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Rhode Island: Recent Amendment to Mediation Statute Revives 45-Day Notice of Intent to Foreclose

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Joseph A. Camillo, Jr.
Shechtman Halperin Savage, LLP – USFN Member (Rhode Island)

There has been a significant change in Rhode Island law that will impact pending foreclosure sales. Specifically, last month Governor Raimondo signed legislation making changes to section 34-27-3.2, which deals with requirements for foreclosure mediation conferences (the Act). The legislation makes the following changes to the Act:


1. Extends the sunset date of the Act from July 1, 2018 to July 1, 2023.
2. Limits the initial fee charged for mediation to $100 from $150, while increasing the mediation conference fee from $350 to $400.


The issue that impacts pending sales is that the legislators inadvertently amended an older 2013 version of RIGL 34-27-3.2 rather than the 2014 version. The 2014 version of the statute repealed RIGL 34-27-3.1, the section requiring the 45-Day Notice of Intent to Foreclose/Credit Counseling Notice (NOI). Because they amended the 2013 version of the statute, it did not contain the repeal of the 45-Day NOI requirement (RIGL 34-27-3.1). Consequently, the 2014 version of 34-27-3.2 that repealed 34-27-3.1 sunset at the end of June 2018. The ramification is that foreclosures for the time being are again subject to the 45-Day NOI requirement (34-27-3.1).

This author’s firm has discussed this subject with the title insurance companies, and they have confirmed that 34-27-3.1 notices are again required for any foreclosure that was initiated on or after July 1, 2018 (meaning the sending of the 30-Day notice of sale). Any foreclosure auction where notices were sent after July 1, 2018 will have to be cancelled so that the 45-Day NOI can be sent. There is some discussion (and hope) that the legislature will reconvene in an emergency session to correct the error, but there is no confirmation at this time that this will happen.

If servicers/banks are unsure as to how this impacts their pending sales in Rhode Island, they should reach out to their counsel for an update of which sales need to be cancelled to allow the 45-Day NOI to be sent.

The Department of Business Regulation (Banking Division) has provided a template that is required to be used when the notices are sent; view here. Please note that there must be a valid assignment of mortgage in existence (at the time that the credit counseling notice is sent) into the “mortgagee” referenced in the NOI, and in whose name the nonjudicial foreclosure will be pursued.

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Iowa: Probate Estate Not Needed to Complete In Rem Foreclosure

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ryan C. Holtgraves
Petosa Law LLP – USFN Member (Iowa)

The Iowa Court of Appeals recently held that when pursuing an in rem foreclosure against a deceased mortgagor’s real estate, a probate estate need not be opened if known and unknown heirs are served in accordance with Iowa’s Land Title Standards. U.S. Bank v. Parrott, No. 17-0513 (Iowa Ct. App. July 18, 2018).

Background
In Parrot, the mortgagor died and the loan fell into default. U.S. Bank commenced an in rem foreclosure action, and the pre-foreclosure title work indicated that a probate estate had not been opened for the deceased mortgagor. The bank proceeded to name the decedent’s sons, as well as unknown heirs and unknown parties claiming any interest in the decedent’s real estate, as defendants.

U.S. Bank followed longstanding practice and served the unknown parties by publication in accordance with Iowa Rules of Civil Procedure 1.311 and 1.312. No party answered the petition, and U.S. Bank filed an application for default judgment.

Following a recent trend in Iowa’s Seventh Judicial District, the district court denied the motion, ruling that a probate estate must be opened to identify the unknown heirs and interested parties in order for the court to have jurisdiction over the unknown parties.

Appellate Analysis
The Iowa Court of Appeals, after reviewing Title Standards 7.8(1) & (4) and Iowa Code Sections 654A(5) and 654.5(1)(c), determined that the district court abused its discretion in denying default judgment against the unknown parties.

Standard 7.8(1) states that there is no need to open an estate when completing an in rem foreclosure on real estate owned by a deceased mortgagor. Additionally, Standard 7.8(4) states that if no probate estate has been opened, the foreclosure should name all unknown parties with an interest in the estate.

The appellate court, giving deference to the Iowa Land Title Standards, concluded that the district court could exercise jurisdiction over unknown parties served by publication. Further, the Court of Appeals observed that even if a probate estate were opened, the method of service on unknown parties would be the same under Iowa’s Probate Code.

Conclusion
The Parrot decision follows Iowa’s Title Standards and upholds the longstanding practice in this state of naming and serving unknown interested parties (serving them by publication) when foreclosing in rem.

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Slowly Clarifying Minnesota’s Vague Dual Tracking Statute

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

Since its enactment in 2013, Minnesota and Eighth Circuit courts have gradually whittled away at the ambiguities of Minnesota’s dual tracking statute (Minn. Stat. § 582.043). Most recently, the Eighth Circuit sided with the lender — while also declining to make a determination on a key question that remains unclear within the statute: what constitutes a “complete loss mitigation application.” [Wilson v. Wells Fargo Bank, N.A., No. 16-3213 (8th Cir. July 17, 2018) (unpublished).]

Background
In Wilson the borrower challenged the underlying foreclosure based on alleged violations of Minnesota’s dual tracking statute. The borrower’s primary argument was that Wells Fargo violated subdivision 6(c) of the dual tracking statute. This subdivision provides that if a servicer receives a loss mitigation application after the sale has been scheduled, it must halt the foreclosure sale and evaluate the application.

The borrower contended that her submission of a Hardship Affidavit Form (which stated she was requesting review of her current financial situation to determine if she qualified for temporary or permanent mortgage relief options) was her loss mitigation application. The court disagreed; stating that while “loss mitigation application” has not been defined by Minnesota state courts it was persuaded by the ruling in Wells Fargo Bank, N.A. v. Lansing, No. A14-0868, 2015 WL 506655 (Minn. Ct. App. 2015). Lansing did not elaborate on what constituted a “complete” application, and the Wilson court similarly did not define what constituted a complete application because it was undisputed that the application was not even substantially complete.

Appellate Analysis
Servicers have been challenged to design policies and procedures for Minnesota loss mitigation in the face of statutory silence as to what constitutes a loss mitigation application. The Bureau of Consumer Financial Protection (BCFP) regulations define and require a complete application. The Eighth Circuit focused its analysis on subd. 6 by distinguishing between a request for loss mitigation and an application for loss mitigation. In the past, receipt of a Hardship Affidavit may have been enough to meet a core documents standard and necessitated halting the foreclosure, but the Eighth Circuit viewed receipt of the Hardship Affidavit as merely a request for loss mitigation, not a formal loss mitigation application. Consequently, Wells Fargo was not required to halt the foreclosure.

Takeaways
The Wilson court’s higher standard of completeness is akin to BCFP regulations that require a borrower to provide all information and documents requested by the servicer. If Minnesota courts follow the Eighth Circuit’s non-binding decision in Wilson, the inconsistency between Minnesota law and BCFP standards for loss mitigation applications goes away. For now, Wilson is a lender-friendly court’s attempt at imposing a “completeness” requirement under a vague statute.

The borrower also contended that Wells Fargo failed to give her a “reasonable amount of time” to provide the documents requested in order for Wells Fargo to complete the application review. Subdivision 5(2) of the dual tracking statute provides that after a servicer receives a request for a loan modification, it must exercise reasonable diligence in obtaining documents and information from the mortgagor in order to complete the application and review it. The borrower did not introduce any evidence showing that 32 days was an unreasonable amount of time. As such, the court found that the borrower’s claims under this subdivision failed as well.

Minnesota’s dual tracking statute remains vague and silent on a few requirements that differ from federal law, presenting challenges for servicers and their attorneys.

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Statute of Limitations and Foreclosure: Another Federal Court in Ohio Considers the Issue

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ellen L. Fornash
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

Northern District of Ohio (U.S. Bankruptcy Court)
After considering state court precedent on the same issue, the U.S. Bankruptcy Court ruled earlier this year that enforcement of both a note and foreclosure of a mortgage could be time-barred by a six-year statute of limitations. In re Fisher, Case No. 17-40457, 2018 Bankr. LEXIS 1275 (Bankr. N.D. Ohio Apr. 27, 2018).

While not binding on state court foreclosure actions, the Fisher decision nevertheless foretold of a potential impact on mortgage lenders and servicers. It warned of a strategy by which borrowers might avail themselves and their homes of the encumbrances of their mortgages by effectively extinguishing mortgage liens that have not been pursued within the confines of R.C. 1303.16(A). Lenders and loan servicers were well-advised to pursue any claims on both the note and mortgage within the six-year statute of limitations, should a time come when federal or state courts decided to deviate from recent state precedent and, instead, follow the rationale set forth by the bankruptcy court for the Northern District of Ohio. That day has arrived.

Southern District of Ohio (U.S. District Court)
In yet another blow to the rights of the mortgagee, the U.S. District Court for the Southern District of Ohio (Eastern Division) diverged from recent state precedent set forth by the Ohio Court of Appeals (Eighth District) and followed the interpretation of the above-referenced bankruptcy court in Fisher. See the Opinion & Order issued in Baker v. Nationstar Mortgage LLC, 2018 U.S. Dist. LEXIS 121686, 2018 WL 3496383 (Ohio S.D. July 20, 2018).

The Ohio Revised Code limits an action to enforce an obligation of a party to pay a note to six years after the acceleration of the debt. R.C. 1303.16(A). However, an action to collect on a note is separate and distinct from one to foreclose a mortgage. Deutsche Bank Nat’l Trust Co. v. Holden, 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243 (Ohio 2016). Holden has been interpreted by the Eighth District Court of Appeals as to permit foreclosure of a mortgage, even when a note has become time-barred. Bank of New York Mellon v. Walker, 2017-Ohio-535, 78 N.E.3d 930 (Ohio Ct. App. 8th Dist. 2017). Rather, the statute of limitations to foreclose a mortgage has been governed by the more generous time frame set forth in R.C. 2305.04, which governs contracts. Holden, as interpreted by the Eighth District, is the prevailing law in Ohio. Until now.

Background of the Baker case — A 2008 foreclosure action was dismissed post-judgment by agreement of the parties due to a failure to name necessary parties to the action. [Baker v. Nationstar Mortgage LLC, 2018 U.S. Dist. LEXIS 121686, 2018 WL 3496383]. Following the dismissal, in 2014, the lender began collection activity on the debt. The debtors initiated action against Nationstar seeking, among other claims, declaratory judgment and injunctive relief extinguishing any rights of Nationstar to enforce the mortgage loan. The debtors contended that R.C. 1303.16(A) limited the time to enforce the mortgage to six years from May 22, 2008 (the accelerated due date of the mortgage).

