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Missouri: Notice Requirements for Unlawful Detainers Involving Foreclosed Properties

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 30, 2015

September 9, 2013

 

by Andrew Babitz
South & Associates, P.C. – USFN Member (Kansas, Missouri)

The Missouri Court of Appeals for the Eastern District recently handed down a decision that clarifies the notice required to bring an unlawful detainer matter following foreclosure. In Federal National Mortgage Association v. Wilson, 2013 WL 3943016 (Mo. Ct. App. 2013), the appellate court reversed and remanded the trial court’s decision in favor of the borrower.

The trial court had held, among other things, that the borrower did not default on the underlying note and, thus, never lost her right to possession of the property. The lower court reasoned that because the borrower’s right to possession predated Fannie Mae’s title to the property obtained after the foreclosure sale, the borrower’s right to possession was superior.

The trial court also determined that Fannie Mae failed to provide the former borrower with proper notice pursuant to Mo. Rev. Stat. § 534.030.1. The trial court’s order held that Fannie Mae did not provide proper notice because the GSE could not prove it sent a certified written letter demanding that the borrower vacate the property or that it had personally served the written demand letter upon the borrower. The trial court held that the written notice of foreclosure was not enough to satisfy Mo. Rev. Stat. § 534.030.1. Id. at *2.

The Court of Appeals reversed on all accounts and found that Fannie Mae successfully proved the three elements necessary to prevail in an unlawful detainer proceeding following foreclosure: (1) that the property was purchased at a foreclosure sale; (2) the defendant received notice of the foreclosure; and (3) the defendant refused to surrender possession of the property. Id. at *3; U.S. Bank v. Watson, 388 S.W. 233, 236 (Mo. Ct. App. 2012); JPMorgan Chase Bank v. Tate, 279 S.W.3d 236, 239 (Mo. Ct. App. 2009).

The court cited the longstanding statute, Mo. Rev. Stat. § 443.380, which states that recitals in a trustee’s deed after a foreclosure sale, “shall be received as prima facie evidence in all courts of the truth thereof.” The court held that the former borrower received notice of the foreclosure because the foreclosing law firm sent a certified written notice of the foreclosure sale to the former borrower pursuant to Mo. Rev. Stat. § 443.325.3. The court stated that the trustee’s deed contained the United States Post Office receipt showing that the certified notice of foreclosure was sent. Id. at *4.

Furthermore, the court held that the borrower, falling in the after-foreclosure class of unlawful detainer, was not entitled to written demand for the property described by the trial court in addition to the notice of the foreclosure. The court stated “since the nineteenth century, Missouri courts interpreting the unlawful detainer statute have unequivocally determined that written demand should apply only to the intruder class.” Id. at *6. This holding is extremely important to servicers because it clarifies the notice required in unlawful detainer cases post-foreclosure, and should reduce litigation on this point. The court has now clarified that the United States Post Office receipt proving that notice of the foreclosure was sent by certified mail satisfies the notice of the foreclosure requirement.

Wilson follows the recent Missouri Supreme Court decision, Wells Fargo Bank v. Smith, 392 S.W.3d 446 (Mo. 2013), which paved the way for Wilson by, among other things, providing an excellent summary of the legislative history regarding Missouri’s unlawful detainer statute. In Smith, the high court affirmed Missouri’s longstanding law that counterclaims and affirmative defenses may not be raised in unlawful detainer proceedings. Specifically, the court affirmed, Mo. Rev. Stat. § 534.210, which explicitly states that, “the merits of title shall in nowise be inquired into, on any complaint which shall be exhibited by virtue of the provisions of this chapter.” Id. at 460.

The court in Smith further held that homeowners who dispute a lender’s right or ability to foreclose upon their property have two options. They may either (1) sue to enjoin the foreclosure sale from occurring, or (2) if the sale has occurred and the buyer has sued for unlawful detainer, bring a separate action challenging the foreclosure purchaser’s title and seek a stay of the unlawful detainer action in that separate case. Id. at 461.

Author’s Note: The defendant Fiona Wilson filed a motion for rehearing/transfer to the Missouri Supreme Court on August 7, 2013. The motion was denied by the Court of Appeals on August 22, 2013. Defendant Wilson filed an Application for Transfer directly to the Missouri Supreme Court on September 6, 2013. The Application for Transfer had not been decided at press time of this article.

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Wisconsin: Appellate Court Reviews “Holder of the Note”

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 30, 2015

September 9, 2013

 

by Patricia C. Lonzo
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

A recent Wisconsin Court of Appeals decision gives insight as to what is necessary to prove possession of a note endorsed in blank and, ultimately, that a party is a holder of the subject note. [Dow Family v. PHH Mortgage Corporation, 2013AP221 (Wis. Ct. App. Aug 6, 2013)]. On the appeal of a summary judgment of foreclosure entered in favor of PHH, the court held that PHH did not authenticate the note nor prove possession and remanded the case for trial on the issue. The appellate court further held that “if PHH can show it is entitled to enforce the note, it is also entitled to enforce the mortgage under the doctrine of equitable assignment.” Equitable assignment continues to be a well-rooted legal doctrine.

In Dow Family, PHH was the note holder for a first mortgage on a property that was sold by PHH’s borrower to the Dow Family. The title commitment obtained during the sale process revealed a number of mortgages on title. The first mortgage on title was from 2001 and to MERS as nominee to US Bank. The title commitment did not reference MERS, only US Bank. This first mortgage to MERS was the mortgage of which PHH was the note holder. The mortgage was later assigned to PHH. There was a subsequent mortgage on title to US Bank from 2003. The Dow Family was persuaded to believe that the first mortgage from 2001 had been paid off but just had not been satisfied of record. The sale to the Dow Family went through without paying off the first mortgage on title. Thereafter, a declaratory judgment case was filed by the Dow Family and a foreclosure action was commenced by PHH. The two lawsuits were consolidated.

Consistent with the UCC, to establish that it was the note holder and entitled to enforce the note, PHH had to prove possession of the original note that was endorsed “in blank.” Two affidavits had been submitted to the circuit court relevant to the issue. First, an affidavit of PHH had been submitted, containing the averment that “PHH is the current holder of said note and mortgage.” The affidavit incorporated a copy of the note with the “in blank” endorsement and a copy of the Notice of Assignment, Sale or Transfer of Servicing Rights from MERS to PHH. Next, an affidavit of PHH’s attorney (who is also the author of this article) was submitted. It contained the averment that “what appear to be the original note and mortgage have been received by my office from the plaintiff for the purposes of proceeding in these actions.” The appellate court determined that these averments and copy of the note did not present a prima facie case to prove possession.

The appellate court’s conclusion, in part, was based upon a finding that the copy of the note was not authenticated. Authentication is a prerequisite for determining that a document is admissible evidence. The court also considered multiple factors leading to its rejection of the copy of the note and averments in lieu of the submission of the original note into evidence. These included inconsistencies in the copy of the note attached to the complaint (which did not bear any endorsements) and the endorsed copy attached to the affidavits.

Ultimately, when the facts of a case are such that they cast doubt upon whether the copy of the note is a true and correct copy of the original document, a copy may not suffice. Following the best evidence rule, the original note may be required to authenticate the note and prove possession.

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Illinois: New Statute on Tenant Rights

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 30, 2015

September 9, 2013

 

by Lee Perres & Nick Schad
Pierce & Associates, P.C. – USFN Member (Illinois)

Illinois Senate Bill 56 (SB56), effective November 19, 2013, has passed and has been signed by the governor. This legislation changes how the law applies to tenants in foreclosed properties with “bona fide leases,” along with other changes to the Illinois Mortgage Foreclosure Law. A copy of the new law can be viewed here.

Impact on “Bona Fide Leases”
SB56 adds a new section to the Illinois Code of Civil Procedure Forcible Entry and Detainer Law to include 735 ILCS 5/9-207.5, entitled “Termination of Bona Fide Leases in Residential Real Estate in Foreclosure.” This new section is directed towards the purchaser of residential real estate at a judicial sale (including a mortgagee or holder of certificate of sale) who will not use the property as a primary residence. The purchaser at sale may only terminate a bona fide lease at the end of its term, with no less than 90 days written notice, or in the case of a month-to-month or week-to-week lease, by no less than 90 days notice.

The sole exception is that “an individual who assumes control of residential real estate in foreclosure pursuant to a judicial sale and who will occupy a dwelling unit of the residential real estate … as his or her primary residence may terminate the bona fide lease for the dwelling unit subject to the 90-day notice requirement ….” SB56 makes Section 9-207.5 the sole procedure for terminating a bona fide lease in residential real estate at a judicial foreclosure sale. This means that one can no longer name a tenant in a foreclosure to terminate the tenant’s interest.

SB 56 defines “residential real estate” as “real estate, except a single tract of agricultural real estate consisting of more than 40 acres, which is improved with a single family residence or residential condominium units or a multiple dwelling structure containing single family dwelling units for one or more families living independently of one another, for which an action to foreclose the real estate: (1) has commenced and is pending; (2) was pending when the bona fide lease was entered into or renewed; or (3) was commenced after the bona fide lease was entered into or renewed.” A “bona fide lease” is defined as the lease of a dwelling unit in residential real estate in which:

1. the tenant is not the “mortgagor or the child, spouse, or parent of the mortgagor”1;
2. “the lease was a result of an arms-length transaction”;
3. the lease requires the payment of rent that “is not substantially less than fair market rent for the property or the rent is reduced or subsidized pursuant to a federal, State, or local subsidy”; and
4. either:
a. the lease was entered into or renewed prior to the filing of the lis pendens in relation to the foreclosure, or
b. the lease was entered or renewed after the date of the lis pendens but before the date of the judicial sale and the period of the lease is for “one year or less.”

If a lease was entered into after the lis pendens (notice foreclosure), but before the judicial sale of the property, and the lease is for more than one year, assuming the lease is determined to be bona fide pursuant to Section 15-1224(a), the lease shall be “deemed to be a bona fide lease for a term of one year.” In the event the lease is an “oral lease” and it is entered into before the date of the judicial sale, and the tenant is determined to be a bona fide tenant the lease shall be “deemed to be a bona fide lease for a month-to-month term.” If, however, the lessee can prove by a preponderance of evidence that the lease was for more than a month-to-month period, the lease may be allowed to continue for a period of up to one year. If any lease, written or oral, is entered into after the judicial sale, but prior to the court confirming the sale, and the lease is considered a bona fide lease the lease shall be deemed a month-to-month lease.

As added protection to a tenant of a foreclosed property, no order of possession issued under the Illinois Mortgage Foreclosure Law, “shall be entered against a lessee with a bona fide lease of a dwelling unit in residential real estate in foreclosure, whether or not the lessee has been made a party in the foreclosure.”

SB56 expands what may be included in the statutory written notice already required to include “instruction on the method of payment of future rent, if applicable.” Property receivers and mortgagees in possession shall also provide notice to all known occupants providing “instructions on the method of payment of future rent, if applicable.”

Changes with Respect to Special Representatives

SB56 amends 735 ILCS 5/15-1501, which sets forth the necessary parties for a foreclosure action. Specifically, SB56 amends what is required when a mortgagor is deceased and the property is held by another, living individual. “The Court is not required to appoint a special representative for a deceased mortgagor for the purpose of defending the action, if there is a living person that holds a 100% interest in the property that is the subject of the action, by virtue of being the deceased mortgagor’s surviving joint tenant or surviving tenant by the entirety.” See 735 ILCS 5/15-1501(h). SB56 does not expand any contract liability to the living party that holds a 100% interest in the property, specifically stating that “no deficiency judgment [may] be sought or entered in the foreclosure case … against a deceased mortgagor.” See 735 ILCS 5/15-1501(h).

