Article Library
Blog Home All Blogs
Search all posts for:   

 

Legislative Updates: Rhode Island

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

May 1, 2017

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

Foreclosure Deeds — On February 3, 2017 House Bill 5397, entitled “An Act Relating to Property – Mortgage Foreclosure and Sale” (Act) was introduced in the Rhode Island General Assembly. The Act was introduced by Representatives Morin, Messier, Phillips, Casey, and Johnston. The legislation seeks to amend R.I. Gen. Laws Section 34-27-6 in two substantial ways: first, it would impose a penalty of $2,000 upon financial institutions for failing to promptly record foreclosure deeds and to pay outstanding taxes; and, second, it would require that foreclosure deeds be recorded within 30 days after the date of the foreclosure sale.

Currently, the penalty for failing to promptly record the foreclosure deed or to pay outstanding taxes is $40/month. The law also currently provides 45 days for the foreclosure deed to be recorded following the date of the sale, prior to any penalty being assessed. Thus, this bill is proposing substantial changes to the recording time period as well as to the amount of the fine.

The Act would take effect upon passage. As of March 1, 2017 the House Judiciary Committee had recommended that the measure be held for further study, where it remained pending as this USFN Report went to print in April. Status of this legislation will continue to be monitored.

Copyright © 2017 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Legislative Updates: Virginia

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

May 1, 2017

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

This article was published in the USFN e-Update (Mar. 2017 Ed.) and is reprinted here for those readers who missed it.

Clarification of the Rights of Foreclosed Tenants — In the 2017 regular legislative session, the Virginia General Assembly passed several bills addressing the rights of foreclosed tenants. After the expiration of the federal Protecting Tenants at Foreclosure Act (PTFA) on December 31, 2014, conventional thought was that treatment of foreclosed tenants had reverted to the Virginia common law. However, this was recently challenged by Wiendieck v. Wells Fargo Bank, N.A., WL 4444916 (2016). In Wiendieck, the U.S. District Court for the Western District of Virginia held that Virginia Code § 55-225.10(C)’s specific reference to Section 702 and the PTFA (without also referencing the sunset provision in Section 704) meant that the expired federal law still governed foreclosed tenants in Virginia. The new legislation, which becomes effective on July 1, 2017, settles this conflict and addresses several other issues stemming from pre-existing lease agreements. [The Wiendieck case was discussed in the USFN e-Update (Jan. 2017 Ed.), which can be viewed in the Article Library at www.usfn.org.]

House Bill 1623 and Senate Bill 991 — These bills address the effect of foreclosure on existing lease agreements, rental responsibility, and termination of tenancy. It is uncertain whether Wiendieck influenced this legislative action, but reference to the PTFA has been eliminated completely from Virginia Code § 55-225.10(C). The amended version now adds “[i]f there is in effect at the date of the foreclosure sale a tenant in a residential dwelling unit foreclosed upon, the foreclosure shall act as a termination of the rental agreement by the owner.” The foreclosed tenant’s terminated lease is converted to a month-to-month tenancy and the other lease terms remain in effect until properly terminated via written notification. In Virginia, the termination of a month-to-month tenancy requires a 30-day written notice prior to the next due date, unless the lease requires additional notice.


Virginia Code § 55-225.10(D) has been added, outlining the tenant’s responsibility to pay rent post-foreclosure. Until the month-to-month lease has been terminated, the tenant is obligated to pay rent to the successor owner, to the owner or successor owner’s “managing agent,” or into escrow with the General District Court, which is not mandatory. The tenant is obligated to pay rent, whether or not a rental responsibility notice has been sent, but cannot be held in delinquent status or assessed late fees until the name, address, and telephone number of the party designated to collect rent has been provided in writing. Virginia Code § 55-225.10(E) has been created as well, acknowledging that the successor owner may enter into a new lease agreement with the foreclosed tenant and that will serve to terminate the existing month-to-month tenancy.


House Bill 2281 and Senate Bill 966 — These bills deal with the effect of foreclosure on existing property management agreements, funds held in escrow, and the right of a foreclosed tenant to file a tenant assertion. In these identical bills, the legislature addressed the effect of foreclosure on a pre-existing property management agreement entered into by the foreclosed owner and a licensed real estate broker. Virginia Code § 54.1-2108.1(A)(4) has been added and indicates that if a property management agreement exists at the time of the foreclosure sale, rent may be collected by the real estate broker acting as a property manager and the sums shall be placed “into an escrow account by the end of the fifth business banking day following receipt.” Virginia Code § 54.1-2108.1(A)(5), another new provision, converts an existing property management agreement to a month-to-month agreement. The terms of the agreement between the real estate broker and prior landlord are effective against the new owner. Either party may terminate the agreement by providing a 30-day written termination notice. Funds held in escrow by the property manager must be disbursed under the terms of the agreement or applicable law. The property manager is prohibited from transferring funds to the foreclosed former owner/landlord by the newly created Virginia Code § 54.1-2108.1(B)(5). Virginia Code § 55-225.12(A) has been amended to allow a foreclosed tenant to file a “tenant assertion” in the General District Court, paying rent into escrow until an alleged non-compliance with the lease or law (constituting a fire hazard or serious threat to the life, health, or safety of the occupants) has been adjudicated.


Impact on the Virginia Eviction Process and Timelines — While the newly passed legislation may be more burdensome than the common law, it is much more favorable than the former PTFA. For example, the lease must exist prior to the foreclosure sale. This eliminates the issue of post-foreclosure lease agreements entered into by the foreclosed borrower and the need to litigate when “complete title to a property is transferred to a successor entity,” as was the case under the PTFA. The amended statutes also render irrelevant whether a tenant is “bona fide” and the resulting rights that were granted to such occupants. Accordingly, sending a 90-day notice to vacate (or an obligation to honor an even longer lease term) has been eliminated in favor of the ability to terminate the existing lease with a simple 30-day written notice, regardless of length. Moreover, there are no special protections for Section 8 tenants.


The new legislation will, however, require greater efforts to identify tenant occupants, obtain copies of lease agreements, and to identify the property manager, if applicable. Whereas common law rendered foreclosed tenants mere tenants-at-sufferance with no legal right to occupancy (like their foreclosed landlords), the new legislation now establishes an occupancy right in the way of a month-to-month tenancy. Without a proper termination notice, foreclosed tenants will have a bona fide defense to unlawful detainer actions. The legislation further makes clear that the foreclosure purchaser is bound to the terms of the lease, until terminated. This essentially renders a foreclosure purchaser a “landlord” from the outset. Likewise, the foreclosure purchaser may find themselves bound to a property management agreement with a real estate broker whom they have not selected, until the agreement is properly terminated. All of these issues will merit added consideration regarding post-foreclosure property preservation efforts and eviction procedures, as the legislation presumes knowledge of information that may exceed the level of detail currently sought.


Standard 5-day notices to vacate may need to include additional 30-day lease termination language, addressing “any occupants” who may be tenants. Such action could proactively and preemptively terminate existing lease agreements. If a tenant has been specifically identified as an occupant, a 30-day termination notice should be expressly addressed to that occupant and the unlawful detainer should not be filed until the notice period has expired. These termination notices should be sent by regular and certified mail to preserve a sufficient “proof of mailing” required by the Virginia landlord and tenant statutes. If the foreclosure purchaser wishes to collect rent under the new statute, an agent should gather the pertinent lease information to facilitate the appropriate notice of rental responsibility being mailed to the tenant. The information obtained should include identification of any property manager so that an existing agreement may be terminated, if desired, by sending proper notification. Such notice should also direct the existing property manager to turn over all rental sums held in escrow to the foreclosure purchaser’s rental agent.


Conclusion — The legislative changes discussed in this article (effective on July 1, 2017) will likely extend current Virginia eviction timelines where the property is occupied by a tenant. In addition, more tenants may appear at unlawful detainer hearings, both pro se and represented, asserting rights to occupy the property. Nevertheless, the Virginia unlawful detainer process still remains a relatively efficient one, so that these delays should not be substantial in contrast to jurisdictions like Maryland and the District of Columbia with more stringent foreclosure tenant laws. At the very least, the recent question presented by Wiendieck as to the PTFA’s viability in Virginia has been clarified; and the new legislation presents a framework for implementation of processes and procedures to address foreclosed tenants.


Copyright © 2017 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

This post has not been tagged.

Share |
Permalink
 

Property Preservation from Coast to Coast: Perspectives from Massachusetts and Washington State

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

May 1, 2017

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

and Wendy Walter
McCarthy & Holthus, LLP
USFN Member (Washington)

In nearly every state in the country, the number of loans in foreclosure continues to decrease. According to data collected by ATTOM Solutions, RealtyTrac’s parent company, there were almost 1.4 million vacant properties (over 18,000 of which were at some stage of foreclosure, with an additional 46,604 bank-owned vacant properties) as of the third quarter of 2016. These numbers represent a reduction in all categories from the same period in 2015. The only exception is bank-owned properties, which saw a nine percent increase, likely attributable to the historic foreclosure backlog in some states that is now moving forward to sale.

These declining numbers can be small solace for municipalities, particularly those in economically depressed cities and towns dealing with vacant and abandoned residential properties in their neighborhoods. In recent years, state and local governments across the nation have used a variety of strategies to address neighborhood blight, relying on long-established laws as well as more recent legislation specifically targeting vacant properties — both in the foreclosure process and at the REO stage.

In this article, the strategies employed by two states (the Commonwealth of Massachusetts and the State of Washington) in addressing their property preservation issues will be contrasted and compared.

Massachusetts
When a property owner (or, in some cases, a foreclosing mortgagee) has repeatedly ignored notices of building or sanitary code violations, Massachusetts officials have a variety of tools available to them — which they don’t hesitate to deploy. MA. G. L. Ch. 143 § 51 allows the municipality to file a criminal complaint against an owner who has failed to make the cited repairs within 30 days of the notice. Municipal ordinances in a number of communities require foreclosing servicers or owners of REO to register vacant (and in some cases, occupied) properties in foreclosure. Depending on the ordinance, the servicer/REO owner may have to pay an annual fee, certify that the property has been inspected, appoint a local property manager to monitor the property, and post a “cash” bond of up to $10,000 per property to ensure the property is maintained.

However, for the mortgagee, or an owner of a bank-owned property, an even more serious risk lies in the provisions of MA. G. L. Ch. 111 § 127F: the so-called receivership statute. Under the law, elected officials may file a motion with the state court to appoint a receiver who takes over the process of placing the property in good repair. Once appointed by the court, the powers of the receiver are extraordinary. He or she does not have to comply with public bidding laws, enjoys little judicial scrutiny in either their selection of construction professionals, property managers and legal counsel, or their budget. Additionally, all costs and expenses incurred are given super-priority lien status. Couple this with a comparatively fast-track priority lien foreclosure process and the interest of the mortgagee or REO owner can swiftly evaporate.

Attorney General Enforcement — In addition to the foregoing, surely the most problematic tool Massachusetts has for combatting blighted properties is the Abandoned Housing Initiative of the Office of the Attorney General (AG). This program — launched more than four years ago by the AG who was unhappy with the pace of resolution of blighted properties — uses the receivership statute and the AG’s civil investigatory powers to target vacant properties being foreclosed upon or bank-owned. The referral to the AG of a property can originate from a complaint posted on the AG’s website, by a telephone call from a neighbor or tenant, or from Legal Aid or another consumer group. Municipal officials can also refer properties that they would prefer the AG to handle.

Once a complaint is logged, the AG promptly identifies the owner (and foreclosing mortgagee) and files a motion to appoint a receiver. The AG will use the prospect of the possible appointment to press the owner to make the repairs. The AG staff have become very knowledgeable about repairs and maintenance, and use their power to micromanage the entire process. To avoid appointment of a receiver, they will insist on an aggressively comprehensive repair plan with deadlines for completion. They tend to set status hearings for every two weeks to ensure that the work is being completed; extensions to repair cannot be taken for granted. They conduct their own inspections and are quick to cite any repairs not made to their satisfaction. If the owner is not proceeding fast enough, they will move to appoint a receiver to finish the work. Upon completion of the work — whether performed by the owner, mortgagee, or receiver — they will present the court with their own bill for attorneys’ fees and all other expenses that they have incurred during the process, which is also given priority status.

So how does a servicer and its counsel effectively navigate the property preservation process in Massachusetts? Working relationships with the AG’s and municipalities’ staff are fostered in order to effectively address property issues; excessive fees and costs are challenged, and it is made clear that upgrades disguised as repairs that seem excessive will be questioned. When threatened with a receivership, approval can be sought to complete only emergency (rather than all) repairs on a fast-track basis; motions for access and documentation of inspections can be used to rebut serial repair issues raised by tenants.

A servicer faced with an abandoned property in disrepair will have to: carefully balance the cost of repairs against the equity in the property, as well as the risk of making repairs on a property in foreclosure against being deemed a mortgagee in possession with the inherent obligations and exposure associated with that status; and, in all cases, adopt an effective oversight and escalation process to avoid garnering the attention of the AG.


Washington
Since the decision of the Washington Supreme Court in Jordan v. Nationstar (Wash. July 2016), property preservation has been one of the big issues to be addressed in the current legislative session in Washington State. So big, in fact that the Federal Housing Finance Agency (in communication with several Washington State Senators) recently wrote: “… Washington is the only state that has a major court ruling that adversely impacts the ability of servicers to carry out the maintenance standards that Fannie Mae and Freddie Mac require on a national level.”

