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Minnesota Court Allows One Foreclosure Bid for Multiple Parcels

Posted By USFN, Tuesday, August 8, 2017
Updated: Friday, July 28, 2017

August 8, 2017

by Eric D. Cook and Greta L. Bjerkness
Wilford, Geske & Cook, P.A. – USFN Member (Minnesota)

Some Minnesota sheriffs are challenging single-bid foreclosure sales of real estate consisting of multiple tax parcels each assigned with a different tax parcel ID. The servicing industry universally prefers placing a single bid at sale. In the instance of unrelated or non-adjoining parcels, Minnesota has long required separate foreclosure sales of “separate and distinct farms or tracts.” Minn. Stat. § 580.08 (2016).

Earlier Case Law
In 2013, the Minnesota Court of Appeals created uncertainty by “voiding” a foreclosure sale of two non-adjoining parcels (two residential homes located in different counties) where the lender submitted one bid for both parcels. Hunter v. Anchor Bank, N.A., 842 N.W.2d 10 (Minn. Ct. App. 2013). The court ruled that “[i]f separate parcels of mortgaged property are not sold separately at a foreclosure sale, the foreclosure sale is void …” Id. at 17. Historically, Minnesota attorneys relied on a “voidable” standard where an interested party was required to raise an objection to the single bid at the time of sale. Willard v. Finnegan, 44 N.W. 985, 986 (Minn. 1890).

Since Hunter, title examiners/insurers are closely scrutinizing multiple parcel foreclosures, and some sheriffs have refused to hold the sale unless the lender submits multiple bids where the mortgage property consists of land assigned with two or more tax parcel IDs. Longstanding case law resolves the “separate and distinct” determination on a case-by-case basis and generally allows single bids where the parcels are adjoining, contiguous, or the manner of use is as a single parcel. The Hunter decision ignored Minnesota Supreme Court decisions on the void vs. voidable determination. Thus, real estate practitioners now take a cautious view of the multiple parcel issue in the absence of any direction from the Minnesota Supreme Court.

Recent Appellate Decision
The Minnesota Court of Appeals recently ruled in favor of a lender on a separate parcels case under § 580.08 that more closely follows the historical approach of looking to the manner of the use of multiple parcels and whether the parcels are adjoining and contiguous. Leeco, Inc. v. Cornerstone Bank, No. A16-1875, 2017 WL 2836097 (Minn. Ct. App. July 3, 2017).

The subject real estate in Leeco was a lakeshore property consisting of four separate tax parcels. A lake cabin straddled the line separating two of the parcels, and three of the four parcels would have been considered unbuildable if owned separately due to applicable zoning ordinances. The four tax parcels had been treated as a single tract of land by both parties in the past, and were sold together with one bid, over the objection of the mortgagor at the sale. The trial court and the appellate court reasoned that the parcels did NOT constitute separate and distinct parcels, and therefore one bid at foreclosure sale was appropriate and proper under Minn. Stat. § 580.08.

Conclusion
The takeaway for the industry is to be aware that local counsel will spot the potential challenge created by multiple tax parcel IDs early in the process, and provide the servicer with information to make an informed decision prior to sale. In most instances, local counsel will recommend proceeding to sale with a single bid, depending on the county and circumstances. For servicers wishing to take a more conservative approach (or for a close-call), seeking a court order requiring the sheriff to accept one bid for multiple parcels is an available option — through either a quick declaratory judgment action or judicial foreclosure. In Sherburne and Washington counties, the sheriff and county attorney will informally make a determination upon request of local counsel, and likely without the need for a court order.

 

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New Jersey: Appellate Court Finds a Mortgagee that Merely Secures and Winterizes an Abandoned Property is Not a “Mortgagee in Possession”

Posted By USFN, Tuesday, August 8, 2017
Updated: Friday, July 28, 2017

August 8, 2017

by Michael B. McNeil
Powers Kirn, L.L.C. – USFN Member (New Jersey)

In Woodlands Community Association, Inc. v. Mitchell, __ A.3d __ (App. Div. June 6, 2017), the appellate division of the New Jersey Superior Court recently clarified a point of ambiguity in the law by holding that a mortgagee that merely winterizes and secures an abandoned property by changing the locks is not a mortgagee in possession responsible for payment of condominium fees and assessments. In overturning a grant of summary judgment, the appellate court rejected the trial court’s reasoning (which has become popular among courts hearing these types of cases) that the mortgagee was in exclusive control of the property — such that it acquired the status of a mortgagee in possession — because it held the only known set of keys to the property.

The court also provided useful guidance by distinguishing the facts of two cases that are controlling on this subject. In Scott v. Hoboken Bank for Sav., 126 N.J.L. 294 (Sup. Ct. 1941), the mortgagee was found to be a mortgagee in possession where it had assumed control over the collection of rents from tenants and made repairs to the building. Similarly, the mortgagee in Woodview Condo. Ass’n, Inc. v. Shanahan, 391 N.J. Super. Ct. 170 (App. Div. 2007), was found to be a mortgagee in possession because it took it upon itself to rent out the mortgaged units and collected the rents.

By contrast, the court found that the mortgagee in the Mitchell case, who merely changed the locks and winterized the property, did not exercise sufficient control and management over the property to deem it a mortgagee in possession. The court went on to explain that the use of the word “possession” in “mortgagee in possession” is misleading, as the concepts of dominion and control over the property — e.g. operation, maintenance, use, repair, paying utility bills, and collecting rents — are more important in determining whether a mortgagee should be considered a mortgagee in possession than is the concept of possession of the property alone.

Finally, the court rejected the argument that the mortgagee should be responsible for the condominium fees and assessments under the equitable doctrines of unjust enrichment and quantum meruit. The court observed that the mortgagee was not a member of the condominium association and that the parties did not have an express contract for the provision of services by the association. The court also observed that the services furnished by the association were for the benefit of the entire condominium complex and the association members. Absent a determination that the mortgagee was a mortgagee in possession, the court saw no basis to find an implied contract to satisfy the equitable doctrines.

Following the Mitchell decision, a mortgagee must do more than merely winterize and secure an abandoned property by changing the locks to be considered a mortgagee in possession in the state of New Jersey. However, it remains to be seen how this decision will interplay with N.J.S.A. 46:10B-51 and similar municipal ordinances, which require mortgagees to abate local housing and building code violations for vacant and abandoned properties. At least for now, though, the court has provided some much needed clarity on a previously murky concept in the law.

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New York: Effect of Lack of Proof of Pre-Acceleration Notice when a Condition Precedent

Posted By USFN, Tuesday, August 8, 2017
Updated: Monday, July 31, 2017

August 8, 2017

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

A new case reveals, perhaps confirms, that if notice is required as a condition precedent to declaring the full mortgage balance due (acceleration), failure to prove compliance with the notice provision will defeat the foreclosure. [U.S. Bank National Association v. Singh, 147 A.D.3d 1007, 47 N.Y.S.3d 437 (2d Dept. 2017)].

Procedurally, a summary judgment was reviewed in the cited case — with the appellate court determining that “the [trial court] should have denied the plaintiff’s motion for summary judgment.” Although the decision did not say so, unless the foreclosing plaintiff is able to be more precise with proof at a trial on the issue, the entire action would be dismissed.

As an overview, there are three versions of pre-acceleration notice that might be required:
1. the 90-day notice mandated by statute (RPAPL § 1304) in a home loan foreclosure;
2. the 30-day notice imposed by the Fannie Mae/Freddie Mac form of mortgage (typically employed for the residential situation); or
3. a notice provision as part of a particular mortgage, possibly applicable to commercial loans.

In the instant case, it happened to be a situation of number 3 — the negotiated mortgage provision. The mortgage necessitated the sending of a notice before the balance could be accelerated. On appeal, the ruling was that “[t]he evidence did not establish that the required notice was mailed by first-class mail or actually delivered to the [borrower’s] ‘notice address’ if sent by other means, as required by the terms of the mortgage agreement. [Citations omitted.] The plaintiff’s failure to make a prima facie showing required the denial of its [summary judgment] motion...”

Had the notice been sent? It is not possible to tell. It may have been. Records must be maintained enabling the proving of the point.

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New York: Monthly Bank Statements Defeat the Foreclosure

Posted By USFN, Tuesday, August 8, 2017
Updated: Monday, July 31, 2017

August 8, 2017

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

Lenders are, of course, aware of their own computer-generated statements that go to borrowers (usually) monthly. What sometimes can happen is that these statements reflect different sums due or some other interest rate. If this occurs, borrowers would want to use such a discrepancy to defend against a foreclosure. While (traditionally) New York case law was comforting to lenders on this point, a recent decision ruled the other way and presents a sobering lesson. [See 2390 Creston Holdings LLC v. Bivins, 149 A.D.3d 415, 51 N.Y.S.3d 61 (1st Dept. Apr. 4, 2017).] The fact pattern here presented must be avoided.

Background — A mortgage loan was seriously in default with considerable default interest due. An acceleration letter was sent, which particularly emphasized that acceptance of any lesser sums would not be a waiver and that any changes had to be in writing. When the borrower submitted all the principal in arrears, but with interest at the note rate, the bank inexplicably generated a statement showing an “adjustment” to the account with a credit for the difference between default interest and the note rate of interest. Thereafter, the bank sent the borrower twenty consecutive invoices consistent with the original loan terms; that is, reflecting note rate interest.

The loan was assigned and the assignee, after making a demand, began a foreclosure based upon the continuing arrears in default interest. In granting summary judgment to the borrower, the court determined that the “adjustment” in the bank’s statement and the twenty consecutive invoices were inconsistent with demand for full payment of principal and interest — namely, counter to an acceleration. Moreover, even if the waiver asserted by the borrower was to be deemed a loan modification, and therefore required to be in writing, the bank was found to have expressly reversed the default interest rate and the default interest charges.

Conclusion — In sum, the bank was held to have intentionally waived its right to acceleration with interest at the default rate and the foreclosure was dismissed.

Editor’s Note: The author’s firm represented the appellants in the summarized case.

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Washington: State Supreme Court holds that a Successor-in-Interest to the Trustee’s Sale Purchaser can pursue an Unlawful Detainer Action

Posted By Rachel Ramirez, Thursday, August 3, 2017
Updated: Thursday, August 3, 2017

August 8, 2017

by Joshua Schaer
RCO Legal, P.S. – USFN Member (Oregon, Washington)

The Supreme Court of the State of Washington recently decided the case of Selene RMOF II REO Acquisitions II, LLC v. Ward (Wash. Aug. 3, 2017).

Facts: Ward originally purchased a residence with a secured loan in 1999, but in 2001 she deeded the property to an individual named Dorsey. Ward claimed that, in 2004, Dorsey transferred title back to her via quitclaim deed (QCD) for one dollar in consideration. However, the QCD lacked a full notarization and it was not recorded.

In 2005, Dorsey deeded the property to a couple and recorded that conveyance. In 2007, the couple transferred title to an individual named Dreier; he obtained a refinance of Ward’s loan and encumbered the property with a new deed of trust. Ward continuously occupied the property and continued to make mortgage payments even after the refinance.

After a default occurred in 2008, nonjudicial foreclosure commenced. Ward filed suit, but she failed to restrain the sale, and her claims were ultimately dismissed. In 2009, the property sold at auction to LaSalle Bank, who received a trustee’s deed. In 2012, LaSalle Bank sought to evict Ward through an unlawful detainer action (UD), but discontinued that attempt once it became contested. Later in 2012, LaSalle Bank conveyed the property to Selene via a recorded special warranty deed.

Eviction Hearing and Appeal: In 2014, Selene filed its UD against Ward. For the first time, Ward disclosed the unrecorded QCD in response to Selene’s request for a writ of restitution. The trial court issued the writ.

In 2016, Ward successfully appealed. [See Selene RMOF II REO Acquisitions II, LLC v. Ward, Wash. Ct. App., Div. 1 (Feb. 29, 2016).] The Court of Appeals held that state law only gives a trustee’s sale purchaser the automatic right to prosecute a UD, and Selene was merely a later owner of the property. Further, Selene could not invoke a different provision of the UD statute to evict Ward because Ward had “color of title” through the QCD. The Washington Supreme Court subsequently granted Selene’s Petition for Review.