The Southern District of Ohio relied on In re Fisher, which presented an almost identical argument. Both federal courts noted that the lack of precedent in Ohio districts (other than the 8th) weighed heavily in their decisions to find favor with the debtors’ contention that “when the note is time-barred, the mortgage is also barred.” Bruml v. Herold, 14 Ohio Supp. 123, 125 (Ohio C.P. Geauga Cty. 1944); see also, Hopkins v. Clyde, 71 Ohio St. 141, 149, 72 N.E. 846, 2 Ohio L. Rep. 342 (Ohio 1904). The two federal courts also relied heavily on the rationale in Kerr v. Lydecker, which held that the statute of limitations for enforcing a note and a mortgage were one and the same. Kerr v. Lydecker, 51 Ohio St. 240, 253, 37 N.E. 267 (1894).

In Baker, the Southern District of Ohio held that Holden effectively, but improperly — and perhaps unintentionally — overturned Ohio precedent set forth by Kerr. For this reason, the Southern District of Ohio declined to follow Holden and found the ruling in Fisher to be more persuasive. Nationstar was barred by the six-year statute of limitations from foreclosing the debtors’ mortgage. Moreover, the court in Baker found Nationstar liable for violations of the Fair Debt Collection Practices Act in threatening legal action on a debt after the statute of limitations had expired.

Conclusion
As feared, the influence of the holding by the bankruptcy court in Fisher has spread beyond the realm of bankruptcy proceedings. What was previously one persuasive decision has expanded in the federal court system, unsettling the mortgage industry and overturning years of settled practice and understanding. Lenders, loan servicers, and law firms should expect to see increased litigation on this topic in cases where mortgage foreclosure is being sought more than six years post-acceleration.

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Connecticut: Does an Untimely Appeal Invoke the Automatic Appellate Stay?

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Joseph Dunaj
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

In a case of first impression, the Connecticut Appellate Court held that a defendant’s untimely appeal did not invoke the automatic appellate stay and, thus, title vested to the plaintiff — despite the untimely appeal filing. [Deutsche Bank National Trust Company, Trustee v. Fraboni (Conn. App. Ct. June 26, 2018)].

Background
In Fraboni, the trial court had initially entered a judgment of strict foreclosure in 2014. On May 9, 2016 (after multiple extensions of the law day) the trial court denied the defendant’s latest motion to open judgment. However, sua sponte, the court extended the law day to June 28, 2016 to allow the 20-day appeal period (from the motion denial) to expire.

On June 27, 2016 the defendant filed an appeal of the May 9th decision. The plaintiff moved to dismiss that appeal on dual grounds: (1) that the appeal was untimely; and (2) that the appeal was also moot because the untimely appeal did not trigger the automatic appellate stay. Accordingly, the law days had run unabated, and title had vested to the plaintiff. The defendant opposed the motion to dismiss and also moved for permission to allow the late appeal, which the plaintiff opposed. The appellate court dismissed the appeal, without any articulation, and denied the motion for the late appeal.

The plaintiff then applied to the trial court for an execution for ejectment to obtain possession of the property. The defendant objected on the grounds that the late appeal had triggered the automatic appellate stay and, therefore, title had never vested to the plaintiff. Rather than rule on what it deemed a novel issue, the trial court granted the joint motion of the parties and reserved the matter to the appellate court for consideration.

Appellate Court’s Analysis
The question before the appellate court was whether an untimely appeal ever triggers an appellate stay. Connecticut Practice Book § 61-11(a) states: “Except where otherwise provided by statute or other law, proceedings to enforce or carry out the judgment or order shall be automatically stayed until the time to file an appeal has expired. If an appeal is filed, such proceedings shall be stayed until the final determination of the cause.” The plaintiff contended that the two sentences had to be read conjunctively, so that only a timely appeal could continue the appellate stay. The defendant maintained that the two sentences should be read disjunctively, so that even an untimely appeal would trigger the automatic stay.

The appellate court sided with the plaintiff, holding that the sentences must be read conjunctively. Because the defendant failed to file a timely appeal, and did not seek a discretionary stay or take other action to prevent the law day, the untimely appeal did not prevent the vesting of title to the plaintiff. The appellate court commented on the defendant’s position that “it seems more absurd to construe the rule to allow a party who has sat on his rights to use an untimely appeal to reinstate the expired automatic stay and thereby thwart a plaintiff’s legally proper efforts to collect or to proceed with a foreclosure once a judgment has been rendered and the defendant has failed to file a timely appeal.”

Closing Words
The appellate court’s position is very favorable to foreclosing plaintiffs. It precludes a borrower from utilizing an untimely appeal as a method of delaying a foreclosure. However, it must be noted that a foreclosing plaintiff should still take a proactive approach in contesting any untimely appeal. The appellate court discussed the fact that the plaintiff had moved to dismiss the appeal on the partial grounds of untimeliness, and although the appellate court did not consider that fact in its ultimate analysis, it can be inferred that should a plaintiff fail to raise the timeliness issue on the appeal, then the plaintiff’s failure may constitute a waiver to later argue that no appellate stay existed. A foreclosing plaintiff would be well served to raise the untimeliness issue to prevent such a waiver.

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Connecticut: Evidentiary Hearing re Standing not Required

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

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

In a recent decision, the Connecticut Appellate Court held that a borrower was not entitled to an evidentiary hearing on standing. Bank of America v. Kydes, 183 Conn. App. 479, 489 (July 17, 2018). To necessitate an evidentiary hearing, the borrower must first have presented support of a genuine issue of fact that called the bank’s standing into question. In addition, the appellate court found that standing could be established by the plaintiff’s pleadings, as well as the defendant’s admissions.

Procedural Timeline
The plaintiff commenced this action in 2012.

• On March 13, 2014 Defendant filed an answer and defenses. Several of the defenses alleged that Plaintiff had “made false and fictitious claims without any supporting admissible evidence,” and thus lacked standing.
• On March 13, 2015 Defendant filed a motion to dismiss, which the court denied because Defendant did not appear on the date the motion was scheduled for argument.
• On May 14, 2015 Plaintiff served Defendant with requests for admissions. The requests included admissions that Plaintiff was the holder of the note when the plaintiff commenced the action.
• On June 4, 2015, without answering, Defendant filed a motion for protective order.
• On July 17, 2015 the court sustained Plaintiff’s objection to the motion for protective order.
• On July 29, 2015 Plaintiff filed a “Notice of Intent to Rely on the Requests to Admit.”
• On July 31, 2015, six weeks after the deadline to respond, Defendant responded to the requests for admission by denying them all without limitation or qualification.
• On July 31, 2015 Plaintiff filed a motion for summary judgment, which relied on the requests for admissions because they were deemed admitted due to Defendant’s failure to timely answer them.


The court looked to case law precedent to find that, once the plaintiff presents the note to the court, the burden is on the defendant to present evidence to challenge standing. ‘“The defendant [must] set up and prove the facts [that] limit or change the plaintiff’s rights ....’ (Citation omitted; emphasis omitted; internal quotation marks omitted.) Deutsche Bank National Trust Co. v. Cornelius, 170 Conn. App. 104, 110-11, 154 A.3d 79, cert. denied, 325 Conn. 922, 159 A.3d 1171 (2017).” The court also found that the admissions from the failure to timely respond to the requests were dispositive. Moreover, the failure to ask the court for permission to withdraw or amend the admissions, in accordance with the rules, meant that the defendant admitted all matters as to which admissions were requested.

Closing Words
This case shows the importance of having the original note in Connecticut. Once the original note is presented to the court, the burden to challenge standing is shifted to the defendant. Further, merely making accusations — without an evidentiary basis — is insufficient for a defendant to obtain an evidentiary hearing.

Editor’s Note: The author’s firm represented the appellee (substitute plaintiff) in the case summarized in this article.

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Illinois: Second District Withdraws and Reissues Opinion on Standing

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Masum Patel
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

The Illinois Second District Court of Appeals issued its revised ruling in U.S. Bank Trust N.A. v. Lopez, 2018 Ill. App. (2d) 160967 on May 4, 2018. The original ruling was slated to be a victory for defendants on the issue of standing in Illinois. However, the reissued opinion reaffirms the current state of Illinois law, reestablishes the status quo concerning what has been known about standing in Illinois, and allows foreclosing lenders to breathe easier and remain confident in their current practices.

Background

Initially, the Second District reversed a Circuit Court of DuPage County ruling that struck, among other things, the defendant’s affirmative defense of lack of standing based upon the fact that the promissory note attached to the plaintiff’s complaint was specially indorsed to HUD, while the plaintiff was instead U.S. Bank Trust (as owner trustee for Queen’s Park Oval Asset Holding Trust). U.S. Bank filed a petition for rehearing, which spurred the Second District’s reversal of that original November 14, 2017 ruling.

Rehearing
Upon rehearing, the Second District withdrew its ruling and reissued a new opinion, finding that U.S. Bank did have standing to foreclose despite the note attached to its complaint being indorsed to HUD. The court based its reissued ruling on the fact that U.S. Bank amended its complaint to revise the statement of its capacity to foreclose from “legal holder” of the note to “non-holder in possession of the note with rights of a holder.” The Uniform Commercial Code (which Illinois has adopted) makes clear that a non-holder in possession with the rights of a holder can enforce a note.

Ultimately, the Second District came to the conclusion that U.S. Bank did possess the requisite capacity to foreclose. While the defendants were correct in asserting that a party must have standing at the time the suit is filed, the reissued opinion illustrates that by amending its complaint to state that it was a non-holder in possession of the note, by presenting the original note in court, and by producing an assignment of mortgage that predated the complaint, the plaintiff showed that it had standing at the time the suit was filed.

Significance
Why should lenders and servicers care? As previously stated, the original ruling positioned itself to be a sideways victory for defendants in foreclosure and would have left the issue of standing in Illinois up in the air. Now, the revised ruling reaffirms the basic and well-established notion that standing must be established at, or prior to, “first legal,” and that the correct capacity to sue must be pleaded in the complaint. While the plaintiff in Lopez later amended its complaint to correct its capacity, if it were not truly a “non-holder with the rights of a holder” at the time the case was filed, dismissal would have been proper.

Accordingly, it is vitally important to: (1) assert the appropriate capacity from the day the complaint is filed to avoid these issues altogether; and (2) ensure that any note indorsements and collateral documentation are thoroughly reviewed prior to referral and complaint filing. Failure to take caution in this review and preparation may result in a case at any stage — Lopez was post-sale confirmation — being unwound and dismissed. This can require a complete restart (or worse); a future filing is barred if Illinois’s single refiling rule is violated.

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Kentucky Enacts the Uniform Power of Attorney Act

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Ellen L. Fornash
Anselmo Lindberg & Associates, LLC– USFN Member (Illinois)

The Commonwealth of Kentucky has established Revised Statutes Chapter 457, short-titled the Uniform Power of Attorney Act, to codify provisions stemming from the Uniform Power of Attorney Act of 2006. The Chapter applies to any power of attorney created before, on, or after the effective date of July 14, 2018. This new chapter defines a power of attorney, its durability, and governs its execution, termination, and application.