Changes with Respect to Sealing Eviction Orders
SB56 requires the sealing of court files when a forcible entry and detainer action (eviction) is brought under the forcible entry and detainer statute (735 ILCS 5/9-207.5) or Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1701).

© Copyright 2013 USFN. All rights reserved.
September e-Update

1 However, if the “child, spouse, or parent of the mortgagor” can prove that the “written or oral lease otherwise meets the requirements of Section 15-1224(a),” the lease will be determined to be a bona fide lease and the requirements of 735 ILCS 5/15-1224 will apply. See 735 ILCS 5/15-1224(e).

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California: No Circumventing the Anti-deficiency Protections

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 30, 2015

September 9, 2013

 

by Kathy Shakibi
Northwest Trustee Services, Inc. – USFN Member (California)

California has a tradition of anti-deficiency protections, but over the past few years these have edged beyond the traditional notions, swiftly and surely. Notably, new protections have been established to address short sales, and even old protections are newly interpreted to extend to short sales. One such ruling was issued on July 23, 2013, where the appellate court in Coker v. J.P. Morgan Chase Bank, 2013 Cal. App. LEXIS 573, held that the prohibition on collecting deficiency judgment on a purchase money loan, conventionally applied to foreclosure sales, extends to short sales as well.

Background
For a bird’s eye view of the anti-deficiency protections, it helps to separate them into two eras: the pre-2010 prohibitions and the post-2010 ones. All of the anti-deficiency protections are codified in the Code of Civil Procedure. There is no common law prohibition on collecting deficiency in California.

Since the pre-2010 era, collecting deficiency judgment following a sale on a purchase money loan has been prohibited (CCP § 580b). A purchase money loan is a non-recourse loan, meaning a borrower has no personal liability after a sale of a property. Sale was commonly thought of and interpreted as a foreclosure sale, either judicial or nonjudicial. In the case of a nonjudicial sale of a residential property, no deficiency judgment could be collected by the foreclosing entity (CCP § 580d). In the pre-2010 era, a foreclosure sale was needed to trigger the protections.

Starting in 2010, California enacted a series of new restrictions on collecting deficiencies. These newer prohibitions do not need a foreclosure sale as a trigger, and are not limited to obtaining a deficiency judgment. Since 2010, California has passed a new law each year broadening the prohibitions on collecting a deficiency:

  • 2010: SB 931 enacted a new code section specifically addressing short sales, and prohibiting collecting deficiency judgment on a first lien secured with residential property (CCP § 580e).
  • 2011: SB 458 swiftly amended the newly enacted CCP § 580e to extend its application to all liens, and to expand the prohibition on collecting any funds from a borrower, either before or after completing a short sale.
  • 2012: With the passage of SB 1069, CCP § 580b, which had traditionally prohibited collecting deficiency on a purchase money loan was amended to extend to subsequent refinances of a purchase money loan.
  • 2013: SB 426 was passed to clarify that the protections in CCP §§ 580b and 580d prohibit collecting any deficiency owed, not just a deficiency judgment.

In the midst of the new anti-deficiency legislation remain short sale agreements predating the effective date of CCP § 580e (January 1, 2011) and its subsequent amendment on July 11, 2011. The short sale agreements drafted prior to January 1 and July 11, 2011, sometimes conditioned the short sale approval on the borrower agreeing to contribute funds toward the short sale or agreeing to remain personally liable for any deficiency owed on the debt. The concept behind those provisions was to bridge the gap between the purchase price and the debt owed, and to facilitate obtaining approval from all parties. The short sale agreement reviewed by the Coker court contained such a provision and predated July 11, 2011.

The Coker Case
In Coker, the borrower was in default on her mortgage loan and had arranged for a short sale. The borrower entered into a written agreement with the lender where she agreed to remain personally liable for any deficiency (the difference between the purchase price and the outstanding balance of the debt). After the short sale transaction was completed, a demand letter was sent to the borrower to collect the unsatisfied portion of the loan. The borrower filed suit and invoked the protections of the anti-deficiency statutes, CCP § 580e and § 580b.

The protections of CCP §580e specific to short sales did not apply to this borrower because the statute is not retroactive, and the borrower’s agreement predated its effective date. However, the borrower’s loan was a purchase money loan. The novel question before the court was, Does the prohibition on collecting deficiency judgment on a purchase money loan, following a sale, extend to short sales? If yes, can a borrower agree to waive this protection?

Prior to Coker, no California court had considered this question because, conventionally, the anti-deficiency protections were triggered by a foreclosure sale, and collecting deficiency was thought of as pursuing a legal action for a judgment, post-foreclosure. The court in Coker dispensed with these notions, and expanded the protections of CCP § 580b, not previously applied to short sales, to cover short sales as well.

The court interpreted the existing statute broadly, as a matter of public policy, to shift the risk of falling property values onto the lender. The court believed the protection is needed to stabilize property sales, and keep from aggravating an economic downturn. (See Coker at *13, 14). Further, the court ruled that a borrower cannot agree to waive anti-deficiency protections. This ruling is a reflection of how liberally California’s anti-deficiency statutes are construed and how sweeping is their grasp.

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Minnesota: Class Action Against MERS for Failure to Pay Recording Fees Dismissed

Posted By USFN, Monday, September 9, 2013
Updated: Tuesday, November 24, 2015

September 9, 2013

 

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

Minnesota’s two most populated counties recently brought a class action law suit against MERS, alleging a repeated failure to pay recording fees for each transfer of a mortgage within the MERS recording system. Failure to do so, as alleged by Hennepin and Ramsey counties, directly violates the Minnesota Recording Act by failing to pay the mandatory recording fees.

The counties based their claims on Minn. Stat. § 507.34, which states, in relevant part:


[e]very conveyance of real estate shall be recorded in the office of the county recorder of the county where such real estate is situated; and every such conveyance not so recorded shall be void as against any subsequent purchaser in good faith and for a valuable consideration of the same real estate, or any part thereof, whose conveyance is first duly recorded.


The counties sought a declaration that MERS violated § 507.34 by assigning mortgages within the MERS registry without recording the assignment with the county recorder where the property is located. MERS defended this claim by stating that the Recording Act is permissive and merely explains where a mortgage should be recorded if the mortgagee wants to avail itself of the protections of § 507.34.

Along with the motion to dismiss, MERS alleged that the counties lacked standing to bring the suit. The court found that the counties had adequately alleged that the failure to record mortgage transfers resulted in a loss in fees and inaccurate property records. As such, the counties had demonstrated standing and the court addressed the claims on the merits.

The court’s analysis turned upon statutory interpretation. The court agreed with MERS that the term “shall” could not be read in isolation and must be interpreted with the remainder of the statute. MERS argued that the “shall be recorded” language instructs where a mortgage should be recorded if the mortgagee wants to avoid the consequences — loss of priority — for not recording the conveyance. This, in the court’s opinion, was the only reasonable construction of the plain language of the statute. The court went further to state that the plain language of § 507.34 is unambiguous and does not establish a duty to record all conveyances; rather, it outlines where to record and explains the consequence of not doing so. The court also relied upon past decisions interpreting the purpose of the Recording Act. Minnesota courts agreed with this analysis, having explained that “[t]he purpose of [§ 507.34] is to protect those who purchase real estate in reliance upon the record.” Claflin v. Commercial State Bank of Two Harbors, 487 N.W.2d 242, 248 (Minn. Ct. App. 1992). See Citizens State Bank v. Raven Trading Partners, Inc., 786 N.W.2d 274, 278 (Minn. 2010) (“The purpose of the Minnesota Recording Act is to protect recorded titles against the gross negligence of those who fail to record their interest in real property”).

Based upon the plain language of the statute, the court concluded that § 507.34 does not create a mandatory recording obligation. The counties had also asserted claims of public nuisance and unjust enrichment. However, these claims were premised upon the argument that a mandatory obligation to record each conveyance existed. As such, these remaining claims were dismissed as well.

There has been no word on whether this decision will be appealed by the counties. This opinion is certainly a feather in the cap for MERS and the other defendants named in the class action. This may have been a Hail Mary play by the counties in hopes of drumming up additional mandatory fees. However, the opinion certainly exhibits a succinct recitation of the court’s position regarding interpretation of the Minnesota Recording Act.

Closing Note — This author’s firm recently wrote an article on an issue within the same vein. [See “Deed Transfer Tax: GSEs Exempt,” which appeared in the USFN e –Update (July/Aug. 2013 ed.)] While different in analysis, the cases are identical as to disposition. The federal district court dismissed an action brought by Hennepin County against Freddie Mac and Fannie Mae regarding their alleged failure to pay state deed transfer taxes. The complaint was dismissed based upon protections provided to the GSEs under 12 U.S.C. § 1723a (c)(2) and 12 U.S.C. § 1452 (e), as well as Minn. Stat. § 287.22 (6).

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Servicing VA Loans: The Foreclosure Process

Posted By USFN, Monday, September 9, 2013
Updated: Tuesday, November 24, 2015

September 9, 2013

 

by Terry Ross, Director, Regulatory Compliance
Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (Texas)

The author thanks Cheryl Amitay, Rhonda Armitage, Terry Cere, Theresa Gonzalez, and Mary Ann Mills of the VA Central Office Loan Management staff for their valuable contributions to this article.

Once upon a time, servicing U.S. Department of Veterans Affairs (VA) loans going to foreclosure sale required the servicer to consider buying down the debt so that VA could issue a specified bid, which allowed the servicer the option to convey the property to VA after the foreclosure sale. With the introduction of VALERI (VA Loan Electronic Reporting Interface), VA made major changes in servicing these loans. One of the biggest changes was to eliminate the buy-down program and introduce the write-off.

The VA Servicer Guide explains in detail the necessary steps in the foreclosure process. The guide contains all of the information a servicer needs to service VA loans and is available at:
http://www.benefits.va.gov/HOMELOANS/documents/docs/va_servicer_guide.pdf.

Bidding Instructions
When a delinquent loan cannot be cured through a loss mitigation option, prompt termination of the loan is in the best interest of all parties. VA has delegated the foreclosure sale process to the servicer. The foreclosure sale process includes the scheduling, postponing, canceling, or completion of the sale, as well as the determination of the bid type and bid amount.

The necessary steps to determine the termination bid amount are: (1) Obtain a liquidation appraisal; (2) Determine net value; (3) Calculate total eligible indebtedness; and (4) Determine final bid amount.

Step 1: Obtain a Liquidation Appraisal — The servicer is required to order a VA appraisal of the property at least 30 days prior to completing a foreclosure sale. VA appraisals are ordered by accessing the Veterans Information Portal. A VA-approved appraiser then appraises the property. If a servicer participates in the Servicer Appraisal Process Program (SAPP), its designated SAPP Staff Appraisal Reviewer (SAR) reviews the appraisal and determines the reasonable value of the property. Next, the SAPP SAR issues a notice of value (NOV). If a servicer does not participate in SAPP, VA Construction and Valuation (C&V) issues the NOV. Any appraisal value can be viewed once the NOV is issued in WebLGY. VA will reimburse the servicer for an appraisal cost when the claim is filed, and the appraisal cost may be paid over and above the maximum guaranty amount. An appraisal should be ordered early in the process to avoid delays that may jeopardize the sale. An appraisal is valid for 180 days unless VA determines that rapidly changing market conditions warrant a shorter validity period. If property damage is learned of after obtaining the appraisal, but prior to the completion of the foreclosure sale, the appraiser must be contacted to obtain an updated appraisal report. If an updated appraisal report cannot be completed, a new appraisal may be required. Use the updated NOV and adjust the net value if necessary.