Final Result: In a 5-4 opinion, the Supreme Court agreed with Selene’s contention that the UD process is not strictly limited to a trustee’s sale purchaser, and statutory rights are transferrable to a successor-in-interest. The Court adopted Selene’s citation to a California case, Evans v. Superior Court, 67 Cal.App.3d 162 (1977), which is on-point. Secondly, the Court also sided with Selene by ruling that a UD action is not the proper forum for litigating title issues; Ward should have either restrained the nonjudicial foreclosure sale or brought a separate civil action to adjudicate her claim. Finally, the Court observed that Ward’s QCD was not properly notarized or recorded, and she therefore lacked “color of title.”

This outcome is a significant industry victory as it protects the rights of REO assignees.

Editor’s Note: The author’s firm represented the appellant Selene before the Washington Supreme Court in the Selene RMOF II REO Acquisitions II, LLC v. Ward case discussed here. Earlier articles on this case have been published in the USFN Report (spring 2017 Ed.) and in the USFN e-Update (Apr. 2016 Ed.), which can be viewed in the Article Library at www.usfn.org.

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Are the Carolinas Moving? NC and SC Border Change: Effects on Affected Properties

Posted By USFN, Tuesday, August 1, 2017
Updated: Monday, August 14, 2017

August 1, 2017

by Lanée Borsman, John Kay, and Alan Stewart
Hutchens Law Firm LLP
USFN Member (North Carolina, South Carolina)

Although we may have thought that the border between North and South Carolina was firmly established when the Province of Carolina was divided in 1729, the truth is that the line once thought of as the border between the two then-colonies contained numerous and substantial errors in its measurements. These discrepancies in the border have now been resolved through cooperation of the two states by a comprehensive re-survey of the North Carolina/South Carolina boundary line.

Re-surveyed
The boundary line between North and South Carolina has not actually moved. The ground, at least, is just where it has always been. However, the natural monuments that marked the respective territories have shifted or disappeared over the years. So, those who staked claims along those boundaries and thought that they were in one state (or the other) have left their heirs and assignees scratching their heads.

The line has been re-surveyed, not re-drawn. The Carolinas did not swap any properties or buy out tracts from one another. Instead, the true historical boundary line has been identified by the new survey and … well … some folks aren’t in the state that they thought they were in.

The two states cooperated in the re-survey and enacted sister legislation to deal with the practical effects of the “new” line. The North Carolina General Assembly enacted Session Law 2016-23, and the South Carolina General Assembly enacted Senate Bill 667. Each clarified the location of the boundary between the two states. Both laws took effect on January 1, 2017 and are expected to impact approximately 1,400 parcels of real property.

Judicial or Nonjudicial?
As a result of the boundary re-survey, certain properties previously believed to be in one state are in fact wholly or partially within the other state. Generally, North Carolina is nonjudicial, or quasi-judicial, when it comes to foreclosure. South Carolina, on the other hand, uses a judicial foreclosure process. So, how does the foreclosing entity proceed when it’s discovered that the ground they’ve put the lien on is actually in the other state?

First, it is not necessary, nor is it recommended, that copies of documents from one state be re-recorded in the other. The “official title” is found in that state in which the property has been taxed and where it was considered to lie prior to January 1, 2017. From the effective date of the boundary certification (January 1, 2017), North Carolina will extend full faith and credit to all conveyances and instruments of title made in accordance with South Carolina law prior to the boundary certification with respect to parcels of property that are now wholly or partially within the boundary of North Carolina. Any liens recorded with any register of deeds or clerk of superior court prior to the boundary certification shall attach to the affected parcels as of the date of the boundary certification. This class of liens will have priority with respect to other liens as of the date of boundary certification, but will retain the same priority among them as they had before certification, and the same is true for property that — prior to the boundary certification — was located in North Carolina but is now located in South Carolina.

Second, the title examination must be undertaken in the correct state(s) and be carefully reviewed by foreclosure counsel. Pursuant to the new laws, a “Notice of Affected Parcel” is recorded in each North Carolina county, and a “Notice of Boundary Clarification” is recorded in each South Carolina county. These documents are indexed so that they appear in the chain of title for the borrower/landowner. There will be occasions where a search in both states is warranted and a dual state foreclosure may be necessary.

Additionally, any South Carolina foreclosure proceedings filed with respect to an affected parcel must comply with S.C. Code § 29. As of January 1, 2017, when a mortgagee initiates a foreclosure proceeding with respect to “affected land” (defined as “real property of an owner whose perceived location has been clarified pursuant to the boundary clarification legislation”), the mortgagee’s attorney of record must file, with the court, a copy of the Notice of Boundary Clarification (together with the attorney’s certification) that title to the real property has been searched in the affected counties — in both South Carolina and North Carolina — and that all parties having an interest in the real property have been served with notice of the foreclosure action.

The foreclosure proceedings are stayed until the attorney has filed the certification. The mortgagee’s attorney of record must also serve, along with the summons and complaint, a copy of the recorded Notice of Boundary Clarification on all parties identified in the notice or known to have an interest in the affected land.

With respect to foreclosure actions already pending as of January 1, 2017, before any hearing on the merits (or if an order for sale has already been entered, then before sale), the mortgagee’s attorney of record must serve (by certified mail or overnight delivery) a copy of the Notice of Boundary Clarification and all filed pleadings on any party identified in the notice — or known to have an interest in the affected land — who is not already a party to the action. These additional parties shall have 30 days from the date when the mortgagee’s attorney mails the notice to file an answer or other response to the foreclosure complaint.

If any party who is served with the Notice of Boundary Clarification in connection with a foreclosure proceeding does not file a response within 30 days of service, the mortgagee’s attorney shall certify that fact to the court. The case will proceed as with any other foreclosure case; however, the mortgagee must continue to serve all parties with notice of any hearing and of the sale.

Moving Forward

These are unchartered waters, so it is critical to proceed on a case-by-case basis. When a Notice of Affected Parcel or Notice of Boundary Clarification, as applicable, is discovered in the title search, foreclosure counsel needs to carefully review the title and also examine the security instrument to determine whether it can be foreclosed using the respective Carolina’s usual process. This will help to ensure that the foreclosure process moves smoothly forward, while the ground stays in place.

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National Chapter 13 Plan Project

Posted By USFN, Tuesday, August 1, 2017
Updated: Monday, August 14, 2017

August 1, 2017

by Michael J. McCormick
McCalla Raymer Leibert Pierce, LLC
USFN Member (Connecticut, Florida, Georgia, Illinois)

The genesis of the National Chapter 13 Plan Project was approximately five years ago. Originally proposed by now-retired U.S. Bankruptcy Judge Eugene Wedoff (N.D. Ill.), the main idea behind the project was to make Chapter 13 more uniform and efficient, especially for national creditors or attorneys practicing in more than one jurisdiction (i.e., having to deal with more than one plan version).

The project is coming to a conclusion, and after several iterations and rounds of public comment, there have been less than optimal results for creditors. This less-than-ideal situation is the result of large-scale opposition to a nationwide plan by judges and other stakeholders, which was mostly unforeseen when the Advisory Committee on Rules of Bankruptcy Procedure embarked on this mission years ago.

Unfortunately for proponents of Official Form 113, it became clear that the idea of a national plan was not going to be adopted without some form of a compromise, which is now contained in newly-adopted Federal Rules of Bankruptcy Procedure Rule 3015.1.

The U.S. Supreme Court recently authorized a number of significant changes to the procedural rules applicable to bankruptcy proceedings, including the adoption of Official Form 113. Unless Congress intervenes, the new rules will take effect on December 1, 2017.

Under amended Rule 3015(c), debtors will need to use Official Form 113 for their plan unless their jurisdiction has adopted its own local form (i.e., a conforming plan), which must itself include the information outlined in Rule 3015.1. Among other things, Rule 3015.1 will compel conforming plans to include a paragraph requiring the debtor to highlight any nonstandard plan terms, specifications limiting any secured creditor’s claim to the value of its collateral, or provisions seeking to avoid a lien on the debtor’s real or personal property.

Between now and December 1, districts should be deciding whether to use Form 113 or adopt a conforming plan. Some districts are much further along in the process, having already determined which plan to adopt and holding seminars to educate practitioners about the changes. Other districts have only recently sent out emails soliciting public comment and, unfortunately, there is still a third group of districts that appear to have done little and may not be able to formally adopt one plan or another prior to the looming December 1 date. The result in such situations is that Form 113 becomes the new plan in those districts.

It is anticipated that not all debtor attorneys will receive word of the change and some jurisdictions will be more forgiving than others about accepting outdated plans in cases filed after December 1.

The USFN Bankruptcy Committee is working to compile a table showing which plan each district intends to adopt. As this USFN Report is being finalized for print, it appears that only seven districts have thus far adopted the national Chapter 13 plan (Form 113), effective on December 1, 2017: Alaska; Illinois (Northern District); Indiana (Northern District); Iowa; New York (Western District); Ohio (Northern District); and Utah.

Accordingly, at the moment, it seems that the majority of districts are choosing to opt out pursuant to new Rule 3015.1 and adopt their own conforming plan. Stay tuned …

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To Claim or Not to Claim? That is the Question

Posted By USFN, Tuesday, August 1, 2017
Updated: Monday, August 14, 2017

August 1, 2017

by Michael Freeman
Samuel I. White, P.C
USFN Member (Virginia)

and Charles Pullium
Millsap & Singer, LLC
USFN Member (Missouri)

In May, the U.S. Supreme Court issued what one could conceive to be a “unifying” decision (in some, if not all, respects) as to the position the bankruptcy courts take on addressing the applicability of the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §§ 1692, et seq.) to the filing of an initial proof of claim (POC). [Midland Funding, LLC v. Johnson, 581 U.S. __ (May 15, 2017)]. Some may hail it as a landmark case, but others (including these authors) advise to proceed with caution because certain issues are still open questions. The biggest disparity in approaches is in non-bankruptcy.

Previously the circuits were split regarding bankruptcy cases — with the Johnson case from the Eleventh Circuit finding that the FDCPA applied in the context of a disallowed, time-barred proof of claim. On the other hand, the Fourth Circuit held, in In re Dubois, 834 F.3d 522 (4th Cir. 2016), that a time-barred debt could be included in a proof of claim.

The Decision — The Supreme Court’s decision itself is clear: the filing of a POC on a time-barred debt was held to not be false, deceptive, misleading, unfair, or an unconscionable debt collection practice within the meaning of the FDCPA. In its discussion, the Court thoroughly examined the issues that would result if it ruled the other way. Still, the need for caution comes from one of the simplest of statements: “But the context of a civil suit differs significantly from the present context, that of a Chapter 13 bankruptcy proceeding. The lower courts rested their conclusions upon their concern that a consumer might unwittingly repay a time-barred debt.” These sentences left breathing room for additional arguments to be made.

In its analysis, the Court looked at various factors. First, the Court found that the Bankruptcy Code defines the word “claim” without any mention of a right to enforceability or the statute of limitations (specifically referencing several sections, including 11 U.S.C. § 502(b)(1) and § 101(5)(A)). Second, the Court looked at the difference between a Chapter 13 bankruptcy and a civil court lawsuit. This was important, as a bankruptcy differs in a few ways from a civil suit — including that there is an additional party involved (namely the Chapter 13 trustee) and that the debtor institutes the proceeding. Third, because the claim is part of the bankruptcy case, the ultimate result is that the debt will be discharged if it is asserted. Accordingly, there is a benefit to the debtor even if it is unenforceable, and it would be removed from any credit report. Fourth, and perhaps most importantly, is that attempting to switch the burden to be on the creditor — prior to filing the proof of claim — would cause the Court to create a categorical exception with vague boundaries about when the exception should and shouldn’t apply, instead of the “simple affirmative-defense approach” that now exists.