The cities and the government agencies have been involved in trying to protect the local codes’ registration laws designed to prevent blight, and to hold foreclosing lenders responsible for the maintenance of property. Nonetheless, as the mortgage loan servicing industry knows, even well-intentioned legislation seldom provides immediate relief to the issues that sparked the process.

So what is a servicer to do with current loans securing potentially abandoned and vacant properties in Washington State, during one of the most interesting winters we’ve had in the Pacific Northwest? The Supreme Court didn’t provide much guidance except to conclude that appointing a receiver is not the exclusive method for lenders to gain access to properties. Unlike in Massachusetts, Washington’s attorney general is more focused on immigration bans and standing up against the new policies announced by the Trump Administration; receiverships and dealing with blighted properties haven’t been on the Top 10 list. Consequently, servicers aren’t seeing the same activism and receivership undertakings outside of Spokane County, which was most involved with the Jordan decision. That said, “Doing nothing” is not an option. There is too much at stake and the risks are too great.

As practitioners in an area so ripe with specific legislation and regulation, it is a career highlight to have the opportunity to craft a tailor-made solution utilizing creativity and the legal process to solve real, practical problems facing our clients and our communities. We are doing just that in property preservation. These cases are being handled in a very efficient, yet customized, fashion by tracking foreclosure (once the foreclosure sale occurs the right of possession and an ability to enter and maintain the property is more clear), reaching out to consumers to obtain their consents; and, if that doesn’t work, filing civil cases seeking an order allowing entry onto the property for the purpose of repairing and maintaining during the pendency of the foreclosure sale. Designated property preservation departments are then communicated with to ensure that the legal rights available are understood so that action can be taken within the boundaries of the unique Washington law, as well as within the court orders that are obtained.

This author’s firm has had cases involving deceased borrowers with no clear successor stepping in to claim possession and ownership of the property; real estate investors with multiple properties who haven’t been able to sell and gave up on marketing efforts; active military duty borrowers who have moved away and weren’t sure how to give the property back to the bank; borrowers who surrendered the property in a bankruptcy proceeding and were represented by counsel who were more than willing to sign the consent; and emergency situations with health/fire/police department engagement.

The response from the superior (trial) courts has been very positive. The judges understand the problem; they live in the neighborhoods where these vacant properties threaten safety and property values. Although a legislative solution might not provide a prompt path toward efficient resolution, in many matters a court order has been obtained within a few weeks to allow the servicer (and its agent) to enter onto the property to do what is necessary to protect the asset. This solution is more efficient than the receivership route, waiting for the foreclosure, or awaiting a legislative fix.

Some folks question whether maintenance and repairs are necessary for structures where the obvious solution is going to be a teardown. The takeaway is that servicers should be aware and consider partnering real estate agent/brokers with the property preservation departments to come up with better long-term strategies for investment in maintenance and repair. Naturally, the risk there is that if the property is sold via foreclosure, there might not be an asset to maintain. However, the likelihood of a third-party sale could be increased by certain repairs and maintenance work.

Closing Words: Property Preservation is Local
In looking at the different ways in which Massachusetts and Washington address the same concern, what’s clear is that property preservation is a very local affair. Servicers with large national portfolios need to approach each state in a proactive (and customized) manner in order to protect the value of the property, the interests of the investor, and — above all else — the interests of the community.

Strong vendor relationships with local counsel, brokers and real estate agents, as well as with preservation vendors are vital. Allowing these professionals to connect and collaborate is the key towards implementing sound, efficient legal and practical strategies. USFN firms are focused on this important issue and will continue to keep the industry informed.

Copyright © 2017 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

This post has not been tagged.

Share |
Permalink
 

Illinois: Appellate Court Hands Down a Key Win to Lenders

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

May 1, 2017

by Douglas A. Oliver
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

Since December 3, 2015, one of the most challenging issues in Illinois foreclosure law has been condominium association (COA) demands that lenders satisfy unpaid, pre-foreclosure assessments, where the lender was the successful bidder at the judicial sale. On that date, a unanimous Illinois Supreme Court held that a condominium assessment lien against foreclosed property survives the foreclosure where post-sale assessments go unpaid. This was decided in a case known as 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 43 N.E.3d 1005, 2015 IL 118372; and it dealt with Section 9(g) of the Illinois Condominium Property Act (Act) (765 ILCS 605/9(g)).

Under Section 9(g) of the Act, unpaid assessments become an automatic lien on condo property. This lien is subordinate to purchase money mortgages and is wiped out as a junior lien in a foreclosure — if the winning bidder at the foreclosure sale pays the assessments that come due from the first day of the next month following the sale.

The 1010 Lake Shore decision held that, pursuant to Section 9(g)(3) of the Act, the lien for pre-foreclosure unpaid assessments remains in place and enforceable until post-sale assessments are paid. Specifically, the Illinois Supreme Court ruled that it is the payment of post-sale assessments that “confirms extinguishment” of the lien for unpaid pre-foreclosure assessments. However, 1010 Lake Shore left open a key question: when must such payments be made to accomplish extinguishment of that pre-foreclosure lien? A lack of guidance on this issue created many disputes as to whether pre-foreclosure assessment liens were extinguished, despite lender payments of post-sale assessments.

Condominium associations in Illinois took the position that post-sale assessments had to be paid on the first of the month following the sale, or very soon thereafter. Otherwise, the COA contended, the lien for pre-foreclosure assessments could not be wiped out by later payment of post-sale assessments. In other words, the “late” payment of post-foreclosure assessments waived extinguishment of pre-foreclosure assessment liens. Under this view, the associations could demand all unpaid assessments, including pre-foreclosure assessments, in many — if not most — cases.

COAs would aggressively assert this course of action by holding REO closings hostage or filing lawsuits to evict lenders from possession of condo property. None of this was supported by the language of Section 9(g)(3) of the Act or the 1010 Lake Shore opinion. However, condo associations successfully pressed the issue because the foreclosing lender’s only alternative to payment was to litigate the association’s right to payment — an unacceptable choice to many.


In the recent case of 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279 (Mar. 31, 2017), the Illinois Appellate Court for the First Judicial District (which covers Cook County and the City of Chicago) held that Section 9(g)(3) sets forth no payment due date. The appellate court determined that Section 9(g)(3) only demarks the point at which the successful bidder at sale becomes liable for ongoing assessments, which is the first day of the month following the judicial sale. This highly consequential holding means that, regardless of the timing of payment of post-sale assessments, the lien for pre-foreclosure assessments is wiped out as soon as the successful sale bidder (often the foreclosing lender) pays post-sale assessments.

Recommended Practices
Despite the ruling in 5510 Sheridan Road, it is clearly still a best practice to begin paying post-sale assessments as soon as possible. The prior 1010 Lake Shore case implied that it was the duty of the successful bidder at the foreclosure sale to request payment information for ongoing assessments from the COA. Yet, associations vary widely in their ability and willingness to provide useful payment information. As a result, the following practical steps should prove helpful to circumvent problems:

1. Tender a payment to the COA as soon as possible after the first day of the month following the foreclosure sale, using the best available information to calculate the amount. Even where there is a dispute as to the amount due, it is always advantageous to make the best possible good-faith tender of payment.

2. In all foreclosure cases where a COA is a party, issue a subpoena to the association, seeking disclosure of both the amount due and the amount of regular assessments. Alternatively, discovery requests might be used to solicit this information.

3. Serve a demand for a statement of balance due to the COA board of managers, as provided by Section 9(j) of the Illinois Condominium Property Act, while the foreclosure case is pending. If the association does not respond, its lien will be subordinate.

4. Make sure that all communications with the association or its attorneys are either in writing or otherwise documented.

The 5510 Sheridan Road decision is a major victory for lenders. If the foregoing practices are observed, it should be much easier to deal with — or prevent — unwarranted COA demands for payment of pre-foreclosure liens. The case could be further appealed, but this author’s firm regards the appellate opinion as well-reasoned and believes that it will stand.

Copyright © 2017 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

HOAs Taking Advantage of Minnesota Lenders?

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

May 1, 2017

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

Following a foreclosure, lenders and servicers are routinely asked to foot the bill for the unpaid homeowners association (HOA) dues. In addition to the regular monthly dues, often the bill comes riddled with line items for unit repairs, special assessments, attorneys’ fees, late charges, and more. When the bill threatens to delay an REO closing, the lender must decide quickly whether to pay the bill or challenge the association. Fortunately, Minnesota law provides a clear outline of what charges must be paid — with one significant caveat.

In Minnesota, a lender foreclosing a first mortgage must pay the unpaid dues for common expenses which became due, without acceleration, during the six months immediately preceding the end of the owner’s period of redemption. Unfortunately, a few unscrupulous or ill-informed HOAs add all of the unpaid association dues, late charges, and attorneys’ fees to their bills regardless of their timing. The lender is not responsible for any assessments that became due prior to the six-month lookback period.

While most HOAs charge only for the dues incurred during the six-month lookback period, these associations almost always include late charges and attorneys’ fees. The lender is not responsible for late charges and attorneys’ fees incurred during the six-month lookback period; the statute specifically omits these amounts in the list of allowed charges. Often, these unlawful charges are paid by servicers who are too busy to challenge every line item. Paying the unlawful charges is a mistake, and although they are usually small amounts, eliminating the unlawful charges can add up to significant savings.

Moreover, a very small number of associations will even wait to levy a special assessment until the six-month lookback period commences. The significant caveat to the otherwise clearly written statute is whether the lender is responsible for special assessment charges that were incurred prior to the six-month lookback period. This ambiguity is a result of the statutory language “which became due.”

HOA counsel contend that a lender is in a better position to pay these assessments, but these attorneys forget that their clients have recourse beyond lenders to recover the amounts. The association has every right to pursue collection against the unit owner; that is, the homeowner who was responsible for the dues and assessments at the time that the HOA incurred the charges for services/materials/repairs provided by third-party vendors (specifically, at the time that the invoice from the vendor to the HOA became due). Challenging these assessments may require examining the HOA meeting minutes, but this research can also result in significant savings.

Most of the time these disputes with an HOA can be resolved with a single letter from the lender’s attorney and a redlined association invoice. On occasion, a lawsuit may be required. If the matter requires litigation, the good news is that a court can award reasonable attorneys’ fees to the prevailing party, and if the association willfully refused to remove an unlawful charge, the court may award punitive damages.

Copyright © 2017 USFN. All rights reserved.
Spring USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Ninth Circuit Court of Appeals holds that 15 U.S.C. § 1692(f)(6) FDCPA Claim can be Brought against Loan Servicers Even in Nonjudicial Foreclosure

Posted By USFN, Tuesday, April 25, 2017
Updated: Wednesday, April 19, 2017

April 25, 2017

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

On March 31, 2017, the Ninth Circuit Court of Appeals issued a published opinion in Dowers v. Nationstar Mortgage, LLC, which was on appeal from the U.S. District Court for Nevada [_F.3d __, 2017 WL 1192207 (9th Cir. 2017)].

The plaintiff-borrowers sued loan servicer Nationstar and investor Wells Fargo Bank Minnesota for FDCPA violations, intentional infliction of emotional distress, and violations under the Nevada Deceptive Trade Practices Act. The district court dismissed all claims pursuant to Fed. R. Civ. P. 12(b)(6).

On appeal, the decision was affirmed in all respects except as to one claim; i.e., an alleged violation of 15 U.S.C. § 1692f(6). The Ninth Circuit cited Ho v. ReconTrust, 840 F.3d 618 (9th Cir. 2016) for the proposition that § 1692a(6)’s definition of “debt collector” includes security interest enforcers, who are regulated only through § 1692f(6). The remainder of the FDCPA does not govern nonjudicial foreclosure activity, which is not considered “debt collection.”

The Ninth Circuit’s reasoning in Dowers, however, appears to overlook the parties’ posture in the Ho litigation. Ho specifically “affirms the leading case” of Hulse v. Ocwen Federal Bank, 195 F. Supp. 2d 1188 (D. Or. 2002), which held that “foreclosing on a trust deed is an entirely different path” than “collecting funds from a debtor.” See Ho, at 621.

Contrasting Pre-Ho Case Law
In Hulse, the borrowers pled violations based on the entire FDCPA, which necessarily encompassed § 1692f(6). (Hulse, at 1202: “Plaintiffs allege that OFB violated the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692o ….”). Critically, Hulse particularly referenced the “narrow definition” in § 1692a(6) when holding that foreclosing on property pursuant to a deed of trust is not “within the terms of the FDCPA.” Hulse at 1204, citing Heinemann v. Jim Walter Homes, Inc., 47 F. Supp. 2d 716 (D.W.Va. 1998), aff’d, 173 F.3d 850 (4th Cir. 1999) (which cited to the same “narrow definition”).

By contrast, the parties in Ho explicitly conceded that the foreclosure trustee defendant was “a debt collector under the narrow definition” (in 15 U.S.C. § 1692a(6)) that would otherwise prohibit conduct under § 1692f(6). Ho, at 622: “All parties agree that ReconTrust is a debt collector under the narrow definition.” Moreover, in Ho, ReconTrust was not even accused of a § 1692f(6) violation. Consequently, it appears that except for the parties’ agreement to the applicability of § 1692a(6) — and §1692f(6) by extension — the clear adoption of Hulse’s and Heinemann’s reasoning would prohibit any FDCPA claim related to nonjudicial foreclosure activity.