Step 2: Determine Net Value — Determine net value using the VA formula. The fair market value is received through the SAPP program or from VA. Net value is the fair market value minus the cost factor. The cost factor is a percentage of fair market value and represents the cost to VA for acquiring and disposing of properties. VA publishes the cost factor as necessary in the Federal Register, and it is available on the VA Loan Guaranty website at http://www.homeloans.va.gov. For convenient reference, Circular 26-13-15 (dated September 3, 2013), announcing the "New Percentage to Determine Net Value" and stating the percentage is increased from 11.87 percent to 14.95 percent effective October 8, 2013, is accessible here.

Pre-October 8, 2013 — Illustration of determining net value: If a property has a fair market value of $100,000 and the VA cost factor is 11.87%, the net value would be calculated as follows:

  • Fair Market Value $100,000
  • VA Cost Factor (11.87% of $100,000 = $11,870)
  • Net Value ($100,000 - $11,870 = $88,130)

Effective October 8, 2013 — Illustration of determining net value: If a property has a fair market value of $100,000 and the VA cost factor is 14.95%, the net value would be calculated as follows:

  • Fair Market Value $100,000
  • VA Cost Factor (14.95% of $100,000 = $14,950)
  • Net Value ($100,000 - $14,950 = $85,050)

Step 3: Calculate Total Eligible Indebtedness — Total eligible indebtedness is the amount of the borrower’s indebtedness that VA allows on a claim. The following calculations should be used when determining total eligible indebtedness:

  • Unpaid principal balance (UPB): The UPB as of the last payment date on the loan.
  • Interest: Accrued unpaid interest up to the termination date or the maximum allowable interest date, whichever is sooner. (To include 30 days prior to the payment due date of the loan.)
  • Liquidation expenses: All liquidation costs incurred up to the current date.
  • Advances: Taxes, insurance, and preservation costs advanced on the loan up to the current date.
  • Credits: Any credits on the borrower’s account that reduce the borrower’s total eligible indebtedness.

Step 4: Determine Bid Amount — To determine whether to bid total debt or net value, compare total eligible indebtedness to the net value. If net value of the property exceeds the total eligible indebtedness, bid total indebtedness (total debt bid). When the net value of the property is less than total eligible indebtedness, bid the net value of the property (net value bid). If the sale takes place in a state with statutory bid requirements, bid what is required by the state. VALERI will adjust the credit to indebtedness based on whether the property is conveyed, retained by the holder, or sold to a third party.

Eligibility to Transfer Custody and Title
Prior to initiating a transfer of custody, eligibility to transfer custody and title must be determined. A transfer of custody may be initiated if all of the following conditions are met:

The loan was terminated through a foreclosure or deed-in-lieu, the servicer writes off all indebtedness that will not be covered by the maximum claim payable and the acquisition payment, and sends a deficiency waiver notice to the borrower once the claim is paid if the net value of the property is less than the unguaranteed portion of the indebtedness (the total eligible indebtedness minus VA’s maximum claim payable under the guaranty). The deficiency waiver notice (letter) is only necessary in maximum guaranty cases.

The deficiency waiver notice must be sent to the debtor at his/her last-known address. In most cases, the last-known address will be the property address. If the debtor has given the U.S. Post Office a forwarding address, the letter will be sent to that address. A copy of the deficiency letter must be retained in the claims file for possible post-audit review. Further, if the deficiency waiver notice is returned by the post office, the envelope should be retained in the file.

For convenient reference, a sample deficiency waiver notice can be found here.

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New York: Commercial vs. Residential Foreclosure Settlement Negotiations

Posted By USFN, Monday, September 9, 2013
Updated: Tuesday, November 24, 2015

September 9, 2013

 

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

If there was ever a time that foreclosing lenders were under pressure to settle cases (at least those involving home loans), today is the time. Courts insist upon it; the government demands that it be done; and there is the lender’s and servicer’s own desire to achieve a performing loan. So it would seem that there could hardly be anything wrong in pursuing some settlement path — except that, in practice, danger lurks if the lender or servicer does not assiduously make clear its position. To immediately make the point: a foreclosure can be upset at any stage if the borrower comes forward and convinces a court that he thought settlement negotiations were proceeding and that he, therefore, was not obliged to defend the case. This is rarely an issue in a commercial foreclosure setting.

In the commercial foreclosure action and the typical magnitude of the case, the foreclosing plaintiff has both the wherewithal and the desire to assure that settlement negotiations do not lead to borrowers’ untoward claims that some concession had been made by the lender. This is accomplished by lenders’ insistence that borrowers sign a pre-negotiation letter before discussions can proceed. Among other things, the letter provides that no change in the mortgage document obligations is arrived at unless there is a new writing signed by the plaintiff and that the foreclosure proceeds during any settlement negotiations, all without waiver of any of the plaintiff’s rights. [Naturally, there is more to it than this; and for those who wish to explore it, attention is invited to 2 Bergman on New York Mortgage Foreclosures § 24.07, LexisNexis Matthew Bender (rev. 2012)]. This formality, however, is rarely pursued in the residential foreclosure case, which then leaves lenders and servicers open to a possible charge that a borrower believed settlement was in the offing.

In an illustrative case, a residential borrower had defaulted in the foreclosure action and later moved to vacate that default, claiming that his lawyer had failed to interpose an answer. For reasons not particularly relevant here, the court was unimpressed with that excuse. Additionally, though, the borrower stated that his attorney had assured him that the foreclosure action would not proceed while negotiations took place, and that his counsel had made five attempts to obtain a loan modification.

Although all of these contentions lacked any documentary support (upon which basis it could be opined that the court could have rejected them), the court found that the assertions were combined with the borrower’s claim that his failure to timely respond to the complaint was also due to his good faith belief in settlement negotiations. The court then ruled that such a good faith belief will supply a reasonable excuse for failure to timely answer.

While it appears that the borrower’s belief was based upon what his own attorney told him, rather than on any representations by the servicer, there was nevertheless some indication that the servicer was entertaining the possibility of a settlement; i.e., perhaps by way of mortgage modification.

The failure here — and which led to the court allowing the borrower to “open up” the action — was the absence of a lender-written declaration that the foreclosure action was proceeding apace, notwithstanding any possible negotiations or any consideration of a mortgage modification. Without that, the door was open for the court to do what it really wanted to do: give the borrower a chance to submit an answer. As a consequence, an answer would necessitate a motion for summary judgment and all of the expense and delay that portends. This is something that might have been avoided by a more dedicated approach to the settlement process.

© Copyright 2013 USFN. All rights reserved.
September e-Update

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Rhode Island: MERS and the Recording of Mortgages and Assignments: Changes on the Horizon?

Posted By USFN, Monday, September 9, 2013
Updated: Tuesday, November 24, 2015

September 9, 2013

 

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

Since 2011, banks, mortgage companies, and mortgage servicers (MERS Members) doing business in Rhode Island have been under attack on all fronts. Already embroiled in Fryzel v. Mortgage Elec. Registration Sys., 2013 U.S. App. LEXIS 12068 (see accompanying USFN e-Update article here, Sept. 2013 ed.), a lengthy conflict with residential borrowers that has put over 800 foreclosures on hold since 2011, MERS Members were forced to fend off a suit brought by the town of Johnston, which alleged that the MERS Members1 owed Johnston thousands of dollars in recording fees for failing to record mortgages and subsequent assignments as required by Rhode Island law. Town of Johnston v. MERSCORP, Inc., 2013 U.S. Dist. LEXIS 87826. Although the MERS Members won the battle against Johnston, they may ultimately lose the war when a third, far more formidable foe enters the fray — the Rhode Island General Assembly.

Johnston alleged that Title 34 of the Rhode Island General Laws, the statutory scheme controlling real property, imposes a mandatory requirement that all mortgages and mortgage assignments be recorded. Johnston claimed that it “was damaged because it was entitled to a recording fee for each mortgage or mortgage assignment that should have been recorded.” Because Johnston brought suit on its own behalf and on behalf of similarly-situated cities and towns in Rhode Island, an adverse ruling would have forced the MERS Members to pay hundreds of thousands of dollars in past-due recording fees, as each city and town in Rhode Island could have claimed it was damaged.

The Case & The Court’s Analysis

On June 21, 2013, the U.S. District Court for the District of Rhode Island held that Rhode Island law does not require mortgages and mortgage assignments be recorded. The court rejected Johnston’s position based on a plain reading of the three applicable statutes, R.I.G.L. §§ 34-11-1, 34-11-4, and 34-13-1, noting: “none of the statutes [Johnston] relies on requires a party assigning a mortgage or receiving an assignment on a mortgage to record that assignment, but rather dictates the consequences of not recording.”

First, the court held that R.I.G.L. § 34-11-1 has never been interpreted as requiring mortgages and mortgage assignments be recorded. Additionally, that statute provides that unrecorded transfers of interests in land are binding and valid to parties having knowledge of the conveyance. Second, the court held that R.I.G.L. § 34-11-4 plainly supports the conclusion that mortgages and mortgage assignments need not be recorded to be valid. R.I.G.L. § 34-11-4 states: “[a]ny form of conveyance in writing, duly signed and delivered” is sufficient to convey title, and “if also duly acknowledged and recorded shall be operative as against third parties.” Accordingly, while the act of recording perfects a mortgagee’s or assignee’s interest as to claims made by third parties, recording is not required to make a mortgage or mortgage assignment valid.

Finally, the court noted that R.I.G.L. § 34-13-1, titled “Instruments eligible for recording,” only defines the documents a town clerk must accept for recording, and does not impose a recording requirement: “The ‘town clerk or recorder of deeds’ is required to record such instruments ‘on request of any person and on payment of the lawful fees therefor,’ but that is not tantamount to a mandate to mortgagees or assignees.”

Consequently, because there is no statutory duty to record, Johnston could not claim it was entitled to damages for previously unpaid recording fees.

The Footnote and the Future of Rhode Island Law
It was not a clean victory for the MERS Members, however. In a footnote, the court observed that there are identically-titled bills pending before the Rhode Island House of Representatives and Senate: “An Act Relating to Property — Forms and Effect of Conveyances” (Act). See H.B. 5512 SUB A, 2013 Gen. Assembly, Jan. Sess. (R.I. 2013); S.B. 547, 2013 Gen. Assembly, Jan. Sess. (R.I. 2013). The Act would require that all mortgages and mortgage assignments be recorded. The Act does not stop at imposing a recording requirement. It would make several other amendments and additions to Rhode Island law that appear designed to ultimately prevent MERS from servicing any loans in the state.

The Act provides that “[a] mortgage naming a third party as the mortgagee who is not the named payee or lender on the underlying promissory note ... shall be invalid for recording, and shall not be enforceable as a mortgage lien.” Accordingly, if the Act passes, lenders who participate in MERS would no longer be able to name MERS as their nominee, and freely sell promissory notes to fellow participants. The Act would therefore reverse current Rhode Island law, which recognizes MERS as a valid system for the sale and transfer of ownership of residential loans. Earlier this year, the Rhode Island Supreme Court held that “[i]t is only when a loan is transferred to a nonmember that an assignment of the mortgage must be executed and recorded.” Bucci v. Lehman Bros. Bank, FSB, No. 2010-146, 2013 R.I. LEXIS 52.

The Act further provides that “any transfer of the ownership of the beneficial interest in, or the right to enforce, a promissory note ... secured by a mortgage must be accompanied by an assignment of the mortgage that is presented for recording with the applicable recording fee within thirty (30) days of the transfer.” The Act imposes heavy penalties on any assignee that fails to comply with the recording requirements: “[t]he failure to present the mortgage assignment for recording within the time limits stated herein shall render the mortgage void, but shall not nullify the underlying indebtedness.” Therefore, an assignee that fails to record a mortgage assignment within 30 days could find itself the holder of an unsecured obligation.