The Court also relied on the fact that in a previous review for amendments to the Bankruptcy Code in 2009, the Advisory Committee had an opportunity to incorporate a similar option; i.e., to include a certification that there was no valid statute of limitations defense when filing a proof of claim. This was rejected and, instead, the committee noted that Rule 9011’s general obligations regarding a review of existing law and the claim were sufficient when signing the certification. In the particular case before the Court, it was clearly stated on the POC that the last time a charge appeared was more than ten years before the subject bankruptcy was filed (with the relevant statute of limitations being six years).

A Strong Dissent — The 11-page dissenting opinion, authored by Justice Sotomayor and joined by Justices Ginsburg and Kagan, was rather scathing in its disagreement. Sotomayor began by castigating all who qualify as “professional debt collectors” as a group who “have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced …”.

The first portion of the two-part dissent focuses on the debt collection industry, the abusive tactics employed, and the efforts by the courts and government to rein in the abuse. The second part focuses on the FDCPA, statutes of limitation, and discrediting the majority’s contention that the structural features of bankruptcy provide protections to the debtor. Sotomayor recites the practice of debt collectors filing suit in ordinary civil courts to collect debts that they know are time barred, and notes that “[e]very court to have considered this practice holds that it violates the FDCPA.” (This position may or may not be accurate in that these authors are unaware of any courts of appeal that have directly considered the issue.) Further, the dissent’s focus on statutes of limitation does not address the glaring reality that, in 48 of the 50 states, the expiration of the statute of limitations does not extinguish the debt; it simply gives rise to an affirmative defense. Affirmative defenses may be waived. Moreover, a debtor can revive a debt that was otherwise stale or subject to a statute of limitation.

Indeed, Sotomayor’s dissent points out that when debt collectors try to collect the debts, “many consumers respond by offering a small partial payment to forestall suit” and thereby revive a once time-barred (but not extinguished) debt, restarting the statute of limitations. The dissent speaks forcefully in stating: “Debt collectors’ efforts to entrap consumers in this way have no place in honest business practice.”

Lastly, the dissent emphatically makes two points: First, it observes that the question of whether the Bankruptcy Code precludes application of the FDCPA to the process of filing proofs of claim was not addressed by the majority’s holding. Second, the dissent also takes advantage of the majority’s reluctance to declare a position on whether a debt collector violates the FDCPA by filing suit in an ordinary court to collect a debt that it knows is time barred. Rather, the majority “concludes, even assuming [emphasis added] that such a practice would violate the FDCPA, a debt collector does not violate the Act by doing the same thing in bankruptcy proceedings.” Whether or not such an assumption has basis in law, the dissent’s implication is clear: filing such a suit may well invite an FDCPA lawsuit.

The Takeaway
— With the entry of this opinion, we circle back to a cautious approach. While the Chapter 13 context is resolved to a great extent, from a lender/creditor perspective this would seem to open the door to the filing of more proofs of claim. However, there are still impacts that may be felt from a state court and litigation aspect that must be taken into account. As such, although the Court may not require it, lenders and creditors should institute a review for the obvious triggers — last activity date and last payment date — of the FDCPA as a part of their claims process so that they can quickly respond to any challenges. And, in the context of civil litigation, beware: The dissent has given warning.

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Legislative Updates: Seven States

Posted By USFN, Tuesday, August 1, 2017
Updated: Monday, August 14, 2017

August 1, 2017

Connecticut

 

by Adrienne Roach
Bendett & McHugh, P.C.
USFN Member (Connecticut, Maine, Vermont)

During the 2017 Connecticut Legislative Session, several bills were proposed, passed, and codified in the Connecticut General Statutes (C.G.S.) that will impact landlord/tenant law in foreclosed properties as of October 1, 2017.

Rent Collection by Former Owner — Public Act 17-26 amends section 53a-128 of the C.G.S. to make a non-owner of real property, who collects rent, subject to criminal penalties: “Any previous mortgagor of real property against whom a final judgment of foreclosure has been entered, who continues to collect rental payments on such property after passage of such mortgagor’s law day, and who has no legal right to do so, shall be subject to the penalties for larceny under sections 53a-122 to 53a-125b, inclusive, of the general statutes depending on the amount involved.” The crimes range from larceny in the first degree (a Class B felony punishable by a term of no greater than twenty years) to larceny in the sixth degree (a Class C misdemeanor punishable by a term not to exceed three months) depending upon the dollar amount in question.

The only remedy previously available was for the occupant to file an action in small claims court to recover the sums paid to the former owner after title vested, because the former owner had no legal right to collect those funds. As of October, the former mortgagor’s conduct will become a criminal offense, and need only be reported to the authorities rather than prosecuted in a separate civil action.

Security Deposits — Public Act 17-236 modifies the existing security deposit statute, C.G.S. section 47a-21, to restrict security deposits for tenants sixty-two years of age or older to no greater than one month’s rent. The statute further requires that when a tenant reaches the age of sixty-two, his or her landlord must return to the tenant the amount of the security deposit that exceeds one month’s rent upon the tenant’s request.

Death of a Tenant — Public Act 17-22 modifies section 47a-11d of the summary process statutes, which deals with the death of a tenant. The new rule requires that the landlord notify both the next of kin (as required previously) as well as the occupant’s designated emergency contact by both regular and certified mail that the occupant has died and the landlord intends to remove any personal property.

The notice must instruct its recipient to immediately contact the landlord or probate court for information as to how to reclaim the property. [If the landlord does not know the next of kin, or no emergency contact is designated by the occupant, the landlord shall file an affidavit with the probate court in accordance with the terms of the statute.]

If property is not reclaimed within sixty days of the date of the notice, property may be disposed of by obtaining a certificate from the probate court, and filing such certificate and an application in the superior court having jurisdiction over the premises (there is no filing fee). Such certificate shall be deemed a summary process judgment of the court, and execution is to be carried out in accordance with the summary process statutes. If the deceased occupant’s estate is opened in probate court within fifty-five days of the filing of the affidavit, any action of the landlord pursuant to this section shall cease.

opened in probate court within fifty-five days of the filing of the affidavit, any action of the landlord pursuant to this section shall cease.

Delaware 

by James Clarke
Orlans PC 
USFN Member (Delaware, Massachusetts, Michigan)

House Bill 76 (which passed the House on 3/30/17 and the Senate on 5/10/17) extends the Office of Foreclosure Prevention and the Automatic Residential Foreclosure Mediation Program until January 18, 2020. Originally scheduled to end on January 18, 2014 (two years after their initial enactment), the sunset date was extended to January 18, 2018 in 2013. The latest bill will now extend the office and the program for two additional years until January 18, 2020; the legislation is expected to be signed into law by the governor.

 

Florida

by Robyn Katz and Jenna Baum
McCalla Raymer Leibert Pierce, LLC 
USFN Member (Connecticut, Florida, Georgia, Illinois)

On June 14, 2017 Governor Scott signed House Bill 483/Senate Bill 398 into law, which provides significant reform in regards to estoppel certificates provided by condominium and homeowners associations, and makes substantial changes to all three of Florida’s community association statutes (chapter 718, 719, and 720). 

The new law provides for a cap in the fees an association can charge for the estoppel certificate as well as providing a standard form for the estoppel certificate. The bill requires that the estoppel certificates be provided to the requester within 10 days after receipt of the written or electronic request — and must be valid for a minimum of 30 days if provided via hand delivery or by electronic means, and 35 days if provided by regular mail. The fee cap is $250 for owners who are current on their assessments; a charge of $150 can be added if the owner is delinquent on the assessments. An expedited charge of up to $100 can be added if the estoppel request asks for delivery within three days.  

Under the new law, effective July 1, 2017, the association may not collect sums beyond the amounts specified in the estoppel certificate from anyone who relies on the certificate in good faith. Additionally, no fee can be charged by the association if the estoppel certificate is delivered to the person (or entity who requested it) more than 10 business days following receipt of the request.

These estoppel certificates are regularly requested post-issuance of Certificate of Title upon conveyance to FHA or VA and in preparation for REO closings. Servicers, investors, law firms, and title companies should review the estoppel certificates for compliance with the statutory language as well as adherence to the time frames and fee caps. [The required language and the final House Bill 483 are linked here.]

The prospective effect of this legislation is that it will be beneficial to meeting closing deadlines as it provides clear standards for the estoppel certificate turnaround times. Additionally, the cap on what associations can charge for preparation of estoppel certificates is anticipated to provide savings; in the past, associations had free range to charge what they considered “reasonable.”

Pursuant to the new house bill, COAs, Co-Ops, and HOAs will have to provide the estoppel certificate within 10 business days. Should the association fail to comply and not provide an estoppel certificate within those 10 business days, then a fee may not be charged for the preparation and delivery of that certificate. Further, should the association still fail to stay in compliance and not waive the estoppel preparation fee, then a summary proceeding (pursuant to Florida statute 51.011) may be brought in court and the prevailing party will be entitled to recover reasonable attorney fees. Therefore, associations can be held accountable by potential loss of estoppel preparation revenue or with the possibility of paying court costs and attorney fees.

Maryland 

by Angie Nasuta
The Alba Law Group, P.A. 
USFN Member (Maryland)

The Maryland legislature has once again been active in regulating the local residential foreclosure process.

New Foreclosure Registration
— The first bills of particular interest are House Bill 1048 and cross-filed Senate Bill 875, which have been approved by the governor but are not effective until October 1, 2018. This legislation requires that within seven days of filing an action to foreclose residential property, the substituted trustees must provide a notice of foreclosure to the Maryland Department of Labor, Licensing and Regulation (DLLR). The notice of foreclosure must contain certain specified information about the property and about the substituted trustees; it must be in the form that the department requires — which has not yet been established. This author’s firm will be closely monitoring DLLR’s activity for its regulations on this new notice/registration, which will hopefully be adopted well in advance of the delayed effective date.

New Foreclosure Notices — Legislation has been enacted to require additional notices in the foreclosure process beginning October 1, 2017. HB26/SB247, which have been approved by the governor, add to Maryland Real Property § 7-105.2(b) that notice of a proposed foreclosure sale under this article must also be sent to a condominium or homeowners association that has recorded a statement of lien against the property at least 30 days before the sale date. Procedurally, though, this change doesn’t really impose anything new upon foreclosure counsel, as Real Property § 7-105.3 (which has been law in one form or another since 1957) already requires notice of foreclosure sale to all holders of subordinate interests of record.

The key addition made by HB26/SB247, however, is the new requirement concerning postponed or canceled foreclosure sales. Within 14 days of sale postponement/cancellation, the substituted trustees must now send notice of the postponement/cancellation to the record owner of the property and any condominium/homeowners association that was sent notice of the proposed sale.

Vacant and Abandoned Properties — As with many states across the country, another Maryland focus in recent years has been to address concerns about vacant and blighted properties through so-called “fast-track” foreclosure options. The underlying mechanics and potential for challenges with these options, however, have limited the interest of mortgage servicers in pursuing what has been made available so far.

Signed by the governor on May 25, 2017, House Bill 702 and cross-filed Senate Bill 1033 provide a new expedited foreclosure process for vacant and abandoned properties — under certain circumstances. HB702/SB1033 (effective October 1, 2017) authorizes a secured party to petition the court to immediately commence foreclosure of its lien instrument if the property meets all of the following criteria:

the loan has been in default for 120 days or more;
no mortgagor has filed a challenge to the foreclosure “setting forth a defense or objection that, if proven, would preclude the entry of a final judgment and a decree of foreclosure”;
no mortgagor has filed a statement with the court that the property is not vacant or abandoned; and
at least three out of a list of eleven specific circumstances regarding the property exist; e.g., status of utilities, condition of windows and doors, vandalism and criminal conduct, junk and hazardous materials, citations, condemnation, vacancy, written statement of intent to abandon, and a catch-all for other “reasonable indicia of abandonment.”

HB702/SB1033 will certainly be Maryland’s strongest attempt thus far at denting the local vacant and blighted properties issue. Unfortunately, the degree of limitations written into even this most recent piece of legislation suggests that there will continue to be limited interest from servicers in actually pursuing this newest option.

