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Wisconsin: Abandoned Properties in Foreclosure

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

March 4, 2014

 

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

Under Chapter 846, Wis. Stats., the foreclosure process in Wisconsin after judgment but before sale has traditionally been driven by the creditor. A recent interpretation of Wis. Stat. § 846.102 by the Wisconsin Court of Appeals appears to put the debtor, or the city, in the driver’s seat as well, at least in relation to abandoned properties. The Bank of New York v. Carson, Appeal No. 2013AP544 (Wis. Ct. App. Dist 1, Nov. 26, 2013).

Wis. Stat. § 846.102 was revised in 2011. The language at issue provides in part that, “the sale of such mortgaged premises shall be made upon the expiration of 5 weeks from the date when such judgment is entered.” Similar language is found throughout Chapter 846 but has never before been interpreted to mean that a sale is mandatory after a judgment of foreclosure is entered, and has never before been interpreted to mean that a sale must be held within a certain period of time.

In April 2011, the creditor in Carson obtained a default foreclosure judgment with a waiver of any deficiency under Wis. Stat. § 846.103(2), allowing for a three-month redemption period. In November 2012, Carson filed a motion relying upon § 846.102, asking that the judgment be amended to indicate that the property had been abandoned, and asking the circuit court to order the creditor to schedule a sheriff’s sale. The circuit court agreed with the creditor that it did not have the authority to order a sale, and Carson appealed.

The Court of Appeals interpreted § 846.102 to allow any party to the case (not just the creditor) and the city to support a request for finding the property to be abandoned. Next, it interpreted the word “shall” of § 846.102 to mandate that the creditor schedule a sheriff’s sale upon the expiration of the five-week redemption period.

The Carson decision raises more questions than it answers; e.g., must the creditor enter a bid at the sale? Must the creditor then move to confirm the sale; and, if so, when? Wis. Stat. § 846.18 addresses “tardy confirmation of sale,” allowing the purchaser at a sheriff’s sale who has taken possession to move the court to confirm the sale.

The Bank of New York has petitioned the Wisconsin Supreme Court for review; however, if the petition is denied, or if the Carson holding is not overturned, foreclosing creditors must seriously consider the impact of their decision to obtain a judgment of foreclosure.

© Copyright 2014 USFN. All rights reserved.
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Arizona: “Show Me the Note” — Again?

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

March 4, 2014

 

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

Arizona may be facing a “show me the note” redux. The Arizona Court of Appeals issued its opinion in Steinberger v. McVey ex rel. Cnty. of Maricopa, __ P.3d __, 2014 WL 333575 (Ariz. Ct. App. Jan. 30, 2014), and the opinion seems to rejuvenate the “show me the note” defense to foreclosure. This is especially surprising in light of the fact that the Arizona Supreme Court shut down the “show me the note” defense in its opinion in Hogan v. Washington Mutual Bank, N.A., 230 Ariz. 584, 277 P.3d 781 (2012).

In Hogan, a “show me the note” case, the Supreme Court wrote: “[w]e hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or ‘show the note’ before the trustee may commence a non-judicial foreclosure.” The court based its holding on a careful review of the relevant statutes and on policy considerations. On the policy side, the court stated: “The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of the note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the mortgage foreclosure process ... time-consuming and expensive, and re-inject litigation, with its attendant cost and delay, into the process.”

Arizona’s state and federal courts had already concluded that the “show me the note” argument was meritless and, with Hogan, Arizona’s highest court seemed to settle the matter once and for all. At least until late January, when the Arizona Court of Appeals issued Steinberger.

Steinberger is a lengthy opinion that deals with a number of different causes of action, but it is its treatment of the “show me the note” argument and of Hogan that stands out. In Steinberger, the court of appeals holds that the plaintiff did state a cause of action based on allegations that the beneficiary lacked authority to foreclose; i.e., based on a “show me the note” argument. The court of appeals attempts to distinguish Hogan on the basis that in that case, the borrower did not “affirmatively allege” that the entity pursuing foreclosure lacked authority to do so, whereas Steinberger did so allege. And although the Steinberger opinion acknowledges that the holding in Hogan was premised partly on the idea that non-judicial foreclosure sales are intended “to operate quickly and efficiently ... and that litigation inevitably slows down the foreclosure process,” Steinberger nevertheless appears to have re-injected litigation into the non-judicial foreclosure process, at least in cases where the borrower alleges that the wrong entity is pursuing foreclosure, which is in nearly all of the “show me the note” cases.

Steinberger is likely to be appealed and, if the Arizona Supreme Court grants review, Arizona may again have clarity on this important issue.

© Copyright 2014 USFN. All rights reserved.
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Tennessee: Appellate Court Reviews Whether Borrower has Right to Mortgage Modification

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

  

by Edward D. Russell
Wilson & Associate, PLLC – USFN Member (Arkansas, Tennessee)

The Tennessee Court of Appeals has confirmed that a lender is not obligated to modify and restructure a mortgage loan under the Home Affordable Modification Program (HAMP) unless the borrower under the mortgage loan alleges the existence of a contract requiring the lender to restructure the mortgage in the event of a default. [Berry v. Mortgage Electronic Registration Systems, No. W2013-00474-COA-R3-CV (Tenn. Ct. App. Oct. 15, 2013)].

In 2012, after the plaintiff defaulted on her 2004 mortgage, the lender informed her that foreclosure would commence. The plaintiff filed a complaint in Shelby County Chancery Court seeking declaratory judgment and obtained a temporary restraining order. After the plaintiff filed an amended complaint, defendants MERS and Wells Fargo Bank filed an answer and a motion for judgment on the pleadings. The chancery court entered an order granting the motion. The plaintiff then appealed that order.

On appeal, the plaintiff initially argued that the amended complaint was sufficient to survive the motion because the amended complaint was sufficient to obtain a temporary restraining order. The appellate court rejected this argument, properly acknowledging that the TRO was entered ex parte the day before the scheduled foreclosure sale and was granted merely to preserve the status quo pending resolution of the underlying dispute. The appellate court noted that the standards governing a TRO and motions to dismiss are different.

The appellate court reiterated Tennessee law that “parties to a contract owe each other a duty of good faith and fair dealing as it pertains to the performance of a contract.” However, the appellate court also confirmed that in Tennessee that duty does not create new contractual rights or obligations and cannot be used to circumvent or alter specific terms of the parties’ agreement. In noting that the duty is not an independent basis for relief, but merely an element or circumstance of recognized torts or breaches of contract, absent a valid claim for breach of contract, there is no cause of action for breach of the implied covenant of good faith and fair dealing.

In Berry, the appellate court determined that the plaintiff’s cause of action for breach of the implied covenant was properly dismissed, as the plaintiff’s claim that defendants breached the implied covenant in failing to agree to a loan modification and failing to comply with the HAMP program did not allege a contract between herself and the defendants that required the restructuring of her mortgage loan in the event of default, and the plaintiff failed to even allege a breach of contract by defendants.

The appellate court determined that the plaintiff’s cause of action for intentional misrepresentation or fraud should not have been dismissed as the plaintiff asserted sufficiently-specific allegations of falsely-represented signatures on the deed of trust at the time of the recording of the trust deed, leading to the defendants not having the right to foreclose as they held no interest in the property. Additionally, the appellate court determined that it was at least plausible that the plaintiff could not have discovered the allegations until foreclosure were commenced, thus tolling the statute of limitations under Tennessee’s “discovery rule.”

To be clear, the plaintiff’s allegations of falsely-represented signatures on the deed of trust at the time of recording are the basis of the appellate court’s remand of the fraud action. The plaintiff’s assertion that the defendants engaged in a pattern and practice of fraudulent conduct, including underwriting fraudulent mortgages, not following unstated requisite legal procedures, concealing unstated facts and somehow misleading investors, were all deemed by the appellate court as insufficient to overturn the chancery court’s order.

The matter was remanded back to the Shelby County Chancery Court for further proceedings as to the remaining claim of fraud based on intentional representation.

© Copyright 2014 USFN. All rights reserved.
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Rhode Island: Regulator to Seek Legislation re Licensing Mortgage Loan Servicers

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Patricia Antonelli
Partridge Snow & Hahn, LLP – USFN Member (Massachusetts)

At the January 28, 2014 meeting of the Rhode Island governor’s insurance council, the Deputy Director and Superintendent of Banking for the RI Department of Business Regulation (DBR) stated that the DBR will seek legislation that will require the licensing of mortgage loan servicers. It is expected this legislation will include RI requirements for servicers that parallel or expand upon the new requirements for mortgage loan servicers implemented at the federal level in January 2014.

The federal Consumer Financial Protection Bureau (CFPB) implemented new mortgage loan servicing regulations effective January 10, 2014. As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the new regulations amend Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), and they amend Regulation Z, which implements the Truth in Lending Act (TILA).

The amendments to Regulation X address servicers’ error resolution obligations, changes to the “Qualified Written Request” rules, and new protections for borrowers in connection with lender-placed insurance. The amendments also address loss mitigation rules for delinquent borrowers. The amendments to Regulation Z affect servicers’ disclosure obligations regarding transfers of servicing, periodic billing statements, payment crediting and payoff statements, interest rate adjustment notices, and management of escrow accounts.

As more develops on these topics, look for future alerts regarding Rhode Island licensing requirements for mortgage loan servicers and on the changes to federal RESPA and TILA laws and regulations that affect mortgage loan servicing.

© Copyright 2014 USFN and Partridge Snow & Hahn, LLP. All rights reserved.
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Rhode Island: Supreme Court Rules re Standing

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Nikolaus S. Schuttauf
Brennan, Recupero, Cascione, Scungio & McAllister, LLP – USFN Member (Rhode Island)

Late last year, the Rhode Island Supreme Court held that “homeowners in Rhode Island have standing to challenge the assignment of mortgages on their homes as being void to the extent necessary to contest the foreclosing entity’s authority to foreclose.” Mruk v. Mortgage Electronic Registration Systems, Inc., 2013 R.I. LEXIS 163, 20 (R.I. Dec. 19, 2013). By giving homeowners standing, the Supreme Court carved out an exception to the general law in Rhode Island that “strangers to a contract lack standing to either assert rights under that contract or to challenge its validity.” Prior to the Supreme Court’s decision, the Rhode Island Superior Court had uniformly applied the general law in Rhode Island, finding that homeowners do not have standing to contest the assignment of a mortgage on their home.

