging the ordinance unlawfully regulates FHFA, Fannie Mae, and Freddie Mac in their capacity as mortgage investors and mortgagees. The court agreed with the FHFA, holding that the ordinance is preempted by the Housing and Economic Recovery Act and, alternatively, it violates FHFA’s immunity from taxation.

However, on April 3, 2014, the parties entered into an agreed order of dismissal of the case, under which Fannie Mae and Freddie Mac agreed to voluntarily register vacant properties and the city agreed to waive all fees for such registration. Fannie Mae and Freddie Mac also agreed to waive any right to monetary damages or to recover any registration fee, fine, or penalty previously paid to the city of Chicago for vacant property registration prior to the date of the agreed order.

Editor’s Note: Within Freddie Mac’s Bulletin 2014-7 (dated April 29, 2014), the Order of Dismissal and Memorandum of Understanding between FHFA and the city of Chicago can be viewed (begins at page 3 of the PDF). Fannie Mae’s Lender Letter LL-2014-03 (dated April 30, 2014) contains a city of Chicago Vacant Property Ordinance update.

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VACANT PROPERTY REGISTRATION: New York

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Robert H. King
Rosicki, Rosicki & Associates, P.C.
USFN Member (New York)

Vacant property news came to the forefront of New York foreclosure law earlier this year. There’s legislation pending that would increase the number of land banks, require foreclosure plaintiffs to maintain vacant properties upon notification that the property is abandoned, and create a statewide registry to track abandoned homes.

In a February 21, 2014 press release, the New York State Attorney General’s office lauded the Home Owner Protection Program, which claims responsibility for 6,600 approved and pending loan modifications, but took issue with the lengthy foreclosure process for the increased number of vacant and abandoned properties.

Under current law, a foreclosure plaintiff is only required to maintain a property when a judgment of foreclosure and sale has been obtained. However, when the chief administrative judge for the Office of Court Administration imposed administrative rules, which some say were designed to slow down the foreclosure process in 2010 and 2011 during the economic recession, the pathway to obtain such a judgment narrowed to a trickle. It could appear that New York State is struggling with conflicting policies: Keep homeowners in their homes at all costs but, at the same time, speed up the foreclosure. This conflict is evident in the courts of Kings and other counties, which began to summarily dismiss foreclosure actions for failure to prosecute.

Currently pending in both houses of the New York State Legislature are companion bills that would amend the Real Property Actions and Procedure Law to allow summary foreclosure proceedings for vacant or abandoned properties. The proposed legislation will allow a foreclosing plaintiff who reasonably believes a property to be vacant or abandoned to make the allegation in the complaint and to move for a judgment of foreclosure, even when a defendant serves an answer but fails to contest the allegations that the property is vacant or abandoned.

The law as proposed defines vacant property as a property not occupied by a mortgagor or a tenant with a lease agreement in possession prior to the foreclosure action, and presents one of the following situations: (1) property is not maintained by the mortgagor in accordance with law; (2) the property is a risk to health, safety, or public welfare; (3) the property is subject to uncorrected municipal violations or housing codes; (4) a written statement by the mortgagor of expressed intent to abandon the property; or, (5) there is reasonable indicia of abandonment. If these bills pass in their current form, the anticipated effect will be a reduction in time frames in obtaining a judgment of foreclosure and sale — at least for vacant properties.

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POST-FORECLOSURE EVICTIONS: Tennessee

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by J. Skipper Ray
Wilson & Associates, PLLC
USFN Member (Arkansas, Tennessee)

In December of last year, the Tennessee Supreme Court issued its ruling in Johnson v. Hopkins, 2013 Tenn. LEXIS 1010, a decision that continues a trend of hammering away at creditors’ ability to evict via a “summary” process after a foreclosure in Tennessee. Based on the ruling, creditors will no longer be able to have borrower/defendants’ purported appeals from General Sessions Court to Circuit Court summarily dismissed based on the defendant’s failure to post the appeal bond called for in the eviction statute.

The vast majority of post-foreclosure eviction cases are initially filed in Tennessee’s Courts of General Sessions. General Sessions is a court that is akin to district courts in some states. It is a more informal court that is a level below circuit court (also known in some states as superior court). Tennessee law provides for an automatic right to appeal a decision made in sessions court, to circuit court, with said appeal being de novo. De novo means that the case is heard over again, as if for the first time, with no deference given to the decision rendered below (in sessions court).

This ability to appeal applies to all types of cases, not just evictions. The appealing party need only post a bond that promises to pay the costs of the appeal. An additional barrier has existed, however, for a borrower-occupant appealing an eviction judgment to circuit court. The Tennessee eviction statute calls for, in addition to the standard appeal bond for costs, the posting of a cash bond, equivalent to the amount of one year’s worth of rent, for the property whose possession is at issue. Prior to December 2013, a creditor was usually able to summarily obtain dismissal of an eviction case appealed to circuit court, as most defendants were unable to post a cash bond in the required amount.

Johnson v. Hopkins, however, has changed that. The Tennessee Supreme Court ruled that the additional bond provided for in the eviction statute is not jurisdictional. Accordingly, the failure to post the cash bond for a year’s rent does not prevent the circuit court from obtaining jurisdiction of the appeal. (Current case law in Tennessee holds that the appeal bond for costs is jurisdictional; i.e., if the bond is not timely posted, the circuit court never obtained jurisdiction of the appeal, rendering the sessions court’s judgment final.)

The result of this ruling is that a creditor who has obtained property via foreclosure in Tennessee, when faced with a contested eviction action where the occupant appeals the sessions court ruling from sessions to circuit court, will almost always have to put on the same case twice. This is not to mention, if it’s a contested case, that the creditor’s attorney has already appeared in sessions court at least twice — if not three or four times. Furthermore, in terms of the defendant’s out-of-pocket costs, perfecting the appeal is relatively inexpensive (one can usually be perfected for less than $250). The creditor’s attorney has to start over in circuit court, which is a more formal court, and requires more formal pleadings. If the creditor is looking to avoid a trial, and thus sending a witness, this usually means formal discovery and a summary judgment motion. All of this adds up to lengthy timelines that are often measured in years rather than days.

So, what are some possible answers? One alternative would be filing eviction actions in circuit court initially, rather than in sessions court. It takes longer for a case in circuit court, as compared to sessions, but with the new possibility of a guaranteed inexpensive appeal, it can make more sense to start out where one is likely to end up. Creditors may also want to consider increasing relocation assistance offers or being receptive to entering into month-to-month leases (or other term length) with occupants. It has reached the point where it is easier to evict for a defaulted lease than after a foreclosure, due to the delays of which borrowers are able to avail themselves.

One of the main reasons borrowers are able to delay eviction actions in either court (sessions or circuit) is that pursuant to a Tennessee Court of Appeals opinion issued in early 2007, borrowers are able to raise “wrongful foreclosure” as a defense to an eviction action. This is in spite of the eviction statute, which provides that “the merits of title will not be inquired into.” (Many other eviction statutes in the southeastern states have this exact same language).

Prior to 2007, in order to contest a foreclosure, a borrower would have to file a lien lis pendens and complaint in chancery court, with the borrower carrying the burden of proving that the foreclosure was wrongful. In 2007, borrowers began asserting a “wrongful foreclosure” defense to eviction, which can be burdensome to creditors since it is a defense that arose out of case law. Thus, “wrongful foreclosure” is loosely defined, if at all, and existing definitions come from a handful of cases, which of course are based only on the facts in those cases.

The practical effect of all of this is that the pendulum has swung from the borrower filing a lawsuit and carrying the burden of proving a wrongful foreclosure claim to the creditor having to put on proof establishing the foreclosure’s validity. Doing so can often be a moving target since, in practice, a creditor’s attorney may not know exactly what the borrower is claiming to have been wrongful about the foreclosure. For all intents and purposes, this has resulted in Tennessee becoming a state that requires obtaining judicial confirmation of a nonjudicial foreclosure in the context of borrower-contested evictions.

This trend gives no deference to the fact that a deed is of record, vesting title to the property in the creditor (assuming the creditor was the high bidder at the foreclosure sale). It is almost as if when recording the deed, one should record along with it documentary evidence of all steps required by the deed of trust and applicable law, coupled with a video recording of the foreclosure sale itself. The prudent borrower’s counsel should pay heed to the recorded deed, however, and not simply ignore it.

Some creditors are somewhat ahead of the curve in how they are dealing with the lengthening eviction timeline issue in Tennessee. These creditors are responding by putting these properties into online auctions and selling them to local investors, as there is no temporary restraining order, injunction, or lien lis pendens, etc. in place that would otherwise prevent the sale of the property and/or conveying clear title to the property.

A local (taxpaying and voting) investor is less likely to encounter the eviction delays that are beginning to plague large out-of-state creditors in Tennessee. Of course, the creditors will likely take more of a loss disposing of the property via an online auction than they would have had following the traditional route of obtaining vacancy and marketing the property through a realtor. In the end though, those losses no doubt will be made up the same way as always: down the road in the way of higher origination costs, interest, and fees collected from those who timely pay their bills.

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POST-FORECLOSURE EVICTIONS: Illinois

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Jill Rein
Pierce & Associates, P.C.
USFN Member (Illinois)

In Illinois evictions are handled differently depending on whether the party occupying the property is a prior mortgagor/owner, or a tenant or an occupant.

Prior Mortgagors or Owners — If the party to be evicted is a prior mortgagor or owner, the process is much simpler than when the party is not. Because a prior mortgagor or owner is a party to the judicial foreclosure action, a court order is entered in the foreclosure case ordering that the named mortgagors or owners be evicted. (The language to evict the named mortgagors or owners is contained in the order confirming sale.)

If a prior mortgagor or owner does not vacate the premises when required (30 days after the order confirming sale is entered by the court), the order confirming sale, containing the language allowing the eviction, is placed with the sheriff in the county where the property is located to have the party evicted. Once an order is placed with a sheriff, the time it takes to evict varies significantly depending on the county where the property is located.

Other Occupants — Evicting occupants who are not prior mortgagors/owners is much more complicated and time-consuming. These occupants and tenants of the property are not named in the judicial foreclosure action and cannot be evicted through the mortgage foreclosure action. Accordingly, no language is contained in the order confirming sale ordering their eviction. A separate lawsuit must be filed with the court to obtain an order to evict these occupants. This lawsuit is called a forcible entry and detainer action. Once this lawsuit is completed, and a court order is obtained allowing for the eviction of these occupants, this order must then be placed with the sheriff of the county where the property is located.

In addition to the need for a separate lawsuit to evict a tenant or an occupant who is not a prior mortgagor or owner, there are several laws and ordinances enacted to specifically protect these individuals from being evicted too quickly or without proper notice. These laws exist on the federal, state, and local levels in Illinois. When the laws conflict, compliance with the strictest applicable statute or ordinance is necessary.