In fact, this is precisely what numerous district court judges within the Ninth Circuit have held over the past few years. See, e.g., Wear v. Sierra Pacific Mortgage Company, Inc., 2013 WL 6008498, *5 (W.D. Wash. Nov. 12, 2013) (“Courts have routinely held that foreclosure does not constitute ‘debt collection’ under the FDCPA.”); Bostrom v. PNC Bank, N.A., 2012 WL 3904379, *6 (D. Idaho Aug. 17, 2012), report and recommendation adopted, 2012 WL 3905872 (D. Idaho Sept. 7, 2012) (“[C]ases interpreting the FDCPA have held that loan servicers, lenders, mortgage companies, and trustees appointed pursuant to a deed of trust are not ‘debt collectors,’ a prerequisite for application of Section 1692f(6).”); Roman v. Northwest Trustee Services, Inc., 2010 WL 5146593 (Dec. 13, 2010) (“Foreclosing on a trust deed is distinct from the collection of the obligation to pay money”). The Roman plaintiff specifically pled a § 1692f(6) violation against the trustee. See Case No. 10-05585-BHS (W.D. Wash.), Dkt. No. 1 at 5, 19. These cases were all either silently overruled by Ho, or else there is something more nuanced that led to the Ho decision — such as the parties’ agreement to the application of § 1692a(6) and/or the borrower’s failure to plead a § 1692(f)(6) violation in the underlying action.

Closing
In sum, while federal courts within the Ninth Circuit will likely take it as a foregone conclusion that § 1692f(6) applies to nonjudicial foreclosure after Dowers, it may be worth reminding judges of the above-referenced facts. Perhaps one or more courts will recognize that Ho cannot be intellectually reconciled with Hulse’s reasoning absent the Ho parties’ stipulation concerning § 1692a(6) being given effect.

© Copyright 2017 USFN. All rights reserved.
April e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Connecticut Appellate Court Rules Modified Note is Still Negotiable under the UCC

Posted By USFN, Tuesday, April 25, 2017
Updated: Thursday, April 20, 2017

April 25, 2017

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

In Deutsche Bank National Trust Company v. Pardo, 170 Conn. App. 642 (Feb. 14, 2017), the borrower appealed the trial court’s denial of his motion to dismiss and motion to open the judgment of strict foreclosure granted the plaintiff-foreclosing trust. The borrower claimed that the trial court improperly: (1) denied his motion to dismiss for lack of subject matter jurisdiction; and (2) dismissed, pursuant to Connecticut General Statutes § 49-15, his motion to open the judgment of strict foreclosure as moot. The borrower’s sole contention on appeal was that the plaintiff lacked standing because the note that was the subject of the foreclosure was no longer a negotiable instrument following the borrower’s default on a loan modification. The Connecticut appellate court affirmed the judgment of the trial court.

Background
On April 9, 2007, the borrower executed the note. On May 4, 2010 and October 3, 2012, the borrower executed two separate loan modification agreements (both of which increased the principal balance due on the loan). The borrower then defaulted on the modifications.

Under Conn. Gen. Stat. § 42a-3-104 [which is Connecticut’s adoption of 3-104 of the Uniform Commercial Code (UCC)], in order to be a negotiable instrument, the note must be an unconditional promise to pay. The borrower contended that once the loan was modified, the note was no longer an unconditional promise to pay and, therefore, lost its status as a negotiable instrument as contemplated by Connecticut statute and the UCC — as the terms of the note were “subject to or governed by” other writings and thus rendered the note “conditional.” According to the borrower, because the note was no longer a negotiable instrument under § 42a-3-104, the plaintiff could not prove standing to foreclose by virtue of being a holder of the note. The borrower relied upon Conn. Gen. Stat. § 42a-3-106, which says that “… a promise or order is unconditional unless it states … 2) that the promise or order is subject to or governed by another writing.”

Review on Appeal
Standing — The appellate court pointed out that in order to have standing, the plaintiff must be entitled to enforce the promissory note secured by the property. A plaintiff may evidence that it is entitled to enforce the note by being a holder of the note or someone with the rights of a holder. The appellate court held that the plaintiff presented prima facie evidence that it is the holder with standing to commence the action by the mere allegation in the complaint that it was the holder of the note with a copy of the note attached to the complaint.

The appellate court rejected the borrower’s argument that the note was no longer a negotiable instrument as a result of the subsequent modifications. In finding that the note was a negotiable instrument, the appellate court upheld the trial court’s findings that the plaintiff was the holder of the note, and had established a prima facie case for foreclosure. Further, the court found that the plaintiff’s case was not rebutted merely because of the borrower’s argument (which the appellate court did reference as “novel”); the borrower’s contention was rejected outright. A later modification of the note did not strip the note of its status as a negotiable instrument in looking at the terms of the note. As the note itself did not reference or contemplate a separate document or agreement, and as the note was merely modified by a different agreement well after the execution of the document, § 42a-3-106 did not apply.

Vesting of Title — Connecticut utilizes both foreclosures by sale and strict foreclosures. In a strict foreclosure, title to the property vests in the plaintiff by operation of law absent redemption of the judgment debt by either the borrower or any other subsequent encumbrancer. In Pardo, the borrower also made the argument that merely filing a motion to open the judgment stopped the vesting of title with the plaintiff. The court disagreed. The trial court entered judgment on February 2, 2015 with the law days set to commence on May 19, 2015.

The law days are judicially-determined days in which the defendants have to redeem. If they fail to redeem, title passes to the plaintiff. The borrower filed the motion to open the judgment on May 12, 2015. The trial court did not hear the motion until May 26, 2015, which was after title vested with the plaintiff. Because title had passed to the plaintiff, despite the pending motion, there was no relief that the court could provide to the borrower.

Also worth noting is the court’s holding that the mere filing of a motion to dismiss purporting to challenge standing, and therefore subject matter jurisdiction, does not toll or stay the running of the law days. Generally, courts have held that when an issue of subject matter jurisdiction is raised, there can be no further movement on the case until the issue is decided. Some trial courts have taken the position that an issue of subject matter jurisdiction is raised upon the mere filing of a motion to dismiss. In deciding against that precept, the court in Pardo cited the need for an orderly foreclosure procedure that must, at some point, conclude. To adopt the defendant’s position, the court reasoned, would produce unnecessary delay and interrupt the orderly disposition of foreclosure proceedings.

Closing Words … for Now
Still, this matter is not over. There is another avenue of appeal: specifically, the Connecticut Supreme Court and the borrower has petitioned for review there. As of now, lenders should feel safe that entering a loan modification will not render a note and mortgage unenforceable in Connecticut.

© Copyright 2017 USFN. All rights reserved.
April e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Illinois Appellate Court Clarifies Timing Requirement to “Confirm” Extinguishment of Association Lien

Posted By Administration, Tuesday, April 25, 2017
Updated: Thursday, April 20, 2017

April 25, 2017

by Brian Merfeld and Marcos Posada
McCalla Raymer Leibert Pierce, LLC – USFN Member (Connecticut, Florida, Georgia, Illinois)

In 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279 (Mar. 31, 2017), the Appellate Court of Illinois (First Judicial District) found that there is no deadline for a post-foreclosure sale purchaser to “confirm” extinguishment of the association’s lien for the prior unit owner’s pre-sale unpaid common expenses. Specifically, the court rejected the association’s argument that the payment to confirm extinguishment of the association’s lien must be paid on the first day of the first month following judicial sale.

The court held that the association’s interpretation could not be reconciled with Pembrook Condominium Association-One v. North Shore Trust and Savings, 2013 IL App (2d) 130288 (2013) (payment of full post-sale amount — two months of post-sale assessments — confirmed extinguishment). The court further found that in 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 2015 IL 118372 (Dec. 3, 2015), the Illinois Supreme Court did not say when the payment to extinguish the lien had to be made. Rather, in 5510 Sheridan Road, the appellate court said that the language of the statute was designed to incentivize “prompt payment of those post[-]foreclosure sale assessments.”

With respect to when the post-foreclosure sale payment must be made, the appellate court found the absence of an express requirement in 765 ILCS 605/9(g)(3) telling. The court determined that if the General Assembly intended for section 9(g)(3) to contain a strict timing deadline, it would have included a deadline in the statute and that the absence of a deadline is strong evidence the legislature did not intend for section 9(g)(3) to have a deadline, as asserted by the association. Further, the court rejected the additional and alternative argument offered by the association asking the court to read section 9(f) into 9(g).

The appellate court found that the undisputed post-foreclosure sale payment (which included the nine months of regular assessments due after judicial sale) fully paid the amount owed for the unit’s post-sale common expenses and confirmed extinguishment of the lien.

Conclusion
The 5510 Sheridan Road ruling could provide relief to a mortgagee who brings current the post-judicial foreclosure sale account balance. Such payment would confirm that any prior balance is extinguished. Thus, this judicial decision may effectively negate an association’s ability to compel mortgagees to pay off unpaid common expenses, which include assessments and other charges.

© Copyright 2017 USFN and McCalla Raymer Leibert Pierce, LLC. All rights reserved.
April e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

D.C.: New Condominium Lien Foreclosure Statute Opens Door for Challenging Completed Condominium Lien Foreclosure Sales?

Posted By Rachel Ramirez, Tuesday, April 25, 2017
Updated: Wednesday, July 26, 2017

April 25, 2017 and August 1, 2017

by Kenneth Savitz and Tracy Buck
Rosenberg & Associates, LLC - USFN Member (District of Columbia)

In the USFN Report (Winter 2017 Ed.), we advised deed of trust holders and servicers to keep an eye out for possible changes to the D.C. condominium lien foreclosure laws, especially in light of the holding in Bourne Valley Court Trust v. Wells Fargo Bank, NA, 832 F.3d 1154 (9th Cir. 2016).

One such change came sooner than expected when, on February 9, 2017, the D.C. Mayor signed D.C. Act 21-657, known as the “Condominium Owner Bill of Rights and Responsibilities Amendment Act of 2016” (Act). Several draft versions of the Act had been considered in late 2015, but none survived committee review. The Act, enacted on April 7, 2017, contains two important amendments to D.C. Code § 42-1903.13 regarding D.C. condominium lien foreclosure law that heavily impact deed of trust holders and servicers.

Firstly, the Act now requires that condominiums expressly state on their notices of sale that the foreclosure is either for the “6-month [super] priority lien” or for “[m]ore than the 6-month [super] priority lien … and subject to the first deed of trust.” Before the Act, condominiums issued the D.C. Recorder of Deeds’ prescribed Notice of Foreclosure Sale of Condominium Unit for Assessments Due, which contained no such differentiation as to which lien the condominium was foreclosing. This omission created uncertainty for deed of trust holders and servicers regarding the assessments, charges, and fees that were included in the unspecified lien amount. Deed of trust holders and servicers were often forced to pay non-priority condominium lien amounts — and increased attorneys’ fees in negotiating the correct super-priority lien amount — to ensure that their first-priority deed of trust position was preserved. It is anticipated that this clarification on the notice of sale will foster communication among all lienholders affected by condominium foreclosure sales.

Secondly, and more directly related to the Bourne Valley decision, the Act now requires that condominiums provide their notices of sale to “[a]ny and all junior lien holders of record” and to “[a]ny holder of a first deed of trust or first mortgage of record, their successors and assigns, including assignees, trustees, substitute trustees, and MERS.” This is a drastic change from the previous version of the statute, which required that the notice be sent only to the Mayor (i.e., recorded with the D.C. Recorder of Deeds) and to the “unit owner at the mailing address of the unit and at any other address designated by the unit owner.” The pre-Act notices did not have to be sent to the first deed of trust holders or servicers, who were left to scour the D.C. public records for notices of sale.

As noted previously of the Bourne Valley decision, the Ninth Circuit Court of Appeals ultimately viewed the absence of required notice in the Nevada statute as unconstitutional. In addition though, the Ninth Circuit cited to Nevada’s 2015 legislative amendments (which added a notice provision) as “further evidence that the version of the Statute applicable in this action did not require notice unless it was requested. If the Statute already required [ ] associations affirmatively to provide notice, there would have been no need for the amendment.” Bourne Valley, n.4.

The Mayor and D.C. Council’s recent decision to add provisions explicitly requiring notice to lienholders only bolsters any arguments that the prior version of D.C. Code § 42-1903.13 lacked such due process protections and was facially unconstitutional. Deed of trust holders and servicers would be wise to re-review any deeds of trust purportedly extinguished by super-priority condominium lien foreclosures as a result of the pre-Act statute.

© Copyright 2017 USFN. All rights reserved.
April e-Update and Summer USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Connecticut Supreme Court Allows Foreclosure of Mortgage on an Unapproved Subdivision

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

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

The Connecticut Supreme Court recently held in ARS Investors II 2012-1 HVB, LLC v. Crystal, LLC, 324 Conn. 42 (Feb. 28, 2017), that a mortgagee may foreclose on property that consists of parcels of land within a subdivision that has not been approved by municipal zoning authorities. While an owner of a parcel in an unapproved subdivision might be prevented from certain uses of the property as a result of its unapproved status, nothing prohibits the sale of an unapproved parcel. Zoning is related directly to the use of property and not necessarily with its ownership.