The Supreme Court based its decision on the following grounds:

  1. “a homeowner whose home is foreclosed has suffered a concrete and particularized injury that gives the homeowner a personal stake in the outcome of litigation challenging the foreclosure”;
  2. “there is a causal connection between the injury (the foreclosure) and the challenged action” because “the assignment of the mortgage is the basis of the right to foreclose being asserted by the foreclosing entity”; and
  3. “the injury would be redressed by a decision in the plaintiff’s favor; if we hold that the assignment of a mortgage was, in fact, invalid, then a foreclosure sale conducted pursuant to the invalid assignment would be unlawful and therefore void.”


The Supreme Court noted the exception to the general rule is narrow, however. The exception is “confined to the circumstances of a mortgagor challenging an ‘invalid, ineffective, or void’ assignment of the mortgage. … We further reiterate that this exception is confined to private residential mortgagors challenging the foreclosure of their homes.” Mruk, p. 19.

Although Rhode Island homeowners now have the right to challenge the assignment of the mortgage on their homes, the Supreme Court made it clear that homeowners must have some concrete grounds for seeking to invalidate the assignment of their mortgage. In fact, the Supreme Court rejected every argument the homeowner made as to why the assignment of the mortgage on his home was invalid:

  1. The Supreme Court reaffirmed its decision in Bucci that MERS may act as the nominee for the owner of the note, be named as the mortgagee in the mortgage, and exercise the statutory power of sale.
  2. The Supreme Court also reaffirmed its holding that the note and the mortgage did not need to be held by one entity.
  3. The Supreme Court rejected the homeowner’s arguments challenging the validity of:
  • the endorsement of the note in blank, which is a valid signature for negotiating a note under Article 3 of the Rhode Island Uniform Commercial Code,
  • the signature on the mortgage assignment, noting the homeowner’s conclusionary allegations were devoid of fact and insufficient to raise a triable issue, and
  • the affidavit of an IndyMac employee regarding the records and documents at issue in the case, as the homeowner failed to submit any evidence that the employee did not have personal knowledge of the business records in question.


For banks, mortgage companies, and mortgage servicers (MERS Members), there are important lessons to take from the Mruk decision.

  1. First and foremost, MERS Members will no longer be able to use the third-party standing defense to compensate for any errors in negotiations of the note or assignments of the mortgage.
  2. Mruk underscores the critical importance of properly executing assignments of mortgages and negotiations of notes. Homeowners, armed with standing, may now use any error in the execution of an assignment or a note as a ground for invalidating a foreclosure.
  3. MERS Members must provide court-sufficient documentation regarding the authority of the individuals signing assignments and notes. The “robo-signing” argument, which questions the signing authority of the individual who executed an assignment, has been a favorite of homeowners to assert against defendant MERS Members. MERS Members should be prepared for homeowners, armed with standing, to press the “robo-signing” assertion with new vigor.


In the big picture, Mruk is neither a magic elixir to make a default disappear nor an escape hatch to dodge an otherwise valid foreclosure. As with the defendants in Mruk, MERS Members can win on the merits so long as each foreclosure is handled with attention to detail and proper documentation. There is no denying that Mruk turns up the heat on MERS Members, however, as homeowners now can, and will, use their standing rights to scrutinize every aspect of the assignments of mortgage and the negotiation of notes.

© Copyright 2014 USFN. All rights reserved.
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North Carolina: Statutory Changes re HOA/COA Assessments Following Mortgage Foreclosure

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Lanèe Borsman
Hutchens Law Firm – USFN Member (North Carolina)

House Bill 331/Session Law 2013-202

The North Carolina legislature has amended the provisions of Chapter 47 of the North Carolina General Statutes dealing with the lien of homeowners and condominium association dues. North Carolina is not a “super lien” state. When the holder of a first mortgage forecloses, the purchaser at the foreclosure sale has historically been liable only for HOA/COA dues incurred from the date of the “acquisition of title” to the property. Until now, the “acquisition of title” date was generally regarded as the date the trustee’s foreclosure deed was recorded. This was true even on an FHA loan where the assignment of the bid to HUD could mean a delay in the recording of that deed for long periods of time. The past-due HOA/COA amounts that had accrued against the borrower are pro-rated among all of the property owners, so the longer the delay in the recording of the foreclosure deed, the more concerned the homeowners shouldering the burden became, and they let their legislature know it.

The change comes via clarification of the definition of “acquisition of title.” Going forward, the determinative date is the day the “rights of the parties become fixed,” otherwise known as the end of the upset bid period, which is typically 10 days after the sale date. The result of this change is that upon the foreclosure of a first lien, any homeowners/condominium association dues will start accruing against the purchaser on the day of confirmation of the foreclosure sale, no matter when the foreclosure deed is actually recorded. FHA conveyances will have to be watched very closely now, because if the dues are not paid, HUD and the servicer risk losing the property to an HOA/COA foreclosure before the conveyance even goes on record.

© Copyright 2014 USFN. All rights reserved.
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Minnesota: New Judicial Ruling on Right to Reinstatement

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014 

 

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

Following last year’s decision in Ruiz v. First Fidelity, 829 N.W.2d 53 (Minn. 2013), where the Minnesota Supreme Court declared that strict compliance was necessary in the foreclosure process to prevent a void foreclosure, a U.S. District Court in Minnesota has now interpreted the Minnesota reinstatement statute to require a 24-hour turnaround time in responding to a borrower’s request for reinstatement or else the sale is void, unless there is proof that the homeowner did not have access to funds sufficient to reinstate.

In Nelson v. Saxon Mortgage and FNMA, the federal district court issued an order denying the lender’s request for summary judgment where the owner requested reinstatement seven days before the sale but asserted he did not receive it until the day before. Although there was evidence the lender called three days after the owner’s request, the court thought that the lender response did not meet the requirements of the statute.

Reinstatement is governed by Minn. Stat. § 580.30, which mandates the right to reinstatement AT ANY TIME prior to the foreclosure sale (emphasis added). There is no case law interpreting this provision. This author’s firm has generally believed that so long as the amount is communicated prior to sale, the statutory requirements have been met; or, if the reinstatement figure was supplied right before sale, so that the right to reinstate might arguably be frustrated, we would recommend postponing the sale.

In Nelson, the court was not interested in the timeline presented, nor did it consider whether the phone call three days hence was sufficient. In a discussion on the right to reinstate, the court established a “bright line” rule that the reinstatement figure must be tendered within 24 hours of request. Moreover, unless it could be found that the borrower did not have access to the necessary funds to reinstate, the foreclosure would be voided. The case was remanded for trial on the issue of the homeowner’s access to funds, an “after-the-fact” analysis that may ultimately result in an adverse decision given the limited amounts in controversy.

While this decision is NOT binding precedent (such as a published Minnesota Supreme Court or Minnesota Court of Appeals decision, or an Eighth Circuit federal opinion), it is troubling nonetheless. The judge is a respected jurist and a possible flood of cases pointing to this strict compliance standard may be anticipated. At trial, it is possible that the court will alter its stance, or that the case may be appealed on the timeliness issue. However, until then, this serves as a cautionary word on the right to reinstatement as interpreted by a sitting judge in the absence of a legislatively-imposed requirement.

© Copyright 2014 USFN. All rights reserved.
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Massachusetts: Post-Foreclosure Evictions

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

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

In Bank of America v. Rosa, 466 Mass. 613 (2013), the Massachusetts Supreme Judicial Court (SJC) expanded the rights of former mortgagors to challenge foreclosures and to seek monetary damages in post-foreclosure eviction cases. Massachusetts law governing eviction cases permits counterclaims, but limits those claims to cases involving properties “rented or leased for dwelling purposes.” Mass. G.L. c. 239, § 8A. In Rosa, the SJC declined to apply this limitation to post-foreclosure eviction cases. As a result, eviction courts may consider foreclosure-related counterclaims, including claims that would overturn the nonjudicial foreclosure. The courts may also award damages for these claims.

Before Rosa, parties seeking to have a foreclosure set aside on grounds other than a challenge to title based on a failure to strictly comply with the power of sale provided in the mortgage had to bring a separate lawsuit in a court of general equity jurisdiction. In Rosa, the SJC reasoned that, as a result of legislative changes to the jurisdiction of the trial courts, courts hearing post-foreclosure eviction cases may set aside foreclosures and entertain challenges to title for reasons other than for strict compliance with the statutory power of sale. The SJC cited considerations of judicial economy as the basis for its opinion — i.e., avoiding the need for multiple lawsuits to adjudicate title to, and possession of, a foreclosed property.

Rosa adds further delay, expense, and risk to an already slow and unpredictable eviction process. As a result of Rosa, the preferred forum for former owners to litigate foreclosures will likely shift from the Superior and Land Courts to the much busier District and Housing Courts. Substantive issues concerning loan servicing and loss mitigation may need to be addressed in the eviction case. It is also expected that these cases will include state consumer protection claims, which allow for the doubling or trebling of damages in certain cases and permit trial courts to award attorneys’ fees to a prevailing consumer.

In addition to the inability to obtain possession, the consequences of losing an eviction action to a former owner now include the possibility of significant monetary damages and/or an order setting aside the foreclosure. To mitigate against the inherent delays, risks, and costs of eviction litigation, servicers may want to consider other options such as more aggressive relocation assistance, programs to rent to former owners, and selling REO properties in an occupied status. Servicers may also want to take a proactive approach by foreclosing judicially in Superior Court to address borrower challenges at the beginning of the foreclosure process, rather than wait and face identical claims in Housing Court or District Court at the eviction stage after the foreclosure documents have been recorded.