Federal Law — Under the Protecting Tenants at Foreclosure Act (PTFA), a bona fide tenant cannot be evicted from a foreclosed property without at least 90 days’ notice. Furthermore, if there is a bona fide tenant in the property, and his lease was entered into prior to the execution of the deed in the foreclosure action, he is entitled to occupy the property until the end of the remaining term of that lease. (Exception: where the foreclosed property is sold to a purchaser who will occupy the property as a primary residence, then the lease can be terminated on the date of sale to this new purchaser, subject to the receipt of the above-mentioned 90-day notice.) If no lease exists, or the lease is terminable at will pursuant to state law, the occupant must still receive the 90-day notice before a forcible entry and detainer action can be filed.

A bona fide tenant under the PTFA is defined as follows:

  • The mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
  • The lease or tenancy was the result of an arms-length transaction; and
  • The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a federal, state, or local subsidy.


Accordingly, under this federal statue a forcible entry and detainer action cannot be filed with the court until the 90-day notice has been given and the lease term has expired (if a bona fide tenant resides in the property).

Illinois Statutes — Illinois has several statutes dealing with the eviction of tenants and occupants in foreclosed properties who are not the former mortgagor or owner.

735 ILCS 5/15-1701 requires that a 90-day notice of intent to file a forcible entry and detainer action be served on the occupant before the action can be filed. (This is similar to, and concurrent with, the 90-day notice requirement in the federal PTFA).

735 ILCS 5/15-1508.5 states that if a purchaser at a foreclosure sale wants to collect rent due and owing from a known occupant, or terminate a known occupant’s tenancy for non-payment of rent, the purchaser at the sale must make a good faith effort to ascertain the identities of all occupants of the property and provide a particular notice to the occupants in a particular manner.

Following the judicial sale, but no later than 21 days after the confirmation of sale, the purchaser must make a good faith effort to ascertain the identities and addresses of all occupants of the property.

Following the judicial sale, but no later than 21 days after the confirmation of sale is entered by the court, the purchaser must serve a written notice on all known occupants (by delivering a copy to the occupant or by leaving the notice with some person of the age of 13 years or upwards who is residing on, or in possession of, the premises; or by sending a copy of the notice by first-class mail, addressed to the occupant), which includes the following information: (i) Identify the occupant being served by the name known to the holder or purchaser; (ii) Inform the occupant that the mortgaged real estate at which the dwelling unit is located is the subject of a foreclosure and that control of the mortgaged real estate has changed; (iii) Provide the name, address, and telephone number of an individual or entity whom the occupants may contact with concerns about the mortgaged real estate or to request repairs of that property; (iv) Include the following language, or language that is substantially similar: “This is NOT a notice to vacate the premises. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights that you may have.”; (v) Include the name of the case, the case number, and the court where the order confirming the sale has been entered; and (vi) Provide instructions on the method of payment of future rent if applicable.

If the identity and address of an occupant of a dwelling unit is identified more than 21 days after the confirmation of sale is entered, the purchaser shall provide the above notice within seven days of ascertaining the identity and address of the occupant.

Within 21 days of confirmation of sale, the purchaser must also post a notice on the primary entrance of each dwelling unit subject to the foreclosure action containing the following information: (i) Inform occupant that the dwelling unit is the subject of a foreclosure action and that control of the mortgaged real estate has changed; (ii) Include the following language: “This is NOT a notice to vacate the premises.”; (iii) Provide the name, address, and telephone number of an individual or entity whom the occupants may contact with concerns about the mortgaged real estate or to request repairs of that property; and (iv) Provide instructions on the method of payment of future rent if applicable.

735 ILCS 5/9-207.5 is the Illinois statute that is equivalent to the federal PTFA. It states that a purchaser may terminate a bona fide lease only (i) at the end of the term of the bona fide lease, by no less than 90 days’ written notice, or (ii) in the case of a bona fide lease that is for a month-to-month or week-to-week term, by no less than 90 days’ written notice. If the purchaser at a judicial sale plans to occupy the premises as his primary residence, any lease may be terminated subject to the 90-day notice requirement.

Under this statute, a bona fide lease is:

  • The mortgagor or the child, spouse or parent of the mortgagor is not the tenant; [Note: Notwithstanding the requirements of a bona fide lease, a child, spouse, or parent of the mortgagor may prove by a preponderance of evidence that a written or oral lease that otherwise meets the requirements of a bona fide lease is actually bona fide under this statute.];
  • The lease was the result of an arms-length transaction;
  • The lease requires the receipt of rent that is not substantially less than fair market rent for the property or the rent is reduced or subsidized pursuant to a federal, state, or local subsidy; and
  • Either the lease was entered into on or before the date of the filing of the lis pendens on the residential real estate in the foreclosure or the lease was entered into or renewed after the date of the filing of the lis pendens on the residential real estate in the foreclosure and before the date of the judicial sale of the residential real estate in foreclosure, and the term of the lease is for one year or less.


A written lease for a term exceeding one year that is entered into or renewed after the date of the filing of the lis pendens on the residential real estate in foreclosure and before the date of the judicial sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for the term of one year.

An oral lease entered into before the date of the judicial sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for a month-to-month term, unless the lessee proves by a preponderance of evidence that the oral lease is for a longer term. In no event shall an oral lease be deemed to be a bona fide lease for a term of more than one year.

A written or an oral lease entered into on or after the date of the judicial sale and before the date of the order confirming the sale that otherwise meets the requirements of a bona fide lease shall be deemed to be a bona fide lease for a month-to-month term.

City of Chicago Ordinance — Chapter 5-14 of the Municipal Code of Chicago, “Protecting Tenants in Foreclosed Rental Property Ordinance.” The ordinance has several sections, dealing with, among other things, eviction protection and relocation assistance, as well as addressing the registration of foreclosed rental property. For more on the ordinance, read on.

Eviction Protection and Tenant Relocation Assistance (5-14-050) — The owner (the purchaser of a foreclosed rental property after the sale has been confirmed by the court and any special right to redeem has expired, or a mortgagee who has accepted a deed-in-lieu of foreclosure or consent foreclosure on a foreclosed rental property) of a foreclosed rental property (defined below) shall pay a one-time relocation assistance fee of $10,600 (per unit, not per occupant) to a qualified tenant (defined below) unless the owner offers such tenant the option to renew or extend the tenant’s current rental agreement with an annual rental rate that: (1) for the first twelve months of the renewed or extended lease, does not exceed 102 percent of the qualified tenant’s current annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102 percent of the immediate prior year’s annual rental rate. This provision does not apply to an owner who became an owner prior to the effective date of this act (9/24/13), a bona fide third-party purchaser, or an owner who will occupy the rental unit as the person’s principal residence.

“Foreclosed Rental Property” means: (a) A building containing one or more dwelling units that are used as rental units, including a single-family house; or a dwelling unit that is subject to either the Condominium Property Act or the Common Interest Community Association Act that is used as a rental unit; (b) For which legal and equitable interests in the building or dwelling unit were terminated by a foreclosure action pursuant to the Illinois Mortgage Foreclosure Law; and (c) One or more of the units are occupied on the date a person becomes the owner.

“Qualified Tenant” means a person who: (a) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (b) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence. For the purposes of the definition, a lease shall be considered bona fide only if:

  • The mortgagor or the child, spouse, or parent of the mortgagor is not the tenant;
  • The lease was a result of an arms-length transaction; and
  • The lease requires the receipt of rent that is not substantially less than fair market rent for the property, or the rental unit’s rent is reduced or subsidized due to the government subsidy.


Any relocation fee must be paid no later than seven days after the day of complete vacation of the rental unit by the qualified tenant by certified or cashier’s check. The owner may deduct from the relocation fee all rent due and payable for the rental unit occupied by the qualified tenant prior to the date on which the rental unit is vacated, unless such rent has been validly withheld or deducted pursuant to state, federal, or local law.

An owner is not liable to pay the relocation fee to any qualified tenant who (1) does not enter into a rental agreement after being offered a renewal or an extension of the tenant’s rental agreement with a rent in an amount that complies with this ordinance, or (2) against whom the owner has obtained a judgment for possession of the rental unit. If an owner fails to comply with this section, the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee and other damages to which they may be otherwise entitled. The owner shall comply with this section of the ordinance until the property is sold or transferred to a bona fide third-party purchaser. If a qualified tenant is evicted for cause, the owner is not liable for any relocation assistance provided under this section.

Written Notice to Tenants (5-14-040) — No later than 21 days after a person becomes the owner (the date of sale confirmation or acceptance of a deed-in-lieu or consent judgment of foreclosure) of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed rental property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance. The notice shall be given in English, Spanish, Polish, and Chinese and be as follows:


“THIS IS NOT A NOTICE TO VACATE THE PREMISES. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any right that you may have.
Pursuant to the City of Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, if you are a qualified tenant you may be eligible for relocation assistance in the amount of $10,600 unless the owner offers you the option to renew or extend your current written or oral rental agreement with an annual rent that: (1) for the first twelve months, does not exceed 102% of the immediate prior year’s annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102% of the immediate prior twelve-month period’s annual rent. The option to renew or extend your lease shall continue until the property is sold to a bona fide third-party purchaser.
If you are eligible as a qualified tenant and the owner fails to pay you the relocation assistance that is due, you may bring a private cause of action in a court of competent jurisdiction seeking compliance with the Protecting Tenants in Foreclosure Rental Property Ordinance, Chapter 5-14 of the Municipal Code of Chicago, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.”

 

The notice shall also include the name, address and telephone number of the owner, property manager or owner’s agent who is responsible for the foreclosed rental property.

If the owner ascertains the identity of a tenant more than 21 days after becoming the owner, the owner shall provide the notice within seven days of ascertaining the identity of the tenant.

The notice must be served by: (a) Delivering a copy of the notice to the known tenant; (b) Leaving a copy of the notice with some person of the age of 13 years or older who is residing in the tenant’s rental unit; or (c) Sending a copy of the notice by first-class or certified mail, return receipt requested, to each known tenant, addressed to the tenant.

The notice must also be posted on the primary entrance of each foreclosed rental property no later than 21 days after a person becomes the owner (the date of sale confirmation or execution of a deed-in-lieu or entry of consent judgment of foreclosure). An owner may not collect rent from any tenant until the written notice is served and posted.

Registration of Foreclosed Rental Property (5-14-060) — No later than 10 days after becoming the owner of a foreclosed rental property, the owner shall register such property with the commissioner. The registration shall be in a form and manner prescribed by the commissioner and shall contain the following information:

  • Name, address, and telephone number of owner;
  • Address of foreclosed rental property;
  • If more than one unit is located in the property, the number of rental units in the property and whether each rental unit was occupied by a known tenant at the time the person became the owner. If occupied, the name and address of each known tenant;
  • If the foreclosed rental property consists of only one rental unit, the name of the known tenant at the time the person became the owner;
  • Name, address, and telephone number of the owner’s agent for the purpose of managing, controlling, or collecting rents and any other person not an owner who is controlling such property, if any;
  • Name, address, and telephone number of a natural person 21 years of age or older, designated by the owner as the authorized agent for receiving notices of code violations and for receiving process, in any court proceeding or administrative enforcement proceeding, on behalf of such owner in connection with the enforcement of this code. This person must maintain an office, or actually reside, in Cook County, Illinois. An owner who is a natural person and who meets the requirements of this subsection as to location of residence or office may designate himself as agent;
  • An affidavit signed by the owner that lists, by rental unit, all of the qualified tenants at the time the person became the owner; and
  • Any other pertinent information reasonably required by the commissioner.