© Copyright 2013 USFN. All rights reserved.
September e-Update

1 The defendants in this action were: MERSCORP, Inc.; Mortgage Electronic Registration Systems, Inc. (MERS); Bank of America, N.A.; Citibank, N.A.; CitiMortgage, Inc.; JP Morgan Chase Bank, N.A.; Wells Fargo Bank, N.A.; Deutsche Bank National Trust Company; Goldman Sachs Mortgage Company; GS Mortgage Securities Corp.; and U.S. Bank, N.A.

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Military Status Compliance Automation

Posted By USFN, Monday, September 9, 2013
Updated: Tuesday, November 24, 2015

September 9, 2013

 

by Harry Beisswenger, CEO
NetDirector – USFN Associate Member

In the mortgage banking industry, more and more regulatory changes continue to trickle down to loan servicers and their attorneys. A number of these regulations are creating more overhead and reducing margins for the various parties to stay in compliance. For instance, some servicers now require up to seven military status checks during the life of a foreclosure file.

This process requires staff going to the Department of Defense (DOD) website and manually entering the borrower’s social security number to access military status information along with downloading the proof of search documents (certificate/screenshot). The search results along with the documents are then manually entered into the attorney/servicer case management system (CMS). As many can attest, the DOD site is not always accessible and it can be very slow due to heavy traffic. An additional time-consuming challenge is obtaining a borrower SSN if it is not included in the referral.

There is another way, however — using privately-developed automated systems. Among those offering the service, NetDirector automates an array of person search-related tasks. Without leaving their CMS, users can obtain military status (with certificate/screenshot) and PACER bankruptcy status (both national and regional) within minutes. They can also find a borrower’s social security number, all names/addresses, and determine whether the borrower is deceased. NetDirector provides automation with various servicer platforms (i.e., LPS Desktop & VendorScape) for Servicemembers Civil Relief Act document uploads and SCRA-related task updates, offering full compliance.

© Copyright 2013 USFN. All rights reserved.
September e-Update

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Full Authority: Countering the Next Challenge to the Sufficiency of Notice Requirements Under Georgia Foreclosure Law

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 23, 2015

September 9, 2013

 

by Dallas R. Ivey & Kimberly Rizzotti Weber
Aldridge Connors, LLP – USFN Member (Georgia)

The Georgia Supreme Court recently brought much needed clarity and guidance to lenders and servicers regarding notice requirements under Georgia foreclosure law in You v. JP Morgan Chase Bank, N.A., No. S13Q0040, 2013 WL 2152562 (May 20, 2013). In You, the court rejected the argument that O.C.G.A. § 44-14-162.2(a) requires foreclosure notices to identify the “secured creditor,” which is not defined by statute but has been uniformly considered to be the holder of the security deed. (See Reese v. Provident, 317 Ga. App. 353, 730 S.E.2d 551(2012); Stubbs v. Bank of America, 844 F. Supp. 2d 1267 (N.D. Ga. 2012)). Rather, the court held that the plain language of the statute requires only that the written notice identify “the name, address, and telephone number of the individual or entity who shall have full authority to negotiate, amend, and modify all terms of the mortgage with the debtor.” You, 2013 WL at *6 (emphasis in original).

In the wake of You, borrowers have launched a new line of attack by challenging the scope of authority of the parties identified in foreclosure notices as having full authority to negotiate, amend, and modify the terms of the mortgage with the debtor (See Harris v. Chase Home Finance, LLC, 4:11-cv-00116-HLM (11th Cir., July 31, 2013); Fuentes v. JPMorgan Chase Bank, N.A., 1:13-cv-01649-CAP (N.D. Ga. 2013)). Specifically, borrowers contend that if an owner of a loan has servicing guidelines with its agent, then the agent has “limited authority” rather than “full authority” to negotiate with the debtor. Borrowers have made this argument concerning loans owned by Fannie Mae and Freddie Mac by asserting that these entities have retained the authority to modify terms and negotiate with borrowers by establishing such guidelines. By this logic, unless a servicer or agent has unlimited authority to unilaterally negotiate, amend, and modify the terms of a loan, then the owner/investor would have to be the entity required to be identified under the statute. This reasoning clearly fails to apply to the reality of the lending and servicing industry as owners/investors have internal policies, guidelines, and standards for loan modifications, and would therefore require that the owner/investor always be identified in foreclosure notices.

There are several ways to counter this interpretation of full authority including: (1) the clear language of the You holding and prior judicial decisions; and (2) authority and agency concepts. Notably, the Georgia Supreme Court held in You that the party with full authority can be the owner of the loan, the loan servicer, or even an attorney. See You, 2013 WL at *6.1 In addition, basic agency concepts suggest that “full authority” does not mean “unlimited authority.” By analogy, full settlement authority merely means that the individuals at a settlement conference must be authorized by the parties to both explore settlement options and to agree at that time to any settlement terms agreeable to the parties.

The clear intention of the notice requirements under Georgia’s foreclosure statutes is to provide a borrower seeking to modify the terms of a mortgage with sufficient contact information to enable such negotiations. Lenders and their agents can defend against attacks on foreclosure notices by: (a) being meticulous in preparing notices that clearly state the contact information of the servicing agent or other person with full authority to negotiate; and (b) familiarizing themselves with the holding and analysis of the Georgia Supreme Court in You.

© Copyright 2013 USFN. All rights reserved.
September e-Update

1Prior cases from the Georgia Court of Appeals held that notices that identified attorneys as having full authority were sufficient even where the attorneys lacked full authority to amend mortgage terms or had to consult with clients about modifications. See Stowers v. Branch Banking & Trust Company, 317 Ga. App. 893, 731 S.E.2d 367 (2012); TKW Partners, LLC v. Archer Capital Fund, L.P., 302 Ga. App. 443, 691 S.E.2d 300 (2010) (notice identified attorney without unlimited or plenary powers to negotiate loan terms). See also Carr v. U.S. Bank, NA, 2013 WL 4267640 (C.A. 11 (Ga.)).

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Connecticut: New Procedures for Opening FC Judgments

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 23, 2015

September 9, 2013

 

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

The Connecticut Rules of Practice together with one piece of appellate case law have combined to create what could be called a “perpetual motion machine.” This confluence of authority would allow a borrower to, in theory, continually file motions to open a foreclosure judgment and forestall vesting or a sale, ad infinitum.

The matter of First Connecticut Capital, LLC v. Homes of Westport, LLC, 112 Conn. App. 750, 762, 996 A.2d 239 (2009), held that no foreclosure sale could occur during the time for which a party is able to take an appeal after a hearing on a motion that would potentially affect the final judgment. Practically, and when taken in conjunction with Practice Book § 61-11, which provides for an automatic appellate stay upon the hearing of any motion that would affect a final judgment, this means that even if a defendant’s motion to open a judgment of foreclosure is denied, a court must not allow a sale or vesting to occur within 20 days of the denial of the motion. This would occur in order to account for the 20-day appeal period following the denial of such a motion — notwithstanding a motion’s lack of merit or the number of motions that had previously been heard or denied, unless extraordinary measures were taken by the plaintiff or the court.

The Rules Committee to the Superior Court, after input from the Bench-Bar standing Committee on Foreclosures, has adopted a change to Section 61-11 that will remedy this situation and is scheduled to take effect on October 1, 2013. The change adds two subsections that fundamentally alter the procedures for opening foreclosure judgment as well as the automatic appellate stays incident to the denial of any such motions.

Subsection G changes the procedures for motions related to judgments of strict foreclosure. (Strict foreclosure is a procedure in which title will vest in the plaintiff by operation of law without a sale.) The addition provides that if there have been two prior motions brought by the owner of the equity seeking to open or otherwise modify the underlying judgment that have been denied, the filing and hearing of a third motion does not trigger the aforementioned automatic appellate stay, unless an affidavit is filed simultaneously therewith averring that the motion is filed for good cause arising after the court’s ruling on the party’s most recent motion. The affidavit must recite specific supporting facts. If such an affidavit is filed, the automatic stay would be in effect. However, the opposing party will have an opportunity to contest it with a counter-affidavit and a motion to terminate the stay, a hearing of which will be held two weeks after filing. No further appellate stay will be triggered by a decision granting termination of the stay.

The changes regarding sales are far different. Subsection H provides that if a motion to open a judgment of foreclosure by sale has been denied sooner than 20 days from the scheduled sale date (which would otherwise have triggered the automatic stay and required a re-setting of the sale) the sale will continue as scheduled. However, no motion for approval of the sale is to be filed or acted on by the court until the 20-day appeal period has run. Sales in Connecticut are expensive and can cost a plaintiff $3,000-$6,000. In some situations, this new procedure would eliminate the need to have multiple, costly sales.

These amendments to the Connecticut Rules of Appellate Procedure are an important step toward preventing defendants from needlessly impeding a final resolution in foreclosure matters when there is no meritorious reason.

© Copyright 2013 USFN. All rights reserved.
September e-Update

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California: Short Sale Deficiency Reviewed by Appellate Court

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 23, 2015

September 9, 2013

 

by Drew A. Callahan
Pite Duncan, LLP – USFN Member (California)

The California Court of Appeal for the Fifth Appellate District recently issued a decision holding that: (1) the anti-deficiency protections of California Code of Civil Procedure (C.C.P.) section 580e do not apply retroactively; and (2) a short sale of real property is not itself an “action” as defined by C.C.P. § 22 and, thus, does not trigger the provisions of C.C.P. § 726, California’s one-form-of-action rule.

In Bank of America v. Roberts, 2013 DJDAR 9358 (Cal. App. 5th, July 17, 2013), the borrower appealed from the Superior Court for the County of Tulare’s ruling granting Bank of America’s motion for summary judgment for the balance due on a home equity line of credit, which the borrower agreed to remain liable for pursuant to an agreement allowing for the short sale of the real property formerly securing the loan. The borrower argued, among others things, that Bank of America was barred from recovering a deficiency judgment based upon the subsequent enactment of C.C.P. § 580e, barring short sale deficiencies, and the provisions of C.C.P. § 726, asserting that foreclosure was the only form of action allowable for collecting the debt secured by real property.

Section 580e

The recent amendment of C.C.P. § 580e, extending its protections to junior liens, did not take effect until July 15, 2011, more than two years after the short sale took place. In analyzing the legislature’s intent in enacting C.C.P. § 580e the court found nothing to support the borrower’s argument for retroactivity. Instead, the appellate court ruled that the fairness rationale supporting the general rule for statutes to apply prospectively only was particularly compelling in this case as the short sale was part of a “contractual transaction agreed to under the law in effect at that time.” Accordingly, the appellate court concluded that the anti-deficiency protections of C.C.P. § 580e do not apply retroactively to short sales that were concluded prior to the effective date of the statute.

Section 726
The judicial application of C.C.P. § 726 is both as a “security-first” and “one action” rule, which compels a secured creditor to exhaust its security judicially before it may obtain a monetary deficiency judgment, in furtherance of the legislative objective of protecting borrowers from a multiplicity of lawsuits. In this case, the appellate court ruled that the short sale exhausted the security for the loan and the borrower had not been subjected to a multiplicity of actions as a short sale is not an “action” as defined by C.C.P. § 22. Additionally, the appellate court held that, because the borrower had sought and obtained Bank of America’s consent to the short sale, she could not successfully complain that the bank had failed to bring a foreclosure action against her, as she waived any protection she may have had under C.C.P. § 726.

Conclusion

While the scope of the issues within this ruling are narrow, the decision clears the way for lenders who entered into a short sale agreement prior to the enactment of C.C.P. § 580e to seek judgment for any remaining deficiency on those accounts. Accordingly, as the statute of limitations generally applicable to loan agreements is either: (1) four years of the date of default on a non-negotiable note/contract (See, C.C.P. § 337 and Com. C. § 2725); or (2) within six years of the accelerated due date on a negotiable promissory note (See, Com. C. § 3118), lenders should review their files in order to ensure that timely actions are filed to pursue recovery of any deficiency balance that is due following a short sale that preceded the enactment of C.C.P. § 580e.