© Copyright 2014 USFN. All rights reserved.
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Closing Protection Letter Lacking “Successors and Assigns” Language Does Not Lead to Dismissal of Complaint

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Jennifer McGrath
Hunt Leibert – USFN Member (Connecticut)

In JP Morgan Chase Bank N.A. v. Old Republic National Title Insurance Company, Bridgeport Superior Court, CV12-6029085 S (May 6, 2013), defendant Old Republic filed a motion to dismiss the plaintiff’s claim for indemnification under a closing protection letter. Old Republic contended that the absence of “successors and assigns” language prevented assignment.

The originating lender, Washington Mutual, had transferred the note and closing papers to WaMu Trust with LaSalle Bank as Trustee. JP Morgan Chase was the servicer and note holder.

The bank’s complaint alleged:

  • Old Republic issued a letter of protection naming an approved attorney to induce the refinancing lender to advance its monies;
  • The letter of protection promised indemnification for actual losses arising out of either the approved attorney’s failure to follow instructions, or his fraud;
  • The lender advanced its monies conditioned upon obtaining a first mortgage;
  • The approved attorney provided a title binder and policy identifying that the loan would be recorded in a first mortgage position;
  • The approved attorney failed to pay off the prior encumbrances, misappropriated the lender’s monies, and did not record the loan in a first mortgage position.


In objecting to the motion to dismiss, the plaintiff cited JP Morgan Chase Bank and FDIC v. FATIC, 795 F. Supp. 624, 628 (E.D. Mich. 2010), for the title company custom of issuing “a closing protection letter to verify the [approved attorney’s] authority to issue title policies and to make the financial resources of the national title insurance underwriter available to indemnify lenders for the local agent’s errors or dishonesty with escrow funds.”

The plaintiff also pointed to Rumbin v. Utica Mutual Ins. Co., 254 Conn. 259 (2000) and David Caron Chrysler Motors LLC v. Goodhall’s Inc., 304 Conn. 738, 748-9 (2012), as having pronounced a general rule recognizing the necessity of permitting transfer of contractual rights to an assignee and viewing with disfavor attempted restraints on alienation of contractual rights.

In conclusion, Chase noted that Old Republic’s letter of protection had no “anti-assignment” language in it and, instead, provided assurance that the breadth of indemnification language expressly embraced a “lender secured by a mortgage (including any other security instrument) of an interest in land.” What could an assignment of mortgage be “but another security instrument”?

The judge ruled from the bench, sustaining the plaintiff’s objection and denying Old Republic’s motion to dismiss.

Editor’s Note: The author’s firm represented the plaintiff in the proceedings summarized in this article.

© Copyright 2014 USFN. All rights reserved.
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Arkansas Tenancy in Common: Co-Tenants’ Fiduciary Duties Clarified

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Heather Martin-Herron
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

The Arkansas Supreme Court has clarified a co-tenant’s fiduciary duties that are owed to other co-tenants in a tenancy in common. Skalla v. Canepari, 2013 Ark. 415. Virginia Skalla, Albert McCreary, and Charles McCreary each owned an undivided one-third interest in two tracts of farmland as tenants in common.

In 2004, Joseph Canepari purchased Albert’s one-third interest. A year later, Canepari purchased Charles’s one-third interest. In 2006, Skalla offered to sell her interest to Canepari. Skalla informed Canepari that she intended to make improvements if he did not purchase her interest. No improvements were made to the property, and Canepari declined to purchase the remaining one-third interest. Skalla sued Canepari in 2007 for breach of fiduciary duty and requested a partition of the property.

Skalla contended that when Canepari became a co-tenant with her and Charles in 2004, Canepari owed her a fiduciary duty. Skalla maintained that Canepari breached that duty by acting adversely when he purchased the second one-third interest from Charles. Skalla cited Clement v. Cates, 49 Ark. 242, 4 S.W. 776 (1887) as support for her argument. In Clement, one co-tenant attempted to oust his co-tenant siblings by claiming superior title. It is well-settled law that a co-tenant cannot assert adverse title against his other co-tenants in a tenancy in common.

In a tenancy in common, each co-tenant has the right to occupy the entire property and no co-tenant can lawfully exclude any other co-tenant. If a co-tenant acts in a way that interferes with the other co-tenants’ interests, the interfering co-tenant is in breach of his fiduciary duty. Co-tenants have the right to make improvements on the property, but the improving co-tenant must be indemnified by the remaining co-tenants.

The Clement case did not apply to the situation at hand, as Canepari was not asserting adverse title against Skalla nor was he attempting to oust her. A co-tenant may treat property in any way he or she sees fit, so long as it does not interfere with the rights of the other co-tenants. Canepari had no obligations to contribute to Skalla’s long-term improvement plans and never interfered with Skalla’s rights as a co-tenant. The evidence showed that Skalla was able to lease her interest in the property, collected the rent from those leases, and was never denied access to the property. Although Canepari obtained his two-thirds interest in the property through two separate transactions, Canepari did not act adversely to Skalla when he purchased his second one-third interest. Therefore, because Canepari did not interfere with Skalla’s rights and obligations as a co-tenant, the Supreme Court affirmed the circuit court’s granting of summary judgment in favor of Canepari.

© Copyright 2014 USFN. All rights reserved.
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Response to Notice of Final Cure: Grounds for Case Dismissal?

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Deanna Lee Westfall
The Castle Law Group, LLC – USFN Member (Colorado, Wyoming)

In a recent Colorado opinion, the bankruptcy court held that the debtors’ failure to make mortgage payments directly to their mortgage creditor is grounds for denial of a Chapter 13 discharge and dismissal or conversion of a case. See, In re Daggs, BK Case No. 10-16518-HRT.

Chapter 13 plans in the District of Colorado, a non-conduit jurisdiction, indicate the amount of payments to be made to cure the arrears to each secured creditor and separately list post-petition payments to be made directly to the secured creditors throughout the plan term. Historically, debtors would receive their discharge if they made all payments to the trustee, regardless of the status of post-petition direct payments.

Pursuant to Federal Rules of Bankruptcy Procedure Rule 3002.1, mortgage creditors respond to the bankruptcy trustee’s notice of final cure with the status of post-petition direct payments, often indicating that the debtors are significantly behind in their post-petition mortgage payments. The failure to make post-petition mortgage payments as part of the obligations set forth in the plan led the Chapter 13 trustee to move for dismissal of the case immediately prior to discharge. Debtors’ counsel responded with a request for entry of discharge or, in the alternative, a conversion and possible Chapter 7 discharge.

On January 7, 2014, the Chief Judge of the Bankruptcy Court for the District of Colorado held that the failure to timely make payments directly to the debtors’ mortgage creditor, as provided in the plan, constitutes a material default with respect to the confirmed plan. As such, it is grounds for conversion or dismissal under 11 U.S.C. § 1307(c)(6). The court determined that the default (nine months of missed payments for a total of over $11,000) was material.

With regard to the debtors’ request for entry of their discharge, the court found that the failure to make the payments described in the plan to the mortgage creditor prevented the entry of a Chapter 13 discharge.

This case could have wide-reaching ramifications. In addition to eliminating the argument that the debtor is fully current when they clearly are not, converting a case or dismissing it eliminates lien-strips or cramdowns under Section 506. Moreover, the decision effectively reverses any consequences of not filing a proof of claim or errors in the proof of claim.

© Copyright 2014 USFN. All rights reserved.
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The National Mortgage Settlement’s Impact on Vacant Properties

Posted By USFN, Wednesday, February 5, 2014
Updated: Monday, October 12, 2015

February 5, 2014

 

by Stephanie Schilling
RCO Legal, P.C. – USFN Member (Alaska, Oregon, Washington)

Judicial foreclosure can be a lengthy process. There are often numerous attempts at loss mitigation before a home is referred for foreclosure, which means that it may be years from the date of default to commencement of a judicial foreclosure action. While a judicial foreclosure itself should not take longer than six months, this time is usually extended by circumstances beyond the mortgagee’s control, such as bankruptcy filings and difficulty in locating defendants.

The extended period of time it takes to judicially foreclose a property plays one small part in a much larger issue for communities. This larger issue is vacant properties. Outlined below are those circumstances in which vacancy becomes an issue during the course of a judicial foreclosure, and the actions being taken by attorneys general throughout the United States in order to prevent the negative ramifications arising as a result of property abandonment.

Upon referral of a mortgage (or deed of trust) for foreclosure, the mortgagee has usually been made aware as to whether or not the property is owner-occupied or vacant. At the time of referral, a determination as to whether the property must be registered as vacant with the local sheriff must be made. Many communities now require not only the defaulting owner, but potentially the mortgagee, to register the property as vacant in order to notify the sheriff to be watchful for criminal activity such as trespassing and drug abuse. The second point at which vacancy becomes an issue in a judicial foreclosure is during service of process. All parties with a possessory interest in the property must be made aware of the judicial foreclosure action. Finally, if judgment is obtained and the mortgagee becomes the successful bidder at the judicial foreclosure sale, the vacancy of the property will determine whether a post-sale eviction matter must be commenced.

Using National Mortgage Settlement Proceeds

Any delays prior to, or during, a judicial foreclosure can lead to the subject property remaining vacant for months to years. The negative impact of this vacancy and abandonment can result in destructive acts, including the removal of fixtures, metal pipes, and wiring. Once the foreclosure is complete, the foreclosed property may be simply a shell left as a blight to the neighborhood and community. For this very reason, a number of state attorneys general (including Illinois, Ohio, Kentucky, and New York) have begun measures to use the proceeds of the National Mortgage Settlement to raze the properties and restore communities. The hope is that demolishing abandoned properties will restore the community to its former level of neighborhood involvement and open up cities to new development opportunities.

Many cities do not have sufficient resources to accomplish this recovery on their own. The process of foreclosure does not exist within a vacuum, but effects communities — requiring expedited foreclosure of properties that have been abandoned by the owners who promised to pay for them. The solution brokered by several state attorneys general allows the use of National Mortgage Settlement funds to commence a recovery on Main Street that will have a direct economic impact on Wall Street.