The Supreme Court upheld the trial court’s finding: “[t]he fact that the land described in the mortgage deed may not constitute a legal lot under local zoning regulations is not relevant to the plaintiff’s right to foreclose.” To bolster the Court’s decision, the Court relied on two different state statutes. First, Conn. Gen. Stat. Sec. 8-25, which expressly contemplates that lots in an unapproved subdivision might nevertheless be transferred; and, second, Conn. Gen. Stat. Sec. 47-36aa, which validates — amongst other defects & omissions — the conveyance of an interest in a lot or parcel of land in a subdivision that was not approved. The Court also touched on the concept of reformation in response to one of the defendant-appellant’s arguments and found that “[r]eformation is appropriate only when the deed executed by the parties does not reflect the agreement the parties actually intended.”

This decision in ARS Investors II 2012-1 HVB is favorable for foreclosing lenders and takes away the possible title risk associated with lending to owners of unapproved subdivisions.

© Copyright 2017 USFN. All rights reserved.
March e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Virginia: New Legislation Impacts Eviction Process & Timelines

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

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

Clarification of the Rights of Foreclosed Tenants
In the 2017 regular legislative session, the Virginia General Assembly passed several bills addressing the rights of foreclosed tenants. After the expiration of the federal Protecting Tenants at Foreclosure Act (PTFA) on December 31, 2014, conventional thought was that treatment of foreclosed tenants had reverted to the Virginia common law. However, this was recently challenged by Wiendieck v. Wells Fargo Bank, N.A., WL 4444916 (2016). In Wiendieck, the U.S. District Court for the Western District of Virginia held that Virginia Code § 55-225.10(C)’s specific reference to Section 702 and the PTFA (without also referencing the sunset provision in Section 704) meant that the expired federal law still governed foreclosed tenants in Virginia. The new legislation, which becomes effective on July 1, 2017, settles this conflict and addresses several other issues stemming from pre-existing lease agreements. [The Wiendieck case was discussed in an earlier article published in the USFN e-Update (Jan. 2017 Ed.), which can be viewed here.]

House Bill 1623 and Senate Bill 991
These bills address the effect of foreclosure on existing lease agreements, rental responsibility, and termination of tenancy. It is uncertain whether Wiendieck influenced this legislative action, but reference to the PTFA has been eliminated completely from Virginia Code § 55-225.10(C). The amended version now adds “[i]f there is in effect at the date of the foreclosure sale a tenant in a residential dwelling unit foreclosed upon, the foreclosure shall act as a termination of the rental agreement by the owner.” The foreclosed tenant’s terminated lease is converted to a month-to-month tenancy and the other lease terms remain in effect until properly terminated via written notification. In Virginia, the termination of a month-to-month tenancy requires a 30-day written notice prior to the next due date, unless the lease requires additional notice.

Virginia Code § 55-225.10(D) has been added, outlining the tenant’s responsibility to pay rent post-foreclosure. Until the month-to-month lease has been terminated, the tenant is obligated to pay rent to the successor owner, to the owner or successor owner’s “managing agent,” or into escrow with the General District Court, which is not mandatory. The tenant is obligated to pay rent, whether or not a rental responsibility notice has been sent, but cannot be held in delinquent status or assessed late fees until the name, address, and telephone number of the party designated to collect rent has been provided in writing. Virginia Code § 55-225.10(E) has been created as well, acknowledging that the successor owner may enter into a new lease agreement with the foreclosed tenant and that will serve to terminate the existing month-to-month tenancy.

House Bill 2281 and Senate Bill 966
These bills deal with the effect of foreclosure on existing property management agreements, funds held in escrow, and the right of a foreclosed tenant to file a tenant assertion. In these identical bills, the legislature addressed the effect of foreclosure on a pre-existing property management agreement entered into by the foreclosed owner and a licensed real estate broker. Virginia Code § 54.1-2108.1(A)(4) has been added and indicates that if a property management agreement exists at the time of the foreclosure sale, rent may be collected by the real estate broker acting as a property manager and the sums shall be placed “into an escrow account by the end of the fifth business banking day following receipt.” Virginia Code § 54.1-2108.1(A)(5), another new provision, converts an existing property management agreement to a month-to-month agreement. The terms of the agreement between the real estate broker and prior landlord are effective against the new owner. Either party may terminate the agreement by providing a 30-day written termination notice. Funds held in escrow by the property manager must be disbursed under the terms of the agreement or applicable law. The property manager is prohibited from transferring funds to the foreclosed former owner/landlord by the newly created Virginia Code § 54.1-2108.1(B)(5). Virginia Code § 55-225.12(A) has been amended to allow a foreclosed tenant to file a “tenant assertion” in the General District Court, paying rent into escrow until an alleged non-compliance with the lease or law (constituting a fire hazard or serious threat to the life, health, or safety of the occupants) has been adjudicated.

Impact on the Virginia Eviction Process and Timelines
While the newly passed legislation may be more burdensome than the common law, it is much more favorable than the former PTFA. For example, the lease must exist prior to the foreclosure sale. This eliminates the issue of post-foreclosure lease agreements entered into by the foreclosed borrower and the need to litigate when “complete title to a property is transferred to a successor entity,” as was the case under the PTFA. The amended statutes also render irrelevant whether a tenant is “bona fide” and the resulting rights that were granted to such occupants. Accordingly, sending a 90-day notice to vacate (or an obligation to honor an even longer lease term) has been eliminated in favor of the ability to terminate the existing lease with a simple 30-day written notice, regardless of length. Moreover, there are no special protections for Section 8 tenants.

The new legislation will, however, require greater efforts to identify tenant occupants, obtain copies of lease agreements, and to identify the property manager, if applicable. Whereas common law rendered foreclosed tenants mere tenants-at-sufferance with no legal right to occupancy (like their foreclosed landlords), the new legislation now establishes an occupancy right in the way of a month-to-month tenancy. Without a proper termination notice, foreclosed tenants will have a bona fide defense to unlawful detainer actions. The legislation further makes clear that the foreclosure purchaser is bound to the terms of the lease, until terminated. This essentially renders a foreclosure purchaser a “landlord” from the outset. Likewise, the foreclosure purchaser may find themselves bound to a property management agreement with a real estate broker whom they have not selected, until the agreement is properly terminated. All of these issues will merit added consideration regarding post-foreclosure property preservation efforts and eviction procedures, as the legislation presumes knowledge of information that may exceed the level of detail currently sought.

Standard 5-day notices to vacate may need to include additional 30-day lease termination language, addressing “any occupants” who may be tenants. Such action could proactively and preemptively terminate existing lease agreements. If a tenant has been specifically identified as an occupant, a 30-day termination notice should be expressly addressed to that occupant and the unlawful detainer should not be filed until the notice period has expired. These termination notices should be sent by regular and certified mail to preserve a sufficient “proof of mailing” required by the Virginia landlord and tenant statutes. If the foreclosure purchaser wishes to collect rent under the new statute, an agent should gather the pertinent lease information to facilitate the appropriate notice of rental responsibility being mailed to the tenant. The information obtained should include identification of any property manager so that an existing agreement may be terminated, if desired, by sending proper notification. Such notice should also direct the existing property manager to turn over all rental sums held in escrow to the foreclosure purchaser’s rental agent.

Conclusion
The legislative changes discussed in this article (effective on July 1, 2017) will likely extend current Virginia eviction timelines where the property is occupied by a tenant. In addition, more tenants may appear at unlawful detainer hearings, both pro se and represented, asserting rights to occupy the property. Nevertheless, the Virginia unlawful detainer process still remains a relatively efficient one, so that these delays should not be substantial in contrast to jurisdictions like Maryland and the District of Columbia with more stringent foreclosure tenant laws. At the very least, the recent question presented by Wiendieck as to the PTFA’s viability in Virginia has been clarified; and the new legislation presents a framework for implementation of processes and procedures to address foreclosed tenants.

© Copyright 2017 USFN. All rights reserved.
March e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Kansas Federal Court Clarifies Actions Barred by the Rooker-Feldman Doctrine

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

by Blair Gisi
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

In a recent decision by the U.S. District Court for the District of Kansas, additional light was shed on the types of actions — specifically within the creditors’ rights context — that are denied jurisdiction under the Rooker-Feldman Doctrine.

The complaint filed in Love v. SouthLaw, P.C., No. 16-1310-JTM, 2017 U.S. Dist. LEXIS 30669 (D. Kan. Mar. 3, 2017), inter alia, alleged that the defendant law firm (the foreclosing law firm in a state court action) had wrongfully relied on service by publication to take a default judgment and extinguish any remaining redemption rights of the borrower. The default judgment and extinguishment of redemption ultimately resulted in the loss of the borrower’s personal property. The law firm was accused of several FDCPA violations based on its reliance upon service by publication.

In its motion to dismiss and supporting memorandum, the law firm, in relevant part, relied on the Rooker-Feldman Doctrine to assert that the court lacked jurisdiction over the plaintiff’s claims. The gist of the doctrine is that a state court loser cannot use the federal courts as a de facto appellate court to seek relief from damages caused by the state court judgment. See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1983), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).

As noted by the court in the Love case, the standard for whether Rooker-Feldman applies is whether a claim is “inextricably intertwined” with the validity of the underlying state court judgment. Citing the Tenth Circuit, the district court found, “[a] claim is inextricably intertwined if the state-court judgment caused, actually and proximately, the injury for which the federal court plaintiff seeks redress.” Tal v. Hagan, 453 F.3d 1244, 1256 (10th Cir. 2006) cert. denied, 549 U.S. 1209 (2007).

To further elucidate when Rooker-Feldman bars jurisdiction, the court cited several other Tenth Circuit decisions in determining that the true test of applicability is to analyze the real relief being sought by the federal plaintiff:

“Where a plaintiff seeks a remedy that would ‘disrupt or undo’ a state court judgment, the federal claim is inextricably intertwined with the state court judgment.” Crutchfield v. Countrywide Home Loans & Mortgage Electronic Registration Systems, 389 F.3d 1144, 1148 (10th Cir. 2004) (emphasis added);

“The relief requested by Plaintiff would require this court to undermine the state court judgment in the loan collection action. Therefore, the Rooker-Feldman doctrine applies . . . .” Curnal v. LVNV Funding, No. 10-2610-EFM, WL 2970816, *2 (D. Kan. July 20, 2011) (emphasis added); and

“The requested relief . . . would effectively ‘undo’ the state court judgment and the court grants defendants’ motion to dismiss to the extent plaintiffs’ claim for actual damages stems from the judgment’s affect . . . .” McCammon v. Bibler, Newman & Reynolds, 515 F. Supp. 2d 1220, 1239 (D. Kan. 2007) (emphasis added).

The court furthered this line of cases in finding that the plaintiff would have suffered no injury but for the state court judgment and that the only “successful resolution of [the] issues would require directly repudiating the findings of the state court.” Love, 2017 LEXIS 30669 at *6-7.

Because the state court concluded proper service was had on all parties in the Journal Entry of Judgment of Foreclosure and Order to Extinguish Redemption Rights, the plaintiff in this district court case could not circumvent the application of the Rooker-Feldman Doctrine because of her reliance on the argument that service was improper rendering the judgment void.

Also of note, SouthLaw, P.C. argued in its motion to dismiss that it was not acting as a debt collector for purposes of the FDCPA; however, because the district court lacked jurisdiction to entertain the FDCPA action, those arguments were not analyzed or ruled on.

Editor’s Note: For convenient reference, an earlier article by this author discussing the Jurisdiction of Federal Claims and the Rooker-Feldman Doctrine, which was published in the USFN e-Update (Jan. 2017 Ed.), can be viewed here.

© Copyright 2017 USFN. All rights reserved.
March e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

 

This post has not been tagged.

Share |
Permalink
 

Comprehensive Judgeship Legislation Requested

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

announced by Judicial Conference of the United States

On March 14, 2017 the 26-member Judicial Conference of the United States (the policy-making body for the federal court system) announced its decision to recommend to Congress the creation of 57 new Article III judgeships in the courts of appeals and district courts. If an omnibus judgeship bill is enacted into law, it would be the first new comprehensive judgeship legislation to take effect in more than 26 years. Read more about it here.

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Hawaii Supreme Court Decision Impacts Pre-June 2011 Nonjudicial Foreclosures

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

by Justin Moyer
Aldridge Pite, LLP – USFN Member (California, Georgia)

A recent Hawaii Supreme Court case [Hungate v. The Law Office of David B. Rosen (Haw. Feb. 27, 2017)] significantly impacts Hawaii properties that were foreclosed upon via a nonjudicial foreclosure prior to the May 2011 repeal of the statutory scheme governing nonjudicial foreclosures in Hawaii. After May 2011, mortgagees were then compelled to only foreclose judicially on their mortgages. More specifically, the Supreme Court held in Hungate that:

i. when calculating the four-week publication requirement for nonjudicial foreclosures, the four-week period is counted from the day after the first publication and if the original publication did not meet this requirement, publication needed to be repeated (see Hungate at pp. 12-15);
ii. if the power of sale clause in a mortgage required that a notice of sale be published, then any postponed nonjudicial foreclosure sale also needed to be published; however, the Supreme Court does not indicate how many times or how far in advance (see Hungate at pp. 15-18); and
iii. a mortgagee has a duty to use “fair and reasonable means” to conduct a nonjudicial foreclosure sale that is “conducive to obtaining the best price under the circumstances,” and a mortgagee who purchases the property at its own nonjudicial foreclosure sale has the burden to establish that the sale was “regularly and fairly conducted” and that “an adequate price” was paid under the circumstances (see Hungate at pp. 29-32).