 

Any owner who fails to register under this section shall be deemed to consent to receive, by posting at the foreclosed rental property, any and all notices of code violations and all process in an administrative proceeding brought to enforce code provisions concerning the property.

The owner shall pay a $250 fee at the time of registration.

If any of the pertinent information changes, the owner shall file a statement indicating the nature and effective date of the change within 10 days after the change takes effect.

If the property is sold to a bona fide third-party purchaser the owner shall, within 10 days of such sale or transfer, notify the commissioner in writing in a form and manner prescribed by the commissioner.

If the property becomes vacant after registration pursuant to this section, the owner shall comply with the vacant building registration requirement of chapter 13-12, if applicable.

Remedies (5-14-070) — A tenant may bring a private cause of action seeking compliance with sections 040 and 050, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.

Waiver of Right Not Allowed (5-14-080) — No rental agreement offered or entered into by an owner after the effective date of this chapter may provide that a tenant agrees to waive or forego the rights and remedies provided under this chapter and any such provision in a rental agreement is unenforceable.

Violation-Penalties-Liability (5-14-100) — Any person found guilty of violating this Chapter, or any rule or regulation promulgated hereunder, shall be fined not less than $500 nor more than $1,000. Each failure to comply with respect to each person shall be considered a separate offense and each day that a violation exists shall constitute a separate and distinct offense.

Conclusion — As this article tries to make clear, when an eviction of a tenant or an occupant who is not the prior mortgagor or owner of the property is required in Illinois, there are many statutes and ordinances that must be considered. This makes the process a complicated and time-consuming one. Although the various statutes and ordinances do, at times, contradict one another, the most restrictive one applicable for the specific property must be followed.

© Copyright 2014 USFN. All rights reserved.
Spring 2014 USFN Report

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POST-FORECLOSURE EVICTIONS: Georgia

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 214

 

by Kent E. Altom & Greg S. Krivo
McCalla Raymer, LLC
USFN Member (Georgia)

When it to comes to an eviction, time is the currency. As lender’s counsel, one cannot obtain possession of the property fast enough for a client. The foreclosed borrower’s objective is to remain in the property as long as possible and, more specifically, to do so without having to make any payments to the lender or into the court’s registry. Foreclosed borrowers, with or without assistance of counsel, are always seeking novel ways to protract dispossessory actions. Discussed here are a few tactics being utilized by foreclosed borrowers in this state to cause delay, as well as some pointers on how to overcome these obstacles.

The Phantom Appeal
— A defendant in Georgia has seven days to appeal a final order and writ of possession. (See O.C.G.A. § 44-7-56.) To comply, a defendant must file a notice of appeal with the lower court that entered the order/writ. Upon filing the “appeal,” the defendant is provided a cost bill requiring the defendant to pay the costs to have the transcript transferred to the superior court. If the defendant fails to make this payment, the lower court will not transfer the matter, and the superior court will have no knowledge of the appeal. The “appeal” remains in limbo, and a lender cannot execute the writ of possession. If the sheriff were to arrive at the property to execute the writ, the defendant would need only present the notice of appeal to forestall the eviction. To avoid costly or indefinite delays, lender’s counsel should obtain a copy of the cost bill provided to the defendant and calendar the time in which the defendant has to pay that bill, plus three days for mailing, and then contact the superior court and inquire as to whether payment was made. If there was no payment, a motion to dismiss the appeal pursuant to O.C.G.A. § 5-6-48 should be filed promptly, which requires payment within 20 days. It is best practice to include a proposed order. Lastly, it is imperative to follow-up with the judge’s staff because it is not likely that the superior court will consider the matter or set it for hearing. The lower court, having already adjudicated the matter, is unlikely to proceed further without a request from lender’s counsel.

The Direct Appeal — Here, too, the objective of litigious defendants is to prolong the dispossessory process for as long as possible. This often leads to continuous appeals, moving from one judicial venue to the next — often without any meritorious claim to the property. Defendants in Georgia have seven days to appeal a final order and writ of possession. (See O.C.G.A. § 44-7-56.) If the defendant’s appeal to the superior court is unsuccessful, he cannot appeal directly to the court of appeals; instead, the defendant must seek a discretionary appeal. (O.C.G.A. § 5-6-35(a)(11) “[A]ppeals from decisions of the superior courts reviewing decisions of … lower courts by certiorari or de novo proceedings … shall be by application for discretionary appeal.”) Pro se defendants and defendants’ attorneys unfamiliar with dispossessory actions will often attempt to lodge a direct appeal to the court of appeals. Unfortunately, O.C.G.A. § 5-6-48 does not empower the superior court to dismiss this improper appeal. A response to the direct appeal should be immediately filed with the court of appeals citing O.C.G.A. § 5-6-35(a)(11). Thereafter, the court of appeals should deny the direct appeal, allowing a lender to proceed with execution of the writ of possession.

The Default Order — It is common that a defendant in a dispossessory proceeding will fail to appear at the hearing. When this happens, assuming everything was properly filed, the evicting party is entitled to a final order and writ of possession. An issue arises when a defendant attempts to appeal this magistrate court’s ruling. In Georgia, the defendant cannot appeal a default judgment and review can only be made by certiorari to the state/superior court of that county (O.C.G.A. § 15-10-41(b)(2)). Accordingly, the court to which the defendant appealed lacks jurisdiction to consider the appeal. Even if the defendant files a petition for writ of certiorari, the petition is often subject to denial as improper (O.C.G.A. §§ 5-4-1, et seq. sets forth the specific procedure for obtaining a writ of certiorari). O.C.G.A. § 5-4-3 lists several very specific requirements for properly filing a petition for writ of certiorari. For instance, the defendant is required to plainly and distinctly set forth errors alleged to have occurred at the magistrate court level. Additionally, the defendant is required to provide bond and good security as well as a certificate from the officer whose decision or judgment is the subject matter of complaint (O.C.G.A. § 5-4-5). Absent the bond and certificate, the court clerk cannot issue the writ of certiorari to the magistrate court to transfer the entire record of its proceeding for review. These provisions are mandatory, with the bond or certificate being a condition precedent to the filing of a defendant’s petition and failure to comply requires dismissal of the petition. [Calloway v. Georgia Real Estate Commission, 89 Ga. 823, 81 S.E.2d 540 (1954); see also Hartsfield Co. v. Luddy, 45 Ga. App. 507, 165 S.E.2d 452 (1932) (superior court acquires no jurisdiction of case where failure to comply with statute shown).] Further, a defendant must obtain a sanction of the court prior to filing a petition and, upon filing the petition with the court clerk, petitioner must obtain an endorsed sanction of the appropriate judge (O.C.G.A. § 5-4-3). Like the bond, absent the sanction of the judge, the clerk may not issue the writ of certiorari. [See Cobb County v. Herren, 230 Ga. App. 482, 496 S.E.2d 558 (1998) (“Viability of a petition for a writ of certiorari is also contingent upon the party obtaining the sanction of the appropriate judge ... Sanctioning is an integral part of the application for certiorari, and without it, the certiorari process cannot move forward”) (citations omitted.).] Any failure by a defendant to adhere to the requirements of filing a proper petition for writ of certiorari requires dismissal of the petition.

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POST-FORECLOSURE EVICTIONS: California

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Kayo Manson-Tompkins
The Wolf Firm, A Law Corporation
USFN Member (California)

For some time now, California law has provided special protection to tenants in post-foreclosure evictions. Initially, this protection resulted in tenants receiving a 30-day post-foreclosure notice to quit instead of the otherwise standard three-day notice to quit given to the prior owners and other non-tenant occupants (California Code of Civil Procedure § 1161a(b)(3)). In 2008, California tenant protection was expanded by legislation, providing the post-foreclosure tenant a 60-day notice to quit if the tenant had a month-to-month lease or periodic tenancy. This was followed by the 2012 Amendment, providing the tenant with a 90-day notice to quit if the tenant were a bona fide tenant (§ 1161b).

Although these changes significantly increased the time period for post-foreclosure tenant evictions, evictions were made even more difficult by Assembly Bill 2610 (effective January 1, 2013). This bill amended California Civil Code § 2924.8 and California Code of Civil Procedure (CCP) §§ 415.46 and 1161b, providing even greater tenant protections (discussed below) and has basically resulted in a far greater percentage of eviction defendants claiming to be tenants and, of those purported tenants, a large percentage falsely claiming to have unexpired leases.

Special Notice to Tenants in the Notice of Trustee’s Sale
— Civil Code § 2924.8 sets the stage for a difficult or elongated eviction. In addition to posting and mailing the notice of trustee sale, a foreclosure trustee must also now concurrently post and mail a separate notice in English, Spanish, Chinese, Tagalog, Vietnamese and Korean to all “Residents of property subject to foreclosure sale.” The notice advises “residents” that the foreclosure may affect their right to continue to live in the property. It notifies them that the property may be sold at foreclosure and the new owner may offer a new lease or rental agreement or give them a 90-day notice to quit. It then states that they may be able to stay longer than 90 days if they have a fixed term lease, or if they are in a “Just Cause Eviction” city, in which case they may not have to move at all. Having this language mailed and posted with the notice of trustee’s sale invites abuse. Although the legislature intended to protect tenants who were victims of borrowers collecting rents knowing that a foreclosure sale was imminent, the new requirements open the door to the creation of a lease for the specific purpose of delaying the eviction.

90-Day Notice to Quit — From 2008, as referenced above, California CCP § 1161b required tenants with a lease to be given a 60-day notice. Due to an amendment to CCP § 1161b, which became effective January 1, 2013, the purchaser at a foreclosure sale was required to give a 90-day notice. The purchaser bore the burden to prove that a tenant was not entitled to protection. Furthermore, if a fixed term lease was entered into prior to the foreclosure sale, the tenant had a right to stay in possession until the end of the lease term, unless the purchaser was able to prove that the lease was not bona fide, in which case a 90-day notice applied. It has become standard practice that judges would demand that any tenant coming forward be given a 90-day notice if the tenant presented a lease or rental agreement, regardless of arguments that they were not a bona fide tenant. In addition, California CCP § 1161c required a special notice to be attached to a post-foreclosure notice to quit, informing tenants of their rights and providing websites about where to go for help. This notice, as with the special tenant notice attached to the notice of trustee’s sale, opens the door for occupants to claim and/or create a tenancy status, which causes delays in the eviction proceedings.

Interpretation of Federal PTFA — Prior to the amendment of CCP § 1161b, on May 20, 2009, Congress enacted under Title VII the Protecting Tenants at Foreclosure Act of 2009 (PTFA) to provide bona fide tenants with a 90-day notice to quit. Although the PTFA was originally set to expire at the end of 2012, operation of the PTFA extends through the end of 2014 following passage of the Dodd-Frank financial reform bill of 2010. The amendment also clarified that notice of foreclosure shall be deemed to be the date title is transferred. Therefore, as long as a tenant’s lease is dated any time prior to the foreclosure sale itself, the tenant was protected. (Note that S. 1761 is currently pending, which would make PTFA permanent.)