For information regarding whether vacant property registration is required in a particular area, a helpful resource is: http://www.safeguardproperties.com/Resources/Vacant_Property_Registration/Default.aspx?filter=vpr.

Additionally, for information regarding the National Mortgage Settlement, please see http://www.nationalmortgagesettlement.com/.

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February e-Update

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Arkansas: An Examination of Accord and Satisfaction

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

February 4, 2014

 

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

Trammell v. Hooks is a case about the affirmative defense of accord and satisfaction. On December 14, 2010, Trammell and Hooks agreed on a sale price of $400,000 for the sale of real estate and businesses in Paragould, Arkansas. Trammell filed a breach of contract action against Hooks the following February, where he alleged that Hooks failed to pay in accordance with their agreement. Hooks denied that he breached their agreement and affirmatively pleaded that he tendered a lesser than agreed upon amount to Trammell in full payment as an accord and satisfaction. Trammell denied that an accord and satisfaction occurred. A jury in Green County Circuit Court found in favor of Hooks on Trammell’s breach of contract suit and the Court of Appeals of Arkansas affirmed.

It is well-settled law that an accord and satisfaction involves a settlement where a creditor agrees to accept a different consideration or less money than what he is owed. In order for there to be an accord and satisfaction, there must be a disputed amount involved and consent to accept less than the full amount in settlement of the whole before acceptance of the lesser amount. Trammell v. Hooks, 2013 Ark. App. 576. The dispute need not be well-founded; it simply must be in good faith. The elements of accord and satisfaction are identical to the elements of a contract: there must be an offer, acceptance of that offer, and consideration given. An accord and satisfaction is ultimately a new agreement and acceptance of the new agreement.

In this case, pursuant to the terms of the contract: $15,000 was due in January 2011 with monthly payments to follow, but the contract failed to set forth the due dates, the amounts of the payments, or an interest rate. On the same day as the execution of the contract, a warranty deed conveying the real property from Trammell to Hooks was executed by Trammell, but was not delivered to Hooks. In January 2011, Trammell’s accountant prepared an amortization schedule setting the interest rate, spreading the monthly payments over twenty years, and establishing the monthly payment due date. The amortization schedule indicated that at the end of the twenty-year period, Hooks would have paid $802,000 — more than double the contract price.

At trial, Trammell testified that Hooks had “no intention of paying all of that interest.” Hooks testified that he tendered $240,000 in cash to Trammell to pay off the contract and received a receipt from Trammell, who noted on the contract that it had been paid in full. Consequently, Trammell delivered the executed warranty deed to Hooks.

The court was required to determine whether there was some evidence of a dispute over what was owed and a manifestation of consent to accept less than what was owed, in order to support giving the Arkansas Model Jury Instruction 2431 on accord and satisfaction. The jury found that there was a settlement of less than the total owed.

On appeal, the Court of Appeals held that the trial court did not err because Trammell substantially increased the price by adding interest to the payment schedule, and it was clear that Hooks did not wish to pay the interest. This constituted evidence of a dispute over the debt. Under the facts presented, there were also indicators that the parties agreed to a tender of $240,000 as payment in full on the contract, such as acceptance of the payment and delivery of the warranty deed. Accordingly, the Court of Appeals affirmed the giving of the accord and satisfaction instruction to the trial jury.

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Winter USFN Report

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HOA Talk -Washington: Legislature Clarifies Redemption Statute, Somewhat

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

February 4, 2014

 

by Brian S. Sommer
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)

On April 23, 2013, Washington’s governor signed into law Senate Bill 5541. The bill provides a one-word amendment to RCW 6.23.010, Washington’s redemption statute, clarifying who may redeem a property sold at completion of a judicial foreclosure. The relevant portion of the prior law, enacted in 1899, stated that only a lienholder “subsequent in time” to the foreclosed lien qualifies as a redemptioner. Under standard origination practices, a mortgage would most often arise prior in time to a condominium association (COA) super-priority lien. The amendment took effect July 28, 2013 and clarifies that a lienholder “subsequent in priority” can redeem.

The “subsequent in time” phrase was interpreted in a 2012 appellate case, Summerhill Village Homeowners Association v. Roughley, to bar extinguished mortgage lenders from redeeming if foreclosed judicially by a COA super-priority lien. 270 P.3d 639 (Wash. App. 2012), amended by and reconsideration denied by 2012 Wash. App. LEXIS 1579 (July 6, 2012). Washington law, RCW 64.34.364(3), provides a COA with a super-priority lien senior to each mortgage for an amount equal to six months of assessments. In Summerhill, the mortgagee did not defend the COA collection lawsuit or pay the six-month super-priority lien prior to the COA sheriff sale. A third party purchased the condominium at the sheriff sale for $10,302, and the $191,800 mortgage was extinguished. The mortgagee argued that “subsequent in time” means “subsequent in priority.” The court held that the statute is unambiguous and ruled in favor of the sheriff sale purchaser. The court reasoned: “The legislature created the super-priority lien and did not amend the redemption statute. There is no sign of legislative confusion as to the difference between a lien subsequent in time and a lien prior in time but junior in priority.” The mortgagee in Summerhill did not appeal to the Washington Supreme Court.

Following Summerhill, the same Court of Appeals division published BAC Home Loan Servicing, LP v. Fulbright, 298 P.3d 779 (Wash. App. Apr. 8, 2013), review granted, No. 88853-1 (Sep. 4, 2013). Summerhill and Fulbright have identical fact patterns and statutes in question, but the mortgagee in Fulbright raised additional legal arguments not raised in Summerhill. Nevertheless, the Court of Appeals again held that the mortgagee extinguished by the COA super-priority lien was not a qualified redemptioner. The appellate court stated that the opinion was written to “amplify” Summerhill.

The Summerhill and Fulbright holdings created a cottage industry where third parties purchased condominiums at sheriff sales for a fraction of their value and free from an extinguished lienholder’s right to redeem. Besides the financial losses suffered by lienholders, the holdings exposed foreclosed borrowers unable to seek bankruptcy protection to deficiency judgments. In Washington, a foreclosure by a senior lienholder does not preclude the extinguished junior lienholder from suing on the note. See Beal Bank, SSB v. Sarich, 167 P.3d 555, 558 (Wash. 2007).

On September 4, 2013, the Washington Supreme Court granted Bank of America’s petition for review of Fulbright. When reviewing Fulbright, the Court of Appeals was not presented with the issue of retroactive application of SB 5541 because Fulbright was published on April 8, 2013, while the governor signed SB 5541 into law on April 23, 2013. However, the issue of retroactivity of SB 5541 is one of three issues presented by Bank of America in the petition for review accepted by the Supreme Court. In all likelihood, Fulbright will supersede the Summerhill reasoning. An opinion is expected in summer 2014.

Generally, statutory amendments apply prospectively. An amendment may apply retroactively when curative or remedial. However, retroactive application cannot supplant vested, contractual, or constitutional rights. A gray issue raised by enterprising sheriff sale purchasers is that SB 5541, which took effect on July 28, 2013, only applies to sheriff sales that occurred after July 28, 2013. Typically, a COA redemption period is one year from the sheriff sale date. Sheriff sale purchasers assert that the pool of redemptioners is a vested right established on the date of the sheriff’s sale. In comparison, the extinguished mortgagee would argue that SB 5541 was intended to apply retroactively, or the amendment has “immediate prospective application” and applies to the unexpired part of the redemption period. Severson v. Penski, 677 P.2d 198 (Wash. App. 1984). This matter was recently argued at the trial court level, and the trial court judge ruled in favor of the mortgagee. The sheriff sale purchaser plans to appeal.

Until the Supreme Court in Fulbright has the final word and the untold number of COA sheriff sales that occurred prior to July 28, 2013 run their course, uncertainties remain for lienholders.

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Winter USFN Report

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Encountering the Shaykamaxum Republic: Sovereign Citizens

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

February 4, 2014

 

by Jerry Morgan III
Wilson & Associates, PLLC
USFN Member (Arkansas & Tennessee)

Have you ever been to Shaykamaxum? Chances are, no matter how extensively you’ve traveled across the USA, you’ve never seen signs for Shaykamaxum. You’ve never encountered a Shaykamaxum police force, you’ve never seen border crossings identifying its boundaries, and you’ve never paid a tax to Shaykamaxum. This is because “Shaykamaxum” doesn’t exist, at least as an actual place.

That simple fact, however, has not stopped numerous borrowers throughout the country from claiming that Shaykamaxum does indeed exist. Furthermore, borrowers are claiming to be “diplomats” of the Republic of Shaykamaxum, and that such diplomatic status gives them immunity from the criminal code (either federal or state, depending on which crimes they’re accused of committing), as well as immunity from paying their various debts, including home loans.

To the casual observer, and even to most attorneys and judges, such claims would seem completely out of place, and perhaps unique. Sadly, the opposite is true. More and more borrowers are joining the ever-growing, ever-changing ranks of “sovereign citizen.” As the methods and needs of the sovereign citizen groups have evolved, so too have their litigation strategies.

Who are They?

Loosely defined, sovereign citizens are those who believe (or at least claim to believe) that there are really two governments in the United States: the “original” government that existed before some vast conspiracy infiltrated it, and the “illegitimate” government that now exists, which everybody else believes is genuine. Based on their belief that the current government is illegitimate, sovereigns will go to great lengths to separate themselves from its jurisdiction.

For many years, these ideas were primarily limited to various “supremacist” groups and tax evaders. However, during difficult economic times, sovereign ideas are routinely espoused by those who hope to avoid mounting debts, foreclosures, criminal prosecution, and other legal troubles. Consequently, the last decade has seen a vast increase in debtors turning to these nonsensical theories to avoid foreclosures, evictions, and other lawful collection efforts.

All across the country, courts have been encountering so-called “Moorish groups,” which are primarily radical groups with highly unusual legal theories. These groups tend to believe that their members are not required to follow most federal and state criminal laws or tax laws, and that they are justified in refusing to pay their debts. Many of them claim that their ancestors crossed the Atlantic from Africa to become the first people in this country, giving them “aboriginal” status. As such, they espouse certain unfettered rights, which the federal and state governments have no ability to infringe upon. Many of them assert that the only “real” money is gold or silver, which gives them an argument, as baseless as it may be, that their home loans were not really loans to begin with, meaning they are not required to repay them. Thus, one of the primary “rights” they have is the right to avoid paying their debts.