Editor’s Note: The author’s firm represented Bank of America in the case summarized in this article.

© Copyright 2013 USFN. All rights reserved.
September e-Update

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Rhode Island: District Court Lifts its Stay of Foreclosures Involving MERS

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 23, 2015

September 9, 2013

 

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

In an opinion issued September 3, 2013, the U.S. District Court for the District of Rhode Island ordered the stay that had been preventing 825 foreclosures from proceeding be dissolved. [In re Mortgage Foreclosure Cases Misc., 2013 U.S. Dist. LEXIS 125474 (D. R.I. Sept. 3, 2013)]. The order was a victory for members of MERS, which included many national banks, mortgage companies, and mortgage servicers (MERS Members). The MERS Members had vehemently opposed the stay — filing 22 motions to dismiss since June 2013.

In its recent decision, the district court found that the borrowers had no likelihood of success on their claims based upon Rhode Island law. The borrowers had asserted that the assignments of their mortgages are invalid for three primary reasons: (1) the disconnect between the holder of the mortgage and the holder of the note rendered the mortgage invalid; (2) MERS’s “robo-signing” rendered the assignments of the mortgage invalid; and (3) the MERS practice of assigning mortgages was invalid under Rhode Island law. The district court noted that the Rhode Island Supreme Court had already considered these arguments in Bucci v. Lehman Brothers Bank, FSB, 68 A.3d 1069 (R.I. 2013), and that the court had decisively ruled in favor of the MERS Members on each of the three claims. Because the borrowers had no likelihood of success on these claims, Judge McConnell ordered the stay dissolved.

Some Background

The U.S. Court of Appeals for the First Circuit had issued a decision scolding the U.S. District Court for the District of Rhode Island for issuing a stay that prevented MERS Members from excercising their nonjudicial rights to foreclose upon a mortgage in default in Rhode Island. [Fryzel v. Mortgage Elec. Registration Sys., 2013 U.S. App. LEXIS 12068, 2013 WL 2896794 (1st Cir. R.I. June 14, 2013)]. That decision was a victory for the lenders, who appealed to the First Circuit after the Rhode Island District Court refused to lift the stay.

In the wake of the burst in the U.S. housing bubble, numerous Rhode Island borrowers who defaulted on their mortgage obligations brought suit in the district court to prevent foreclosure or eviction. These borrowers maintain that the assignments of their mortgages are invalid, leaving the assignees without the right to foreclose. Many of the mortgages at issue were assigned by MERS to various loan servicers and lending institutions. The lenders argued that Rhode Island law provides that homeowners lack standing to challenge the validity of mortgage assignments and the effect those assignments have on the underlying obligation.

When a motion to dismiss the first of these cases was heard by a magistrate in June 2011, the magistrate recommended that the case be dismissed, agreeing with the lenders that Rhode Island law clearly provided that borrowers have no standing to contest the validity of the assignment of their mortgage. On March 29, 2012, the district court ignored the magistrate’s recommendation and issued a stay preventing the lenders from exercising their rights to nonjudicial foreclosure and requiring the lenders to enter into mediation with the borrowers. Since the stay was issued, the number of cases filed and affected by it has swelled to almost 800. After the district court denied the lenders’ attempt to lift the stay, the lenders appealed to the First Circuit.

In an opinion authored by retired U.S. Supreme Court Justice David Souter, the First Circuit found that the stay was effectively a preliminary injunction, noting the “nature of an order is the product of its operative terms and effect, not its vocabulary and label.” The stay forbids the mortgagees from exercising their rights to nonjudicial foreclosure, and threatens court-imposed sanctions for any lender that violates the stay. The First Circuit concluded that the stay’s “character as an injunction is unmistakable.”

Because the district court took the position that the stay was merely administrative and not a preliminary injunction, the district court had failed to comply with Rule 65 Federal Rules of Civil Procedure. Rule 65 requires that the lenders receive “notice” of the preliminary injunction before it issued, including a hearing “followed by findings that the party to be favored has a substantial likelihood of success in the pending action, would otherwise suffer irreparable harm and can claim the greater hardship in the absence of an order, which will not disserve the public interest if imposed.”

The First Circuit ordered the district court to conduct a proper preliminary injunction hearing as soon as possible and to make written findings on the hearing, “especially on the critical requirement of the mortgagors’ likelihood of success in challenging foreclosure.” The First Circuit noted that “the injunction has so far had no point except to keep mediation alive while allegedly defaulting borrowers remain in their mortgaged houses.” The First Circuit also admonished the district court for imposing a stay of indefinite time and with no cost limitations. The First Circuit ordered that, in the event the stay remains in effect for any of the cases, the district court impose time and cost restrictions upon the stay.

The District Court heard arguments on the preliminary injunction on July 10, 2013.

Conclusion

While the stay has now been dissolved, the district court expressed the hope that the MERS Members would “continue to forego their right to foreclosure and evict,” noting: “It is in all parties’ and the Court’s best interest to have the parties talk to each other in a meaningful way and to attempt to amicably resolve these matters, without the threat and/or negative consequences of having Plaintiffs’ homes taken away from them due to foreclosure or eviction.”

Whether the MERS Members will ultimately choose to proceed with foreclosures or continue negotiations is unknown at this time. What is certain, however, is that there is now no impediment to the MERS Members proceeding with foreclosures if they so choose.

© Copyright 2013 USFN and Brennan, Recupero, Cascione, Scungio & McAllister, LLP. All rights reserved.
September e-Update

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Connecticut: Mediation Legislation Brings Changes

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Richard M. Leibert
Hunt Leibert, P.C. – USFN Member (Connecticut)

The regular session of Connecticut’s Legislature for 2013 ended at midnight on June 5, 2013. It was a very active session with many proposed bills. The following is a summary of Public Act 13-136 - An Act Concerning Homeowner Protection Rights. This bill changes Connecticut’s mediation program. The highlights are:

Eligibility for the mediation program is limited to: (1) owner-occupant; (2) 1-4 family residential real property; (3) who is a borrower under a mortgage encumbering the property; and (4) which is the primary residence of such owner-occupant, except an heir or occupying non-owner of a property encumbered by a reverse mortgage.

The objectives are to determine if the parties can reach agreement on either avoiding a foreclosure or expediting the process and reaching this determination with “reasonable speed” and efficiency by participating in the mediation “in good faith.”

Pre-Mediation

Effective October 1, 2013, once the borrower files for mediation the borrower must receive from the servicer or its counsel by the 35th day after the return date:

1. 12-month account history with plain language explanation;
2. Forms to complete and list of documents to submit to evaluate the borrower for any foreclosure alternatives offered by the servicer;
3. Copy of note and mortgage;
4. Summary of any pending foreclosure avoidance efforts;
5. Copy of the executed Connecticut Loss Mitigation Affidavit used when foreclosure commenced;
6. At the servicer’s election a summary of prior foreclosure avoidance efforts, plus condition of the mortgage property, plus anything else the servicer deems relevant to meet the objective;
7. Contact information at the servicer as to who can answer questions of the mediator.

Before the first mediation after October 1, 2013, the borrower will meet with the mediator by the 49th day following the return date or approximately 2 weeks after receiving the package from the servicer.

At the meeting, the mediator will assist to ensure the forms are completed, documents gathered, and will “facilitate and confirm” that everything is submitted to the mortgagee. The borrower may meet multiple times with the mediator, who has until the 84th day following the return date to decide whether to hold mediation. The mediator must file a report at the end of the pre-mediation period indicating whether a mediation shall be scheduled, whether the borrower attended the scheduled meetings, whether the borrower fully or substantially completed the forms furnished by the servicer, the date on which the servicer supplied the forms, along with any other relevant information the mediator feels germane.

Mediation
The servicer has 35 days to evaluate the borrower’s submitted package, which time period can be extended. Any additional information must be requested within a “reasonable period.” The goal is that the mediation will conclude seven months from the return date or at the end of the third mediation session. Mediations can be extended by the court upon written request.

Mediator Reports

Effective July 15, 2013, mediators must file a report after each session. The report will set forth each party’s obligation prior to the next mediation session and state whether the parties engaged in conduct to meet the objective. Parties can file a supplement to the mediator’s report within five business days of the mediator’s filing.

Ability to Mediate

The servicer’s mediation representative must be able to respond to questions and specify or estimate when a decision shall be made and must be reasonably familiar with the loan and loss mitigation options.

If the parties do not mediate in good faith, the court can terminate mediation, require the servicer to send a representative in person to the mediation, impose fines, and award attorneys’ fees to the borrower’s counsel.

© Copyright 2013 USFN. All rights reserved.
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Connecticut: New Foreclosure Legislation

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Richard M. Leibert
Hunt Leibert
USFN Member (Connecticut)

The regular session of Connecticut’s Legislature for 2013 ended at midnight June 5, 2013. It was a very active session with many proposed bills. The following addresses some bills that will have an effect on servicing defaulted loans. Note, however, that the new legislation regarding mediation is addressed separately in a feature in the USFN Report (Summer Ed. 2013).

Public Act 13-156 — Revisions to the Common Interest Ownership and Condominium Act. The super lien that a homeowners association had was 6 months, which effective upon passage, was increased to 9 months. Further, as of October 1, 2013, if an association makes a demand for payment it must provide a copy of the notice it provides to the unit holder to the holders of any mortgages secured by the condo unit. If the association decides to foreclose, it must provide not less than 60 days’ notice by first-class mail to the holders of all liens secured by the unit with an ability to cure. The notice need only be sent to the last recorded holder of the security interest unless there is a foreclosure pending, which in that case the notice must be sent to the attorney for the foreclosing lienholder. The penalty for failing to provide the notice is that the court shall not include any attorneys’ fees or costs as part of the association’s priority lien.

Public Act 13-174 — Abatement of a Public Nuisance, effective October 1, 2013. This bill broadens the circumstances in which the nuisance law applies. It adds certain municipal ordinance violations to these statutes and makes a corresponding change by allowing the state to file nuisance abatement suits when three or more citations for such violations are issued at a property within a year. By law, courts may not issue a public nuisance abatement order against a financial institution that owns the property or claims an interest of record in it (under a mortgage, assignment of lease or rent, lien, or security interest) and is not found to be a principal or accomplice to the conduct constituting the nuisance. The bill requires the state to prove by a preponderance of the evidence, rather than by the stricter clear and convincing evidentiary standard, that a financial institution claiming an interest of record in the property as specified above was a principal or accomplice to the alleged conduct. It specifies that they can offer the same affirmative defenses as other defendants (i.e., that they have taken reasonable steps to abate the nuisance but were unable to do so).

Public Act 13-136 — Homeowner Protection Rights
, effective July 15, 2013, with a provision for unoccupied property. This permits, under certain circumstances, the filing of a motion for judgment of foreclosure simultaneously with a motion for default for failure to appear. Current law prohibits the filing of a motion for default for failure to appear until 15 days following the return date (Conn. Practice Book Section 17-20) and a motion for judgment of foreclosure until 30 days following the return date (Conn. Practice Book Section 17-33A). Under the new law for unoccupied properties, both the motion for judgment of foreclosure and a motion for default for failure to appear can be filed together. Thus, there is a gain of 15 days. In order to take advantage of this new process for unoccupied real property, a mortgagee must prove (by clear and convincing evidence and the use of a proper affidavit) that the real property that is the subject of the foreclosure action is not occupied by a mortgagor, tenant, or other occupant and not less than three of the following conditions exist: (1) Statements of neighbors, delivery persons, or government employees indicating that the property is vacant and abandoned; (2) Windows or entrances to the property that are boarded up or closed off or multiple window panes that are damaged, broken, or unrepaired; (3) Doors to the property are smashed through, broken off, unhinged, or continuously unlocked; (4) Risk to the health, safety, or welfare of the public or any adjoining or adjacent property owners that exists due to acts of vandalism, loitering, criminal conduct, or the physical destruction of the property; (5) An order by municipal authorities declaring the property to be unfit for occupancy and to remain vacant and unoccupied; (6) The mortgagee secured or winterized the property due to the property being deemed vacant and unprotected or in danger of freezing; or (7) A written statement issued by any mortgagor or tenant expressing the clear intent of all occupants to abandon the property.