KRS 457.050 is of particular interest as it governs the requirements for an execution of power of attorney by mandating that the power of attorney be signed by the principal (or by another at the direction and in the conscious presence of the principal) in the presence of two disinterested witnesses. The signature of the principal on the power of attorney will be deemed genuine if acknowledged by a notary public. Lenders and servicers who have documents executed by a power of attorney on their behalf, or accept loan documents executed by a power of attorney on behalf of a borrower, should be aware of these particular execution requirements.

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Massachusetts: Continued Focus on Credit Card Debt Collection

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Julie Moran
Orlans PC – USFN Member (Delaware, Massachusetts, Michigan)

Over the past year, collection practices of the consumer credit card industry have been the target of considerable action by virtually all branches of the government of the Commonwealth of Massachusetts, a state whose history of aggressive protection of consumer rights is well documented. With the leadership change at the CFPB and recent actions by the Bureau appearing to embrace a less strident approach to enforcement, states such as Massachusetts are stepping in to fill a perceived void.

Senate Bill 120
Legislatively, Senate Bill 120 (An Act Relative to Fairness in Debt Collection) is pending before the Senate Ways and Means Committee. S.120 — one of several bills focused on debt collection practices — applies to most types of consumer debt, creditors including debt buyers, and the attorneys who represent them. The bill further restricts the income available for wage garnishment; reduces both the time and method of calculating the applicable statute of limitations and the duration of judgments on debts; allows a consumer to avoid a court appearance and examination under oath in a supplementary proceeding by submitting an affidavit of no assets; and liberalizes the attorney’s fees awarded to a successful consumer while restricting those awarded to a successful creditor.

Rules of Civil Procedure
The judicial branch of the Commonwealth has also focused on credit card debt collection. In 2016, an Ad Hoc Committee of the MA Court Standing Advisory Committee on the Rules of Civil Procedure was formed to study alleged abuses in revolving credit agreement cases, including credit card matters, filed in courts of the Commonwealth. Described abuses included inadequate verification of the address of the consumer and difficulties that the consumer encountered in determining the identity of the original creditor.

On May 23, 2018 the committee issued amendments to the Massachusetts Rules of Civil Procedure (Mass. R. Civ. P.) in the form of two new rules, effective January 1, 2019. The press release can be viewed here. Mass. R. Civ. P. Rule 8.1 and Rule 55.1 apply to any “Action” in which the plaintiff seeks to collect a debt relative to a transaction primarily for personal, family, or household purposes pursuant to a revolving credit agreement. Many of the requirements under the new rules originated from requirements under rules in other states surveyed by the committee and appear to be particularly aimed at large volume debt buyers. View the new rules here.

Rule 8.1 — Under this rule, any complaint filed in an action must be accompanied by one or more affidavits, a statute of limitations certification, and relevant supporting documentation. There is no specific requirement that the information be produced in separate affidavits, although, given the expansive information required, several affidavits may be necessary. It can be expected that the process of assembling and producing the requisite documents will be laborious and involve careful and thorough redaction. The entire complaint package must be served on the defendant.

The party executing the affidavits must attest to having acquired the requisite personal knowledge in making the affirmations. The “affidavit regarding debt” must recite the identity of the current owner of the debt, including the identity of any retailer sponsor; a chronological listing of all prior owners, including the dates of transfer, the date and amount of the last payment, date of charge-off, and the amount of debt at such time. For the portion of the debt incurred after charge-off, a detailed itemization of the amount, terms, and the method of calculating the debt owed must be included. The “affidavit providing documentation of debt” must include legible copies of the notice of charge-off sent to the consumer; proof that the debt was incurred; the applicable terms and conditions; and evidence of signing or acceptance of the same; or, if absent, the most recent monthly statement showing a purchase, payment, or balance transfer. The most arduous requirement, particularly where the debt may have been transferred multiple times, will be proof of virtually every transfer of the ownership of the debt (including the bill of sale, assignment, etc.) specifically referring to the consumer or his/her account.

The “address verification affidavit” must include supporting documentation showing that the defendant’s residential address has been verified within three months prior to filing the complaint by a variety of means and, in most cases, by multiple means. The affidavit must describe the verification methods selected and the dates of the same. If the applicable database or municipal records show more than one address in the last twelve months, the affiant must explain why that address was chosen and include the verification documents.

The plaintiff or its counsel must execute a certification that the statute of limitations (SOL) has not expired, a description of any choice of law/limitations provisions, and the statute relied upon in establishing the SOL.

Rule 55.1 — The affidavit to be submitted at the time of entry of a default judgment under new Rule 55.1 requires counsel for the plaintiff to sign, serve, and file an affidavit affirming that — based on a personal review of the documentation filed and served under Rule 8.1 — it complies with the requirements with any exceptions noted and that plaintiff is entitled to judgment as claimed. The request for entry must be served on the defendant in accordance with existing rules and in compliance with Rule 8.1 at his/her residential address. The clerk must be satisfied that the plaintiff has fully complied with Rule 8.1 and Rule 55.1 before entering a default judgment. Otherwise, the clerk must notify the parties and dismiss the action without prejudice unless (within 30 days of the notice) the plaintiff shows cause why the action should not be dismissed.

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North Carolina Court of Appeals: In re Worsham

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Devin Chidester
Brock & Scott, PLLC – USFN Member (North Carolina)

Recently, the North Carolina Court of Appeals handed down an opinion addressing application of the Rules of Civil Procedure (NCRCP), primarily Rule 52, in the context of a power of sale foreclosure. [In the Matter of the Foreclosure … Worsham, 2018 WL 3233086 (N.C. Ct. App. July 3, 2018).]

Background
The facts presented in Worsham are as follows: In June 2012, HSBC Bank USA, N.A. (HSBC) commenced a power of sale proceeding on property owned by the Worshams. The clerk of court denied the foreclosure because of lack of evidence that HSBC was the holder of the underlying debt (a requirement of North Carolina’s foreclosure statute N.C.G.S. § 45-21.16(d)).

Four years later, another foreclosure was attempted based on a recorded assignment of the deed of trust into HSBC. At the second foreclosure hearing, the clerk cited “insufficient evidence was presented to sustain the substitute trustee’s authority to proceed with the foreclosure” and again denied HSBC the right to foreclose. HSBC appealed the clerk’s denial and after a de novo review, the superior court allowed the foreclosure to proceed.

The Worshams appealed the order allowing foreclosure, contending that the foreclosure should not proceed because, as a matter of law, the superior court order findings were “unsupported by competent evidence,” and the order itself lacked required fact findings and conclusions of law.

Appellate Analysis
The Court of Appeals reversed and remanded the foreclosure based on the lack of findings of fact and conclusions of law within the superior court order allowing foreclosure. The court hinged its opinion on whether Rule 52 of the NCRCP applied in a nonjudicial foreclosure. Following the case of In re Lucks, a power of sale foreclosure is contractual and not a judicial proceeding, and the rules of civil procedure do not apply “unless explicitly engrafted into the statute.” [In re Foreclosure of Lucks, 369 N.C. 222, 225, 794 S.E.2d 501, 504 (2016).]

The appellate court reasoned that Rule 52 is applicable because, under N.C.G.S. § 45-21.16(d), “[t]he act of the clerk [or trial court] in … finding or refusing to so find is a judicial act[.]” As such, pursuant to Rule 52, an order allowing foreclosure must: make fact findings on issues; declare the conclusions of law arising on the facts found; and enter judgment accordingly with specific findings of the ultimate facts established by the evidence, admissions, and stipulations.


The superior court order lacked findings as to HSBC’s status as holder and only “summarily concluded” that HSBC had a right to foreclose.1 The status of holder is a requirement to foreclose under N.C.G.S. § 45-21.16(d) and was a main point of contention by the Worshams at the clerk and trial court level. Further, the appellate court found that the lack of evidence of a valid debt was absent from the superior court order. That order contained a reference to neither party disputing the default. The actuality of default was also a main issue of contention by the Worshams. As a result, the Court of Appeals reversed and remanded the matter in order for the lower court to make the requisite findings required per applicable NCRCP.

Take Note
The Worsham case serves as a reminder that success at trial is predicated on findings of fact and proper conclusions of law by the court, and an order is only as good as it is written.


1 See page 7 of the opinion outlining the order provided by the superior court. Traditionally, orders are provided to the judge by the prevailing party of a foreclosure matter.


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South Carolina: New Operating Order Regarding Conduit Plans in Chapter 13 Cases

Posted By USFN, Tuesday, August 14, 2018
Updated: Wednesday, August 8, 2018

August 14, 2018

by Louise Johnson, Ronald Scott, Reginald Corley
Scott & Corley, P.A – USFN Member (South Carolina)

For the District of South Carolina, Chief Bankruptcy Judge Duncan and Senior Bankruptcy Judge Waites have joined together in issuing a new Operating Order regarding conduit procedures in Chapter 13 cases (Operating Order 18-03) (New Order), effective August 1, 2018.

It is likely that the New Order will result in a significant increase in the number of conduit plans filed in Chapter 13 cases in South Carolina. Previously, conduit plans were required only under certain, limited circumstances. Pursuant to the New Order, however, all Chapter 13 plans that address claims secured by the debtor’s principal residence (not other real property) must be filed as conduit plans unless one of the following conditions/circumstances exists.

Exceptions to conduit plan requirement:

• Motion to value or surrender said property;
• Payment in full of the secured claim on primary residence over life of the plan;
• Non-filing co-debtor will pay secured claim on primary residence in full directly to the creditor;
• Plan requests loss mitigation/mortgage modification;
• Loan is current at time of petition/conversion;
• Debtor’s delinquency is less than 30 days; or
• Good cause exists (such as agreement to dismiss with prejudice if the debtor fails to make direct payment).


Note that the New Order maintains the court’s provision from its prior Operating Order, which states that the Chapter 13 trustee will not disburse funds to the mortgage creditor under a conduit plan unless, and until, the mortgage creditor has filed a compliant proof of claim.

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Protecting Tenants at Foreclosure: Sometimes the Sun Does Not Set

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

 

by Richard M. Nielson
Reimer Law Co.
USFN Member (Kentucky, Ohio)

The Reenactment
President Trump signed Senate Bill 2155 (The Economic Growth, Regulatory Relief and Consumer Protection Act) on May 24, 2018. The primary purpose of this bill was to revise significant portions of the Dodd-Frank Act, which was originally passed in 2010.