A recent appellate court decision further clarifies the tenant’s rights [Nativi v. Deutsche Bank National Trust Company, 2014 S.O.S. H037715 (Cal. Ct. App. Jan. 23, 2014)]. The appellate court took great lengths to review interpretations of PTFA by Senators Kerry and Dodd, legislative history, HUD, FDIC, and OCC. All entities were in agreement that no tenant may be evicted prior to receiving a 90-day notice. Moreover, if a tenant has an unexpired lease, a landlord/tenant relationship exists until the lease expires and, thus, no notice to quit can be sent until after expiration of the lease, or if the property is subject to a rent or eviction control ordinance, or is part of a Section 8 contract, until the protections under those programs end. Of course, if the tenant fails to pay the rent or is otherwise in breach of the existing lease, the successful purchaser has the right to pursue eviction under standard landlord/tenant grounds.

In Nativi, the respondent made the argument that PTFA did not apply because the tenants occupied an illegal garage unit and thus were not bona fide tenants. However, the appellate court held that they saw no language or legislative history exempting illegal rental units from PTFA protection. The court reasoned that if they accepted the bank’s position, it would circumvent the PTFA and frustrate its fundamental public policy purpose. The appellate court further stated that rather than exercising supremacy or preemption, Congress intended to supplant less protective state law but not any state law that provided longer periods or additional protections to the tenants. The purchaser at the foreclosure sale takes subject to a bona fide tenancy for a term, but it retains the power to terminate the lease upon a breach of the lease. In addition, for those that file or remove a case to federal court for a determination, the appellate court held that PTFA did not create a private cause of action under federal law. Instead, the court found that Congress intended tenant rights established by PTFA to be enforceable under state law. (Here, too, it should be noted that S. 1761 is currently pending, which proposes to make PTFA permanent as well as grant tenants an explicit right to sue.)

Reviving the Old Claim of Right to Possession — California CCP § 415.46 was amended to “revive” the old claim of right to possession post-judgment. Initially, a typical challenge arose through an individual coming forward at the time of lockout and claiming a right to possession under CCP § 1174.3. This challenge required an additional hearing to determine whether the plaintiff had a right to possession against the claimant and, as a consequence, court dockets became crowded with these types of hearings. In an attempt to remedy this situation, California enacted CCP § 415.46 (effective January 1, 1991), which provided that if the unknown occupants were served with a Prejudgment Claim of Right to Possession (PJC) together with the complaint and did not come forward to be added as a defendant, any judgment obtained would be effective as to all unknown occupants. However, effective January 1, 2013, an exception was created for post-foreclosure rental housing units such that tenants may file a claim of right to possession under CCP § 1174.25 at any time before a judgment is entered; or under CCP § 1174.3 to object to the enforcement of judgment, whether or not a PJC was served. For post-foreclosure evictions, this amendment has rendered serving a PJC ineffective.

Purpose of Amendments vs. Abuse by Tenants — The California legislators enacted these amendments in order to protect tenants who had fallen victims to borrowers collecting rents, knowing that their homes were being foreclosed upon. The PTFA was enacted to promote public policy and for the purpose of protecting tenants from being displaced and suddenly made homeless due to a foreclosure. However, as with many public policies and laws, there are going to be those who will try to abuse the system. Many former owners will create lease agreements prior to the foreclosure sale in order to collect rents with no intention of curing their mortgage loan delinquency, or without any intent to protect the rights of the tenants to whom they rent their homes. Then, there are former owners who continue to reside in the property and rent rooms out to tenants. Nevertheless, as was evident in Nativi v. Deutsche Bank National Trust Company, the purchaser at a foreclosure sale needs to make sure that it exercises due diligence in determining who is occupying the property, as well as obtaining a copy of the tenant’s lease. If the lease has not expired, then it must be honored. If the lease has expired, or if the tenant merely has a month-to-month tenancy, then the tenant is entitled to a 90-day notice, unless the property is subject to a rent control or eviction control ordinance, or there is a Section 8 contract in effect, in which case the tenant could possibly stay longer.

Asset Managers’ Role in Light of the Amendments — Asset managers need to be aware of the California statutory changes that have created the additional tenant rights described in this article. Additionally, they must make certain that all efforts are made to investigate who is occupying the property. This investigation should include all of the following: (1) obtaining a copy of the lease, (2) obtaining proof of payment of rent, and (3) obtaining proof that utilities are in the tenant’s name. Furthermore, they need to know what jurisdictions have eviction or rent controls. As was evident with the appellate court’s position in Nativi v. Deutsche Bank, “due diligence” means more than just “driving by” the property. It is imperative to make contact with the occupants and know what obstacles are present that will impact the eviction.

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POST-FORECLOSURE EVICTIONS: Arizona

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by David W. Cowles
Tiffany & Bosco, P.A.
USFN Member (Arizona, Nevada)

Judges in Arizona who preside over forcible entry and detainer (FED) actions no longer have discretion to deny a request to impose a stay pending appeal, notwithstanding the fact that the governing statute and rules plainly confer such discretion. That is the holding of Grady v. Barth ex rel. County of Maricopa, 233 Ariz. 318, 312 P.3d 117 (Ct. App. 2013), issued by the Arizona Court of Appeals late last year.

Before Grady, when a stay pending appeal was contested, and the FED action was one brought by a plaintiff who acquired the residence at a trustee’s sale, the judge decided the issue by assessing the defendant’s likelihood of success, the harm a stay might cause to plaintiff or defendant, and public policy. That the judge had discretion was clear. “The appeal ... shall not stay execution of the judgment unless the superior court so orders.” A.R.S. § 12-1182(B). And the eviction rules of procedure recognize that a stay request could be denied by providing for appellate review of a “court’s decision denying a stay.” ARIZ . R.P. Evic. A 17(c).

Arizona law makes issues of title irrelevant in these cases, and an FED defendant cannot prevail by contending that the trustee’s sale was improperly held and thus that plaintiff has no right to possession of the property. A.R.S. § 12-1177(A) (“On the trial of an action of forcible entry or forcible detainer, the only issue shall be the right of actual possession and the merits of title shall not be inquired into.”); Curtis v. Morris, 186 Ariz. 534, 925 P.2d 259 (1996) (reasoning that interpreting § 12-1177(A) otherwise “would convert a forcible detainer action into a quiet title action and defeat its purpose as a summary remedy”). Before Grady, judges had no difficulty finding no chance of success on appeal on the part of a defendant whose only defense was the contention that the trustee’s sale was improper in some way, and, consequently, they had no difficulty denying the request for a stay pending appeal.

Grady changes the landscape, and reads discretion right out of the statute. Oddly, Grady’s holding is based on reasoning that applies only to commercial FED actions. In a commercial FED, there is no discretion. Arizona’s supreme court held some time ago that the discretion given by A.R.S. § 12-1182(A) is taken away by the more specific A.R.S. § 33-361, which applies only to a commercial landlord-tenant relationship. Tovar v. Superior Court, 312 Ariz. 549, 647 P.2d 1147 (1982). Grady uses this inapplicable reasoning to support holding that in a residential trustee’s sale FED, the judge has no discretion to deny a request for a stay pending appeal.

Bad reasoning aside, Grady changes things. Going forward, one who acquires occupied residential property at a trustee’s sale may be saddled with the pre-sale occupant for the entire time it takes an appeal to run its course — about 18 months. Investors who purchase properties at trustee’s sales to refurbish and resell them may well shy away from bidding on occupied properties. Relocation assistance agreements under which the occupant agrees to vacate the property by a date certain in exchange for a sum certain are commonplace and, after Grady, they may become an invaluable tool. If, all things considered, it is better that the property be unoccupied and immediately marketable, it is now worthwhile to consider offering more attractive relocation assistance agreements precisely to avoid facing a stay pending appeal.

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Proposed New BK Rules: USFN Bankruptcy Committee Stands Watch

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by Edward J. Boll III
Lerner, Sampson & Rothfuss, LPA
USFN Member (Ohio, Kentucky)

The USFN Bankruptcy Subcommittee has been hard at work analyzing, discussing, and debating the 354 pages of Proposed Amendments to the Federal Rules of Bankruptcy Procedure (FRBP). On August 15, 2013, new bankruptcy rules and forms were unveiled that would, amongst other things, mandate a form Chapter 13 Plan to be used nationally and require almost immediate action in bankruptcy cases to file proof of mortgage servicers’ claims. After being invited to submit comments on the new rules and forms, USFN summarized its discussions and submitted comments to the Committee on Rules of Practice and Procedure. Here is a summary:

Proposed Changes Governing POC Filing is Inconsistent with Existing Ethical and Legal Rules
The proposed rule changes attempt to resolve the challenges inherent in Chapter 13 plan confirmation hearings, which are typically held prior to existing deadlines to file proofs of claim (POC) in a case. The proposed rule shortens the time for filing a POC to 60 days after the petition date (as opposed to approximately 120 days under the current rules). The proposed rule then provides an additional 60 days for filing required documentation. Simply put, creditors have 60 days to file the POC with the figures and 120 days to file the loan documents. Unfortunately, the 120-day cushion does not apply to much more than the loan documents. If an escrow account has been established in connection with the claim, the deadline to file the required escrow account statement prepared as of the date the bankruptcy was filed with the POC will be 60 days from the bankruptcy filing. This proposed bifurcated process creates a conflict.

The previous amendments, effective in 2011, increased the detail and required documentation to support mortgage POCs and provided sanctions for incomplete filings. Further, the person signing the POC must verify: “I declare under penalty of perjury that the information provided in this claim is true and correct to the best of my knowledge, information, and reasonable belief.” Additionally, attorneys signing the POC must meet the requirements of FRBP Rule 9011 — the rule requiring the attorney filing the document to certify to the best of the attorney’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, that the proof of claim is warranted and has evidentiary support. Executing and filing a claim as allowed by the proposed rule without a review of supporting documentation raises the question of whether the signor is violating the terms of execution and possibly Rule 9011.

Proposed Changes Governing POC Filing Increases Administrative Expenses for Everyone
The bifurcated claim process creates the potential for double the amount of filings for every POC and a review of claims at two points in time instead of one, thereby increasing the administrative burden and associated costs. It is logical to presume that the claim amounts would be verified for plan feasibility at 60 days post-petition and again when the supporting documentation is later filed. Servicers, servicers’ counsel, Chapter 13 trustees and their staff, as well as borrowers and their counsel will be taxed with this additional review, with the likely result being increased costs to borrowers in higher attorney and trustee fees.

As an alternative, USFN recommended decreasing the total time for filing a POC to 90 days post-petition rather than impose a two-step process. This adjustment would allow plans to be confirmed in a timely manner, decrease administrative burdens, and allow a reasonable time for the creditors to submit fully verified claims. The National Conference of Bankruptcy Judges, whose membership is restricted to actively serving or retired bankruptcy judges, shared a similar recommendation by commenting that it “believes it would be better to set a single, longer period during which both the Proof of Claim and the attachments must be filed together rather than separate periods for different parts of a single Proof of Claim.”