As a result of Hungate, it is likely that the filing of wrongful foreclosure actions against mortgagees who previously nonjudicially foreclosed on their mortgages will increase in Hawaii. A more detailed discussion follows.

Analysis of Hungate
The borrower commenced an action against the mortgagee’s attorney and the mortgagee who previously foreclosed upon its mortgage via a nonjudicial foreclosure. The borrower asserted that the nonjudicial foreclosure was defective and wrongful because: (1) the proposed sale date was only 28 days after the date the notice of sale was first published when it was required that the sale date be at least 29 days after the first published notice; (2) the postponed nonjudicial foreclosure sale date, time, and location were never published as allegedly required by the power of sale clause contained in the mortgage; and (3) the mortgagee breached its duty to obtain the best possible price for the property.

With respect to holding (i) referenced above, the statutory scheme previously governing nonjudicial foreclosures in Hawaii provided that a nonjudicial foreclosure sale could not be held until “after the expiration of four weeks from the date when [the notice of sale was] first advertised.” [Hungate, p. 12.] When analyzing how the four-week period should be calculated, the Supreme Court determined that the day that the notice of sale appeared in the newspaper should not be counted when calculating the four-week period; i.e., the first day of the 28-day period should be counted from the day after the publication. This determination overruled a prior Hawaii Supreme Court decision on the exact issue [Silva v. Lopez, 5 Haw. 262, 270 (Haw. Kingdom 1884)]. As a result, it was not uncommon for mortgagees to treat the first day of publication as the starting point to count days toward the four-week period. Hungate establishes that this calculation method was incorrect.

As for holding (ii) referenced above, the Supreme Court determined that the power of sale clause requiring that a “Lender shall publish a notice of sale and shall sell the Property at the time and place under the terms specified in the notice of sale” should be interpreted as requiring that the date, time, and location of any postponed nonjudicial foreclosure sale also be published. Hungate does not indicate how many times and how far in advance of any new auction date a postponement notice needed to be published. While it was the common practice for a mortgagee to publicly announce a postponement of a nonjudicial foreclosure sale at the date, time, and location of the initially scheduled sale, it was not the common practice for a mortgagee to publish the new postponed foreclosure sale date, time, and location. In fact, numerous Hawaii judicial decisions prior to Hungate recognized that an oral announcement was adequate to postpone an auction. Additionally, Hungate establishes that this was not the correct means to postpone a nonjudicial foreclosure sale.

Lastly, as for holding (iii) referenced above, the Supreme Court reaffirmed and further clarified its previous decisions finding that a foreclosing mortgagee: (i) has a duty to use fair and reasonable means to obtain the best price for the property; and (ii) who acquires the property at its own foreclosure sale has the burden of establishing that the sale was fairly conducted and that the price paid for the property was adequate. However, the Supreme Court also provided some very useful discussion explaining what a fair and reasonable price is in a nonjudicial foreclosure: “We further clarify that the mortgagee’s duty to seek the best price under the circumstances does not require the mortgagee to obtain the fair market value of the property.” (Hungate, p. 30.) “[F]inal bids on foreclosed property need not equate to fair market values.” (Hungate, p. 31.) Thus, once a foreclosing mortgagee establishes that a sale “resulted in an adequate price under the circumstances” [Hungate, p. 32 (emphasis added)], the burden of establishing an injury would appear to shift to the former owner. In many instances, establishing such an injury would appear to be very difficult for the former owner.

Recent Wrongful Foreclosure Cases
Since early 2016, there have been close to one hundred wrongful foreclosure cases filed in Hawaii. These cases have been commenced by a group of attorneys led by James Bickerton, Esq. who are representing borrowers whose homes were previously foreclosed upon by a mortgagee via a nonjudicial foreclosure. The cases were commenced, in part, in anticipation of the Supreme Court’s decision in Hungate. The allegations in these cases are all similar and they all relate to nonjudicial foreclosures that were completed in Hawaii, in May 2011 or earlier.


The common theme in all of the Bickerton wrongful foreclosure cases is that they involve a postponed nonjudicial foreclosure sale (almost all nonjudicial foreclosures were postponed at least once) and an unpublished notice of postponement. As mentioned above, Hungate establishes that a failure to publish a postponed sale renders the nonjudicial foreclosure defective when the mortgage includes a power of sale clause requiring publication of a notice of sale.

Bickerton also alleges in some of his wrongful foreclosure cases (where the facts are applicable) that the nonjudicial foreclosure sale was wrongful because it was not held at the location identified in the publication; i.e., the publication indicated that the foreclosure sale would be held on the steps of the public courthouse, but the foreclosure sale was actually held on the sidewalk in front of the steps of the public courthouse. Depending on the facts of each case, Bickerton has alleged other nonjudicial foreclosure defects in his wrongful foreclosure actions.

There have been successful defenses against some of Bickerton’s wrongful foreclosure cases by asserting that the wrongful foreclosure actions are barred by either a two- or six-year statute of limitations period. Unfortunately, depending on which circuit court the case is in and which judge the case is before, the Hawaii circuit courts have been inconsistent in deciding these cases. Some courts have found that wrongful foreclosure claims are subject to a 20-year statute of limitations period.

Certainly, the unwinding of a nonjudicial foreclosure sale in these situations would be very problematic for the current owners of the property and the mortgagee who completed the nonjudicial foreclosure sale. The dramatic effect that the mere commencement of these wrongful foreclosure cases has had on the title insurance industry in Hawaii is discussed more fully in an article published in November 2016 by West Hawaii Today; view that article here. For those named as a defendant in a wrongful foreclosure action, legal counsel should be contacted promptly.

© Copyright 2017 USFN and Aldridge Pite, LLP. All rights reserved.
March e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Hawaii Supreme Court Decision Sets Forth New Requirement for Judicial Foreclosures

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

by Lloyd Workman
Aldridge Pite, LLP – USFN Member (California, Georgia)

A recent Hawaii Supreme Court decision significantly impacts judicial foreclosure actions in the state. More specifically, the Supreme Court held that in order for summary judgment to be granted in favor of a foreclosing mortgagee in a Hawaii judicial foreclosure action, the foreclosing mortgagee must prove that the plaintiff who initiated the action (which might be different than the current foreclosing mortgagee) had standing to foreclose at the time the foreclosure complaint was filed. [Bank of America, N.A. v. Reyes-Toledo (Haw. Feb. 28, 2017)]. The Supreme Court found that the plaintiff was not entitled to summary judgment because it failed to establish that it was the note holder pursuant to Hawaii Revised Statutes § 490:3-308 (UCC Art. 3-308) at the time the foreclosure complaint was filed.

This author’s firm analyzed the pleadings filed in the foreclosure action upon which the Reyes-Toledo decision was based. The foreclosure complaint was not verified and no exhibits were attached thereto. As a result, there was no documentary evidence on the record evidencing that the plaintiff was the note holder when the foreclosure complaint was filed. Additionally, the declaration of indebtedness filed in support of the plaintiff’s motion for summary judgment (MSJ) did not explain when the plaintiff became the note holder and did not specify when the note indorsements were executed. However, prior to the Supreme Court’s decision, there was no requirement to establish standing at the time a foreclosure complaint was filed and defects in standing could be cured at the MSJ stage. [See IndyMac Bank v. Miguel, 117 Haw. 506, 184 P.3d 821 (Haw. Ct. App. 2008), as corrected (July 17, 2008); see also Rule 17(a) of the Hawaii Rules of Civil Procedure.] As explained more fully below, foreclosing mortgagees have several options to prove note holder status at the time that the foreclosure complaint was filed.

Foreclosure Complaint Already Filed
If the foreclosure complaint has already been filed, it is recommended that the current foreclosing mortgagee execute and file a declaration in support of the MSJ, whereby the declarant attests that the foreclosing mortgagee was the original plaintiff and was in possession of the note at the time the foreclosure complaint was filed. If this is not possible [e.g., because the loan has been transferred between one or more investors/servicers and the current plaintiff (real party in interest) is unable to attest to note holder status at the time of the filing of the foreclosure complaint] then a declaration may need to be sought from the original plaintiff. If this is not possible, it might be advisable to voluntarily dismiss and re-file the foreclosure action anew depending upon the circumstances of the case. It may also be possible for the current foreclosing mortgagee to file an amended complaint, which may cure this issue. Still, this strategy bears some risk given that the Reyes-Toledo decision does not address whether it is possible to cure a defect in standing.

It is conceivable that the trial court might not raise this new requirement as an issue. If so, then the foreclosure action may proceed so long as the MSJ is granted. On the other hand, the trial court judges handling foreclosure cases are becoming aware of the Supreme Court’s decision and can, sua sponte, require a foreclosing mortgagee moving for summary judgment to provide evidence that the plaintiff held the note when the case was filed. While a trial judge could also raise this standing issue later in the case (i.e., at confirmation) there is prior Supreme Court precedent that a foreclosure judgment is final and must be timely appealed. Thus, if this standing issue has not been raised at summary judgment, prior precedent dictates that it has been waived. See MERS v. Wise, 130 Haw. 11, 17, 304 P.3d 1192, 1198 (Haw. 2013). Irrespective of Wise, some title insurers could refuse to provide title insurance, citing a failure to comply with the Reyes-Toledo decision as a basis for a title defect after the foreclosure sale is completed. Also, the foreclosing mortgagee runs the risk that the foreclosure judgment may be vacated because standing is an issue that may be raised at any time during the foreclosure action. Further, it is anticipated that various borrowers’ counsel will be citing Reyes-Toledo to oppose foreclosure actions through the sale confirmation stage.

For cases in the First Circuit (Oahu – approximately 60 percent of all Hawaii judicial foreclosure actions) the presiding foreclosure judge (Hon. Castagnetti) continued all MSJs filed on the Island of Oahu until moved upon and is requiring that foreclosing creditors file further briefing and an additional declaration, if necessary, to ensure that the new requirement set forth in the Supreme Court’s decision is met before granting a foreclosing mortgagee’s MSJ. The best course of action on these MSJs will depend upon the circumstances in each case. If a verified complaint was filed, the creditor can reference the filed verification to prove that it was the holder of the note when the complaint was filed. If a verified complaint was not filed and there is no evidence on the record to establish that the creditor was the note holder at the time of the filing of the complaint, then execution of a declaration attesting to possession of the note at the time the foreclosure complaint was filed will likely be necessary to obtain a judgment. Regardless of how a foreclosing mortgagee elects to proceed, substantial delay in the prosecution of all First Circuit cases at MSJ stage should be expected.

It is worth noting that in the event a loan has been transferred since a complaint was filed, the original servicer can help the current servicer by executing a declaration (on behalf of the original plaintiff) attesting to note possession at the time the foreclosure complaint was filed. If a prior loan servicer finds itself in this situation, then — to the extent possible — it is recommended that the prior servicer work with the current servicer to execute the appropriate declaration, as this is an issue that affects all loan servicers currently conducting business in the state of Hawaii. The cooperation of prior and current loan servicers will help the current note holders satisfy this heightened evidentiary necessity established by Reyes-Toledo.

Foreclosure Complaint Has Not Been Filed
For cases where the foreclosure complaint has not yet been filed, filing a verified complaint wherein the verification includes an attestation as to note possession (as of the filing of the complaint) is recommended. Alternatively, a separate declaration attesting to possession of the original note at the time the complaint is filed should be executed and filed contemporaneously with the filing of the complaint, or as soon thereafter as possible.

© Copyright 2017 USFN and Aldridge Pite, LLP. All rights reserved.
March e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Eastern District of VA Affirms Bankruptcy Court Decision: Chapter 13 Discharge Denied due to Missed Post-Petition Mortgage Payments

Posted By USFN, Wednesday, February 22, 2017
Updated: Wednesday, February 15, 2017

February 22, 2017

by Nisha R. Patel and Michael T. Freeman
Samuel I. White, P.C. – USFN Member (Virginia)

In the recent ruling in Evans v. Stackhouse, WL 150247 (E.D. Va. Jan. 13, 2017), the Newport News Division of the Eastern District of Virginia addressed whether a debtor must remain current on mortgage payments during the Chapter 13 Plan. The district court affirmed the bankruptcy court’s decision to deny the debtor her discharge and subsequently dismiss her case.

Background
Evans filed a petition under Chapter 13 of the Bankruptcy Code on June 11, 2010, and Stackhouse was appointed to serve as the Chapter 13 trustee. On August 26, 2015 the trustee filed and served upon Evans, her counsel, and her mortgage company (CitiFinancial) a Notice of Final Cure Payment pursuant to Fed. R. Bankr. P. 3002.1(f). CitiFinancial’s response reflected that although Evans had successfully brought current the pre-petition arrears owed on her mortgage, she was approximately nine months past due on her post-petition mortgage payments. The trustee subsequently filed a Motion to Close Case without Entry of Discharge, asserting that Evans failed to make “all of the payments due under the Plan,” and that her case should therefore be closed without discharge or be converted to Chapter 7.

Evans filed an answer, contending that post-petition mortgage payments are not included “under the Plan” per the plain language of 11 U.S.C. § 1322(b)(5), § 1322(d), as well as Evans’ confirmed Chapter 13 Plan. The debtor further argued that denying her discharge would “severely disrupt the premise behind most chapter 13 filings and … the process in general.”