One of the ancillary provisions in this legislation was a repeal of the sunset provisions of The Protecting Tenants at Foreclosure Act of 2009 (PTFA or Act). The PTFA was initially enacted in 2009 with a sunset of the law’s provisions in 2012. Prior to its expiration in 2012, the sunset provision was extended to 2014. No legislation passed in 2014 to further extend the legislation, so the PTFA expired at that time. This new legislation resurrected the Act effective June 23, 2018 without any further sunset provision.

Mortgage servicers and REO companies had to deal with the issues created by the PTFA when it was initially enacted, so most have some experience in this regard. However, many have likely changed their rules since it sunset, and there are always new people in the industry. Accordingly, a refresher on eviction law in general, and how reenactment of the PTFA effects it, should prove helpful.

PTFA vs. State Law
Historically, the creation of a landlord and tenant relationship, the rules governing that relationship, the process for evicting tenants, and the interplay of those rules with the foreclosure statutes have been matters of state and municipal law. These laws and customs vary significantly from jurisdiction to jurisdiction. The reenacted PTFA has once again created certain minimum rights that are afforded to some tenants throughout the country.

After the PTFA was first enacted, a number of states adopted their own version of the Act providing similar, or more generous, benefits. In addition, many cities enacted ordinances granting tenants additional rights. When the PTFA sunset in 2014, purchasers of foreclosed property were once more free to deal with tenants as state law permitted. This left some jurisdictions with state and local rules similar to the PTFA, but others with virtually no comparable requirements. With the resurrection of the Act, mortgage investors, servicers, REO companies, and their attorneys must (again) alter their policies, procedures, and forms to ensure compliance with the terms of the federal law.

PTFA’s Objective
The general purpose of the PTFA is to provide legitimate tenants, who are living in properties that are going through the foreclosure process, with some protection from a sudden eviction. There are situations where tenants could be paying fair market value rent to a property owner while, unbeknownst to the tenant, the owner is in foreclosure. In those unfortunate situations the tenant might not know anything about the foreclosure until the purchaser at the foreclosure sale actually attempts to gain possession of the house. The tenant may then have very little time to react to the situation. The PTFA attempts to standardize how the new owner deals with those legitimate tenants in foreclosed properties and provide some minimum protection for those who might be harmed.

The Terms of the PTFA
Under the terms of the Act all “Bona Fide Tenants” (BFTs) in residential property must be given a minimum of 90 days’ notice before eviction proceedings can begin.

An occupant is not a BFT under the Act if they are the mortgagor, or if they are a child, the spouse, or a parent of the mortgagor. However, the occupants could be considered a BFT if they are another type of relative of the mortgagor — such as a sibling, an aunt, or an uncle.

If any occupant is not one of the excluded relationships, they are a BFT if they became a tenant through an “arm’s length transaction” and if they pay an amount that is not “substantially below” the “fair market rent.”

If the occupant is a BFT and meets the arm’s length and fair market tests, then the new owner must honor the terms of the lease. This would include giving them at least 90 days’ notice, but more if the lease term is longer.

Processing a Potential PTFA Claim
As soon as legal title to the property transfers to the new owner, the applicability of the PTFA must be considered. The new owner should make all reasonable attempts to determine if the property is occupied. If the property is in fact occupied, then the owner must try to find out the identity of each occupant, how they may be related to the former owners, and the terms of any lease they may have. If the property is occupied by multiple parties, it is possible that some occupants may be BFTs and others may not. To the extent state laws or municipal ordinances provide more generous rights to occupants, and to the extent a tenant might be protected under bankruptcy law or the Servicemembers Civil Relief Act, the owner must consider those issues as well.

Unless the new owner can conclusively determine that no individual who is potentially entitled to PTFA benefits (or other state and local benefits) occupies the property, the new owner should send a notice to all potentially entitled occupants. At a minimum, the notice should advise the occupants of the new owner and start the time period on the 90-day notice if applicable. Other disclosures may need to be in the notice, and some items will vary from state to state.

Once a potential BFT notifies the new owner of the existence of a lease (either oral or written) then the owner must consider whether the terms as described constitutes a true “arm’s length transaction,” and whether the alleged rent payment is “substantially below” a “fair market rent.” Each of these questions is very fact-specific, so there is a fair amount of judgment involved in the decision making process. It is best to look at the totality of the circumstances in every situation. The person making the decision must consider the practical differences between each city and state in coming to a reasonable conclusion. Moreover, the resulting decision may, in part, be based upon a servicer’s or REO vendor’s risk tolerance.

Assuming it is concluded that the occupant should be treated as a BFT, the new owner must honor all of the terms of the lease. They may not pick and choose which terms are enforceable. At a minimum, the BFT is entitled to a 90-day notice to vacate, but if the written lease calls for a longer term, that term must be honored.

It is worth noting that there is an exception to this rule: the new owner may cancel the lease if they intend to occupy the home as their primary residence. However, the owner would still need to provide the tenant with at least 90 days’ notice to vacate the premises. In addition, if the lease involves government-subsidized rent payments, other issues may need to be addressed.

If the Occupant is a Tenant, Does that Mean the Owner is a Landlord?
If the occupant is determined to be a tenant under the terms of the PTFA, is the new owner in fact a landlord for all purposes? In other words, does the new owner have to accept rent; and do they have to undertake any of the other obligations and affirmative duties set forth in the lease or placed upon landlords by state and local law? Further, does this mean that the new owner has to potentially register as a landlord in the city where the property is located?

These are all risk issues not addressed by the PTFA. Many states and municipalities have codes requiring landlords to provide certain notices and maintain properties to a specified standard. What if the property was not up to those standards when the new owner took possession? Does the new owner need to undertake those repairs? If someone is injured on the property, is the new owner “responsible” as a landlord? Some laws require landlords to provide sufficient amounts of heat and water as well as security and safety. Is the new owner subject to those requirements as well? What if the prior owner held a security deposit from the tenant? Is the new landlord responsible for returning those funds?

The resurrection of the PTFA brings back these — and numerous other — issues that will continue to be litigated. It also reestablishes many risk and regulatory challenges that those who handle REO properties will need to address promptly.

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Case Law Update: Connecticut

Posted By USFN , Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

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

and James Pocklington
McCalla Raymer Leibert Pierce, LLC
USFN Member (Connecticut, Florida, Georgia, Illinois)

The Connecticut Supreme Court has dramatically expanded the exposure of foreclosing lenders to the attorneys’ fees incurred by borrowers. With the recent decision in Connecticut Housing Finance Authority v. Alfaro (Conn. Jan. 26, 2018), foreclosure borrowers are now allowed to seek award of their attorneys’ fees upon a plaintiff’s withdrawal or voluntary dismissal of a foreclosure action. The Court was required to reconcile two statutes, Conn. Gen. Stat. sections 52-80 and 42-150bb:


• 52-80 states that a plaintiff may withdraw its action, by right, before a hearing on the merits has commenced;
• 42-150bb is Connecticut’s reciprocal fee statute. It provides that when a consumer and a commercial party enter into a contract that provides for an award of attorneys’ fees in favor of the commercial party, if the consumer successfully prosecutes a counterclaim or successfully defends an action on the contract, the consumer will be entitled to attorneys’ fees.


Background
In Alfaro, the plaintiff brought a foreclosure action. The defendant filed an answer with two defenses, both alleging lack of standing. In response, the plaintiff filed a motion for summary judgment (an interlocutory motion, the granting of which establishes liability on the plaintiff’s complaint without need for trial). Before a hearing on the summary judgment motion, the plaintiff withdrew its motion; and, shortly thereafter, withdrew the entire action pursuant to 52-80. The defendant then filed a motion for counsel fees, asserting that he successfully defended the action. The plaintiff objected and the court denied the motion, holding that if the defendant’s claim were accepted, lenders would unreasonably be exposed to claims for attorneys’ fees every time a lender withdrew a foreclosure action. The defendant appealed.

The Connecticut Appellate Court affirmed the judgment, holding that whether the defendant “successfully defended” was a factual determination, which is due deference and should only be overturned in cases of clear error.

The defendant further appealed to the Connecticut Supreme Court, claiming that the plaintiff’s withdrawal of the action was prompted by the defendant’s defense. Surprisingly, the Supreme Court agreed.

Supreme Court’s Analysis
In deciding the case, the Connecticut Supreme Court was required to interpret the phrase “successfully defends” (which is not defined anywhere in the general statutes). The plaintiff contended that in order to successfully defend an action, a party must prevail on the merits of the action. This position was supported by lower court Connecticut case law — and even several decisions from the U.S. District Court for the District of Connecticut. While the Court stated the position was plausible, they eventually found that it did not carry the day.

In making their decision, the Court in Alfaro looked to Black’s Law Dictionary and determined that what is included in the appropriate definition is any resolution of the matter in which the party obtains the desired result of warding off an attack made by the action — regardless of whether there was a resolution on the merits. The Court also looked deeply into the legislative history for 42-150bb (enacted in 1979) and found that it was passed for the purpose of bringing parity between a commercial party and a consumer who successfully defends an action on a contract that was prepared by the commercial party.

The Court held that it would be incongruous with the design of 42-150bb to allow a commercial party to avoid paying attorneys’ fees simply by withdrawing their action under 52-80. The opinion created a burden-shifting schema wherein a consumer filing a motion for counsel fees, who is able to show that the commercial party withdrew the action, is allowed a rebuttable presumption of entitlement to the payment of their attorneys’ fees. The burden of proof then shifts to the commercial party to demonstrate that the withdrawal was unrelated to the actions of the consumer.

In Closing: Some Cautionary Observations
The language used in the Alfaro opinion is especially troubling because the Supreme Court did not restrict the award of attorneys’ fees to withdrawal based on an actual defense of the action. Instead, the Court held that the fees would be awarded if the withdrawal is attributable to any action by the consumer or their attorney. A defendant might assert that if his attorney submits a loss mitigation package and such loss mitigation is approved, that is an action that could arguably entitle the defendant to the payment of attorneys’ fees. Of particular concern in this regard is Connecticut’s Foreclosure Mediation Program, which provides for multiple meetings among court staff, defendants and their attorneys, and the plaintiff’s counsel. It is not uncommon for foreclosing plaintiffs to request attorneys’ fees at judgment for work performed during the (unsuccessful) mediation process. Conversely, upon the successful mediation of a file, Alfaro’s burden-shifting and reciprocity could expose foreclosing plaintiffs to payment of attorneys’ fees to the defendants.

Likewise, a defendant’s attorneys’ fees could potentially be awarded in cases where the court dismisses actions for failure to prosecute (most commonly due to defendant delays through loss mitigation, bankruptcy, etc.). Alfaro also generates a cautionary note regarding loan servicing transfers and release. While most of the industry follows consistent standards regarding attorney invoicing and billing during a service release from servicer’s counsel, it is possible that defendants’ counsel may request and be awarded fees for work done during the tenure of a prior servicer.