On a local note: In April, the County Council for Montgomery County approved Bill No. 38-16 (effective July 24, 2017) concerning “Housing and Building Maintenance Standards – Foreclosed Property Registration Penalty.”

 

Texas

by Ryan Bourgeois
Barrett Daffin Frappier Turner & Engel, LLP
USFN Member (Texas)

The Texas Legislature adjourned its 85th Regular Legislative Session on May 30, 2017. Two bills passed affecting mortgage foreclosures. HB 1470 provides new protections and authorities for foreclosure trustees and auction companies. HB 1128 moves the foreclosure sale date to the first Wednesday in a month when the first Tuesday falls on January 1 or July 4. HB 1217 establishes a framework to allow electronic remote notarizations. Finally, the legislature passed SJR 60. The resolution authorizes a November referendum vote on proposed constitutional amendments to facilitate home equity lending. The changes will become law if a majority of Texas voters approve the initiative. Summaries of these measures are included below.

HB 1470 — HB 1470 modernizes Texas statutes to conform to contemporary foreclosure practices. It clarifies the Texas auctioneer licensing exception to assure that all types of security instruments are included, and that both substitute trustee and auction companies are within the exception. HB 1470 also enacts Texas Business and Commerce Code Chapter 22. Texas security instruments require foreclosure trustees to market and sell the property at the foreclosure sale. After the sale, foreclosure trustees must determine the persons legally entitled to proceeds, the priority of claims, and make corresponding disbursements.

HB 1470 clarifies that auction companies can assist foreclosure trustees in marketing and advertising sales. Foreclosure trustees are authorized to contract with an attorney to perform any of the trustee’s functions. These provisions conform Texas statutes to reflect current practices, resolving ambiguities in Texas law. The bill confirms that foreclosure trustees are entitled to be paid reasonable fees and costs out of sales proceeds. The bill does not specify particular fees, but it does establish that fees not greater than 2.5 percent of the sale price (or $5,000) are conclusively presumed to be reasonable. Trustee’s attorneys’ fees not more than 1.5 percent of the sale price enjoy the same conclusive presumption.

Lastly, HB 1470 also requires a winning bidder at a foreclosure sale to provide a government-issued ID and certain minimum information that will allow the trustee to complete Office of Foreign Assets Control searches.

HB 1128 — Texas sales must, by law, occur on the first Tuesday of the month. Sometimes, the first Tuesday falls on January 1 or July 4. When this happens, HB 1128 amends the Property Code to change the authorized sale date to the first Wednesday (so as not to fall on a national holiday). Because the bill is effective September 1, 2017, the July foreclosure still occurred on July 4, 2017.


HB 1217 — HB 1217 authorizes the use of online notarization. The bill contains guidelines to become a qualified e-notary and sets out rules and guidelines for the e-notarization process. It also requires the secretary of state to establish additional rules to govern the process. The bill takes effect on January 1, 2018.

SJR 60 — The Texas Constitution includes strict protections against placing liens on homestead property and provides stringent requirements for originating home equity loans. SJR 60 proposes to change the Constitution to lower the amount of origination expenses charged to a borrower and remove certain limitations on financing expense ratios. This legislation proposes qualifications for lenders authorized to make home equity loans; changes certain options for refinancing home equity loans and the threshold of a home equity line of credit; and proposes to allow home equity loans on agricultural homesteads. If voters adopt the bill at the November election, it will take effect for all Texas home equity loans originated and/or refinanced after January 1, 2018.

The legislation that did not pass — Bills that failed during the session include an initiative to increase judges’ authority to delay home equity foreclosure applications (HB 4107) and to enact a state law version of the former federal Protecting Tenants at Foreclosure Act (HB 3699).

Utah

by Brigham J. Lundberg
Lundberg & Associates, PC 
USFN Member (Utah)

The 2017 Utah legislature passed a number of bills affecting Utah foreclosures and evictions. The effective date for these bills was May 9, 2017. Senate Bill 0203 (Real Estate Trustee Amendments) slightly expanded the definition of an authorized nonjudicial foreclosure trustee. Senate Bill 0052 (Rental Amendments) and House Bill 0376 (Landlord-Tenant Rights) both made important changes to Utah eviction actions and the rights of the respective parties therein. House Bill 0320 (Notaries Public Amendments) set forth updated definitions and new templates for various acceptable notarial acts. Finally, Utah’s legislature enacted a uniform law with the adoption of House Bill 0013 (Uniform Fiduciary Access to Digital Assets Act).

Nonjudicial Foreclosure Trustee
— Senate Bill 0203 expanded the definition of a nonjudicial foreclosure trustee to include law firms, in addition to individual members of the Utah State Bar and licensed title insurance companies. To be eligible, a law firm must employ at least one active member of the Utah State Bar, be licensed to do business in Utah, and maintain an office in the state where borrowers or other interested parties may meet with the trustee. Further, foreclosure documents signed on behalf of the firm, as trustee, may only be signed by an attorney currently licensed in Utah.

Additionally, the bill imposed a filing fee of $50 for any parties petitioning to receive surplus foreclosure sale proceeds deposited with the court. The bill also extended the time period for filing affidavits or counter-petitions in conjunction with claims for surplus foreclosure sale proceeds deposited with the court from 45 days to 60 days. It is anticipated that this additional provision may help deter the filing of unwarranted claims in excess proceeds matters.

Eviction Amendments — As indicated, two bills enacted this year will affect evictions in Utah. First, Senate Bill 0052 was passed in an effort to reduce the number of bad faith claims being made in eviction actions. The legislation specifically affected fees and costs recoverable in an unlawful detainer action or an action under the Utah Fit Premises Act. Judges now have discretion to award reasonable fees and costs to the prevailing party in those proceedings.

Second, House Bill 0376 amended Utah’s unlawful detainer (eviction) statute. Previously, only certain Utah evictions were eligible for expedited treatment in the courts. This new statute made expedited proceedings available for all types of eviction actions, including those involving commercial tenants. The bill requires the court, upon the request of either party, to schedule an evidentiary hearing to determine who has the right of occupancy during the litigation’s pendency; the hearing must occur within 10 business days of the filing of the defendant’s answer or any other response by the defendant to the complaint. This provision will serve to limit a tenant’s ability to delay eviction proceedings by filing a motion or other pleading simply to avoid the filing of an answer, which heretofore was the only responsive pleading that would trigger the expedited eviction timeline.

Notaries Public — House Bill 0320 amended the Notaries Public Reform Act by altering the statutory definitions of “jurat” and “notarial certificate” while adding “signature witnessing” as a newly available notarial act in Utah. The bill also clarified reapplication procedures and requirements for a notary public whose commission has expired. The bill created a new section within the act with templates of example language for a jurat and an acknowledgement in the state of Utah. Finally, the bill added provisions to permit a licensed escrow agent who is also a notary public to notarize certain documents that the licensed escrow agent signs.

Digital Assets — Utah followed the Uniform Law Commission with its adoption of House Bill 0013 (Uniform Fiduciary Access to Digital Assets Act). This bill created a new chapter within the Utah Uniform Probate Code addressing who has access to the digital assets (i.e., email, social media, and e-commerce accounts and their contents) of an incapacitated or deceased person. Additionally, the bill set out responsibilities for agents and fiduciaries with access to a person’s digital assets. It also stated the responsibilities of the custodian of a digital asset upon request of an agent or fiduciary. Understanding, and compliance with, the provisions of this bill will be important when dealing with representatives of deceased or incapacitated customers.

Vermont 

by Rachel Jones and Eva M. Massimino*
Bendett & McHugh, P.C.
USFN Member (Connecticut, Maine, Vermont)

On May 1, 2017 the Vermont General Assembly Bill H.4 titled “An act relating to calculating time periods in court proceedings” was approved by Governor Scott. The text of the enacted bill is lengthy and impacts more than 60 statutory provisions relating to the calculation of time in court proceedings. The vast majority of these changes have little to no practical effect on calculation of time as they make only minor changes or serve to provide clarification on previous statute versions. One important exception relates to the calculation of time in ejectment proceedings.

H.4 revisions impacted 12 V.S.A. section 4853a, which governs the payment of rent into the court. Previously, the statute provided for an expedited hearing on any motion for payment of rent any time after 10 days’ notice to the parties. H.4 has revised this section to require at least 14 days’ notice to parties for the hearing, and allowing 14 days for submission of a written answer before default may be entered against a party. Any extension of the timeline in an ejectment matter (which is otherwise expedited) is significant and will impact the anticipated time for resolution of Vermont ejectments.

H.4 also enacted revisions to 12 V.S.A. section 4854, providing that a post-judgment lockout may not take place until at least 14 days after the service of the writ of possession upon the defendants. This revision extends the waiting time after service of the writ by four days. A necessary consequence of this change is, again, a longer timeline for completion of an ejectment matter in Vermont — as well as careful revision of notice forms to ensure that correct notice is being provided to all defendants as required by the newly revised section. Servicers and law firms should verify that notices have been properly updated and that timeline expectations for completion of the ejectment action are appropriately adjusted.

Editor’s Note: *Co-author attorney Eva M. Massimino is licensed in CT and ME; she is not licensed in VT.

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U.S. Supreme Court Finds that the City of Miami Can Sue Mortgage Lenders for Predatory Lending Practices under the Fair Housing Act

Posted By USFN, Tuesday, June 27, 2017
Updated: Monday, June 12, 2017

June 27, 2017

by Jennifer K. Cruseturner
McCarthy & Holthus, LLP – USFN Member (Washington)

On May 1, 2017, the U.S. Supreme Court decided (5-3) in Bank of America Corp. v. City of Miami, Florida, together with Wells Fargo & Co. v. City of Miami, Florida, that the City of Miami is an “aggrieved person” under the Fair Housing Act of 1968 (FHA or Act). As an “aggrieved person,” the city can sue under the Act for claims of financial injury, allegedly resulting from discriminatory lending practices of financial institutions. The Supreme Court also held that the Eleventh Circuit erred in determining Miami’s complaints against the banks met the FHA’s proximate-cause requirement based solely on the finding that Miami’s alleged financial injuries were the foreseeable result of the banks’ purported misconduct.

District Court — This recent Supreme Court opinion stemmed from the 2013 lawsuits filed by the City of Miami in the U.S. District Court for the Southern District of Florida against Bank of America and Wells Fargo. Miami alleged that the lenders discriminatorily imposed more onerous conditions on loans made to minority borrowers than to similarly situated non-minority borrowers, and that the claimed discriminatory practices led to higher rates of loan default and foreclosure among minority borrowers as compared to otherwise similarly situated non-minority borrowers. The suits further alleged that the discriminatory practices of the banks adversely affected the racial composition of the city and caused higher rates of foreclosure in minority neighborhoods, which led to lower property values, diminished tax revenues, and an increased demand for municipal services.

The district court dismissed Miami’s complaints, finding: (1) that Miami could not sue under the FHA, as their harms were economic and not discriminatory; and (2) that Miami had failed to show sufficient causal connection between the injuries suffered and the banks’ conduct. Miami appealed the district court’s ruling to the Court of Appeals for the Eleventh Circuit.

Eleventh Circuit — The appellate court reversed the district court’s ruling of dismissal, determining that Miami could sue the banks under the FHA, and that Miami had plausibly alleged that its financial injuries were the foreseeable result of the banks’ alleged misconduct. The banks petitioned the Supreme Court to review the findings of the Court of Appeals. The Supreme Court granted the request for review, bringing us to the case at hand.

U.S. Supreme Court — In the opinion of the Court, authored by Justice Breyer, the Supreme Court held that Miami could sue under the FHA as an “aggrieved person” because the city’s injuries fell within the realm of injuries that the FHA was designed to avoid; nonetheless, the Court vacated the decision of the Court of Appeals — finding that foreseeability of the injury alone is not sufficient to establish proximate cause under the FHA. While the Supreme Court held that proximate cause under the FHA requires some direct relation between the injury asserted and the discriminatory conduct alleged, it declined to specifically set forth the precise boundaries of proximate cause under the FHA. The case was remanded to the lower court for it to decide how the standards of proximate cause apply to Miami’s claims against the banks.