Proposed Changes Governing POC Filing are Unclear as to No-Asset Chapter 7 Cases
The proposed rule can be read to require POCs in “No Asset” Chapter 7 cases, which would increase administrative burdens and costs without any benefit. As an alternative, USFN requested that the rules clearly indicate that the timeline for Chapter 7 proofs of claim is solely for those cases in which a notice of possible distribution is filed by the trustee.

Amendments Streamlining Chapter 13 Plan Confirmation
The proposals increase the burdens on mortgage creditors, while shortening timelines. In addition, the same mortgage creditors are required to comply with additional requirements imposed by the CFPB and National Mortgage Settlements. The increased responsibilities, combined with shortened timelines, conflict with the goals of increasing factual accuracy of claims and transparency. Further, the proposed rules will result in additional strains on the bankruptcy system, including courts, debtors, trustees, and creditors. This will bring more costs, which may ultimately interfere with a debtor’s ability to obtain a fresh start.

What’s Next?

The Advisory Committee will decide whether to submit the proposed amendments to the Committee on Rules of Practice and Procedure and will likely publish a new version of the form plan and rules, with a new comment period ending August 15, 2014. The proposed amendments would then become effective on December 1, 2015, if they are approved and if Congress does not act to defer, modify, or reject them.

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Rhode Island: Mortgagor Standing to Challenge Assignments Still in Flux

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by David J. Pellegrino & Christopher M. Wildenhain
Partridge Snow & Hahn, LLP – USFN Member (Massachusetts)

In recent months, the Rhode Island Supreme Court issued its long-anticipated decision on whether a mortgagor has standing to challenge assignments of mortgage: Mruk v. Mortgage Electronic Registration Systems, Inc. (MERS), 82 A.2d 527 (R.I. 2013). Although Mruk appears to follow the mortgagor standing exception announced in Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282, 291 (1st Cir. 2013), Chhun v. Mortgage Electronic Registration Systems, Inc., 84 A.3d 419 (R.I. 2014), a decision subsequent to Mruk, overlooks the distinction between a “void” and a “voidable” challenge to an assignment and, arguably, erases it altogether. As a result, Rhode Island law governing the standing of mortgagors to challenge assignments extends at least as far as it does in Massachusetts, if not further.

In Mruk, the Rhode Island Supreme Court affirmed the grant of summary judgment to the defendants, but held that the lower court erred in concluding that mortgagors lacked standing to challenge assignments. In doing so, the court adopted the framework for mortgagor standing established in Culhane. Like the Culhane court, the court in Mruk confined standing “to the circumstances of a mortgagor challenging an ‘invalid, ineffective, or void’ assignment of the mortgage” and concluded that a “mortgagor does not have standing to challenge the shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title.” Mruk, at 536. The defendants were ultimately entitled to summary judgment because MERS was a valid mortgagee and no factual issues remained.

In Chhun, the Rhode Island Supreme Court potentially extended mortgagor standing by concluding that a mortgagor had standing without first conducting the “void/voidable” analysis discussed in Mruk. In reversing a 12(b)(6) dismissal, the court commented that allegations regarding a signatory’s lack of authority to make an assignment for a corporation, “if proven, could establish that the mortgage was not validly assigned ...” Chhun, at 423.

This statement contradicts Rhode Island law providing that unauthorized corporate officer actions are voidable and may be ratified by the corporation, Duncan Shaw Corp. v. Standard Mach. Co., 196 F.2d 147, 152-154 (1st Cir. 1952), and the First Circuit’s interpretation of Culhane in Wilson v. HSBC Mortgage Services, Inc., No. 13-1298, 2014 WL 563457, at *6-8 (1st Cir. Feb. 14, 2014). This discrepancy has prompted the Chhun defendants to seek reargument. Contrary to what was suggested in Mruk, the question of Rhode Island mortgagor standing to challenge assignments of mortgage may go well beyond Culhane. As the state’s high court hears further appeals in this area, it will likely be asked to reconcile these contradictions.

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Pennsylvania: Amendments to Rules of Civil Procedure re Postponed Sales and re Notice to Junior Lienholders

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

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

On March 7, 2014, the Pennsylvania Supreme Court approved a recommendation of the Civil Procedural Rules Committee to amend Pennsylvania Rules of Civil Procedure 3129.3 and 3135. These amendments do not place any new requirements on servicers but, in one instance, do require additional actions to be taken by counsel when a sheriff’s sale is postponed to a new date.

Rule 3129.3 governs the procedure for postponing or continuing sheriff’s sales. The current rule requires that a postponed sale date must be publicly announced at the sale where the property was originally scheduled to be sold, but does not require any further notice to any party of the postponed sale date. The amendment to the Rule sets forth a new requirement that the plaintiff must: (1) file a notice of the date of the continued sale with the prothonotary at least 15 days prior to the continued sale; and (2) file a certificate with the sheriff confirming the filing of the notice.

The amended Rule also provides that the sheriff shall continue the sale to the next available date if the notice and certificate have not been timely filed. The amended Rule is specific that non-compliance with these requirements is not a basis for setting aside a sheriff’s sale unless raised prior to the delivery of the sheriff’s deed and, even then, there must be a showing of prejudice for a sale to be set aside for this reason.

Rule 3135 governs the procedure regarding sheriff’s deeds. The amendment to this Rule sets forth alternative options for use in the situation where a plaintiff has failed to provide notice of a sheriff’s sale to a junior lienholder. The amended Rule allows for a petition to be filed requesting either that the junior lien be divested, or that a sheriff’s sale be held at which the junior lienholder in question may be the only other bidder aside from the plaintiff.

These amendments to the Rules were effective April 7, 2014.

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Sixth Circuit: Freddie Mac is Not a Government Actor

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Jessica Berg
Trott & Trott, P.C. – USFN Member (Michigan)

On February 7, 2014, the U.S. Court of Appeals for the Sixth Circuit ruled that Freddie Mac is not a government actor that can be liable for alleged constitutional violations in Mik v. Federal Home Loan Mortgage Corporation, No. 12-6051, 2014 U.S. App. LEXIS 2332, 2014 WL 486214 (6th Cir. 2014). The Sixth Circuit affirmed the U.S. District Court for the Western District of Kentucky’s dismissal of the tenants’ claim that Freddie Mac, as a government actor, violated their Fifth Amendment due process rights by failing to provide proper notice prior to evicting them following the foreclosure of the mortgage granted by their landlord. (The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.)

In holding that Freddie Mac is not a government actor for constitutional challenges, the Sixth Circuit relied primarily on the framework set forth by the United States Supreme Court in Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995). In Lebron, the court set forth a three-pronged test to determine whether a government-created entity is a government actor for purposes of constitutional challenges. Specifically, it held that, where “the Government creates a corporation by special law, for the furtherance of governmental objectives, and retains for itself permanent authority to appoint a majority of the directors of that corporation, the corporation is part of the Government for purposes of the First Amendment.” Id. at 399.

In Mik, the Sixth Circuit relied on two additional federal court opinions interpreting Lebron with respect to whether Freddie Mac is a government actor. In Mik, the Sixth Circuit cited American Bankers Mortgage Corp. v. Federal Home Loan Mortgage Corp., 75 F.3d 1401 (9th Cir. Cal. 1996), which held that “the government … does not ‘control[] the operation of [Freddie Mac] through its appointees.’” American Bankers Mortgage Corp., 75 F.3d at 1407 (citing Lebron, 513 U.S. at 398). The Sixth Circuit also cited Syriani v. Freddie Mac Multiclass Certificates, No. 12-3035, 2012 U.S. Dist. LEXIS 179863, 2012 WL 6200251 (C.D. Cal. July 10, 2012), for the proposition that Freddie Mac is not a government actor even though the Federal Housing Finance Agency became Freddie Mac’s conservator in 2008.

The issue of whether Freddie Mac is a government actor for constitutional purposes was only one of several issues in Mik; however, it was a significant one. Mik is of great importance because it disposes of several similar arguments in the Sixth Circuit put forth by borrowers seeking to end the nonjudicial foreclosure process on the basis that foreclosure by advertisement is unconstitutional where Freddie Mac is the owner of the loan.

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North Carolina: Appellate Court Decides Note Holder Issue

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Natasha Barone
Hutchens Law Firm – USFN Member (North Carolina)

For years, the issue as to what constitutes competent evidence to prove that the lender seeking to foreclose is in fact the holder of the note at issue has been a hotly contested one in North Carolina. The North Carolina Court of Appeals and North Carolina Supreme Court have issued several opinions within the last several years, both published and unpublished, addressing the question of what is competent evidence to prove note holder status. Two such seminal cases are In re Adams, 204 N.C. App. 318 (2010), and In re Bass, 366 N.C. 464 (2013).

In recent years, and more frequently since Adams and Bass, the debtor’s bar has contended that blank endorsements are a particular cause for concern because “no one can tell who holds the note.” Typically debtor’s counsel will cite to cases holding that “mere possession” alone is insufficient to prove that a party is the holder of a note. In re Adams, at 323. Generally, this argument is unsuccessful as long as lender’s counsel provides an affidavit stating that the party seeking to foreclose is in possession of the original note.

Until earlier this year, the North Carolina Court of Appeals had not addressed the specific issue of proving the holder of a note endorsed in blank. In an unpublished opinion filed by that court in February, the appellate court held for the first time with specificity that an original note, or a copy of the original note with a blank endorsement coupled with an affidavit by the party seeking to foreclose averring that it is in possession of the original note endorsed in blank, constitutes sufficient evidence that the party seeking to foreclose is in fact the holder of the note. In re Cornish, No. COA 13-513, 2014 WL 636969 (N.C. Ct. App. Feb. 18, 2014). Although unpublished opinions are not binding authority, the Cornish case should have sufficient persuasive authority on lower courts throughout the state to resolve the “blank endorsement” dispute with finality.

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Massachusetts: Supreme Judicial Court Decides re Strict Compliance as to Pre-FC Right to Cure Statute

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Thomas J. Santolucito
Harmon Law Offices, P.C. – USFN Member (Massachusetts, New Hampshire)

On March 12, 2014, the Massachusetts Supreme Judicial Court (SJC) issued its long-awaited decision in the case of U.S. Bank, N.A. as Trustee v. Schumacher, __ N.E.3d __, 467 Mass. 421. At issue in the case was whether a mortgagee’s failure to comply strictly with the Massachusetts pre-foreclosure right to cure statute, Gen. Laws ch. 244, § 35A (§ 35A), renders a foreclosure sale void. Former owners frequently plead lack of strict compliance with § 35A as a defense to post-foreclosure summary process (eviction) cases. The trial courts in Massachusetts have issued myriad conflicting decisions concerning this issue, making it impossible to predict the outcome of cases where a borrower called a § 35A notice into question.