Prior to Alfaro, matters in Connecticut were routinely withdrawn, generally with no concern of penalty or exposure to the withdrawing party. This practice has now become significantly more risky and, potentially, more costly in the future.

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Legislative Updates: California

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

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

Will the Provisions of the Homeowner Bill of Rights, which Ended on 12/31/2017, be Reinstated by New California Legislation? After five long years under the California Homeowner Bill of Rights (HOBR), many of the most onerous provisions of HOBR sunset on December 31, 2017. In anticipation of these changes, many servicers took steps to update their systems to follow the revised statute made effective January 1, 2018. Among the many changes, there was no longer any requirement for post-notice of default letters; no need to provide postponement notices; appeals of loan modification denials were eliminated; and most of the differences in the requirements for small and large servicers were removed. In short, the provisions effective January 1, 2018 were significantly easier to follow.

Alas, the excitement was fleeting. On January 3, Senator Beall introduced Senate Bill 818. In essence, this bill would reinstate those provisions that sunset on December 31, 2017 — a return to the pre-2018 HOBR. As of May 9, SB 818 had passed on the Senate floor and was going to the Assembly. Consensus among opponents of SB 818 is that it will be approved by both houses and signed into law by the governor. However, no one will know for sure until, at the very latest, September 30, 2018 — which is the last day that the governor has to either sign or veto bills passed by the legislature.

Interestingly, most of the proponents of SB 900 (which resulted in the enactment of HOBR) are no longer in the legislature. Senator Beall and the proponents of SB 818 do not have the background, knowledge, or expertise to fully understand HOBR and the impact it has had on the industry. Furthermore, they are not taking into consideration the recently amended Consumer Financial Protection Bureau’s (CFPB) regulations, which provide for (basically) the same protections as HOBR. Nonetheless, the proponents believe HOBR offers more protection to the consumers. In addition, they believe that some of the consumer protections will be rolled back under the leadership of CFPB Acting Director Mick Mulvaney, who was appointed by the Trump Administration. It seems that the current legislators are being driven by their constituents, with an apparent belief (by legislators and constituents) that the industry is not doing a good enough job on its own to protect the interests of homeowners.

Unfortunately, since its enactment on January 1, 2013, many homeowners have routinely used HOBR as a delay tactic. Countless lawsuits have claimed a violation of HOBR, almost all of which have resulted in dismissals or judgments in favor of the lender and servicer. Repetitive suits and appeals have been filed — together with bankruptcy petitions — to further delay a foreclosure sale and eviction. HOBR has resulted in significant increases in the timelines of a standard California nonjudicial foreclosure and eviction proceeding. Of course, these delay maneuvers ultimately result in increased costs to be borne by consumers who are seeking new loans.

As indicated above, SB 818 will more than likely pass, which will bring back the original HOBR statutes. Servicers will need to be ready to change their system again and go back to the pre-January 1, 2018 statutory scheme. Among the provisions that sunset December 31, 2017 — but would return under the new legislation — are the following:

1. Before recording the notice of default (NOD), the servicer is to inform the borrowers of rights available to servicemembers and their dependents; and inform the borrowers that they may request copies of their note, deed of trust, any assignment, and loan history. CA Civil Code Section 2923.55.


2. Large servicers (those foreclosing on more than 175 foreclosures per year) must send a written notice to the borrowers of foreclosure prevention alternatives within five business days after recording an NOD. CA Civil Code Section 2924.9.


3. Large servicers are required to provide written acknowledgments of all documents submitted with a loan modification application. CA Civil Code Section 2924.10.


4. Large servicers must stop the foreclosure process once a complete loan modification application is submitted. They may not proceed until a written determination is made that the borrowers are not eligible, and the appeal period has expired or the borrowers do not accept an offer within 14 days, or the borrowers accept an offer but default or breach the modification. CA Civil Code Section 2923.6.


5. Large servicers are required to review a subsequent application of the borrowers if there has been a material change in their financial condition. CA Civil Code Section 2923.6.


6. Large servicers must send a written notice of denial identifying the reasons for the denial, describing other foreclosure prevention alternatives, and providing a list of steps the borrowers must take to be considered for those options. CA Civil Code Section 2923.6.


7. Postponement notices will be revived, so a written notice must be sent to the borrowers with the new sale date and time within five business days following the postponement. CA Civil Code Section 2924.


8. Prohibition against robo-signing: servicers engaged in multiple repeated uncorrected violations are liable up to $7,500 per mortgage or deed of trust, in addition to other available remedies. CA Civil Code Section 2924.17.


9. Large servicers are prohibited from proceeding with a foreclosure while the borrowers are in compliance with a loan modification, forbearance, or repayment plan, or if a foreclosure prevention alternative has been approved in writing. CA Civil Code Section 2924.11.


10. Large servicers must provide a fully executed copy of the foreclosure avoidance agreement and must rescind the NOD and cancel the sale. CA Civil Code Section 2924.11.


11. Large servicers may not charge fees to apply for a loan modification, or late fees, while an application is pending. CA Civil Code Section 2924.11.


12. New servicers on transferred loans must honor prior agreements made by large servicers. CA Civil Code Section 2924.11.


13. Small servicers (those foreclosing on less than 175 foreclosures per year) are prohibited from proceeding with a foreclosure while a complete loan modification application is pending, or until a written determination is sent to the borrowers. If approved, the foreclosure may not proceed, so long as the borrowers are in compliance. CA Civil Code Section 2923.18.


14. Added provision: a large servicer must provide a single point of contact to any borrower who applies for a foreclosure prevention alternative. CA Civil Code Section 2923.6.


15. Added provision: to address the “gap year” if SB 818 passes. In other words, there is a catch-all savings clause so that both the repeal and reenactment of the original HOBR do not act to extinguish existing claims.

There is a strong likelihood that SB 818 will pass, and HOBR in its original format will become a permanent part of California’s statutes. At this time, it appears best for servicers to prepare an implementation plan to effectuate the necessary changes to their systems.

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Legislative Updates: Connecticut

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by James Pocklington
McCalla Raymer Leibert Pierce, LLC
USFN Member (Connecticut, Florida, Georgia, Illinois)

Connecticut’s 2018 legislative session ended with limited impact on the industry — with the year more defined by the legislation that was proposed, but did not pass. Unsuccessful proposals included ones to remove the sunset of Connecticut’s mediation program, to substantially alter collections and assignment of municipal tax liens, and to establish a minimum size for water and sewer lien assignments. Among the legislation that did pass, however, there are three bills that may be of interest to the industry:

SB 391 (signed by the governor on June 1) — An act eliminating the requirement that a mortgagor represented by counsel attend the first foreclosure mediation session made a procedural change to the Foreclosure Mediation Program, allowing mortgagors who are represented by counsel to attend mediation telephonically for all mediation sessions. This change was made in 2015 to subsequent mediation sessions, but was inadvertently not applied to the separate statutory language for the first mediation session. This bill corrected the oversight. There is little direct mortgagee impact expected from the change, but it may slightly improve mediation timelines by allowing initial sessions that would otherwise require rescheduling to occur.

SB 485 (signed by the governor on June 4) — An act concerning the provision of a payoff statement by a judgment lienholder established requirements for a junior lienholder to provide a written payoff statement on request of the debtor, debtor’s attorney, or other authorized representative. This may impact mortgagees conducting loss mitigation reviews, as the amount remaining on a junior judgment lien (that would need to be resolved for short sale or to ensure a fully enforceable first-lien position) may now be easier to acquire.

SB 150 (signed by the governor on May 29) — An act providing protections for consumers applying for reverse mortgages added a requirement on the mortgagee that, prior to accepting a “final and complete” reverse mortgage application or assessing any fees for same, the prospective applicant must be provided with a list of HUD-approved counseling agencies (consistent with 24 CFR 206.300) and receive a certification from the applicant or applicant’s representative that such counseling has occurred, signed by both the applicant/representative and the counselor. Violation of this requirement is deemed a violation of Connecticut’s Unfair Trade Practices Act.

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Legislative Updates: Michigan

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by Brian Henry
Orlans PC
USFN Member (Delaware, Massachusetts, Michigan)

Legislation regarding notarization (remote and electronic) is discussed below:

House Bill 5811 — On April 17, 2018 this legislation was introduced, permitting a Michigan notary to “perform a notarial act using a remote electronic notarization platform.” Remote electronic notarization is often referred to as “webcam” notarization since webcams are the most common technology utilized for remote notarizations. Webcam notarization makes use of video and audio technology on the Internet to allow signers to appear by webcam and communicate with the notary at the time of the notarization. During a webcam notarization, the signer is not in the notary’s physical presence. HB 5811 specifies the guidelines and establishes the procedures to be followed for remote or webcam notarizations.

The legislation requires that the secretary of state and the Department of Technology, Management and Budget (DTMB) review and approve the remote electronic notarization platform, including features that permit remote credential analysis and identity proofing. The House passed the bill on May 16 and sent it to the Senate Committee on Banking and Financial Institutions. The Michigan Association of Realtors, the Michigan Chamber of Commerce, the Michigan Credit Union League, and the Michigan Creditors Bar Association all favor the legislation. The Michigan Land Title Association requested clarification on the process to be used to record instruments that are notarized remotely. HB 5811 can be reviewed at: http://legislature.mi.gov/doc.aspx?2018-HB-5811.

The bill passed both the House and Senate. It was then signed by the governor on June 28, filed with the secretary of state on July 2, and assigned Pa 330’18 on July 25, 2018 (with immediate effect). The secretary of state and DTMB could approve the remote notarization platform any time after January 1, 2019.

Almost every state has enacted some form of e-notarization law, whether through the adoption of the Uniform Electronic Transfer Act or by its own state law. Many of these laws are based upon the Model Electronic Notarization Act published in January 2017 by the National Notary Association. (See https://www.nationalnotary.org/knowledge-center/reference-library/model-notary-act/model-electronic-notarization-act.)

Senate Bill 664 — Introduced on November 28, 2017, this legislation permits a Michigan notary to “select 1 or more tamper-evident technologies to perform notarial acts electronically.” Similar to HB 5811, this bill requires the secretary of state and the DTMB to review and approve the technologies for the electronic performance of notarial acts. As of this writing, the bill is under review by the Committee on Banking and Financial Institutions.

Electronic or e-notarization differs from remote notarization. Electronic notary is essentially the same as traditional “paper” notarization except that the document being notarized is in digital form and the notary signs with an electronic signature. The signer appears before the notary. As mentioned earlier in this article, remote notarization allows a notary to authenticate the signing of a document remotely, using a technology platform. SB 664 can be viewed at: http://legislature.mi.gov/doc.aspx?2017-SB-0664.