One such group in Tennessee and elsewhere is the “Shaykamaxum Atlan Amexem Empire, A [sic] Original Indigenous Nation” (Shaykamaxum Republic). The Shaykamaxum Republic has its own website (http://shaykamaxumrepublic.webs.com), appoints members with lofty sounding, though meaningless, titles (such as Emperor/King, Supreme Grand Chief, etc.), has set up its own equally meaningless court system (Grand Supreme Court of Ecclesiastical and Tribal Justice), and attempts to educate its members on avoiding federal and state laws, avoiding and eliminating their debts, and so forth.

Illustrative Litigation

One of the first suits involving the Shaykamaxum Republic began with an otherwise ordinary post-foreclosure detainer in Nashville, Tennessee filed by LaSalle Bank against the borrower, Wendy Johnson. LaSalle Bank filed the detainer in General Sessions Court on September 24, 2012. A previously unknown person, “Queen Chatura Waheeda Hatshipsue,” filed a notice of removal to federal court based on her claim of being “a diplomat and official of the Shaykamaxum Atlan Amexem Republic.” “Queen Hatshipsue” signed the notice of removal documents “on behalf of Wendy Johnson.” Interestingly, “Queen Hatshipsue” looked exactly like Wendy Johnson when she appeared for various hearings. Just as interesting, “Queen Hatshipsue” and Wendy Johnson never appeared in the same room at the same time.

In ruling on a motion to remand, the magistrate judge in LaSalle Bank v. Johnson, 2012 U.S. Dist. LEXIS 181093, (M.D. Tenn.), noted that “Queen Hatshipsue” had not given any indication that she was an attorney or otherwise had the ability to represent the apparently separate person named Wendy Johnson. The magistrate pointed out that “Queen Hatshipsue” may have been able to file a notice of removal on her own behalf if she was an occupant of the property, but that she had not done so, instead filing the notice on behalf of Wendy Johnson. The magistrate also stated that even if “Queen Hatshipsue” had filed the notice on her own behalf, she still would have needed the consent of Wendy Johnson, as all defendants who have been properly joined and served must consent to removal pursuant to 28 U.S.C. § 1446(b)(2)(A). Of course, because “Queen Chatura Waheeda Hatshipsue” was a purely fictional name, and “Queen Hatshipsue” and Wendy Johnson were one and the same, this was an insurmountable obstacle. The magistrate recommended, and the district court approved, that the motion to remand be granted.

Commenting on the Shaykamaxum Republic, the magistrate judge stated: “There is no indication that such a government exists or is recognized by the United States, such as to make this a case involving a federal question.”

Undeterred, “Queen Hatshipsue” filed a separate action in federal court: Hatshipsue v. LaSalle Bank, 2013 U.S. Dist. LEXIS 71012 (M.D. Tenn.), in which she made numerous sovereign-type allegations, including being a sovereign of the Shaykamaxum Republic. In a section of the complaint labeled “Subject Matter Jurisdictional Statement,” “Queen Hatshipsue” stated: “Shaykamaxum Atlan Amexem Empire has jurisdiction, however, we come in peace and love to solve this matter under Article VIII Section 9 of the Constitution for the full Autonomy States of Amexem.” The remainder of the complaint set forth numerous nonsensical claims, cited irrelevant state and federal statutes, and was, for all practical purposes, indecipherable. The magistrate judge stated that “the complaint does not contain a single comprehensible theory of recovery against any of the defendants.” Further, the magistrate noted: “There is no possible way that any Defendant can answer the Complaint and no possible way for the Court to glean from the Complaint any set of factual allegations that support a recognizable claim for relief.”

On May 20, 2013, the magistrate judge recommended dismissal. On June 19, 2013, “Queen Hatshipsue” filed a “Writ of Mandamus/Court Order” purporting to be from the “Grand/Supreme Court of Shaykamaxum Atlan Amexem Nation – International Jurisdiction – Judicial Tribunal Court of Record, A Court of Origin, Aula Regis.” That filing was construed to be a motion to remove to the “Supreme Court of Shaykamaxum.” The motion was denied, and the magistrate’s recommendation to dismiss the case was approved in its entirety.

As odd as these pleadings are, they are not unique. In 2013 alone, cases involving the fictitious Shaykamaxum Republic have been found in New Jersey and California. In the New Jersey case of Noble v. Thalheimer, 2013 U.S. Dist. LEXIS 13129, the plaintiff claimed to be “His Imperial Majesty, Emperor, Judah Abrahim Bey Isra’el of the Shaykamaxum Atlan Amexem Empire, A [sic] Original Indigenous Nation.” The case was dismissed with prejudice.

In the California case, Jolivette v. People of the State of California, 2013 U.S. Dist. LEXIS 145489, the plaintiff attempted to register a “judgment” from the “Shaykamaxum Grand/Supreme Court” with the U.S. District Court for the Eastern District of California. While that matter remains pending, the magistrate has issued an order to show cause for the plaintiff to show why the case should not be dismissed. The magistrate, citing LaSalle Bank v. Johnson, stated that “there is no indication that such a government exists or is recognized by the United States.”

Tennessee attorneys, it appears, will also have to continue dealing with the Shaykamaxum Republic claims. In another post-foreclosure case, Hayes v. Burns, 2013 U.S. Dist. LEXIS 119345 (M.D. Tenn.), the plaintiffs, Michael and Wendy Hayes, claimed to be citizens of the Shaykamaxum Republic. They sought $30,000,000 for various violations under both state and federal statutes, claiming that they were entitled to such damages under the “Constitution of the Shaykamaxum Republic, Atlan Amexem Empire” and the “Constitution of the Full Autonomy States of Amexem.” The magistrate judge, in his recommendation for dismissal, labeled the Shaykamaxum Republic “a mysterious alternative jurisdiction.” His recommendation was approved in all aspects by the district court, and the case was dismissed.

Borrowers claiming to be diplomats of this nonexistent republic have attempted to file judgments from the Shaykamaxum Republic “court” system; they have sent notices to creditors from the Shaykamaxum Republic “court” system requiring appearances for depositions and arbitrations, and have filed other non-binding documents in order to thwart legal attempts to collect on their debts.

Conclusion
As the above-referenced cases illustrate, those who are desperate to set aside otherwise valid foreclosures will stop at nothing to make their cases, no matter how illogical and nonsensical. Perhaps it’s a natural fit that they would join with “sovereign citizen” claimants in a final effort to continue residing in property for which they haven’t made a payment in years.

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

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Legislative Updates: New York

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

February 4, 2014

 

by Andrew Morganstern
Rosicki, Rosicki & Associates, P.C.
USFN Member (New York)

Judges have issued rulings and legislators have passed laws affecting mortgage foreclosures. It seems as though there is a competition between the judiciary and the legislature to enact rules that protect homeowners in the event of a foreclosure.

In response to the widespread reports of “robo-signing,” the Chief Administrative Judge issued an Administrative Order three years ago, requiring that plaintiff counsel file an affirmation with the court. In the affirmation, plaintiff’s attorney must state that a representative of the plaintiff confirmed the factual accuracy of the allegations in the complaint and in any supporting affidavits filed with the court as well as the accuracy of the notarizations. In order to prepare this affirmation, it is first necessary to obtain a written statement or affidavit from the servicer verifying the accuracy of these documents. The terms of this order are not a model of clarity, resulting in litigation as to its interpretation and even as to its validity.

Not to be outdone, the legislature enacted C.P.L.R. 3012-b, requiring that plaintiff’s counsel file a “certificate of merit” in most foreclosure actions commenced on or after August 30, 2013. For actions commenced prior to August 30, 2013, either an affirmation pursuant to the Administrative Order or a certificate of merit may be filed.

This new law applies to foreclosure actions where the defendant is a resident of the property and involves a “home loan.” A home loan is a loan made to a natural person, where the debt is incurred primarily for personal, family, or household purposes and is secured by a mortgage on a one- to four-family dwelling. A home loan does not include reverse mortgages. (Effective January 14, 2015, a home loan will no longer include a mortgage where the principal amount exceeds the conforming loan size for a comparable dwelling as set by the Federal National Mortgage Association).

The certificate of merit is filed with the complaint. The certificate is signed by the plaintiff’s attorney and certifies that the attorney has reviewed the facts of the case as well as the pertinent documents. The plaintiff’s attorney further certifies that based on consultations with representatives of the plaintiff “… there is a reasonable basis for the commencement of such action and that the plaintiff is currently the creditor entitled to enforce rights under such documents.”

Additionally, a copy of the mortgage or security agreement, the note or bond, and all assignments as well as any modification, extension, or consolidation agreement must either be attached to the summons and complaint or to the certificate. In the event that any of the required documents cannot be located, the attorney or a representative of the plaintiff must file an affidavit “… attesting that such documents are lost whether by destruction, theft or otherwise.”

Finally, this new law provides that if the plaintiff willfully fails to provide copies of the required documents, the court may dismiss the complaint or issue an order that grants relief “as is just.” Examples of appropriate relief include denial of interest, costs, or attorney’s fees.

Where it has been found that a servicer failed to negotiate in good faith, judges have imposed various types of penalties. However, appellate courts have found that it is inappropriate to grant sanctions unless they have been authorized by statute. The legislature has evidently been reading these cases since the law requiring a certificate of merit expressly provides judges with the authorization to impose almost any type of relief as may seem proper. Accordingly, in the event that there is willful failure by a plaintiff to file the necessary documents, it is clear that the court has the authority to mete out any sanction that it finds to be appropriate.

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

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Legislative Updates: District of Columbia

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

February 4, 2014

 

by Ronald S. Deutsch
Cohn, Goldberg & Deutsch, L.L.C.
USFN Member (Washington, D.C.)