The bankruptcy court disagreed. In an opinion issued on January 5, 2016, Chief Judge St. John referenced several decisions throughout the country before concluding that 11 U.S.C. § 1328 plainly requires debtors to complete all payments under the plan — whether to the trustee or directly to the creditor — in order to receive a Chapter 13 discharge. Judge St. John explicitly rejected Evans’ argument that denying her discharge would produce either an absurd result contrary to Congressional intent or an excessively harsh outcome.

On Appeal
In March 2016, Evans appealed. The district court affirmed, holding that “all payments under the plan” in § 1328(a) clearly incorporates both plan payments made by the debtor to the Chapter 13 trustee as well as direct payments made by the debtor to her creditors. The court also echoed Judge St. John’s opinion that providing Evans with a discharge after she failed to maintain post-petition mortgage payments would actually contravene the Bankruptcy Code. Evans’ ineligibility for discharge left the bankruptcy court with only two options: to dismiss her case or convert it to Chapter 7. Since Evans did not request a conversion to Chapter 7, the court concluded that dismissal was in the best interests of the debtor’s estate and of all creditors.

Conclusion
Through the end of 2016, neither the Alexandria nor the Richmond divisions of the Eastern District were denying discharges to debtors who failed to maintain post-petition direct payments. Because the district court’s ruling in Evans is binding on all divisions, however, debtors will need to find another way to ensure that they do not make 36-60 months of plan payments for nothing. Otherwise, debtors may find themselves in another Chapter 13 proceeding only months after the closing of their previous case — and may have difficulty obtaining an extension of the automatic stay as to all creditors the second time around.

© Copyright 2017 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Northern District of Ohio Bankruptcy Court Holds that the Deadline for Filing a Proof of Claim Applies to Secured Mortgage Creditors in Chapter 13 Cases

Posted By USFN, Wednesday, February 22, 2017
Updated: Thursday, February 16, 2017

February 22, 2017

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

On February 6, 2017, Northern District of Ohio Bankruptcy Judge Whipple held that the deadline for filing a proof of claim within 90 days after the 341 meeting of creditors applies to secured creditors in Chapter 13 cases, even though secured creditors are not required to file claims.

After extending the deadline for the mortgage creditor on the debtors’ residence to file a proof of claim (POC) by an additional three months, the creditor’s POC was filed six months after the extended deadline and more than a year after the case was commenced. The debtors filed an objection to the creditor’s proof of claim on the basis that the POC was late. (The debtors had filed a POC for the creditor earlier in the case, which underestimated the creditor’s claim by approximately $20,000.)

The bankruptcy court pointed out that the Bankruptcy Rules provide that a secured creditor in a Chapter 13 case may, but is not required to, file a proof of claim. Instead, a secured creditor may choose to not participate in the bankruptcy case and, after the bankruptcy case is concluded, look to its lien for satisfaction of the debt to the extent of its in rem rights.

If a secured creditor wishes to participate and receive distributions in a Chapter 13 case, however, the court held that a POC must be filed. If filed, the court pondered the disagreement among courts as to whether the filing deadline applies to the POC. Judge Whipple conceded that some courts have concluded that the claims bar date does not apply since secured creditors are not mentioned in the Bankruptcy Rule establishing the POC bar date.

Ultimately, the court agreed with the determination of other courts that the claims bar date Bankruptcy Rule applies to all creditors (including secured creditors), noting that the rule makes no distinction between secured and unsecured creditors. The court held that the creditor’s proof of claim was not timely filed and was, therefore, disallowed.

The case citation is In re Dumbuya, Case No. 15-33176 (Bankr. N.D. Ohio, Western Division (Toledo), Feb. 6, 2017).

© Copyright 2017 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Connecticut Supreme Court Clarifies Appellate Stays

Posted By USFN, Wednesday, February 22, 2017
Updated: Friday, February 17, 2017

February 22, 2017

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

In a foreclosure case dating back to 1989, the Connecticut Supreme Court has ruled that a trial court must reset law days if an appeal is filed within twenty days of the granting of a motion that would alter or affect a final judgment. [A “Law Day” in Connecticut is a day which the owner of the equity of redemption would have to redeem the property by paying the judgment debt. If the owner does not redeem, title to the property will pass to the foreclosing plaintiff by operation of law at the conclusion of court business on the last law day.]

In Connecticut National Mortgage Company v. Knudsen, 323 Conn 684, __ A.3d __ (Dec. 13, 2016), a judgment of foreclosure had been granted the bank in 1994. The judgment was subsequently opened and modified several times over the years. On June 8, 2015 the trial court rendered a new judgment of strict foreclosure and set a new law day of August 4, 2015.

On June 17, 2015, the borrower sought to reopen the new judgment and to then be allowed to file a motion to vacate that judgment; this was denied by the trial court on June 18, 2015. On June 26, 2015, the borrower appealed (within the requisite appeal periods triggered by both the new judgment and the denial of the borrower’s subsequent motion).

Automatic Stay of Execution
In Connecticut there exists an automatic stay of execution of any final judgment to allow for a twenty-day appeal period. On January 13, 2016 the appellate court had dismissed the appeal with no further action — but both the bank and the borrower argued (and agreed) that the matter should have been sent back to the trial court to reset law days as the vesting of title was stayed due to the appeal period. The Connecticut Supreme Court agreed with the parties, finding that the appellate court erred in dismissing the appeal and not directing the matter back to the trial court for a resetting of law days.

The Connecticut Supreme Court determined that the June 8, 2016 decision (in which the court granted, rather than denied, the bank’s motion to reset the law days) started a new appeal period, which differed from the prior expired appeal periods in the case. Notably, when a motion is granted — as occurred here — instead of denied, the provisions of Practice Book § 61-11 do not apply. Practice Book § 61-11(g) states, in relevant part: “In any action for foreclosure in which the owner of the equity has filed, and the court has denied [emphasis added], at least two prior motions to open or other similar motion, no automatic stay shall arise upon the court’s denial of any subsequent contested motion by that party, unless the party certifies under oath … that the motion was filed for good cause arising after the court’s ruling on the party’s most recent motion. ... There shall be no automatic appellate stay in the event that the court grants the motion to terminate the stay and, if necessary, sets new law dates. There shall be no automatic stay pending a motion for review of an order terminating a stay under this subsection.”

Accordingly, when the borrower timely appealed the judgment, and the dates set for the commencement of the law day passed before the appellate court dismissed the appeal, the vesting of title was stayed pursuant to Practice Book § 61-4. Specifically, the Connecticut Supreme Court found, “The June 8, 2015 judgment triggered an automatic stay because it was an appealable final judgment, and the defendant’s filing of this appeal within twenty days of that judgment continued the stay ‘until the final determination of [this appeal].’ Practice Book § 61-11 (a).” Knudsen, at 689.

As noted in Knudsen, “Prior to [the effective date of Practice Book § 61-11 (g)], a defendant in a foreclosure action could employ consecutive motions to open the judgment in tandem with Practice Book §§ 61-11 and 61-4 “‘to create almost the perfect perpetual motion machine.”’ Citigroup Global Markets Realty Corp. v. Christiansen, 163 Conn. App. 635, 639, 137 A.3d 76 (Mar. 8, 2016).” Knudsen serves to clarify the Christiansen decision, stating that Connecticut Practice Book § 61-11 (g) “was enacted to put a stop to the ‘perpetual motion machine’ and accompanying appellate litigation generated when a defendant files serial motions to open a judgment of strict foreclosure and, each time a motion to open is denied, files a new appeal from the judgment denying the motion to open.”

The difference in Knudsen is that the borrower had a new appeal period when the court granted, and did not deny, the bank’s motion to open judgment and reset the law days on June 8, 2015. As a result, upon dismissal of the appeal on January 13, 2016, the appellate court was obligated to remand the case to the trial court to reset the law day that had passed, because the vesting of title was precluded due to the appellate stay for the applicable appeal period.

The Take-Away
The Knudsen decision illustrates how fact-specific each case can be. Without a careful review of the timeline in this case, a plaintiff could have put the property in real-estate owned (REO), only later to find that the property was not marketable because title had not properly vested in the plaintiff.

© Copyright 2017 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Florida: Appellate Court Reviews the Lis Pendens Statute

Posted By Rachel Ramirez, Wednesday, February 22, 2017
Updated: Wednesday, June 7, 2017

February 22, 2017

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

Background (First Decision)
Last summer, the Fourth District Court of Appeal issued a controversial decision centering on the application of Florida’s lis pendens statute (F.S. section 48.23) to liens placed on property between the time of a final judgment of foreclosure and the judicial sale. [Ober v. Town of Lauderdale by the Sea (Aug. 24, 2016)]. The court has since reversed course.

Rehearing (New Opinion Issued)
On a motion for rehearing, the court withdrew and replaced its August 2016 decision. In the new opinion published in January 2017, the court ruled that the recording of the lis pendens operates as a bar to the enforcement of all interests and liens, regardless of whether the unrecorded interest existed prior to or after the date of the final judgment, all the way up until the foreclosure sale of the property occurs. Accordingly, liens placed on a property between the final judgment of foreclosure and the judicial sale are indeed discharged by section 48.23(1)(d), unless the lienor timely intervenes in the action (within 30 days after the recording of the lis pendens). Ober v. Town of Lauderdale by the Sea, No. 4D14-4597 (Jan. 25, 2017).

The Fourth District Court of Appeal ultimately concluded that the practical problem in the case is the long lag time between the foreclosure judgment and the foreclosure sale and that the resolution of the competing interests is in the province of the legislature. As a consequence, the Florida legislature may choose to amend the lis pendens statute.

In the meantime, the judicial opinion rendered January 25, 2017 restores the lis pendens statute to its interpretation prior to the issuance of the August 24, 2016 decision. Be aware, however, that the Town of Lauderdale by the Sea might seek review from the Florida Supreme Court given that this may be considered a matter of public importance.

As future developments occur, look for further updates on this significant issue.

© Copyright 2017 USFN and McCalla Raymer Leibert Pierce, LLC. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Massachusetts: Supreme Judicial Court Clarifies Foreclosure Compliance Standard

Posted By USFN, Wednesday, February 22, 2017
Updated: Friday, February 17, 2017

February 22, 2017

by Julie Moran
Orlans Moran, PLLC – USFN Member (Massachusetts)

Judges in Massachusetts have devoted considerable energy in determining the validity of a nonjudicial foreclosure by assessing the extent to which the form of notice or procedure at issue complies with the provisions of the power of sale statute. The power of sale statute in these decisions has been broadly referenced to include sections 11-17C of Mass. G. L. c. 244. In the long line of cases stretching over a number of years, the validity of a foreclosure has largely turned on whether the targeted requirement is considered part of the foreclosure process, with strict compliance with these provisions required.

In the now famous case U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637 (2011), the fact that the mortgagee was not the holder of mortgage at the time of the sale (or in Eaton v. Federal Nat’l Mtge. Ass’n., 462 Mass. 569 (2012), did not hold the note) rendered the sale invalid. The court followed a similar theory in Pinti v. Emigrant Mtge. Co., 472 Mass. 226 (2015), in that the failure of the default notice to strictly comply with paragraph 22 of the mortgage (considered part of the foreclosure process) invalidated the sale. By contrast, the court in U.S. Bank Nat’l Ass’n v. Schumacher, 467 Mass. 421 (2014), determined that the right to cure notice under G. L. c. 244, § 35A, which is sent prior to the initiation of the foreclosure process, was not part of the power of sale foreclosure process and, thus, the notice’s substantial compliance with the statute was sufficient to validate the foreclosure.

In the wake of the above-mentioned judicial opinions, there were conflicting decisions in federal and state courts as to whether the strict compliance standard would also apply to certain notices required to be sent to tenants and municipal officials after the foreclosure sale, pursuant to section 15A of G. L. c. 244, one of the so-called power of sale provisions. Recently, in a case it had transferred on its own motion from the appeals court, the Massachusetts Supreme Judicial Court (SJC) declined to extend this standard to these notices. [Turra v. Deutsche Bank Trust Company Americas, No. SJC -12075 (Jan. 30, 2017)].

The appeals court determined in Turra that the acknowledged failure by the mortgagee to send these notices did not invalidate the foreclosure. In its decision, the SJC acknowledges that in earlier cases it may have unintentionally suggested that failure to strictly comply with all provisions of G. L. c. 244, §§ 11-17C rendered the foreclosure void. The SJC stated that, instead, its intention was to focus on the actions taken by the foreclosing party during the actual foreclosure process. It pointed out that in the prior line of cases (referenced above) the statutory provisions at issue related to the relationship between the mortgagor and mortgagee, with the failure to strictly comply with the applicable statute creating potential harm to the mortgagor.

 

In affirming the appeals court’s decision in Turra, the SJC held that the post-foreclosure notices were not part of the actual foreclosure process, were directed to a third party (not the mortgagor), and the failure to send them did not create potential harm to the mortgagor.

Turra will hopefully reduce — at least by one — the type of successful challenges to foreclosures in Massachusetts.

© Copyright 2017 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

South Carolina: Court of Appeals Reviews Service by Publication Statute

Posted By USFN, Wednesday, February 22, 2017
Updated: Friday, February 17, 2017

February 22, 2017

by John S. Kay
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

The South Carolina Court of Appeals has issued another decision emphasizing the importance of following the service by publication statutes in order to obtain jurisdiction over the party being served. A previous opinion, Caldwell v. Wiquist, 402 S.C. 565, 741 S.E.2d 583 (Ct. App. 2013), established that affidavits requesting service by publication that are defective, and do not meet the requirements of the publication statute, will not be sustained even in the absence of fraud or collusion. This marks the second time that the appellate court has addressed the need for strict compliance with the state’s publication statute; it also marks the second time that this issue has arisen in connection with a foreclosure case.