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Legislative Updates: North Carolina

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by Devin Chidester
Brock & Scott, PLLC
USFN Member (North Carolina)

and Lauren S. Thurmond
Hutchens Law Firm
USFN Member (North Carolina)

On June 22, 2018 (with an effective date of July 1, 2018) Session Law 2018-40 was signed into law, amending portions of N.C.G.S. § 45-21.21. The amendments revise the procedure for postponing a foreclosure sale and set forth a new procedure for cancelling a foreclosure sale.

Postponement — Pursuant to N.C.G.S. § 45-21.21(b), the party conducting the foreclosure sale (or authorized agent or attorney) must publicly announce the postponement of the sale at the time and place the sale was originally scheduled to take place as set forth in the notice of sale, provide notice of the sale postponement to all interested parties, and attach a copy of the postponement notice to the originally posted notice of sale. The notice of sale postponement must contain language stating that the sale is postponed, the hour and date to which the sale is postponed, and the reason for the sale postponement. A copy of the notice of sale postponement must either be delivered orally or in written form to all interested parties. The amendment to N.C.G.S. § 45-21.21 now requires that the party conducting the foreclosure sale also provide notice of the sale postponement to the clerk’s office as soon as that party knows that the sale is being postponed.

Cancellation — One amendment to N.C.G.S. § 45-21.21 added a new foreclosure sale cancellation procedure that did not exist under prior law. Specifically, the party conducting the foreclosure sale must provide written notice of a sale cancellation to the clerk of superior court. The notice of cancellation must include the following information: case number; mortgagor(s) and record owner(s) name(s); USPS address or legal description; originally scheduled date and time for the sale; and a statement that the foreclosure sale has been cancelled, withdrawn, or scheduled to a new date/time. If this notice is not provided to the clerk’s office prior to the originally scheduled sale date/time, the party exercising the power of sale must do the following: publicly announce the sale cancellation at the originally scheduled sale date/time; attach the notice of sale cancellation to the originally posted notice of sale; provide written or oral notice of cancellation to the parties entitled to notice of the sale; and “hand-deliver” the notice of sale cancellation to the clerk of court.

In order to ensure compliance with the new sale cancellation requirements, servicers need to be sure that their law firms are timely notified of any pending cancellation(s) (e.g., due to approval of loss mitigation, reinstatement of the loan, or redemption).

What’s Ahead — As currently written, the amendments to N.C.G.S. § 45-21.21 contain drafting errors and may create confusion when applying the changes in practice. Errors contained in subsections (h) and (i) have been recognized by the general counsel for the Administrative Office of the Courts and are supposed to be addressed at the next legislative session (e.g., incorrect references to subsection (b) that should instead reference new subsection (g)). Local rules implemented by the clerks of court in North Carolina’s 100 counties regarding posting of notices of sale postponements and sale cancellations may change as each clerk determines how to proceed. Cancellation of a sale in real time, however, is a welcome (and needed) change.

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Legislative Updates: Ohio

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by William L. Purtell
Lerner, Sampson & Rothfuss
USFN Member (Kentucky, Ohio)

Ohio enacted House Bill 391 (which was effective September 28, 2016), ushering the state’s foreclosure sales into the 21st century. This new legislation contained a novel feature for the foreclosure process: the private selling officer (PSO). A PSO is a licensed auctioneer and broker who can be appointed by the court to administer the foreclosure sale. More importantly, foreclosure sales can now be conducted through the Internet, displacing the traditional sheriff sale on the courthouse steps. Change can be slow, though, as less than 10 percent of this author’s foreclosures sales in 2017 were through a PSO. Despite that, in 2018 — almost two years later — the percentage is starting to climb as the “new” law is being used in significant volume.

Tradition — For two centuries Ohio law required the county sheriff to publicly auction real estate on the courthouse steps to those gathered for the sale. Spread over 88 county seats, attendance at foreclosure sales required a vast network of local agents. Advertisements for the sale were published in the local newspaper for the particular county. It was not until 2008 that the law was amended to allow the sheriffs to list sale information on their own website in addition to the newspaper publication. Suffice it to say that foreclosure practice was relatively staid as far as sales were concerned.

Today — The PSO can hold a sale of the property at any physical location inside the county, including at the courthouse steps or at the property itself. More importantly, the PSO can utilize an online platform to conduct the sale. Some PSOs use their own proprietary websites, while other PSOs enter into service agreements with national platforms (such as Auction.com or Hudson & Marshall). The PSO is authorized to incur expenses to market and advertise the sale in whatever ways they feel are appropriate. The PSO must advertise sales in the local newspaper; they also utilize Facebook, LoopNet, Zillow, and their own customer list. This creates additional expenses not normally incurred by the sheriff; but the goal is to generate more bidders and a higher purchase price, offsetting the increased expenditures. Plus these bidders can be located anywhere in the world — not just in the local county where the courthouse is located.

The major stumbling block to PSO sales is the judge, who must make the decision on each case about whether to appoint the PSO recommended by the lender. The PSO statute, ORC § 2329.152, provides no limits on the court’s authority to accept or reject the lender’s PSO candidate. This is in contrast to Ohio’s receivership statute, ORC § 2735.02, which provides that “In selecting a receiver, priority consideration shall be afforded to any of the qualified persons nominated by the party seeking the receivership.” Therefore, with 244 active judges in the various Common Pleas courts, this can lead to 244 different decisions. In off-the-record conversations with various judges, this author has determined that the judiciary is highly interested in this new law, but would like to see proven results before jumping on the bandwagon. Lenders have expressed the same concerns about wanting to observe results before pursuing PSO sales. Still, someone has to go first, or else the needed data will never be generated. Fortunately, some judges are willing to be vanguards in this new PSO process.

In contrast, other judges want to know why it seems that no one appreciates the local sheriff. As one judge in Cuyahoga County stated in a recent order denying appointment, “Plaintiff's motion to appoint private selling officer is denied. The Cuyahoga County Sheriff is capable of selling the subject property cheaply and expeditiously, obviating the need for a private selling officer. Plaintiff may order sale with the Sheriff.” This sentiment is echoed by a small, yet significant, portion of the judiciary.

What’s Ahead — The goal of the lending industry is to convince the courts that there is no animus toward the local sheriff and, instead, bolster a belief that online sales — with heightened marketing techniques — will increase the quantity and quality of bidders at sale. More bidders means more competition, which raises the final price for a property. Additionally, a higher sale price means more debt is paid off for the lender and more equity can be created for the homeowner. The promise of online sales is to increase the results for all parties involved in the foreclosure. The difficult part is gathering the raw data from thousands of sales to show that this trend is actually occurring. The appointment of a PSO on each new sale adds a new point of data that builds the business case for or against online sales. However, the true test will come when the sheriff goes online to compete against the PSO.

The county sheriff is already authorized to conduct an online sale under ORC § 2329.153, but (as of the writing of this article) the Ohio State has not launched a public website to conduct online sales. This effectively cedes the online market to the PSO for the time being. The court has no discretion to stop a lender from ordering an online sale with the sheriff under this rule. Further, once the public website is launched, this starts a five-year transition period under ORC § 2329.153(e)(1)(a) in which all sheriff sales must be handled online. The end of the five-year period will usher in a complete paradigm shift in which the default option will be an online auction, whereas only a specially appointed PSO will be authorized to conduct a sale at a physical location like the courthouse steps.

The industry is standing at the cusp of a new mode of sale that will alter hundreds of years of real estate practice. The first major step was the creation of the PSO process, with its immediate access to online selling. The second significant step will occur when the sheriff enters the online arena. In five years, Ohio will have fully made the transition from the courthouse steps to the virtual realm. It is certainly an exciting sign of the times!

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Default Servicing Management: Foundational Tenets of Leadership

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by Jeremy B. Wilkins
Brock & Scott, PLLC
USFN Member (North Carolina)

The mortgage loan servicing industry is an assorted blend of professionals comprised of corporate directors, attorneys, compliance experts, and real estate management specialists. Add in federal and state regulatory climates, and the result is an industry with a lot of moving parts. Interests differ as often as they amalgamate. The challenge for success and sustainability falls on managers at all levels. Management must lead with vision, cultivate an atmosphere for success, and continually drive a work product at the highest standards. Whether a law firm, mortgage servicer, investor, or trade organization within the loan servicing industry, the foundational concepts discussed in this piece can be helpful for drivers of long-term organizational success.

Culture
Leadership and culture go hand-in-hand. Culture must be clearly defined in all facets of an operation and be continually validated by management. It is essential for management to establish a culture of consistency of outcome, with the employees’ actions rooted in that consistency, which is defined as continual success at a high level.

To define and promote an institution’s culture, management’s actions and communications will play a vital role. The use of visual aids (e.g., motivational messages) can be effective and impactful. Regular reiteration of core principles will further educate employees about the company’s culture and the company’s success. Consider making it fun at times by finding team-building exercises outside of the daily work functions that intertwine the company’s principles. Managers must define the culture and lead in its development.

Goals + Action = Go-Action
No organization is vibrant without a structure of goals set and promulgated from its management staff — and an action plan to accomplish those goals. It’s a two-step process; goals, standing alone, are hollow ambitions. Accordingly, a viable action plan is necessary to accomplish the goals: “go-action.”

Go-action should be tiered with a lofty, supreme objective setting the agenda, and secondary goals serving to drive this ultimate organizational goal. Go-action must be recalibrated on a regular basis to allow for organizational reassessment and for measures to prevent complacency. Go-action will also drive the company’s identity, interconnecting with the cultural buy-in. Management must lead when it comes to the go-action — with the setting of goals welcomed, rather than resisted. Effective leaders will champion these goals with a connectivity for the downline staff to perform at a high level.

Ask yourself: What is your primary go-action? What is your secondary go-action? When answers are not easily forthcoming, a management team is not ready for prime time. If answers stop at just a goal without action, then failure is looming.

Data Driven
Success in the mortgage loan servicing industry is rooted in the ability to execute a work product at a high level, with accuracy and efficiency, every day, without exception. Data is the measurement of performance. In conjunction with attention to detail, management within the loan servicing industry must be savvy when it comes to analyzing the raw data. Sound managers will exhibit a fluidity with the data before them each day and will ensure that each matter is handled appropriately and timely. Consequently, let the data drive the process when it comes to managing a file, and managing staff, within the milestone arena.

Data will show where and how long a file has been in its current bucket and will set the blueprint for legal or operational action. Management must be data-centric and ensure that information drives the efforts — which goes hand-in-hand with attention to detail. Effective supervisors will work from reporting mechanisms, capturing loan-level data from milestone to milestone, diligently and efficiently.

Using data and reporting mechanisms, management can focus on an environment conducive to effecting attention to detail. Attention to detail is a characteristic that every good manager must have, and organizational goals must bolster this trait. Each loan-level performance metric is rooted in quantifiable data; therefore, each action, down to the minute, must be precise.