In an opinion authored by Justice Thomas (which concurred in part and dissented in part), three justices disagreed that Miami could sue the banks under the FHA — stating that Miami’s injuries were so marginally related to the purposes of the FHA that they fell outside of the zone of interest that the Act was designed to protect. The dissent further stated that Miami had failed to demonstrate proximate cause under the FHA. The dissenting justices would have reversed the Court of Appeals’ decision outright, noting that there was nothing in the FHA to suggest that “[c]ongress was concerned about decreased property values, foreclosures and urban blight, much less about strains on municipal budgets that might follow.”

Conclusion
The Supreme Court’s ruling is not an outright victory for either side. Municipalities can bring suit against banks under the FHA, but this opinion by no means guarantees a victory for the municipality. Still, the Court’s ruling should be viewed cautiously by financial institutions with a high volume of stagnant REO properties. Litigation of this nature can present a strong reputational risk, even if the bank is ultimately successful in defending the claims.

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Chicago: Proposed Amendment to Vacant Property Registration Ordinance

Posted By USFN, Tuesday, June 27, 2017
Updated: Monday, June 12, 2017

June 27, 2017

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

An amendment to the Vacant Property Registration Ordinance has been proposed by Alderman Cardenas (12th Ward). It would have the effect of dramatically raising the registration fees for loan servicers pertaining to vacant properties. The proposed ordinance can be accessed at this webpage.

The proposed ordinance would raise the fee for registering vacant properties from $250 to a sliding scale fee based on the number of years the property has been vacant from the original registration date. Sliding scale fees are:
• $1,000 for properties that are vacant for at least one year but less than two years;
• $1,500 for properties that are vacant for at least two years but less than three years;
• $2,500 for properties that are vacant for at least three years but less than five years;
• $4,500 for properties that are vacant for at least five years but less than ten years;
• $6,000 for properties that are vacant for at least ten years, plus an additional $500 for each year in excess of ten years.

As noted above, this ordinance is in the proposal stage at this time, with a number of groups fighting its passage. This author’s firm will keep you posted on future developments.

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Mandatory e-Filing in Illinois

Posted By USFN, Tuesday, June 27, 2017
Updated: Tuesday, June 13, 2017

June 27, 2017

by Lee Perres and Elisabeth Mohr
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

On January 22, 2016, the Illinois Supreme Court entered Order M.R. 18368 announcing mandatory electronic filing (e-filing) for civil cases in Illinois. All cases filed in the Illinois Supreme Court and the Illinois Appellate Court require mandatory e-filing effective July 1, 2017.

Trial Courts

The order also mandates that, effective January 1, 2018, all civil cases shall be e-filed in the trial courts of all counties. Several counties have established mandatory e-filing prior to the January 1, 2018 deadline. Attorneys and self-represented litigants will be required to electronically file all documents in civil cases, except documents exempted by the Illinois Rules. The court will be barred from accepting any filings in paper form except in the event of an emergency.


As of June 1, 2017 the following mandatory e-filing start dates confirmed in the counties thus far are:

• DuPage County: January 1, 2016
• Jackson County: June 1, 2017
• Peoria County: July 15, 2017

Closing

The Supreme Court will be adopting rules governing e-filing and electronic service in accordance with the order. Please also note that Section 735 ILCS 5/5-127 of the Illinois Code of Civil Procedure provides that all charges related to electronic filing of documents and cases are taxable as court costs.

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Michigan: Court of Appeals Confirms Priority Interest of Mortgagee in Surplus Proceeds

Posted By USFN, Tuesday, June 27, 2017
Updated: Tuesday, June 13, 2017

June 27, 2017

by Matthew D. Levine
Trott Law, P.C. – USFN Member (Michigan)

The Michigan Court of Appeals recently issued an opinion (for publication), confirming what has been the general interpretation of distribution of surplus proceeds. The case, In re $55,336.17 Surplus Funds, Case No. 331880 (May 9, 2017), involved a dispute between the junior mortgage holder (PNC Bank, N.A.) and the estate of the mortgagor (the Estate of Kathryn Kroth) over the surplus funds created following the foreclosure of the senior mortgage.

Background
The facts were not different than many standard surplus proceeds matters. PNC held an unsatisfied junior mortgage and claimed entitlement to the surplus funds under MCL § 600.3252. Although agreeing with the facts, the Estate contended that the statute does not specifically, or automatically, grant junior lienholders the right to proceeds.

MCL § 600.3252 states, in relevant part:

“If after any sale of real estate, made as herein prescribed, there shall remain in the hands of the officer or other person making the sale, any surplus money […] the surplus shall be paid over by the officer or other person on demand, to the mortgagor, his legal representatives or assigns, unless at the time of the sale, or before the surplus shall be so paid over, some claimant or claimants, shall file with the person so making the sale, a claim or claims, […] and file the written claim with the clerk of the circuit court […]; and thereupon any person or persons interested in the surplus, may apply to the court for an order to take proofs of the facts and circumstances contained in the claim or claims so filed. Thereafter, the court shall summon the claimant or claimants, party, or parties interested in the surplus, to appear before him at a time and place to be by him named, and attend the taking of the proof, […] and the court shall thereupon make an order in the premises directing the disposition of the surplus moneys or payment thereof in accordance with the rights of the claimant or claimants or persons interested.”

In practice, courts have generally awarded surplus proceeds to subsequent lienholders in the order of their priority and then, if there are additional proceeds, to the mortgagor. This concept, however, is not explicitly stated. The Estate did not rest on practice; instead, it challenged the trial and appellate courts to address the lack of specific language. In part, the Estate argued that a foreclosure sale extinguishes junior mortgages. If the junior mortgage is extinguished, there is no junior mortgage as referenced by the statute. The Estate also asserted that “neither the statute itself nor relevant case law explicitly guides the trial court in its determination of priority ….” [COA Opinion, p. 3.]

Appellate Analysis
The Court of Appeals accepted the case as a matter of first impression. The appellate court addressed the standing argument and discussed whether a junior mortgagee held a secured interest during the redemption period. The court did not rule on this issue though, since it determined that such a ruling was unnecessary to the rights of the parties. As was maintained by PNC, the statute refers to the status of the parties at the time of the sale — not during the redemption period. Specifically, the court found that:

“[T]he language of MCL 600.3252’s final clause is unambiguous and clear in its direction. The statute plainly provides that the court shall enter an order [‘]directing the disposition of the surplus moneys or payment thereof in accordance with the rights of the claimant or claimant of persons interested.[’] MCL 600.3252 (emphasis added). As previously discussed, the Legislature clearly intended to limit application of the surplus statute to situations wherein a junior mortgage or lienholder held an interest in the foreclosed property at the time of the foreclosure sale. The rights of any subsequent mortgagees or lienholders are therefore coincidental to their interests in the property on foreclosure.” [COA Opinion, pp. 5-6.]

Further, the Court of Appeals noted that MCL 565.29 and supporting case law provide guidance for a court’s determination of priority. Specifically, MCL 565.29 (Michigan’s race-notice statute) provides a determination of lien interests; i.e., a conveyance of real estate that is not recorded “shall be void as against any subsequent purchaser in good faith and for a valuable consideration, of the same real estate or any portion thereof, whose conveyance shall be first duly recorded.”

PNC held an interest that was subsequent to the foreclosing party and superior to that held by the mortgagor. The Estate argued that the trial court failed to conduct a hearing on the facts; but, as noted by the Court of Appeals, the Estate did not challenge the facts. The Court of Appeals summed up its position with the following:

“[A] reading of MCL 600.3252 leads us to conclude that a court must distribute foreclosure sale surplus funds claimed under that statute according to the priority of interests in the foreclosed property. Here, PNC filed its claim for the surplus funds in accordance with MCL 600.3252, and the circuit court properly entered an order distributing the surplus funds to PNC after determining that PNC’s interest had priority.” [COA Opinion, p. 7.]

Conclusion
The holding in this case should put to rest any arguments concerning the lack of specificity in the statute. The Court of Appeals confirmed general practice and application. The outcome also lays to rest any concerns regarding priority and standing to obtain surplus proceeds between a junior lienholder and the foreclosed borrower, and provides a specific method for trial courts to render a decision as to the rights of these parties.

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Idaho: Supreme Court Clarifies the Statute of Limitations for Foreclosure

Posted By USFN, Tuesday, June 27, 2017
Updated: Friday, June 23, 2017

June 27, 2017

by Lewis Stoddard
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)

Recently, the Idaho Supreme Court clarified when the foreclosure statute of limitations begins to run: note maturity plus five years. Idaho borrowers and their counsel have been challenging foreclosures by claiming that the five-year foreclosure statute of limitations begins to run from the date of acceleration or the date that a notice of default is recorded (whichever is sooner), not maturity. Specifically, in the case of Baughman v. Wells Fargo Bank, N.A. (Idaho, May 26, 2017), the Court held that where a note expressly states a maturity date and contains no provisions providing for a change in maturity date, “if the amounts owing under the note were declared to be immediately due and payable because of a default,” the five-year statute of limitations for foreclosure begins to run after maturity, even if the loan is accelerated through the issuance and recording of a notice of default or other method.

By way of background, Baughman (the borrower) refinanced real property with a $1.2 million promissory note secured by a deed of trust. The promissory note required monthly payments and stated a maturity date of March 1, 2047. The borrower defaulted in December 2007. In January 2008, the beneficiary sent the borrower a letter advising her that failure to cure the default by the following month “[…] shall result in the acceleration (immediately becoming due and payable in full) of the entire sum secured by the loan security instrument […]” and foreclosure. By January 29, 2009 the default was still not cured, so a “Notice of Default and Election to Sell under Deed of Trust” was recorded, which is the first formal step to start an Idaho nonjudicial foreclosure. The notice of default provided that the beneficiary under the subject deed of trust “[…] has declared and does hereby declare all sums secured thereby immediately due and payable […]”. The property was ultimately sold at a nonjudicial foreclosure sale in January 2010 and a trustee’s deed was issued; however, an erroneous assignment ultimately caused the trustee’s deed to be rescinded.

District Court
In July 2013, before the nonjudicial foreclosure could be restarted, the borrower filed an action seeking to quiet title and requesting an injunction to stop further foreclosure attempts. The borrower claimed that any foreclosure was time-barred by the five-year statute of limitations found in Idaho Code § 5-214A, made applicable to deeds of trust pursuant to I.C. § 45-1515. The beneficiary responded and counterclaimed for judicial foreclosure. The district court granted summary judgment in favor of the beneficiary, but in so doing held that the five-year statute of limitations began to run from the date that the notice of default was recorded, which made the counterclaim for judicial foreclosure timely by four days. In so ruling, the district court found that “acceleration occurs once a notice of default is recorded” under I.C. § 45-1506(12).

Supreme Court
On appeal, the borrower argued that the loan was accelerated on February 22, 2008, not with the January 29, 2009 recording of the notice of default. The borrower relied on two Idaho Supreme Court cases from 1937 and 1979 for the proposition that the statute of limitations runs when the note holder accelerates the debt. The Idaho Supreme Court disagreed and found that the language of Idaho Code § 5-214A is clear and sets the maturity date, not the acceleration date, as the critical date for statute of limitations purposes:

"An action for foreclosure of a mortgage on real property must be commenced within five (5) years from the maturity date of the obligation or indebtedness secured by such mortgage. If the obligation or indebtedness secured by such mortgage does not state a maturity date, then the date of the accrual of the cause of action giving rise to the right to foreclose shall be deemed the date of maturity of such obligation or indebtedness."

Since the subject promissory note stated a maturity date of March 1, 2047 and did not contain any provisions modifying the maturity date upon acceleration, the five-year statute of limitations could not begin to run until March 1, 2047.

Prior to this judicial decision, best practice for avoiding statute of limitation challenges required rescinding a recorded notice of default if the related nonjudicial foreclosure were stopped, or put on hold for any extended period of time. Absent specific language in a particular promissory note modifying the maturity date upon acceleration, the Baughman case indicates that this step is no longer required.