On November 19, 2013, First American Title Insurance Company issued a bulletin updating its guidance on insuring sales of foreclosure and REO property in the District of Columbia. That bulletin supplements its prior bulletins and provides new guidance that permits nonjudicial foreclosures to resume, with some assurance of insurability, subject to various stipulations and the effect of new regulations to be promulgated shortly.

As background, the brakes were applied to the District of Columbia nonjudicial foreclosures on November 9, 2010 when the “Saving D.C. Homes from Foreclosure Emergency Amendment Act of 2010” was enacted by the City Council. That Act became effective on November 17, 2010 and was so successful in “Saving D.C. Homes from Foreclosure” that all residential foreclosure activity, effectively, ceased immediately. Thereafter, the lending and title insurance industries had widespread concerns with insuring title on foreclosed properties in the District. In response to those concerns regarding provisions that provided for voiding foreclosure sales under vaguely-defined circumstances, as well as several other items, the Council reacted by enacting the “Saving D.C. Homes from Foreclosure Temporary Amendment Act of 2011,” D.C. Law 19-41, which became effective November 26, 2011.

Reacting to further industry uneasiness, a plethora of emergency and temporary bills was enacted, which further modified and extended the 2010 and 2011 Acts. Final resolution of many of the concerns occurred when the D.C. City Council enacted Act 20-0156, “Saving D.C. Homes From Foreclosure Clarification and Title Insurance Clarification Amendment Act of 2013” on August 20, 2013, which became law on November 5, 2013.

As a result of the qualified assurance of receiving title insurance on nonjudicial foreclosures, two potential methods of foreclosure now exist. Each offers certain advantages and disadvantages. To briefly summarize the District of Columbia’s procedure, lenders seeking to foreclose nonjudicially on residential mortgages must first provide a notice of default (NOD – Form FM-1). The requisite NOD entails substantial details and time to complete.

Borrowers must be given the right to elect mediation prior to the initiation of nonjudicial foreclosures. At the mediation hearing, a discussion will take place with respect to alternatives to foreclosure. Lenders are required to participate in the process in “good faith.” Good faith has been defined to mean that lenders must: (a) evaluate the borrower’s eligibility for all available loss mitigation options and alternatives to foreclosure applicable to the residential mortgage in default, including the Home Affordable Modification Program and the Federal Deposit Insurance Corporation’s Loan Modification Program, and offer all options for which the borrower is eligible; (b) if the lender does not reach a settlement with the borrower(s) during mediation, an analysis of the net present value of receiving modified payments compared to the anticipated net recovery following foreclosure; and (c) provide a written explanation for the rejection of a proposed settlement involving a loss mitigation option or alternatives to foreclosure, which shall include an analysis of the proposal. This standard, arguably, is a higher one than that applied by D.C.’s sister state, Maryland.

A final mediation certificate must be furnished by the mediation administrator in order for lenders to proceed with a nonjudicial foreclosure. That certificate will be issued if the parties reach an agreement or if the borrower fails to elect mediation. If, however, the borrower and lender cannot come to a satisfactory resolution during mediation, the mediator prepares and submits a recommendation that the matter be concluded.

After review of the mediator’s report, the administrator shall do one of the following: (a) issue a preliminary mediation certificate, indicating that the lender acted in good faith; (b) issue a determination that the lender did not act in good faith; or (c) refer the matter to another mediator. This preliminary mediation certificate serves as an initial decision for a 30-day period, after which time the lender may request a final mediation certificate, provided that no appeal is filed. Appeals, of course, will entail delays. A determination by the mediator that a lender did not act in good faith can similarly be appealed. The recording of the final mediation certificate serves as “conclusive evidence” that the provisions of the Act have been complied with.

Finally, title insurance, is available only after the premises has been surrendered. Additionally, title insurance companies will require as a condition of underwriting that no litigation alleging defects in the foreclosure process has been commenced or threatened. Moreover, if the parties have been unable to agree to a resolution of the issues in mediation, title insurance companies will need to be contacted to determine whether the foreclosure will be insurable. Lastly, title insurance companies will require verification that the auction price is reasonable and that a recorded chain of assignments for mortgages has been provided. Thus, in short, title insurance is not assured if the borrower threatens litigation or where a mediation agreement has not been reached.

In any event, the nonjudicial foreclosure process, whether desirable or not, has received a qualified green light to shortly resume. During the hiatus of nonjudicial foreclosures, some lenders had attempted to move forward by conducting foreclosures judicially. That was met with mixed success as some judges raised issues with either the process itself or the submissions made. It is clear, however, that the new changes in the legislation recognize that judicial foreclosure is a valid process. Judicial foreclosures might offer more certainty. However, they can also cost more. Judicial foreclosures may take more or less time, but that depends on whether a borrower has elected mediation or has raised any nonjudicial contests.

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

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Consumer Financial Protection Bureau Amendments to the 2013 Mortgage Rules

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

February 4, 2014

 

by Donna M. Case-Rossato
Hunt Leibert -USFN Member (Connecticut)
and Wendy Walter
RCO Legal, P.S. -USFN Member (Arkansas, Oregon, Washington)

Final amendments to a number of the final mortgage rules and comments issued by the CFPB in January 2013 were published in the Federal Register on October 1 and October 23, 2013. By the time this article is published, our industry will be in full swing complying with, interpreting, and living with the new rules. The USFN Report has been reporting on these rules since they were first rolled out in January 2013. Winter, spring, and summer editions of the USFN Report in 2013 all discussed the rules and the implications they might have on default servicing.

In this article, we hope to round out that coverage, as well as provide a final overview of the last-minute changes happening in late fall 2013. The “final” final rules and comments cover a lot of ground, but there are some standouts that the mortgage servicing industry has been following for a number of months. First, we will cover the finalization of the “first notice or filing” rule, 12 CFR Sec. 1024.41(f), and what has become known as the “one document” implication for loss mitigation under 12 CFR Sec. 1024.41(b), which are addressed in the changes published on October 1, 2013.

Next we will address the major topics in the October 23rd update, which includes an interim final rule excepting loans in bankruptcy from the periodic statement and early intervention requirements and provides guidance for debt collector servicers when the borrower’s FDCPA “cease communication” rights are exercised.

Not covered in this article, but what is important to note, is that for the first time since the mortgage servicing rulemaking kicked off, the CFPB issued a bulletin on October 15, 2013. The bulletin is relatively difficult to locate and has been the source of frustration for servicers who had adapted their compliance tracking systems to review the federal register for changes in the law. Due to space limitations in this print publication, the link to the bulletin is referenced for readers who want to view the update: http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.

Defining “First Notice or Filing”

As an industry, we are used to equating first notice or filing to the Federal Housing Administration’s (FHA’s) definition of “first legal,” as defined for each state. The CFPB declined to utilize this definition in establishing “first notice or filing” under the final rules and comments as originally promulgated. 12 CFR Sec. 1024.41(f) specifically prohibits a servicer from making the first notice or filing required by applicable law to commence a foreclosure, either nonjudicial or judicial, unless a borrower’s mortgage loan is more than 120 days’ delinquent. Thus, it is imperative that there is certainty as to the definition of first notice or filing. It should not be open to interpretation. The original comments stated that first notice or filing should be determined under applicable state law. This is trickier than it may seem.

The original final rule and comment caused much debate as to whether the demand or acceleration letter or other state-mandated letters could be perceived to be the first notice (Is this considered to be a condition precedent under state law for a foreclosure? What about a state-mandated notice of availability of mediation?), thus possibly resulting in a 120-day period after default before those letters could be issued, regardless of contractual or state statutory provisions. Such a delay could cause greater difficulty for a borrower in loss mitigation programs such as state foreclosure mediation. The longer the delay in entering mediation, the less likelihood of a positive resolution for the consumer as the delinquency amount would be much larger.

After a good deal of commentary and input from many industry resources, the CFPB provided a much appreciated “bright line” rule, balancing the need to ensure that the borrower has been afforded as much time as possible to investigate loss mitigation and curative options versus the need for clarity in communicating the timing of options and possibility of foreclosure. Specifically, comment 41(f)-1 has been revised, with four new subparts adopted. This is intended to recognize and address the different types of foreclosure processes throughout the country.

For a judicial process, and referencing applicable state law, new comment 41(f)-1.i clarifies that a document can be considered first notice or filing if it is the earliest document required to be filed with a court or other judicial entity to commence the action or proceeding. By way of example, in Connecticut, the first set of documents filed with the court to commence the foreclosure action is the writ, summons, and complaint, with associated exhibits and attachments. The demand or acceleration letter is not filed with the court to commence the action. For a nonjudicial process, new comment 41(f)-1.ii clarifies that a document may be considered the first notice or filing if it is the earliest document required to be recorded or published to commence the foreclosure action.

Two additional new comments are 41(f)-1.iii and 41(f)-1.iv. The first is designed to address a process that is not covered by the judicial process and may be a subset of a nonjudicial process. In those instances where a court proceeding does not need to be commenced, and recording or publishing a document is not required to commence the action, the first notice or filing may be the first document that sets the foreclosure sale date. Comment 41(f)-1.iv further clarifies that if a document is provided to a borrower and it is not required to be filed, recorded, or published initially, it is not the first notice or filing. This recognizes that certain documents may be submitted later in the foreclosure process, either as an attachment or exhibit, but it is not needed initially. An example might be the demand or acceleration letter that may be submitted late in a judicial process as evidence that it was issued if there is a claim that it was not.

These four new comments do not apply to foreclosures commenced when the due-on-sale clause is violated or if the servicer is joining in the foreclosure action of a junior lienholder. They provide substantive guidance regarding when a foreclosure of the subject mortgage, whether judicial or nonjudicial, may be commenced by a servicer.

Loss Mitigation Amendments

Loss mitigation procedures are covered at length in 12 CFR Sec. 1024.41, and the attendant comments 41(b) through 41(d). This includes comments on receipt and evaluation of a loss mitigation package and determining whether it is complete, facially complete, and later discovered to be incomplete; requirements for review of a loss mitigation package; disclosure timing; determining protections; payment forbearance; and denial of loss mitigation options. Throughout its review, the CFPB recognized that a “complete” package may not always really be complete, through no fault of the borrower or the servicer. It recognized that the loss mitigation review process is complicated and ever-evolving, based upon information the borrower submits initially and subsequently. The process affords a borrower the chance to update information and give a clearer, more complete financial picture and a decision is not always based only upon the initial documents that are submitted.