A foreclosure action shall not proceed under the expedited procedures if there is on the property: (1) an unoccupied building undergoing construction, renovation, or rehabilitation that is (A) proceeding diligently toward completion, and (B) in compliance with all applicable ordinances, codes, regulations, and statutes; (2) a secure building occupied on a seasonal basis; or (3) a secure building that is the subject of a probate action to quiet title or other ownership dispute.

Public Act 13-87 — Requires Inclusion of the Grantee’s Mailing Address in Document Conveying Land, effective October 1, 2013 (P.A. 13-87 repealed C.G.S. § 47-5). In Section 1 Subsection (b), the new law requires that a document conveying land shall also include the mailing address of the grantee. Interestingly, the new law in Section 2 Subsection (b) (9) provides that failing to include the current grantee’s mailing address does not make the instrument invalid.

Public Act 13-184 — Expenditures and Revenue, effective July 15, 2013. This amended Connecticut’s statutory recording fees, increasing the amount a nominee of a mortgage must pay to record any document, including deeds, mortgages, mortgage assignments, and releases. In any document where MERS is a nominee the new recording fees apply. With these fee increases, the basic recording fees for “MERS” documents are: For the first page of the document (except mortgage assignments in which a nominee appears as the assignor), $159 (representing $116 for the first page, and $43 for recording surcharges), and $5 for each additional page. For an assignment of mortgage in which the nominee of a mortgagee appears as assignor, and for a release of mortgage by a nominee of a mortgagee, $159 for the entire assignment or release, regardless of the number of pages. (MERS has filed a complaint in the Superior Court of Connecticut, Judicial District of Hartford, challenging the constitutionality of §§ 97 and 98 of Public Act 13-184 and §§ 81 and 82 of Public Act 13-247. On July 11, 2013, MERS was denied a temporary restraining order in its lawsuit.)

House Bill 6160 — Smoke And Carbon Monoxide Detectors. This bill, with exceptions, requires a seller, before transferring title on a one- or two-family dwelling for which a new occupancy building permit was issued before October 1, 2005, to give the buyer an affidavit certifying that the: (1) permit was issued on or after October 1, 1985; or (2) dwelling is equipped with smoke detection and warning equipment (smoke detectors) complying with the bill. The affidavit must also certify that the building: (1) is equipped with carbon monoxide (CO) detection and warning equipment (CO detector) complying with the bill; or (2) does not pose a risk of CO poisoning because the building does not have a fuel-burning appliance, fireplace, or attached garage. A transferor who fails to provide the affidavit must credit the transferee with $250 at closing. A list of exemptions from affidavit requirements can be found in the bill and include the following:

Exemptions from the affidavit requirement and penalty provision transfers: (1) from one co-owner to another; (2) to the transferor’s spouse, mother, father, brother, sister, child, grandparent, or grandchild where no consideration is paid; (3) under a court order; (4) by the federal government or any of its political subdivisions; (5) by deed instead of foreclosure; (6) when an existing debt secured by a mortgage is refinanced; (7) by mortgage deed or other instrument to secure a debt where the transferor’s title to the real property being transferred is subject to a preexisting debt secured by a mortgage; and (8) by executors, administrators, trustees, or conservators.

©Copyright 2013 USFN. All rights reserved.
Summer USFN Report.

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Connecticut: State Supreme Court Rules on Standing

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Richard M. Leibert
Hunt Leibert, P.C. – USFN Member (Connecticut)

For the first time, the Connecticut Supreme Court has ruled that a servicer who had the authority by virtue of the language in a pooling and servicing agreement and by virtue of Connecticut General Statutes §§ 42a-3-203 and 42a-3-301 (codified UCC) to foreclose a defaulted note and mortgage could initiate a foreclosure in its own name on behalf of the owner and holder of the note, even though the servicer was not the owner of the note nor had the mortgage assigned to it. [J.E. Robert Company, Inc. v. Signature Properties, LLC].

Background — On April 13, 2005, the defendant, Signature Properties, executed a promissory note in the amount of $8.5 million payable to the order of JP Morgan Chase Bank, N.A., secured by a mortgage on commercial property in New London, Connecticut. The note was guaranteed by defendants Andrew J. Julian and Michael Murray. On July 20, 2005, JP Morgan assigned the note and mortgage to LaSalle Bank National Association. A pooling and servicing agreement also executed on July 20, 2005, established a mortgage-backed security wherein JP Morgan Chase Commercial Mortgage Securities Corporation was identified as depositor, LaSalle as trustee and paying agent, and J.E. Robert Company, Inc. as special servicer for the loans in the security.

On August 15, 2007, following a default in payment, J. E. Robert commenced a foreclosure action against Signature. On October 17, 2007, LaSalle assigned the note and mortgage to Shaw’s New London LLC. On October 18, 2007, LaSalle filed a motion to substitute Shaw’s as the plaintiff in the foreclosure, which was granted by the trial court. The trial court also, at another date, entered a judgment of strict foreclosure. The defendants then moved to dismiss the case, claiming that J.E. Robert as a mere servicer of the loan, rather than the owner or holder of the note and mortgage, lacked standing to bring the foreclosure in its name. The trial court denied the motion to dismiss and all defendants appealed.

In the appeal, the defendants claimed that only the owner and holder of the note and mortgage (which at the time of the commencement of the case was LaSalle) has standing to bring the foreclosure. Because LaSalle neither endorsed the note to J.E. Robert nor assigned the note and mortgage to it, the defendants asserted that J.E. Robert lacked standing.

Ruling — The Connecticut Supreme Court disagreed, finding that through the language in the pooling and servicing agreement J.E. Robert had standing as a transferee of LaSalle’s right to enforce the note and mortgage in accordance with Connecticut General Statutes §§ 42a-3-203 and 42a-3-301.

Although the foreclosure in this case involved a commercial note and mortgage, the ruling clarifies standing in Connecticut regardless of the type of mortgage. Thus resolving the issue for the trial courts.

© Copyright 2013 USFN. All rights reserved.
July/August e-Update

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e-Recording Hits Yet Another Milestone

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Michael Zevitz
South & Associates, P.C. – USFN Member (Kansas, Missouri)

Electronic recording was made a government priority starting with the passage of the federal ESIGN law in 2000 and with the subsequent adoption of the Uniform Electronic Transactions Act by 47 states. These laws established the legal basis for secure, electronic recording. As such, title underwriters, lending institutions and their legal counsel now fully embrace e-recording.

With a few years of history behind us, we can now state with confidence that e-recording has its benefits:


• Reduces document errors and rejections
• Eliminates mailing and other document delivery costs
• Reduces delivery delays
• Reduces document turn-around time
• Reduces redundancy
• Improves office efficiencies
• Enhances document security
• Enhances efficiency of staff
• Improved audit controls


However, the biggest advantage is TIME! The chart below1 indicates the estimated time for paper recording versus e-recording:

  

 Action Step
Paper
 Electronic
 Prepare documents
5 to 10 minutes
5 to 10 minutes
 execute/sign/notarize 10 minutes
10 minutes
 Calculate fees
5 minutes

5 minutes

 Delivery 1/2 day to 5 days
30 seconds
 Recorder processing
1/2 day to 21 days
60 seconds
 Return Delivery
1/2 day to 5 days
30 seconds
 Update title files
1/2 day to 21 days
15 seconds
 TOTAL TIME  2 to 52 days ≤25 minutes


 

 

 

 

 

 

 

 

 

 

 

 

 

According to the Property Records Industry Association (PRIA), the national standard-setting body for the land records industry, there are more than 3,600 recording jurisdictions nationwide. PRIA maintains a listing of counties that have implemented e-recording technology and posts the list on the association’s website (www.pria.us). Almost 15 months ago I reported to you that there were 739 jurisdictions accepting e-recording. At the time of publication of this article, the number has grown to over 900, an increase of nearly 22 percent. Most importantly, a significant milestone has been reached with more than 1/4 of all counties in the United States accepting e-recording. I’ll report back to you in a year to see if we have reached the half-way mark!

Copyright 2013 USFN. All rights reserved.
July/August e-Update

1 Source: PRIA, e-Recording 101 (2009)

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Florida: Changes to Foreclosure Laws

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

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

On June 7, 2013, Florida’s governor signed into law legislation that makes numerous changes to Florida’s laws relating to mortgage foreclosures. Among the changes are these:

1. Statute of limitations for deficiency judgments
— The law revised Florida Statute 95.11, to reduce from five years to one year the statute of limitations for an action to enforce a claim of a deficiency related to a note secured by a mortgage against residential property that is a one-family to four-family dwelling unit. The limitations period begins on the eleventh day after a foreclosure sale or the day after the mortgagee accepts a deed-in-lieu of foreclosure.

2. Allegations in mortgage foreclosure complaint as to original note or lost note
— The law created a new Florida Statute 702.015. It provides that every complaint in a foreclosure proceeding on residential real property designed principally for one to four families must contain affirmative allegations expressly made by the plaintiff that the plaintiff is the holder of the original note or must allege with specificity the factual basis by which the plaintiff is a person entitled to enforce the note. If the plaintiff is not the holder of the note, the complaint must describe the authority of the plaintiff and identify the document that grants the plaintiff the authority to file the complaint on behalf of the holder of the note.

If the plaintiff is in possession of the original note, it must file a certification with the court with the filing of the complaint, under penalty of perjury. The certification must set forth the location of the note, the name and title of the individual giving the certification, the name of the person who personally verified such possession, and the time and date on which the possession was verified. Correct copies of the note and all allonges to the note must be attached to the certification. The original note and the allonges must be filed with the court before the entry of any judgment of foreclosure or judgment on the note.

If the plaintiff claims that the note is lost, destroyed, or stolen, the complaint must contain an affidavit. The affidavit must: (a) Detail a clear chain of all endorsements, transfers, or assignments of the promissory note that is the subject of the action; (b) Set forth facts showing that the plaintiff is entitled to enforce a lost, destroyed, or stolen instrument pursuant to s. 673.3091. Adequate protection as required under s. 673.3091(2) shall be provided before the entry of final judgment; and (c) Include as exhibits to the affidavit such copies of the note and the allonges to the note, audit reports showing receipt of the original note, or other evidence of the acquisition, ownership, and possession of the note as may be available to the plaintiff.

3. Finality of foreclosure judgment — The law created a new Florida Statute 702.036, which provides for finality of mortgage foreclosure judgments. This provision protects bona fide purchasers of a property at a foreclosure sale and ensures the validity of the title where a party seeks to set aside, invalidate, or challenge the validity of a final judgment or to establish or reestablish a lien. Under this statute, as long as the party seeking relief was properly served, final judgment was entered, and the appeal period has run as to the final judgment with no appeal having been filed, and the purchaser was not affiliated with the foreclosing lender or owner, the party may recover monetary damages, but may not disturb the title, thus protecting the innocent purchaser and providing security in title. The law does not limit the right to other forms of relief that do not adversely affect the ownership of title.

The new law also provides that after foreclosure of a mortgage based on a lost, destroyed, or stolen note, a person who was not a party to the foreclosure action but claims to be the actual holder of the note has no claim against the property after it is conveyed to a bona fide purchaser for valuable consideration who is not affiliated with the foreclosing lender or owner. However, the actual holder may pursue recovery from any adequate protection as required by the UCC. The actual holder may also pursue damages from the party who wrongfully claimed to be the owner or holder of the promissory note, from the maker of the note, or any other person against whom the actual holder may have a claim.