The Idaho Supreme Court also commented on permitted bases to rescind a trustee’s deed, interpreting the statute governing rescission (Idaho Code § 45-1510) to only permit “rescission when the sale is invalid for one of three reasons: (1) by reason of automatic stay provisions of the U.S. bankruptcy code, (2) by reason of a stay order issued by any court of competent jurisdiction (3) or is otherwise invalid.” The Court’s interpretation is notable because it clarifies that rescission is only permitted when the sale is legally invalid, not merely flawed but otherwise valid.

Before this decision, beneficiaries could arguably rescind for reinstatement or other workout option. While rescission of a trustee’s deed for reasons beneficial to the borrower are likely to go unchallenged, the Idaho Supreme Court does not appear to envision the use of I.C. § 45-1510 for such purposes. Beneficiaries and trustees may need counsel to advise regarding situations where rescission is legally compelling.

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Maryland: Foreign Statutory Trust (which acquired a Loan Post-Default) is a “Collection Agency” and Prohibited from Foreclosing without a Debt Collection License

Posted By USFN, Tuesday, June 27, 2017
Updated: Tuesday, June 27, 2017

June 27, 2017

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

Editor’s Update as of 10/2/2017: The Maryland Court of Appeals (Maryland’s highest court) has accepted the matter of Blackstone v. Sharma/Shanahan v. Marvastian for review. As discussed below, this case addresses the basic question of whether a foreclosure action itself constitutes collecting on a consumer claim under the Maryland Collection Agency Licensing Act, thereby triggering the licensing requirement. The Maryland Court of Special Appeals ruled that it did and that a license was required, but that question will now be revisited. Further, the Court of Appeals has accepted three additional cases (McCabe v. Altenburg and two related cases) that directly appeal the issue of statutory trusts being required to have a Maryland collection agency license. Oral argument has been scheduled for November 30, with a decision possibly being issued as soon as January 2018.

 

In Blackstone v. Sharma, __ A.3d __, 2017 WL 2438485, Nos. 1524 and 1525 (Md. Ct. Spec. App., June 6, 2017), the Maryland Court of Special Appeals affirmed dismissal of two foreclosure actions, holding Ventures Trust 2013-I-H-R (Ventures) — as a statutory trust — was required to be licensed under the Maryland Collection Agency Licensing Act (the MCALA). The central questions considered by the Maryland intermediate appellate court were whether, under the MCALA, “a party who authorizes a trustee to initiate a foreclosure action needs to be licensed as a collection agency before filing suit;” and, if so, “does the licensing requirement apply to foreign statutory trusts such as Ventures Trust?” Id. at *1. The court answered both questions in the affirmative.

In pertinent part, the MCALA requires an entity (unless otherwise exempted under the statute) to be licensed as a “collection agency” where it is “collecting a consumer claim the person owns, if the claim was in default when the person acquired it[.]” Md. Code, B.R. § 7-101(c)(1)(ii). (emphasis added). Ventures’ post-default acquisition of the loans was uncontested. The MCALA provides licensure exceptions for banks, federal or state credit unions, mortgage lenders, savings and loan associations, and “trust companies.” The court rejected Ventures’ arguments that foreclosing deeds of trust was not “doing business” under the MCALA, and that it qualified for the “trust company” exception.

Firstly, Ventures contended that because foreclosure of deeds of trust and mortgages by a foreign trust is expressly excluded from the definition of “doing business” under the Corporations and Associations Article — governing registration with the State Department of Assessments and Taxation — it did not have to be licensed. The court, however, pointed out that the Corporations and Associations Article specifically states the foreign trust “doing business” exception is limited solely to that section: “In other words, the foreign trust exception does not apply to the MCALA.” Id. at *4. The court went on to opine that the foreclosure of deeds of trusts and mortgages is indeed a debt collection activity governed by the MCALA.

Furthermore, the court held that Ventures did not qualify as a “trust company” under the MCALA’s exceptions. The MCALA does not define the term “trust company.” In constructing the meaning, the court looked to Black’s Law Dictionary (10th ed. 2014), which defines the term as “[a] company that acts as a trustee for people and entities and that sometimes also operates as a commercial bank.” Id. at *6. The court opined that Ventures did not satisfy this definition because “[it] does not act as a bank. Moreover, other entities act as trustees for it.” Id. In sum, the court considered Ventures to be a debt purchaser attempting to collect a consumer debt through foreclosure, rather than a “trust company” within the meanings provided by Black’s Law Dictionary and other Maryland statutes.

In conclusion, before commencing foreclosure in Maryland, due consideration will need to be given to the default status at loan acquisition where a statutory trust is the noteholder. It should also be noted that, where the trustee may be a bank, it will not exempt the trust from the licensing requirements. The court was only concerned with the status of the actual trust in its analysis. As the Maryland Court of Special Appeals is the intermediate appellate court in Maryland, an appeal of the ruling to the Maryland Court of Appeals is still a possibility — once the mandate is issued.

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Informal Proof of Claim Allowed by Connecticut Bankruptcy Court

Posted By USFN, Tuesday, May 23, 2017
Updated: Thursday, May 18, 2017

May 23, 2017

by Randall S. McHugh
Bendett & McHugh, P.C. — USFN Member (Connecticut, Maine, Vermont)

What do you do when the proof of claim bar date is approaching and you are not ready to file an official proof of claim? File an informal proof of claim (POC).

Unlike Bankruptcy Official Form 410, an informal proof of claim does not need to comply with all the requirements of Federal Rule of Bankruptcy Procedure 3001. An official POC secured by property that is the individual debtor’s principal residence requires the claimant to itemize its claim, attach the writing evidencing the claim, attach evidence of a perfected security interest, attach Official Form 410A setting forth a loan payment history from the first date of default1, and attach an escrow analysis performed as of the date of the bankruptcy filing. A pleading can constitute an informal POC while only setting forth the estimated amount of the claim and the estimated amount of the arrears. The facts of a recent case are illustrative of this point.

Bankruptcy Court Decision
In Deutsche Bank National Trust Company, as Trustee for Fremont Home Loan Trust 2006-2, Asset-Backed Certificates, Series 2006-2 v. Cintron, Case Number 16-20109, 2017 WL 521502 (Bankr. D. Conn. Feb. 8, 2017), the proof of claim bar date was June 9, 2016. The debtor’s plan included payment of a pre-petition arrearage to the secured creditor in the amount of $43,000. On February 1, 2016 the secured creditor filed an objection to the plan and asserted an estimated pre-petition arrearage of $48,182.19 and an estimated total debt of $205,357.55, plus stated its intention to file its proof of claim before the bar date. However, the bar date passed without a formal POC being filed. Thereafter, the chapter 13 trustee filed a POC on behalf of the secured creditor asserting a total pre-petition arrearage of $43,000. Subsequently, the secured creditor filed its official POC on September 27, 2016, claiming a pre-petition arrearage of $49,057.88 and a total secured claim of $205,404.42.

The bankruptcy court ultimately determined that the objection to confirmation that was filed before the bar date constituted an informal proof of claim, and the creditor was allowed to amend said informal proof of claim through the filing of a post-bar date official POC that set forth the actual pre-petition arrears and total debt owed. In reaching its conclusion, the court applied the following four-part test, which it adopted from other courts in the Second Circuit.

The court held that in order to be considered an informal proof of claim, the following must be true: “The document must (1) be timely filed with the bankruptcy court and become part of the judicial record; (2) state the existence and nature of the debt; (3) state the amount of the claim against the estate; and (4) evidence the creditor’s intent to hold the debtor liable with the debt.”

The Cintron case is a big victory for mortgage servicers and investors. With the proposed rule change (which will shorten the POC bar date considerably), whenever the bar date is likely to be missed, consideration should be given to filing pleadings that constitute an informal proof of claim when possible — assuming that it is not prohibited in the applicable jurisdiction.

______________________________________________

1The “first date of default” is defined as the first date on which the borrower failed to make a payment in accordance with the terms of the note and mortgage, unless the note was subsequently brought current with no principal, interest, fees, escrow payments, or other charges immediately due and payable.


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Kansas Supreme Court Clarifies Standing Issues

Posted By USFN, Tuesday, May 23, 2017
Updated: Thursday, May 18, 2017

May 23, 2017

by David L. Boman
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

The Kansas Supreme Court recently clarified a number of issues concerning judicial foreclosure actions [FV-I, Inc. v. Kallevig, 2017 Kan. LEXIS 135 (Kan. Apr. 21, 2017) (motion for modification or rehearing pending)].

The history of Kallevig is beyond the scope of this article. A thorough understanding requires a review of both FV-I, Inc. v. Kallevig, 2013 Kan. App. Unpub. LEXIS 426, 301 P.3d 789 (Kan. Ct. App. May 17, 2013) and FV-I, Inc. v. Kallevig, 2015 Kan. App. Unpub. LEXIS 86, 342 P.3d 970 (Kan. Ct. App. Feb. 6, 2015).

The principal issues addressed in Kallevig are:

1. Under the Uniform Commercial Code (UCC), what must a plaintiff plead and prove to establish standing to enforce a note?
2. Whether a plaintiff must prove standing at the time of filing?
3. Whether a plaintiff can cure an initial lack of standing?
4. Whether the business records exception to the hearsay rule applies to endorsements on a note?
5. Whether possession of the mortgage alone is sufficient to establish standing?

Standing
Speaking to the first issue, the Court concluded that a plaintiff claiming enforcement rights under the UCC “as the holder of the instrument” must show that the note was made payable to the plaintiff or was endorsed in blank and that the plaintiff was in possession of the note. 2017 Kan. LEXIS 135, *16-20.

The Court next considered whether standing must be proved at the time of filing the foreclosure petition. 2017 Kan. LEXIS 135, *21. In the context of addressing when a plaintiff must prove standing, the Court also addressed whether a plaintiff can cure a lack of standing post-petition. Reviewing case law from a number of jurisdictions, the Court concluded that “— either in the pleadings, upon motion for summary judgment, or at trial — [the plaintiff must demonstrate] that it was in possession of the promissory note with enforcement rights at the time it filed the foreclosure action” and that a lack of standing cannot be cured by a post-petition assignment granting enforcement rights in the note. 2017 Kan. LEXIS 135, *29-30.

Endorsements
During trial following the first remand, the trial court excluded two endorsements on the original note because the appellant [FV-I, Inc., In Trust for Morgan Stanley Mortgage Capital Holdings, LLC] didn’t lay the foundation under K.S.A. § 60-460(m) (business records exception to the hearsay rule). 2017 Kan. LEXIS 135, *30. In Kallevig, the Court concluded that this evidentiary ruling was erroneous because “the signatures were not being admitted to prove the truth of the matter asserted, i.e., the authenticity of the signatures.” 2017 Kan. LEXIS 135, *31.

The Court went on to rule that, under the UCC, endorsements on a note are presumed authentic and this presumption extends to stamp signatures. To overcome this presumption: “A defendant has the burden to present sufficient evidence denying an endorsement’s validity before a plaintiff is required to introduce evidence to the contrary.” In order to shift the burden, a defendant’s evidence must go beyond “[m]ere speculation.” 2017 Kan. LEXIS 135, *30-34. Because the trial court improperly excluded the endorsements, the Court remanded the case to allow the appellant the opportunity to demonstrate that “FV-I possessed the original note with the improperly excluded endorsements when the petition to foreclose was filed.” 2017 Kan. LEXIS 135, *48.

Enforcement Rights in the Note must be Established
Relying in part on K.S.A. § 58-2323, the appellant maintained that it had standing to foreclose because it possessed the mortgage when it filed the petition. 2017 Kan. LEXIS 135, *37. Following an analysis of the “interplay between the common law idea that the mortgage follows the note and statutory language suggesting the debt follows the mortgage”, the Court concluded that “possession of the mortgage alone without demonstrating enforcement rights in the note is insufficient to establish standing in a mortgage foreclosure proceeding.” 2017 Kan. LEXIS 135, *37-47.