In Schumacher, the SJC held that the pre-foreclosure right to cure statute did not regulate the foreclosure process itself, but instead sought to permit borrowers an opportunity to cure a default prior to the commencement of a foreclosure. The SJC found that, because § 35A regulates pre-foreclosure conduct, it is not part of the statutory power of sale demanding strict compliance. As such, minor technical inaccuracies in the notice do not render the resulting foreclosure sale void as a matter of law.

In a concurring opinion, Justice Gants noted that, although violations of § 35A do not render a foreclosure void, they may present courts with equitable grounds to set aside foreclosures in cases where a notice is “fundamentally unfair.” Accordingly, borrowers may still petition the superior court, or assert defenses or counterclaims in eviction cases, challenging a foreclosure due to an inadequate § 35A notice. Borrowers will face more difficulty prevailing upon these claims under a “fundamentally unfair” standard rather than the “strict compliance” standard adopted by several trial courts prior to Schumacher.

Schumacher brings much-needed clarity to a very hotly contested and controversial area of Massachusetts foreclosure law.

Editor’s Note: The author’s firm represented U.S. Bank in the lower court through the trial of the Schumacher case.

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Connecticut: Appellate Court Rules on Standing

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by Valerie Finney
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

In the case of Deutsche Bank National Trust Company, Trustee v. Torres, (AC 35838), decided on March 25, 2014, the Connecticut Appellate Court reversed the Superior Court’s ruling granting a motion to dismiss filed by the self-represented borrower. The basis of the motion was an allegation that the plaintiff lacked standing to commence the foreclosure action. The appellate court concluded that the plaintiff bank had standing to foreclose because it was in possession of the original note endorsed in blank, which was provided to the trial court at the hearing on the motion.

The appellate court relied upon several recent Connecticut Appellate and Supreme Court decisions regarding standing to foreclose, specifically referring to the Uniform Commercial Code’s (C.G.S. § 42a-1-201(b)(21)(A)) definition of a holder of a note in conjunction with Connecticut General Statutes § 49-17, which “allows the holder of a note to foreclose on real property even if the mortgage has not been assigned to him.” The recent cases supporting the Torres decision were Chase Home Finance, LLC v. Fequiere, 119 Conn. App. 570 (2010); RMS Residential Properties, LLC v. Miller, 303 Conn. 224 (2011); J.E. Roberts Co. v. Signature Properties, LLC, 309 Conn. 307 (2013); and Equity One, Inc. v. Shivers, 310 Conn. 119 (2013). All of these decisions comprised the legal authority for reversing the trial court’s ruling.

Most importantly, the appellate court held that because the plaintiff had alleged itself to be the holder of the note payable to bearer and had presented the note to the judicial authority and defendant for review, the plaintiff had raised the presumption of standing, to which the defendant failed to rebut. Once a plaintiff alleges in its complaint the right to foreclose, the burden then shifts to the defendant to rebut that presumption with concrete evidence.

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Tennessee Appellate Court: Recorded Access Easement is Notice to the World

Posted By USFN, Monday, March 31, 2014
Updated: Monday, October 12, 2015

March 31, 2014

 

by J. Skipper Ray
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

The Tennessee Court of Appeals recently released an opinion regarding the issue of interference with an access easement, one which should provide some comfort to lenders dealing with rural properties in this state. The case, Riegel v. Wilkerson, 2014 Tenn. App. LEXIS 62 (Tenn. Ct. App. Feb. 11, 2014), involved a landowner (Wilkerson) who had erected a gate blocking a road utilized by an adjoining landowner (Riegel) to access his property. An easement, which provides for ingress/egress to the property now owned by Riegel, had been executed by previous landowners in the chain of title; however, the deed to Wilkerson, did not contain a reference to the easement. She took the position that because her deed failed to include a reference to the easement, the easement was not enforceable against her. The trial court did not rule in her favor, however, and enjoined her from further interference with use of the easement. The Court of Appeals affirmed that ruling.

As referenced in the court’s opinion, an easement has been defined in Tennessee common law as “an interest in property that confers on its holder a legally enforceable right to use another’s property for a specific purpose.” The easement that was at issue in this case is legally defined as an express easement appurtenant. It is referred to as an express easement because it was in writing. It was an easement appurtenant because it involves two tracts of land, the dominant tenement and the servient tenement. The dominant tenement is the one that is receiving the benefit of the easement, while the servient tenement is the property over which the easement travels, thus serving a benefit upon the dominant tenement. In the subject case, Riegel was the dominant estate owner, as he received the benefit of the easement, allowing him to travel on a road physically situated on Wilkerson’s property (the servient estate).

Neither Riegel nor Wilkerson was party to the original easement. The easement was consummated by individuals who owned the respective properties prior to Mr. Riegel and Ms. Wilkerson obtaining ownership. The easement was recorded in the property records and was granted to the then-property owners, and “their heirs and assigns forever.” This meant that the easement was perpetual, or what is often referred to as “running with the land.” In other words, the easement did not terminate when those who were party to it ceased to own their respective interests in the property. The rights or, in this case, the responsibilities incurred pursuant to the easement pass down to subsequent owners.

The court devoted a large portion of its opinion towards addressing alternative reasons that the easement was enforceable against Ms. Wilkerson. However, its primary holding was that the easement was of record prior to her obtaining ownership of her property and, thus, the fact that it was of record was notice to the world of the existence of the easement. As the court stated, “the ‘grantee of a servient tenement takes the property subject to all duly recorded prior easements whether such easements are mentioned in the grantee’s deed or not ...’” 28A C.J.S. Easements § 134; Tenn. Code Ann. § 66-26-102.

This holding can be an important one for lenders in Tennessee, especially where the collateral consists of rural property. As was the situation in Riegel, easements can become important when the landowner of a large tract of land begins to sell off smaller portions, which often do not abut a publicly maintained road, street, or highway. When a property owner conveys a smaller piece (or parcel) of land to a new owner, the deed will often contain language establishing an easement over the seller’s other, adjoining, property so that the purchaser will be able to access his or her new parcel.

As was the case in Riegel, if the seller later conveys further portions of the original, larger tract, over which the easement for access to other parcels exists, it’s possible that this subsequent purchaser’s deed will not contain a reference to the property being encumbered by an easement. It is reassuring for lenders to know that should they have to foreclose on a property that is accessed via such an easement, that a later purchaser of the servient property cannot block use of the easement simply because he wasn’t aware of its existence and/or his deed failed to contain a reference to it.

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Arkansas: Rescinded Homeowner Policy — Mortgagee Insured?

Posted By USFN, Friday, March 28, 2014
Updated: Monday, October 12, 2015

March 28, 2014

 

by Kathryn A. Lachowsky
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

Nationwide Mutual Fire Insurance Co. v. Citizens Bank & Trust Co., 2014 Ark. 20, arose out of a fire that occurred in December 2009 and an insurance company denying the claim of both the insured homeowner and the mortgagee. The homeowner, Danny Ludwick, applied for insurance coverage from Nationwide Mutual Fire Insurance Co. (Nationwide) on his home located in Van Buren, Arkansas. Nationwide relied upon the information supplied in his application and supplemental application, and issued a policy insuring the home and its contents for the period of May 6, 2009, through May 6, 2010. The policy at issue contained a standard mortgage clause.

The home was later destroyed by a fire in December 2009, and Citizens Bank & Trust Co. (Citizens) had a valid mortgage on the home at the time of the application and at the time of the fire. During Nationwide’s investigation of the fire, Nationwide learned of two previous fire losses sustained by the homeowners that had not been disclosed in their application and supplemental application for insurance. According to Nationwide’s underwriting guidelines, Nationwide would not have issued the policy if the prior undisclosed fire losses had been disclosed at the time of the application. Based on this material misrepresentation, Nationwide voided the policy back to its inception and refunded the premiums paid by the homeowners.

Mortgagee Citizens submitted a timely claim to Nationwide, but Nationwide denied the claim — not on the basis of a policy exclusion, but rather on the basis that the policy was void back to its inception. At trial, Nationwide argued that its rescission of the policy voided the policy ab initio and thereby extinguished not only the homeowner’s interest, but also Citizens’ interest as mortgagee. The Crawford County Circuit Court entered its order, without explanation, granting Citizens’ motion for summary judgment and denying Nationwide’s motion. Nationwide appealed and the Arkansas Court of Appeals certified this case to the supreme court as one of first impression that is of significant public interest. The Arkansas Supreme Court affirmed the decision.

On appeal, Nationwide contended that the circuit court erred in its decision because when Nationwide rescinded the policy, the policy was void ab initio and, therefore, there was no policy in which Citizens had an interest. According to Black’s Law Dictionary, the definition of “void ab initio” is: “null from the beginning, as from the moment when a contract is entered into.” Nationwide’s position was simple: If the policy is void and a legal nullity, the mortgagee can have no interest in it. Nationwide further argued that rescission of a contract and cancellation of a contract are two distinctly different remedies based on different grounds. Cancellation takes effect only prospectively, while rescission voids the contract ab initio. Nationwide, 2014 Ark. 20, citing Ferrell v. Columbia Mut. Cas. Ins. Co., 306 Ark. 533, 537, 816 S.W.2d 593, 595 (1991).

Citizens’ argument is based on the parties’ unambiguous stipulation that the mortgage clause in the policy is a standard mortgage clause. Under Arkansas law, a standard mortgage clause serves as a separate contract between the mortgagee and the insurer, as if the mortgagee had independently applied for insurance. Nationwide, 2014 Ark. 20, see, e.g., Farmers Home Mut. Fire Ins. Co. v. Bank of Pocahontas, 355 Ark. 19, 129 S.W.3d 832 (2003). Thus, the rights of a named mortgagee in an insurance policy are not affected by any act of the insured, including improper and negligent acts. The words “any acts” as used in a standard mortgage clause do not refer merely to acts prohibited by the contract or to a failure to comply with the terms of the contract, but literally embrace any act of the mortgagor. Nationwide, 2014 Ark. 20, citing 4 Couch on Insurance § 65:48 (3rd ed.).

In its review, the supreme court acknowledged Nationwide’s argument in reply that rescission voids a policy regardless of whether the policy’s mortgage clause is a standard mortgage clause. Nationwide’s position, however, overlooks the effect of Arkansas law treating the mortgagee as having an independent contract unaffected by the acts of the insured. The justice concluded in his opinion that under Arkansas law, the standard mortgage clause serves as a separate contract between Nationwide and Citizens as if Citizens had independently applied for insurance. As such, Nationwide’s rescission of the homeowner’s policy based on the acts of the homeowner does not affect Citizens’ independent contract with Nationwide. It is important to note that this independent contract with the mortgagee cannot be defeated by any act of the insured. Farmers Home Mut. Fire Ins. Co., 355 Ark. 19, 129 S.W.3d 832. Fraudulent acts by the insured and the rescission of the policy have no affect whatsoever on the independent contract with the mortgagee.