In this recent opinion, the court confirmed the requirements set forth in Caldwell that a foreclosing plaintiff must meet to obtain an order authorizing service by publication. [Belle Hall Plantation Homeowner’s Association v. Keys, Op. No. 5467 (S.C. Ct. App., Feb. 8, 2017)]. The court found that the publication order obtained by the plaintiff in Belle Hall was based upon an affidavit that was defective on its face; the defendant referenced in the affidavit was not the same defendant listed in the order.

As the affidavit supporting the publication order was flawed, the appellate court affirmed the trial court’s decision to vacate the foreclosure sale because the court lacked personal jurisdiction over the defendant in question. Although its decision was based primarily upon the defect in the service by publication process, the court also took the opportunity to discuss the bona fide purchaser argument raised by the appellants (who had purchased the property in question at the foreclosure sale).

Section 15-39-870 of the South Carolina Code provides that when a property is sold at a judicial sale under a court decree, the proceedings upon which the sale is based are res judicata as to any bona fide purchaser for value without notice. To meet the requirements to be a bona fide purchaser, a party must show “(1) actual payment of the purchase price of the property, (2) acquisition of legal title to the property, or the best right to it, and (3) a bona fide purchase — ‘i.e., in good faith and with integrity of dealing, without notice of a lien or defect.’” (quoting Robinson v. Estate of Harris, 378 S.C. 140, 146, 662 S.E. 2d 420, 423 (Ct. App. 2008).

The purchasers in Belle Hall met all of the requirements except for actual payment. Here, the purchasers had paid the 5 percent deposit on sale day as required by the terms of the court sale. Before paying the balance due on the deposit, however, the purchasers obtained actual notice of the defective service by publication when the defendant filed motions to set aside the sale.

The Court of Appeals is sending the message to foreclosure counsel that the statutory requirements of the civil procedure rules in South Carolina must be strictly followed in order to produce a valid sale result at the end of the foreclosure process.

© Copyright 2017 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

Mortgage Servicer Sanctioned for Including Fees on Monthly Billing Statements without First Filing Required Notices with BK Court

Posted By USFN, Wednesday, February 1, 2017
Updated: Thursday, January 26, 2017

February 1, 2017

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

The chief bankruptcy judge for the District of Vermont imposed $375,000 in sanctions on a mortgage servicer for billing debtors for fees without first filing the required notices under Bankruptcy Rule 3002.1(c). The court’s ruling was based on the motions of a Chapter 13 trustee in three different cases. The trustee asked the court to make a finding of contempt, to disallow certain post-petition fees, and to impose sanctions based upon the creditor’s failure to comply with Bankruptcy Rule 3002.1 and for the violation of court orders.

The court evaluated the goals of Bankruptcy Rule 3002.1, which requires the holder of a claim secured by a Chapter 13 debtor’s principal residence to file a detailed notice setting forth all post-petition charges it seeks to recover from the debtor within 180 days after the expenditure is incurred. Empowered by the rule’s inclusion of a penalty for violations, the court held a consolidated hearing on the three trustee motions to consider whether the creditor had fulfilled requisite transparency.

In the first case, the court had entered an order determining that the debtors had cured all pre-petition mortgage defaults and were current on all post-petition mortgage payments. Five days later, the mortgage company sent the debtors a mortgage statement which, contrary to the recently entered “order deeming current,” asserted that property inspection fees of $258.75 were due.

In the second case, the court had entered an order determining that the debtors had cured all pre-petition mortgage defaults and were current on all post-petition mortgage payments. Less than three weeks later, the mortgage company sent the debtors a mortgage statement that included one NSF fee of $30 and a property inspection fee of $56.25 — charges for which it had never filed a Rule 3002.1 notice.

In the third case, the mortgage company sent the debtor a monthly mortgage statement that included $246.50 in property inspection fees as well as $124.50 in late charges — all of which were more than 180 days old, and without the servicer filing corresponding Rule 3002.1 notices.

Although the court could not find “any case in which a court imposed sanctions under Rule 3002.1(i) or explained how sanctions arising under that rule should be computed,” it drew from several cases sanctioning mortgage creditors for inaccurate post-petition account statements or the assessment of charges without notice. The court honed in on three factors:

(1) whether the creditor had notice of the need to comply with Rule 3002.1;
(2) whether the creditor managed mortgage accounts in dereliction of its bankruptcy rule duties or had previously been sanctioned for similar misconduct; and
(3) whether the creditor was given an opportunity to rectify processes leading to or causing the defalcations; and, if so, whether it fulfilled its commitment to do so.

After finding that the creditor had notice of its obligation to comply with the bankruptcy rule notice requirements, was not a first-time offender and breached its pledge to correct its processes, the court imposed $75,000 in sanctions for the failure to comply with Rule 3002.1 and $300,000 in sanctions for violating the court’s orders declaring the debtors current. Although the court and trustee agreed that no party suffered any direct financial harm, the judge directed that the sanctions be paid to the state’s lead provider of pro bono bankruptcy legal services. The court reasoned “this way, [the mortgage company] suffers a substantial financial penalty purposefully formulated to motivate [it] to bring its procedures into compliance” without unjustly enriching the debtors.

The case, which is now on appeal, bears the citation In re Gravel, 556 B.R. 561 (Bankr. D. Vt. Sept. 12, 2016).

Copyright © 2017 USFN. All rights reserved.
Winter USFN Report

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

This post has not been tagged.

Share |
Permalink
 

CFPB Mortgage Servicing Rule Amendments: Focus on Successors in Interest

Posted By USFN, Wednesday, February 1, 2017
Updated: Thursday, January 26, 2017

February 1, 2017

 

by Caren Castle
The Wolf Firm
USFN Member (California)

and Wendy Walter
McCarthy & Holthus, LLP
USFN Member (Washington)

Anyone who has practiced in the mortgage loan servicing area for more than a few years has likely encountered an unfortunate situation: a borrower has passed away or has been divorced and the questions as to who has the right to communicate with the mortgage lender, to apply for loss mitigation, and to receive a notice of foreclosure needed to be answered.

With the upcoming Consumer Financial Protection Bureau’s (CFPB or Bureau) mortgage servicing rule amendments, starting in April 2018 servicers will be bound by new regulations governing how lots of these questions should be answered. Servicers should not delay, however, in considering changes to their processes in order to comply. Further, the California legislature has enacted a state version of the successors in interest law (SB 1150) — effective January 1, 2017.

In this article, the potential differences in these federal and California State laws are discussed to assist with servicing compliance. [For a primer on the California bill, please see the USFN e-Update article written by Caren Castle and published October 11, 2016; it is archived in the Article Library at www.usfn.org.]

Definition Differences: CFPB Rules have Broader Definitions
In designing and implementing procedures to track the California process, servicers should make sure that they have flexibility so that when the April 2018 federal regulations are effective, they are able to expand the scope of who qualifies as a successor in interest. The California law identifies specific categories of successors — including spouses, domestic partners, parents, grandparents, adult children, adult grandchildren, adult siblings, or joint tenants; these successors can only obtain status after the death of the borrower.

The CFPB rule is broader and defines potential successors as relatives of the borrower, spouse, children, and ex-spouse. Rather than concentrating on the relationship to the borrower, the Bureau instead focused on how the transfer occurred, and it includes transfers that arise through divorce and amongst family members when the borrower is still living. Thus, compliance implementation will be greater when the federal regulation takes over, as the field of potential successors in interest is broader.

California further limits successors to those who occupied the subject property for the six months preceding the death of the borrower, and they must have occupied the property at the time of the borrower’s death. Establishing proof of this qualification will be a bit tricky, and it is important to note that the federal rules do not have an occupancy requirement. So, in April 2018, California successors will not be bound by this restriction because the Real Estate Settlement Procedures Act (RESPA) will provide the floor in terms of rights for the successors. This takes us back to the earlier point that servicer compliance processes must be flexible in order to adjust next year to the increase in successor rights under the federal law.

Determination Differences
CA SB 1150 is specific in providing time frames for the completion of the determination process. The potential successor is given 30 days from the time he communicates the death of the borrower to provide evidence of the death in the form of a death certificate. After that is provided, the potential successor then has 90 days to provide documentation of his relationship with the deceased debtor and of his occupation of the property for the six months preceding the borrower’s death.

Under RESPA the triggering event is not limited to the death of the borrower; it includes notice that the property has transferred to any third party or that there might have been a divorce of the borrower. The federal regulations are very vague about how much time the potential successor has to deliver the documents. The regulations use terms like “prompt” and “reasonable” to describe the process, acknowledging that each of these situations is different and that context matters when determining how long something should take. That said, the servicer has five days to acknowledge a request from a potential successor (the acknowledgment must be in writing) and the servicer has 30 days to provide a list of the documents that are “reasonably” required to confirm the successor in interest.

Default Differences: CA Law has more Foreclosure-related Protection
If a loan is in default, the federal successor in interest rules do not operate independently to compel the servicer to stop any pending foreclosure action. Federal regulation operates to allow a process to confirm a successor and provides any confirmed successor in interest with the right to submit a loss mitigation application and, therefore, obtain a hold on proceeding to first legal, judgment, order of sale, or sale. Still, the rule itself doesn’t provide a pause to a foreclosure while a successor is being confirmed.

Contrast this to the California law, which requires that a foreclosure may not commence or proceed until the successor in interest status is confirmed, if the borrower dies prior to recordation of the notice of default. SB 1150 confers 120 days for this process to conclude (30 days for the successor to provide the death certificate plus 90 days for the successor to provide all the documentation of heirship).

Differences in Rights of Confirmed Successors: Mixed Bag
Under California law, the servicer must confirm (or deny) the successor and has ten days to provide a letter with basic information about the loan, including balance, interest rate (and reset rates/dates if applicable), default information, delinquency information, monthly payment amounts, and the total amount required to pay off the loan. All successors in California have a right to apply for an assumption of the loan, as long as it is assumable. An important right held by California homeowners is to privately sue the servicer or beneficiary if there is a violation of the successor in interest law, similar to the private right found in the state’s Homeowner Bill of Rights.

The federal regulations, like the California law, require disclosure of certain information to successors. The amount of information that must be disclosed will depend on whether the confirmed successor sends the newly created acknowledgment notice. This notice can be returned to the servicer at any time after confirmation, but it provides notice to the successor that it has been confirmed, that the successor is not liable for the debt unless it specifically assumed the debt, and that the successor may obtain periodic payment statements, as well as transfer notices if the acknowledgment is returned to the servicer. However, if a servicer fails to follow the successor in interest provisions, the rights to sue a servicer are less clear, since many of the rights arise under the General Servicing Policies and Procedures section of RESPA (12 C.F.R. 1024.38), which doesn’t have a private right of action. If a potential successor is denied the right to be confirmed and then the right to obtain loss mitigation, there might be a way to pursue a servicer through the private right of action that arises under the loss mitigation sections of RESPA (12 C.F.R. 1024.41).

CA SB 1150 Section 1 (g) states, “It is the intent of the Legislature that this act work in conjunction with federal Consumer Financial Protection Bureau servicing guidelines.” SB 1150 also provides the following in Section 2:

(4) … (k) (1) Any mortgage servicer, mortgagee, or beneficiary of the deed of trust, or an authorized agent thereof, who, with respect to the successor in interest or person claiming to be a successor in interest, complies with the relevant provisions regarding successors in interest of Part 1024 of Title 12 of the Code of Federal Regulations (12 C.F.R. Part 1024), known as Regulation X, and Part 1026 of Title 12 of the Code of Federal Regulations (12 C.F.R. Part 1026), known as Regulation Z, including any revisions to those regulations, shall be deemed to be in compliance with this section.

(2) The provisions of paragraph (1) shall only become operative on the effective date of any revisions to the relevant provisions regarding successors in interest of Part 1024 of Title 12 of the Code of Federal Regulations (12 C.F.R. Part 1024), known as Regulation X, and Part 1026 of Title 12 of the Code of Federal Regulations (12 C.F.R. Part 1026), known as Regulation Z, issued by the federal Consumer Financial Protection Bureau that revise the Final Servicing Rules in 78 Federal Register 10696, of February 14th, 2013.

When comparing various provisions of these laws — including the scope of potential successors, the amount of protection when a loan is in foreclosure, and the specific rights given to confirmed successors — it is unclear whether a servicer would be safe in complying solely with federal law. For example, if a California successor has a right to not have a notice of default recorded during the 120-day confirmation process, yet the federal regulations don’t halt foreclosures during the confirmation process, will Section 2 of SB 1150 protect a servicer who complied with the federal law when the state law provided more protections covering a loan in foreclosure? Would this provision be ripe for a Bureau determination on whether the federal rules are inconsistent with state law under 12 C.F.R. 1024.5(c)(3)?

Conclusion
There is truly a remarkable granting of rights with these amendments, provided that they stand the test of time given the current political shakeup in the United States. Never before has a group of individuals, who were not parties to the original mortgage contract, been given the protections that are provided in California — and will, in April 2018, apply to all qualified individuals covered under the CFPB rules.

As the regulations become effective and operative, there will be many challenges in implementation and proper application. Litigation will likely result, and the courts will weigh in on this new area of law.

Copyright © 2017 USFN. All rights reserved.
Winter USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

This post has not been tagged.