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

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Class Action Filed in the District Court of Puerto Rico against Numerous Defendants, including Government Agencies, GSEs, and Servicers

Posted By USFN, Tuesday, May 23, 2017
Updated: Thursday, May 18, 2017

May 23, 2017

by Marisol Morales
Millennium Partners – USFN Member (Puerto Rico)

On April 5, 2017, a 36-page complaint for “Truth in Lending, Real Estate Settlement Procedure Act, Regulation X, HARP, HAMP, Sup[p]lemental Jurisdicction (sic)” and Demand for Jury Trial was filed in the U.S. District Court for the District of Puerto Rico.

Claimants allege that they were subject to illegal foreclosure processes while in loss mitigation review in violation of the “Principal Residence Protection and Mandatory Mediation in Foreclosure Proceedings Act,” HAMP, HARP, and other loan modification programs. Claims for damages exceed $400 million.

The class action is captioned Camacho v. United States of America (Farm Service Agency), et al., Civil No. 17-1448.

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Delaware: Legislation Extends Office of Foreclosure Prevention and Mediation Program

Posted By Rachel Ramirez, Tuesday, May 23, 2017
Updated: Wednesday, July 26, 2017

May 23, 2017 and August 1, 2017

by James Clarke
Orlans PC – USFN Member (Delaware, Massachusetts, Michigan)

House Bill 76 (which passed the House on 3/30/17 and the Senate on 5/10/17) extends the Office of Foreclosure Prevention and the Automatic Residential Foreclosure Mediation Program until January 18, 2020. Originally scheduled to end on January 18, 2014 (two years after their initial enactment), the sunset date was extended to January 18, 2018 in 2013. The latest bill will now extend the office and the program for two additional years until January 18, 2020; the legislation is expected to be signed into law by the governor.

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Maryland: Legislative Updates Affecting the Residential Foreclosure Process

Posted By Rachel Ramirez, Tuesday, May 23, 2017
Updated: Wednesday, November 22, 2017

May 23, 2017 and August 1, 2017

by Angie Nasuta
The Alba Law Group, P.A. – USFN Member (Maryland)

The Maryland legislature has once again been active in regulating the local residential foreclosure process.

New Foreclosure Registration — The first bills of particular interest are House Bill 1048 and cross-filed Senate Bill 875, which have been approved by the governor but are not effective until October 1, 2018. This legislation requires that within seven days of filing an action to foreclose residential property, the substituted trustees must provide a notice of foreclosure to the Maryland Department of Labor, Licensing and Regulation (DLLR). The notice of foreclosure must contain certain specified information about the property and about the substituted trustees; it must be in the form that the department requires — which has not yet been established. This author’s firm will be closely monitoring DLLR’s activity for its regulations on this new notice/registration, which will hopefully be adopted well in advance of the delayed effective date.

New Foreclosure Notices — Legislation has been enacted to require additional notices in the foreclosure process beginning October 1, 2017. HB26/SB247, which have been approved by the governor, add to Maryland Real Property § 7-105.2(b) that notice of a proposed foreclosure sale under this article must also be sent to a condominium or homeowners association that has recorded a statement of lien against the property at least 30 days before the sale date. Procedurally, though, this change doesn’t really impose anything new upon foreclosure counsel, as Real Property § 7-105.3 (which has been law in one form or another since 1957) already requires notice of foreclosure sale to all holders of subordinate interests of record.

The key addition made by HB26/SB247, however, is the new requirement concerning postponed or canceled foreclosure sales. Within 14 days of sale postponement/cancellation, the substituted trustees must now send notice of the postponement/cancellation to the record owner of the property and any condominium/homeowners association that was sent notice of the proposed sale.

Vacant and Abandoned Properties — As with many states across the country, another Maryland focus in recent years has been to address concerns about vacant and blighted properties through so-called “fast-track” foreclosure options. The underlying mechanics and potential for challenges with these options, however, have limited the interest of mortgage servicers in pursuing what has been made available so far.

Signed by the governor on May 25, 2017, House Bill 702 and cross-filed Senate Bill 1033 provide a new expedited foreclosure process for vacant and abandoned properties — under certain circumstances. HB702/SB1033 (effective October 1, 2017) authorizes a secured party to petition the court to immediately commence foreclosure of its lien instrument if the property meets all of the following criteria:

• the loan has been in default for 120 days or more;
• no mortgagor has filed a challenge to the foreclosure “setting forth a defense or objection that, if proven, would preclude the entry of a final judgment and a decree of foreclosure”;
• no mortgagor has filed a statement with the court that the property is not vacant or abandoned; and
at least three out of a list of eleven specific circumstances regarding the property exist; e.g., status of utilities, condition of windows and doors, vandalism and criminal conduct, junk and hazardous materials, citations, condemnation, vacancy, written statement of intent to abandon, and a catch-all for other “reasonable indicia of abandonment.”

HB702/SB1033 will certainly be Maryland’s strongest attempt thus far at denting the local vacant and blighted properties issue. Unfortunately, the degree of limitations written into even this most recent piece of legislation suggests that there will continue to be limited interest from servicers in actually pursuing this newest option. [11/21/17 update to article: The Maryland Commissioner of Financial Regulation is required to promulgate implementing regulations. View the commissioner’s advisory dated October 31, 2017, here regarding “New Residential Mortgage Foreclosure Form and Changes to COMAR 09.03.12 – Effective November 6, 2017.”]

On a local note: In April, the County Council for Montgomery County approved Bill No. 38-16 (effective July 24, 2017) concerning “Housing and Building Maintenance Standards – Foreclosed Property Registration Penalty.”


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Fast-Track Foreclosure Legislation: A Proactive Solution to Address the Problem of Community Blight

Posted By USFN, Tuesday, May 23, 2017
Updated: Friday, May 19, 2017

May 23, 2017

by Robert Klein, Founder and Chairman
Safeguard Properties (and Community Blight Solutions) – USFN Associate Member

While the economic recovery has brought a slowdown to residential mortgage foreclosures, there remains a plethora of vacant and unoccupied properties dotting urban landscapes. Unfortunately, outdated foreclosure laws can leave these homes vacant and vulnerable for years, fostering the spread of community blight.

Unlike a good bottle of wine, a vacant property does not get better with age. For the past several years, many in the industry (including this author) have been advocating for state legislators across the country to consider legislation that will reduce the time it takes to foreclose on vacant and abandoned properties. As long as these properties remain vacant, they contribute to a self-perpetuating cycle of blight and instability in the community. Houses that stand empty suffer structural damage from weather and climate. Further, vacant properties are hubs for crime, drug activity, and fires, as well as becoming havens for squatters.

Fast-track legislation can reduce the number of “zombie properties” and reverse the problems that destroy neighborhoods. Several states have put themselves ahead of the national curve in the fight against blight by enacting fast-track legislation. Recently, Ohio and Maryland have passed fast-track legislation, with other states considering similar legislation as an important step in addressing neighborhood blight.

These new fast-track laws accelerate the foreclosure process to as little as six months in certain situations, enabling the mortgage servicer in many cases to get possession of the property before it deteriorates — increasing the likelihood that it can be rehabilitated and sold. Specifically, fast-track legislation permits the holder of a note of a defaulted residential mortgage loan (secured by a residential property that appears to be vacant and abandoned) to bring a summary action in court to foreclose the loan in an expedited manner.

It is important to mention that compliance with consumer protection laws and a proper balance of property rights for both the mortgage servicer and the property owner are at the core of any fast-track legislation. The language in the Ohio and Maryland legislation provides a summary of actions by residential mortgage servicers and revises procedures and timelines for foreclosure action, while still providing property owners with necessary protections. These protections help to ensure that a property is, indeed, vacant and abandoned before the expedited foreclosure process is instituted. To be clear, no one will be forced out of their home.

Both the Ohio and Maryland laws provide for this balance of protection for all parties. For example, the new Maryland law requires secured parties to serve a petition for expedited foreclosure on the mortgagor and to post a notice on the property, allowing the record owner of the property to challenge any finding that the property is vacant and abandoned. The two states’ legislation also authorizes a secured party to expedite the foreclosure process, provided that the party can demonstrate to a court that the property is vacant and abandoned by satisfying at least three of eleven specific criteria listed in the legislation (e.g., utilities disconnected, windows and entrances boarded up).

Other states need to take action to change their laws and target zombie properties. Several states (including New York, Pennsylvania, and New Jersey) have introduced fast-track legislation and, hopefully, these proposals will be enacted by their respective general assemblies. On the other hand, some states have passed recent laws that seem to miss the point, imposing a pre-foreclosure duty on mortgagees to maintain vacant and abandoned properties or prohibiting lenders from taking possession of a property prior to foreclosure.

As these new fast-track laws go into effect, one of the biggest challenges will be enforcement. Mortgagees, code enforcement, and the courts will need to work together to ensure that fast-track legislation accomplishes its purpose to eradicate the blight that is plaguing our communities.

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11th Circuit Rules on Bankruptcy Surrender

Posted By Rachel Ramirez, Monday, May 1, 2017
Updated: Monday, March 26, 2018

May 1, 2017

by Michael J. McCormick
McCalla Raymer Leibert Pierce, LLC
USFN Member (Connecticut, Florida, Georgia, Illinois)

Legislative Update as of 3/26/18: On March 19, 2018, the Florida governor approved SB 220 (effective date 10/1/2018).

 

David and Donna Failla owned a house in Boca Raton, Florida. They defaulted on their mortgage in 2009. Citibank filed a foreclosure action in a Florida court. The Faillas commenced a Chapter 7 bankruptcy proceeding in 2011 and filed a statement of intention to surrender the house. Because the home had a negative value, the Chapter 7 trustee “abandoned” it back to the Faillas.

After their Chapter 7 discharge, the Faillas continued to live in the house while they contested the foreclosure action. Citibank filed a motion to compel surrender in the bankruptcy court. Citibank asserted that the Faillas’ opposition to the foreclosure action contradicted their statement of intention to surrender the property.

The bankruptcy court granted Citibank’s motion to compel surrender and ordered the Faillas to cease opposing the foreclosure action. The bankruptcy court explained that if the Faillas did not comply with its order, it might “enter an order vacating [their] discharge.” The district court affirmed on appeal.

The Faillas then appealed to the Eleventh Circuit Court of Appeals, where the appellate court made two rulings:

1. Bankruptcy Code section 521(a)(2) prevents debtors who surrender their property from opposing a foreclosure action in state court.
2. The bankruptcy court had the authority to order the Faillas to stop opposing the bank’s foreclosure action.

Section 521(a)(2) requires a debtor to file a statement of intention regarding the retention or surrender of property securing various debts. This section of the Bankruptcy Code also requires the debtor, within 30 days after the first setting of the 341 hearing, to perform his intention with respect to such property.

The court of appeals went on to say that the Bankruptcy Code “requires debtors who file a [‘]statement of intent to surrender[’] to surrender the property both to the trustee and to the creditor. Even if the trustee abandons the property, debtors’ duty to surrender the property to the creditor remains.” [In re Failla, 838 F.3d 1170 (11th Cir. 2016)].

The Eleventh Circuit also agreed with the bankruptcy court and the district court that “surrender” requires debtors to drop their opposition to a foreclosure action. The Bankruptcy Code does not define the word “surrender,” so the court gave the word its “contextually appropriate ordinary meaning.”

Because one meaning of “surrender” is the “giving up of a right or claim,” debtors who surrender their property can no longer contest a foreclosure action. “When the debtors act to preserve their rights to the property ‘by way of adversarial litigation,’ they have not ‘relinquish[ed] ... all of their legal rights to the property, including the rights to possess and use it.’” [Citing In re White, 487 F.3d 199, 206 (4th Cir. 2006) (emphasis omitted)].

The court of appeals was also concerned with notions of fairness, quoting In re Guerra, 544 B.R. 707, 710 (Bankr. M.D. Fla. 2016): “The concern here is that the Debtor is making a mockery of the legal system by taking inconsistent positions. In an effort to obtain her chapter 7 discharge, the Debtor swears — under the penalty of perjury — an intention to ‘surrender’ her property. In other words, the Debtor is representing to the Court that she will make her property available to the Bank by refraining from taking any overt act that impedes the Bank’s ability to foreclose its interest in the property. Yet, once she receives her discharge, the Debtor in fact impedes the Bank’s ability to foreclose its mortgage.”