While this issue is one of first impression in Arkansas, the conclusion is consistent with the long-settled law of Oklahoma. In 1958, the Oklahoma Supreme Court similarly held that “a mortgagee’s contract was completely independent of the insured’s rights and would be valid even though the insurance policy was void ab initio.” Nationwide, 2014 Ark. 20, citing Okla. State Union of Farmers’ Educ. & Coop. Union of Am. v. Folsom, 325 P.2d 1053, 1056 (Okla. 1958) (citing Western Assur. Co. v. Hughes, 179 Okla. 254, 66 P.2d 1056) (Okla. 1936)).

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Digital Audio Recordings of Bankruptcy Courtroom Proceedings

Posted By USFN, Friday, March 28, 2014
Updated: Monday, October 12, 2015

March 28, 2014

 

by Edward J. Boll III
Lerner, Sampson & Rothfuss, LPA – USFN Member (Kentucky, Ohio)

The pilot program to make digital audio recordings of courtroom proceedings publicly available online that began with two federal courts in the fall of 2007 has gradually been adopted by an increasing number of district and bankruptcy courts. In February 2014, U.S. Bankruptcy Judge Humphrey (Dayton, Ohio) implemented a program making digital audio recordings of court proceedings available on the internet through PACER. These recordings are available on a case-by-case basis, at the judge’s discretion, or upon specific request of a party in interest. Attorneys in a case or adversary proceeding may access the audio file one time with no charge via the notice of electronic filing email that is sent when an audio file is docketed in the case or adversary proceeding, and may also download the audio file for future access. Any other party wishing to download a copy of the audio file from PACER will be charged a fee of $2.40 per file. Previously, a party wishing to obtain a digital audio recording (CD) had to pay a $26 fee.

Digital audio recording has been an authorized method of making an official record of court proceedings since 1999, when it was approved by the policy-making Judicial Conference of the United States. However, in accordance with 28 U.S.C. § 735(b), “[n]o transcripts of the proceedings of the court shall be considered as official except those made from the records certified by the reporter or other individual designated [by the court] to produce the record.” Official transcripts must be prepared by a court-approved transcriptionist from a copy of the audio file maintained by the clerk. Often times you can contact the courtroom deputy to make arrangements to obtain an official copy of any court proceeding transcript. Counsel will not be permitted to present transcripts prepared from audio files taken off PACER as evidence in court proceedings. However, counsel who do not need an official transcript may download a copy of the audio file and have it transcribed for their own use.

The judiciary’s privacy policy restricts the publication of certain personal data, including limiting the disclosure of Social Security and financial account numbers to the last four digits, using only initials for the names of minor children, and limiting dates of birth to the year. If information subject to the judiciary’s privacy policy is stated on the record, it will nonetheless be available in the audio files over the internet.

Counsel and witnesses are cautioned to avoid introducing personal data and other sensitive information into the record, unless necessary to prove an element of the case. If private information is mentioned during a conference or hearing, counsel may move the court to seal, restrict, or otherwise prohibit placement of the digital audio file of the conference or hearing on the internet through the PACER system. It is the responsibility of counsel to notify the judge of their desire to restrict audio from the internet.

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Bankruptcy Appellate Panel Overturns New Hampshire Beeman Decision

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

by Deirdre Keady
Harmon Law Offices, P.C. – USFN Member (Massachusetts, New Hampshire)

The Bankruptcy Appellate Panel (BAP) recently issued an opinion that essentially overturned a longstanding practice in New Hampshire bankruptcy courts recognizing a debtor’s ability to include foreclosed property in a Chapter 13 reorganization, provided the foreclosure deed had not been recorded prior to the Chapter 13 filing. [TD Bank v. LaPointe (In re LaPointe), BAP No. NH 13-029 (B.A.P. 1st Cir. Feb. 24, 2014)].

Since the Beeman opinion was issued in 2009 (ruling that a debtor could file a Chapter 13 reorganization and include foreclosed property as long as the foreclosure deed was not recorded), it had become commonplace for debtors to file Chapter 13 cases post-foreclosure auction, which would then require the sales to be rescinded. Beeman was not appealed.

In the LaPointe case, the bankruptcy court denied TD Bank relief from stay to record the foreclosure deed. The facts in LaPointe were essentially the same as in Beeman. TD Bank appealed to the BAP, which ruled that the New Hampshire Bankruptcy Court erred in failing to grant the bank relief from stay and remanded the case back to the bankruptcy court to enter an order granting relief from stay. The BAP held that NH state law does not recognize a mortgagor’s right of redemption after the gavel has fallen and the memorandum of sale is signed; therefore, the bankruptcy court could not give the debtor any more rights than state law allowed.

The LaPointe case is likely to be appealed so, for now, it is still advisable to seek relief from the automatic stay prior to recording a foreclosure deed when a post-auction bankruptcy has been filed.

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Kansas: Appeals Court Upholds Denial of Lender Liability Claims

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

by Robert E. Lastelic
South & Associates, P.C. – USFN Member (Kansas, Missouri)

In Tang v. Bank of Blue Valley, 2014 WL 702404 (Kan. Ct. App. Feb. 21, 2014), Kim Tang and Tong Bui not only sued the bank seeking to be relieved of their liability to the bank for a loan originally made to their contractor, but also for substantial money damages allegedly sustained. The bank filed a counterclaim requesting recovery on the loan represented by a note secured by a mortgage or for any deficiency that might result. The Kansas Court of Appeals affirmed the trial court’s decision that granted summary judgment to the bank on all issues.

The bank originally had made a loan to a contractor to acquire the land and to build a house for Tang and Bui. The record disclosed that Tang and Bui were aware that the contractor had used all of the loan proceeds, yet the house was not complete. With the loan coming due and the contractor out of money, Tang and Bui signed on to the loan at a reduced interest rate and the maturity date was extended. After several extensions, Tang and Bui stopped paying interest on the loan and filed suit against the contractor and the bank, asserting several legal theories. The bank counterclaimed seeking a money judgment on the note and foreclosure of the mortgage. The lower court granted judgment in favor of the bank; Tang and Bui appealed.

Tang and Bui contended that the district court erred in holding that: (1) their agreement to become obligors on the loan was supported by legally sufficient consideration; (2) the bank owed them no fiduciary duty; and (3) the bank did not breach any implied duty of good faith and fair dealing.

The appellate court held that the reduction in the interest rate was legally sufficient consideration. However, the court declined to consider the sufficiency of the bank’s additional claimed consideration of the exercise of forbearance in not proceeding to exercise its right to enforce the note at maturity and proceed with suit, if necessary, to recover on the note and to foreclose the mortgage securing the loan, thus allowing Tang and Bui the chance to be able to complete construction of the house and to acquire the property, while benefiting from the funds they personally had put into the transaction.

As to the bank’s alleged breach of fiduciary duty, the appellate court, citing prior Kansas case law, held that the bank did not occupy a fiduciary position in making a construction loan and had no legal duty to police the progress or quality of the builder’s work. The court also stated that there was nothing in the record to demonstrate special circumstances to convert a typical lender-borrower relationship into a fiduciary one. Furthermore, the appellate court held that the bank did not violate its implied duty of good faith and fair dealing governing the loan agreement. In summary, the court stated that the bank did nothing to interfere with Tang’s and Bui’s rights under the loan agreement. Lastly, the court of appeals ruled that no disputed issue of material fact nor legal theories were presented which would allow Tang and Bui to go forward with their claims against the bank or preclude the bank from enforcing its rights under the loan agreement. As a result, the judgment of the lower court in favor of the bank was affirmed.

In conclusion, this case confirms three legal principles: (1) Legal sufficiency of consideration does not rest on the comparative economic value of the consideration and of what is promised in return; (2) Absent special circumstances, the lender-borrower relationship creates a creditor-debtor relationship, not a fiduciary relationship; and (3) The implied duty of good faith and fair dealing governing a loan agreement requires that the parties refrain from intentionally doing anything to prevent the other party from carrying out the agreement or which would have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.

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Connecticut: False Certification re Notice gives Court Authority to Open Foreclosure Judgment

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

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

In Wells Fargo Bank, N.A., Trustee v. Melahn, (AC 34726), the defendant appealed the trial court’s denial of his motion to open the judgment of strict foreclosure, which had entered in favor of the plaintiff Wells Fargo. The appellate court concluded that in “rare and exceptional circumstances” the trial court has the jurisdiction and authority to open a judgment of strict foreclosure even though title has already vested with another party. The appellate court thereby reversed the trial court’s denial and remanded the case for further proceedings.

Case Summary — On September 9, 2010, the plaintiff commenced a foreclosure action against the defendant. A judgment of strict foreclosure entered against the defendant (who had not appeared in the matter) on November 22, 2010, with a law day of January 11, 2011. Pursuant to the uniform foreclosure standing orders (form JD-CV-104), a letter must be sent to all non-appearing defendants who have an ownership interest in the property. The letter must be sent within ten days of the judgment, state that a judgment of strict foreclosure has been entered, and advise the defendant that he may lose the property on the law day if he fails to take any steps to protect his interest. The letter must be sent by regular and by certified mail, and proof of such must be filed with the court. A certificate of foreclosure cannot be filed on the land records until proof of the mailing has been filed with the court.

The plaintiff did not send the notice of judgment until January 7, 2011, some 46 days after the entry of judgment and only four days before the law day. The certified copy of the notice was not received by the defendant until January 11, 2011, his actual law day. Even though the letter was sent late and failed to provide all of the information as outlined by the standing orders, the plaintiff certified to the court that the notice had been mailed in accordance with those orders.

The defendant retained legal counsel, who filed an appearance on February 22, 2011, and a motion to dismiss was filed on March 31, 2011. Both the appearance and motion were filed after the plaintiff had taken title to the property. The court opened the judgment of strict foreclosure and granted the defendant’s motion to dismiss on July 14, 2011, some six months after title passed, based on the plaintiff’s failure to comply with the notice requirement of the standing orders. However, the plaintiff filed a motion to reargue on August 24, 2011, citing Falls Mill of Vernon Condominium Assn., Inc. v. Sudsbury, 128 Conn. App. 314, 320-21, 15 A.3d 1210 (2011), and contended that the court did not have the authority to open the judgment or dismiss the action because the law day had passed and title had already vested with the plaintiff. The defendant argued that the opening and dismissal of the judgment were a proper sanction against the plaintiff for its false certification of compliance with a court order. The trial court vacated its prior order and then denied the defendant’s motion to dismiss.

Upon appellate review, the court reiterated that “a trial court has broad discretion to make whole any party who has suffered as a result of another party’s failure to comply with a court order.” AvalonBay Communities, Inc. v. Plan & Zoning Commission, 260 Conn. 243, citing Nelson v. Nelson, 13 Conn. App. 355, 367, 536 A.2d 985 (1988) and Clement v. Clement, 34 Conn. App. 641, 647, 643 A.2d 874 (1994). The court distinguished the facts of this case from Falls Mill of Vernon Condominium Assn., Inc. v. Sudsbury, because the defendant there was not a non-appearing owner and there were no allegations that the plaintiff falsely certified compliance with a court order. The appellate court was silent on whether dismissing an action is a proper sanction for non-compliance or for a false certification, stating that the “appropriate sanction, if any, is discretionary and may be reconsidered by the court on remand.” It also was not clear if the defendant in the present matter received notice from the court advising of the judgment and law day and what impact that may have had on the court’s decision (Melahn, fn. 5).