Management must implement and lead with controls such as detailed reporting mechanisms; milestone-related checklists; as well as organized, purposeful daily huddles pinpointing specific milestone-related work for daily action items. Management must ensure that these controls are engrained institutionally for sustained effectiveness.

People Development
Sound management (both legally and operationally) will live or die by the staff around them. It should be the objective of management to find the right people — and to develop those people by giving them the tools to succeed. Managers should ensure that staff are placed in a position for success. They should continually evaluate their staff and offer ongoing training protocols to fine-tune daily work functions. They should not fear moving staff to other roles where an individual’s strengths are better suited. Lastly, a fundamentally good manager is always developing their potential replacement. They should expect staff to be trained and, with the right capabilities, able to step into a lead role at any moment. An organization will thrive with comprehensive people development.

In the mortgage loan servicing industry, leadership is paramount. It is the foundation for success and sustainability — a trait that should be embedded within the organization through its people, infrastructure, and vision.

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Illinois: Terminating Pre-Foreclosure Association Liens

Posted By USFN, Wednesday, August 1, 2018
Updated: Tuesday, July 31, 2018

August 1, 2018

by Chris Iaria
Anselmo Lindberg & Associates, LLC
USFN Member (Illinois)

Like clockwork, almost every month brings a new Illinois appellate case addressing the issue of pre-foreclosure association liens. The good news? All of the cases continue to agree that such liens can be terminated via the foreclosure process. The bad news? Illinois courts (even within their own circuit panels) cannot agree on the specific actions required to terminate those liens, nor has any binding court articulated a set of rules to follow — forcing lenders and servicers to read the tea leaves and speculate as to the exact approach.

A Brief History
In 2015, the Illinois Supreme Court released an opinion that held that a condominium association’s liens for unpaid assessments were not automatically extinguished by the foreclosure process. See 1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 Ill. 118372. In countless foreclosure actions, this meant that years of pre-foreclosure assessments could suddenly spring back to life (i.e., zombie liens) if the servicers and lenders didn’t take appropriate steps to terminate those liens.

The Illinois Condominium Act requires the purchaser to make payments from the first day of the month following the judicial sale. The issue that stems from this obvious payment obligation is: when exactly do those aforementioned payments need to be made in order to extinguish pre-foreclosure liens? In Country Club Estate Condo Ass’n. v. Bayview Loan Servicing LLC, 2017 Ill. App. (1st Dist. 2d Div.) 162459 (Aug. 8, 2017), the appellate court held that the payment needed to be made “promptly” after judicial sale. Unfortunately, that decision failed to define the term “prompt” — but also added that “seven months” failed to meet the court’s interpretation of the term prompt. So, what is prompt? Six months or less? One was left to speculate and the lawyers were left to litigate.

Several months later, the court issued another opinion addressing “promptness.” In V&T Inv. Corp. v. W. Columbia Place Condo. Ass’n, 2018 Ill. App. Unpub. LEXIS 563, the court held that the highest bidder must begin making payments from the date of the judicial sale, and not the confirmation of sale; but that certain court delays and other factors can extend the time period for what is considered “prompt.” For example, if a judicial sale occurred on January 1 and the sale wasn’t confirmed until August 1, even though the time period was over 7 months, payment was still prompt if the mortgagee remitted payment in August, centered on a factor-based test.

2018
This year, the court released another opinion on terminating pre-foreclosure condominium assessments. In Quadrangle House Condo. Ass’n v. U.S. Bank, N.A., 2018 Ill. App. (1st Dist. 6th Div.) 171713 (Apr. 20, 2018), the court opined that the judicially created idea of “promptness” was foolish and that the actual Act contained no such requirement. This Quadrangle opinion eviscerated the rigid timing requirement. It was a major victory for lenders and servicers, and the industry was hopeful that it would stand as good law. Unfortunately, two months later a second Quadrangle decision was issued. The facts in the two cases were virtually identical, but a separate panel within the First Judicial District determined that their ambiguous “promptness” rule should have been followed in determining whether the lender made post-foreclosure payments in a timely manner. See U.S. Bank, N.A. v. Quadrangle House Condo. Ass’n, 2018 Ill. App. (1st Dist. 2d Div.) 171711 (June 26, 2018).


Closing Words (For Now)
In Illinois, a bid at a judicial sale is an irrevocable offer to purchase, but the judge ultimately gets to confirm or deny the sale. On its face, it may appear that this matter is as simple as paying immediately following the judicial sale. Oftentimes, however, events outside of a servicer’s control can elongate the period of time from judicial sale to confirmation, and servicers are rightfully reluctant to make payments before confirmation. Examples of common delays include loss mitigation, contested foreclosures, bankruptcy, and — increasingly frequent — an association’s refusal to provide the servicer with the proper payment information (arguing that the servicer is not an owner and, thus, is not entitled to the account information).

Again, it should be noted that all four of the aforementioned appellate court decisions were issued from the First District Appellate Court. With that in mind, it seems probable that the Illinois Supreme Court will have to get involved to clarify. For now, though, there is a substantial risk that the law will continue to change as different interpretations keep unfolding.

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Protecting Tenants at Foreclosure Act Resurrected by Banking Legislation

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018

by Richard M. Nielson
Reimer Law Co. – USFN Member (Kentucky, Ohio)

On May 24, 2018 President Trump signed into law Senate Bill 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act. These revisions to the Dodd-Frank financial reform law have wide-ranging impact on the banking and lending industries.

S.2155 has an item of particular interest to those dealing with mortgage default: Title III, Section 304. This section of the new law repeals the sunset provisions of the Protecting Tenants at Foreclosure Act of 2009 (PTFA). This repeal restores the notification requirements and other protections related to the eviction of renters in foreclosure properties. S.2155 provides that the law and any regulations promulgated pursuant to the PTFA that were in effect on December 30, 2014 are restored and revived 30 days after the enactment of S.2155.

Mortgage servicers, REO vendors, and law firms that represent those entities or otherwise manage post-foreclosure sale activities need to be aware of this restoration. Some states have previously enacted their own versions of the PTFA; however, other states (such as Kentucky) did not, so restoration of PTFA will have an immediate impact upon eviction activities in a number of states. In general, the PTFA may provide tenants with more time to vacate after a foreclosure and increase some notice requirements.

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Bankruptcy Court for the Northern District of Ohio Contests an Ohio Appellate Court’s Interpretation of Holden and Applies the Six-Year Statute of Limitations to Bar Foreclosure

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018

by Ellen Fornash
Anselmo Lindberg & Associates, LLC – USFN Member (Illinois)

After considering state court precedent on the same issue, the U.S. Bankruptcy Court for the Northern District of Ohio has ruled that enforcement of both a note and foreclosure of a mortgage are time-barred by the six-year statute of limitations. In re Fisher, Case No. 17-40457, 2018 Bankr. LEXIS 1275 (Apr. 27, 2018).

Background: State Statutory and Case Law
The Ohio Revised Code limits an action to enforce an obligation of a party to pay a note to six years after the acceleration of the debt. R.C. 1303.16(A). However, Ohio law is well-settled that an action to collect on a note is separate and distinct from one to foreclose a mortgage. Deutsche Bank Nat’l Trust Co. v. Holden, 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243 (Ohio 2016). In Holden, the Supreme Court of Ohio held that the bar of suit on the note does not necessarily prevent an action upon the mortgage securing the debt, citing Kerr v. Lydecker, 51 Ohio St. 240, 253, 37 N.E. 267 (1894). Holden has been interpreted by the Ohio Court of Appeals as permitting foreclosure of a mortgage even when a note has become time-barred. Bank of New York Mellon v. Walker, 2017-Ohio-535, 78 N.E.3d 930 (Ohio Ct. App. 8th Dist. 2017).

In Walker, relying on Holden, the appellate court (Eighth District) determined that a mortgage is no longer simply incident to the note and, therefore, the statute of limitations as set forth in R.C. 1303.16(A) is not applicable to a suit to foreclose the mortgage. Instead, the statute of limitations to foreclose a mortgage is governed by the more generous time frame set forth in R.C. 2305.06, which governs contracts. The Eighth District reaffirmed this interpretation of Holden in another 2017 ruling, wherein the court held that: “As a matter of law, R.C. 1303.16(A) does not apply to actions to enforce the mortgage lien on the property after the payment on the note becomes unenforceable through the running of the statute of limitations.” U.S. Bank N.A. v. Robinson, 2017-Ohio-5585 (Ohio Ct. App. 8th Dist. 2017). Holden, as interpreted by the Eighth District, is the prevailing law in Ohio.

Bankruptcy Court’s Review
The U.S. Bankruptcy Court for the Northern District of Ohio disagrees with the Eighth District’s interpretation of Holden. In In re Fisher, the bankruptcy court was asked to determine whether a proof of claim filed by The Bank of New York Mellon Trust Company (BONY)1 was disallowed on the basis that its underlying claim was barred by the six-year statute of limitations under R.C. 1303.16(A). The request stems from an August 2002 note and mortgage, which became the subjects of a 2006 foreclosure action in the Trumbull County, Ohio Court of Common Pleas.

Bankruptcy #1 — Following the filing of the 2006 foreclosure, the debtors commenced a Chapter 13 bankruptcy case in 2007. Based upon BONY’s proof of claim, the Chapter 13 plan required the debtors to make regular payments on the note and mortgage. In 2012 the Chapter 13 trustee filed a Notice of Final Cure Payment on Residential Mortgage, and the debtors subsequently received a discharge. Shortly thereafter, BONY filed a Motion to Vacate Bankruptcy Stay, seeking to reactivate the 2006 foreclosure action in order to proceed with the foreclosure. Judgment was obtained, but in 2013 BONY voluntarily moved to vacate the foreclosure judgment and dismiss the action. BONY’s motion was granted; the 2006 foreclosure action was dismissed without prejudice.

Foreclosure Action #2 and Bankruptcy #2 — On April 9, 2015 BONY filed a second foreclosure action on the note and mortgage, acknowledging therein the lack of personal liability of the debtors because of their Chapter 13 discharge. Next, the debtors filed a second Chapter 13 petition. In this second Chapter 13 case, BONY, again, filed a proof of claim upon the note and mortgage, to which the debtors objected, asserting that the claim was barred by the statute of limitations. This issue was then put before the Northern District for consideration.

After determining in BONY’s favor that BONY was able to assert a claim in the Chapter 13 case based solely upon the mortgage, the Northern District then reckoned that (1) the note was in fact accelerated with the filing of the 2006 foreclosure, (2) the note was not brought current through the 2007 Chapter 13 bankruptcy, and (3) the note was not “de-accelerated” for purposes of foreclosure. The court noted that nowhere does the Bankruptcy Code nor Black’s Law Dictionary define “de-acceleration.” Further, BONY did not have the ability to unilaterally reinstate the loan, and the debtors had not met the requirements of reinstatement as defined by the terms of the mortgage. The sole remaining issue for the Northern District to consider was whether the statute of limitations under R.C. 1303.16(A) not only applies to a suit upon a note but also operates to bar foreclosure of the mortgage.