On the second question, whether the bankruptcy court had authority to stop the debtors from opposing the foreclosure sale, the Eleventh Circuit said: “… bankruptcy courts are not limited to lifting the automatic stay. Bankruptcy courts have broad powers to remedy violations of the mandatory duties section 521(a)(2) imposes on debtors.” Moreover, the court continued, under Section 105 of the Bankruptcy Code, bankruptcy judges have “broad authority ... to take any action that is necessary or appropriate ‘to prevent an abuse of process.’ … A debtor who promises to surrender property in bankruptcy court and then, once his debts are discharged, breaks that promise by opposing a foreclosure action in state court has abused the bankruptcy process.”

Legislative Note: House Bill 471 was introduced in the Florida State Senate in January 2017. The bill would allow a lienholder to submit any document from a mortgagee’s bankruptcy case that suffices as an “admission by the defendant” that he or she intended to surrender the property. Provided the document in question isn’t withdrawn, it can (when combined with a discharged bankruptcy) serve as a “rebuttable presumption” that the defendant has surrendered interest in the property and waived any defense to the foreclosure.

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Defenses Raised to a Foreclosure Action and an Unlawful Detainer Action: Case Law Updates from: Illinois

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Robert J. Deisinger
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

TILA Rescission and Damages Claims as Counterclaims to Foreclosure — Defenses predicated on the Truth in Lending Act (TILA or Act), 15 U.S.C. §§ 1601, et seq., and Regulation Z, 12 C.F.R. part 226, can sometimes be troublesome for mortgagees to defend because a borrower may assert a right to rescission (or damages) years after the loan closing. A recent appellate decision gives lenders a powerful new argument to defeat certain TILA damage claims. [Beneficial Illinois, Inc. v. Parker, 2016 Ill. App. Ct. (1st) 160186 (Dec. 12, 2016)].

In response to a foreclosure complaint brought by Beneficial, Randall Parker filed a counterclaim in which he alleged that he had timely exercised the right to rescind the mortgage loan as permitted by section 1635 of TILA. Under the Act, if a borrower does not receive the information and disclosures required by TILA and Regulation Z, a borrower may exercise a right to rescind the mortgage transaction up to three years after the consummation of the transaction. Parker’s countersuit claimed that he did not receive the information and disclosures required by law when his mortgage loan was originated. Parker also alleged that he exercised his right to rescind the mortgage transaction when his attorney mailed a letter to Beneficial within three years of the loan closing, but that Beneficial had failed to honor his rescission.

Parker’s counterclaims sought an order declaring the rescission to be proper, damages for failure to make proper material and required disclosures, and damages for failure to honor his election to rescind the transaction. The trial court dismissed the counterclaims as untimely, ruling that even if the notice of rescission had been tendered within three years of the loan closing, the counterclaim itself was untimely because it was brought more than three years after the closing.

Several months after the trial court dismissed Parker’s counterclaims, the U.S. Supreme Court held that “a borrower need only provide written notice to a lender in order to exercise his right to rescind.” Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. __, 135 S. Ct. 790, 793 (2015). When Beneficial voluntarily dismissed its foreclosure case, Parker filed an appeal of the involuntary dismissal of his counterclaims, asserting that Jesinoski demonstrated that his claims were not untimely. In light of the U.S. Supreme Court’s unambiguous ruling in Jesinoski, the Illinois Appellate Court in Beneficial v. Parker ruled that if Parker had mailed his notice of rescission to Beneficial, then he would have a plausible claim for rescission. However, the Appellate Court also ruled that neither Jesinoski nor TILA is so broad as to save all of Parker’s claims.

Among the claims asserted by Parker was a direct claim for damages arising from the purported failure to provide proper TILA disclosures in connection with the loan closing. The Act ordinarily requires those claims to be brought within one year of the closing. 15 U.S.C. § 1640(e). Conversely, the Act also contains another provision which states that “[t]his subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.”

Parker maintained that this exception to the general limitations provision permitted him to revive his stale damages claim because it was asserted in defense of a foreclosure action. Because TILA permits the claims “except as otherwise provided by State law,” the Appellate Court looked to Illinois law to determine whether Parker’s claim was timely. Illinois law is clear that stale counterclaims may only be brought if viable when the cause of action forming the basis of the plaintiff’s primary claim arises. (See 735 ILCS 5/13-207.) Accordingly, because Parker’s damages claim would not be permitted under Illinois State law, as it was time-barred before the foreclosure action accrued, the Appellate Court ruled that this claim for damages was properly dismissed.

In sum, if the limitations period on a TILA damages claim for improper disclosures runs out before the borrower defaults on his or her mortgage, the borrower may not assert that damage claim as a counterclaim to the foreclosure action. Once that claim is barred by the statute of limitations, it cannot be revived.

Editor’s Note: The author’s firm represented the plaintiff-appellee Beneficial Illinois, Inc. in the Beneficial v. Parker case summarized here.

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Defenses Raised to a Foreclosure Action and an Unlawful Detainer Action: Case Law Updates from: Washington

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Joshua Schaer
RCO Legal, P.S.
USFN Member (Oregon, Washington)

Is Trustee Sale Purchaser’s Successor-in-Interest able to Pursue Unlawful Detainer (or Must an Ejectment Action be Brought)?
On February 14, 2017 the Washington State Supreme Court heard oral argument in the case of Selene RMOF II REO Acquisitions II, LLC v. Ward.

History of the Subject Property — Vanessa Ward originally purchased a residence with a secured loan in 1999; in 2001, she deeded the property to an individual (Dorsey). Ward claimed that, in 2004, Dorsey transferred title back to her via quitclaim deed (QCD) for one dollar in consideration. The QCD was not recorded.

In 2005, Dorsey deeded the property to a couple and recorded the deed. In 2007, the couple transferred title to an individual (Dreier). Dreier obtained a refinance of Ward’s loan and encumbered the property with a new deed of trust. Ward continuously occupied the property and made mortgage payments, even after the refinance.

After a default in 2008, nonjudicial foreclosure commenced. Ward filed suit but failed to restrain the sale and, ultimately, her claims were dismissed. In 2009, the property sold at auction to LaSalle Bank, which received a trustee’s deed. In 2012, LaSalle Bank sought to evict Ward through an unlawful detainer (UD) action, but discontinued that attempt once it became contested.

Later in 2012, LaSalle Bank conveyed the property to Selene via a recorded special warranty deed. Selene filed its UD against Ward in 2014. For the first time, Ward disclosed the unrecorded QCD in response to Selene’s request for a writ of restitution; the trial court issued the writ.

Appellate Court Review — In 2016, Ward successfully appealed. [See 2016 WL 785097 (WA Div. 1, 2016).] The Court of Appeals held that state law only gives a trustee’s sale purchaser the automatic right to prosecute a UD, and Selene was merely a later owner. Further, Selene could not invoke a different provision of the unlawful detainer statute to evict Ward because she had “color of title” through the unrecorded quitclaim deed. Subsequently, the Washington Supreme Court granted Selene’s petition for review.

State Supreme Court Decision is Pending — In the Supreme Court Selene contended, firstly, that the UD process is not strictly limited to a trustee’s sale purchaser, and statutory rights are transferrable to a successor-in-interest. Selene relied on the reasoning of a California decision, Evans v. Superior Court, 67 Cal. App. 3d 162 (1977). Secondly, Selene asserted that a UD proceeding is not the proper forum for litigating title issues; Ward should have either restrained the sale or brought a separate civil action to adjudicate her title claim. Finally, Selene noted that case law requires good faith to show “color of title,” and Ward’s hidden QCD while still making payments on the refinanced loan did not amount to good faith.

A ruling from the Washington Supreme Court is expected later in 2017. The oral argument is online at http://www.tvw.org/watch/?eventID=2017021193.

Editor’s Note: The author’s firm represented the appellant Selene before the Washington Supreme Court in the Selene RMOF II REO Acquisitions II, LLC v. Ward case summarized here. [An earlier article on this case was published in the USFN e-Update (Apr. 2016 Ed.), which can be viewed in the Article Library at www.usfn.org.]

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Legislative Updates: Nebraska

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Camille R. Hawk
Walentine O’Toole, LLP
USFN Member (Nebraska)

Joining the VPR Ranks in a bigger way? In 2014, Lincoln enacted its Vacant and Abandoned Property Ordinance (VPRO) under the “Registration of Neglected Buildings” ordinance [see Ordinance No. 20058, Sec. 21.09.010 through 21.09.170]. Omaha followed in late 2015, with its own VPRO [see Ordinance No. 40565, Sec. 48-141 through 48-162]. The state legislature took notice and, in January 2017, LB256 was introduced to specifically and statutorily authorize communities to enact VPROs within certain guidelines. LB256 has been amended by AM452, and the Urban Affairs Committee has placed it on General File. While not yet law, it is worth reviewing.

If passed, this legislation would not apply to cities of the metropolitan class (population 300,000+; i.e., Omaha) or cities of the primary class (100,000-299,999; i.e., Lincoln). It would allow the covered municipalities — namely cities of the first class (5,001-100,000), second class (801-5,000), and villages (100-800) — to enact these ordinances to register vacant properties, collect fees to offset the public expense, monitor the rehabilitation progress, and promote occupancy. The legislation applies to both residential and commercial properties, and the property must be vacant or show evidence of vacancy.

Evidence of vacancy means “any condition or circumstance that on its own or in combination with other conditions or circumstances would lead a reasonable person to believe that a residential building or commercial building is vacant.” Nebraska Legislative Amendment AM452, LB256 sec. 4(1). The conditions and circumstances include overgrown or dead vegetation, accumulated personal property/trash, visible deterioration/lack of maintenance, defacement, or conditions that would reasonably lead someone to suspect the property is not being used for lawful purposes.

A city-wide database is to be created and a program administrator must be designated. Once the property has been vacant for 180 days or more, the owner of the property must register it — providing the name, street address, mailing address, phone number, facsimile, and email address of the owner or the owner’s agent. The registration must also include the street address of the property and the parcel number, as well as the date that the owner took title to the property and the date on which the property became vacant.

Payment may be required 180 days after the registration or 360 days from vacancy, whichever is sooner. Supplemental fees may be required every six months thereafter if the property remains on the database. The initial registration fee is limited at $250 (residential) and $1,000 (commercial). These fees can quickly increase as the fees with each registration may double the previous fee amount, with a maximum amount to be ten times the initial fee.

Exemptions have been carved out. Properties owned by the federal government, the state of Nebraska, or any political subdivision thereof are exempt from this legislation. The VPRO shall not be applied to properties that are advertised, in good faith, for sale or lease. The VPRO may be excluded from vacant properties that: are intended to be a seasonal residence only; have been damaged by fire, weather, an act of God or vandalism; or are under construction or renovation. Further exempt properties would be those where there is a temporary absence of the owner (if he or she demonstrates an intent to return), or those where the property’s ownership is subject to divorce, probate, or estate proceedings.

The ordinance and the obligations run with the land. Moreover, the property must be removed from the database when it becomes occupied; and, while on the database, the owner must supply a plan for occupancy. The VPRO shall also provide property owners with the right to appeal adverse decisions of the municipality or the program administrator (with notice sent by certified mail to the registered owner at the owner’s address identified in the county assessor’s office at least ten days prior to an adverse decision).

The VPRO may allow for inspections of the property at the time of registration and each year thereafter. Fines may be imposed for a failure to comply, and the municipality may sue civilly for the fees that should have been collected. These fines and the fees for the registration become a lien on the property “upon the recording of a notice of such lien in the office of the register of deeds of the county in which the property is located. The lien created under this section shall be subordinate to all liens on the applicable property recorded prior to the time the notice of such lien under this section is recorded.” Nebraska Legislative Amendment AM452, LB256 sec. 7(2).

As stated, Omaha and its VPRO are not subject to the state’s VPRO regulations; neither is Lincoln. If LB256 is passed, a watchful eye for impending new ordinances by municipalities is strongly suggested.

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