The appellate court further addressed Conn. General Statutes § 49-15, which states that a judgment of strict foreclosure cannot be opened “after the title has become absolute in any encumbrancer.” It concluded that foreclosure is an equitable action and the trial court has continuing jurisdiction over equitable matters, particularly when a party is denied the opportunity to present a defense because of fraud, accident, mistake, or surprise. In this case, the defendant was not provided with requisite notice prior to his law day and the plaintiff misrepresented to the court its compliance with the standing orders regarding that notice. These unusual circumstances are sufficient for the trial court to retain jurisdiction in order to provide an adequate remedy.

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Exclusion of Gain in Sale of “Main Home”

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

by Matthew B. Theunick
Trott & Trott, P.C. – USFN Member (Michigan)

IRS provision 26 U.S.C. § 121 discusses the issue of exclusion of gain from the sale of a principal residence. Specifically, the section states that, “Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.”

For the tax practitioner or layman, IRS Publication 523 tracks and clarifies 26 U.S.C. § 121 with respect to “Selling Your Home” for use in preparing 2013 tax returns. As Publication 523 notes, “If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases).”

To qualify for this maximum exclusion of up to $250,000 for a single filer and $500,000 for a joint filer, it is necessary that this exclusion is on a “main home.” Typically, one’s main home would include the home lived in most of the time, whether this is a house, houseboat, mobile home, cooperative apartment, or condominium. Factors relevant in determining which home is one’s main home include: (1) your place of employment; (2) the location of your family members’ main home; (3) your mailing address for bills and correspondence; (4) the address listed on your: (a) federal and state tax returns; (b) driver’s license; (c) car registration; and (d) voter registration card; (5) the location of the bank you use; and/or (6) the location of recreational clubs and religious organizations in which you are a member.

Having met the “main home” requirement, it is then necessary to meet an (1) ownership test and (2) use test during the prescribed period of time, as indicated in the statute. This means that during the 5-year period ending on the date of the sale, one must have:

  • Owned the home for at least two years (the ownership test), and
  • Lived in the home as your main home for at least two years (the use test).


The required two years of ownership and use during the five-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. For example, you meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 x 2) during the five-year period ending on the date of sale.

Generally speaking, if you can exclude all the gain, you do not need to report it on your tax return. However, if you have a gain that cannot be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses.

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Minnesota: Post-Foreclosure Evictions

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

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

In a helpful case for those wishing to evict occupants following a mortgage foreclosure, the Minnesota Court of Appeals determined in Deutsche Bank National Trust Company v. Hanson, __ N.W.2d __, 2014 WL 30389 (Minn. App. Jan. 6, 2014), that a district court can enter an eviction judgment in favor of a foreclosing lender without addressing the defendant’s claim that the lender’s title is flawed. A pending lawsuit regarding the validity of the mortgage does not require a stay of the eviction proceedings.

The pertinent eviction statute and prior decisions from the Minnesota Court of Appeals provide that to evict a holdover occupant a foreclosing lender need only show that (1) a foreclosure occurred, (2) the redemption period expired, (3) the eviction plaintiff is the holder of the sheriff’s certificate of sale, a successor, or assignee, and (4) the defendant is holding over. Evictions are summary proceedings and lawsuits contesting title must be filed in a separate action.

Following a mortgage foreclosure and expiration of the statutory redemption period, former owners and eviction defendants seeking to challenge the eviction in Minnesota often claim that a lender’s foreclosure is defective and, therefore, the lender cannot proceed with the eviction. These eviction defendants often start a lawsuit quickly after the eviction complaint is filed or have already filed a separate lawsuit disputing the lender’s title.

The eviction defendants frequently claim that Bjorklund v. Bjorklund Trucking Co., 753 N.W.2d 312 (Minn. App. 2008), requires the eviction court to stay the eviction pending the outcome of a separate lawsuit because, in Bjorklund, the Minnesota Court of Appeals held that a district court abused its discretion where it refused to stay an eviction action when defenses or counterclaims that are essential in the eviction are also at issue in a previously-filed lawsuit.

The Hansons argued that Bjorklund required the district court to stay the eviction until Deutsche Bank could establish the validity of the foreclosed mortgage. The Hansons did not dispute that they executed a mortgage. Instead, they claimed it was invalid because they had rescinded the loan transaction under the Truth in Lending Act. The holding in Hanson concluded that Bjorklund did not govern the foreclosure-related eviction, with the court determining that the most significant distinction was that in Bjorklund the occupant’s defense hinged on an alleged agreement to transfer the real estate to the occupant and the district court in Bjorklund found that some of the claims in the previously-filed lawsuit were essential to the transfer agreement defense. Also of note, the Bjorklund plaintiff sought to evict based on an alleged oral lease and a lease termination notice.

The Hanson court ruled that because eviction proceedings adjudicate only the right to present possession, a dispute over the validity of the mortgage [or likely the foreclosure] did not trigger the Bjorklund stay requirement. The Hansons’ claim that the lender’s title was flawed was not an issue central to the eviction proceeding and “the district court correctly concluded that it could proceed without addressing [the Hansons’ title claims].”

© Copyright 2014 USFN. All rights reserved.
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Pennsylvania: Two Important Judicial Rulings for Lenders

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

by Louis P. Vitti
Vitti & Vitti & Associates. P.C. – USFN Member (Pennsylvania)

A recent Pennsylvania case, Hirsch v. Citimortgage, 2:13-cv-1344, involved allegations of breach of contract and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) against Citimortgage. The lender raised res judicata as a defense, asserting that the claims could no longer be made by virtue of the judgment entered in the foreclosure action.

As background in Hirsch, the borrowers had been in a Chapter 7 proceeding, were discharged from the bankruptcy, and were making their monthly mortgage payments continuously. After determining that there were tax liens on the property, the lender required satisfaction of those items and refused to accept payments until such liens were removed.

In a rather lengthy, well-thought opinion, the court indicated that since defenses to mortgage foreclosure in Pennsylvania may only arise at the time of the loan being made and counterclaims are otherwise not permitted, the prior judgment in a foreclosure could not act as a bar to the claims made in the instant case for bad faith and breach of contract. (Pennsylvania Rules of Civil Procedure provide that a party in foreclosure may plead a counterclaim only when the cause of action is part of, or incident to, the creation of the mortgage itself.)

The borrowers were unable to identify a specific contractual provision that was breached. The court looked to whether there was a breach of the implied covenant of good faith and fair dealing, holding that there is such an implied covenant in every Pennsylvania contract. The implied covenant breach was not properly pled, and the court dismissed the claim. In its final ruling, however, the court permitted an amendment of the complaint to cure the deficiency.

Additionally, the court reviewed the UTPCPL claim, holding that in accordance with Pennsylvania law the borrower-plaintiffs must establish that they “justifiably relied on the information (or misinformation) presented by” the lender, “that they engaged in some detrimental activity based on the Defendant’s conduct. Moreover, they must show that they suffered damages as a proximate result of such reliance.” The court ruled that the complaint failed to sufficiently allege the violation because the borrowers did not sufficiently plead all of the elements of the violation of the UTPCPL-catchall provision. This second count of the borrowers’ complaint was dismissed as well, with the court also granting leave to amend.

Act 91 Notice & Assignment Recording
Another case in Pennsylvania, Citimortgage v. Smiler, 61 Chester County Law Reporter 433, clears up a procedural matter facing lenders in foreclosure proceedings and allows some positive relief. The required Act 91 notice sent to borrowers before initiating foreclosure may be sent to the borrowers prior to the recording of the assignment of mortgage to the plaintiff-lender; such recording of assignment after issuance of the Act 91 notice to the borrowers does not invalidate the notice.

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Illinois: St. Clair County Mediation

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014

 

by Andrew Nelson
Pierce & Associates, P.C. – USFN Member (Illinois)

One of the advantages of mediation is that when conducted appropriately, it creates an open forum for the parties to freely communicate to reach a mutually-beneficial alternative to foreclosure when possible. The goals and structure of mediation vastly differ from the objectives and procedures of litigation. Therefore, the two courses of action should remain separate. However, the St. Clair County mediation rules attempt to merge the two processes together to the detriment of fairness and efficacy.

Pursuant to the St. Clair County foreclosure mediation program (FMP) rules, “unless ordered by the court, no discovery shall take place until after the mediation is complete.” However Section 4 of the rules violates the aforementioned aspect of the program by essentially commanding unilateral discovery requests of the plaintiffs, imposing an onerous and undue burden on plaintiffs to produce documentation that contravenes the purpose of mediation and rises to the level of litigation.

Section 4 of the FMP rules requires lender representatives to provide the following extensive list of documents at the first pre-mediation conference:

  1. Proof of the plaintiff’s standing to file the foreclosure
  2. Proof of the mortgage holder’s standing and status as the real party in interest
  3. Any pooling and servicing agreement
  4. Loan origination documents
  5. The appraisal at the time of the loan origination and any subsequent appraisal
  6. Payment history records with respect to the mortgage, including all fees and costs incurred
  7. An itemization of the amounts needed to cure and payoff the mortgage
  8. The lender’s current loan modification packet


This author’s firm suggests that an objection is appropriate to several of the aforementioned documentation requirements because the requisites are unreasonable and burdensome within the context of a mediation program.

Proof of the Plaintiff’s Standing to File the Foreclosure Complaint

The St. Clair County foreclosure mediation program is an opt-in one. Defendants receive a mediation program notice and a foreclosure mediation request form along with their summons. Defendants must execute the mediation request form if they wish to participate in mediation. Therefore, the defendants cannot challenge the plaintiff’s standing to foreclose while simultaneously seeking mediation with the same plaintiff.

Proof of the Mortgage Holder’s Standing & Status; PSAs; Loan Origination Docs; Appraisals
The concern with the above-listed items 2, 3, 4, and 5 is that they constitute discovery requests. Court rules and Illinois Rules of Evidence govern the discovery procedure, which would be circumvented by the demands of this foreclosure mediation program. Requiring plaintiffs to produce these documents without adhering to the formality of discovery requests and without the plaintiffs’ ability to object, overextends the scope and function of the mediation program. Moreover, a plaintiff’s failure to provide these items exposes it to undue liability for failing to participate in good faith. Accordingly, this author’s firm recommends considering an objection to the production of these items as a violation of the foreclosure stay, which is to remain in effect throughout mediation.

Any challenges to the mortgage holder’s standing or to the terms of a pooling and servicing agreement are not appropriate for a mediation setting, as there is no decision maker present to resolve the dispute. Mediators must remain neutral and impartial. Therefore, these types of issues are to be addressed within the established framework of litigation in compliance with the Illinois Rules of Civil Procedure.

Conclusion
Notwithstanding that Section 4 of these FMP rules is excessively broad and obfuscates the role of the mediation process, this author’s firm remains committed to mediating in good faith. However, appropriate objections should be considered in each case.

© Copyright 2014 USFN and Pierce & Associates, P.C. All rights reserved.
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