Share |
Permalink
 

FDCPA Case Law: 2016 in Review

Posted By USFN, Wednesday, February 1, 2017
Updated: Thursday, January 26, 2017

February 1, 2017

by Graham H. Kidner
Formerly with Hutchens Law Firm
USFN Member (North Carolina, South Carolina)

After almost 40 years since its enactment, the Fair Debt Collection Practices Act (FDCPA) remains a fruitful source of litigation. Here are some of the main case highlights from the past year or so. All sections cited refer to Title 15 of the United States Code.

Communicating Correct Debt Amount
The holding in Prescott v. Seterus, Inc., 2015 WL 7769235 (11th Cir. Dec. 3, 2015), generated servicer directives that firms must not include in payoff and reinstatement letters fees and costs that had not been actually incurred. Prescott held that the standard GSE mortgage used in Florida did not permit a lender to seek or collect estimated fees or costs in a reinstatement context, resulting in a violation of § 1692e(2) (“false representation of … the character, amount, or legal status of any debt”) and § 1692f(1) (“collection of any amount … [not] expressly authorized by the agreement …”), despite the fact that the debt collector clearly identified the fees as estimates.

Opinions from the Third Circuit, beginning with McLaughlin v. Phelan Hallinan & Shmieg, LLP, 756 F.3d 240 (3d Cir. 2014), were likely predictors of Prescott, although the appellate court (and federal district courts in that circuit) exhibited a clear intent to not penalize debt collectors who made a clear effort to distinguish estimated or anticipated charges. The pertinent facts in Prescott (the reinstatement letter was sent on September 26, 2013) also pre-dated the Consumer Financial Protection Bureau’s change to the RESPA regulation 12 C.F.R. § 1026.36, which (since January 10, 2014) arguably now requires the servicer (whether or not a debt collector) to include estimated charges through the good-through date of a payoff statement. Prescott also poses problems to servicers with respect to compliance with many state laws, or state judicial practices, which appear to require the inclusion of estimated or anticipated charges in payoff and/or reinstatement quotes.

Avila v. Riexinger, 817 F.3d 72 (2d Cir. Mar. 22, 2016), held that a debt collector’s dunning letter informing the consumer of the current balance of the loan (but failing to disclose that the balance may increase due to interest and fees) violated § 1692e, on the basis that the debtor would understand (incorrectly) that payment of the specified amount would satisfy the debt whenever payment was remitted. Apparently, even the least sophisticated consumer is deemed to have forgotten that the loan which he obtained carries interest and that late payments generate fees. One bright spot: no such warning is necessary in the Eastern District of Virginia. Kelley v. Nationstar, 2013 WL 5874704 (E.D. Va. Oct. 31, 2013); Davis v. Segan, 2016 WL 254388 (E.D. Va. Jan. 19, 2016).

Time-Barred Debt
It is hoped that the U.S. Supreme Court will establish certainty on the related issues of whether the Bankruptcy Code preempts the application of the FDCPA, and (if not) whether filing a proof of claim on a time-barred debt protects the debt collector from an adversary action under the FDCPA, provided the proof of claim adequately discloses the legal status of the debt. Johnson v. Midland Funding, 823 F.3d 1334 (11th Cir. 2016), cert. granted, 2016 WL 4944674 (U.S. Oct. 11, 2016). Several circuits are split on these issues, with the Fourth Circuit most recently entering the fray. Dubois v. Atlas Acquisitions LLC (In re Dubois), 834 F.3d 522 (4th Cir. Aug. 25, 2016) (filing proof of claim for time-barred debt, where claim did not disguise fact that debt may be time-barred, neither violates FDCPA nor acts as a fraud upon the court).

In the non-bankruptcy context, the Fifth Circuit has deepened the split, holding that offering to settle debt without disclosing that it is time-barred violates § 1692e. Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507 (5th Cir. Sept. 8, 2016).

Debt Validation
In the first published opinion from any circuit on the question, the Ninth Circuit held that successor debt collectors of the same debt are each responsible for sending a separate debt validation notice. Acknowledging the statute’s ambiguity, the court found that the broader structure of the FDCPA mandated the holding because frequent transfers of debt during the prior validation period could adversely affect the consumer’s right to seek and receive validation. Also, transferee debt collectors often do not obtain accurate debt figures from their transferors, resulting in conflicting debt collection claims. Hernandez v. Williams, Zinman, & Parham, PC, 829 F.3d 1068 (9th Cir. July 20, 2016).

Simple errors, such as the failure to disclose the correct identity of the creditor, can prove costly. Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317 (7th Cir. Apr. 7, 2016). The Janetos case is also instructive for the proposition that one debt collector may be vicariously liable for the conduct of another. Additionally, getting the timing of debtor communications wrong can hurt. The safest approach is to send out the validation notice as a stand-alone letter, if feasible. When it must be combined or sent with other communications, beware of the risk of misstatement and overshadowing — as was the fate of the defendant in Marquez v. Weinstein, Pinson & Riley, P.S., 836 F.3d 808 (7th Cir. Sept. 7, 2016). There, the court found that response requirements and deadlines in the validation notice set forth in the debt collection complaint confused the consumer as to the timing and manner of responding to the complaint.

Third Party Communications
Following three other circuits, the Eleventh Circuit held that when a debt collector sends a consumer’s attorney a communication in connection with the collection of a debt, this qualifies as a communication with a consumer so as to trigger the requirement to send a debt validation notice as required under 15 U.S.C. § 1692g. Bishop v. Ross Earle & Bonan, P.A., 817 F.3d 1268 (11th Cir. Mar. 25, 2016). The court reasoned that the attorney is a mere conduit for the intended recipient of the collection letter.

Calling the borrower on the telephone continues to pose risk. If someone other than the borrower answers, or if the call is directed to a message service, what (if anything) may the debt collector say? Courts have consistently rejected the argument that the FDCPA presents an irreconcilable conflict between the risks of improperly communicating with a third party versus the failure to disclose that the call is from a debt collector. Leaving a message with a third party, seeking to induce the consumer to return the call — without disclosing the nature of the call — violates § 1692e(11) (the mini-Miranda warning). Halberstam v. Global Credit and Collection Corp., 2016 WL 154090 (E.D.N.Y. Jan. 12, 2016).

Foreclosure as Debt Collection
Another circuit split concerns whether foreclosure of the security interest alone, without an express demand to pay the underlying debt, qualifies as debt collection. This action by a trustee in California is not debt collection, according to a plain reading of § 1692a. Ho v. ReconTrust Company, NA, 840 F.3d 618 (9th Cir. Oct. 19, 2016). The foreclosure obligates only the purchaser at sale to pay money; moreover, California’s anti-deficiency statute insulates the borrower from any personal liability.

Twelve days earlier, the Fourth Circuit affirmed that a trustee engages in debt collection by initiating foreclosure because even if the trustee makes no express demand for payment, the purpose behind the proceeding is to collect the debt. The court found it particularly relevant that the debt remained a debt even after proceedings were initiated. McCray v. Federal Home Loan Mortgage Corporation, 839 F.3d 354 (4th Cir. Oct. 7, 2016).

CFPB’s Interpretation of FDCPA
While the constitutional structure of the Bureau is uncertain following the decision in PHH Corporation v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. Oct. 11, 2016), the Bureau has already made its mark on FDCPA enforcement. In consent orders established with major debt collection law firms, the Bureau’s position is that inadequate involvement by an attorney in debt collection activity violates § 1692e(3) and (10), as well as § 1692f. [See CFPB v. Frederick J. Hanna & Associates, P.C., No. 1:14-cv-02211-AT (N.D. Ga. Dec. 28, 2015) and In the Matter of: Pressler & Pressler, LLP, File No. 2016-CFPB-0009 (Admin. Proc. Apr. 25, 2016).] These orders set a minimum standard for other volume debt collector law firms to look to.

Not all Doom and Gloom
In conclusion, difficult though it may be to believe when looking at much of the case law, the courts do draw the line on consumers’ complaints. Two notable decisions in 2016 include Henson v. Santander Consumer USA, Inc., 817 F.3d 131 (4th Cir. Mar. 23, 2016) and Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 825 F.3d 788, reh’g en banc granted (7th Cir. June 14, 2016).

In Henson the Fourth Circuit held that the default status of debt, at the time the transferee acquires it, has no bearing on whether the transferee qualifies as a debt collector under § 1692a(6). If the transferee purchases that debt, then its subsequent attempts to collect are not efforts made on behalf of another but for its own account.

In Oliva, the Seventh Circuit held that if a debt collector engages in conduct that is expressly permitted under the controlling law at the time of the alleged conduct (in this case, filing collection cases in a certain judicial district in accordance with binding precedent interpreting the FDCPA’s venue section, § 1692i(a)2), and if there is then a retroactive change to the law that now prohibits such conduct, the debt collector cannot be held liable for conduct preceding the change.

Copyright © 2017 USFN. All rights reserved.
Winter USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

 

This post has not been tagged.

Share |
PermalinkComments (0)
 

Borrower HAMP-Based RICO Claims: Tenth Circuit Overturns Dismissal of Lawsuit

Posted By USFN, Wednesday, February 1, 2017
Updated: Friday, January 27, 2017

February 1, 2017

by William H. Meyer
Martin Leigh PC
USFN Member (Kansas)

In a published, 38-page opinion, the U.S. Court of Appeals for the Tenth Circuit held that a first amended complaint filed by borrowers against Bank of America (Bank) and Urban Settlement Services (Servicer) stated a “facially plausible” claim under the Racketeer Influenced and Corrupt Organizations Act (RICO). The lawsuit was remanded by the Tenth Circuit back to the U.S. District Court for the District of Colorado for further proceedings after the lawsuit was initially dismissed by the district court [George v. Urban Settlement Services, __ F.3d __ (10th Cir. 2016)].

Background
The underlying lawsuit alleges that Bank and Servicer violated RICO relating to Bank’s and Servicer’s administration of the borrowers’ Home Affordable Modification Program (HAMP) loan modification requests. RICO is significant in this context (and brings with it considerable leverage) because RICO enables plaintiff-borrowers to recover treble damages in addition to attorneys’ fees. At the risk of oversimplifying the RICO statute, RICO is a federalized fraud cause of action combining with it elements of conspiracy. Passed in 1970, RICO was crafted as a tool to fight organized crime and the Mafia. Since then, the scope of litigants subject to RICO’s reach has grown and efforts to curb RICO’s application to business litigation have been unsuccessful.

In the George lawsuit, the borrowers contended that Bank and Servicer violated RICO by forming an unlawful enterprise with the goal of wrongfully denying HAMP loan modifications to qualified applicants. The borrowers alleged that Bank and Servicer accomplished this by denying receipt of loan modification requests and by misleading borrowers regarding the status of loan modification requests. The borrowers claimed that they were damaged by this conduct because of allegedly bigger principal balances, lengthier loan terms, larger interest obligations, and late fees. The borrowers further maintained that they suffered damaged credit reports. (There is no mention in the George opinion of the considerable expense incurred by Bank as the result of the borrowers’ defaults and the organic damage done to a credit report by virtue of defaulting on a home mortgage loan in the first place.)

Appellate Review
To raise a facially plausible RICO claim, the borrowers had to allege that there was more than one participant in the purportedly illegal enterprise. The Tenth Circuit ruled that the borrowers met this initial burden by pleading that Bank and Servicer were separate entities with a common purpose of limiting the number of successful HAMP loan modifications. This element of the Tenth Circuit’s ruling suggests that the exact same conduct would not have provided a basis for a RICO claim if Bank had serviced the loans in-house.

Next, the Tenth Circuit found that the borrowers sufficiently alleged that Servicer knowingly participated in Bank’s supposed scheme to limit the number of successful HAMP loan modifications. In making this determination, the Tenth Circuit rejected Servicer’s assertion that it was merely doing what loan servicers do in the normal course of the loan servicing business; and it had no choice as to the directions it followed when servicing a particular lender’s loans. However, such an argument may be successful later in the litigation and when based upon a more developed record. Given the procedural posture of this lawsuit (the motion to dismiss stage), all of the borrowers’ factual allegations were required to be taken as true by the trial court.

The Tenth Circuit then found that the borrowers sufficiently alleged that Bank and Servicer engaged in a pattern of racketeering activity. The borrowers asserted that Bank and Servicer made numerous false representations to the borrowers in that the defendants, purportedly, falsely stated the status of the HAMP loan modification applications; falsely represented that documents necessary for completing the HAMP process had not been received; and improperly allowed Servicer’s employees to use Bank titles and Bank addresses when communicating with the borrowers. In reaching its conclusion, the Tenth Circuit noted that the pleading rules at this preliminary stage of litigation are relaxed because the borrowers have not yet had the benefit of conducting discovery.

Closing
The lawsuit remains pending. There has not been a final decision of the applicability of RICO to Bank or Servicer. However, the Tenth Circuit’s opinion demonstrates how borrowers can use RICO in lender liability lawsuits and can avoid having such claims dismissed at an early phase of the litigation.

Copyright © 2017 USFN. All rights reserved.
Winter USFN Report

Note for consideration of the USFN Award of Excellence: This article is a "Feature."

 

This post has not been tagged.

Share |
Permalink
 
Page 6 of 29
1  |  2  |  3  |  4  |  5  |  6  |  7  |  8  |  9  |  10  |  11  >   >>   >| 
Membership Software Powered by YourMembership  ::  Legal