4. Adequate protection required for enforcement of lost note
— The law created a new Florida Statute 702.11. It establishes a means of providing adequate protection under Florida Statute 673.3091, which is the statutory provision relating to the enforcement of a lost, destroyed, or stolen instrument. As it relates to a mortgage foreclosure, adequate protection would include: (1) a written indemnification agreement by a person reasonably believed to be sufficiently solvent to honor such an obligation; (2) a surety bond; (3) a letter of credit issued by a financial institution; (4) a deposit of cash collateral with the clerk of the court; or (5) such other security as the court may deem appropriate under the circumstances.

Any security given must be on terms and in amounts set by the court and must run through the applicable statute of limitations for enforcement of the note. The security also must indemnify the maker of the note against any loss or damage that might occur by reason of a claim by another person to enforce the note. Recovery of damages and costs and attorneys’ fees may be sought against the person who wrongly claims to be the holder of a lost, stolen, or destroyed note or against the adequate protections described above. The actual holder of the note need not pursue recovery against the maker of the note or any guarantor.

5. “Show cause” order on non-owner occupied residential real estate for payments to be made during the pendency of foreclosure proceedings or an order to vacate the premises
— Florida Statute 702.10 was revised to provide that if the property is not owner-occupied residential real estate, the plaintiff may request a court order directing the defendant to show cause why an order to make payments during the pendency of the proceedings or an order to vacate the premises should not be entered. The statute specifies:


1. The order must set a date and time for the hearing, not sooner than 20 days after the service of the order, or 30 days if service is obtained by publication.
2. The defendant can file defenses by a motion or by sworn or verified answer or appear at the hearing, which prevents entry of a final judgment.
3. The court may enter an order requiring payment or an order to vacate if the defendant has waived the right to be heard.
4. If the court finds that the defendant has not waived the right to be heard, after reviewing affidavits and evidence, the court can determine if the plaintiff is likely to prevail in the foreclosure action, and enter an order requiring the defendant to make the payments or provide another remedy.
5. The court order must be stayed pending final adjudication of the claims if the defendant posts a bond with the court in the amount equal to the unpaid balance of the mortgage.


6. “Show cause” order to speed up the foreclosure process in uncontested cases or cases where there is no legitimate defense — Florida Statute 702.10 was revised to create an alternative procedure that is designed to speed up the foreclosure process in uncontested cases or cases where there is no legitimate defense. This is the basic process:


1. After a complaint has been filed, the plaintiff may request an order to show cause for the entry of final judgment and the court must immediately review the complaint.
2. If the court finds that the complaint is verified, and alleges a proper cause of action, the court must issue an order directing the defendant to show cause why a final judgment should not be entered.
3. The order must set a date and time for the hearing, not sooner than 20 days after the service of the order, or 30 days if service is obtained by publication, and no later than 60 days after the date of service.
4. The defendant can file defenses by a motion or by sworn or verified answer or appear at the hearing. A defense filed as a response to an order to show cause pleading must raise a genuine issue of material fact that would preclude the entry of a summary judgment or otherwise constitute a valid legal defense to foreclosure.
5. The court need not hold a hearing for determination of reasonable attorneys’ fees if the requested fees do not exceed 3 percent of the principal owed on the note at the time of filing.
6. The court may enter a final judgment if the defendant has waived the right to be heard or has not shown cause why a final judgment should not be entered.


At the time of the enactment of this legislation, Florida had the third longest average foreclosure timeline in the nation — trailing only New York and New Jersey — at 853 days. Although some of the legislative changes may delay the initial filing of new cases, it is hoped that this legislation will substantially shorten the time required to complete an average Florida foreclosure action.

©Copyright 2013 USFN. All rights reserved.
Summer USFN Report.

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Florida: Supreme Court Rules on City’s “Superpriority”

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

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

In May of this year, the Florida Supreme Court issued a decision in the case of City of Palm Bay v. Wells Fargo Bank, 2013 WL 2096257. The issue addressed by the court was the priority between a recorded city code enforcement lien with “superpriority” and a prior recorded mortgage.

Florida’s recording statutes normally give priority to a recorded lien like a mortgage against a later recorded lien such as a city code enforcement lien (however, all such liens are inferior to state, county, district, and municipal taxes). The City of Palm Bay attempted to change this priority by enacting in 1997 a municipal ordinance, which specified that recorded code enforcement liens would have priority coequal with the liens of all state, county, district, and municipal taxes, superior in dignity to all other liens, titles, and claims until paid.

In 2007, Wells Fargo filed an action to foreclose its mortgage, recorded in 2004, on residential property located in the city of Palm Bay. Palm Bay was named a defendant in the foreclosure suit due to two code enforcement liens it recorded after the mortgage. In answering the complaint, Palm Bay asserted its code enforcement liens had priority pursuant to the 1997 municipal ordinance. At the hearing on Wells Fargo’s motion for summary judgment, the trial court rejected Palm Bay’s claims of lien superpriority. The trial court reasoned that the legislature’s failure to bestow code enforcement liens priority over a prior recorded mortgage or judgment lien indicated its intent that these liens not have priority and, thus, the common law principle of first in time, first in right applied.

In reviewing the case, the Florida Supreme Court declared that municipal ordinances are inferior to laws enacted by the Florida Legislature and must not conflict with any controlling provision of a state statute. It was undisputed that the Palm Bay ordinance provision establishes a priority that is inconsistent with the priority established by the pertinent provisions of the Florida Statutes.

The court went on to state: “In those statutory provisions, the Legislature has created a general scheme for priority of rights with respect to interest in real property. Giving effect to the ordinance superpriority provision would allow a municipality to displace the policy judgment reflected in the Legislature’s enactment of the statutory provisions. And it would allow the municipality to destroy rights that the Legislature established by state law. A more direct conflict with a statute is hard to imagine. Nothing in the constitutional or statutory provisions relating to municipal home rule or in the Local Government Code Enforcement Boards Act provides any basis for such a municipal abrogation of a state statute. The conflict between the Palm Bay ordinance and state law is a sufficient ground for concluding that the ordinance superpriority provision is invalid.” Therefore, the court concluded that the city’s lien did not have priority over the previously recorded mortgage lien.

This ruling assures mortgage lenders in Florida that they will have priority over later recorded municipal code enforcement liens.

©Copyright 2013 USFN. All rights reserved.
Summer USFN Report.

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HOA Talk Vermont: Priority of HOA Dues

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by David R. Edwards
Bendett & McHugh, P.C.
USFN Member (Connecticut, Maine, Vermont)

There is a storm brewing in the Vermont lower courts over the extent to which homeowners association dues are allowed super-priority status over a foreclosing mortgagee’s lien. These issues are governed by 27 V.S.A. § 3-116(c), which provides that a homeowners association is afforded super-priority status for association dues for “the six months immediately preceding the institution of an action to enforce the lien.” While this has historically been viewed as a simple calculation of the dues that came due in the six months immediately preceding a foreclosure action, some of the lower courts have begun to accept homeowners association arguments that the extended period of time that the mortgage lien is in foreclosure should be added to their super-priority status.

The score is now 3-2, with the majority of courts holding the six months means six months plus the amounts that accrue while a mortgage is in foreclosure. The minority view holds that the statute is not ambiguous and must be enforced as written; six months means six months. The slim majority have found that the increasingly long time that judicial foreclosures take to get to sale have left HOAs with increasing losses. The majority view is that the priority lien held by the HOA is limited by statute to six months when viewed retroactively from the date of the foreclosure, but the priority can also run past the foreclosure date to the time of sale. Their rationale is that increasing delays are often caused by the lender and the value of the ongoing common area upkeep inures to the mortgagee’s benefit by maintaining resale values.

Thus far, all of the court decisions arise in foreclosure cases initiated by mortgagees. However, mortgagees should consider whether, in foreclosures initiated by an HOA, the priority condominium lien should be limited to the six months prior to the foreclosure. In such cases, there can be no argument that the mortgagee is causing delay in the foreclosure proceeding. Further, a limitation to six months’ dues in such cases would deter unscrupulous associations from jumping quickly into foreclosure proceedings and relying on the mortgagee to pay post-filing assessments, rather than engaging in workouts with homeowners. Finally, mortgagees should look into mortgagor delays that occur during loss mitigation and bankruptcy to limit their exposure to excessive priority claims of associations that accrue post-foreclosure.

©Copyright 2013 USFN. All rights reserved.
Summer USFN Report.

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HUD’s “Face to Face” Requirements: Cook County, IL Court Rules

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Lee Perres & Nick Schad
Pierce & Associates, P.C. – USFN Member (Illinois)

Pursuant to a court order issued on June 14, 2013, a trial court within Cook County, Illinois has held that a mortgagee must comply with HUD regulations relating to a face-to-face interview with a mortgagor, “or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid” if the mortgagee or its servicer has any branch office located within 200 miles of the property being foreclosed.

Counsel argued that the HUD face-to-face requirement only applied if a “servicing branch office” was located within 200 miles of the property. While this has been the accepted practice and the HUD interpretation, the court disagreed, specifically stating that the term branch office “is not ambiguous” and applies “to all branch offices of the mortgagee or its servicer, not just those offices regularly performing servicing functions.” The trial court referenced that HUD may have only intended to enforce the requirements within 200 miles of a “servicing branch;” however, without an amendment of the language within HUD’s provisions, the court will not grant HUD’s interpretation of “branch office” any deference.

While this is only the decision of one trial judge in Cook County, other judges have indicated that they will follow this ruling. The statute in question is § 203.604 Contact with the mortgagor and the relevant text has been bolded and underlined below:

(a) [Reserved]
(b) The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced, or at least 30 days before assignment is requested if the mortgage is insured on Hawaiian home land pursuant to section 247 or Indian land pursuant to section 248 or if assignment is requested under § 203.350(d) for mortgages authorized by section 203(q) of the National Housing Act.
(c) A face-to-face meeting is not required if: (1) The mortgagor does not reside in the mortgaged property, (2) The mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either, (3) The mortgagor has clearly indicated that he will not cooperate in the interview, (4) A repayment plan consistent with the mortgagor’s circumstances is entered into to bring the mortgagor’s account current thus making a meeting unnecessary, and payments thereunder are current, or (5) A reasonable effort to arrange a meeting is unsuccessful.
(d) A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched. Such a reasonable effort to arrange a face-to-face meeting shall also include at least one trip to see the mortgagor at the mortgaged property, unless the mortgaged property is more than 200 miles from the mortgagee, its servicer, or a branch office of either, or it is known that the mortgagor is not residing in the mortgaged property.

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July/August e-Update.

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Idaho: Community Property Protection & Lien Priority Issues

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Jeffrey R. Christenson
Ringert Law Chartered – USFN Member (Idaho)

Idaho Community Property Law (which includes Idaho Code Sec. 32-912) requires that both spouses sign an encumbrance of the community property. The case summarized here involved a judicial foreclosure action brought by a second creditor.

In New Phase Investments, LLC v. Jarvis, 153 Idaho 207, 280 P.3d 710 (Idaho 2012), the first creditor claimed priority even though the borrower’s wife did not join in the execution of a first-recorded deed of trust in favor of the first creditor. The second creditor filed a foreclosure action on a subsequent deed of trust that secured the property. Summary judgment was granted to the second creditor at the trial court level.

The Idaho Supreme Court reversed, holding summary judgment should not have been granted to the second creditor because Idaho Code § 32-912 was enacted for the protection of the community, not a third-party creditor of the community. The benefit of § 32-912 was only intended to flow to the non-signing spouse, and it was only that spouse who could ask a court to declare an attempted transfer void under § 32-912. Therefore, the first creditor’s deed of trust was valid, and it had priority under Idaho law.