Throughout the rule and comment amendments, the CFPB injects a standard of “reasonableness.” Comment 41(b)(1)-4 is amended to clarify that a servicer must use reasonable diligence to complete a loss mitigation package. A reasonableness standard is open to interpretation and should be approached with the utmost caution. Thus, should a servicer continue loss mitigation efforts and, if so, for how long, if all it receives is one document that complies with the requirements of the loss mitigation package? There was a great deal of comment from all sides regarding how to implement a strict timetable while recognizing that additional documents are often needed after what was originally thought to be a “complete” package is received. All stakeholders recognize that the primary goal is to offer loss mitigation solutions for which a borrower qualifies. The devil is in the details.

As always, a servicer must exercise due diligence and contact a borrower to request additional information [see comment 41(b)(1)-4.i.]. The CFPB is adopting comment 41(b)(2)(i)(B)-1, wherein a servicer must promptly request additional information, if needed. 12 CFR 1024.41(b)(2)(i) requires a servicer to review a loss mitigation package within five days; acknowledge receipt; inform the borrower whether the package is incomplete or complete. If incomplete, the servicer must provide a list of what is missing and the date by which the missing information must be submitted, based upon the stage of foreclosure.

Originally, four specific milestones were provided to address the aforementioned timing of delivery of information to the servicer, based upon stage of the foreclosure and prior delinquency:


1. The date wherein any information or document submitted by the borrower may be considered stale or invalid;
2. The date that is the 120th day of delinquency;
3. The date that is 90 days before a foreclosure sale; and
4. The date that is 38 days before a foreclosure sale.

The goal of the timetable is to encourage submitting a complete application as early as possible, without discouraging continuing efforts to complete that application over time if needed. However, the CFPB was concerned that the above timetable may be overly rigid and not allow for reasonable exceptions.

CFPB has opted to replace the four specified dates to require notices regarding timing of submission of additional information. Instead, the date is to be reasonable. In determining whether the date is reasonable, the corresponding comments suggest that the servicer use the date that saves the maximum amount of rights for the borrower under that section. The four previously specified dates can be considered as reasonable, though no longer mandated. Thus, in practice, it is anticipated that most servicers will utilize the original milestone dates, barring unusual circumstances. Whether this provides a safe harbor may only be determined through litigation.

This change towards a reasonable standard is seen in many of the remaining amended sections. While intended to provide the maximum amount of time to effectuate a loss mitigation resolution, this will most likely result in enough uncertainty that litigation will ensue. Defining reasonable is always a matter of opinion based on the specific facts and is the ultimate fodder for litigation, especially when interpreting new laws and regulations.

No Periodic Statements Required for Loans in Bankruptcy
The change excepting borrowers in bankruptcy from the periodic statement requirement came as a last-minute interim final rule, the rule that would become effective on January 10, 2014 like the rest of the mortgage servicing rules, but was opened for public comment. The rule itself is fairly simple: it amends 12 CFR 1026.41(e)(5) to state that a servicer is exempt from the requirements of the periodic statement requirements for a mortgage loan while the borrower is a debtor in bankruptcy under Title 11 of the U.S. Code.

The comments to the rule provide that a servicer must resume sending statements within a reasonably prompt time after the next payment due date that follows the earliest of any three potential outcomes in the borrower’s bankruptcy case: the case is dismissed, the case is closed, or the consumer receives a discharge. But the servicer does not have to communicate in any manner that would be inconsistent with applicable bankruptcy law or a court order in a bankruptcy case. If a case gets reinstated or revived, the exception to the periodic statement rule would revive as well, according to the commentary. This exemption also applies if one of the borrowers is in a bankruptcy case for a loan where there are “joint obligors.”

No Early Intervention Required for Loans in Bankruptcy
Servicers handling loans where the borrower files bankruptcy will not be required to contact borrowers under the early intervention rules in 12 CFR 1024.39. This exemption applies for the duration of the bankruptcy case; but if the case is dismissed, closed, or the borrower receives a discharge, the servicer will need to resume compliance with respect to any portion of the debt that is not discharged. This exemption also applies if one of the borrowers is in a bankruptcy case for a loan where there are “joint obligors.”

FDCPA Compliance in Conjunction with New Servicing Rules
Recognizing the potential conflict that exists within the Fair Debt Collection Practices Act and some of the new servicing rules, the Bureau covered this subject in the interim rule published on October 23rd. Essentially, servicers are not required to comply with a borrower’s request to “cease communication” under FDCPA Section 805(c) if the servicer is attempting to comply with the servicing rules regarding periodic statements and ARM adjustment notices. However, if the borrower sends a “cease communication” request covering the time when the servicer is required to engage in early intervention, the servicer is exempt from compliance with 12 CFR 1024.39, the early intervention rules.

Conclusion
Overall these bankruptcy and FDCPA exemptions are good news for the industry. It demonstrates that the Bureau has listened to the comments of the industry, Chapter 13 trustees, and parties involved in the bankruptcy process. The comments provided in the 30 days after the rule was issued indicate that the major trade organizations representing mortgage banking are satisfied with the exemptions. Predictably, consumer organizations weren’t as happy with the last-minute exemptions and it is likely that a dialogue regarding intersections between the FDCPA and bankruptcy law will continue into early 2014.

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Winter USFN Report

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BANKRUPTCY UPDATE Credit Reporting and Reaffirmation Agreements

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

February 4, 2014

 

by Deanna Lee Westfall
The Castle Law Group, LLC
USFN Member (Colorado, Wyoming)

Recently, home mortgage reaffirmation agreements have come up in a new light. Although generally disfavored by courts as an act to impose a soon-to-be discharged personal obligation against the debtor, courts are now considering what the benefits are of a reaffirmation agreement. Specifically, courts are asking whether debtors should be allowed to reaffirm a debt after a discharge in order to request credit reporting from their mortgage servicer. Alternatively, courts are looking at ways to encourage or require credit reporting post-discharge on current loans, even without a signed reaffirmation agreement. The issue is whether failing to credit report impairs the promised “fresh start” of bankruptcy. See, e.g., In re Mahoney, 368 B.R. 579 (Bankr. W.D. Tex. 2007).

In response to debtor requests for credit reporting post-discharge, one bankruptcy court in Tennessee is allowing cases to be reopened for the limited purpose of filing a reaffirmation agreement, without requiring the usual fee for reopening cases. While creative, the Tennessee approach appears to be contrary to the Bankruptcy Code’s requirement that reaffirmation agreements be filed prior to entry of the discharge in order to be effective. The Tennessee approach also fails to ensure that credit reporting recommences. A mortgage servicer may still choose not to credit report out of an abundance of caution that the late-filed reaffirmation agreement appears to be an attempt to re-impose personal liability after the discharge, thereby running afoul of the discharge injunction.

The matter arises in Chapter 7 cases in which the debtor receives a discharge of personal liability on the note, while the lien attached to the property remains enforceable solely against the property. Thus, in order to maintain the property, the debtor must make regular monthly mortgage payments.

Although Section 521 of the Bankruptcy Code and the Official Form Statement of Intentions provide that the borrower shall reaffirm, redeem, or surrender the collateral on secured debts, debtors often simply “stay and pay” or ride through the bankruptcy without doing any of the three enumerated options. This leaves the debtor and creditor in a unique situation post-bankruptcy. The debtor does not owe a debt and, thus, the mortgage servicer would not typically report.

Recently, courts have been asking why servicers do not credit report on loans that pass through bankruptcy under the “stay and pay” scenario. In other words, if the debtor was current throughout their bankruptcy and remained current, why is there no credit reporting by the servicer to assist the borrower in rebuilding credit? Alternatively, the courts appear to be asking whether creditors may report only on current loans but not on defaulted loans post-petition. Reporting on post-petition defaults could be interpreted as interfering with the debtor’s discharge by negatively reporting on a defaulted debt.

A furnisher, as creditors are known under the Fair Credit Reporting Act, is primarily charged with reporting accurate information. There is no requirement to report, but what is reported must be accurate. In the absence of a reaffirmation agreement, filed within the timelines set by the Bankruptcy Code, is it accurate to report payments? Stated differently, is there a debt owed by the individual upon which the creditor can report? These questions point back to a possible reconsideration by the bankruptcy courts of the general distaste for reaffirmation agreements.

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Winter USFN Report

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Satisfactions of Mortgage and Payoff Statements

Posted By USFN, Thursday, January 9, 2014
Updated: Monday, October 12, 2015

January 9, 2014

 

by Amy M. Kieffer and William Foshag
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

On December 12, 2013, Governor Walker signed Wisconsin Senate Bill 290 into law. This new law is codified at Wis. Stat. § 708.15 and provides a new mortgage satisfaction option for residential real property, as well as sets out the rights of a settlement agent, a person who is obligated under a security instrument, or their authorized agent to request a payoff statement from the secured creditor.

Mortgage Satisfaction

The new law allows a title insurance company acting directly or through an authorized agent to serve as a satisfaction agent. Upon, or at any time after, full payment or performance of the secured obligation or payment, a satisfaction agent with authority from the landowner may give the secured creditor notice that the agent may submit for recording an affidavit of satisfaction of the security instrument against residential real property. The law specifies the information that must be included in the notice, such as that the satisfaction agent has reasonable grounds to believe that the property is residential real property and that the secured creditor received full payment.

The satisfaction agent may, after providing notice, submit the affidavit of satisfaction to the register of deeds for recording if the secured creditor authorizes the agent to do so or if the secured creditor does not, within 30 days of the notice, record a satisfaction.