Turning to Ohio state law, the bankruptcy court considered Holden and, in doing so, asserted that in permitting separate actions upon a note and mortgage, the Ohio Supreme Court did not address which statute applied to each of the available actions. While BONY used Walker and Robinson to argue that R.C. 1303.16(A) does not apply to a suit purely to foreclose a mortgage, the bankruptcy court noted that such an interpretation appeared limited to the Eighth District. Instead, the Northern District bankruptcy court found favor with the debtors’ position that “when the note is time-barred, the mortgage is also barred.” Bruml v. Herold, 14 Ohio Supp. 123, 125 (Ohio C.P. Geauga Cty. June 29, 1944); see also, Hopkins v. Clyde, 71 Ohio St. 141, 149, 72 N.E. 846, 2 Ohio L. Rep. 342 (Ohio 1904).

In Fisher, the bankruptcy court stressed the fact that Holden did not overturn Ohio law that the same statute of limitations applied to both collection of a note and foreclosure of a mortgage. The bankruptcy court particularly noted that in deciding Holden the Ohio Supreme Court favorably cited Kerr v. Lydecker, 51 Ohio St. 240, 253, 37 N.E. 267 (1894), and Kerr held that, “when a note is secured by the mortgage, the statute of limitations as to both is the same[.]” The fact that Kerr was decided one hundred years before R.C. 1303.16 was enacted had no bearing on the bankruptcy court’s decision and was only mentioned in a footnote (Fisher, n.17). The bankruptcy court thereby held that BONY was barred by the six-year statute of limitations from foreclosing the debtors’ mortgage. This decision now acts as res judicata as to the same parties and issues in the 2015 foreclosure action.

Conclusion
While not binding on state court foreclosure actions, In re Fisher is a blow to mortgagee rights in bankruptcy court proceedings. This decision of the Northern District, as well as the limitation of contrary precedence to the Eighth District, may be persuasive and may lend to foreclosure defense in state courts outside of the Eighth District. Moreover, Fisher provides debtors in default with a strategy to avail themselves of the encumbrance of their mortgage by effectively extinguishing mortgage liens through bankruptcy that have not been pursued within the confines of R.C. 1303.16(A).


1The Bank of New York Mellon Trust Company, National Association fka The Bank of New York Trust Company, N.A. as successor to JP Morgan Chase Bank, as Trustee for Residential Asset Securities Corporation, Home Equity Mortgage Asset-Backed Pass Through Certificates Series 2002-KS6 (“BONY”). On March 26, 2018, Specialized Loan Servicing LLC as servicing agent for U.S. Bank, N.A., not in its individual capacity, but solely as trustee of the NRZ Pass-Through Trust X (“U.S. Bank”) filed Transfer of Claim Other than for Security (Doc. 68), which gave notice that Claim 14 had been transferred by BONY to U.S. Bank. In the memorandum opinion issued in In re Fisher that is discussed in this article, the bankruptcy court referred to BONY as the claimant with respect to the subject Claim 14.

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Fifth Circuit Overturns Foreclosure Judgment: Texas Law on Acceleration Reviewed

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018

by Dustin J. Dreher
Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (Texas)

The U.S. Court of Appeals for the Fifth Circuit recently held that a borrower is entitled to both (1) notice of intent to accelerate, and (2) notice of acceleration following a rescission of only the acceleration of the loan. [Wilmington Trust v. Rob, Case No. 17-50115 (5th Cir. May 21, 2018).] The case is an important and cautionary one for servicers in the state of Texas.

Background
In Rob, the borrowers defaulted on a Texas home equity loan. Although a prior servicer had sent multiple notices of default and intent to accelerate (as well as notices of acceleration) upon acquiring the loan, Wilmington Trust sent the borrowers a “NOTICE OF RESCISSION OF ACCELERATION” (Rescission). The Rescission stated that the lender ‘“hereby rescinds Acceleration of the debt and maturity of the Note’ and that the ‘Note and Security Instrument are now in effect in accordance with their original terms and conditions, as though no acceleration took place.’” It is important to note that nowhere in the court’s opinion does it state that the Rescission sought to rescind the separate notice of intent to accelerate.

Following the Rescission, Wilmington Trust sought to obtain a judgment for foreclosure by filing a foreclosure complaint, stating that Wilmington Trust “accelerates the maturity of the debt and provides notice of this acceleration through the service of this Amended Complaint.” The district court entered a judgment allowing the foreclosure of the home.

Appellate Analysis
On appeal, the Fifth Circuit reviewed the requirements for acceleration under Texas law. In Texas, effective acceleration requires two separate and unique acts, both of which must be clear and unequivocal: (1) notice of intent to accelerate; and (2) notice of acceleration. Typically, the notice of intent to accelerate is sent by the mortgage servicer. It is often referred to colloquially as either a demand or breach letter in order to comply with the terms of the deed of trust. Specifically, section 22 of the Texas Single-Family Fannie Mae/Freddie Mac Uniform Security Instrument states: “The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice will result in acceleration of the sums secured by this Security Instrument and sale of the Property.”

The court concluded that the Rescission effectively rescinded not only the acceleration of the sums secured by the security instrument but also Wilmington Trust’s intent to accelerate the sums due. Since Wilmington Trust did not provide a clear and unequivocal notice of an intent to accelerate, the attempt to accelerate the loan in the foreclosure complaint was invalid, and Wilmington Trust was not entitled to a foreclosure judgment.

Rescissions of acceleration are sent by (or on behalf of) mortgage servicers for a number of reasons. The most common reason is to stop the limitations period from running without waiving the default. In fact, in 2015 the Texas legislature passed HB 2067 to authorize lenders, servicers, and their attorneys to unilaterally waive an acceleration notice by simply sending a notice of rescission by First Class or Certified U.S. Mail to each debtor’s last known address before the limitations period expires.

Closing Words

Prior to the Rob case, there was no indication that rescinding the acceleration would also rescind the separate intent to accelerate, absent specific language to that effect. Based on the present federal court case, however, should a rescission of acceleration be sent, the safest course for the servicer is to now ensure both (1) notice of intent to accelerate, and (2) notice of acceleration are made in order to effectuate a valid foreclosure. Stay tuned for more developments if an appeal of Rob is filed.

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Iowa Reduces Foreclosure Sale Delay and Redemption Periods

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018 and August 1, 2018

 

by Benjamin W. Hopkins
Petosa Law LLP – USFN Member (Iowa)

On May 16, 2018 House File 2234 was signed into law, effectively reducing foreclosure timelines under Iowa’s Foreclosure with Redemption and Foreclosure without Redemption processes.

Effective July 1, 2018, mortgagees utilizing the Foreclosure without Redemption process under Iowa Code Section 654.20 may reduce the delay between entry of foreclosure judgment and sheriff sale. In the cases where deficiency judgment is waived and the property is an owner-occupied one- or two-family residence, the delay may now be reduced to three (rather than six) months. In similar matters where deficiency is preserved, the delay may be reduced to six (rather than twelve) months.

Also effective July 1, under Iowa Code Section 628.26 mortgages may now provide for the reduction of the post-foreclosure sale redemption period for non-agricultural property consisting of less than 10 acres to three (rather than six) months.

While beneficial from a lender’s perspective, the overall impact on Iowa foreclosure timelines is likely to be relatively small because the majority of Iowa foreclosures are completed utilizing the Foreclosure without Redemption process without the mortgagors exercising their right to demand a delay of the sale.

The full text of House File 2234 can be found at https://www.legis.iowa.gov/legislation/BillBook?ga=87&ba=HF2234.

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South Carolina: State Supreme Court Reaffirms the Absolute 10-day Deadline for Filing a Motion to Alter/Amend a Judgment

Posted By USFN, Tuesday, June 19, 2018
Updated: Monday, June 18, 2018

June 19, 2018

by Ronald Scott and Reginald Corley
Scott & Corley, P.A. – USFN Member (South Carolina)

In a recent opinion, the South Carolina Supreme Court reaffirmed the absolute ten-day deadline for filing a motion to alter or amend a judgment as set forth in Rule 59(e), SCRCP.1 The Court expressly stated that, “[t]he failure to serve a Rule 59(e) motion within ten days of receipt of notice of entry of the order converts the order into a final judgment, and the aggrieved party’s only recourse is to file a notice of intent to appeal.” [Overland, Inc. d/b/a Land Rover Greenville v. Nance, Case No. 2016-002151 (S.C. May 23, 2018).]

Background
The facts in this case are that the petitioner (Overland, Inc.) sought damages against Lara Marie Nance, Bank of America, SunTrust Bank, and other defendants. This action arose from Nance’s embezzlement of $1,282,000 from the Land Rover dealership operated by Overland in Greenville, South Carolina. Overland contended that Bank of America and SunTrust owed a duty to Overland, which they breached by allowing Nance to deposit forged checks into fraudulent accounts that she created. The banks responded by filing motions for summary judgment on the grounds that no duty was owed to Overland, who was not a customer at either of the two banks. The circuit court granted the motions for summary judgment; the circuit court denied Overland’s Rule 59(e) motion. Overland filed a notice of appeal, which the court of appeals dismissed in an unpublished opinion filed July 20, 2016. The state Supreme Court granted Overland’s petition for a writ of certiorari.

Conclusion
The Supreme Court affirmed the circuit court’s order granting summary judgment as to the respondents under Rule 220(c).2 Further, the Court affirmed that the ten-day deadline set forth by Rule 59(e) is an absolute deadline. It clarified the confusion surrounding the application of Rule 59(e) in conjunction with Rule 6(b),3 which grants trial courts limited authority to extend deadlines. The Court stated that while Rule 6(b) does allow courts to extend deadlines, given certain conditions, Rule 6(b) does not apply to the strict deadline that must be followed by Rule 59(e). Moreover, Rule 6(b) explicitly excludes Rule 59 from its scope, which lacks the conditions necessary to allow an exception under rule 6(b).4


1 “A motion to alter or amend the judgment shall be served not later than 10 days after receipt of written notice of the entry of the order.” Rule 59(e), SCRCP.
2 See Rule 220(b)(1), SCACR; Oblachinski v. Reynolds, 391 S.C. 557, 560, 706 S.E.2d 844, 845 (2011).
3 See Rule 6(b) SCRCP.
4 See supra Note 3. (“The time for taking any action under rules 50(b), 52(b), 59, and 60(b) may not be extended except to the extent and under the conditions stated in them.”) Id.; Alston v. MCI Communications Corp., 84 F.3d 705, 706 (4th Cir. 1996) (“It is clear ... that the district court was without power to enlarge the time period for filing a Rule 59(e) motion.”)


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