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July/August e-Update

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Illinois: Chicago Passes Ordinance Establishing Rights for Tenants in Foreclosure Properties and Creating Registration Requirements for Foreclosure Properties Occupied by Tenants

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

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

The City Council of Chicago passed the Keep Chicago Renting Ordinance on June 5, 2013; it was published on June 26, 2013 and becomes effective 90 days thereafter (September 24, 2013). This ordinance is officially called the Protecting Tenants in Foreclosed Rental Property Ordinance (Chapter 5-14) and provides as follows:


Tenant Relocation Assistance (5-14-050)
The owner (the purchaser of a foreclosed rental property after the sale has been confirmed by the court and any special right to redeem has expired, or a mortgagee who has accepted a deed-in-lieu of foreclosure or consent foreclosure on a foreclosed rental property) of a foreclosed rental property (defined below) shall pay a one-time relocation assistance fee of $10,600 (per unit, not per occupant) to a qualified tenant (see definition below) unless the owner offers such tenant the option to renew or extend the tenant’s current rental agreement with an annual rental rate that: (1) for the first twelve months of the renewed or extended lease, does not exceed 102 percent of the qualified tenant’s current annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102 percent of the immediate prior year’s annual rental rate.

This provision does not apply to an owner who became an owner prior to the effective date of this act, a bona fide third-party purchaser, or an owner who will occupy the rental unit as the person’s principal residence.

“Foreclosed rental property” means: (1) a building containing one or more dwelling units that are used as rental units, including a single-family house; or a dwelling unit that is subject to either the Condominium Property Act or the Common Interest Community Association Act that is used as a rental unit; (2) for which legal and equitable interests in the building or dwelling unit were terminated by a foreclosure action pursuant to the Illinois Mortgage Foreclosure Law; and (3) one or more of the units are occupied on the date a person becomes the owner.

“Qualified Tenant” means a person who: (1) is a tenant in a foreclosed rental property on the day that a person becomes the owner of that property; and (2) has a bona fide rental agreement to occupy the rental unit as the tenant’s principal residence. For the purpose of the definition, a lease shall be considered bona fide only if:

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

Any relocation fee must be paid no later than 7 days after the day of complete vacation of the rental unit by the qualified tenant by certified or cashier’s check. The owner may deduct from the relocation fee all rent due and payable for the rental unit occupied by the qualified tenant prior to the date on which the rental unit is vacated, unless such rent has been validly withheld or deducted pursuant to state, federal, or local law.

An owner is not liable to pay the relocation fee to any qualified tenant who: (1) does not enter into a rental agreement after being offered a renewal or extension of the tenant’s rental agreement with a rent in an amount that complies with this ordinance; or (2) against whom the owner has obtained a judgment for possession of the rental unit.

If an owner fails to comply with this section the qualified tenant shall be awarded damages in an amount equal to two times the relocation assistance fee and other damages to which they may be entitled.

The owner shall comply with this section of the ordinance until the property is sold or transferred to a bona fide third-party purchaser.

If a qualified tenant is evicted for cause the owner is not liable for any relocation assistance provided under this section.

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


“THIS IS NOT A NOTICE TO VACATE THE PREMISES. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any right that you may have.

Pursuant to the City of Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance, if you are a qualified tenant you may be eligible for relocation assistance in the amount of $10,600 unless the owner offers you the option to renew or extend your current written or oral rental agreement with an annual rent that: (1) for the first twelve months, does not exceed 102% of the immediate prior year’s annual rental rate; and (2) for any twelve-month period thereafter, does not exceed 102% of the immediate prior twelve-month period’s annual rent. The option to renew or extend your lease shall continue until the property is sold to a bona fide third-party purchaser.

If you are eligible as a qualified tenant and the owner fails to pay you the relocation assistance that is due, you may bring a private cause of action in a court of competent jurisdiction seeking compliance with the Protecting Tenants in Foreclosure Rental Property Ordinance, Chapter 5-14 of the Municipal Code of Chicago, and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.”


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

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

The notice must be served by:

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

The notice must also be posted on the primary entrance of each foreclosed rental property no later than 21 days after a person becomes the owner (the date of sale confirmation or execution of a deed-in-lieu or entry of consent judgment of foreclosure).

An owner may not collect rent from any tenant until the written notice is served and posted.

Registration of Foreclosed Rental Property (5-14-060)
No later than 10 days after becoming the owner of a foreclosed rental property, the owner shall register such property with the commissioner.

The registration shall be in a form and manner prescribed by the commissioner and shall contain the following information:

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

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

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

If any of the pertinent information changes, the owner shall file a statement indicating the nature and effective date of the change within 10 days after the change takes effect. If the property is sold to a bona fide third-party purchaser the owner shall, within 10 days of such sale or transfer, notify the commissioner in writing in a form and manner prescribed by the commissioner. If the property becomes vacant after registration pursuant to this section, the owner shall comply with the vacant building registration requirement of chapter 13-12, if applicable.

Remedies (5-14-070)

A tenant may bring a private cause of action seeking compliance with section 040 and 050 and the prevailing plaintiff shall be entitled to recover, in addition to any other remedy available, his damages and reasonable attorneys’ fees.

Waiver of Rights Not Allowed (5-14-080)

No rental agreement offered or entered into by an owner after the effective date of this chapter may provide that a tenant agrees to waive or forego the rights and remedies provided under this chapter and any such provision in a rental agreement is unenforceable.

Violation-Penalties-Liability (5-14-100)

Any person found guilty of violating this Chapter, or any rule or regulation promulgated hereunder, shall be fined not less than $500 or more than $1,000. Each failure to comply with respect to each person shall be considered a separate offense and each day that a violation exists shall constitute a separate and distinct offense.

© Copyright 2013 USFN. All rights reserved.
July/August e-Update

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Kansas: Court of Appeals Continues Rulings on Standing and Note Enforcement

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by Stephanie Mendenhall
South & Associates, P.C. – USFN Member (Kansas, Missouri)

In recent months, the Kansas Court of Appeals has heard an increased number of mortgage foreclosure cases, leading to definitive decisions on the issues of standing and note and mortgage enforcement. See, e.g., U.S. Bank, N.A. v. Howie, 47 Kan. App. 2d 690 (2012), MetLife Home Loans v. Hansen, 48 Kan. App. 2d 213 (2012), Bank of America, N.A. v. Inda, 2013 WL 856468 (Kan. Ct. App. March 8, 2013), and U.S. Bank, N.A. v. McConnell, 2013 WL 1850755 (Kan. Ct. App. May 3, 2013). In its latest opinion (unpublished), FV-I, Inc. v. Kallevig, 2013 WL 2321198108 (Kan. Ct. App. May 17, 2013), the court of appeals reversed a grant of summary judgment to a defendant/junior lienholder, finding that an issue of material fact existed regarding the plaintiff/senior lienholder’s standing and, specifically, possession of the promissory note at the time the foreclosure petition was filed.

In the underlying foreclosure action filed by FV-I, Inc. (FVI), defendant Bank of the Prairie (BOP) challenged the validity of FVI’s note and mortgage (on a splitting theory) and FVI’s standing to enforce the note (based on a lack of possession). The district court granted summary judgment to BOP, holding that the note and mortgage were split by express agreement and that FVI lacked standing to bring the foreclosure action because it did not possess the original note. As a result, the district court elevated BOP’s liens to a senior priority status and entered a judgment of foreclosure. On appeal, the court of appeals reversed the district court’s grant of summary judgment and remanded the case.

The appellate court first determined that the note and mortgage sought to be enforced by FVI were not split. This was based on its holdings in Howie and Hansen that a mortgage follows a note, and that the converse is also true. The court further relied on those decisions for the general rule that a mortgage may be unenforceable if not held by the same entity that holds the note, but that an agency exception exists. Additionally, the court of appeals held that there was no evidence of an express agreement to split the note and mortgage in this case.

Distinguishing the facts of Hansen, and being mindful of its opinion in McConnell, the appellate court then determined that a genuine issue of material fact existed regarding FVI’s standing to enforce the note. In Hansen and McConnell, the court of appeals found that the plaintiffs possessed the note at the time of filing their foreclosure petitions and, therefore, had standing to foreclose. Here, the appeals court determined there were gaps in the record regarding FVI’s possession of the note. FVI created an issue of fact regarding possession at the time of filing, and BOP failed to undisputedly prove a lack of possession or standing. Thus, the court held neither party was entitled to judgment and remanded the case to district court for FVI to prove possession of the note at the time of filing the foreclosure petition.

Editor’s Note: The author’s firm represented the appellant in the case summarized in this article.

© Copyright 2013 USFN. All rights reserved.
July/August e-Update

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Mediation Updates from Four States: Connecticut

Posted By USFN, Thursday, August 1, 2013
Updated: Monday, November 30, 2015

August 1, 2013

 

by James A. Pocklington
Hunt Leibert, P.C.
USFN Member (Connecticut)

On May 31, 2103, the Connecticut Legislature passed “An Act Concerning Homeowner Protection Rights,” Public Act No 13-136. It was signed by the governor on June 18, effective July 15, 2013. The act fundamentally changes the foreclosure mediation program in Connecticut.

First, it lays out a mission statement for mandatory settlement discussions by quantifying the “Objectives of the Mediation Program” and then defining the “ability to mediate” in a manner consistent with those objectives. This change requires individual servicer representatives taking part in the mediation process to be aware of both the program’s statutory requirements and the specifics of any given file’s history in the program. It goes into detail as to how such file-specific familiarity may be obtained.

Next, it alters who may be present during a session and the role of counsel in that regard. Currently, all mortgagors must be physically present for the first meeting, which is critical to obtaining proper intentions, given the significant percentage of separating/separated mortgagors and thereafter at least one mortgagor must be physically present at each session unless waived by the court. A niche is carved out for the mortgagee to appear telephonically with counsel to be physically present. The act changes this, requiring physical attendance at only the first session and permitting telephonic participation with physically-present counsel for all parties. Further, the act explicitly permits the attendance of a non-mortgagor spouse, who may not even be a party to the foreclosure action. The act does not apply the same exception to any other relationship.

Third, it shifts a significant portion of the document collection process from mutual meetings between the mortgagee and mortgagor to meetings between the mortgagor and/or their legal counsel and the court’s foreclosure mediation specialists, with limited direct involvement of the mortgagee or counsel. The act requires the mortgagor to meet with the court’s mediator and for them to work together to provide the necessary documents for any foreclosure alternative. It gives the mortgagor and mediator significant time — up to 84 days from the initiation of the lawsuit — to compile the documentation and submit it to the servicer and/or counsel.

Fourth, it imposes a much stricter timeline on all participating parties. The mortgagee is expected to have a substantive response within 35 days of receipt of a complete financial package for review for any foreclosure alternative, including those options that historically require third-party involvement. The statutory mediation period concludes after the third session between the mortgagee and mortgagor, and any further sessions may be granted by the court on an individual basis only on a showing that it is “highly probable the parties will reach an agreement through mediation” or on a showing that there has been “conduct that is contrary to the objectives of the mediation program.” Any such findings must be articulated on the record.

Lastly, and perhaps most significantly, the act eviscerates the confidentiality of the parties’ settlement negotiations and creates statutory permission for the court to consider anything that takes place in the mediation context. In addition to requiring exhaustively detailed reports by the court’s mediators after each session, which become part of the public record, the court is explicitly permitted to “consider all matters that have arisen in the mediation” as part of its review. This is particularly noteworthy given Connecticut’s motion hearing practice, where the judges sitting on mediation-related issues are currently the same judges who handle any other aspects of a pending foreclosure, up to and including entry of judgment.

©Copyright 2013 USFN. All rights reserved.
Summer USFN Report.

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