The satisfaction agent may not submit an affidavit of satisfaction for recording if the agent receives notice from the secured creditor that the security instrument has been assigned. In that case, the satisfaction agent must provide notice to the assignee. A satisfaction agent also may not submit an affidavit of satisfaction if the agent receives notice that the secured obligation has not been satisfied, unless the agent has reasonable grounds to believe that the person who paid the payoff amount reasonably and detrimentally relied upon an understated payoff amount.

Payoff Statements
The new law also addresses payoff statements. The person or settlement agent, or the authorized agent, may give notice to the secured creditor requesting a payoff statement for a specified date that is not more than 30 days from the date the notice is given. The secured creditor must issue the payoff statement within seven business days after the effective date of the notice. The law further specifies the information that must be included in the payoff statement. The secured creditor may not charge the person for the first payoff statement that person requests in any two-month period.

If the payoff statement is understated, the secured creditor may send notice of the corrected payoff amount, but the secured creditor is prohibited from denying the accuracy of the payoff amount as against any person who reasonably and detrimentally relies on the understated amount. If the secured creditor receives payment as provided for in the payoff statement, the creditor must accept the payment and record a satisfaction of mortgage within 30 days. The secured creditor may then seek recourse against the obligated person for any amount that was incorrectly not included in the payoff statement.

Penalties

The new law also contains penalties against a satisfaction agent who records an affidavit of satisfaction erroneously or with knowledge that the statements in the affidavit are false, and contains penalties against a secured creditor for failing to timely send a payoff statement.

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January e-Update

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Memphis: Vacant Property Registration

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

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

The city of Memphis, Tennessee entered the vacant property registration (VPR) arena by passing its version in April of 2013 (Ordinance # 5477), although it did not immediately begin implementing and enforcing the ordinance. Memphis has now developed an online registry, pursuant to the ordinance. In furtherance of this, it issued a press release at the beginning of the fourth quarter (in early October 2013), urging mortgagees to begin registering their applicable properties and paying the $200 per year registration fee.

The city’s VPR form can be found at http://www.cityofmemphis.org/Portals/0/pdf_forms/VacantPropertyRegistration.pdf.

They have also set up FAQs, which can be viewed at http://www.cityofmemphis.org/Portals/0/pdf_forms/vpr_faqs.pdf.

Ultimately, though, the ordinance may not have as much of an impact on servicers and mortgage companies as VPR ordinances in other jurisdictions. This is due to its wording (and this has been confirmed with the city attorney’s office), which provides that the ordinance is only applicable to vacant properties that are also tax delinquent. That is a point that bears repeating and restating: Even though a bank-owned property is vacant and/or abandoned, it is only subject to the city’s VPR ordinance if it is also tax delinquent.

The ordinance, however, does not specify whether the tax delinquency is specific to Memphis City taxes or county (Shelby) property taxes, or both. Clarification of this point was requested from the city attorney’s office, which has now confirmed that only Memphis City property tax delinquencies are to be considered in determining application of the Memphis VPR ordinance – not county (Shelby) property tax delinquencies.

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New York: Settling the Case When the Borrower Lacks Legal Representation

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

by Bruce J. Bergman
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. – USFN Member (New York)

The compulsion to settle mortgage foreclosure cases in these still-troubled times need not be explored here. But a question does arise: can the matter be settled with confidence if the borrower is not represented by counsel? The immediate concern would be that the borrower could disavow the settlement on the ground that he or she was not properly represented and therefore had erred in settling the case and wants a new path. The matter arose in a new case in the context of a not uncommon settlement in open court [Liquori v. Liquori, 106 A.D.3d 1249, 966 N.Y.S.2d 543 (3rd Dept. 2013)].

It should be immediately noted that this is less of an issue when settlements are committed to writing. Then, the papers would specifically recite that the borrower was advised to obtain counsel and declined, or the borrower has waived the right to counsel and fully understands the terms of this agreement, etc. But the courtroom is a more daunting arena and in the stead of a written stipulation, something will be orally placed on the record. Thus, there may not be advance preparation of protective provisions. That was the situation that arose in the above-referenced foreclosure case — with the answer, under the circumstances, that the settlement could not be assailed for want of the borrower having counsel. A quick look at the facts should be enlightening.

Husband and wife borrowers defaulted on a mortgage, which precipitated a foreclosure action and a settlement conference in court. The husband and wife had squared off in a matrimonial action and although the wife had counsel for that case, she came to court on the foreclosure without an attorney, something she specifically advised the court was her election.

An oral stipulation was entered into on the record whereby both husband and wife agreed to deed the property back to the plaintiff-lender in exchange for a discontinuance of the action and waiver of any personal liability against them, in essence a deed-in-lieu. Thereafter, the wife refused to execute the deed and when the lender moved to enforce the settlement agreement that had been placed on the record, the wife cross-moved to vacate the stipulation.

The court ruled that the stipulation was enforceable, for the usual reason that such stipulations of settlement are favored and binding and are to be strictly enforced, not to be set aside in the absence of fraud, collusion, mistake, or accident. That the party seeking to avoid the settlement had not been represented by counsel at the time of the stipulation, although relevant, is in itself insufficient to void such a stipulation — especially where the party was advised by the court to retain counsel and chose not to do so.

Moreover, at the conference the court asked the wife whether she had talked to an attorney and when she said “no,” inquired as to whether she had had an opportunity to engage counsel. She responded “yes,” and the court still suggested that she might need a lawyer to help her. She replied that no, she did not. Finally, the court clearly explained the settlement terms and asked the wife whether she understood and whether she was prepared to agree to those terms — to which she said “yes.”

Under all of these circumstances, there was no doubt that the wife had assented to the settlement and the court was not going to reverse and let her out of the bargain. Of course, this raises the question as to whether the settlement would be so sacred if the record were not so clear that she truly understood and also specifically waived the right to counsel. While that point might be open to question, such procedures where the court inquires about counsel and assures that the unrepresented parties understand the situation are commonplace. That will therefore generally assure that the settlement remains immune to attack.

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January e-Update

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Minnesota’s Bankruptcy Community Undergoes Significant Transition

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2015

 

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

Over the past year, the landscape of Minnesota’s bankruptcy community has been significantly transformed. With the sad passing of Judge Nancy Dreher and the retirement of Judge Dennis O’Brien, three new bankruptcy judges have been appointed to the Minnesota bench. These appointments come after more than a decade without a change to Minnesota’s bankruptcy panel. In addition, longstanding Chapter 13 Trustee Jasmine Keller retired, making way for the appointment of a new Standing Chapter 13 Trustee for the District of Minnesota.

Judge Kathleen Sanberg, formerly of the Minnesota Tax Court, was appointed to the bankruptcy bench towards the end of 2012. Judge Sanberg replaces Judge Robert Kressel, who is retired and is on recall status. Prior to being appointed to the Tax Court, Judge Sanberg was a partner at Faegre & Benson (now Faegre Baker Daniels), where she practiced in the areas of financial institutions, loan workouts, and bankruptcy.

In mid-2013, Judge Michael Ridgway was appointed to the bench. Before joining Chief Judge Kishel and Judges Kressel, O’Brien, and Sanberg, Judge Ridgway served as a trial attorney at the Office of the U.S. Trustee. Due to his experience within the local bankruptcy community, Judge Ridgway is a familiar face to members of the bankruptcy bar.

Shortly after the appointment of Judge Ridgway, Judge Katherine Constantine was appointed to replace the retired Judge O’Brien. Prior to appointment, Judge Constantine chaired Dorsey & Whitney’s Bankruptcy and Financial Restructuring Practice Group.

Most recently, the U.S. Trustee appointed Gregory Burrell as Standing Chapter 13 Trustee. Mr. Burrell is a native of New Orleans and brings much experience and training in the area of bankruptcy law. His appointment was a result of the retirement of Jasmine Keller.

These are major fluctuations for a bench and bar that have seen little change in the past years. While the impact and implications of these appointments have yet to be realized, the local bar is excited to welcome the new additions.

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Illinois: Statute’s Expiration Date is Extended

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

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

On December 26, 2013, the expiration date of the Illinois statute referenced below was extended from January 1, 2014 to January 1, 2016, where the mortgagor applies for assistance under the Making Home Affordable Program on or before December 31, 2015.

Statute 735 ILCS 5/15-1508 (d-5) — Making Home Affordable Program. The court that entered the judgment shall set aside a sale held pursuant to Section 15-1507, upon motion of the mortgagor at any time prior to the confirmation of the sale, if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program established by the United States Department of the Treasury pursuant to the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, and (ii) the mortgaged real estate was sold in material violation of the program’s requirements for proceeding to a judicial sale.

© Copyright 2014 USFN and Pierce & Associates, P.C. All rights reserved.
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Connecticut: Notices to Quit, "Record Owner", and Wholly-Owned Subsidiary

Posted By USFN, Wednesday, January 8, 2014
Updated: Monday, October 12, 2015

January 8, 2014

 

by Meghan E. Smith
Bendett & McHugh, PC – USFN Member (Connecticut, Maine, Vermont)

In a recent decision, the Connecticut Superior Court held that although the property was held by a subsidiary of a bank that took title through a foreclosure, the bank was not the “record owner” of the property, and the summary process action was dismissed. [OneWest Bank v. Connolly, 2013 Conn. Super. LEXIS 2063 (Sept. 17, 2013)].

The subject property was foreclosed by a bank. That bank then transferred the property to a subsidiary it owned, which would be conveying the property in the REO sale. Thereafter, the bank served the occupants of the property with a notice to quit, listing the bank, rather than the subsidiary, as the owner. The subsidiary later conveyed the property to an LLC, which filed a motion to substitute party plaintiff in the summary process action. The defendants objected to the motion on the ground that the notice to quit was defective.

The court found that even though evidence showed that the record owner was a wholly-owned subsidiary of the landlord listed on the notice to quit, the landlord named on the notice to quit was not the record owner at the time the notice to quit was served, thereby rendering the notice to quit defective.

The landlord listed on the notice to quit must be the owner of the premises by virtue of an instrument recorded on the local land records. It is important to check the chain of title prior to serving a notice to quit in order to identify the current record owner; otherwise a landlord risks having to restart the eviction action.

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